The P25-m manager’s check

Joe Pallugna

THIS is a very interesting banking situation which lays down the rule in cases of negligence.

Mr. Kho is the owner of United Oil Petroleum and is engaged in the trading of diesel fuel. In 2006, he entered into a verbal agreement with Red Orange International Trading, represented by Rudy Medel, for the purchase of lubricants from Red Orange.

Kho, accompanied by Medel, then opened a savings account with Land Bank with an initial deposit of P25,900,000. Kho then purchased a Manager’s Check for P25 million made payable to Red Orange. Land Bank Manager Macarandan and Document Examiner Benitez signed the check. Kho then requested for a photocopy of the Manger’s Check to show to Red Orange that he had the money for their transaction. The bank manager Flores acceded to the request and gave Medel a photocopy of the check.

The transaction between Kho and Medel, however, did not push through.

Despite the failed transaction, an employee of Bank of Philippine Islands (BPI) called the Land Bank branch days later to inform Land Bank that Red Orange deposited the P25 million check for payment and Flores confirmed with BPI that Kho had issued the check. Flores then informed Kho by phone that the check was cleared and paid by BPI. Kho was shocked! He has the check in his hands so how can Medelencash the Manager’s Check?

Kho went to Land Bank and discovered that the check encashed by Medel was a spurious or a fake check. Kho demanded the cancellation of the Manager’s Check to get his P25 million and for the remaining balance of P900,000. Land Bank OIC Manger Cruz refused saying that the bank management has conducted an investigation and that Kho’s entire account had been frozen pending investigation.

Kho sued for Specific Performance and Damages. The Regional Trial Court ruled in favor of  Land Bank saying that Kho was negligent in not informing Land Bank that his transaction with Medel did not push trough, and that the giving to Medel a photocopy of the check in front of the bank manager were the proximate cause of his loss of his P25 million. The court also ruled that Flores and Cruz acted in good faith and dismissed the case of Kho.

The Court of Appeals reversed the RTC decision and remanded the case to the lower court for trial holding that the investigation made by Land Bank should be completed first to know who was at fault. Dissatisfied, both Kho and Land Bank appealed to the Supreme Court.

The Supreme Court ruled in this manner: “At the outset we agree with Land Bank’s contention that the result of its investigation is not indispensable in resolving this case. After all, it was not conducted by an independent party but by a party-litigant. We cannot expect the report to yield a completely impartial result. At best, the investigation will be of doubtful provative value…

“Both parties agree that (a) Kho opened an account to leverage his deal with Red Orange; (b) Kho purchased a PhP25 million Manager’s Check payable to Red Orange; (c) Kho gave Medel a photocopy of the check; (d) After Kho’s visit to the bank, the deal did not materialize; (e) Kho got the check and did not inform Land Bank that the deal did not materialize; (f) Afterwards, Red Orange presented a spurious check with BPI for payment; (g) Land Bank cleared the check; and (h) Kho never negotiated the check. It was in his possession the whole time.

“We cannot agree that the proximate cause of the loss were Kho’s act of giving Medel a photocopy of the check and his failure to inform Land Bank that his deal with Red Orange did not push through.

Proximate cause – which is determined by the mixed consideration of logic, common sense, policy and precedent – is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.

“We cannot understand how both the RTC and the CA overlooked the fact that Land Bank’s officers cleared the counterfeit check. We stress that the signatories of the genuine check were Land Bank officers themselves.

“The business of banking is imbued with public interest; it is an industry where the general public’s trust and confidence in the system is of paramount importance. Consequently, banks are expected to exert the highest degree of, if not the utmost, diligence. They are obliged to treat their depositors’ accounts with meticulous care, always keeping in mind the fiduciary nature of their relationship.”

The High Court ruled that the error or neglect of the bank officers which resulted in the withdrawal and eventual loss of the P25,000,000 was the proximate cause of the loss. Land Bank was ordered to pay Kho P25,000,000 plus interest reckoned from the time of filing of the complaint, and to release his remaining P900,000.

So the next time you deal with banks, you rest assured that the banks have been tasked to exercise utmost diligence to ensure that your money and your transactions are protected. This was the ruling in Land Bank of the Phils. versusNarcisoKho (G.R. No. 205839 and 840, July 07, 2016).

(Joe Pallugna is a lawyer based in Cagayan de Oro. E-mail: ajpallugna@gmail.com)