Allied Banking Corporation vs. Lim Sio Wan

Where both the drawee bank and the collecting bank are negligent in the issuance and handling of a check with a forged endorsement, liability is apportioned based on comparative negligence; further, the employer of the impostor who orchestrated the fraud is liable to reimburse the banks under the principle of unjust enrichment, not quasi-delict, absent a criminal conviction.

Lim Sio Wan maintained a money market placement with Allied Banking Corporation. An impostor, posing as Lim Sio Wan, telephoned an Allied officer to pre-terminate the placement and issue a manager’s check payable to Lim Sio Wan, directing that the check be released to Deborah Dee Santos. Without requiring written authorization or verifying the instruction, Allied issued the cross-checked manager's check and released it to Santos. Santos then deposited the check into the account of Filipinas Cement Corporation at Metropolitan Bank and Trust Company, forging Lim Sio Wan’s endorsement. Metrobank stamped its guarantee of all prior endorsements and cleared the check through the Philippine Clearing House Corporation. Allied funded the check without verifying the authenticity of the endorsement. The amount was credited to FCC’s account, which was then applied to offset the matured money market placement of FCC with Producers Bank, Santos’s employer.

• The Money Market Placement: On November 14, 1983, Lim Sio Wan deposited a money market placement of PhP 1,152,597.35 with Allied Banking Corporation, maturing on December 15, 1983.
• The Fraudulent Pre-termination: On December 5, 1983, a person claiming to be Lim Sio Wan called Allied officer Cristina So, instructing the pre-termination of the placement and the issuance of a manager's check to be given to Deborah Dee Santos. So complied, and the check was released to Santos without requiring written authorization, the certificate of placement, or a callback verification.
• The Forged Endorsement: The manager's check was cross-checked "For Payee’s Account Only." Santos deposited the check into the account of Filipinas Cement Corporation at Metrobank, forging Lim Sio Wan’s endorsement.
• The Clearing Process: Metrobank stamped the check with the guaranty: "All prior endorsements and/or lack of endorsement guaranteed." The check was sent to Allied through the PCHC. Allied funded the check without checking the authenticity of the indorsement.
• The Underlying Obligation: FCC had a matured money market placement with Producers Bank, where Santos was the assigned money market trader. The deposit of the Allied check was purportedly Producers Bank’s payment of its obligation to FCC.
• Discovery and Demand: On December 14, 1983, Lim Sio Wan went to Allied to withdraw her placement and was informed of the pre-termination. She denied authorizing it. After an unfulfilled promise by Allied's manager to recover the money, Lim Sio Wan sent a formal demand on January 24, 1984. Allied refused payment, claiming authorization.

• Authorization of Pre-termination: Petitioner Allied argued that Lim Sio Wan authorized the pre-termination of her placement and the subsequent release of the check to Santos.
• Producers Bank's Liability: Petitioner maintained that Producers Bank should be held liable as the employer of Santos under Article 2180 of the Civil Code on vicarious liability for quasi-delicts, or under Article 103 of the Revised Penal Code on subsidiary liability.
• Metrobank as Proximate Cause: Petitioner argued that Metrobank was the proximate cause of the loss, asserting that as the collecting bank, its failure to verify the genuineness of the endorsement and its guarantee of prior endorsements constituted the last negligent act contributing to the injury.

• Allied's Negligence: Respondent Lim Sio Wan and Metrobank argued that Allied was negligent in releasing the check without proper verification or written authorization from the depositor.
• Inapplicability of Quasi-Delict: Respondent Producers Bank argued that Article 2180 of the Civil Code does not apply to civil liability arising from a delict, and Article 103 of the Revised Penal Code requires a prior criminal conviction of the employee, which was absent here.
• Unjust Enrichment: The principle was invoked, notably by Allied and adopted by the Court, asserting that the proceeds of Lim Sio Wan's placement were deposited in FCC's account without justification, thereby extinguishing Producers Bank's indebtedness to FCC and unjustly enriching Producers Bank at Lim Sio Wan's expense.

• Authorization: Whether Lim Sio Wan authorized the pre-termination of her money market placement and the release of the proceeds to Deborah Dee Santos.
• Employer Liability: Whether Producers Bank is liable as the employer of Santos under Article 2180 of the Civil Code or Article 103 of the Revised Penal Code.
• Apportionment of Liability: Whether the liability for the loss should be apportioned between Allied and Metrobank based on comparative negligence, notwithstanding the general rule that the collecting bank guarantees all prior endorsements.

• Authorization: No authorization was given by Lim Sio Wan. The factual findings of the trial court, affirmed by the appellate court, regarding the lack of authorization and the credibility of the bank officer are binding and conclusive upon the Supreme Court.
• Employer Liability: Producers Bank cannot be held liable under Article 2180 of the Civil Code because vicarious liability for quasi-delicts does not apply to civil liability arising from delicts. Neither can Article 103 of the Revised Penal Code apply, as subsidiary liability requires the prior conviction of the employee, which did not occur. However, Producers Bank is liable under Article 22 of the Civil Code on unjust enrichment, having benefited from the extinguishment of its debt to FCC at the expense of Lim Sio Wan.
• Apportionment of Liability: Liability was properly apportioned 60% to Allied and 40% to Metrobank. While the general rule holds the collecting bank liable for forged endorsements due to its warranty of all prior endorsements, an exception exists when the drawee bank is negligent in issuing the check. Allied's negligence in releasing the check without written authorization or verification was the proximate cause of the loss. Metrobank was concurrently negligent in indorsing the check without verifying the authenticity of the endorsement and accepting a cross-checked check for deposit into an account other than the payee's.

• Comparative Negligence in Negotiable Instruments — When both the drawee bank and the collecting bank are negligent in the handling of a check with a forged endorsement, liability is apportioned between them based on their relative negligence and participation in the loss, applying Article 2179 of the Civil Code by analogy. The general rule holding the collecting bank solely liable for forged endorsements is subject to exception when the drawee bank's negligence in issuing the check contributed to the fraud.
• Unjust Enrichment (Article 22, Civil Code) — There is unjust enrichment when: (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. A person who retains money or property of another against the principles of justice, equity, and good conscience must return the same. Applied to hold Producers Bank liable to reimburse the banks, as its debt to FCC was extinguished by funds belonging to Lim Sio Wan.
• Money Market Placement as Mutuum — A money market placement is in the nature of a simple loan or mutuum, governed by the provisions on simple loan. The depositor is the creditor, and the bank is the debtor obligated to pay upon demand or maturity.
• Payment to a Wrong Party — Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor if no fault or negligence is imputed to the latter. Such payment is void and does not prejudice the creditor or suspend the accrual of interest.

• "Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no fault or negligence which can be imputed to the latter. Even when the debtor acted in utmost good faith and by mistake as to the person of his creditor, or through error induced by the fraud of a third person, the payment to one who is not in fact his creditor, or authorized to receive such payment, is void, except as provided in Article 1241. Such payment does not prejudice the creditor, and accrual of interest is not suspended by it." — Citing Tolentino to establish that Allied's payment to Santos did not extinguish its obligation to Lim Sio Wan.
• "There is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another." — Defining the elements of unjust enrichment under Article 22, applied to Producers Bank.
• "While it is true that petitioner BPI’s negligence may have been the proximate cause of the loss, respondent CBC’s negligence contributed equally to the success of the impostor in encashing the proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the Civil Code to the effect that while respondent CBC may recover its losses, such losses are subject to mitigation by the courts." — Quoting BPI v. CA to justify the apportionment of liability based on comparative negligence.

• Bank of the Philippine Islands v. Court of Appeals — Followed. Established the doctrine of comparative negligence in forgery cases, apportioning liability 60-40 between the drawee and collecting banks based on their relative negligence.
• Associated Bank v. Court of Appeals — Followed. Held the issuing institution and collecting bank equally liable (50-50) due to the concurrent negligence of both parties in the issuance and indorsement of checks.
• Republic Bank v. Ebrada, Banco de Oro v. Equitable Banking Corporation, Traders Royal Bank v. Radio Philippines Network, Inc. — Distinguished. In these cases, the collecting bank was held solely liable because the checks were properly issued by the drawee, unlike the present case where the drawee was negligent in issuing the check.
• Cebu International Finance Corporation v. Court of Appeals — Followed. Defined a money market transaction as a loan where the investor is a lender and the bank is the borrower.
• Citibank, N.A. v. Sabeniano — Followed. Ruled that a money market placement is a simple loan or mutuum.
• Reyes v. Lim, Tamio v. Ticson — Followed. Clarified the principle of unjust enrichment under Article 22 of the Civil Code.

• Article 1953, Civil Code — Provides that a person who receives a loan of money acquires ownership thereof and is bound to pay the creditor an equal amount. Applied to characterize the bank-depositor relationship.
• Article 1980, Civil Code — Provides that bank deposits are governed by the provisions concerning simple loan. Applied to establish that Lim Sio Wan is a creditor of Allied.
• Article 1231, Civil Code — Enumerates the modes of extinguishing obligations. Applied to determine that Allied's obligation to Lim Sio Wan was not extinguished because payment was made to a wrong party.
• Article 1240, Civil Code — States that payment shall be made to the person in whose favor the obligation has been constituted. Applied to rule that payment to Santos did not extinguish the obligation to Lim Sio Wan.
• Article 2179, Civil Code — Allows mitigation of damages when the plaintiff's own negligence contributed to the loss. Applied by analogy to apportion the loss between the negligent banks.
• Article 22, Civil Code — Prohibits unjust enrichment. Applied to hold Producers Bank liable to reimburse the banks, as it was unjustly enriched by the extinguishment of its debt at Lim Sio Wan's expense.
• Article 2180, Civil Code — Imposes vicarious liability on employers for quasi-delicts committed by employees. Held inapplicable because the liability arises from a delict, not a quasi-delict.
• Article 103, Revised Penal Code — Imposes subsidiary liability on employers for the civil liability of employees convicted of crimes. Held inapplicable due to the lack of a criminal conviction against Santos.
• Sections 65 and 66, Negotiable Instruments Law — Warranties of a general indorser and a person negotiating by delivery. Applied to establish that Metrobank, as collecting bank, guaranteed the genuineness of all prior endorsements, including the forged one.
• Section 23, Negotiable Instruments Law — Provides that forgery renders the instrument voidable as to the party whose signature is forged. Applied to allow FCC to raise the real defense of forgery against the banks.

Leonardo A. Quisumbing, Conchita Carpio Morales, Dante O. Tinga, Minita V. Chico-Nazario