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Traders Royal Bank V.

Philippines Network Inc. (2002)
FACTS: Traders (sold 3 managers check)> RPN,IBC,BBC (received
by <Mrs. Vera) --(not received) BIR-- > SBTC (deposited by
unknown persons)

April 15, 1985: Bureau of Internal Revenue (BIR) assessed

Radio Philippines Network (RPN), Intercontinental
Broadcasting Corporation (IBC), and Banahaw Broadcasting
Corporation (BBC) of their tax obligations for the
taxable years 1978 to 1983.

March 25, 1987: Mrs. Lourdes C. Vera, RPN,IBC,BBC

comptroller, sent a letter to the BIR requesting settlement of
their tax obligations which was granted

June 26, 1986: RPN, IBC and BBC purchased from Traders 3
managers checks to be used as payment for their tax

Traders, through Aida Nuez, turned over the checks

to Mrs. Vera who was supposed to deliver them to the
BIR in payment

September, 1988: BIR again assessed plaintiffs for their tax

liabilities for the years 1979-82. It was discovered the 3
managers checks were never delivered nor paid to the BIR by
Mrs. Vera. The checks were presented for payment by
unknown persons to Security Bank and Trust Company

BIR issued warrants of levy, distraint and garnishment against


They were constrained to enter into a compromise and

paid BIR P18,962,225.25 in settlement

Traders sent letters to RPN and SBTC, demanding that the

amounts covered by the checks be reimbursed or credited to
their account
RTC: favored Traders against RPN and SBTC

CA: absolved SBTC and held Traders solely liable

SBTC denies liability on the ground that it had no

participation in the negotiation of the checks

ISSUE: W/N Traders should solely bare the loss for its negligence

HELD: YES. CA affirmed.

if a bank pays a forged check, it must be considered as paying

out of its funds and cannot charge the amount so paid to the
account of the depositor

Despite the fraud, Traders paid the 3 checks in the total

amount of P9,790,716.87

primary duty of Traders to know that the check was duly

indorsed by the original payee and, where it pays the amount
of the check to a third person who has forged the signature of
the payee, the loss falls upon it who cashed the check.

only remedy is against the person to whom it paid the


It should be noted further that one of the subject checks was


The crossing of one of the subject checks should have put

petitioner on guard

it was duty-bound to ascertain the indorsers title to

the check or the nature of his possession.

effects of a crossed check:

(a) the check may not be encashed but only deposited in

the bank; (b) the check may be negotiated only once to
one who has an account with a bank and

(c) the act of crossing the check serves as a 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, otherwise, he is not a
holder in due course

A collecting bank which indorses a check bearing a forged

indorsement and presents it to the drawee bank guarantees all
prior indorsements, including the forged indorsement itself,
and ultimately should be held liable therefor. However, it is
doubtful if the subject checks were ever presented to and
accepted by SBTC so as to hold it liable as a collecting bank,
as held by the Court of Appeals.