G.R. No. 138510 - Traders Royal Bank vs. Radio Philippines Network, Inc.

On April 15, 1985, the Bureau of Internal Revenue (BIR) assessed Radio Philippines Network (RPN), Intercontinental Broadcasting Corporation (IBC), and Banahaw Broadcasting Corporation (BBC) for their tax obligations for the taxable years 1978 to 1983.
In response to the tax assessments, on March 25, 1987, Mrs. Lourdes C. Vera, acting as the comptroller for the plaintiff networks, requested a settlement of the tax liabilities from the BIR.
The BIR granted the request, and on June 26, 1986, the plaintiff networks purchased from Traders Royal Bank (TRB) three manager’s checks intended for the payment of their tax obligations with specific details as follows:

TRB, through its branch manager Aida NuAez at the Broadcast City Branch, turned over the aforementioned checks to Mrs. Vera, who was tasked with delivering them to the BIR.
Sometime in September 1988, a subsequent tax assessment covering the years 1979 to 1982 revealed that these checks were never received or submitted to the BIR as intended.
Instead, the checks were presented for payment by unknown persons to Security Bank and Trust Company (SBTC), Taytay Branch, evidenced by the bank’s routing symbol (BRSTN 01140027) stamped on the reverse sides of the checks.
As a result of the failure to pay the BIR, the government issued warrants of levy, distraint, and garnishment, which forced the plaintiff networks to settle their unpaid taxes by entering into a compromise and remitting P18,962,225.25.

In a decision rendered on February 17, 1985, the trial court ruled in favor of the plaintiff networks. The ruling:

Condemned TRB to pay actual damages totaling P9,790,716.87, with the respective breakdown:

Directed SBTC, as the collecting bank, to reimburse TRB for the amounts paid to the plaintiffs.
Awarded each plaintiff an additional sum of P300,000.00 as exemplary damages and attorney’s fees equivalent to 25% of the total recovery.
Ordered that costs of suit be borne by the respective defendants.

Both TRB and SBTC appealed the trial court’s decision; however, the appellate court modified the ruling by:

Affirming TRB’s sole liability for the damages and costs.
Absolving SBTC from any liability as a collecting bank after a meticulous examination of the records.

Assertion that the Court of Appeals had overlooked facts indicating plaintiff networks’ negligence, which should preclude recovery.
Argument that SBTC should have been held liable as a collecting bank through its endorsement of the manager’s checks.
Contention that the award of exemplary damages was a misapplication of applicable law.

The issues regarding negligence and the factual findings already settled by both the trial and appellate courts were binding.
SBTC was not liable because the bank’s records and procedures did not substantiate its participation in endorsing or negotiating the checks.

The three manager’s checks were drawn payable to the BIR but were cashed by unknown persons who had forged the BIR’s endorsement.
One of the checks was crossed, thereby indicating it should have been deposited rather than encashed, raising a red flag for TRB.
TRB, despite these red flags and established banking procedures regarding crossed checks, proceeded with payment, thereby incurring liability.

The procedural history highlights that TRB’s negligence in verifying the authenticity and proper endorsement of the checks was pivotal to the mishap.
The case established that a bank paying out on a forged check bears the loss, with its only remedy being through recovery from the party to whom the payment was erroneously made.

Whether TRB should be held solely liable for the payment of the checks when they were paid to individuals other than the authorized payee (the BIR).
If the negligence on the part of the plaintiff networks in failing to secure proper delivery or settlement of the checks bars them from recovering damages from TRB.
Whether SBTC, as a collecting bank and alleged endorser, should be held liable for presenting the checks despite indications of forgery.

Whether TRB, as the drawee bank, fulfilled its duty of verifying that the checks were properly endorsed and delivered for deposit, particularly given one check’s crossed status.
The implications of the bank’s failure to detect a forged endorsement and the consequent repercussions on its right to seek reimbursement from the depositor’s account.

Whether the award of exemplary damages in addition to actual damages was legally supportable in the context of TRB’s actions.
The appropriateness of awarding attorney’s fees and the extent thereof, considering the nature and scope of the wrongful act.