INSULAR DRUG CO., INC., PLAINTIFF AND APPELLEE, VS. THE PHILIPPINE NATIONAL BANK ET AL., DEFENDANTS. THE PHILIPPINE NATIONAL BANK, APPELLANT.

This
is an appeal taken by the Philippine National Bank from a judgment of
the Court of First Instance of Manila requiring the bank to pay to the
Insular Drug Co., Inc., the sum of P18,285.92 with legal interest and
costs.

The record consists of the testimony of Alfred Von
Arend, President and Manager of the Insular Drug Co., Inc., and of
exhibits obtained from the Philippine National Bank showing
transactions of U. E. Foerster with the bank. The Philippine National
Bank was content to submit the case without presenting evidence in its
behalf. The meagre record and the statement of facts agreed upon by the
attorneys for the contending parties disclose the following 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 Philippine National
Bank. The checks were in that bank placed in the personal account of
Foerster. Some of the checks were drawn against the Bank of the
Philippine Islands and some were drawn against the Philippine National
Bank. 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, Agent. (Sgd.) Carmen E. de
Foerster”; others “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. But there
is no evidence showing that the bank knew that Foerster was
misappropriating the funds of his principal. The Insular Drug Company
claims that it never received the face value of the 132 checks here in
question covering a total of P18,285.92.

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.

In the first place, the
bank argues that the drug company was never defrauded at all. While the
evidence on the extent of the loss suffered by the drug company is not
nearly as clear as it should be, it is a sufficient answer to state
that no such special defense was relied upon by the bank in the trial
court. The drug company saw fit to stand on the proposition that checks
drawn in its favor were improperly and illegally cashed by the bank for
Foerster and placed in his personal account, thus making it possible
for Foerster to defraud the drug company, and the bank did not try to
go back of this proposition.

The next point relied upon by
the bank, to the effect that Foerster had implied authority to indorse
all checks made out in the name of the Insular Drug Co., Inc., has even
less force. Not only did the bank permit Foerster to indorse the checks
and then place them to his personal account, but it went farther and
permitted Foerster’s wife and clerk to indorse the checks. 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 Go. 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.)

Further speaking to the errors specified by the bank, it is 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.

In brief, this is
a case where 132 checks made out in the name of the Insular Drug Co.,
Inc., were brought to the branch office of the Philippine National Bank
in Iloilo by Foerster, a salesman of the drug company, Foerster’s wife,
and Foerster’s clerk. The bank could tell by the checks themselves that
the money belonged to the Insular Drug Co., Inc., and not to Foerster
or 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. Much more could be said
about this case, but it suffices to state in conclusion that the bank
will have to stand the loss occasioned by the negligence of its agents.

Overruling the errors assigned, the judgment of the trial court will be
affirmed, the costs of this instance to be paid by the appellant.

Villa-Real, Hull, Imperial, and Butte, JJ., concur.