Facts:

The case involves a petition for review on certiorari filed by the Bank of America NT & SA (hereinafter referred to as "Petitioner") against the Philippine Racing Club, Inc. (hereinafter referred to as "Respondent"). The background of this case begins with Respondent, a domestic corporation that maintained various bank accounts, including Current Account No. 58891-012, at Petitioner’s Paseo de Roxas Branch. The authorized joint signatories for this account were Antonia Reyes, the President, and Gregorio Reyes, the Vice President for Finance of Respondent.

In December 1988, as the two signatories were scheduled for international business travel, they pre-signed several checks meant for corporate obligations during their absence. These checks were to be filled by their accountant as necessary. However, on December 16, 1988, a John Doe presented two pre-signed checks for encashment at Petitioner’s branch. Each check was valued at P110,000.00 and contained ir

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Facts:

Parties and Account Details

• Philippine Racing Club, Inc. (PRCI), a domestic corporation, maintained several bank accounts in Metro Manila, including Current Account No. 58891-012 with Bank of America NT & SA (BA).
• The authorized joint signatories on the account were PRCI’s President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes).

Pre-arranged Banking Arrangements

• In anticipation of their business trip abroad in mid-December 1988, PRCI’s President and Vice President pre-signed several checks to ensure continuity of operations in their absence.
• These pre-signed checks were entrusted to the company accountant, with instructions that, whenever cash was needed to settle obligations, the accountant should prepare the corresponding voucher and complete the entries on the checks.

Irregular Check Presentation

• During the second week of December 1988, on December 16, 1988, a John Doe presented two pre-signed checks (Nos. 401116 and 401117) for encashment at BA’s Paseo de Roxas Branch.
• Each check had an indicated value of ₱110,000.00, and while they bore genuine signatures of the authorized signatories, several irregularities were immediately apparent:
• In the space reserved for the payee (“Pay To The Order Of”), two typewritten lines appeared instead of a properly handwritten or printed payee name. The upper line contained the word “CASH,” and the lower line read “ONE HUNDRED TEN THOUSAND PESOS ONLY.”
• Despite these irregularities, BA encashed the checks without verifying the legitimacy of the entries or confirming with PRCI, even though a simple telephone verification call would have taken less than ten minutes.

Discovery of Fraud and Subsequent Legal Proceedings

• PRCI’s internal investigation revealed that no transaction justified a payment of ₱220,000.00 and discovered that an employee of PRCI, Clarita Mesina, had illicitly completed the blank spaces by committing qualified theft.
• PRCI initiated legal action against BA after its repeated demand for the recovery of funds went unheeded.
• The Regional Trial Court (RTC) of Makati rendered a decision in favor of PRCI, ordering BA to pay ₱220,000.00 plus attorney’s fees and litigation expenses.
• The Court of Appeals (CA) affirmed the RTC decision and subsequently denied BA’s Motion for Reconsideration.

Petitioner’s Arguments on Appeal

• BA argued that it merely fulfilled its legal and contractual duty by honoring the checks based on the genuine signatures of PRCI’s authorized signatories.
• BA contended that a verification call was unnecessary because the discrepancies (i.e., the reiteration of the amount and the word “CASH” as payee) did not amount to a material alteration under the Negotiable Instruments Law.
• BA maintained that the proximate cause of the loss was attributable to PRCI’s own negligence in pre-signing blank checks and entrusting them to an employee who misused them.
• Additionally, BA challenged the award of attorney’s fees, arguing that there was no basis under Article 2208 of the Civil Code.

Issue:

Determination of Proximate Cause

• Whether the wrongful encashment of the checks was primarily due to BA’s failure to verify the irregular entries on the checks versus PRCI’s negligent practice of pre-signing blank checks.
• Whether BA’s act of honoring the checks based solely on the genuine signatures absolved it of the duty to inquire further into the apparent irregularities.

Duty and Standard of Diligence

• Whether BA, as a banking institution engaged in a business of public interest, failed to exercise the highest degree of diligence required in handling a client’s account.
• Whether BA’s discretionary practice—of sometimes verifying discrepancies depending on workload—was sufficient to meet the legal standard.

Application of the Negotiable Instruments Law

• Whether Sections 14, 15, and 16 of the Negotiable Instruments Law apply to the present case and how they affect the determination of liability.
• Whether the misplacement of typewritten entries for payee and amount constituted material alterations that should have triggered a verification process.

Allocation of Negligence and Damages

• How the doctrine of last clear chance applies to the scenario where both parties exhibited negligence.
• Whether the allocation of damages, with BA bearing 60% and PRCI 40% of the actual damages, is justified given the evidence of contributory negligence from both parties.

Award of Attorney’s Fees and Litigation Expenses

• Whether the conditions for awarding attorney’s fees under Article 2208 of the Civil Code were met in this case.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)