G.R. No. 112392 February 29, 2000
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.

FACTS

Private respondent Benjamin Napiza, to accommodate a certain Henry Chan, deposited a $2,500 Continental Bank manager’s check payable to “cash” into his Foreign Currency Deposit Unit (FCDU) savings account with petitioner Bank of the Philippine Islands (BPI). He gave Chan a signed but otherwise blank withdrawal slip, with the understanding that the funds would only be withdrawn after the check had cleared. Without Napiza’s knowledge and before the check cleared, a third party, using the signed withdrawal slip, was able to withdraw the amount from Napiza’s account. The withdrawal slip was processed and initialed by a BPI assistant manager. Subsequently, the check was dishonored as counterfeit by the drawee bank.
BPI demanded that Napiza reimburse the bank for the amount. Napiza refused, contending he deposited the check for clearing purposes only and that the bank’s own negligence in allowing the premature withdrawal without his passbook caused the loss. BPI filed a complaint for sum of money against Napiza.

ISSUE

Whether Benjamin Napiza, as the depositor who endorsed and deposited a counterfeit foreign check, is liable to reimburse the bank after the check was dishonored, notwithstanding the bank’s alleged negligence in allowing an early withdrawal.

RULING

No. The Supreme Court denied BPI’s petition and affirmed the dismissal of its complaint. The legal logic centers on the allocation of risk and the bank’s duty of care. A foreign check, like the manager’s check in this case, is not legal tender but merely a foreign bill of exchange. Under the Negotiable Instruments Law, the provisional credit given upon deposit is subject to the condition that the check is honored. If it is dishonored, the credit becomes inoperative.
Crucially, the bank’s right to charge back the amount to the depositor’s account presupposes that the funds are still under its control. Here, BPI, through its employee, permitted the withdrawal of the funds before the check had cleared and the provisional credit had become final. By doing so, BPI assumed the risk of the check being dishonored. The bank’s own act of paying out the funds prematurely was the proximate cause of its loss. The relationship was that of debtor-creditor, and the bank’s negligence in violating its own clearance procedures and failing to exercise due diligence barred its recovery from the depositor. Napiza’s accommodation of Chan did not make him an accommodation party liable on the instrument itself to the bank, as the bank’s claim arose from its own mishandling of the account, not from the instrument’s dishonor per se.