Case Name: ALLIED BANKING CORPORATION vs.

LIM SIO WAN, By: Joyce

METROPOLITAN BANK AND TRUST CO. Topic: Kinds of Indorsement
GR No. 133179
Date: March 27, 2008
Facts

 Nov. 14, 1983 - respondent Lim deposited with petitioner Allied a money market placement of P1,152,597.35 for a term
of 31 days to mature on December 15, 1983
 On Dec. 5, 1983, a person claiming to be Lim called up an officer of Allied, and instructed to pre-terminate Lim’s money
market placement, to issue a manager’s check representing the proceeds of the placement, and to give the check to one
Deborah Dee Santos who would pick up the check
 The bank issued Manager’s Check representing the proceeds of Lim’s money market placement in the name of the latter,
as payee. The check was cross-checked “For Payee’s Account Only” and given to Santos.
 Thereafter, the manager’s check was deposited in the account of Filipinas Cement Corporation (FCC) at Metrobank with
the forged signature of Lim as indorser.
 Prior to the aforesaid event, on Sept. 21, 1983, FCC had deposited a money market placement for P2M with Producers
Bank. Santos was the money market trader assigned to handle FCC’s account
 When the placement matured, FCC demanded the payment of the proceeds of the placement.
 On December 5, 1983 (the same date that Allied received the phone call instructing to pre-terminate Lim’s placement),
the Allied manager’s check in the name of Lim was deposited with Metrobank in the account of FCC, purportedly
representing the proceeds of FCC’s money market placement with Producers Bank.
 To clear the check and in compliance with the Philippine Clearing House Corporation(PCHC) rules, Metrobank stamped
a guaranty on the check, which reads: “All prior endorsements and/or lack of endorsement guaranteed.”
 Upon the presentment of the check, Allied funded the check even without checking the authenticity of Lim’s purported
indorsement. Thus, the amount on the face of the check was credited to the account of FCC.
 On December 14, 1983, upon the maturity date of the first money market placement, Lim went to Allied to withdraw it.
She was then informed that the placement had been pre-terminated upon her instructions. She denied giving any
instructions and receiving the proceeds.
 Lim sent a demand letter to Allied asking for the payment of the placement. Allied refused to pay, claiming that the latter
had authorized the pre-termination and its subsequent release to Santos.
 Lim filed with the RTC a complaint against Allied to recover the proceeds of money market placement.
 RTC rendered a decision against Allied. It ordered Allied to pay Lim the amount of P1,158,648.49 plus interest until
fully paid.
 CA modified the RTC’s decision. It ordered Allied to pay 60% and Metrobank 40% of the amount of P1,158,648.49
plus 12% interest until fully paid.
Issue/s
WON Metrobank should be ultimately liable as guarantor of all endorsement on the check, it being the collecting bank.-NO
Ruling:
Pursuant to Sec. 66 in relation to Sec. 65 of the NIL, the warranty “that the instrument is genuine and in all respects what it
purports to be” covers all the defects in the instrument affecting the validity thereof, including a forged indorsement. Thus, the
last indorser will be liable for the amount indicated in the negotiable instrument even if a previous indorsement was forged.

Precedents show that the court held in a line of cases that 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. However, this general rule is subject to exceptions. One such exception is when the issuance of the
check itself was attended with negligence. Thus, where the checks were negligently issued, this Court held the institution issuing
the check just as liable as or more liable than the collecting bank.

In the instant case, the trial court correctly found Allied negligent in issuing the manager’s check and in transmitting it to Santos
without even a written authorization. In fact, Allied did not even ask for the certificate evidencing the money market placement
or call up Lim at her residence or office to confirm her instructions. Both actions could have prevented the whole fraudulent
transactions. Allied’s negligence must be considered as the proximate cause of the resulting loss. To reiterate, had Allied exercised
the diligence due from a financial institution, the check would not have been issued and no loss of funds would have resulted. In
fact, there would have been no issuance of indorsement had there been no check in the first place.

The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the check. When Metrobank indorsed
the check in compliance with the PCHC Rules and Regulations without verifying the authenticity of Lim’s indorsement and when
it accepted the check despite the fact that it was cross-checked payable to payee’s account only, its negligent indorsement
contributed to the easier release of Lim’s money and perpetuation of the fraud. Given the relative participation of Allied and
Metrobank, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as
ruled by the CA, must be upheld.

Doctrine Notes
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides: -Two (2) money market placements were
deposited by Lim but this case only
Section 65. Warranty where negotiation by delivery, so forth.—Every person involves the first money placement
negotiating an instrument by delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be; -Money Market - is a market dealing in
XXXX standardized short-term credit
instruments (involving large amounts)
Section 66. Liability of general indorser.—Every indorser who indorses without where lenders and borrowers do not deal
qualification, warrants to all subsequent holders in due course; directly with each other but through a
a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next middle man or dealer in open market. In a
preceding section; money market transaction, the investor is
XXXX a lender who loans his money to a
borrower through a middleman or dealer.
In the case at bar, the money market
transaction in the nature of a loan