In a case of mistaken identity and forged endorsements, the Supreme Court affirmed that a collecting bank bears the loss when it fails to diligently verify the identity of a person opening an account and depositing checks payable to another. This ruling underscores the high degree of care banks must exercise in handling negotiable instruments and reinforces the principle that banks guaranteeing prior endorsements are liable for losses arising from unauthorized payments. The decision clarifies the responsibilities of collecting and drawee banks in ensuring funds reach the intended recipients, safeguarding both depositors and the integrity of the banking system.

Checks and Imposters: When is a Bank Liable for Paying the Wrong ‘Bienvinido’?

This case, The Real Bank (A Thrift Bank), Inc. vs. Dalmacio Cruz Maningas, G.R. No. 211837, decided on March 16, 2022, revolves around a fraudulent scheme involving crossed checks and a case of mistaken (or rather, misspelled) identity. Dalmacio Cruz Maningas, a Filipino-British national, issued two checks totaling P1,152,700.00 to Bienvenido Rosaria as payment for a parcel of land. However, Maningas inadvertently misspelled the payee’s first name as “BIENVINIDO” Rosaria. These checks were then intercepted, and an imposter using the misspelled name opened an account with The Real Bank (Real Bank) and successfully withdrew the funds after Metrobank cleared the checks.

Maningas sued Real Bank and Metrobank, seeking to recover the lost amount, alleging negligence in handling the checks and allowing the unauthorized withdrawal. The central legal question is whether Real Bank, as the collecting bank, should bear the loss due to its failure to verify the identity of the person opening the account and the genuineness of the endorsement. This situation highlights the tension between a bank’s duty to its depositors and its responsibility to ensure the integrity of negotiable instruments.

Real Bank argued that Maningas’s negligence in misspelling the payee’s name and sending the checks via ordinary mail contributed to the fraud. They also claimed that they followed all banking rules and regulations when opening the account for the imposter. However, the Supreme Court sided with Maningas, affirming the lower courts’ decisions and holding Real Bank liable for the amount of the checks. This decision was grounded on the principle that collecting banks, as guarantors of prior endorsements, bear the responsibility to ensure the authenticity of negotiable instruments.

The Court emphasized Real Bank’s negligence in allowing the imposter to open an account and deposit the checks without proper verification. It highlighted that the banking industry is imbued with public interest, requiring banks to exercise the highest degree of care and diligence. Banks must diligently screen individuals opening accounts, particularly when large sums of money are involved. Real Bank’s failure to detect the irregularities in the imposter’s documents directly contributed to the unauthorized payment. This failure violated established banking practices and the standards of care expected of financial institutions.

The Supreme Court cited BDO Unibank, Inc. v. Lao, 811 Phil. 280 (2017), which discusses the liabilities of banks in unauthorized check payments. Specifically, the Court highlighted the differences in liabilities, stating:

The liability of the drawee bank is based on its contract with the drawer and its duty to charge to the latter’s accounts only those payables authorized by him. A drawee bank is under strict liability to pay the check only to the payee or to the payee’s order. When the drawee bank pays a person other than the payee named in the check, it does not comply with the terms of the check and violates its duty to charge the drawer’s account only for properly payable items.

On the other hand, the liability of the collecting bank is anchored on its guarantees as the last endorser of the check. Under Section 66 of the Negotiable Instruments Law, an endorser warrants “that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting.”

It has been repeatedly held that in check transactions, the collecting bank generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. If any of the warranties made by the collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of the check.

The Court also dismissed Real Bank’s invocation of the fictitious payee rule, as Rosaria was the intended payee, despite the misspelling. The fictitious payee rule, as outlined in Section 9 of the Negotiable Instruments Law (NIL), states that a check is payable to bearer when it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable. The court clarified that the misspelling did not make Rosaria a fictitious payee because Maningas intended for the actual Rosaria to receive the funds.

To further illustrate, the Court cited Philippine National Bank v. Rodriguez, 588 Phil. 196 (2008), to demonstrate what constitutes a fictitious payee:

A check that is payable to a specified payee is an order instrument. However, under Section 9 (c) of the NIL, a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable. Thus, checks issued to “Prinsipe Abante” or “Si Malakas at si “Maganda”, who are well-known characters in Philippine mythology, are bearer instruments because the named payees are fictitious and non-existent.

A review of US jurisprudence yields that an actual, existing, and living payee may also be “fictitious” if the maker of the check did not intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places a name of an existing payee on the check for convenience or to cover up an illegal activity. Thus, a check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the payee is considered a “fictitious” payee and the check is a bearer instrument.

The Court also acknowledged that the trial court erred in ordering the production of the imposter’s bank records, as this violated the Law on Secrecy of Bank Deposits (Republic Act No. 1405). The exception to the law, where the money deposited or invested is the subject matter of the litigation, did not apply because Maningas was seeking the money equivalent of the checks from the banks, not the actual money deposited by the imposter. However, the Court emphasized that this error did not affect the outcome of the case, as Real Bank’s liability was established independently of the bank records.

Despite the violation of RA 1405, the court ultimately ruled that Real Bank should shoulder the loss. The decision reinforces the responsibility of collecting banks to exercise due diligence in verifying the identity of account holders and the authenticity of endorsements. It also serves as a reminder of the importance of adhering to the standards of care expected of banks, given their role in the financial system.

Therefore, banks acting as collecting entities must have robust procedures in place to mitigate fraud, including strict adherence to KYC (Know Your Customer) principles, thorough verification of identification documents, and ongoing monitoring of account activity. These measures protect both the bank and its customers from the potentially devastating consequences of fraudulent transactions. This approach contrasts with a more lenient standard, safeguarding the integrity of the banking system.

FAQs

This case serves as a significant reminder of the responsibilities and potential liabilities of banks in handling negotiable instruments. Banks must prioritize due diligence and adhere to strict verification procedures to protect themselves and their customers from fraudulent schemes. The Court’s decision highlights the importance of maintaining the integrity of the banking system through diligent practices and adherence to established legal principles.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: The Real Bank (A Thrift Bank), Inc. vs. Dalmacio Cruz Maningas, G.R. No. 211837, March 16, 2022