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PHILIPPINE NATIONAL BANK v. ERLANDO T. RODRIGUEZ

FACTS:

This case involves two separate disputes between the spouses Rodriguez and the Philippine National Bank (PNB).

In the first dispute, the spouses Rodriguez were engaged in an informal lending business and had a discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees. Some PEMSLA officers devised a scheme where they would take out loans in the names of unknowing members without their knowledge or consent. The PEMSLA checks issued for these loans would be given to the spouses for rediscounting. In return, the spouses issued their personal checks in the name of the members and delivered them to an officer of PEMSLA. The PEMSLA checks were deposited by the spouses into their own account at PNB, while the Rodriguez checks were deposited directly by PEMSLA to its savings account at PNB. When PNB found out about the scheme, the PEMSLA checks were dishonored, while the Rodriguez checks were deposited as usual. The spouses filed a civil complaint against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and PNB to recover the value of their checks. The RTC ruled in favor of the spouses, ordering PNB to pay them the total amount of the checks. PNB appealed this decision to the Supreme Court.

In the second dispute, the spouses Rodriguez applied for a loan from Banco de Oro (BDO) using a deed of assignment of receivables as collateral. However, they had already negotiated the same receivables to PNB without informing BDO. PNB then filed a criminal complaint against the spouses Rodriguez and PEMSLA for estafa through falsification of commercial documents. The trial court found them guilty, and this decision was affirmed by the Court of Appeals. The accused filed a petition for review before the Supreme Court.

ISSUES:

  1. Whether the subject checks are payable to order or to bearer.

  2. Who bears the loss arising from the checks?

RULING:

  1. The subject checks are payable to order. The Supreme Court found that PNB failed to prove that the named payees were fictitious. Thus, the checks were deemed to be order instruments.

  2. The drawee bank (PNB) bears the loss. Since the checks were payable to order, PNB was required to obtain proper endorsements. Its failure to do so and subsequent negligence in its operations caused it to bear the loss.

PRINCIPLES:

  • Bearer Instrument Rule under NIL § 9(c) A check payable to the order of a fictitious or non-existing person is considered a bearer instrument.

  • Order Instrument Endorsement Requirement under NIL § 30 An order instrument must be indorsed by the payee for proper negotiation.

  • Diligence of Drawee Bank The drawee bank must verify the genuineness of the drawer's signature and ensure checks are payable strictly in accordance with the drawer's instructions.

  • Liability for Negligence A drawee bank that fails to follow proper procedures and is negligent bears the resulting loss.

  • Commercial Bad Faith Exception Transferees acting in bad faith or engaging in fraudulent schemes strip themselves of defenses such as the fictitious-payee rule.

  • Banking Industry Trust Banks are to exercise the highest degree of diligence given their unique role and public trust.