RCBC Savings Bank v. Noel M.

Odrada (2016)

Q: Odrada sold his car to Lim for P1,510,000.00, of which P610,000.00 was initially paid in cash.
The balance of P900,000.00 was financed by RCBC Savings Bank through a car loan. When the
Deed of Absolute Sale was received by RCBC, it issued two manager’s checks in favor of Odrada
in the amounts of P900,000.00 and P13,500.00. After the issuance and turnover to Odrada, but
prior to the checks’ presentation, Lim notified Odrada through a letter that there were issues as
to the roadworthiness of the car, contrary to the seller’s representations. As such, Lim was to
rescind the Contract of Sale and requested for a meeting with Odrada to inspect the vehicle, as
well as for Odrada to hold on to the checks and refrain from presenting the same until the inquiries
were cleared. Odrada did not attend the meeting and instead deposited the manager’s checks
with Ibank and redeposited them on a later date, but the checks were dishonored both times
apparently upon Lim’s instruction to RCBC. Odrada filed a collection suit against Lim and RCBC.
Is RCBC liable to Odrada for Lim’s issuance of manager’s checks?

A: No, RCBC is not liable.

Jurisprudence defines a manager’s check as a check drawn by the bank’s manager upon the
bank itself and accepted in advance by the bank by the act of its issuance (RCBC v. Hi-Tri
Development Corporation 687 Phil. 481). It is really the bank’s own check and may be treated as
a promissory note with the bank as its maker. Consequently, upon its purchase, the check
becomes the primary obligation of the bank and it constitutes its written promise to pay the holder
upon demand. As a general rule, the drawee bank is not liable until it accepts (BPI v. CA 326
SCRA 641). Prior to the bill’s acceptance, no contractual relation exists between the holder and
the drawee. Acceptance, therefore, creates a privity of contract between the holder and the
drawee so much so that the latter, once it accepts, becomes the party primarily liable on the
instrument. Accordingly, acceptance is the act which triggers the operation of the liabilities of the
drawee under Section 62 of the Negotiable Instruments Law. As to manager’s checks, the
Supreme Court has consistently held that the same is accepted by the bank upon its issuance.
The drawee bank, as a result, has the unconditional obligation to pay a manager’s check to a
holder in due course irrespective of any available personal defenses, as the same is deemed
automatically accepted. However, a holder other than a holder in due course is still subject to
defenses.

In this case, Odrada cannot be a considered a holder in due course as he cannot be said to have
taken the same in good faith and for value since he did not act with due honesty in making
misrepresentations as to the car’s roadworthiness, as well as his subsequent attempts to deposit
the checks a day after Lim had informed that there were serious issues with the car. As such, not
being a holder in due course, he is subject to defenses available to the drawee bank.

Hence, RCBC is not liable.