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608 SUPREME COURT REPORTS ANNOTATED

Traders Royal Bank vs. Radio Philippines Network, Inc.

*
G.R. No. 138510. October 10, 2002.

TRADERS ROYAL BANK, petitioner, vs. RADIO

PHILIPPINES NETWORK, INC., INTERCONTINENTAL
BROADCASTING CORPORATION and BANAHAW
BROADCASTING CORPORATION, through the BOARD
OF ADMINISTRATORS, and SECURITY BANK AND
TRUST COMPANY, respondents.

Banks and Banking; Negotiable Instruments; Checks; When 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.—“When a signature is forged or made without the
authority of the person whose signature it purports to be, it is
wholly inoperative, and no right to retain the instrument, or to
give a discharge therefor, or to enforce payment thereof against
any party thereto, can be acquired through or under such
signature.” Consequently, 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.

______________

* THIRD DIVISION.

609

VOL. 390, OCTOBER 10, 2002 609

Traders Royal Bank vs. Radio Philippines Network, Inc.

Same; Same; Same; Where a check is drawn payable to the

order of one person and is presented for payment by another and
purports upon its face to have been duly indorsed by the payee of
the check, it is the primary duty of the bank to know that the check
was duly indorsed by the original payee and, where it pays the

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amount of the check to a third person who has forged the signature
of the payee, the loss falls on such bank who cashed the check.—In
the instant case, the 3 checks were payable to the BIR. It was
established, however, that said checks were never delivered or
paid to the payee BIR but were in fact presented for payment by
some unknown persons who, in order to receive payment therefor,
forged the name of the payee. Despite this fraud, petitioner TRB
paid the 3 checks in the total amount of P9,790,716.87. Petitioner
ought to have known that, where a check is drawn payable to the
order of one person and is presented for payment by another and
purports upon its face to have been duly indorsed by the payee of
the check, it is the primary duty of petitioner 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 petitioner who cashed
the check. Its only remedy is against the person to whom it paid
the money.
Same; Same; Same; Crossed Checks; The crossing of a check
should put a bank on guard; The effects of a crossed check are that
(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.—It should be noted further that one of the subject
checks was crossed. The crossing of one of the subject checks
should have put petitioner on guard; it was duty-bound to
ascertain the indorser’s title to the check or the nature of his
possession. Petitioner should have known the 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. By encashing in favor of unknown persons checks
which were on their face payable to the BIR, a government agency
which can only act only through its agents, petitioner did so at its
peril and must suffer the consequences of the unauthorized or
wrongful endorsement. In this light, petitioner TRB cannot
exculpate itself from liability by claiming that respondent
networks were themselves negligent.

610

610 SUPREME COURT REPORTS ANNOTATED

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Traders Royal Bank vs. Radio Philippines Network, Inc.

Same; Same; Same; A bank is engaged in a business

impressed with public interest and it is its duty to protect its many
clients and depositors who transact business with it.—A bank is
engaged in a business impressed with public interest and it is its
duty to protect its many clients and depositors who transact
business with it. It is under the obligation to treat the accounts of
the depositors and clients with meticulous care, whether such
accounts consist only of a few hundreds or millions of pesos.
Same; Same; Same; 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.—
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.
Same; Same; Same; A bank who did not pay the rightful
holder or other person or entity entitled to receive payment has no
right to reimbursement.—Since TRB did not pay the rightful
holder or other person or entity entitled to receive payment, it has
no right to reimbursement. Petitioner TRB was remiss in its duty
and obligation, and must therefore suffer the consequences of its
own negligence and disregard of established banking rules and
procedures.

PETITION for review on certiorari of a decision of the

Court of Appeals.

The facts are stated in the opinion of the Court.

          Herrera, Teehankee, Faylona and Cabrera Law
Offices for petitioner.
          Mercado, Aguillardo & Aceron Law Firm for Radio
Philippines Network, Inc., Intercontinental Broadcasting
Corp. and Banahaw Broadcasting Corp.
     Castro, Yan, Biñas, Ortile, Samillano & Mangrobang
for Security Bank Corp.
611

VOL. 390, OCTOBER 10, 2002 611

Traders Royal Bank vs. Radio Philippines Network, Inc.

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CORONA, J.:

Petitioner seeks
1
the review and prays for the reversal of
the Decision of April 30, 1999 of Court of Appeals in CA-
G.R. CV No. 54656, the dispositive portion of which reads:

“WHEREFORE, the appealed decision is AFFIRMED with

modification in the sense that appellant SBTC is hereby absolved
from any liability. Appellant TRB is solely liable to the appellees
for the damages and costs of suit specified in the dispositive
portion of the appealed
2
decision. Costs against appellant TRB.
SO ORDERED.”

As found by the Court of Appeals, the antecedent facts of

the case are as follows:

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

plaintiffs Radio Philippines Network (RPN), Intercontinental
Broadcasting Corporation (IBC), and Banahaw Broadcasting
Corporation (BBC) of their tax obligations for the taxable years
1978 to 1983.
On March 25, 1987, Mrs. Lourdes C. Vera, plaintiffs’
comptroller, sent a letter to the BIR requesting settlement of
plaintiffs’ tax obligations.
The BIR granted the request and accordingly, on June 26,
1986, plaintiffs purchased from defendant Traders Royal Bank
(TRB) three (3) manager’s checks to be used as payment for their
tax liabilities, to wit:

Check Number Amount

30652 P4,155,835.00
30650 3,949,406.12
30796 1,685,475.75

Defendant TRB, through Aida Nuñez, TRB Branch Manager at

Broadcast City Branch, turned over the checks to Mrs. Vera who
was supposed to deliver the same to the BIR in payment of
plaintiffs’ taxes.
Sometime in September, 1988, the BIR again assessed
plaintiffs for their tax liabilities for the years 1979-82. It was then
they discovered that

______________

1 Penned by Associate Justice Angelina Sandoval-Gutierrez and concurred in by

Associate Justices Romeo A. Brawner and Martin S. Villarama, Jr. (Ninth
Division).
2 Rollo, p. 74.

612

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612 SUPREME COURT REPORTS ANNOTATED

Traders Royal Bank vs. Radio Philippines Network, Inc.

the three (3) managers checks (Nos. 30652, 30650 and 30796)
intended as payment for their taxes were never delivered nor paid
to the BIR by Mrs. Vera. Instead, the checks were presented for
payment by unknown persons to defendant Security Bank and
Trust Company (SBTC), Taytay Branch as shown by the bank’s
routing symbol transit number (BRSTN 01140027) or clearing
code stamped on the reverse sides of the checks.
Meanwhile, for failure of the plaintiffs to settle their
obligations, the BIR issued warrants of levy, distraint and
garnishment against them. Thus, they were constrained to enter
into a compromise and paid BIR P18,962,225.25 in settlement of
their unpaid deficiency taxes.
Thereafter, plaintiffs sent letters to both defendants,
demanding that the amounts covered by the checks be reimbursed
or credited to
3
their account. The defendants refused, hence, the
instant suit.

On February 17, 1985, the trial court rendered its decision,

thus:

“WHEREFORE, in view of the foregoing considerations, judgment

is hereby rendered in favor of the plaintiffs and against the
defendants by:

a) Condemning the defendant Traders Royal Bank to pay

actual damages in the sum of Nine Million Seven Hundred
Ninety Thousand and Seven Hundred Sixteen Pesos and
Eighty-Seven Centavos (P9,790,716.87) broken down as
follows:

1) To plaintiff RPN-9—P4,155,835.00
2) To Plaintiff IBC-13—P3,949,406.12
3) To Plaintiff BBC-2—P1,685,475.72

plus interest at the legal rate from the filing of this case in court.

b) Condemning the defendant Security Bank and Trust

Company, being collecting bank, to reimburse the
defendant Traders Royal Bank, all the amounts which the
latter would pay to the aforenamed plaintiffs;
c) Condemning both defendants to pay to each of the
plaintiffs the sum of Three Hundred Thousand
(P300,000.00) Pesos as exemplary damages and attorney’s
fees equivalent to twenty-five percent of the total amount
recovered; and
d) Costs of suit.
4
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4
SO ORDERED.”

______________

3 Rollo, pp. 63-65.

4 Rollo, p. 54.

613

VOL. 390, OCTOBER 10, 2002 613

Traders Royal Bank vs. Radio Philippines Network, Inc.

Defendants Traders Royal Bank and Security Bank and

Trust Company, Inc. both appealed the trial court’s
decision to the Court of Appeals. However, as quoted in the
beginning hereof, the appellate court absolved defendant
SBTC from any liability and held TRB solely liable to
respondent networks for damages and costs of suit.
In the instant petition for review on certiorari of the
Court of Appeals’ decision, petitioner TRB assigns the
following errors: (a) the Honorable Court of Appeals
manifestly overlooked facts which would justify the
conclusion that negligence on the part of RPN, IBC and
BBC bars them from recovering anything from TRB, (b) the
Honorable Court of Appeals plainly erred and
misapprehended the facts in relieving SBTC of its liability
to TRB as collecting bank and indorser by overturning the
trial court’s factual finding that SBTC did endorse the
three (3) managers checks subject of the instant case, and
(c) the Honorable Court of Appeals plainly misapplied the
law in affirming the award of exemplary damages in favor
of RPN, IBC and BBC.
In reply, respondents RPN, IBC, and BBC assert that
TRB’s petition raises questions of fact in violation of Rule
45 of the 1997 Revised Rules on Civil Procedure which
restricts petitions for review on certiorari of the decisions of
the Court of Appeals on pure questions of law. RPN, IBC
and BBC maintain that the issue of whether or not
respondent networks had been negligent were already
passed upon both by the trial and appellate courts, and
that the factual findings of both courts are binding and
conclusive upon this Court.
Likewise, respondent SBTC denies liability on the
ground that it had no participation in the negotiation of the
checks, emphasizing that the BRSTN imprints at the back
of the checks cannot be considered as proof that respondent
SBTC accepted the disputed checks and presented them to
Philippine Clearing House Corporation for clearing.
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Setting aside the factual ramifications of the instant

case, the threshold issue now is whether or not TRB should
be held solely liable when it paid the amount of the checks
in question to a person other than the payee indicated on
the face of the check, the Bureau of Internal Revenue.
614

614 SUPREME COURT REPORTS ANNOTATED

Traders Royal Bank vs. Radio Philippines Network, Inc.

“When a signature is forged or made without the authority

of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to
give a discharge therefor, or to enforce payment thereof
against any party thereto,
5
can be acquired through or
under such signature.” Consequently, 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.
In the instant case, the 3 checks were payable to the
BIR. It was established, however, that said checks were
never delivered or paid to the payee BIR but were in fact
presented for payment by some unknown persons who, in
order to receive payment therefor, forged the name of the
payee. Despite this fraud, petitioner TRB paid the 3 checks
in the total amount of P9,790,716.87.
Petitioner ought to have known that, where a check is
drawn payable to the order of one person and is presented
for payment by another and purports upon its face to have
been duly indorsed by the payee of the check, it is the
primary duty of petitioner 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 petitioner who
cashed the check. Its only 6
remedy is against the person to
whom it paid the money.
It should be noted further that one of the subject checks
was crossed. The crossing of one of the subject checks
should have put petitioner on guard; it was duty-bound to
ascertain the indorser’s title to the check or the nature of
his possession. Petitioner should have known the 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
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______________

5 Section 23, Negotiable Instruments Law.

6 Great Eastern Life Insurance vs. Hongkong & Shanghai Banking
Corporation, 43 Phil. 678 (1922).

615

VOL. 390, OCTOBER 10, 2002 615

Traders Royal Bank vs. Radio Philippines Network, Inc.

inquire if he has received the check pursuant 7to that

purpose, otherwise, he is not a holder in due course.
By encashing in favor of unknown persons checks which
were on their face payable to the BIR, a government agency
which can only act only through its agents, petitioner did
so at its peril and must suffer the consequences
8
of the
unauthorized or wrongful endorsement. In this light,
petitioner TRB cannot exculpate itself from liability by
claiming that respondent networks were themselves
negligent.
A bank is engaged in a business impressed with public
interest and it is its duty to protect its many clients and
depositors who transact business with it. It is under the
obligation to treat the accounts of the depositors and clients
with meticulous care, whether such 9accounts consist only of
a few hundreds or millions of pesos.
Petitioner argues that respondent SBTC, as the
collecting bank and indorser, should be held responsible
instead for the amount of the checks.
The Court of Appeals addressed exactly the same issue
and made the following findings and conclusions:

As to the alleged liability of appellant SBTC, a close examination

of the records constrains us to deviate from the lower court’s
finding that SBTC, as a collecting bank, should similarly bear the
loss.

“A collecting bank where a check is deposited and which indorses the

check upon presentment with the drawee bank, is such an indorser. So
even if the indorsement on the check deposited by the bank’s client is
forged, the collecting bank is bound by his warranties as an indorser and
cannot set up the defense of forgery as against the drawee bank.”

To hold appellant SBTC liable, it is necessary to determine

whether it is a party to the disputed transactions.
Section 3 of the Negotiable Instruments Law reads:

______________
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7 Bataan Cigar and Cigarette Factory, Inc. vs. CA, 230 SCRA 643
(1994).
8 Insular Drug Co. vs. National, 58 Phil. 685 (1933).
9 PNB vs. CA, 315 SCRA 309 (1999).

616

616 SUPREME COURT REPORTS ANNOTATED

Traders Royal Bank vs. Radio Philippines Network, Inc.

“SECTION 63. When person deemed indorser.—A person placing his

signature upon an instrument otherwise than as maker, drawer, or
acceptor, is deemed to be an indorser unless he clearly indicates by
appropriate words his intention to be bound in some other capacity.”

Upon the other hand, the Philippine Clearing House Corporation

(PCHC) rules provide:

“Sec. 17.—BANK GUARANTEE. All checks cleared through the PCHC

shall bear the guarantee affixed thereto by the Presenting Bank/Branch
which shall read as follows:
“Cleared thru the Philippine Clearing House Corporation. All prior
endorsements and/or lack of endorsement guaranteed. NAME OF
BANK/BRANCH BRSTN (Date of clearing).”

Here, not one of the disputed checks bears the requisite

endorsement of appellant SBTC. What appears to be a guarantee
stamped at the back of the checks is that of the Philippine
National Bank, Buendia Branch, thereby indicating that it was
the latter Bank which received the same.
It was likewise established during the trial that whenever
appellant SBTC receives a check for deposit, its practice is to
stamp on its face the words, “non-negotiable.” Lana Echevarria’s
testimony is relevant:

“ATTY. Could you tell us briefly the procedure you follow in

ROMANO: receiving checks?
“A: First of all, I verify the check itself, the place, the
date, the amount in words and everything. And then,
if all these things are in order and verified in the data
sheet I stamp my non- negotiable stamp at the face of
the check.”

Unfortunately, the words “non-negotiable” do not appear on the

face of either of the three (3) disputed checks.
Moreover, the aggregate amount of the checks is not reflected
in the clearing documents of appellant SBTC. Section 19 of the
Rules of the PCHC states:

“Section 19—Regular Item Procedure:

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Each clearing participant, through its authorized representatives,

shall deliver to the PCHC fully qualified MICR checks grouped in 200 or
less items to a batch and supported by an add-list, a batch control slip,
and a delivery statement.

It bears stressing that through the add-list, the PCHC can

counter-check and determine which checks have been presented
on a particular day by a particular bank for processing and
clearing. In this case, how-

617

VOL. 390, OCTOBER 10, 2002 617

Traders Royal Bank vs. Radio Philippines Network, Inc.

ever, the add-list submitted by appellant SBTC together with the

checks it presented for clearing on August 3, 1987 does not show
that Check No. 306502 in the sum of P3,949,406.12 was among
those that passed for clearing with the PCHC on that date. The
same is true with Check No. 30652 with a face amount of
P4,155,835.00 presented for clearing on August 11, 1987 and
Check No. 30796 with a face amount of P1,685,475.75.
The foregoing circumstances taken altogether create a serious
doubt on whether the 10
disputed checks passed through the hands
of appellant SBTC.”

We subscribe to the foregoing findings and conclusions of

the Court of Appeals.
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.
Since TRB did not pay the rightful holder or other
person or entity entitled to receive payment, it has no right
to reimbursement. Petitioner TRB was remiss in its duty
and obligation, and must therefore suffer the consequences
of its own negligence and disregard of established banking
rules and procedures.
We agree with petitioner, however, that it should not be
made to pay exemplary damages to RPN, IBC and BBC
because its wrongful act was not done in bad faith, and it
did not act
11
in a wanton, fraudulent, reckless or malevolent
manner.
We find the award of attorney’s
12
fees, 25% of P10 million,
to be manifestly exorbitant. Considering the nature and
extent of the services rendered by respondent networks’
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counsel, however, the Court deems it appropriate to award

the amount of P100,000 as attorney’s fees.

______________

10 Rollo, pp. 69-73.

11 Cervantes vs. CA, 304 SCRA 25 (1999).
12 Barons Marketing Corporation vs. CA, 286 SCRA 96 (1998).

618

618 SUPREME COURT REPORTS ANNOTATED

London vs. Baguio Country Club Corporation

WHEREFORE, the appealed decision is MODIFIED by

deleting the award of exemplary damages. Further,
respondent networks are granted the amount of P100,000
as attorney’s fees. In all other respects, the Court of
Appeals’ decision is hereby AFFIRMED.
SO ORDERED.

     Puno (Chairman), Panganiban and Carpio-Morales,

JJ., concur.
     Sandoval-Gutierrez, J., No part.

Judgment modified.

Notes.—Where what was stamped on the check is

“DAUD” meaning drawn against uncollected deposits, the
bank may still honor the check at its discretion in favor of
favored clients, in which case there would be no violation of
B.P. 22. (Tan vs. People, 349 SCRA 777 [2001])
A bank authorized to collect the payment of taxpayers in
behalf of the Bureau of Internal Revenue is duty-bound to
consult with its principal regarding unwarranted
instructions given by the payor of its agent. (Philippine
Commercial International Bank vs. Court of Appeals, 350
SCRA 446 [2001])

——o0o——

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