Haystack: Insular Drug vs. PNB (GR 38816, 3 November 1933)

Insular Drug vs. PNB
[G.R. No. 38816. November 3, 1933.]
En Banc, Malcolm (J): 4 concurring

Facts: The Insular Drug Co. Inc. is a Philippine corporation with offices in the City of Manila. U. E. Foerster was formerly a salesman of the drug company for the Islands of Panay and Negros. Foerster also acted as a collector for the company. He was instructed to take the checks which came to his hands for the drug company to the Iloilo branch of the Chartered Bank of India, Australia and China and deposit the amounts to the credit of the drug company. Instead, Foerster deposited checks, including those of Juan Llorente, Dolores Salcedo, Estanislao Salcedo, and a fourth party, with the Iloilo branch of the PNB. The checks were in that bank placed in the personal account of Foerster. Some of the checks were drawn against the BPI and some were drawn against the PNB. After the indorsements on the checks was written "Received payment prior indorsement guaranteed by the Philippine National Bank, Iloilo Branch, Angel Padilla, Manager." The indorsements on the checks took various forms, some being "Insular Drug Company, Inc. By: (Sgd.) U. Foerster, Agent.(Sgd.) U. Foerster" others being "Insular Drug Co., Inc. By: (Sgd.) Carmen E. de Foerster, Carmen E. de Foerster"; others "(Sgd.) Carmen E. de Foerster, (Sgd.) Carmen E. de Foerster"; one "(Sgd.) U. Foerster. (Sgd.) U. Foerster"; others "Insular Drug Co., Inc. Carmen E. de Foerster, By: (Sgd.) V. Bacaldo," etc. In this connection it should be explained that Carmen E. de Foerster was the wife of U. E. Foerster, and that V. Bacaldo was his stenographer. As a consequence of the indorsements on the checks the amounts therein stated were subsequently withdrawn by U. E. Foerster and Carmen E. de Foerster. Eventually the Manila office of the drug company investigated the transactions of Foerster. Upon the discovery of anomalies, Foerster committed suicide. The Insular Drug Company claims that it never received the face value of the 132 checks in question covering a total of P18,285.92; but there is no evidence showing that the bank knew that Foerster was misappropriating the funds of his principal.

The drug company sued PNB for the amount covered by the checks which was improperly and illegally cashed by Foerster. After due trial, the CFI Manila required PNB to pay Insular Drug Co. Inc. the sum of P18,285.92 with legal interest and costs. PNB appealed.

The Supreme Court affirmed the judgment of the trial court, the costs to be paid by PNB.

1. Fulton Iron Works vs. China Bank has different facts
There is no Philippine authority which directly fits the proven facts. The case of Fulton Iron Works Co. vs. China Banking Corporation ([1930]), 55 Phil., 208), mentioned by both parties rests on a different state of facts. However, there are elementary principles governing the relationship between a bank and its customers which are controlling.

2. Right of agent to indorse a very responsible power and not lightly inferred
The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred. A salesman with authority to collect money belonging to his principal does not have the implied authority to indorse checks received in payment. Any person taking checks made payable to a corporation, which can act only by agents does so at his peril, and must abide by the consequences if the agent who indorses the same is without authority. (Arcade Realty Co. vs. Bank of Commerce [1919], 180 Cal., 318; Standard Steam Speciality Co. vs. Corn Exchange Bank [1917], 220 N. Y., 278; People vs. Bank of North America [1879], 75 N. Y., 547; Graham vs. United States Savings Institution [1870], 46 Mo., 186.) in the present case, PNB not only permitted Foerster to indorse the checks and place them in his personal account but also permitted Foerster's wife and clerk to indorse the checks.

3. No trust fund involved; Good faith does not excuse responsibility; Checks drawn from banks not differentiated
The Court found it merely sufficient to state that no trust fund was involved; that the fact that the bank acted in good faith does not relieve it from responsibility; that no proof was adduced, admitting that Foerster had the right to indorse the checks, indicative of the right of his wife and clerk to do the same, and that the checks drawn on the Bank of the Philippine Islands can not be differentiated from those drawn on the Philippine National Bank because of the indorsement by the latter.

4. Bank made itself responsible for amounts represented by checks
PNB could tell by the checks brought to PNB Iloilo by Foerster, his wife and his clerk, that the money belonged to the Insular Drug Co. Inc., and not to Foerster of his wife or his clerk. When the bank credited those checks to the personal account of Foerster and permitted Foerster and his wife to make withdrawals without there being any authority from the drug company to do so, the bank made itself responsible to the drug company for the amounts represented by the checks. The bank could relieve itself from responsibility by pleading and proving that after the money was withdrawn from the bank it passed to the drug company which thus suffered no loss, but the bank has not done so. Thus, the bank will have to stand the loss occasioned by the negligence of its agents.

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