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ALLIED BANKING CORPORATION v. LIM SIO WAN

FACTS:

The case involves a dispute between Lim Sio Wan, a depositor, and Allied Banking Corporation (Allied), a bank. On November 14, 1983, Lim Sio Wan deposited a money market placement with Allied amounting to PHP 1,152,597.35. On December 5, 1983, someone claiming to be Lim Sio Wan called Allied and instructed them to pre-terminate the money market placement and issue a manager's check representing the proceeds of the placement. The check was issued in the name of Lim Sio Wan and given to Deborah Dee Santos, who deposited the check in the account of Filipinas Cement Corporation (FCC) at Metropolitan Bank and Trust Co. (Metrobank). Allied funded the check even without checking the authenticity of the indorsement, and the amount was credited to FCC's account. When Lim Sio Wan went to withdraw her placement on December 14, 1983, she was informed that it had been pre-terminated, but she denied giving any instructions. After a failed promise of recovery by the bank, Lim Sio Wan demanded payment of her first placement. Allied refused to pay, claiming that she had authorized the pre-termination and release of the funds to Santos. Thus, Lim Sio Wan filed a complaint against Allied to recover the proceeds of her first money market placement. Allied filed a third party complaint against Metrobank and Santos, and Metrobank filed a fourth party complaint against FCC.

During the trial, Allied filed a cross-claim against Metrobank, which in turn filed a third-party complaint against FCC, later prompting FCC to file a fourth-party complaint against Producer's Bank. The trial court held Allied liable for the amount plus interest, moral damages, and attorney's fees, and dismissed the cross-claims and third-party and fourth-party complaints. Allied appealed the decision to the Court of Appeals (CA), which modified the judgment by holding both Allied and Metrobank liable for the amount. The CA affirmed the dismissal of the cross-claims and third-party and fourth-party complaints. Allied then filed a petition with the Supreme Court, questioning its liability, the involvement of Producer's Bank, and the proportion of liability between Allied and Metrobank.

The Supreme Court upheld the findings of the trial and appellate courts, holding that Allied was liable to Lim Sio Wan based on the debtor-creditor relationship between a bank and a client. It also cited the provision of the Civil Code that a bank deposit is considered a simple loan. The Court emphasized that Allied's obligation to Lim Sio Wan remained unextinguished until payment or any other modes of extinguishment are met. The Court referred to Article 1231 of the Civil Code, which lists the instances when obligations are considered extinguished.

In relation to the payment made to Santos instead of Lim Sio Wan, the Court referred to Article 1240 of the Civil Code, which states that payment should be made to the person in whose favor the obligation has been constituted or authorized persons. The Court, citing Arturo Tolentino's interpretation, noted that payment made by the debtor to the wrong party does not extinguish the obligation if there is negligence on the part of the debtor.

ISSUES:

  1. Did Lim Sio Wan authorize Allied to pre-terminate the initial placement and deliver the check to Deborah Santos?

  2. Is Producers Bank liable for any reimbursement of the amount adjudged demandable?

  3. Should Allied be held liable for 60% of the adjudged amount, despite the ultimate liability of Metrobank as guarantor of all endorsements on the check being the collecting bank?

RULING:

  1. No, Lim Sio Wan did not authorize Allied to release the proceeds of her money market placement to Santos.

  2. No, the appellate court correctly absolved Producers Bank of any liability for the reimbursement of the adjudged demandable amount as employer of Santos.

  3. Yes, Allied should be held liable for 60% of the adjudged amount, while Metrobank should be liable for 40%, considering their respective negligence in the release and collection of the check.

PRINCIPLES:

  1. Factual findings and credibility assessments made by the trial court and affirmed by the appellate court are generally binding on the Supreme Court.

  2. The relationship between a bank and its client is one of debtor and creditor.

  3. Payment of an obligation must be made to the proper party or authorized person; otherwise, the obligation remains unextinguished.

  4. The warranty provided by a general indorser covers all defects in the instrument affecting its validity, including a forged indorsement.

  5. Comparative negligence between issuing and collecting banks in presenting a check with forged indorsements can result in an apportionment of liability.

  6. An employer’s vicarious liability under Art. 2180 of the Civil Code pertains to quasi-delicts and not to delicts.

  7. Unjust enrichment occurs when a person unjustly benefits at the expense of another, requiring reimbursement.