G.R. No. 177526 - Philippine Savings Bank vs. Chowking Food Corp.

This case involves a petition for review on certiorari of the decision of the Court of Appeals, which had reinstated the Regional Trial Court’s (RTC) decision.
The RTC initially ordered the Philippine Savings Bank (PSBank) and its Bustos Branch Head, Erlinda O. Santos, to reimburse Chowking Food Corporation (Chowking) for five illegally encashed PSBank checks totaling P556,981.86.

Between March 15, 1989, and August 10, 1989, Joe Kuan Food Corporation issued five PSBank checks in favor of Chowking with specific check numbers, dates, and amounts:

Check No. 017069 – P44,120.00 (15 March 1989)
Check No. 053528 – P135,052.87 (09 May 1989)
Check No. 074602 – P160,138.12 (08 August 1989)
Check No. 074631 – P159,634.13 (08 August 1989)
Check No. 017096 – P60,036.74 (10 August 1989)

On the due dates, the acting accounting manager of Chowking, Rino T. Manzano, endorsed and encashed these checks at PSBank’s Bustos branch.
Notably, all checks were honored by defendant Santos even though only Manzano’s endorsement appeared, lacking the signatures of the other authorized officers, contrary to customary banking practice.

It was discovered that Manzano had absconded with and misappropriated the check proceeds.
Chowking, upon learning of Manzano’s scheme, demanded reimbursement from PSBank.
PSBank refused to pay, prompting Chowking to file a complaint for the sum of money with damages before the RTC.
In the complaint, PSBank’s president, Antonio S. Abacan, and Branch Head, Santos, were also impleaded.
Cross claims and third party complaints were filed by PSBank and Santos against Manzano; however, service of summons on Manzano proved unsuccessful leading to his declaration of default.

In its Answer, PSBank did not dispute the facts but denied liability, asserting it exercised due diligence in supervising its employees.
PSBank also maintained that its president and Branch Head were not responsible.
Both PSBank and its employees argued that respondent Chowking was negligent in allowing the unauthorized encashment of its checks (by permitting an endorsement by Manzano alone).
Santos claimed she simply followed the bank’s practice of honoring checks even when only endorsed by Manzano.

On August 24, 1998, the RTC rendered a judgment in favor of Chowking ordering PSBank and Santos to pay the total amount of the checks along with attorney’s fees, exemplary damages, and compensation for unrealized profits.
PSBank later filed a motion for reconsideration, and on January 11, 1999, the RTC reversed part of its ruling by dismissing the complaint against PSBank and Santos on the ground that respondent’s own negligence was the proximate cause of its loss; the RTC instead ordered Rino T. Manzano to reimburse Chowking.
Dissatisfied, Chowking appealed to the Court of Appeals (CA).

On January 31, 2007, the CA granted the appeal and reinstated the RTC decision (with modifications) which:

Clarified that PSBank and Santos should bear the loss resulting from the encashment of the checks.
Deleted the awards for attorney’s fees, exemplary damages, and unrealized profits.

Santos was negligent in honoring the checks despite irregular endorsements.
PSBank’s negligence in the supervision of its employees rendered it solidarily liable for the loss.

CA rejected PSBank’s contention that respondent Chowking had caused its own loss by its negligence, holding instead that PSBank had the “last clear chance” to avoid the loss by verifying endorsements.

Whether the doctrine of equitable estoppel applies to bar Chowking’s claim against PSBank, given that the bank had allegedly tolerated certain practices regarding check endorsements.

Petitioner (PSBank) argued that Chowking should be estopped from asserting its claim based on its own negligence.
The issue is whether respondent’s purported representations or conduct affecting endorsement practices can invoke equitable estoppel.

Whether the proximate cause of the loss suffered by Chowking is due to its own negligence or to the negligence of PSBank in supervising its employees.

Petitioner contended that Chowking’s negligence contributed to its own loss.
Respondent and the CA, however, maintained that the loss resulted from PSBank’s failure to exercise the highest degree of diligence expected in the banking industry.