Negotiable Instruments Case Digest: Traders Royal Bank v. Radio Philippines Network Inc. (2002)


G.R. No. 138510  October 10, 2002
Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law)

FACTS: Traders (sold 3 managers check)>  RPN,IBC,BBC (received by <Mrs. Vera) --(not received) BIR-- > SBTC (deposited by unknown persons)
  • April 15, 1985: Bureau of Internal Revenue (BIR) assessed Radio Philippines Network (RPN), Intercontinental Broadcasting Corporation (IBC), and Banahaw Broadcasting Corporation (BBC) of their tax obligations for the taxable  years 1978 to 1983.

  • March 25, 1987: Mrs. Lourdes C. Vera, RPN,IBC,BBC comptroller, sent a letter to the BIR requesting settlement of their tax obligations which was granted

  • June 26, 1986: RPN, IBC and BBC purchased from Traders 3 manager’s checks to be used as payment for their tax liabilities

  • Traders, through Aida Nuñez, turned over the checks to Mrs. Vera who was supposed to deliver them to the  BIR in payment

  • September, 1988: BIR again assessed plaintiffs for their tax liabilities for the years 1979-82.  It was discovered the 3 managers checks were never delivered nor paid to the BIR by Mrs. Vera.  The checks were presented for payment by unknown persons to Security Bank and Trust Company (SBTC).

  • BIR issued warrants of levy, distraint and garnishment against them.  

    • They were constrained to enter into a compromise and paid BIR P18,962,225.25 in settlement 

  • Traders sent letters to RPN and SBTC, demanding that the amounts covered by the checks be reimbursed or credited to their account

  • RTC: favored Traders against RPN and SBTC

  • CA: absolved SBTC and held Traders solely liable

    • SBTC denies liability on the ground that it had no participation in the negotiation of the checks

ISSUE: W/N Traders should solely bare the loss for its negligence

HELD: YES. CA affirmed.
  • 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

  • Despite the fraud, Traders paid the 3 checks in the total amount of P9,790,716.87

  • primary duty of Traders 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 it who cashed the check.  

    • only 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. 

  • 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

  • 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.