Facts: 1. Plaintiff PRCI is a domestic corporation which maintains a current account with petitioner Bank of America. Its authorized signatories are the company President and Vice-President. By virtue of a travel abroad for these officers, they pre-signed checks to accommodate any expenses that may come up while they were abroad for a business trip. The said pre-signed checks were left for safekeeping by PRCs accounting officer.
On the space where the name of the payee should be indicated (Pay To The Order Of) 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 THOUSAND PESOS ONLY.
2. Clearly there was an irregularity with the filling up of the blank checks as both showed similar infirmities and irregularities and yet, the petitioner bank did not try to verify with the corporation and proceeded to encash the checks.
3. PRC filed an action for damages against the bank. The lower court awarded actual and exemplary damages. On appeal, the CA affirmed the lower court’s decision and held that the bank was negligent. Hence this appeal. Petitioner contends that it was merely doing its obligation under the law and contract in encashing the checks, since the signatures in the checks are genuine.
Issues: (1) WON the bank was negligent
(2) WON Section 14 of the Negotiable Instruments Law must be applied
Petitioner insists that it merely fulfilled its obligation under law and contract when it encashed the aforesaid checks. Invoking Sections 126[7] and 185[8] of the Negotiable Instruments Law (NIL), petitioner claims that its duty as a drawee bank to a drawer-client maintaining a checking account with it is to pay orders for checks bearing the drawer-clients genuine signatures. Thus, pursuant to the said obligation, the drawee bank has the duty to determine whether the signatures appearing on the check are the drawer-clients or its duly authorized signatories. If the signatures are genuine, the bank has the unavoidable legal and contractual duty to pay. If the signatures are forged and falsified, the drawee bank has the corollary, but equally unavoidable legal and contractual, duty not to pay.
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.
Indeed, it is highly uncommon for a corporation to make out checks payable to CASH for substantial amounts such as in this case. If each irregular circumstance in this case were taken singly or isolated, the banks employees might have been justified in ignoring them. However, the confluence of the irregularities on the face of the checks and circumstances that depart from the usual banking practice of respondent should have put petitioners employees on guard that the checks were possibly not issued by the respondent in due course of its business. Petitioners subtle sophistry cannot exculpate it from behavior that fell extremely short of the highest degree of care and diligence required of it as a banking institution.
Sec. 14. Blanks, when may be filled. Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.
Sec. 16, Delivery; when effectual; when presumed. Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties, and as regards a remote party other than a holder in due course, the delivery in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing as the case may be; and in such case the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder of a due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved.
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.
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. In all, 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 [20] of the NIL applicable in this case.
The Digest Site 