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LAND BANK OF THE PHILIPPINES v. NARCISO L. KHO

FACTS:

The respondent, Narciso Kho, entered into a verbal agreement with Red Orange International Trading to purchase lubricants. Red Orange insisted on accepting a Land Bank manager's check as payment. Kho opened a savings account at the Araneta Branch of Land Bank and deposited several manager's checks, including one valued at P25,000,000. Kho requested a photocopy of the manager's check to provide proof of available funds to Red Orange. On January 2, 2006, Kho picked up the manager's check from the bank, but his deal with Red Orange did not push through.

The Bank of the Philippine Islands (BPI) informed Land Bank that Red Orange had deposited the check for payment. Land Bank confirmed the deposited check. Kho later discovered that the check deposited and encashed was a spurious check and demanded its cancellation and the release of the remaining money in his account. Land Bank refused to cancel the check and claimed that Kho's account was already debited.

ISSUES:

  1. Whether the result of Land Bank's investigation is crucial to the resolution of the case.

  2. Whether Land Bank can be held liable for the loss suffered by Kho due to the fraudulent withdrawal of funds using a spurious manager's check.

  3. Whether Kho's negligence precludes him from asserting the forgery.

  4. Whether Land Bank officers Flores and Cruz have personal liability to Kho.

RULING:

  1. The result of Land Bank's investigation is not indispensable to resolving the case.

  2. Land Bank is liable for the loss suffered by Kho due to the fraudulent withdrawal of funds. The proximate cause of the loss was Land Bank's failure to recognize the forgery, clearing a counterfeit check instead.

  3. Kho's negligence does not preclude him from asserting the forgery, as it was Land Bank's responsibility to detect the spurious nature of the check.

  4. Flores and Cruz do not have personal liability to Kho. Their actions were performed in good faith, within the scope of their official duties.

PRINCIPLES:

  1. Banking Institutions Duty of Diligence Banks are obligated to treat their depositors' accounts with the highest degree of diligence due to the fiduciary nature of their relationship.

  2. Proximate Cause That cause, which, in a natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.

  3. Preclusion of Asserting Forgery A bank depositor is precluded from asserting forgery if the drawee bank can prove the depositor's negligence substantially contributed to the forgery or fraud.

  4. Manager’s Check A form of bill of exchange drawn by a bank upon itself, accepted upon its issuance, and representing a commitment of the bank’s integrity and resources.

  5. Public Trust in Banking The banking industry is imbued with public interest requiring banks to serve with utmost diligence to maintain public trust and confidence.