Case Title: Associated Bank v. Court of Appeals, Province of Tarlac and Philippine National Bank
Facts:
- The Province of Tarlac maintained a current account with Philippine National Bank (PNB) Tarlac Branch.
- Checks issued by the Province for Concepcion Emergency Hospital were drawn to the order of “Concepcion Emergency Hospital” or “The Chief, Concepcion Emergency Hospital”.
- In 1981, it was discovered that 30 checks amounting to P203,300 were encashed by Fausto Pangilinan, a retired hospital employee, with Associated Bank as the collecting bank.
- Pangilinan had forged the signature of Dr. Adena Canlas, the hospital chief, to negotiate the checks.
- The Province of Tarlac sued PNB, which impleaded Associated Bank.
Issue: Who bears the loss for the checks with forged endorsements – the drawer (Province of Tarlac), the drawee bank (PNB), or the collecting bank (Associated Bank)?
Ruling:
- The loss should be shared between the Province of Tarlac (50%) and Associated Bank (50%).
- The Province of Tarlac was negligent in:
- Releasing checks to an unauthorized person (Pangilinan)
- Allowing a retired employee to receive checks for 3 years
- Not ascertaining why two people were collecting checks
- Associated Bank was liable as the collecting bank for:
- Not verifying the genuineness of prior endorsements
- Breaching its warranty as endorser of the checks
- PNB as drawee bank can seek reimbursement from Associated Bank, but is liable to the Province for 50% of the amount.
- The 24-hour return rule under CB Circular 580 does not preclude PNB from seeking reimbursement, as it gave prompt notice to Associated Bank.
- Legal interest of 6% per annum is imposed from the date of extrajudicial demand.
The Court modified the lower court’s decision, ordering PNB to pay 50% of P203,300 to the Province, and Associated Bank to pay 50% of P203,300 to PNB, both with 6% interest from March 20, 1981.
