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Insular Drug Co., Inc., Vs PNB

U.E. Foerster was a salesman and collector for Insular Drug Co. who was instructed to deposit checks received from customers into the company's account. Instead, Foerster deposited over 130 checks totaling 18,285.92 pesos into his personal account at the Philippine National Bank. The bank allowed Foerster and his wife to withdraw the funds without authorization from Insular Drug Co. The Supreme Court ruled that the bank was responsible for reimbursing Insular Drug Co. since Foerster did not have the implied authority as an agent to endorse checks made payable to the company. The bank was negligent in permitting the withdrawals without verifying Foerster's authorization and must now stand the loss.

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170 views1 page

Insular Drug Co., Inc., Vs PNB

U.E. Foerster was a salesman and collector for Insular Drug Co. who was instructed to deposit checks received from customers into the company's account. Instead, Foerster deposited over 130 checks totaling 18,285.92 pesos into his personal account at the Philippine National Bank. The bank allowed Foerster and his wife to withdraw the funds without authorization from Insular Drug Co. The Supreme Court ruled that the bank was responsible for reimbursing Insular Drug Co. since Foerster did not have the implied authority as an agent to endorse checks made payable to the company. The bank was negligent in permitting the withdrawals without verifying Foerster's authorization and must now stand the loss.

Uploaded by

Joseph Macalintal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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INSULAR DRUG CO., INC. vs. THE PHILIPPINE NATIONAL BANK, ET AL.

G.R. No. L-38816 Nov 3, 1933

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 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, EstanislaoSalcedo, and a fourth party,
with the Iloilo branch of the Philippine National Bank.

After the indorsement on the checks was written "Received payment prior indorsement guaranteed
by Philippine National bank, Iloilo Branch, Angel Padilla, Manager." The indorsement on the checks
took various forms. As a consequence of the indorsements on 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 132 checks here in the question covering a total of P18,285.92.

Issue: W/N the Insular can file a case against the bank. YES
Held:
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 agent does so at his peril, and must same by the
consequences if the agent who indorses the same is without authority. Further speaking to the
errors specified by the bank, it is sufficient to state that no trust fund was involved; that the fact
that bank acted in good faith does not relieve it from responsibility; that no proof was adduced,
admitting that Foerster had right to indorse the checks, indicative of right of his wife and clerk to
do the same , and that the checks drawn on the Bank of the Philippine Islands cannot be
differentiated from those drawn on the Philippine National Bank because of the indorsement by the
latter.

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 made 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 bank will have to stand the loss
occasioned by the negligence of its agents.
Overruling the errors assigned, judgment of the trial court will be affirmed, the costs of this
instance to be paid by appellant.

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