Highest degree of diligence

When a check is materially altered without the assent of all parties liable thereon, it is avoided except as against a party who has himself made authorized and assented to the alteration and subsequent endorsers (Section 124, Negotiable Instruments Law). This is the rule applied in this case of Carlos.

Carlos was a businessman who maintained a checking account with a commercial bank (MBTC) to facilitate his business transaction. On November 12, 1994, he issued MBTC check No. 985988 payable to cash and postdated November 24, 1994 in the amount of P1,000 drawn against his checking account. The check was in payment of the sales commission of a certain Mr. Manuel.

In preparing the check, Carlos placed 4 asterisks on the space for payee before and after the word "Cash" and 4 asterisks between and after the amounts stated in words and in numerical figures in order to prevent any fraudulent insertion. On November 16, 1994 however, even before the due date of the check, MBTC informed Carlos through his representative who went to the bank that Check No. 985988 in the amount of P91,000 was already cleared after it was endorsed and presented through the clearing by another bank that paid the same. He thus requested the bank that the questioned check be returned to him for verification.

Upon receipt of the check, Carlos discovered that the number "1" in the date has been clearly imposed on a white figure in the shape of number "2". He also immediately noticed that at the beginning of the line before the phrase amount in words there is no more asterisks while at end of said phrase, after the word "only" there are still 4 asterisks even as 4 asterisks have been placed before and after the word "cash" in the space for payee. In addition the 4 asterisks before the words "one thousand pesos only" have been erased with typing correction paper, leaving white marks over which the word "ninety" was super imposed. The same can be seen on the numeral "9" in the amount "91,000" which is superimposed over a whitish mark in lieu of the asterisk that was deleted to insert the said figure. There are only 2 asterisks before the amount in figures while 3 asterisks are still after the said amount. Also typewritten differently with a lighter ink when compared with the words "one thousand only" is the word "ninety". The letters on the word "ninety" are likewise bigger when compared with the letters of the words "one thousand only".

Hence Carlos demanded that MBTC re-credit the amount of P91,000 to his account. However, the bank refused countering that in clearing the check, its cash custodian examined it and found nothing wrong with it. Thus, it was not remiss in the performance of its duty as the drawee bank, but rather, it exercised the highest degree of diligence in accordance with the generally accepted banking practice. It further insisted that the entries in the check were regular and authentic and the alteration could not be determined even upon close examination. Finally, MBTC argued that the unqualified endorsement by the clearing bank (WB) warranted that the check in question is genuine, valid and subsisting. Was MBTC correct?

No. It is obvious that MBTC was remiss in its duty to exercise the appropriate degree of diligence and violated its relationship with its depositor to pay to the order of the payee in accordance with the latter’s instructions as reflected on the face and by the terms of the check. The material alterations on the check are visible to the naked eye. The bank’s employees who examined said check should have been put on guard about these alterations and should have noticed them. Surprisingly, the bank failed to detect them that could not escape the attention of even an ordinary person. The fact that the check in question was examined by the cash custodian whose functions do not include the examinations of checks indorsed for payment against drawer’s accounts, further exacerbated this negligence. Obviously, the employee allowed by the bank to examine the check was not well versed and competent to handle such duty.

Furthermore, when a drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its client’s account only for bona fide disbursements he has made. So, it has no right to claim reimbursement from the drawer, much less to deduct the erroneous payment made from the drawer’s account which it was expected to treat with utmost fidelity.

MBTC cannot rely on the endorsement of WB in clearing the check. The corollary liability under such endorsement, if any, is separate and distinct from its liability to Carlos. Its reliance on WB’s endorsement is clearly inconsistent, if not very offensive to the dictum that being impressed with public interest, banks should exercise the highest degree of diligence if not utmost care in dealing with the accounts of its own clients. It owes the highest degree of fidelity to its client and should not therefore lightly rely on the judgment of the other banks on occasions where its clients’ money are involved, no matter how small or substantial is the amount at stake (Metropolitan Bank and Trust Co. vs. Cabilzo, G.R. 154469, December 6, 2006).

All these alterations are so visible to the naked eye

E-mail at: [email protected] or jose@sison ph.com