METROPOLITAN BANK AND TRUST COMPANY vs.

JUNNEL'S MARKETING
CORPORATION, PURIFICACION DELIZO, and BANK OF COMMERCE
G.R. No. 235511, June 20, 2018
Velasco Jr., J.:

FACTS:
JMC filed before the RTC a complaint for sum of money against Delizo, Bankcom and
Metrobank for unauthorized payment of checks.

Respondent Junnel's Marketing Corporation (JMC) has a current account with Metrobank from
which it draws checks to pay its different suppliers among which are Jardine Wines and Spirits
(Jardine) and Premiere Wines (Premiere).

JMC discovered an anomaly involving 11 crossed checks it has issued to the orders of Jardine and
Premiere and upon examination it was revealed that all the subject checks had been deposited
with Bancom but later on, JMC was able to confirm that neither of the said suppliers own a
Bankcom account.

On 30 April 2000, respondent Purificacion Delizo former accountant of JMC meanwhile execute
a handwritten letter addressed to one Nelvia Yusi, President of JMC that she stole several check
drawn against JMC current account and further admitted that a she, a certain Lita Bituin and an
unknown bank manager colluded to cause the deposit and encashing of the stolen checks and
shared in the proceeds thereof. Hence, JMC filed before the RTC a complaint for sum of money
against Delizo, Bankcom and Metrobank.

RTC and CA rendered a decision holding both Bankcom and Metrobank liable to JMC but
absolving Delizo from any liability because no direct evidence linking Delizo to the deeds was
presented. Moreover, Delizo's supposed handwritten confession must be discredited for being
made under duress, intimidation and threat. It was established during trial that Delizo was only
forced by Yusi to confess about the missing checks and to execute the handwritten confession.
Hence, Delizo must be absolved from any liability.

Both Metrobank and Bankcom argue that they should be absolve.

ISSUE:
Are Metrobank and Bankcom entitled to absolution?

RULING:
NO, Metrobank and Bankcom are neither entitled to absolution.

The instant case involves the unauthorized payment of valid. Bank of America is the leading
jurisprudence that illustrates the respective liabilities of a collecting bank and a drawee bank in
cases of unauthorized payment of valid checks.

Bank of America held that, in cases involving the unauthorized payment of valid checks, the
drawee bank becomes liable to the drawer for the amount of the checks but the drawee
bank, in turn, can seek reimbursement from the collecting bank.

The liability of the drawee bank is based on its contract with the drawer and its duty to charge to
the latter's accounts only those payables authorized by him. A drawee bank is under strict liability
to pay the check only to the payee or to the payee's order. When the drawee bank pays a person
other than the payee named in the check, it does not comply with the terms of the check and
violates its duty to charge the drawer's account only for properly payable items.

On the other hand, the liability of the collecting bank is anchored on its guarantees as the last
endorser of the check. Under Section 66 of the Negotiable Instruments Law, an endorser
warrants: (1) that the instrument is genuine and in all respects what it purports to be; (2) that the
indorser has good title to it; (3) that all prior parties had capacity to contract; and (4) that the
instrument is, at the time of the indorsement, valid and subsisting. If any of the foregoing
warranties turns out to be false, a collecting hank becomes liable to the drawee bank for payments
made under such false warranty.

In the present case, it is apparent that Metrobank had breached JMC's instructions when it paid
the value of the subject checks to Bankcom for the benefit of a certain Account No. 0015-32987-
7. The payment to Account No. 0015-32987-7 was unauthorized as it was established that the
said account does not belong to Jardine or Premiere, the payees of the subject checks, or to their
indorsees. In addition, causal or concurring negligence on the part of JMC had not been proven.
Under such circumstances, Metrobank is clearly liable to return to JMC the amount of the subject
checks.

Regarding Bankcom’s liability, it is clear that Bankcom had assumed the warranties of an
indorser when it forwarded the subject checks to PCHC for presentment to Metrobank. By such
presentment, Bankcom effectively guaranteed to Metrobank that the subject checks had been
deposited with it to an account that has good title to the same. This guaranty, however, is a
complete falsity because the subject checks were, in truth, deposited to an account that neither
belongs to the payees of the subject checks nor to their indorsees. Hence, as the subject checks
were paid under Bankcom's false guaranty, the latter-as collecting bank-stands liable to return the
value of such checks to Metrobank.

Based on the foregoing, the Court ruled: (1) Metrobank liable to return to JMC the entire amount
of the subject checks plus interest and (2) Bankcom liable to reimburse Metrobank the same
amount plus interest.

Doctrine:
Negotiable Instruments Law; The Rule on Sequence of Recovery in Cases of Unauthorized
Payment of Checks; the drawee bank becomes liable to the drawer for the amount of the
checks but the drawee bank, in turn, can seek reimbursement from the collecting bank.
 RCBC SAVINGS BANK vs. NOEL M. ODRADA
G.R. No. 219037, October 19, 2016
Carpio, J.:

Facts:
Odrada filed a collection suit against Lim and RCBC after the checks were dishonored by RCBC
upon Lim’s instruction.

Respondent Noel M. Odrada sold a secondhand Mitsubishi Montero to Teodoro L. Lim for One
Million Five Hundred Ten Thousand Pesos (P1,510,000). Of the total consideration, Six Hundred
Ten Thousand Pesos (P610,000) was initially paid by Lim and the balance of Nine Hundred
Thousand Pesos (P900,000) was financed by petitioner RCBC Savings Bank through a car loan
obtained by Lim.

After the issuance of the manager's checks and their turnover to Odrada but prior to the checks'
presentation, Lim notified Odrada in a letter dated 15 April 2002 that there was an issue regarding
the roadworthiness of the Montero. Among the issues with the Montero are hidden defects such
as misalignment of engine and signs of head on collision despite Odrada’s claim that the car
never had any collision. A meeting was requested with regard to the matter. However, Odrada did
not go to the slated meeting and instead deposited the manager's checks with International
Exchange Bank (Ibank) on 16 April 2002 and redeposited them on 19 April 2002 but the checks
were dishonored both times apparently upon Lim's instruction to RCBC. Consequently, Odrada
filed a collection suit against Lim and RCBC.

In his Answer, Lim alleged that the cancellation of the loan was at his instance, upon discovery of
the misrepresentations by Odrada about the Montero's roadworthiness. On the other hand, RCBC
contended that the manager's checks were dishonored because Lim had cancelled the loan.

RTC ruled in favor of Odrada which was affirmed by CA and subsequently denied the motion for
reconsideration filed. RCBC alone filed the petition for review on certiorari before the Court.
Thus, the decision of the Court of Appeals became final and executory as to Lim.

Issue:
Does RCBC, the drawee bank of a manager’s check, has the option of refusing payment by
interposing a personal defense of the purchaser of the manager’s check?

Ruling:
Yes, RCBC may refuse to pay manager’s check.

As a general rule, the drawee bank is not liable until it accepts. The drawee bank, as a result, has
the unconditional obligation to pay a manager's check to a holder in due course irrespective of
any available personal defenses. However, while this Court has consistently held that a manager's
check is automatically accepted, a holder other than a holder in due course is still subject to
defenses.

Accordingly, the drawee bank may refuse to pay the manager's check by interposing a personal
defense of the purchaser. Hence, the resolution of the present case requires a determination of the
status of Odrada as holder of the manager's checks.

Section 52 of the Negotiable Instruments Law defines a holder in due course as one who has
taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument
or defect in the title of the person negotiating it.

To be a holder in due course, the law requires that a party must have acquired the instrument in
good faith and for value.

In the present case, Odrada attempted to deposit the manager's checks a day after Lim had
informed him that there was a serious problem with the Montero. Instead of addressing the issue,
Odrada decided to deposit the manager's checks. Odrada's actions do not amount to good faith.
Clearly, Odrada failed to make an inquiry even when the circumstances strongly indicated that
there arose, at the very least, a partial failure of consideration due to the hidden defects of the
Montero. Odrada's action in depositing the manager's checks despite knowledge of the Montero's
defects amounted to bad faith. Moreover, when Odrada redeposited the manager's checks on 19
April 2002, he was already formally notified by RCBC the previous day of the cancellation of
Lim's auto loan transaction. Therefore, RCBC may refuse payment by interposing a personal
defense of Lim - that the title of Odrada had become defective when there arose a partial failure
or lack of consideration.

The Court ruled that RCBC cannot be made liable because it acted in good faith in carrying out
the stop payment order of Lim who presented to RCBC the complaint letter to Odrada when Lim
issued the stop payment order.

Doctrine:
Negotiable Instruments Law; The drawee bank of a manager’s check may interpose
personal defenses of the purchaser of the manager’s check if the holder is not a holder in
due course.