The discussions in the memorandum below may be useful to readers for legal research puposes. It involves the fraudulent encashment by an insurance agent of the checks of her clients, which the agent endorsed/discounted to a couple engaged in the check rediscounting business who had no knowledge of such frauds. The drawee and collecting banks honored the checks. Later, the collecting bank and the issuer caused the freezing of the accounts of the couple who rediscounted the forged checks. I represented the couple.
MEMORANDUM FOR THE PLAINTIFFS
THE PLAINTIFFS, by counsel, respectfully state:
X x x.
I. EVIDENCE OF THE PLAINTIFFS
A. TESTIMONIES OF THE PLAINTIFFS
A testified to prove their claims for TRO and Preliminary Injunction (provisional remedies) and for Damages (main case). The meat of their testimonies (direct, cross, re-direct, and re-cross) all proved the ultimate facts and the prayers alleged in their complaint. Thus:
1. A were the lawful owners of X Bank Account Nos. xxx (X Bank, xxx Branch, xxx City).
2. The cash balance of the said bank accounts as of the date of the complaint was Eight Hundred Forty One Thousand Seven Hundred Nineteen Pesos and Five Centavos (P 841, 719.05).
3. In 2000, A opened their said bank accounts with X Bank, xxx Branch, xxx City, with the assistance of its Manager, Mrs. B, per a business referral of a valued client/friend of the said branch manager.
4. The subject matters of the complaint were the said bank accounts.
5. X Bank and Y Insurance Co., in bad faith, had jointly worked together and agreed to freeze the said bank accounts.
6. The travails of A started in January 2001 when Z first approached A (a civilian employee of the xxx Police District) at the premises of the association of policemen of the (District) to endorse and negotiate, by way of rediscounting (at one percent [1%]) certain checks issued by Y Insurance Co. to its policyholders, who were clients of Z. The checks represented policy loans and other benefits due to the clients of Z. Z showed to A her written authority to endorse or rediscount the checks in behalf of her clients.
7. Since then, Z’s rediscounting of various checks issued by Y Insurance Co. had been repeated many times, up to October 2001, the time when X Bank and Y Insurance Co. acted together to freeze the bank accounts of A.
8. The total value of the rediscounted checks had reached the amount of P825,900.00 as of the time the bank accounts were jointly frozen by X Bank and Y Insurance Co. in October 2001.
9. Parenthetically, A had borrowed their capital for their small rediscounting business from a relative who was an overseas contract worker.
10. In October 2001 X Bank branch manager B verbally informed A that the bank was freezing their bank account because of an inquiry being made by Y Insurance Co. with the X Bank Head Office concerning the aforementioned rediscounted checks.
11. Since then, although the freeze order of B was only oral, A had been prevented from withdrawing from their bank accounts.
12. It was only in November 2001, after a demand letter was sent by the counsel for A that the branch manager reduced in writing the freeze order.
13. It appeared that in October 2001 the Y Insurance Co. Head Office had made initial verbal inquiries with the X Bank Head Office about the rediscounted checks.
14. In November 2001 Y Insurance Co. reduced in writing its inquiries.
15. X Bank froze the bank accounts of A in October 2001 even when the inquiry of Y Insurance Co. was merely verbal. The X Bank branch manager reduced in writing the freeze order only in November 2001.
16. As early as October 2001 the business transactions of A had been gravely affected by reason of the oral freeze order.
17. From November 2001 up to March 2002, A, assisted by counsel, exhausted all extrajudicial remedies to unfreeze their bank accounts. Various meetings and exchanges of letters and fax messages were made between and among A, X Bank, and Y Insurance Co. (assisted by their respective counsel).
18. A had assured Y Insurance Co. that they were prepared to cooperate with the said company in the prosecution of Z and that they were prepared to issue a sworn statement to the National Bureau of Investigation (NBI), to which Y Insurance Co. had allegedly referred the matter for investigation. Y Insurance Co. ignored it.
19. A had offered, as a sign of good faith, to issue to Y Insurance Co. a protective written undertaking to the effect that in the event that the justice system would declare A, by way of a final and executory judgment, to be liable to Y Insurance Co., they would comply therewith and would indemnify Y Insurance Co.
20. Y Insurance Co. ignored it, despite repeated follow-ups by A and despite various meetings from December 2001 to March 2002.
21. In a meeting on February 26, 2002 at 10:30 AM at the Law Division of X Bank Head Office attended by A (assisted by their counsel), X Bank (represented by its in-house counsel, Atty. Xxx, and its xxx branch manager B, and Y Insurance Co. (represented by its counsel, Atty. Xxx), X Bank assured A that insofar as X Bank was concerned A could withdraw anytime from their bank accounts in the absence of any court order to the contrary.
22. In the same meeting, Y Insurance Co. told A and their counsel to explore the idea of a BOND in favor of Y Insurance Co. so that Y Insurance Co. could withdraw its “adverse claim” and so that A could withdraw from their bank accounts.
23. In a matter of a few days thereafter, X Bank wrote A, thru counsel, making a complete turn-around in its position and stating that it shall release to Y Insurance Co., out of the frozen bank accounts of A, the amount of P825,900.00 being claimed by Y Insurance Co.. A protested X Bank’s sudden and mysterious reversal of its legal position. It was clear that X Bank and Y Insurance Co. had conspired at the expense of A.
24. According to statements of the abovenamed in-house counsel for Y Insurance Co. (Atty. Xxx) orally made during the aforementioned past legal meetings among the parties to this case prior to the commencement by A in this Court of the instant suit, Z was a part of a big in-house SYNDICATE inside Y Insurance Co. that preys on the policy loan checks and other benefit checks of its own innocent policy holders. The syndicate was apparently made up of middle and high ranking accountants, auditors, cashiers, executives and other corporate officers of Y Insurance Co.
25. A, thru counsel, had demanded from Y INSURANCE CO. a formal report on the results of its internal investigation of the in-house syndicate. Y INSURANCE CO. did not furnish A a copy of such report, if one existed at all.
26. Prior to the commencement of this case, A had exerted utmost efforts to locate Z at her alleged address in xxx, and to request her to issue a written statement on the subject of this complaint. A had asked Y Insurance Co. to give them the address of record of Z based on her 201 File in Y Insurance Co.. Y Insurance Co. did not act thereon.
27. A reserve their right to sue Z and her cohorts for deceit and estafa under the Revised Penal Code.
28. Y Insurance Co. had not initiated any judicial action against X Bank or A or Z, as of the time of the filing of the instant suit, to recover what it alleged to be its funds. Y Insurance Co. was happy with its “adverse claim” which it had filed with X Bank, despite the delays and the gridlock it had caused jointly with X Bank which had resulted in pecuniary injury to the small business and livelihood of A. Y Insurance Co. hoped to make such a recovery by virtue merely of an “adverse claim” filed with X Bank.
29. A felt that the applicable provisions of the Civil Code, the Central Bank Act, the General Banking Act, and the Negotiable Instruments Law did not allow such a convenient and expedient recovery by virtue merely of such pro-forma extrajudicial adverse claim; that X Bank did not have the authority, under the law, to release to Y Insurance Co. the funds of the frozen bank accounts of A, unless judicially ordered by a competent court after trial on the merits.
30. It must be noted that Y Insurance Co. filed a written adverse claim with X Bank only in February 2002, while X Bank and Y Insurance Co. jointly conspired to freeze the bank accounts of A as early as October 2001 or four months earlier.
31. A stressed that, acting in bad faith and with gross negligence amounting to bad faith, X Bank, by virtue merely of a verbal freeze order in October 2001 which was in turn based merely on an initial verbal inquiry by Y Insurance Co., prevented A from withdrawing from their bank accounts.
32. X BANK issued a written freeze order only after A, by counsel, had sent its branch manager B a demand letter in November 2001.
33. Initially, the legal position of X Bank was that unless judicially prevented by a court order, A could withdraw their funds anytime. That was clear during a joint legal meeting held on February 26, 2002 at the Law Division of X Bank Head Office attended by the parties and their respective counsel.
34. In a few days time thereafter, X Bank suddenly and mysteriously reversed its legal position and informed A, thru counsel, that it shall release to Y Insurance Co. the total amount it was claiming, with or without a court order. A were shocked and they protested in writing such a malicious and illegal decision of X Bank.
35. A prayed for actual damages of P841,719.05 (value of their frozen accounts); moral damages of at least P100,000.00; exemplary damages of at least P100,000.00; lawyer’s fees equal to 25 percent of the recoverable actual damages of P841,719.05 and appearance fees of P2,000.00 per hearing; litigation expenses of at least P100,000.00; and costs of suit.
36. In their complaint, A prayed for a temporary restraining order and a writ of preliminary injunction commanding X Bank to allow them to withdraw from their bank accounts to sustain their business, livelihood and support as senior citizens, retirees and small business persons and prohibiting X Bank from releasing the funds of the bank account to Y Insurance Co. pendente lite; otherwise, the acts of X Bank and Y Insurance Co. would work and produce a grave and irreparable injustice, damage and injury to A, who were being deprived of their lawful funds to maintain and operate their small business and to sustain their livelihood, sustenance, support and survival and senior citizens and retirees.
A, as bank depositors, had certain legal rights. One such right was to enjoy the ownership, possession and use of their own private funds as deposited in their bank accounts with X Bank. There was no judicial order prohibiting them from exercising such ownership rights over their bank accounts. X Bank had no legal power to prevent them from exercising their ownership rights over their own bank accounts, unless otherwise ordered by a competent court.
As to Z, it should be noted that A had filed estafa cases against her and she was indicted therefor in the Regional Trial Court of xxx (Branch xxx). However, because Z was at large, the cases had been archived.
Please note, too, that this Court had defaulted Z. Z has failed to participate in the trial of this case, despite due notice or service of summons upon her person.
B. EXHIBITS OF THE PLAINTIFFS
During the presentation of their evidence in chief the plaintiffs offered in evidence voluminous exhibits to prove their claim for damages, which were duly admitted by the Court, to wit:
1. Exh. A to A-13 - A copy of the Passbook of plaintiffs in re: their Account No. xxx in the name of Mrs. A opened and maintained with defendant X Bank’s xxx Branch, xxx City, showing a balance of P841,719.05 as of the filing of this suit, to prove the existence of the said bank account in the name of A and the balance thereof; and to form part of the testimonies of the plaintiffs;
2. Exh. B to B-3 - The letter-affidavit, dated March 25, 2002, of defendant Z addressed to the plaintiffs, to prove the due execution and authenticity thereof; to prove its contents; to prove that, per Par. 4 thereof, defendant Z has undertaken and held the plaintiffs free from any and all liabilities and damages that the plaintiffs might have sustained or will sustain in the future by reason of the endorsements of negotiation to the plaintiffs of the various checks subject matter of this pending suit and that Z has undertaken to defend the plaintiffs from any and all suits and claims for damages filed or will be filed in the future against them by any person or party; and to form part of the testimonies of the plaintiffs;
3. Exh. C - The letter, dated Nov. 8, 2001, of the undersigned counsel for the plaintiffs to the defendant X Bank’s xxx Branch Manager, Mrs. B, in re: plaintiffs’ S/A No. xxx and C/A No. xxx registered in the name of plaintiff A, to prove the due execution and authenticity thereof; to prove its contents; to form part of the testimonies of the plaintiffs; and to prove the fact of receipt thereof by Mrs. B;
4. Exh. D - The letter dated Nov. 8, 2001 of Mrs. B to plaintiffs to prove the due execution and authenticity thereof; to prove its contents; to form part of the testimonies of the plaintiffs; and to prove that as of such date defendant X Bank had officially frozen the subject bank accounts of plaintiffs;
5. Exh. E - The letter dated Dec. 3, 2001 of the counsel for plaintiffs addressed to Atty. Xxx, in-house counsel for defendant Y Insurance Co., to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the said addressee; and to form part of the testimonies of the plaintiffs;
6. Exh. F - The letter dated Dec. 18, 2001 of counsel for plaintiffs to the same Atty. Xxx, of defendant Y Insurance Co., to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
7. Exh. G - The letter dated Jan. 7, 2002 of counsel for plaintiffs to the same Atty. Xxx, of defendant Y Insurance Co., to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
8. Exh. H - The letter dated Jan. 7, 2002 of Atty. Xxx, of defendant Y Insurance Co.., to the counsel for plaintiffs, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
9. Exh. I - The letter dated Jan. 8, 2002 of counsel for plaintiffs to Mrs. B, defendant X Bank’s xxx Branch Manager, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; to prove that on such date plaintiffs, thru counsel, formally demanded that their subject bank accounts be unfrozen by defendant X Bank within three days from receipt of such letter; and to form part of the testimonies of the plaintiffs;
10. Exh. J - The letter dated Jan. 15, 2002 of counsel for plaintiffs to Atty. Xxx, of defendant Y Insurance Co., to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
11. Exh. K - The letter dated Feb. 6, 2002 of Atty. Xxx, of defendant Y Insurance Co., to defendant X Bank, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
12. Exh. L - The letter dated Feb. 14, 2002 of Mrs. B, of defendant X Bank, to plaintiffs, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
13. Exh. M - The letter dated Feb. 14, 2002 of counsel for plaintiffs to Atty. Xxx, of defendant Y Insurance Co.., copy furnished defendant X Bank’s Legal Division, thru Atty. Xxx, and defendant X Bank xxx Branch Manager, Mrs. B, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
14. Exh. N - The letter dated Jan. 15, 2002, of counsel for plaintiffs to Atty. Xxx, of defendant Y Insurance Co.., with the enclosure thereof and the registry receipt and return card, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
15. Exh. O - The letter dated Feb. 19, 2002 of counsel for plaintiffs to Atty. Xxx, of the Legal Division of defendant X Bank, copy furnished Atty. Xxx, of the defendant Y Insurance Co., and Mrs. B, defendant X Bank xxx Branch Manager, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
16. Exh. P - The letter dated Feb. 20, 2002 of counsel for plaintiffs to Atty. Xxx , of the Legal Division of defendant X Bank, copy furnished Atty. Xxx, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
17. Exh. Q - The letter dated Feb. 18, 2002 of Atty. Xxx, of defendant Y Insurance Co. Insurance Corp., to counsel for plaintiffs, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
18. Exh. R - The letter dated Feb. 20, 2002 of Atty. Xxx, of the Legal Division of defendant X Bank, to counsel for plaintiffs, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
19. Exh. S - The letter dated Feb. 26, 2002 of counsel for plaintiffs to Atty. Xxx (defendant X Bank) and Atty. Xxx (defendant Y Insurance Co.), with the registry receipts and the fax transmission report sheets, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; and to form part of the testimonies of the plaintiffs;
20. Exh. T - The letter dated March 5, 2002 of Atty. Xxx (defendant X Bank) to counsel for plaintiffs, with the letter envelope, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; to form part of the testimonies of the plaintiffs; and, specifically, to prove that defendant X Bank on such date had resolved to release the bank funds of plaintiffs to defendant Y Insurance Co.. (adverse claimant) for fear of defendant X Bank of future involvement in unnecessary litigation that might be filed by defendant Y insurance Co. against it which would involve huge litigation expenses on the part of X Bank.
21. Exh. U - The letter dated March 6, 2002 of counsel for plaintiffs to Atty. Xxx, sent by fax and registered mail, with the fax transmission report sheet and the registry receipt, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; to form part of the testimonies of the plaintiffs; and to prove that plaintiffs had given defendant Y Insurance Co. two days therefrom to approve or disapprove the proposal of plaintiffs to secure a protective surety bond in favor of Y Insurance Co. as part of the efforts of plaintiffs to request defendant X Bank to unfreeze their bank accounts;
22. Exh. V - The letter dated March 12, 2002 of counsel for plaintiffs to the plaintiffs, copy furnished by mail Atty. Xxx of defendant X Bank, Mrs. B of defendant X Bank, and Atty. Xxx of defendant Y Insurance Co.., sent via fax and mail, with the registry receipts, return card, and fax transmission report sheets, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressees; to form part of the testimonies of the plaintiffs;
23. Exh. W - The letter dated March 13, 2002 of counsel for plaintiffs to Atty. Xxx and Atty. Xxx of defendant X Bank, sent by fax and mail, with the fax transmission report sheet and registry receipt, copy furnished Mrs. B, of defendant X Bank, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressees; to form part of the testimonies of the plaintiffs; and to prove that plaintiffs had protested the sudden turn-around in the legal position of defendant X Bank, from the Feb. 26, 2002 legal meeting at the defendant X Bank’s Legal Division to the surprising March 5, 2002 letter of Atty. Xxx , of defendant X Bank;
24. Exh. X - The letter dated March 21, 2002 of counsel for plaintiffs to Atty. Xxx, of defendant Y Insurance Co.., to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressee; to form part of the testimonies of the plaintiffs
25. Exh. Y - The client’s record, dated Nov. 29, 2001, executed by plaintiffs and their counsel, to prove the due execution and authenticity thereof; to prove its contents; to form part of the testimonies of the plaintiffs; and to show the agreed professional fees of counsel for plaintiffs (25% of the frozen bank accounts if litigated; 10% in case of a compromise without litigation; partial advanced acceptance fee of P20,000; partial deposit for costs of suit of P10,000; and appearance fees of P2,000 per hearing).
26. Exh. Z to Z-2 - The affidavit of merit in support of plaintiffs’ motion for issuance of a writ of preliminary injunction, which is also part of the complaint on record, to prove the due execution and authenticity thereof; to prove its contents; and to form part of the testimonies of the plaintiffs;
27. Exh. AA - The subpoena issued by Fiscal xxx of xxx to plaintiffs, dated May 29, 2002, in re: the estafa case (26 counts) filed by plaintiffs against defendant Z, docketed as IS No. xxx and set for preliminary investigation on July 4 and 11, 2002 at 2:00 PM, to prove the due execution, authenticity, issuance and contents thereof and to form part of the testimonies of the plaintiffs;
28. Exh. BB - The subpoena (No. 173914), dated June 19, 2002, issued by the National Bureau of Investigation to the plaintiffs in connection with the complaint filed by Atty. Xxx, of defendant Y Insurance Co., for falsification of commercial documents and/or estafa against, against plaintiffs and Milagros Z, to prove the due execution, authenticity, issuance and contents of the said subpoena and to form part of the testimonies of the plaintiffs;
29. Exh. CC to CC-55 - The joint affidavit-complaint executed by plaintiffs against defendant Z for estafa (26 counts) docketed as IS No. xxx by the Office of the City Prosecutor of xxx, to prove the due execution and authenticity thereof; to prove its contents; to prove that plaintiffs have a pending estafa case against defendant Z; and to form part of the testimonies of the plaintiffs;
30. Exh. DD to DD-2 - The request for admission, dated June 4, 2002, of counsel for plaintiffs addressed Atty. Xxx, of defendant X Bank, copy furnish counsel for defendant X Bank and counsel for defendant Y Insurance Co.., with the registry receipts and the return cards, to prove the execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressees; to prove that plaintiffs had issued a request for admission to Atty. Xxx which he received on June 11, 2002 per the return card; and to form part of the testimonies of plaintiffs;
31. Exh. EE to EE-3 - the request for admission, dated June 4, 2002, of counsel for plaintiffs addressed to the vice president for administration of defendant Y Insurance Co., copy furnished counsel for defendant X Bank and counsel for defendant Y Insurance Co., with the registry receipts and return cards, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the addressees; to prove that plaintiffs had issued a request for admission to the vice president for administration of defendant Y Insurance Co. which he/she received on June 10, 2002, per the return card; and to form part of the testimonies of plaintiffs. (NOTE - The said adverse addressee did not reply thereto within the mandated 15-day period from receipt thereof).
32. Exh. FF to FF- 4 - The OR Nos. 2611571, 14580275, 4682328, 14580911, and 0347570A, all dated April 1, 2002, issued by the Clerk of Court of xxx City, to prove the due execution, authenticity, issuance and contents thereof; to prove the docket and filing fees incurred by plaintiffs in filing the instant suit; to form part of the testimonies of plaintiffs;
33. Exh. GG and GG-19 - The summary of acceptance fees (lawyers’ fees), appearance fees and costs of litigation as of May 27, 2002 signed by counsel for plaintiffs and the plaintiffs, to prove the due execution and authenticity thereof; to prove its contents; and to form part of the testimonies of plaintiffs;
34. Exh. HH to HH-3 - The answer to plaintiffs’ request for admissions signed by xxx, of defendant X Bank, dated June 25, 2002, thru counsel for defendant X Bank, to prove the fact of filing thereof in court by Atty. Xxx, thru counsel for defendant X Bank on June 25, 2002, within the 15-day period allowed by the Rules of Court; to prove the fact of receipt thereof by counsel for plaintiffs on such date; and to form part of the testimonies of plaintiffs.
35. Exh. II to II-1 - The letter dated June 21, 2002 of counsel for plaintiffs to the National Bureau of Investigation, to prove the due execution and authenticity thereof; to prove its contents; to prove the fact of receipt thereof by the NBI; to form part of the testimonies of plaintiffs; and to prove that plaintiffs had furnished the NBI copies of all relevant documents to aid it in its investigation and that they are cooperating with the NBI on the matter.
FURTHER, the Court had noted the tender of excluded evidence (dated May 22, 2007) of the plaintiffs containing various documentary evidence (marked as Annex “A” to “A-44” thereof) proving the updated amounts of the lawyer’s fees and related litigation expenses that they had incurred in the course of the long trial of this case up to the date of writing of such offer, such as, Acceptance Fees, Appearance Fees, Miscellaneous Legal Fees, Injunction Bond Expenses, Transcripts of Stenographic Notes Expenses, and Bail Bond Expenses.
The said updated litigation expenses and lawyer’s fees amounted to P462, 901.75 as of the date of filing of the tender of excluded evidence.
II. ISSUES
The sole issue form the vantage of the plaintiffs is whether or not they are entitled to damages as prayed for in their complaint.
III. DISCUSSION
As their basic defense, X Bank (and by accession Y Insurance Co.) argue that the application and agreement for deposit account signed by the private respondents automatically empowers the bank to “charge back” any item previously credited if it should subsequently receive notice and proof that any item is invalid by reason of forgery or otherwise or that the depositor is not entitled to the proceeds
thereof or will subject the bank to liability by reason of its guarantee of prior endorsement or for any other reasons; that under the said application/agreement for deposit account an affidavit of the payee, endorser or other party to the instrument attesting to the forgery of any signature of endorsement thereon or to the alteration of any material part thereof or to any fact which puts in question the right of the depositor to the proceeds shall be considered sufficient proof and notice; that A had previously executed a Warranty which stipulated that they were freeing the petitioner bank from any responsibility that may arise as a result of the opening of the bank account of the private respondents.
A, on the contrary, humbly posits the view that the above-mentioned provision of the application/agreement is not an ipso facto or automatic grant of blanket authority to the petitioner bank to rule, resolve, and adjudicate a legal and factual controversy between the depositors and the adverse claimant Y Insurance Co.. Neither does it deprive the trial courts of their power of judicial review under Article VIII of the 1987 Constitution. Nor does it deprive A of their basic constitutional right to due process, equal protection of the law, and access to the courts. To allow the automatic operation and unilateral implementation of the said provision by the petitioner bank, without judicial intervention, would make the petitioner bank the prosecutor, the judge and the executor/sheriff of its own selfish decision to freeze the bank account of the private respondents and to release the same to Y Insurance Co.
A further submits that the foregoing theory applies in respect of the Warranty relied upon by the bank as a defense. The warranty operates only if there is a final judicial determination of fault, bad faith and liability on the part of A. Good faith on the part of A is presumed by the Rules of Evidence, in respect of the endorsements of the checks deposited in their subject bank account, unless proved otherwise.
The record of this case will show that to unjustly prolong the freezing of the A accounts, X Bank even went up by Rule 65 petition for certiorari to the Court of Appeals and the Supreme Court to question the TRO and writ of preliminary injunction issued by this Court, thus delaying the opportunity of A to mobilize and use the economic value of their frozen funds for business and personal purposes, e.g. support, maintenance, health café, and education of their young daughter. (The CA and the SC both denied X Bank’s certiorari petition).
The bank does not claim ownership of the funds in the subject accounts. It acknowledges that the owners thereof are A. The bank acknowledges that fact. There was no existing judicial or quasi-judicial judgment or order issued by any court or agency preventing A from withdrawing from their subject accounts or empowering the bank to turn over the funds thereof to Y Insurance Co.. The evidence in this case show that Y Insurance Co. did not ask X Bank to freeze A’s accounts but that the bank unilaterally froze the accounts for fear that it might incur litigation expenses when a court action is later filed by either A or Y Insurance Co. against each other or against the bank. The bank, in bad faith or with gross negligence, unilaterally froze the bank account of A after promising and declaring to A during a legal meeting at the Law Division of the petitioner bank held on February 26, 2002, in the presence of all the parties concerned, that unless ordered otherwise by a court, the petitioner would allow the private respondents to withdraw from their bank account and that it would not turn over the funds thereof to Y Insurance Co.. Had the trial court not issued a TRO and WPI, the bank would have surely turned over all the funds in the frozen accounts to Y Insurance Co., which would have left A desperate and hopeless.
The bank argues that because it has the alleged right to “charge back” the private respondents for whatever allegedly “illegal transactions” may have taken place involving the deposit accounts of the latter, then it has the right to hold on to the funds of the private respondents. But “to hold on” to the funds was not what the petitioner was attempting to do. The bank was attempting to release, surrender and turn over the funds of the private respondents to Y Insurance Co., without any legal basis or judicial order to do so; and, further, it was preventing A from making use of their own private funds for their small business and sustenance as senior citizens on the basis solely of the pressures coming from Y Insurance Co.. Based on the evidence presented in the instant case, it is fair to conclude that X Bank and Y Insurance Co. had cooperated and conspired with each other to freeze the A accounts, hoping that they could preempt the courts from restraining them, Such a conspiracy had resulted in a fraudulent pecuniary harm to the old and pitiful A couple.
In the case of PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA), petitioner, vs. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents, G.R. No. 121413. January 29, 2001, which also involved an organized syndicate (as in the case of a syndicate inside Y INSURANCE CO. in the instant case, where Z was a member), is instructive, because it held liable the three (3) concerned parties for damages arising from their respective negligence: FORD, which was the drawer/payor of the checks; CITIBANK, which was the drawee bank of Ford; and PCIBANK, which was the collecting bank. THUS:
Xxxx
In this case, we note that the direct perpetrators of the offense, namely the embezzlers belonging to a syndicate, are now fugitives from justice. They have, even if temporarily, escaped liability for the embezzlement of millions of pesos. We are thus left only with the task of determining who of the present parties before us must bear the burden of loss of these millions. It all boils down to the question of liability based on the degree of negligence among the parties concerned.
Foremost, we must resolve whether the injured party, Ford, is guilty of the “imputed contributory negligence” that would defeat its claim for reimbursement, bearing in mind that its employees, Godofredo Rivera and Alexis Marindo, were among the members of the syndicate.
Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate the checks to his co-conspirators, instead of delivering them to the designated authorized collecting bank (X Bank-Alabang) of the payee, CIR. Citibank bewails the fact that Ford was remiss in the supervision and control of its own employees, inasmuch as it only discovered the syndicate’s activities through the information given by the payee of the checks after an unreasonable period of time.
PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to divert the proceeds of Citibank Check No. SN-04867, instead of using it to pay the BIR. As to the subsequent run-around of funds of Citibank Check Nos. SN-10597 and 16508, PCIBank claims that the proximate cause of the damage to Ford lies in its own officers and employees who carried out the fraudulent schemes and the transactions. These circumstances were not checked by other officers of the company, including its comptroller or internal auditor. PCIBank contends that the inaction of Ford despite the enormity of the amount involved was a sheer negligence and stated that, as between two innocent persons, one of whom must suffer the consequences of a breach of trust, the one who made it possible, by his act of negligence, must bear the loss.
For its part, Ford denies any negligence in the performance of its duties. It avers that there was no evidence presented before the trial court showing lack of diligence on the part of Ford. And, citing the case of Gempesaw vs. Court of Appeals. Ford argues that even if there was a finding therein that the drawer was negligent, the drawee bank was still ordered to pay damages.
Furthermore, Ford contends that Godofredo Rivera was not authorized to make any representation in its behalf, specifically, to divert the proceeds of the checks. It adds that Citibank raised the issue of imputed negligence against Ford for the first time on appeal. Thus, it should not be considered by this Court.
On this point, jurisprudence regarding the imputed negligence of employer in a master-servant relationship is instructive. Since a master may be held for his servant’s wrongful act, the law imputes to the master the act of the servant, and if that act is negligent or wrongful and proximately results in injury to a third person, the negligence or wrongful conduct is the negligence or wrongful conduct of the master, for which he is liable. The general rule is that if the master is injured by the negligence of a third person and by the concurring contributory negligence of his own servant or agent, the latter’s negligence is imputed to his superior and will defeat the superior’s action against the third person, assuming, of course that the contributory negligence was the proximate cause of the injury of which complaint is made.
Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford’s General Ledger Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of the loss or damage. As defined, proximate cause is that which, in the natural and continuous sequence, unbroken by any efficient, intervening cause produces the injury, and without which the result would not have occurred.
It appears that although the employees of Ford initiated the transactions attributable to an organized syndicate, in our view, their actions were not the proximate cause of encashing the checks payable to the CIR. The degree of Ford’s negligence, if any, could not be characterized as the proximate cause of the injury to the parties.
The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to recall Citibank Check No. SN-04867. Rivera’s instruction to replace the said check with PCIBank’s Manager’s Check was not in the ordinary course of business which could have prompted PCIBank to validate the same.
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that these checks were made payable to the CIR. Both were crossed checks. These checks were apparently turned around by Ford’s employees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-payor’s confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer. This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession.
With respect to the negligence of PCIBank in the payment of the three checks involved, separately, the trial courts found variations between the negotiation of Citibank Check No. SN-04867 and the misapplication of total proceeds of Checks SN-10597 and 16508. Therefore, we have to scrutinize, separately, PCIBank’s share of negligence when the syndicate achieved its ultimate agenda of stealing the proceeds of these checks.
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It was coursed through the ordinary banking transaction, sent to Central Clearing with the endorsement at the back “all prior endorsements and/or lack of endorsements guaranteed,” and was presented to Citibank for payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared two of its Manager’s checks and enabled the syndicate to encash the same.
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIBank employees to verify whether his letter requesting for the replacement of the Citibank Check No. SN-04867 was duly authorized, showed lack of care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty bound to consult its principal regarding the unwarranted instructions given by the payor or its agent. As aptly stated by the trial court, to wit:
“x x x. Since the questioned crossed check was deposited with IBAA [now PCIBank], which claimed to be a depository/collecting bank of the BIR, it has the responsibility to make sure that the check in question is deposited in Payee’s account only.
x x x x x
As agent of the BIR (the payee of the check), defendant IBAA should receive instructions only from its principal BIR and not from any other person especially so when that person is not known to the defendant. It is very imprudent on the part of the defendant IBAA to just rely on the alleged telephone call of one Godofredo Rivera and in his signature to the authenticity of such signature considering that the plaintiff is not a client of the defendant IBAA.”
It is a well-settled rule that the relationship between the payee or holder of commercial paper and the bank to which it is sent for collection is, in the absence of an agreement to the contrary, that of principal and agent. A bank which receives such paper for collection is the agent of the payee or holder.
Even considering arguendo, that the diversion of the amount of a check payable to the collecting bank in behalf of the designated payee may be allowed, still such diversion must be properly authorized by the payor. Otherwise stated, the diversion can be justified only by proof of authority from the drawer, or that the drawer has clothed his agent with apparent authority to receive the proceeds of such check.
Citibank further argues that PCI Bank’s clearing stamp appearing at the back of the questioned checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS GUARANTEED should render PCIBank liable because it made it pass through the clearing house and therefore Citibank had no other option but to pay it. Thus, Citibank asserts that the proximate cause of Ford’s injury is the gross negligence of PCIBank. Since the questioned crossed check was deposited with PCIBank, which claimed to be a depository/collecting bank of the BIR, it had the responsibility to make sure that the check in question is deposited in Payee’s account only.
Indeed, the crossing of the check with the phrase “Payee’s Account Only,” is a warning that the check should be deposited only in the account of the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that the check be deposited in payee’s account only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize the check and to know its depositors before it could make the clearing endorsement “all prior endorsements and/or lack of endorsement guaranteed”.
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation, we ruled:
“Anent petitioner’s liability on said instruments, this court is in full accord with the ruling of the PCHC’s Board of Directors that:
‘In presenting the checks for clearing and for payment, the defendant made an express guarantee on the validity of “all prior endorsements.” Thus, stamped at the back of the checks are the defendant’s clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the checks.’
No amount of legal jargon can reverse the clear meaning of defendant’s warranty. As the warranty has proven to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation.”
Lastly, banking business requires that the one who first cashes and negotiates the check must take some precautions to learn whether or not it is genuine. And if the one cashing the check through indifference or other circumstance assists the forger in committing the fraud, he should not be permitted to retain the proceeds of the check from the drawee whose sole fault was that it did not discover the forgery or the defect in the title of the person negotiating the instrument before paying the check. For this reason, a bank which cashes a check drawn upon another bank, without requiring proof as to the identity of persons presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third party. In such cases the drawee bank has a right to believe that the cashing bank (or the collecting bank) had, by the usual proper investigation, satisfied itself of the authenticity of the negotiation of the checks. Thus, one who encashed a check which had been forged or diverted and in turn received payment thereon from the drawee, is guilty of negligence which proximately contributed to the success of the fraud practiced on the drawee bank. The latter may recover from the holder the money paid on the check.
Having established that the collecting bank’s negligence is the proximate cause of the loss, we conclude that PCIBank is liable in the amount corresponding to the proceeds of Citibank Check No. SN-04867.
X x x.
In this case, there was no evidence presented confirming the conscious participation of PCIBank in the embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment. It may be liable for the tortuous acts of its officers even as regards that species of tort of which malice is an essential element. In this case, we find a situation where the PCIBank appears also to be the victim of the scheme hatched by a syndicate in which its own management employees had participated.
The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check Numbers SN 10597 and 16508. He passed the checks to a co-conspirator, an Assistant Manager of PCIBank’s Meralco Branch, who helped Castro open a Checking account of a fictitious person named “Reynaldo Reyes.” Castro deposited a worthless Bank of America Check in exactly the same amount of Ford checks. The syndicate tampered with the checks and succeeded in replacing the worthless checks and the eventual encashment of Citibank Check Nos. SN 10597 and 16508. The PCIBank Pro-manager, Castro, and his co-conspirator Assistant Manager apparently performed their activities using facilities in their official capacity or authority but for their personal and private gain or benefit.
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or representations of an officer or agent acting within the course and apparent scope of his employment or authority. And if an officer or employee of a bank, in his official capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for collection, the bank is liable for his misappropriation of such sum.
Moreover, as correctly pointed out by Ford, Section 5 of Central Bank Circular No. 580, Series of 1977 provides that any theft affecting items in transit for clearing, shall be for the account of sending bank, which in this case is PCIBank.
But in this case, responsibility for negligence does not lie on PCIBank’s shoulders alone.
The evidence on record shows that Citibank as drawee bank was likewise negligent in the performance of its duties. Citibank failed to establish that its payment of Ford’s checks were made in due course and legally in order. In its defense, Citibank claims the genuineness and due execution of said checks, considering that Citibank (1) has no knowledge of any infirmity in the issuance of the checks in question (2) coupled by the fact that said checks were sufficiently funded and (3) the endorsement of the Payee or lack thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to honor and pay the same.
For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute and contractual duty to pay the proceeds of the subject check only to the payee thereof, the CIR. Citing Section 62 of the Negotiable Instruments Law, Ford argues that by accepting the instrument, the acceptor which is Citibank engages that it will pay according to the tenor of its acceptance, and that it will pay only to the payee, (the CIR), considering the fact that here the check was crossed with annotation “Payees Account Only.”
As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by Ford on Citibank Checks Numbers SN 10597 and 16508, because of the contractual relationship existing between the two. Citibank, as the drawee bank breached its contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter. On this score, we agree with the respondent court’s ruling.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time. For this reason, Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view, constitutes negligence in carrying out the bank’s duty to its depositors. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.
Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank and Citibank failed in their respective obligations and both were negligent in the selection and supervision of their employees resulting in the encashment of Citibank Check Nos. SN 10597 and 16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR.
Time and again, we have stressed that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be very high, if not the highest, degree of diligence. A bank’s liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment.
Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.
Xxxxx
Finally, we also find that Ford is not completely blameless in its failure to detect the fraud. Failure on the part of the depositor to examine its passbook, statements of account, and cancelled checks and to give notice within a reasonable time (or as required by statute) of any discrepancy which it may in the exercise of due care and diligence find therein, serves to mitigate the banks’ liability by reducing the award of interest from twelve percent (12%) to six percent (6%) per annum. As provided in Article 1172 of the Civil Code of the Philippines, responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. In quasi-delicts, the contributory negligence of the plaintiff shall reduce the damages that he may recover
Xxxx
IN CLOSING, it will be noted that the alleged victims/clients of Y Insurance Co. (insurance clients of Z), whose signatures were allegedly forged and who had allegedly executed their individual affidavits, WERE NOT PRESENTED IN COURT FOR CROSS EXAMINATION. Thus, their affidavits were all HEARSAY EVIDENCE and inadmissible under the Rules of Evidence. The only witnesses of Y Insurance Co. were (a) its in-house lawyers, who had no direct knowledge of the events and who did not even submit to the Court their alleged in-house investigation report and (b) its accounting staff, who also did not have direct knowledge of the events and who simply testified that they allegedly reversed the entries in their ledgers (to be re-credited in the names of the clients) and who merely submitted ordinary bond-papers print-outs in non-security papers and non-serialized papers of such reversal entries. Moreover, Y Insurance Co. ultimately withdrew its estafa cases against A in the concerned RTC branches of xxx City (Branches xxx) after realizing the innocence of the latter.
IV. PRAYER
WHEREFORE, premises considered, A respectfully pray for a judgment for damages in their favor and against the defendants as proved by the evidence on record.
FURTHER, A prays for such and other reliefs as the Court may deem just and equitable in the premises.
Las Pinas City, January 10, 2008.
LASERNA CUEVA-MERCADER
& ASSOCIATES LAW OFFICES
Counsel for Plaintiffs
Unit 15, Star Arcade, C.V. Starr Ave.
Philamlife Village, Las Pinas City
Tel/Fax Nos. 8742539 & 8725443
MANUEL J. LASERNA JR.
Roll No. 33640, 4/27/85
IBP Lifetime Member No. 1907
IBP PPLM Chapter
PTR No. 9628887, 1/7/08, Las Pinas
MCLE Exemption No. II-000844, 3/31/07
Sec. 40, Rule 132: SEC. 40. Tender of excluded evidences. – If documents or things offered in evidence are excluded by the court, the offeror may have the same attached to or made part of the record, if the evidence excluded is oral, the offeror may state for the record the name and other personal circumstances of the witness and the substance of the proposed testimony. (n)