Phil. National Bank v.

Rodriguez

FACTS:

1. Spouses Rodriguez were clients of petitioner, PNB.

2. They were engaged in an informal lending business.

3. In relation to that, they have a discounting agreement with PEMSLA, an association of PNB
employees.

4. PEMSLA regularly grants loan to its members.

5. However, they have a policy to not allow loans for members with outstanding debts.

6. Some PEMSLA officials devised a scheme to subvert this policy. They took out loan in the name
of its members who don’t have knowledge or consent to such.

7. The PEMSLA checks issued for the granted loan were then given to the spouses for
rediscounting and deposited in their account.

8. In return, the spouses will issue their personal checks (Rodriguez checks) in the name of the
members and deliver it to a PEMSLA officer

9. These checks were deposited directly by PEMSLA to its savings account without any
endorsement from the payees.

10. The scheme was facilitated by Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in
the PNB Branch.

11. When PNB learned of this scheme, they closed the account of PEMSLA.

12. The PEMSLA checks deposited by the spouses were returned or dishonored for the reason of
“Account Closed”.

13. The Rodriguez checks were deposited as usual to the PEMSLA account. The amounts were
debited from the spouses account.

14. These resulted losses to spouses due to the rediscounting transactions.

ISSUE/S:

Whether the subject checks are payable to order or bearer

RULING:

Yes, the checks are payable to order.

RATIONALE:

Let us look at these two provisions which determines whether an instrument is to order or to bearer/

Important to classify when an instrument is to order or to bearer when an instrument is payable to

order, it requires an indorsement from the payee or holder before it may be negotiated. On the other
hand, an instrument payable to bearer does not require an indorsement. It is negotiable by mere
delivery.

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If we look specifically under Section 9 C, an instrument that is payable to the order of a fictitious or non-
existing person, and such fact is known to the person making it so payable, it shall be considered as
payable to bearer.

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For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend
for the named payees to be part of the transaction involving the checks. They only argue that the payees
were fictitious since they do not have knowledge or consent of such transaction, the instrument shall be
payable to bearer, negotiable by mere delivery

The checks issued by the spouses were payable to specified payees. The loans granted by PEMSLA were
taken out to actual members although without their knowledge or consent.

Considering that spouses rodriguez were transacting with PEMSLA and not the individual payees, it is
understandable that they relied on the information given by the officers of PEMSLA that the payees
would be receiving the checks

PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the named
payees were the intended recipients of the checks ’proceeds.

PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers
accepted the checks for deposit to the PEMSLA account even without any indorsement from the named
payees. It bears stressing that order instruments can only be negotiated with a valid indorsement.

Banking industry is imbued with public interest. Banks are minded to treat their customer’s accounts
with utmost care, confidence, and honesty. PNB as the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the check strictly in accordance with the drawer’s
instructions.

The bank did not pay the checks in strict accordance with the instructions of the drawers, respondents-
spouses. The checks were presented to PNB for deposit by a representative of PEMSLA absent any type
of indorsement, forged or otherwise. PNB was negligent in the selection and supervision of its
employees. PNB must be extra vigilant in the management and supervision of their employees