7) Bank of America NT & SA v. Philippine Racing Club (PRCI), G.R. No. 150228, July
30, 2009

Q: Is the bank liable for encashing a check with obvious discrepancies?
A: Yes. There is no dispute that the signatures appearing on the subject checks were
genuine signatures of the respondents authorized joint signatories. However, the
presence of the irregularities in each check should have alerted the petitioner to be cautious
before proceeding to encash them which it did not do.

Although not in the strict sense material alterations, the misplacement of the
typewritten entries for the payee and the amount on the same blank and the
repetition of the amount using a check writer were glaringly obvious irregularities
on the face of the check. Clearly, someone made a mistake in filling up the checks
and the repetition of the entries was possibly an attempt to rectify the mistake.
Also, if the check had been filled up by the person who customarily accomplishes
the checks of respondent, it should have occurred to petitioners employees that it
would be unlikely such mistakes would be made. All these circumstances should
have alerted the bank to the possibility that the holder or the person who is
attempting to encash the checks did not have proper title to the checks or did not
have authority to fill up and encash the same. As noted by the CA, petitioner could
have made a simple phone call to its client to clarify the irregularities and the loss
to respondent due to the encashment of the stolen checks would have been

It is well-settled that banks are engaged in a business impressed with public
interest, and it is their duty to protect in return their many clients and depositors
who transact business with them. They have the obligation to treat their clients
account meticulously and with the highest degree of care, considering the fiduciary
nature of their relationship. The diligence required of banks, therefore, is more than
that of a good father of a family.


PRCI maintains several accounts, one of which is with petitioner BA. The
authorized joint signatories with respect to said account were PRCIs President
(Antonia Reyes) and VP for Finance (Gregorio Reyes). Both of them were
scheduled to go out of the country sometime later in connection with the
corporation‘s business.

In order not to disrupt operations in their absence, they pre-signed several checks
relating to their account with BA. The intention was to insure continuity of PRCI‘s
operations by making available cash/money especially to settle obligations that
might become due. These checks were entrusted to the accountant with instruction
to make use of the same as the need arose. The internal arrangement was, in the
event there was need to make use of the checks, the accountant would prepare
the corresponding voucher and thereafter complete the entries on the pre-signed

However, it turned out later that a John Doe (later found out to be Clarita Mesina,
an employee of PRCI) presented to BA for encashment 2 checks of PRCI, each
with an indicated value of P110,000. These checks were among those pre-signed
by the authorized signatories of PRCI.

The 2 checks had similar entries with similar infirmities and irregularities. On
the space where the name of the payee should be indicated the following 2-line
entries were instead typewritten: on the upper line was the word ―CASH while the
lower line had the following typewritten words, viz: ―ONE HUNDRED TEN

Q: In defense of its cashier/tellers questionable action, petitioner insists that
pursuant to Sections 14 and 16 of the NIL, it could validly presume, upon
presentation of the checks, that the party who filled up the blanks had authority and
that a valid and intentional delivery to the party presenting the checks had taken
place. Thus, in petitioners view, the sole blame for this debacle should be shifted to
respondent for having its signatories pre-sign and deliver the subject checks.
Petitioner argues that there was indeed delivery in this case because, following
American jurisprudence, the gross negligence of respondents accountant in
safekeeping the subject checks which resulted in their theft should be treated as a
voluntary delivery by the maker who is estopped from claiming non-delivery of the
instrument. Is this contention correct?
A: No. Petitioners contention would have been correct if the subject checks were correctly
and properly filled out by the thief and presented to the bank in good order. In that instance,
there would be nothing to give notice to the bank of any infirmity in the title of the holder of
the checks and it could validly presume that there was proper delivery to the holder. The
bank could not be faulted if it encashed the checks under those circumstances. However,
the undisputed facts plainly show that there were circumstances that should have alerted
the bank to the likelihood that the checks were not properly delivered to the person who
encashed the same.

Pay To The Order Of:

Despite all these irregularities/infirmities and the substantial amount involved, BA
never even verified or confirmed the legitimacy of the checks. Not even a
verification process or a phone call was made. Neither was there a transaction by
PRCI that calls for payment of P220,000. Hence PRCI demanded payment from
BA which fell to deaf-ears. Hence PRCI filed the complaint.

ISSUES: whether the proximate cause of the wrongful encashment of the checks in
question was due to (a) petitioners failure to make a verification regarding the said checks
with the respondent in view of the misplacement of entries on the face of the checks or (b)
the practice of the respondent of pre-signing blank checks and leaving the same with its
HELD: Petition is dismissed with modifactions


Henry) which was engaged in the business of processing and distributing bunker fuel.T. that the bank was not a holder in due course as it should not have discounted them for being "crosses checks. in turn. petitioner cannot evade responsibility for the loss by attributing negligence on the part of respondent because. these corporation issued postdated checks.COM. b.T. Riverside Mills Corporation (Riverside). Henry & Co. is ORDERED to pay.   Cement). Henry & Co. purportedly a clerk in respondents accounting department.  In the case at bar. Inc. Henry. it is but just that respondent shares in the responsibility for the loss. notwithstanding such fact. with pre-deducted interest. if not for the fortunate happenstance that the thief failed to properly fill up the subject checks. Considering that respondent knowingly took the risk that the pre-signed blank checks might fall into the hands of wrongdoers. o So were the checks of Riverside and Kanebo. petitioner Hi-Cement Corporation is discharged from any liability. Henry was able to re-discount its clients' checks (with deed of assignment) with the bank. must they bear a certain percentage of the loss? A: Yes. No. In instances where both parties are at fault. its general manager and treasurer were not authorized to issue the postdated crossed checks.T. this Court has consistently applied the doctrine of last clear chance in order to assign liability. o For their purchases. Hi-Cement filed an answer alleging that: a. we see no reason to depart from the finding in the assailed CA Decision that the subject checks are properly characterized as incomplete and undelivered instruments thus making Section 15 of the NIL applicable in this case. the assailed decision of the Court of Appeals in CA-G. Correct? A: Not entirely. was able to re-discount with respondent. petitioner had the final opportunity to avert the injury that befell the respondent. Henry a credit facility known as "Purchase of Short Term Receivables. Henry to execute a promissory note and a deed of assignment bearing the conformity of the client to the re-discounting.  Q: Petitioner insists that respondents are to take blame because of their careless acts of leaving with their accountant pre-signed blank checks.R. 8) Hi-Cement Corp.T. even if we assume that both parties were guilty of negligent acts that led to the loss. Both the trial court and the CA concluded that Hi-Cement authorized its general manager and treasurer to issue the subject postdated crossed checks. Upon appeal." The lower court decided in favor of the bank and against E. Hi-Cement (including its general manager and treasurer). respondent supposedly had control and supervision over its own employee. CV No. This gives the Court more reason to allocate part of the loss to respondent. Verily. Riverside and Kanebo. 31600 is hereby AFFIRMED with MODIFICATION. ISSUE: Did CA err in affirming RTC? HELD: WHEREFORE.  Indeed. [aka: to encash. petitioner will still emerge as the party foremost liable in this case. (Kanebo).T. Hi-Cement. E. respondent could not be considered a holder in due course. 40% should be shouldered by the respondents  We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from respondents accountant turned out to be another employee. the postdated checks of its clients] o For every transaction. (E. Inc. and c. It should have occurred to respondents officers and managers that the pre-signed blank checks could fall into the wrong hands as they did in this case where the said checks were stolen from the company accountant to whom the checks were entrusted. 132403 (2007) Facts:  Spouses Enrique and Lilia Tan were controlling stockholder of E. Q: Does the general manager and treasurer of hi-cements have authority to issue the postdated crossed checks? A: Yes. As the employer of the thief. Henry which the latter. Accordingly. E.R. However. Among the company's customers were Hi-Cement Corporation (Hi- 2 . the bank required E. and Kanebo Cosmetics Philippines.T.. petitioners own operations manager admitted that they could have called up the client for verification or confirmation before honoring the dubious checks. o From 1979 to 1981. even if we concur that the latter was indeed negligent in pre-signing blank checks. Insular Bank of Asia and America (the Bank) granted E. that the deed of assignment bore only the signature of the treasurer. They both held that Hi-Cement was already estopped from denying such authority since it never objected to the signatories' issuance of all previous checks to E." o In this arrangement.T.  In all.T. ALL THE CHECKS were dishonored o 20 checks of Hi-Cement (which were crossed and which bore the restriction "deposit to payee's account only") were dishonored. V. the spouses Tank. Henry and the bank were into "re-discounting" of checks. However. We agree with the lower courts that both the general manager and treasurer of Hi-Cement were authorized to issue the subjects checks.T. the former had the last clear chance to avoid the loss. Henry. However.    Q: In light of respondent’s contributory negligence. NIL. respondent would expectedly take the blame for the entire loss since the defense of forgery of a drawers signature(s) would be unavailable to it. To reiterate. The bank filed a complaint for sum of money against E. Riverside and Kanebo. Insular Bank G. the Court of Appeals affirmed the decision of the lower court in toto. we do agree with petitioner that respondents officers practice of pre-signing of blank checks should be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation of businesses.  Nevertheless.T. Only petitioner E.

COM. the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due course. Intermediate Appellate Court.T. The judgment however conditioned the acquittal with the following pronouncement: This is not however to release Steelweld Corporation from its liability under Sec. i. the holder is not a holder in due course.61 o but the latter failed to pay for these  Later. NIL.e. when it presented the checks for deposit. they could not be further negotiated to it) (d) at the time it was negotiated to him. Q: Was there a proper presentment to respondent bank to make Hi-Cement liable? (in other words.T. wire to RYL Construction. Such party may recover from the party who indorsed/encashed the checks if the latter has no valid excuse for refusing payment.  As a banking institution. the liability did not attach to the drawer of the checks. hence. he is not a holder in due course. result. Inc. he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it  Since respondent completely disregarded a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to it as only the treasurer's signature appeared on the deed of assignment. Apparently.  Stelco filed a complaint for recovery of a sum of money against RYL and Steelweld  RYL could no longer be located so Steelweld was the only one that filed an Answer Q: How can a person who receives a cross-check be a HDC? A: Determine the purpose for which the cross-check was given. Q: Does this mean that a person who is not a HDC cannot recover at all? In this case. Since E. Henry that re-discounted Hi-Cement's checks and received their value from respondent. respondent's claim that it acted in good faith when it accepted and discounted Hi-Cements postdated crossed checks from E. CA June 1992 Facts:  STELCO sold quantities of steel bars and rolls of G. the President of RYL (Lim) asked his friend (Limson) to accommodate the former by issuing a check. Henry had no justification to refuse payment. claiming that it was a holder for value because it had possession of the check. there was no proper presentment. Its business is impressed with public interest. which was made out in the amount the same as the obligation due to Stelco  The check was a company check (Steelweld Corporation of the Phil. there was no doubt that it was E. jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank.  Four years after the issuance of the check.) where Limson was the president. (SIHI) v." it being merely for accommodation purposes. RYL gave the check to Armstrong Industries. who can the bank. for P126. in the absence of due presentment. otherwise. As a 3 . o It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorsers title to the check or the nature of his possession. thus. it was not expected to be careless and negligent. We ruled that: The three subject checks in the case at bar had been crossed which could only mean that the drawer had intended the same for deposit only by the rightful person. however. In the case at bar. Good faith becomes inconsequential amidst proof of respondent's grossly negligent conduct in dealing with the subject checks.  Bataan Cigar Case (case where cross checks sold on discount as well): In order to preserve the credit worthiness of checks. hence. (b) the check may be negotiated only once to one who has an account with a bank [and]. 9) Stelco Marketing Coproration v. is the drawer of the postdated crossed checks liable to the holder who was deemed not a holder in due course?) A: No.T. o They were acquitted on the ground that the check in question was not issued by the drawer "to apply on account for value. the holder (although not a HDC) of the checks. Q: Is the respondent bank a HDC? (with regard to the discounting arrangement) A: No. the holder is declared guilty of gross negligence amounting to legal absence of good faithand as such. the payee named therein. Inc. we deemed that its presentment to the drawee bank was not proper. To wit: (c) he took it in good faith and for value  Since. go after? A: The NIL does not absolutely bar a holder who is not a holder in due course from recovering on the checks. Thus. the drawer did not become liable. it was not the payee who presented the same for payment and therefore.  Later. one way or another. it behooved respondent to act with extraordinary diligence in every transaction. the consensus of authority is to the effect that the holder of the check is not a holder in due course.I. specially so where the checks it dealt with were crossed. Armstrong deposited the check at its bank but this was dishonored due to insufficiency of funds  The drawers were charged by Armstrong with a violation of BP 22 . the check came to the hands of Stelco..  In State Investment House. the last two requirements were not met. (c) the act of crossing the checks serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. it should pay respondent.  Here.  In the case at bar. SIHI rediscounted crossed checks and was declared not a holder in due course. 29 of the Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim. Failing in this respect. w/c sought to enforce payment.  Absent any of the elements set forth in Section 52. Henry (as payee therein) fails to convince us. and the liability did not attach to the drawer. which is described as the “sister coproration” and “manufacturing arm” of Stelco  Indorsed by Armstrong and RYL.859. the subject checks were crossed and bore restrictions that they were for deposit to payee's account only.

to be "used as collateral for another obligation. This is because Section 29 of the NIL preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding that "such holder. (2) they had notice that it had already been dishonored. nor a holder in due course because (1) the check was already overdue several years back. 765380 ever dated back to any time before the instrument's presentment and dishonor. knew him to be only an accommodation party. lack of notice of any infirmity in the instruments or defect in title of the persons negotiating it."  In this case. it gives rise to no liability on the part of the maker or drawer and indorsers. Lim. the check’s intended indorsee was Armstrong." and it did not take the check "in good faith and for value.  Q: Is STELCO a HDC? A: No.. o The trouble is. 4 . at any time before the dishonor of the check. at the time of taking the instrument. R. It does not meet two of the essential requisites prescribed by the statute. and (3) they did not take the check in good faith and for value. indorsee or depositor thereof o The record does show that after the check had been deposited and dishonored. has no application. o There is no evidence whatsoever that the check was ever given to it.Y. or payment. the fourth condition. and without notice that it had been previously dishonored. or any communication of any sort between STEELWELD and STELCO. the defendant Steelweld thru its President Peter Rafael Limson admitted to have issued a check payable to cash in favor of his friend Romeo Lim who was the President of RYL Construction by way of accommodation. there is no evidence whatever that STELCO's possession of Check No. the petition is DENIED and the Decision of the Court of Appeals affirmed Q: Can a person be a HDC despite knowing that the party is only an accommodation party? A: Yes. Stelco was never a party to the instrument. STELCO cannot be deemed a holder of the check for value.COM.e. several years after the dishonor of the check. however. (5) the check was dishonored. and was able. (2) it was given only by way of accommodation. STELCO came into possession of it in some way. or for any other purpose before it was presented for payment. In sum." (3) in breach of the agreement. The record does not show any intervention or participation by STELCO in any manner of form whatsoever in these transactions. Stelco never became a holder for value. or between either of them and Armstrong Industries. is utterly inconsequential or insignificant. i. it does not make the possessor a holder for value within the meaning of the law. Lim indorsed the check to Armstrong in payment of obligation. after indorsing it."  What the record shows is that: (1) the STEELWELD company check in question was given by its president to R. (4) Armstrong deposited the check to its account. Under the NIL an accommodation party is liable. Q: What is the effect of possession of a negotiable instrument after presentment and dishonor? A: Possession of a negotiable instrument after presentment and dishonor. It is also neither a holder for value. NIL. o Nowhere in the check itself does the name of Stelco Marketing appear as payee.Y.  The RTC ruled in favor of Stelco but the CA reversed this ISSUE: WON STELCO ever became a holder in due course HELD: No. or indorsed to it in any manner or form in payment of an obligation or as security for an obligation. As regards an accommodation party (such as STEELWELD). It did not become "the holder of it before it was overdue. WHEREFORE.