Facts:

The case involves the petitioner Bank of the Philippine Islands (BPI) and the private respondent Benjamin C. Napiza. It originated from a complaint filed by BPI against Napiza, seeking to recover the amount of $2,500.00, which was drawn from a Foreign Currency Deposit Unit (FCDU) savings account maintained by Napiza at the bank’s Buendia Avenue Extension Branch. The events date back to September 3, 1984, when Napiza deposited a manager's check, dated August 17, 1984, for $2,500.00, made payable to cash and endorsed by him. The check originally belonged to Henry Chan, who requested Napiza to deposit it for clearing purposes and allowed him to withdraw the amount once the check cleared.

Subsequently, on October 23, 1984, a certain Ruben Gayon, Jr., using a blank withdrawal slip signed by Napiza, withdrew $2,541.67 from Napiza's account. On November 20, 1984, BPI received a notification from Wells Fargo Bank International, indicating that the check deposited was counterfei

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Facts:

Background of the Transaction

• On September 3, 1987, private respondent deposited a check in an FCDU Savings Account (No. 028-187) maintained at the petitioner's Buendia Avenue Extension Branch of the Bank of the Philippine Islands.
• The check, drawn on Continental Bank with Check No. 00014757 dated August 17, 1984, was for Two Thousand Five Hundred Dollars ($2,500.00) and payable “to cash,” and was duly endorsed by private respondent on its dorsal side.
• The check originally belonged to a certain Henry Chan, who requested private respondent’s assistance for deposit purposes, leading respondent to accommodate his request.

Withdrawal Slip and Subsequent Withdrawal

• Private respondent executed a signed blank withdrawal slip, indicating that the check’s proceeds were to be withdrawn after clearance, and that his passbook would be used for the transaction.
• At a later stage, on October 23, 1984, using the withdrawal slip, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from the FCDU account, even though the slip bore a typewritten designation of “Ramon A. de Guzman and Agnes C. de Guzman” with an initial by the branch assistant manager, Teresita Lindo.

Notification of Dishonor and Subsequent Instructions

• On November 20, 1984, petitioner received information from Wells Fargo Bank International in New York that the deposited check was counterfeit since it did not conform to the style of checks issued by Continental Bank International.
• The branch manager, Mr. Ariel Reyes, instructed his employee (private respondent’s son, Benjamin D. Napiza IV) to notify private respondent of the dishonor.
• Reyes also sent a telegram to private respondent regarding the bounced check, and subsequent communications involved reminders and demands for the return of the $2,500.00.

Private Respondent’s Representations and Actions

• Private respondent acknowledged signing the blank withdrawal slip “for clearing purposes” only, with the understanding that the check proceeds would be eventually withdrawn upon clearance.
• He maintained that his obligation was merely moral and that he had been attempting to collect the amount from Henry Chan, who was primarily responsible under the circumstances.
• Despite his claim of having given a “fifty one (51) day period” for the check’s clearance, private respondent admitted that his son had already withdrawn the funds without proper compliance with banking rules.

Initiation of Legal Proceedings and Claims

• On August 12, 1986, petitioner filed a complaint seeking the return of $2,500.00 (or its peso equivalent), legal interest, attorney’s fees, and other litigation costs, asserting that private respondent’s act of signing the withdrawal slip rendered him liable.
• In his answer, private respondent countered that the withdrawal was executed without his knowledge via collusion with a bank employee, and he counterclaimed for moral damages, exemplary damages, and attorney’s fees, attributing gross negligence to the petitioner bank itself.
• A motion was filed by private respondent to admit a third-party complaint against Henry Chan, alleging that Chan manipulated the process to allow the unauthorized withdrawal.

Proceedings in Lower Courts

• The Regional Trial Court (RTC) of Makati, Branch 139, eventually dismissed petitioner’s complaint, holding that petitioner had erred by authorizing a withdrawal without waiting for the check’s clearance.
• The RTC reasoned that depositing a check did not convert it into the depositor’s property until cleared, and that the bank should have adhered to its own rules regarding clearing and withdrawal.
• The Court of Appeals affirmed the RTC’s decision, emphasizing that the bank’s negligence in allowing the withdrawal without the proper presentation of the passbook or waiting for clearance constituted “clear gross negligence.”

Banking Procedures and Evident Rule Violations

• The petitioner bank’s passbook rules mandated that withdrawals require:
• A duly filled withdrawal slip indicating the payee, amount, and place for payment; and
• The presentation of the depositor’s savings passbook.
• The withdrawal slip used in the transaction was essentially “blank,” save for the signature of the private respondent and a later intercalation of the name “Ruben C. Gayon, Jr.”
• The bank personnel, including branch staff, failed to observe these rules by authorizing a withdrawal that exceeded the proper amount and was executed without the required presentation of the depositor’s passbook.

Proximate Cause and Alleged Negligence

• The bank’s failure to enforce its own rules regarding the deposit clearance and withdrawal led to an unauthorized withdrawal that resulted in a loss.
• The withdrawal, carried out in disregard of the mandatory procedures (e.g., the requirement for the depositor to present his passbook), was identified as the proximate cause of the ensuing damage to petitioner bank.
• The Court noted that such negligence undermined the integrity of the banking system by neglecting the necessary safeguards intended to protect depositor funds.

Resolution Prior to the Petitioner’s Review

• After the withdrawal and consequent loss, lower courts maintained that petitioner bank should bear the risk of the loss because it directly contravened its own established withdrawal process.
• The petitioner, without filing a motion for reconsideration of the Court of Appeals’ decision, sought review on certiorari, challenging the non-liability of private respondent under an endorsement and alleging negligence on the part of the bank.

Issue:

Whether or not respondent Napiza is liable under his warranties as a general indorser of the check.

• The issue involves the legal implications of the signature on the back of the check and whether that act automatically creates liability for the full amount.

Whether or not a contract of agency was created between respondent Napiza and Ruben Gayon, which would imply that private respondent authorized the withdrawal through an agent.

• The consideration here is whether the blank withdrawal slip and subsequent actions established a principal-agent relationship that would bind the private respondent.

Whether or not petitioner bank was grossly negligent in allowing the withdrawal of funds, particularly given its failure to adhere to its own prescribed banking rules regarding check clearance and passbook presentation.

• This issue focuses on whether the internal controls and safeguards were breached, thereby transferring the loss to the bank as the proximate cause.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)