Marlon deposited with LYRIC Bank a money market placement of P1 million for a term of 31 days. On maturity date, one claiming to be Marlon called up the LYRIC Bank account officer and instructed him to give the manager’s check representing the proceeds of the money market placement to Marlon’s girlfriend Ingrid.
The check, which bore the forged signature of Marlon, was deposited in Ingrid’s account with YAMAHA Bank. YAMAHA Bank stamped a guaranty on the check reading: “All prior endorsements and/or lack of endorsement guaranteed.”
Upon presentment of the check, LYRIC Bank funds the check. Days later, Marlon goes to LYRIC Bank to collect his money market placement and discovers the foregoing transactions.
Marlon thereupon sues LYRIC Bank which in turn files a third-party complaint against YAMAHA Bank. Discuss the respective rights and liabilities of the two banks. (5%)
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LYRIC Bank remains liable to Marlon, while YAMAHA Bank must reimburse LYRIC Bank, subject to sharing the loss. Under Allied Banking Corp. v. Lim Sio Wan, a money market placement creates a debtor-creditor relation. A collecting bank
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Quick check
What legal relationship is created between a bank and an investor in a money market placement?
A money market placement creates a simple loan or debtor-creditor relationship between the bank and the investor.
What is the legal effect of a collecting bank stamping 'all prior endorsements guaranteed' on a check?
Stamping a guaranty of prior endorsements warrants their genuineness and makes the collecting bank liable for forged endorsements.
Under Section 23 of the Negotiable Instruments Law, what is the effect of a forged endorsement on a check?
Section 23 provides that a forged signature or endorsement is wholly inoperative to transfer rights or title.
Under Allied Banking Corp. v. Lim Sio Wan, how is financial loss allocated when both the drawee bank and collecting bank are negligent?
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Which landmark Supreme Court decision governs the liability of banks involving money market placements and forged check endorsements?
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Learn more about these topics
1. Money Market Placement
Under Philippine banking law, a money market placement creates a contractual debtor-creditor relationship between the depositor and the bank. The bank does not hold the funds as a trustee or bailee, but as a debtor obligated to return the principal plus interest upon maturity. Consequently, if the bank releases the proceeds of a matured money market placement to an unauthorized third party upon an unverified instruction, its underlying obligation to the investor remains unextinguished. The bank remains directly liable to satisfy the investor's deposit claim in full.
2. Forged Endorsement Liability
Under Section 23 of the Negotiable Instruments Law (Act Number 2031), a forged signature or endorsement is wholly inoperative to pass title or convey rights over a check. When a collecting bank accepts a check bearing a forged payee endorsement and presents it for clearing with a stamped guaranty of prior endorsements, it warrants the genuineness of all prior signatures. The collecting bank is liable to reimburse the drawee bank for paying on the forged instrument.
3. Shared Negligence Liability
In Allied Banking Corporation v. Lim Sio Wan, the Supreme Court established that where both the drawee bank and collecting bank are guilty of comparative negligence in releasing and clearing a check with a forged endorsement, the loss shall be apportioned between them. The drawee bank's negligence in issuing a manager's check without verifying instructions, combined with the collecting bank's breach of endorsement warranty, warrants sharing the monetary liability.