FACTS:

The case involves two appeals filed by Metropolitan Bank and Trust Company (Metrobank) and Bank of Commerce (Bankcom) against the decision of the Court of Appeals (CA). The respondent, Junnel's Marketing Corporation (JMC), is a domestic corporation engaged in selling wines and liquors and has a current account with Metrobank.

During an audit of its financial records, JMC discovered that 11 checks it issued to Jardine Wines and Spirits and Premiere Wines were not covered by any official receipt from the suppliers. Further investigation revealed that these checks were deposited with Bankcom, Dau branch, under an account that did not belong to the suppliers.

The former JMC accountant, Purificacion Delizo, confessed to stealing company checks and collaborating with an unknown bank manager to deposit and encash them. JMC filed a complaint against Delizo, Bankcom, and Metrobank, alleging that the conversion of the checks was due to Delizo's actions and the negligence of Bankcom and Metrobank.

The RTC held Bankcom and Metrobank liable to JMC for the amount of the checks, but absolved Delizo from any liability. Metrobank's cross-claim against Bankcom was dismissed. Both parties appealed the decision.

The subject checks were not forged but were stolen by unknown individuals and wrongfully encashed due to the negligence of Bankcom and Metrobank. There was no evidence linking Delizo to the acquisition and negotiation of the checks. Delizo's supposed confession was deemed unreliable as it was made under duress.

Bankcom accepted the checks for deposit under an account that did not belong to the payees. Metrobank failed to scrutinize the checks before clearing and honoring them. Bankcom and Metrobank were held liable to JMC in a 2/3 to 1/3 ratio. The Court of Appeals affirmed the decision with modifications, deleting the award of attorney's fees and modifying the rate of interest.

The CA held that Metrobank was negligent in failing to ensure that only four out of the 11 subject checks were stamped with the required guarantees. Both Bankcom and Metrobank appealed for their absolution. Metrobank argued that it exercised diligence in verifying the genuineness of the checks and that the lack of guarantees on the checks was not grounds for non-payment. Bankcom argued that it was not a party to the wrongful encashment and that JMC should bear the loss due to faulty accounting procedures.

ISSUES:

1. Whether Metrobank and Bankcom are entitled to absolution.

2. Whether Metrobank and Bankcom should be held sequentially liable for the entire amount of the subject checks.

3. Whether Metrobank is liable to return the amount of the subject checks to JMC.

4. Whether Bankcom is liable to return the value of the subject checks to Metrobank.

5. Whether the stamping of guarantees on the checks is necessary to fix Bankcom's liability as an indorser for all the subject checks.

6. Whether Bankcom has the right of recourse against the persons that caused the unauthorized deposit of the checks.

7. Whether Metrobank can seek reimbursement from Bankcom for the unauthorized check payments

8. Whether the doctrine of comparative negligence can be applied to apportion liabilities between Metrobank and Bankcom

9. Whether the Metropolitan Bank and Trust Company (Metrobank) is liable to pay Junnel's Marketing Corporation (JMC) the principal amount of P1,481,292.00.

10. Whether Bank of Commerce (Bankcom) is liable to pay Metrobank the principal amount of P1,481,292.00.

RULING:

1. Metrobank and Bankcom are not entitled to absolution.

2. Metrobank is liable to return to JMC the entire amount of the subject checks plus interest, while Bankcom is liable to reimburse Metrobank the same amount plus interest.

3. Metrobank is liable to return the amount of the subject checks to JMC. Metrobank breached JMC's instructions when it paid the value of the checks to Bankcom for the benefit of an unauthorized account. Metrobank cannot be absolved of liability based on its compliance with the PCHC Rules and Regulations, as it is under strict liability to its drawer (JMC).

4. Bankcom is liable to return the value of the subject checks to Metrobank. Bankcom guaranteed to Metrobank that the checks had been deposited with an account that has good title to them, which was a false guaranty. As the checks were paid under Bankcom's false guaranty, Bankcom stands liable to return the value of the checks to Metrobank.

5. The stamping of guarantees on the checks is not necessary to fix Bankcom's liability as an indorser. The mere act of presenting the checks for payment to the drawee bank is already an assertion by the collecting bank that it had done its duty to ascertain the validity of prior endorsements. Furthermore, Section 17 of the PCHC Rules and Regulations provides that checks cleared through the PCHC that do not bear the mentioned guarantees shall still be deemed guaranteed by the collecting bank as to all prior endorsements and/or lack of endorsement as long as there is evidence on the checks themselves that they had been deposited with the collecting bank. In this case, all the subject checks have been transmitted by Bankcom to the PCHC for clearing and presentment to Metrobank, and all of the checks bear the PCHC machine sprayed tracer/ID band of Bankcom. Therefore, Bankcom is liable to reimburse Metrobank the value of the checks.

6. Bankcom has the right of recourse against the persons that caused the unauthorized deposit of the checks and received payments therefor. However, since none of such persons were impleaded in the case, no pronouncement can be made in favor of Bankcom.

7. Metrobank can seek reimbursement from Bankcom for the unauthorized check payments. While Metrobank acted negligently in making the unauthorized payments, it relied on the guarantees made by Bankcom under prevailing banking practices. While Metrobank is still liable to JMC, it has the right to seek reimbursement from Bankcom for breaching its warranties as a collecting bank.

8. The doctrine of comparative negligence cannot be applied to apportion liabilities between Metrobank and Bankcom. The liabilities of Metrobank and Bankcom must be governed by the rule on sequential recovery pursuant to Bank of America. The factual circumstances of this case are different from the cases of Bank of the Philippine Islands and Allied Banking Corporation, where the drawee banks were held co-liable with the collecting banks. Metrobank cannot be held to the same standard of negligence as those drawee banks.

9. Metrobank is liable to pay JMC the principal amount of P1,481,292.00, and interest on the said principal at the rate of 6% per annum from 28 January 2002 until full satisfaction.

10. Bankcom is liable to pay Metrobank the principal amount of P1,481,292.00, and interest on the said principal at the rate of 6% per annum from 5 March 2003 until full satisfaction.

PRINCIPLES:

• In cases of unauthorized payment of valid checks, the drawee bank becomes liable to the drawer for the amount of the checks but can seek reimbursement from the collecting bank.

• The liability of the drawee bank is based on its contract with the drawer and its duty to charge only those payables authorized by him.

• The liability of the collecting bank is based on its guarantees as the last endorser of the check.

• The collecting bank generally suffers the loss in check transactions because it has the duty to ascertain the genuineness of all prior endorsements.

• If any warranties made by the collecting bank turn out to be false, then the drawee bank may recover from it up to the amount of the check.

• The liability of the drawee bank to the drawer in cases of unauthorized payment of checks is strict by nature, attaching even if the drawee bank acted merely upon the guarantees of the collecting bank.

• The drawee bank is under strict liability to its drawer to pay the check only to the payee or the payee's order.

• The collecting bank assumes the warranties of an indorser when it presents a check to the drawee bank for payment.

• If any of the warranties of the collecting bank is false, it becomes liable to the drawee bank for payments made under such false warranty.

• A collecting bank has the duty to ascertain the genuineness of all prior endorsements and the act of presenting a check for payment to the drawee bank is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements.

• Section 17 of the PCHC Rules and Regulations provides that checks cleared through the PCHC shall be deemed guaranteed by the collecting bank as to all prior endorsements and/or lack of endorsement, even without the stamping of guarantees, as long as there is evidence on the checks themselves that they had been deposited with the collecting bank.

• In cases of unauthorized payment of checks, the sequence of recovery starts with the collecting bank, and the collecting bank can seek reimbursement from the persons who caused the checks to be deposited and received the unauthorized payments.

• The doctrine of comparative negligence does not apply in cases where the factual context is different.

• Drawee banks can be held liable for wrongfully paying a check and for negligence in issuing the check.

• Collecting banks can be held liable for unauthorized check payments and breach of warranties.

• Comparative negligence may not be applied to apportion liabilities in cases of unauthorized check payments.

• Legal interest may be imposed on the principal liabilities of banks. The rate of interest depends on the type of obligation breached.

• Current accounts, like all bank deposits, are considered loans under the law.

• The liabilities of banks are subject to legal interest rates as determined by the court.