Bank of America v.

PRC Digest
Bank of America vs. Philippine Racing Club
G.R. 150228  July 30, 2009
Ponente: Leonardo-De Castro, J:

Facts:

1. Plaintiff PRCI is a domestic corporation which maintains a current account with petitioner
Bank of America. Its authorized signatories are the company President and Vice-President. By
virtue of a travel abroad for these officers, they pre-signed checks to accommodate any
expenses that may come up while they were abroad for a business trip. The said pre-signed
checks were left for safekeeping by PRCs accounting officer. Unfortunately, the two (2) of
said checks came into the hands of one of its employees who managed to encash it with
petitioner bank. The said check was filled in with the use of a check-writer, wherein in the
blank for the 'Payee', the amount in words was written, with the word 'Cash' written above it.

2. Clearly there was an irregularity with the filling up of the blank checks as both showed
similar infirmities and irregularities and yet, the petitioner bank did not try to verify with the
corporation and proceeded to encash the checks.

3. PRC filed an action for damages against the bank. The lower court awarded actual and
exemplary damages. On appeal, the CA affirmed the lower court's decision and held that the
bank was negligent. Hence this appeal. Petitioner contends that it was merely doing its
obligation under the law and contract in encashing the checks, since the signatures in the
checks are genuine.

Issue: Whether or not the petitioner can be held liable for negligence and thus should pay
damages to PRC

Both parties are held to be at fault but the bank has the last clear chance to prevent the
fraudulent encashment hence it is the one foremost liable .

1. There was no dispute that the signatures in the checks are genuine but the presence of
irregularities on the face of the check should have alerted the bank to exercise caution
before encashing them. It is well-settled that banks are in the business impressed with public
interest that they  are duty bound to protect their clients and their deposits at all times.
They must treat the accounts of these clients with meticulousness and a highest degree of
care considering the fiduciary nature of their relationship. The diligence required of banks are
more than that of a good father of a family.

2. The PRC officers' practice of pre-signing checks is a seriously negligent and highly risky
behavior which makes them also contributor to the loss. It's own negligence must therefore
mitigate the petitioner's liability. Moreover, the person who stole the checks is also an
employee of the plaintiff, a cleck in its accounting department at that. As the employer, PRC
supposedly should have control and supervision over its own employees.

3. The court held that the petitioner is liable for 60% of the total amount of damages while
PRC should shoulder 40% of the said amount.