Metrobank vs.

BA Finance Corporation
G.R. No. 179952, Dec. 4, 2009 / Indorsement by two or more payees
CARPIO MORALES, J.:

Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance) a P329,280 loan to secure
which, he mortgaged his car to respondent BA Finance. The mortgage contained the following stipulation:

The MORTGAGOR covenants and agrees that he/it will cause the property(ies) hereinabove mortgaged to be insured
against loss or damage by accident, theft and fire for a period of one year from date hereof with an insurance company or
companies acceptable to the MORTGAGEE in an amount not less than the outstanding balance of mortgage obligations
and that he/it will make all loss, if any, under such policy or policies, payable to the MORTGAGEE or its assigns as its
interest may appear x x x. (emphasis and underscoring supplied)

Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc. (Malayan Insurance) which
issued a policy stipulating that, inter alia,

Loss, if any shall be payable to BA FINANCE CORP. as its interest may appear. It is hereby expressly understood that
this policy or any renewal thereof, shall not be cancelled without prior notification and conformity by BA FINANCE
CORPORATION. (emphasis and underscoring supplied)

The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order of B.A. Finance
Corporation and Lamberto Bitanga for P224,500, drawn against China Banking Corporation (China Bank). The check
was crossed with the notation For Deposit Payees Account Only.

Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his account with the
Asianbank Corporation (Asianbank), now merged with herein petitioner Metropolitan Bank and Trust Company
(Metrobank). Bitanga subsequently withdrew the entire proceeds of the check.

In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it.

BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of a crossed check payable to it
and Bitanga, and of Bitangas depositing it in his account at Asianbank and withdrawing the entire proceeds thereof.

BA Finance thereupon demanded the payment of the value of the check from Asianbank but to no avail, prompting it to file
a complaint before the Regional Trial Court (RTC) of Makati for sum of money and damages against Asianbank and
Bitanga, alleging that, inter alia, it is entitled to the entire proceeds of the check.

In its Answer with Counterclaim, Asianbank alleged that BA Finance instituted [the] complaint in bad faith to coerce [it]
into paying the whole amount of the CHECK knowing fully well that its rightful claim, if any, is against Malayan
[Insurance].

Asianbank thereafter filed a cross-claim against Bitanga, alleging that he fraudulently induced its personnel to release to
him the full amount of the check; and that on being later informed that the entire amount of the check did not belong to
Bitanga, it took steps to get in touch with him but he had changed residence without leaving any forwarding address.

And Asianbank filed a third-party complaint against Malayan Insurance, alleging that Malayan Insurance was grossly
negligent in issuing the check payable to both Bitanga and BA Finance and delivering it to Bitanga without the consent of
BA Finance.

Bitanga was declared in default in Asianbanks cross-claim.

Branch 137 of the Makati RTC, finding that Malayan Insurance was not privy to the contract between BA Finance and
Bitanga, and noting the claim of Malayan Insurance that it is its policy to issue checks to both the insured and the
financing company, held that Malayan Insurance cannot be faulted for negligence for issuing the check payable to both
BA Finance and Bitanga.

The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the check to his account and to
withdraw the proceeds thereof, without his co-payee BA Finance having either indorsed it or authorized him to indorse it in
its behalf, found Asianbank and Bitanga jointly and severally liable to BA Finance following Section 41 of the Negotiable
Instruments Law and Associated Bank v. Court of Appeals.

Thus the trial court disposed:

1)
To pay plaintiff jointly and severally the sum of P224,500.00 with interest thereon at the rate of 12%
from September 25, 1992 until fully paid;
2)
To pay plaintiff the sum of P50,000.00 as exemplary damages; P20,000.00 as actual damages;
P30,000.00 as attorneys fee; and
3)

To pay the costs of suit.

Asianbanks and Bitangas [sic] counterclaims are dismissed.

On the cross-claim of defendant Asianbank, co-defendant Lamberto Bitanga is ordered to pay the former the
amounts the latter is ordered to pay the plaintiff in Nos. 1, 2 and 3 above-mentioned.

SO ORDERED. (emphasis and underscoring supplied)

Before the Court of Appeals, Asianbank, in its Appellants Brief, submitted the following issues for consideration:

3.01.1.1

Whether BA Finance has a cause of action against Asianbank.

3.01.1.2
Assuming that BA Finance has a valid cause of action, may it claim from Asianbank more than one-half of
the value of the check considering that it is a mere co-payee or joint payee of the check?

3.01.1.3
Whether BA Finance is liable to Asianbank for actual and exemplary damages for wrongfully bringing the
case to court.

3.01.1.4
Whether Malayan is liable to Asianbank for reimbursement of any sum of money which this Honorable
Court may award to BA Finance in this case. (underscoring supplied)

And it proffered the following arguments:

A. BA Finance has no cause of action against Asianbank as it has no legal right and title to the check
considering that the check was not delivered to BA Finance. Hence, BA Finance is not a holder thereof under the
Negotiable Instruments Law.

B. Asianbank, as collecting bank, is not liable to BA Finance as there was no privity of contract between
them.

C. Asianbank, as collecting bank, is not liable to BA Finance, considering that, as the intermediary
between the payee and the drawee Chinabank, it merely acted on the instructions of drawee Chinabank to pay the
amount of the check to Bitanga, hence, the consequent damage to BA Finance was due to the negligence of Chinabank.

D. Malayans act of issuing and delivering the check solely to Bitanga in violation of the loss payee
clause in the Policy, is the proximate cause of the alleged damage to BA Finance.

E. Assuming Asianbank is liable, BA Finance can claim only his proportionate interest on the check as it is
a joint payee thereof.

F. Bitanga alone is liable for the amount to BA Finance on the ground of unjust enrichment or solutio
indebiti.

G. BA Finance is liable to pay Asianbank actual and exemplary damages. (underscoring supplied)

The appellate court, summarizing the errors attributed to the trial court by Asianbank to be whetherBA Finance has a
cause of action against [it] even if the subject check had not been delivered toBA Finance by the issuer itself, held in
the affirmative and accordingly affirmed the trial courts decision but deleted the award of P20,000 as actual damages.

Hence, the present Petition for Review on Certiorari filed by Metrobank (hereafter petitioner) to which Asianbank was, as
earlier stated, merged, faulting the appellate court

I.
x x x in applying the case of Associated Bank v. Court of Appeals, in the absence of factual similarity
and of the legal relationships necessary for the application of the desirable shortcut rule. x x x
II.
x x x in not finding that x x x the general rule that the payee has no cause of action against the
collecting bank absent delivery to him must be applied.
III.
x x x in finding that all the elements of a cause of action by BA Finance Corporation against Asianbank
Corporation are present.
IV.

x x x in finding that Article 1208 of the Civil Code is not applicable.

V.
x x x in awarding of exemplary damages even in the absence of moral, temperate, liquidated or
compensatory damages and a finding of fact that Asianbank acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.
xxxx
VII.
x x x in dismissing Asianbanks counterclaim and Third Party complaint [against Malayan Insurance]. (italics in
the original; underscoring supplied)

Petitioner proffers the following arguments against the application of Associated Bank v. CA to the case:

x x x [T]he rule established in the Associated Bank case has provided a speedier remedy for the payee to recover from
erring collecting banks despite the absence of delivery of the negotiable instrument. However, the application of the rule
demands careful consideration of the factual settings and issues raised in the case x x x.

One of the relevant circumstances raised in Associated Bank is the existence of forgery or unauthorized indorsement. x x
x

xxxx

In the case at bar, Bitanga is authorized to indorse the check as the drawer names him as one of the payees. Moreover,
his signature is not a forgery nor has he or anyone forged the signature of the representative of BA Finance Corporation.
No unauthorized indorsement appears on the check.

xxxx

Absent the indispensable fact of forgery or unauthorized indorsement, the desirable shortcut rule cannot be applied,
(underscoring supplied)

The petition fails.

Section 41 of the Negotiable Instruments Law provides:

Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds thereof,
despite the absence of authority of Bitangas co-payee BA Finance to endorse it on its behalf.
Denying any irregularity in accepting the check, petitioner maintains that it followed normal banking procedure. The
testimony of Imelda Cruz, Asianbanks then accounting head, shows otherwise, however, viz:

Now, could you be familiar with a particular policy of the bank with respect to checks with joined (sic) payees?

Yes, sir.

And what would be the particular policy of the bank regarding this transaction?

A
The bank policy and procedure regarding the joint checks. Once it is deposited to a single account, we
are not accepting joint checks for single account, depositing to a single account (sic).

What happened to the bank employee who allowed this particular transaction to occur?

Once the branch personnel, the bank personnel (sic) accepted it, he is liable.

What do you mean by the branch personnel being held liable?

A
Because since (sic) the bank policy, we are not supposed to accept joint checks to a [single] account, so
we mean that personnel would be held liable in the sense that (sic) once it is withdrawn or encashed, it will not
be allowed.

Q
In your experience, have you encountered any bank employee who was subjected to disciplinary action by not
following bank policies?
A
The one that happened in that case, since I really dont know who that personnel is, he is no longer connected with
the bank.

What about in general, do you know of any disciplinary action, Madam witness?

A
Since theres a negligence on the part of the bank personnel, it will be a ground for his separation [from]
the bank. (emphasis, italics and underscoring supplied)

Admittedly, petitioner dismissed the employee who allowed the deposit of the check in Bitangas account.

Petitioners argument that since there was neither forgery, nor unauthorized indorsement because Bitanga was a copayee in the subject check, the dictum in Associated Bank v. CA does not apply in the present case fails. The payment of
an instrument over a missing indorsement is the equivalent of payment on a forged indorsement or an unauthorized
indorsement in itself in the case of joint payees.

Clearly, petitioner, through its employee, was negligent when it allowed the deposit of the crossed check, despite the lone
endorsement of Bitanga, ostensibly ignoring the fact that the check did not, it bears repeating, carry the indorsement of
BA Finance.

As has been repeatedly emphasized, the banking business is imbued with public interest such that the highest degree of
diligence and highest standards of integrity and performance are expected of banks in order to maintain the trust and
confidence of the public in general in the banking sector. Undoubtedly, BA Finance has a cause of action against
petitioner.

Is petitioner liable to BA Finance for the full value of the check?

Petitioner, at all events, argue that its liability to BA Finance should only be one-half of the amount covered by the check
as there is no indication in the check that Bitanga and BA Finance are solidary creditors to thus make them presumptively
joint creditors under Articles 1207 and 1208 of the Civil Code which respectively provide:

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not
imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire
compliance with the prestations. There is a solidary liability only when the obligation expressly so states, or when the law
or the nature of the obligation requires solidarity.

Art. 1208. If from the law, or the nature or wording of the obligations to which the preceding article refers to the contrary
does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or
debtors, the debts or credits being considered distinct from one another, subject to the Rules of Court governing the
multiplicity of suits.

Petitioners argument is flawed.

The provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on the black-letter law provide
definitive justification for petitioners full liability on the value of the check.

To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon
presentment with the drawee bank, is an indorser. This is because in indorsing a check to the drawee bank, a collecting
bank stamps the back of the check with the phrase all prior endorsements and/or lack of endorsement guaranteed and,
for all intents and purposes, treats the check as a negotiable instrument, hence, assumes the warranty of an indorser.
Without Asianbanks warranty, the drawee bank (China Bank in this case) would not have paid the value of the subject
check.

Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the duty to ascertain the
genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an
assertion that the party making the presentment has done its duty to ascertain the genuineness of prior indorsements.

Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in conversion to the
non-indorsing payee for the entire amount of the check.

It bears noting that in petitioners cross-claim against Bitanga, the trial court ordered Bitanga to return to petitioner the
entire value of the check P224,500.00 with interest as well as damages and cost of suit. Petitioner never questioned
this aspect of the trial courts disposition, yet it now prays for the modification of its liability to BA Finance to only one-half
of said amount. To pander to petitioners supplication would certainly amount to unjust enrichment at BA Finances
expense. Petitioners remedywhich is the reimbursement for the full amount of the check from the perpetrator of the
irregularity lies with Bitanga.

Articles 1207 and 1208 of the Civil Code cannot be applied to the present case as these are completely irrelevant. The
drawer, Malayan Insurance in this case, issued the check to answer for an underlying contractual obligation (payment of
insurance proceeds). The obligation is merely reflected in the instrument and whether the payees would jointly share in
the proceeds or not is beside the point.

Moreover, granting petitioners appeal for partial liability would run counter to the existing principles on the liabilities of
parties on negotiable instruments, particularly on Section 68 of the Negotiable Instruments Law which instructs that joint
payees who indorse are deemed to indorse jointly and severally. Recall that when the maker dishonors the instrument,
the holder thereof can turn to those secondarily liable the indorser for recovery. And since the law explicitly
mandates a solidary liability on the part of the joint payees who indorse the instrument, the holder thereof
(assuming the check was further negotiated) can turn to either Bitanga or BA Finance for full recompense.

Respecting petitioners challenge to the award by the appellate court of exemplary damages to BA Finance, the same
fails. Contrary to petitioners claim that no moral, temperate, liquidated or compensatory damages were awarded by the
trial court, the RTC did in fact award compensatory or actual damages of P224,500, the value of the check, plus interest
thereon.

Petitioner argues, however, that assuming arguendo that compensatory damages had been awarded, the same
contravened Article 2232 of the Civil Code which provides that in contracts or quasi-contracts, the court may award
exemplary damages only if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Since, so petitioner concludes, there was no finding that it acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner, it is not liable for exemplary damages.

The argument fails. To reiterate, petitioners liability is based not on contract or quasi-contract but on quasi-delict since
there is no pre-existing contractual relation between the parties. Article 2231 of the Civil Code, which provides that in
quasi-delict, exemplary damages may be granted if the defendant acted with gross negligence, thus applies. For gross
negligence implies a want or absence of or failure to exercise even slight care or diligence, or the entire absence of care,
evincing a thoughtless disregard of consequences without exerting any effort to avoid them.

x x x The law allows the grant of exemplary damages to set an example for the public good. The business of a bank is
affected with public interest; thus it makes a sworn profession of diligence and meticulousness in giving irreproachable
service. For this reason, the bank should guard against in injury attributable to negligence or bad faith on its part. The
award of exemplary damages is proper as a warning to [the petitioner] and all concerned not to recklessly disregard their
obligation to exercise the highest and strictest diligence in serving their depositors. (Italics and underscoring supplied)

As for the dismissal by the appellate court of petitioners third-party complaint against Malayan Insurance, the same is
well-taken. Petitioner based its third-party complaint on Malayan Insurances alleged gross negligence in issuing the
check payable to both BA Finance and Bitanga, despite the stipulation in the mortgage and in the insurance policy that
liability for loss shall be payable to BA Finance. Malayan Insurance countered, however, that it

x x x paid the amount of P224,500 to BA Finance Corporation and Lamberto Bitanga in compliance with the decision in
the case of Lamberto Bitanga versus Malayan Insurance Co., Inc., Civil Case No. 88-2802, RTC-Makati Br. 132, and
affirmed on appeal by the Supreme Court [3rd Division], G.R. no. 101964, April 8, 1992 x x x. (underscoring supplied)

It is noted that Malayan Insurance, which stated that it was a matter of company policy to issue checks in the name of the
insured and the financing company, presented a witness to rebut its supposed negligence. Perforce, it thus wrote a
crossed check with joint payees so as to serve warning that the check was issued for a definite purpose. Petitioner never
ever disputed these assertions.

The Court takes exception, however, to the appellate courts affirmance of the trial courts grant of legal interest of 12%
per annum on the value of the check. For the obligation in this case did not arise out of a loan or forbearance of money,
goods or credit. While Article 1980 of the Civil Code provides that:

Fixed savings, and current deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan,

said provision does not find application in this case since the nature of the relationship between BA Finance and petitioner
is one of agency whereby petitioner, as collecting bank, is to collect for BA Finance the corresponding proceeds from the
check. Not being a loan or forbearance of money, the interest should be 6% per annum computed from the date of
extrajudicial demand on September 25, 1992 until finality of judgment; and 12% per annum from finality of judgment until
payment, conformably with Eastern Shipping Lines, Inc. v. Court of Appeals.

WHEREFORE, the Decision of the Court of Appeals dated May 18, 2007 is AFFIRMED with MODIFICATION in
that the rate of interest on the judgment obligation of P224,500 should be 6% per annum, computed from the time of
extrajudicial demand on September 25, 1992 until its full payment before finality of judgment; thereafter, if the amount
adjudged remains unpaid, the interest rate shall be 12% per annum computed from the time the judgment becomes final
and executory until fully satisfied.

Costs against petitioner.

SO ORDERED.

CONCHITA CARPIO MORALES

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO

LUCAS P. BERSAMIN

Associate Justice

Associate Justice

MARTIN S. VILLARAMA, JR.

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice