G.R. No.

139130             November 27, 2002

RAMON K. ILUSORIO, petitioner,
vs.
HON. COURT OF APPEALS, and THE MANILA BANKING
CORPORATION, respondents.
DECISION
QUISUMBING, J.:
This petition for review seeks to reverse the decision1 promulgated on January 28, 1999
by the Court of Appeals in CA-G.R. CV No. 47942, affirming the decision of the then
Court of First Instance of Rizal, Branch XV (now the Regional Trial Court of Makati,
Branch 138) dismissing Civil Case No. 43907, for damages.
The facts as summarized by the Court of Appeals are as follows:
Petitioner is a prominent businessman who, at the time material to this case, was the
Managing Director of Multinational Investment Bancorporation and the Chairman and/or
President of several other corporations. He was a depositor in good standing of
respondent bank, the Manila Banking Corporation, under current Checking Account No.
06-09037-0. As he was then running about 20 corporations, and was going out of the
country a number of times, petitioner entrusted to his secretary, Katherine2 E. Eugenio,
his credit cards and his checkbook with blank checks. It was also Eugenio who verified
and reconciled the statements of said checking account.3
Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to
encash and deposit to her personal account about seventeen (17) checks drawn
against the account of the petitioner at the respondent bank, with an aggregate amount
of P119,634.34. Petitioner did not bother to check his statement of account until a
business partner apprised him that he saw Eugenio use his credit cards. Petitioner fired
Eugenio immediately, and instituted a criminal action against her for estafa thru
falsification before the Office of the Provincial Fiscal of Rizal. Private respondent,
through an affidavit executed by its employee, Mr. Dante Razon, also lodged a
complaint for estafa thru falsification of commercial documents against Eugenio on the
basis of petitioner’s statement that his signatures in the checks were forged. 4 Mr.
Razon’s affidavit states:
That I have examined and scrutinized the following checks in accordance with
prescribed verification procedures with utmost care and diligence by comparing the
signatures affixed thereat against the specimen signatures of Mr. Ramon K. Ilusorio
which we have on file at our said office on such dates,
xxx
That the aforementioned checks were among those issued by Manilabank in favor of its
client MR. RAMON K. ILUSORIO,…
That the same were personally encashed by KATHERINE E. ESTEBAN, an executive
secretary of MR. RAMON K. ILUSORIO in said Investment Corporation;
That I have met and known her as KATHERINE E. ESTEBAN the attending verifier
when she personally encashed the above-mentioned checks at our said office;
That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning his
signature appearing on the checks further alleged to have not authorized the issuance
and encashment of the same.…5
Petitioner then requested the respondent bank to credit back and restore to its account
the value of the checks which were wrongfully encashed but respondent bank refused.
Hence, petitioner filed the instant case.6
At the trial, petitioner testified on his own behalf, attesting to the truth of the
circumstances as narrated above, and how he discovered the alleged forgeries. Several
employees of Manila Bank were also called to the witness stand as hostile witnesses.
They testified that it is the bank’s standard operating procedure that whenever a check
is presented for encashment or clearing, the signature on the check is first verified
against the specimen signature cards on file with the bank.
Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in
determining the genuineness of the signatures appearing on the checks. However, in a
letter dated March 25, 1987, the NBI informed the trial court that they could not conduct
the desired examination for the reason that the standard specimens submitted were not
sufficient for purposes of rendering a definitive opinion. The NBI then suggested that
petitioner be asked to submit seven (7) or more additional standard signatures executed
before or about, and immediately after the dates of the questioned checks. Petitioner,
however, failed to comply with this request.
After evaluating the evidence on both sides, the court a quo rendered judgment on May
12, 1994 with the following dispositive portion:
WHEREFORE, finding no sufficient basis for plaintiff's cause herein against defendant
bank, in the light of the foregoing considerations and established facts, this case would
have to be, as it is hereby DISMISSED.
Defendant’s counterclaim is likewise DISMISSED for lack of sufficient basis.
SO ORDERED.7
Aggrieved, petitioner elevated the case to the Court of Appeals by way of a petition for
review but without success. The appellate court held that petitioner’s own negligence
was the proximate cause of his loss. The appellate court disposed as follows:
WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the appellant.
SO ORDERED.8
Before us, petitioner ascribes the following errors to the Court of Appeals:
A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT
BANK IS ESTOPPED FROM RAISING THE DEFENSE THAT THERE WAS NO
FORGERY OF THE SIGNATURES OF THE PETITIONER IN THE CHECK BECAUSE
THE RESPONDENT FILED A CRIMINAL COMPLAINT FOR ESTAFA THRU
FALSIFICATION OF COMMERCIAL DOCUMENTS AGAINST KATHERINE EUGENIO
USING THE AFFIDAVIT OF PETITIONER STATING THAT HIS SIGNATURES WERE
FORGED AS PART OF THE AFFIDAVIT-COMPLAINT.9
B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23, NEGOTIABLE
INSTRUMENTS LAW.10
C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN OF PROOF
IS WITH THE RESPONDENT BANK TO PROVE THE DUE DILIGENCE TO PREVENT
DAMAGE, TO THE PETITIONER, AND THAT IT WAS NOT NEGLIGENT IN THE
SELECTION AND SUPERVISION OF ITS EMPLOYEES.11
D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT
BANK SHOULD BEAR THE LOSS, AND SHOULD BE MADE TO PAY PETITIONER,
WITH RECOURSE AGAINST KATHERINE EUGENIO ESTEBAN. 12
Essentially the issues in this case are: (1) whether or not petitioner has a cause of
action against private respondent; and (2) whether or not private respondent, in filing an
estafa case against petitioner’s secretary, is barred from raising the defense that the
fact of forgery was not established.
Petitioner contends that Manila Bank is liable for damages for its negligence in failing to
detect the discrepant checks. He adds that as a general rule a bank which has obtained
possession of a check upon an unauthorized or forged endorsement of the payee’s
signature and which collects the amount of the check from the drawee is liable for the
proceeds thereof to the payee. Petitioner invokes the doctrine of estoppel, saying that
having itself instituted a forgery case against Eugenio, Manila Bank is now estopped
from asserting that the fact of forgery was never proven.
For its part, Manila Bank contends that respondent appellate court did not depart from
the accepted and usual course of judicial proceedings, hence there is no reason for the
reversal of its ruling. Manila Bank additionally points out that Section 2313 of the
Negotiable Instruments Law is inapplicable, considering that the fact of forgery was
never proven. Lastly, the bank negates petitioner’s claim of estoppel.14
On the first issue, we find that petitioner has no cause of action against Manila Bank. To
be entitled to damages, petitioner has the burden of proving negligence on the part of
the bank for failure to detect the discrepancy in the signatures on the checks. It is
incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his
specimen signatures and comparing them with those on the questioned checks.
Curiously though, petitioner failed to submit additional specimen signatures as
requested by the National Bureau of Investigation from which to draw a conclusive
finding regarding forgery. The Court of Appeals found that petitioner, by his own
inaction, was precluded from setting up forgery. Said the appellate court:
We cannot fault the court a quo for such declaration, considering that the plaintiff’s
evidence on the alleged forgery is not convincing enough. The burden to prove forgery
was upon the plaintiff, which burden he failed to discharge. Aside from his own
testimony, the appellant presented no other evidence to prove the fact of forgery. He did
not even submit his own specimen signatures, taken on or about the date of the
questioned checks, for examination and comparison with those of the subject checks.
On the other hand, the appellee presented specimen signature cards of the appellant,
taken at various years, namely, in 1976, 1979 and 1981 (Exhibits "1", "2", "3" and "7"),
showing variances in the appellant’s unquestioned signatures. The evidence further
shows that the appellee, as soon as it was informed by the appellant about his
questioned signatures, sought to borrow the questioned checks from the appellant for
purposes of analysis and examination (Exhibit "9"), but the same was denied by the
appellant. It was also the former which sought the assistance of the NBI for an expert
analysis of the signatures on the questioned checks, but the same was unsuccessful for
lack of sufficient specimen signatures.15
Moreover, petitioner’s contention that Manila Bank was remiss in the exercise of its duty
as drawee lacks factual basis. Consistently, the CA and the RTC found that Manila
Bank employees exercised due diligence in cashing the checks. The bank’s employees
in the present case did not have a hint as to Eugenio’s modus operandi because she
was a regular customer of the bank, having been designated by petitioner himself to
transact in his behalf. According to the appellate court, the employees of the bank
exercised due diligence in the performance of their duties. Thus, it found that:
The evidence on both sides indicates that TMBC’s employees exercised due diligence
before encashing the checks. Its verifiers first verified the drawer’s signatures thereon
as against his specimen signature cards, and when in doubt, the verifier went further,
such as by referring to a more experienced verifier for further verification. In some
instances the verifier made a confirmation by calling the depositor by phone. It is only
after taking such precautionary measures that the subject checks were given to the
teller for payment.
Of course it is possible that the verifiers of TMBC might have made a mistake in failing
to detect any forgery -- if indeed there was. However, a mistake is not equivalent to
negligence if they were honest mistakes. In the instant case, we believe and so hold
that if there were mistakes, the same were not deliberate, since the bank took all the
precautions.16
As borne by the records, it was petitioner, not the bank, who was negligent. Negligence
is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the
doing of something which a prudent and reasonable man would do.17 In the present
case, it appears that petitioner accorded his secretary unusual degree of trust and
unrestricted access to his credit cards, passbooks, check books, bank statements,
including custody and possession of cancelled checks and reconciliation of accounts.
Said the Court of Appeals on this matter:
Moreover, the appellant had introduced his secretary to the bank for purposes of
reconciliation of his account, through a letter dated July 14, 1980 (Exhibit "8"). Thus, the
said secretary became a familiar figure in the bank. What is worse, whenever the bank
verifiers call the office of the appellant, it is the same secretary who answers and
confirms the checks.
The trouble is, the appellant had put so much trust and confidence in the said secretary,
by entrusting not only his credit cards with her but also his checkbook with blank
checks. He also entrusted to her the verification and reconciliation of his account.
Further adding to his injury was the fact that while the bank was sending him the
monthly Statements of Accounts, he was not personally checking the same. His
testimony did not indicate that he was out of the country during the period covered by
the checks. Thus, he had all the opportunities to verify his account as well as the
cancelled checks issued thereunder -- month after month. But he did not, until his
partner asked him whether he had entrusted his credit card to his secretary because the
said partner had seen her use the same. It was only then that he was minded to verify
the records of his account. 18
The abovecited findings are binding upon the reviewing court. We stress the rule that
the factual findings of a trial court, especially when affirmed by the appellate court, are
binding upon us19 and entitled to utmost respect20 and even finality. We find no palpable
error that would warrant a reversal of the appellate court’s assessment of facts
anchored upon the evidence on record.
Petitioner’s failure to examine his bank statements appears as the proximate cause of
his own damage. Proximate cause is that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred.21 In the instant case, the bank was not shown
to be remiss in its duty of sending monthly bank statements to petitioner so that any
error or discrepancy in the entries therein could be brought to the bank’s attention at the
earliest opportunity. But, petitioner failed to examine these bank statements not
because he was prevented by some cause in not doing so, but because he did not pay
sufficient attention to the matter. Had he done so, he could have been alerted to any
anomaly committed against him. In other words, petitioner had sufficient opportunity to
prevent or detect any misappropriation by his secretary had he only reviewed the status
of his accounts based on the bank statements sent to him regularly. In view of Article
2179 of the New Civil Code,22 when the plaintiff’s own negligence was the immediate
and proximate cause of his injury, no recovery could be had for damages.
Petitioner further contends that under Section 23 of the Negotiable Instruments Law a
forged check is inoperative, and that Manila Bank had no authority to pay the forged
checks. True, it is a rule that when a signature is forged or made without the authority of
the person whose signature it purports to be, the check is wholly inoperative. No right to
retain the instrument, or to give a discharge therefor, or to enforce payment thereof
against any party, can be acquired through or under such signature. However, the rule
does provide for an exception, namely: "unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of authority." In the
instant case, it is the exception that applies. In our view, petitioner is precluded from
setting up the forgery, assuming there is forgery, due to his own negligence in
entrusting to his secretary his credit cards and checkbook including the verification of
his statements of account.
Petitioner’s reliance on Associated Bank vs. Court of Appeals23 and Philippine Bank of
Commerce vs. CA24 to buttress his contention that respondent Manila Bank as the
collecting or last endorser generally suffers the loss because it has the duty to ascertain
the genuineness of all prior endorsements is misplaced. In the cited cases, the fact of
forgery was not in issue. In the present case, the fact of forgery was not established
with certainty. In those cited cases, the collecting banks were held to be negligent for
failing to observe precautionary measures to detect the forgery. In the case before us,
both courts below uniformly found that Manila Bank’s personnel diligently performed
their duties, having compared the signature in the checks from the specimen signatures
on record and satisfied themselves that it was petitioner’s.
On the second issue, the fact that Manila Bank had filed a case for estafa against
Eugenio would not estop it from asserting the fact that forgery has not been clearly
established. Petitioner cannot hold private respondent in estoppel for the latter is not the
actual party to the criminal action. In a criminal action, the State is the plaintiff, for the
commission of a felony is an offense against the State. 25 Thus, under Section 2, Rule
110 of the Rules of Court the complaint or information filed in court is required to be
brought in the name of the "People of the Philippines." 26
Further, as petitioner himself stated in his petition, respondent bank filed the estafa case
against Eugenio on the basis of petitioner’s own affidavit,27 but without admitting that he
had any personal knowledge of the alleged forgery. It is, therefore, easy to understand
that the filing of the estafa case by respondent bank was a last ditch effort to salvage its
ties with the petitioner as a valuable client, by bolstering the estafa case which he filed
against his secretary.
All told, we find no reversible error that can be ascribed to the Court of Appeals.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of
the Court of Appeals dated January 28, 1999 in CA-G.R. CV No. 47942, is AFFIRMED.
Costs against petitioner.

G.R. No. 129015             August 13, 2004

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES,
INC., petitioner,
vs.
FAR EAST BANK AND TRUST COMPANY AND COURT OF
APPEALS, respondents.

DECISION

TINGA, J.:
Called to fore in the present petition is a classic textbook question – if a bank pays out
on a forged check, is it liable to reimburse the drawer from whose account the funds
were paid out? The Court of Appeals, in reversing a trial court decision adverse to the
bank, invoked tenuous reasoning to acquit the bank of liability. We reverse, applying
time-honored principles of law.
The salient facts follow.
Plaintiff Samsung Construction Company Philippines, Inc. ("Samsung Construction"),
while based in Biñan, Laguna, maintained a current account with defendant Far East
Bank and Trust Company1 ("FEBTC") at the latter’s Bel-Air, Makati branch.2 The sole
signatory to Samsung Construction’s account was Jong Kyu Lee ("Jong"), its Project
Manager,3 while the checks remained in the custody of the company’s accountant, Kyu
Yong Lee ("Kyu").4
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check
No. 432100 to the bank’s branch in Bel-Air, Makati. The check, payable to cash and
drawn against Samsung Construction’s current account, was in the amount of Nine
Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00). The bank teller,
Cleofe Justiani, first checked the balance of Samsung Construction’s account. After
ascertaining there were enough funds to cover the check,5 she compared the signature
appearing on the check with the specimen signature of Jong as contained in the
specimen signature card with the bank. After comparing the two signatures, Justiani
was satisfied as to the authenticity of the signature appearing on the check. She then
asked Gonzaga to submit proof of his identity, and the latter presented three (3)
identification cards.6
At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier
Gemma Velez, as it was bank policy that two bank branch officers approve checks
exceeding One Hundred Thousand Pesos, for payment or encashment. Velez likewise
counterchecked the signature on the check as against that on the signature card. He
too concluded that the check was indeed signed by Jong. Velez then forwarded the
check and signature card to Shirley Syfu, another bank officer, for approval. Syfu then
noticed that Jose Sempio III ("Sempio"), the assistant accountant of Samsung
Construction, was also in the bank. Sempio was well-known to Syfu and the other bank
officers, he being the assistant accountant of Samsung Construction. Syfu showed the
check to Sempio, who vouched for the genuineness of Jong’s signature. Confirming the
identity of Gonzaga, Sempio said that the check was for the purchase of equipment for
Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu
authorized the bank’s encashment of the check to Gonzaga.
The following day, the accountant of Samsung Construction, Kyu, examined the
balance of the bank account and discovered that a check in the amount of Nine
Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had been
encashed. Aware that he had not prepared such a check for Jong’s signature, Kyu
perused the checkbook and found that the last blank check was missing.7 He reported
the matter to Jong, who then proceeded to the bank. Jong learned of the encashment of
the check, and realized that his signature had been forged. The Bank Manager
reputedly told Jong that he would be reimbursed for the amount of the check. 8 Jong
proceeded to the police station and consulted with his lawyers. 9 Subsequently, a
criminal case for qualified theft was filed against Sempio before the Laguna court.10
In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that
FEBTC credit to it the amount of Nine Hundred Ninety Nine Thousand Five Hundred
Pesos (P999,500.00), with interest.11 In response, FEBTC said that it was still
conducting an investigation on the matter. Unsatisfied, Samsung Construction filed
a Complaint on 10 June 1992 for violation of Section 23 of the Negotiable Instruments
Law, and prayed for the payment of the amount debited as a result of the questioned
check plus interest, and attorney’s fees.12 The case was docketed as Civil Case No. 92-
61506 before the Regional Trial Court ("RTC") of Manila, Branch 9.13
During the trial, both sides presented their respective expert witnesses to testify on the
claim that Jong’s signature was forged. Samsung Corporation, which had referred the
check for investigation to the NBI, presented Senior NBI Document Examiner Roda B.
Flores. She testified that based on her examination, she concluded that Jong’s
signature had been forged on the check. On the other hand, FEBTC, which had sought
the assistance of the Philippine National Police (PNP),14 presented Rosario C. Perez, a
document examiner from the PNP Crime Laboratory. She testified that her findings
showed that Jong’s signature on the check was genuine.15
Confronted with conflicting expert testimony, the RTC chose to believe the findings of
the NBI expert. In a Decision dated 25 April 1994, the RTC held that Jong’s signature
on the check was forged and accordingly directed the bank to pay or credit back to
Samsung Construction’s account the amount of Nine Hundred Ninety Nine Thousand
Five Hundred Pesos (P999,500.00), together with interest tolled from the time the
complaint was filed, and attorney’s fees in the amount of Fifteen Thousand Pesos
(P15,000.00).
FEBTC timely appealed to the Court of Appeals. On 28 November 1996, the Special
Fourteenth Division of the Court of Appeals rendered a Decision,16 reversing the
RTC Decision and absolving FEBTC from any liability. The Court of Appeals held that
the contradictory findings of the NBI and the PNP created doubt as to whether there
was forgery.17 Moreover, the appellate court also held that assuming there was forgery,
it occurred due to the negligence of Samsung Construction, imputing blame on the
accountant Kyu for lack of care and prudence in keeping the checks, which if observed
would have prevented Sempio from gaining access thereto.18 The Court of Appeals
invoked the ruling in PNB v. National City Bank of New York19 that, if a loss, which must
be borne by one or two innocent persons, can be traced to the neglect or fault of either,
such loss would be borne by the negligent party, even if innocent of intentional fraud.20
Samsung Construction now argues that the Court of Appeals had seriously
misapprehended the facts when it overturned the RTC’s finding of forgery. It also
contends that the appellate court erred in finding that it had been negligent in
safekeeping the check, and in applying the equity principle enunciated in PNB v.
National City Bank of New York.
Since the trial court and the Court of Appeals arrived at contrary findings on questions
of fact, the Court is obliged to examine the record to draw out the correct conclusions.
Upon examination of the record, and based on the applicable laws and jurisprudence,
we reverse the Court of Appeals.
Section 23 of the Negotiable Instruments Law states:
When a signature is forged or made without the authority of the person whose signature
it purports to be, it is wholly inoperative, and no right to retain the instrument, or to
give a discharge therefor, or to enforce payment thereof against any party thereto,
can be acquired through or under such signature, unless the party against whom it
is sought to enforce such right is precluded from setting up the forgery or want of
authority. (Emphasis supplied)
The general rule is to the effect that a forged signature is "wholly inoperative," and
payment made "through or under such signature" is ineffectual or does not discharge
the instrument.21 If payment is made, the drawee cannot charge it to the drawer’s
account. The traditional justification for the result is that the drawee is in a superior
position to detect a forgery because he has the maker’s signature and is expected to
know and compare it.22 The rule has a healthy cautionary effect on banks by
encouraging care in the comparison of the signatures against those on the signature
cards they have on file. Moreover, the very opportunity of the drawee to insure and to
distribute the cost among its customers who use checks makes the drawee an ideal
party to spread the risk to insurance.23
Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
When a person deposits money in a general account in a bank, against which he has
the privilege of drawing checks in the ordinary course of business, the relationship
between the bank and the depositor is that of debtor and creditor. So far as the legal
relationship between the two is concerned, the situation is the same as though the bank
had borrowed money from the depositor, agreeing to repay it on demand, or had bought
goods from the depositor, agreeing to pay for them on demand. The bank owes the
depositor money in the same sense that any debtor owes money to his creditor. Added
to this, in the case of bank and depositor, there is, of course, the bank’s obligation to
pay checks drawn by the depositor in proper form and presented in due course. When
the bank receives the deposit, it impliedly agrees to pay only upon the depositor’s order.
When the bank pays a check, on which the depositor’s signature is a forgery, it has
failed to comply with its contract in this respect. Therefore, the bank is held liable.
The fact that the forgery is a clever one is immaterial. The forged signature may so
closely resemble the genuine as to defy detection by the depositor himself. And yet, if a
bank pays the check, it is paying out its own money and not the depositor’s.
The forgery may be committed by a trusted employee or confidential agent. The bank
still must bear the loss. Even in a case where the forged check was drawn by the
depositor’s partner, the loss was placed upon the bank. The case referred to is
Robinson v. Security Bank, Ark., 216 S. W. Rep. 717. In this case, the plaintiff brought
suit against the defendant bank for money which had been deposited to the plaintiff’s
credit and which the bank had paid out on checks bearing forgeries of the plaintiff’s
signature.
xxx
It was held that the bank was liable. It was further held that the fact that the plaintiff
waited eight or nine months after discovering the forgery, before notifying the bank, did
not, as a matter of law, constitute a ratification of the payment, so as to preclude the
plaintiff from holding the bank liable. xxx
This rule of liability can be stated briefly in these words: "A bank is bound to know its
depositors’ signature." The rule is variously expressed in the many decisions in which
the question has been considered. But they all sum up to the proposition that a bank
must know the signatures of those whose general deposits it carries.24
By no means is the principle rendered obsolete with the advent of modern commercial
transactions. Contemporary texts still affirm this well-entrenched standard. Nickles, in
his book Negotiable Instruments and Other Related Commercial Paper wrote, thus:
The deposit contract between a payor bank and its customer determines who can draw
against the customer’s account by specifying whose signature is necessary on checks
that are chargeable against the customer’s account. Therefore, a check drawn against
the account of an individual customer that is signed by someone other than the
customer, and without authority from her, is not properly payable and is not chargeable
to the customer’s account, inasmuch as any "unauthorized signature on an instrument is
ineffective" as the signature of the person whose name is signed.25
Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute
defense by the party whose signature is forged.26 On the premise that Jong’s signature
was indeed forged, FEBTC is liable for the loss since it authorized the discharge of the
forged check. Such liability attaches even if the bank exerts due diligence and care in
preventing such faulty discharge. Forgeries often deceive the eye of the most cautious
experts; and when a bank has been so deceived, it is a harsh rule which compels it to
suffer although no one has suffered by its being deceived.27 The forgery may be so near
like the genuine as to defy detection by the depositor himself, and yet the bank is liable
to the depositor if it pays the check.28
Thus, the first matter of inquiry is into whether the check was indeed forged. A
document formally presented is presumed to be genuine until it is proved to be
fraudulent. In a forgery trial, this presumption must be overcome but this can only be
done by convincing testimony and effective illustrations.29
In ruling that forgery was not duly proven, the Court of Appeals held:
[There] is ground to doubt the findings of the trial court sustaining the alleged forgery in
view of the conflicting conclusions made by handwriting experts from the NBI and the
PNP, both agencies of the government.
xxx
These contradictory findings create doubt on whether there was indeed a forgery. In the
case of Tenio-Obsequio v. Court of Appeals, 230 SCRA 550, the Supreme Court held
that forgery cannot be presumed; it must be proved by clear, positive and convincing
evidence.
This reasoning is pure sophistry. Any litigator worth his or her salt would never allow an
opponent’s expert witness to stand uncontradicted, thus the spectacle of competing
expert witnesses is not unusual. The trier of fact will have to decide which version to
believe, and explain why or why not such version is more credible than the other.
Reliance therefore cannot be placed merely on the fact that there are colliding opinions
of two experts, both clothed with the presumption of official duty, in order to draw a
conclusion, especially one which is extremely crucial. Doing so is tantamount to a
jurisprudential cop-out.
Much is expected from the Court of Appeals as it occupies the penultimate tier in the
judicial hierarchy. This Court has long deferred to the appellate court as to its findings of
fact in the understanding that it has the appropriate skill and competence to plough
through the minutiae that scatters the factual field. In failing to thoroughly evaluate the
evidence before it, and relying instead on presumptions haphazardly drawn, the Court
of Appeals was sadly remiss. Of course, courts, like humans, are fallible, and not every
error deserves a stern rebuke. Yet, the appellate court’s error in this case warrants
special attention, as it is absurd and even dangerous as a precedent. If this rationale
were adopted as a governing standard by every court in the land, barely any actionable
claim would prosper, defeated as it would be by the mere invocation of the existence of
a contrary "expert" opinion.
On the other hand, the RTC did adjudge the testimony of the NBI expert as more
credible than that of the PNP, and explained its reason behind the conclusion:
After subjecting the evidence of both parties to a crucible of analysis, the court arrived
at the conclusion that the testimony of the NBI document examiner is more credible
because the testimony of the PNP Crime Laboratory Services document examiner
reveals that there are a lot of differences in the questioned signature as compared to
the standard specimen signature. Furthermore, as testified to by Ms. Rhoda Flores, NBI
expert, the manner of execution of the standard signatures used reveals that it is a free
rapid continuous execution or stroke as shown by the tampering terminal stroke of the
signatures whereas the questioned signature is a hesitating slow drawn execution
stroke. Clearly, the person who executed the questioned signature was hesitant when
the signature was made.30
During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that
"apparently, there [are] differences on that questioned signature and the standard
signatures."31 This Court, in examining the signatures, makes a similar finding. The PNP
expert excused the noted "differences" by asserting that they were mere "variations,"
which are normal deviations found in writing.32 Yet the RTC, which had the opportunity
to examine the relevant documents and to personally observe the expert witness,
clearly disbelieved the PNP expert. The Court similarly finds the testimony of the PNP
expert as unconvincing. During the trial, she was confronted several times with apparent
differences between strokes in the questioned signature and the genuine samples.
Each time, she would just blandly assert that these differences were just
"variations,"33 as if the mere conjuration of the word would sufficiently disquiet whatever
doubts about the deviations. Such conclusion, standing alone, would be of little or no
value unless supported by sufficiently cogent reasons which might amount almost to a
demonstration.34
The most telling difference between the questioned and genuine signatures examined
by the PNP is in the final upward stroke in the signature, or "the point to the short stroke
of the terminal in the capital letter ‘L,’" as referred to by the PNP examiner who had
marked it in her comparison chart as "point no. 6." To the plain eye, such upward final
stroke consists of a vertical line which forms a ninety degree (90º) angle with the
previous stroke. Of the twenty one (21) other genuine samples examined by the PNP, at
least nine (9) ended with an upward stroke.35 However, unlike the questioned signature,
the upward strokes of eight (8) of these signatures are looped, while the upward stroke
of the seventh36 forms a severe forty-five degree (45º) with the previous stroke. The
difference is glaring, and indeed, the PNP examiner was confronted with the
inconsistency in point no. 6.
Q: Now, in this questioned document point no. 6, the "s" stroke is directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is repeated
or the last stroke "s" is pointing directly upwards?
A: There is none in the standard signature, sir.37
Again, the PNP examiner downplayed the uniqueness of the final stroke in the
questioned signature as a mere variation,38 the same excuse she proffered for the other
marked differences noted by the Court and the counsel for petitioner.39
There is no reason to doubt why the RTC gave credence to the testimony of the NBI
examiner, and not the PNP expert’s. The NBI expert, Rhoda Flores, clearly qualifies as
an expert witness. A document examiner for fifteen years, she had been promoted to
the rank of Senior Document Examiner with the NBI, and had held that rank for twelve
years prior to her testimony. She had placed among the top five examinees in the
Competitive Seminar in Question Document Examination, conducted by the NBI
Academy, which qualified her as a document examiner.40 She had trained with the Royal
Hongkong Police Laboratory and is a member of the International Association for
Identification.41 As of the time she testified, she had examined more than fifty to fifty-five
thousand questioned documents, on an average of fifteen to twenty documents a
day.42 In comparison, PNP document examiner Perez admitted to having examined only
around five hundred documents as of her testimony.43
In analyzing the signatures, NBI Examiner Flores utilized the scientific comparative
examination method consisting of analysis, recognition, comparison and evaluation of
the writing habits with the use of instruments such as a magnifying lense, a
stereoscopic microscope, and varied lighting substances. She also prepared enlarged
photographs of the signatures in order to facilitate the necessary comparisons.44 She
compared the questioned signature as against ten (10) other sample signatures of
Jong. Five of these signatures were executed on checks previously issued by Jong,
while the other five contained in business letters Jong had signed.45 The NBI found that
there were significant differences in the handwriting characteristics existing between the
questioned and the sample signatures, as to manner of execution, link/connecting
strokes, proportion characteristics, and other identifying details.46
The RTC was sufficiently convinced by the NBI examiner’s testimony, and explained her
reasons in its Decisions. While the Court of Appeals disagreed and upheld the findings
of the PNP, it failed to convincingly demonstrate why such findings were more credible
than those of the NBI expert. As a throwaway, the assailed Decision noted that the
PNP, not the NBI, had the opportunity to examine the specimen signature card signed
by Jong, which was relied upon by the employees of FEBTC in authenticating Jong’s
signature. The distinction is irrelevant in establishing forgery. Forgery can be
established comparing the contested signatures as against those of any sample
signature duly established as that of the persons whose signature was forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did compare the
questioned signature against the bank signature cards. The crucial fact in question is
whether or not the check was forged, not whether the bank could have detected
the forgery. The latter issue becomes relevant only if there is need to weigh the
comparative negligence between the bank and the party whose signature was
forged.
At the same time, the Court of Appeals failed to assess the effect of Jong’s testimony
that the signature on the check was not his. 47 The assertion may seem self-serving at
first blush, yet it cannot be ignored that Jong was in the best position to know whether
or not the signature on the check was his. While his claim should not be taken at face
value, any averments he would have on the matter, if adjudged as truthful, deserve
primacy in consideration. Jong’s testimony is supported by the findings of the NBI
examiner. They are also backed by factual circumstances that support the conclusion
that the assailed check was indeed forged. Judicial notice can be taken that is highly
unusual in practice for a business establishment to draw a check for close to a million
pesos and make it payable to cash or bearer, and not to order. Jong immediately
reported the forgery upon its discovery. He filed the appropriate criminal charges
against Sempio, the putative forger.48
Now for determination is whether Samsung Construction was precluded from setting up
the defense of forgery under Section 23 of the Negotiable Instruments Law. The Court
of Appeals concluded that Samsung Construction was negligent, and invoked the
doctrines that "where a loss must be borne by one of two innocent person, can be
traced to the neglect or fault of either, it is reasonable that it would be borne by him,
even if innocent of any intentional fraud, through whose means it has succeeded49 or
who put into the power of the third person to perpetuate the wrong."50 Applying these
rules, the Court of Appeals determined that it was the negligence of Samsung
Construction that allowed the encashment of the forged check.
In the case at bar, the forgery appears to have been made possible through the acts of
one Jose Sempio III, an assistant accountant employed by the plaintiff Samsung
[Construction] Co. Philippines, Inc. who supposedly stole the blank check and who
presumably is responsible for its encashment through a forged signature of Jong Kyu
Lee. Sempio was assistant to the Korean accountant who was in possession of the
blank checks and who through negligence, enabled Sempio to have access to the
same. Had the Korean accountant been more careful and prudent in keeping the blank
checks Sempio would not have had the chance to steal a page thereof and to effect the
forgery. Besides, Sempio was an employee who appears to have had dealings with the
defendant Bank in behalf of the plaintiff corporation and on the date the check was
encashed, he was there to certify that it was a genuine check issued to purchase
equipment for the company.51
We recognize that Section 23 of the Negotiable Instruments Law bars a party from
setting up the defense of forgery if it is guilty of negligence. 52 Yet, we are unable to
conclude that Samsung Construction was guilty of negligence in this case. The
appellate court failed to explain precisely how the Korean accountant was negligent or
how more care and prudence on his part would have prevented the forgery. We cannot
sustain this "tar and feathering" resorted to without any basis.
The bare fact that the forgery was committed by an employee of the party whose
signature was forged cannot necessarily imply that such party’s negligence was the
cause for the forgery. Employers do not possess the preternatural gift of cognition as to
the evil that may lurk within the hearts and minds of their employees. The Court’s
pronouncement in PCI Bank v. Court of Appeals53 applies in this case, to wit:
[T]he mere fact that the forgery was committed by a drawer-payor’s confidential
employee or agent, who by virtue of his position had unusual facilities for perpetrating
the fraud and imposing the forged paper upon the bank, does not entitle the bank to
shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel
against the drawer.54
Admittedly, the record does not clearly establish what measures Samsung Construction
employed to safeguard its blank checks. Jong did testify that his accountant, Kyu, kept
the checks inside a "safety box,"55 and no contrary version was presented by FEBTC.
However, such testimony cannot prove that the checks were indeed kept in a safety
box, as Jong’s testimony on that point is hearsay, since Kyu, and not Jong, would have
the personal knowledge as to how the checks were kept.
Still, in the absence of evidence to the contrary, we can conclude that there was no
negligence on Samsung Construction’s part. The presumption remains that every
person takes ordinary care of his concerns,56 and that the ordinary course of business
has been followed.57 Negligence is not presumed, but must be proven by him who
alleges it.58 While the complaint was lodged at the instance of Samsung Construction,
the matter it had to prove was the claim it had alleged - whether the check was forged. It
cannot be required as well to prove that it was not negligent, because the legal
presumption remains that ordinary care was employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that
Samsung Construction was negligent. While the payee, as in this case, may not have
the personal knowledge as to the standard procedures observed by the drawer, it well
has the means of disputing the presumption of regularity. Proving a negative fact may
be "a difficult office,"59 but necessarily so, as it seeks to overcome a presumption in law.
FEBTC was unable to dispute the presumption of ordinary care exercised by Samsung
Construction, hence we cannot agree with the Court of Appeals’ finding of negligence.
The assailed Decision replicated the extensive efforts which FEBTC devoted to
establish that there was no negligence on the part of the bank in its acceptance and
payment of the forged check. However, the degree of diligence exercised by the bank
would be irrelevant if the drawer is not precluded from setting up the defense of forgery
under Section 23 by his own negligence. The rule of equity enunciated in PNB v.
National City Bank of New York, 60 as relied upon by the Court of Appeals, deserves
careful examination.
The point in issue has sometimes been said to be that of negligence. The drawee who
has paid upon the forged signature is held to bear the loss, because he has been
negligent in failing to recognize that the handwriting is not that of his customer.
But it follows obviously that if the payee, holder, or presenter of the forged paper has
himself been in default, if he has himself been guilty of a negligence prior to that of the
banker, or if by any act of his own he has at all contributed to induce the banker's
negligence, then he may lose his right to cast the loss upon the banker. 61 (Emphasis
supplied)
Quite palpably, the general rule remains that the drawee who has paid upon the forged
signature bears the loss. The exception to this rule arises only when negligence can be
traced on the part of the drawer whose signature was forged, and the need arises to
weigh the comparative negligence between the drawer and the drawee to determine
who should bear the burden of loss. The Court finds no basis to conclude that Samsung
Construction was negligent in the safekeeping of its checks. For one, the settled rule is
that the mere fact that the depositor leaves his check book lying around does not
constitute such negligence as will free the bank from liability to him, where a clerk of the
depositor or other persons, taking advantage of the opportunity, abstract some of the
check blanks, forges the depositor’s signature and collect on the checks from the
bank.62 And for another, in point of fact Samsung Construction was not negligent at all
since it reported the forgery almost immediately upon discovery.63
It is also worth noting that the forged signatures in PNB v. National City Bank of New
York were not of the drawer, but of indorsers. The same circumstance attends PNB v.
Court of Appeals,64 which was also cited by the Court of Appeals. It is accepted that a
forged signature of the drawer differs in treatment than a forged signature of the
indorser.
The justification for the distinction between forgery of the signature of the drawer and
forgery of an indorsement is that the drawee is in a position to verify the drawer’s
signature by comparison with one in his hands, but has ordinarily no opportunity to
verify an indorsement.65
Thus, a drawee bank is generally liable to its depositor in paying a check which bears
either a forgery of the drawer’s signature or a forged indorsement. But the bank may, as
a general rule, recover back the money which it has paid on a check bearing a forged
indorsement, whereas it has not this right to the same extent with reference to a check
bearing a forgery of the drawer’s signature.66
The general rule imputing liability on the drawee who paid out on the forgery holds in
this case.
Since FEBTC puts into issue the degree of care it exercised before paying out on the
forged check, we might as well comment on the bank’s performance of its duty. It might
be so that the bank complied with its own internal rules prior to paying out on the
questionable check. Yet, there are several troubling circumstances that lead us to
believe that the bank itself was remiss in its duty.
The fact that the check was made out in the amount of nearly one million pesos is
unusual enough to require a higher degree of caution on the part of the bank. Indeed,
FEBTC confirms this through its own internal procedures. Checks below twenty-five
thousand pesos require only the approval of the teller; those between twenty-five
thousand to one hundred thousand pesos necessitate the approval of one bank officer;
and should the amount exceed one hundred thousand pesos, the concurrence of two
bank officers is required.67
In this case, not only did the amount in the check nearly total one million pesos, it was
also payable to cash. That latter circumstance should have aroused the suspicion of the
bank, as it is not ordinary business practice for a check for such large amount to be
made payable to cash or to bearer, instead of to the order of a specified
person.68 Moreover, the check was presented for payment by one Roberto Gonzaga,
who was not designated as the payee of the check, and who did not carry with him any
written proof that he was authorized by Samsung Construction to encash the check.
Gonzaga, a stranger to FEBTC, was not even an employee of Samsung
Construction.69 These circumstances are already suspicious if taken independently,
much more so if they are evaluated in concurrence. Given the shadiness attending
Gonzaga’s presentment of the check, it was not sufficient for FEBTC to have merely
complied with its internal procedures, but mandatory that all earnest efforts be
undertaken to ensure the validity of the check, and of the authority of Gonzaga to collect
payment therefor.
According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed,
to contact Jong over the phone to verify the check.70 She added that calling the issuer or
drawer of the check to verify the same was not part of the standard procedure of the
bank, but an "extra effort."71 Even assuming that such personal verification is tantamount
to extraordinary diligence, it cannot be denied that FEBTC still paid out the check
despite the absence of any proof of verification from the drawer. Instead, the bank
seems to have relied heavily on the say-so of Sempio, who was present at the bank at
the time the check was presented.
FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly
transacted with the bank in behalf of Samsung Construction. It was even claimed that
everytime FEBTC would contact Jong about problems with his account, Jong would
hand the phone over to Sempio.72 However, the only proof of such allegations is the
testimony of Gemma Velez, who also testified that she did not know Sempio
personally,73 and had met Sempio for the first time only on the day the check was
encashed.74 In fact, Velez had to inquire with the other officers of the bank as to whether
Sempio was actually known to the employees of the bank.75 Obviously, Velez had no
personal knowledge as to the past relationship between FEBTC and Sempio, and any
averments of her to that effect should be deemed hearsay evidence. Interestingly,
FEBTC did not present as a witness any other employee of their Bel-Air branch,
including those who supposedly had transacted with Sempio before.
Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in
behalf of Samsung Construction, the irregular circumstances attending the presentment
of the forged check should have put the bank on the highest degree of alert. The Court
recently emphasized that the highest degree of care and diligence is required of banks.
Banks are engaged in a business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who transact business with them.
They have the obligation to treat their client’s account meticulously and with the highest
degree of care, considering the fiduciary nature of their relationship. The diligence
required of banks, therefore, is more than that of a good father of a family.76
Given the circumstances, extraordinary diligence dictates that FEBTC should have
ascertained from Jong personally that the signature in the questionable check was his.
Still, even if the bank performed with utmost diligence, the drawer whose signature was
forged may still recover from the bank as long as he or she is not precluded from setting
up the defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly
states that no right to enforce the payment of a check can arise out of a forged
signature. Since the drawer, Samsung Construction, is not precluded by negligence
from setting up the forgery, the general rule should apply. Consequently, if a bank pays
a forged check, it must be considered as paying out of its funds and cannot charge the
amount so paid to the account of the depositor. 77 A bank is liable, irrespective of its good
faith, in paying a forged check.78
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated
28 November 1996 is REVERSED, and the Decision of the Regional Trial Court of
Manila, Branch 9, dated 25 April 1994 is REINSTATED. Costs against respondent.
SO ORDERED.
 G.R. No. 102383 November 26, 1992
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE HON. COURT OF APPEALS (SEVENTH JUDICIAL), HON.
JUDGE REGIONAL TRIAL COURT OF MAKATI, BRANCH 59,
CHINA BANKING CORP., and PHILIPPINE CLEARING HOUSE
CORPORATION, respondents.

GUTIERREZ, JR., J.:
The present petition asks us to set aside the decision and resolution of the Court of
Appeals in CA-G.R. SP No. 24306 which affirmed the earlier decision of the Regional
Trial Court of Makati, Branch 59 in Civil Case No. 14911 entitled Bank of the Philippine
Islands v. China Banking Corporation and the Philippine Clearing House
Corporation, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing
petitioner-appellant's (BPI's) appeal and affirming the appealed order of August 26,
1986 (Annex B of BPI's Petition) with modification as follows:
1. Ordering the petitioner-appellant (BPI) to pay respondent-appellee (CBC):
(a) the amount of One Million Two Hundred Six Thousand, Six Hundred Seven Pesos
and Fifty Eight Centavos (P1,206,607.58) with interest at the legal rate of twelve percent
(12%) per annum starting August 26, 1986, the date when the order of the PCHC Board
of Directors was issued until the full amount is finally paid; and
(b) the amount of P150,000.00 representing attorney's fees;
2. BPI shall also bear 75% or P5,437.50 and CBC, 25% or P1,812.50 of the cost of the
arbitration proceedings amounting to P7,250.00;
3. The ownership of respondent-appellee (CBC) of the other sum of One Million Two
Hundred Six Thousand Six Hundred Seven Pesos and Fifty Eight Centavos
(P1,206,607.58) previously credited to its clearing account on August 12, 1983 per
PCHC Stockholders' Resolution No. 6083 dated April 6, 1983, is hereby confirmed.
4. The PCHC is hereby directed to immediately debit the clearing account of BPI the
sum of One Million Two Hundred Six Thousand Six Hundred Pesos and Fifty Eight
Centavos (P1,206,607.58) together with its interest as decreed in paragraph 1 (a)
herein above stated and credit the same to the clearing account of CBC;
5. The PCHC's counterclaim and cross-claim are dismissed for lack of merit; and
6. With costs against the petitioner-appellant. (Rollo, pp. 161-162)
The controversy in this case arose from the following facts as found by the Arbitration
Committee of respondent Philippine Clearing House Corporation in Arbicom Case No.
83-029 entitled Bank of the Philippine Island v. China Banking Corporation:
The story underlying this case began in the afternoon of October 9, 1981 with a phone
call to BPI's Money Market Department by a woman who identified herself as Eligia G.
Fernando who had a money market placement as evidenced by a promissory note with
a maturity date of November 11, 1981 and a maturity value of P2,462,243.19. The caller
wanted to preterminate the placement, but Reginaldo Eustaquio, Dealer Trainee in
BPI's Money Market Department, who received the call and who happened to be alone
in the trading room at the time, told her "trading time" was over for the day, which was a
Friday, and suggested that she call again the following week. The promissory note the
caller wanted to preterminate was a roll-over of an earlier 50-day money market
placement that had matured on September 24, 1981.
Later that afternoon, Eustaquio conveyed the request for pretermination to the officer
who before had handled Eligia G. Fernando's account, Penelope Bulan, but Eustaquio
was left to attend to the pretermination process.
The next Monday, October 12, 1981, in the morning, the caller of the previous Friday
followed up with Eustaquio, merely by phone again, on the pretermination of the
placement. Although not familiar with the voice of the real Eligia G. Fernando, Eustaquio
"made certain" that the caller was the real Eligia G. Fernando by "verifying" that the
details the caller gave about the placement tallied with the details in "the ledger/folder"
of the account. Eustaquio knew the real Eligia G. Fernando to be the Treasurer of
Philippine American Life Insurance Company (Philamlife) since he was handling
Philamlife's corporate money market account. But neither Eustaquio nor Bulan who
originally handled Fernando's account, nor anybody else at BPI, bothered to call up
Fernando at her Philamlife office to verify the request for pretermination.
Informed that the placement would yield less than the maturity value because of its
pretermination, the caller insisted on the pretermination just the same and asked that
two checks be issued for the proceeds, one for P1,800,000.00 and the second for the
balance, and that the checks be delivered to her office at Philamlife.
Eustaquio, thus, proceeded to prepare the "purchase order slip" for the requested
pretermination as required by office procedure, and from his desk, the papers, following
the processing route, passed through the position analyst, securities clerk, verifier clerk
and documentation clerk, before the two cashier's checks, nos. 021759 and 021760 for
P1,800,000.00 and P613,215.16, respectively, both payable to Eligia G. Fernando,
covering the preterminated placement, were prepared. The two cashier's checks,
together with the papers consisting of the money market placement was to be
preterminated and the promissory note (No. 35623) to be preterminated, were sent to
Gerlanda E. de Castro and Celestino Sampiton, Jr., Manager and Administrative
Assistant, respectively, in BPI's Treasury Operations Department, both authorized
signatories for BPI, who signed the two checks that very morning. Having been singed,
the checks now went to the dispatcher for delivery.
Later in the same morning, however, the same caller changed the delivery instructions;
instead of the checks being delivered to her office at Philamlife, she would herself pick
up the checks or send her niece, Rosemarie Fernando, to pick them up. Eustaquio then
told her that if it were her niece who was going to get the checks, her niece would have
to being a written authorization from her to pick up the checks. This telephone
conversation ended with the caller's statement that "definitely" it would be her niece,
Rosemarie Fernando, who would pick up the checks. Thus, Eustaquio had to hurriedly
go to the dispatcher, Bernardo Laderas, to tell him of the new delivery instructions for
the checks; in fact, he changed the delivery instruction on the purchase order slip,
writing thereon "Rosemarie Fernando release only with authority to pick up.
It was, in fact Rosemarie Fernando who got the two checks from the dispatcher, as
shown by the delivery receipt. Actually, as it turned out, the same impersonated both
Eligia G. Fernando and Rosemarie Fernando. Although the checks represented the
termination proceeds of Eligia G. Fernando's placement, not just a roll-over of the
placement, the dispatcher failed to get or to require the surrender of the promissory note
evidencing the placement. There is also no showing that Eligia G. Fernando's purported
signature on the letter requesting the pretermination and the latter authorizing
Rosemarie Fernando to pick up the two checks, both of which letters were presumably
handed to the dispatcher by Rosemarie Fernando, was compared or verified with Eligia
G. Fernando's signature in BPI's file. Such purported signature has been established to
be forged although it has a "close similarity" to the real signature of Eligia G. Fernando
(TSN of January 15, 1985, pp. 24 and 26).
The story's scene now shifted when, in the afternoon of October 13, 1981, a woman
who represented herself to be Eligia G. Fernando applied at CBC's Head Office for the
opening of a current account.
She was accompanied and introduced to Emily Sylianco Cuaso, Cash Supervisor, by
Antonio Concepcion whom Cuaso knew to have opened, earlier that year, an account
upon the introduction of Valentin Co, a long-standing "valued client" of CBC. What
Cuaso indicated in the application form, however, was that the new client was
introduced by Valentin Co, and with her initials on the form signifying her approval, she
referred the application to the New Accounts Section for processing. As finally
proceeds, the application form shows the signature of "Eligia G. Fernando", "her" date
of birth, sex, civil status, nationality, occupation ("business woman"), tax account
number, and initial deposit of P10,000.00. This final approval of the new current account
is indicated on the application form by the initials of Regina G. Dy, Cashier, who did not
interview the new client but affixed her initials on the application form after reviewing it.
The new current account was given the number: 26310-3.
The following day, October 14, 1981, the woman holding herself out as Eligia G.
Fernando deposited the two checks in controversy with Current Account No. 126310-3.
Her endorsement on the two checks was found to conform with the depositor's
specimen signature. CBC's guaranty of prior endorsements and/or lack of endorsement
was then stamped on the two checks, which CBC forthwith sent to clearing and which
BPI cleared on the same day.
Two days after, withdrawals began on Current Account No. 26310-3: On October 16,
1981, by means of Check No. 240005 dated the same day for P1,000,000.00, payable
to "cash", which the woman holding herself out as Eligia G. Fernando encashed over
the counter, and Check No. 240003 dated October 15, 1981 for P48,500.00, payable to
"cash" which was received through clearing from PNB Pasay Branch; on October 19,
1981, by means of Check No. 240006 dated the same day for P1,000,000.00, payable
to "cash," which the woman identifying herself as Eligia G. Fernando encashed over the
counter; on October 22, 1981, by means of Check No. 240007 dated the same day for
P370,000.00, payable to "cash" which the woman herself also encashed over the
counter; and on November 4, 1981, by means of Check No. 240001 dated November 3,
1981 for P4,100.00, payable to "cash," which was received through clearing from Far
East Bank.
All these withdrawals were allowed on the basis of the verification of the drawer's
signature with the specimen signature on file and the sufficiency of the funds in the
account. However, the balance shown in the computerized teller terminal when a
withdrawal is serviced at the counter, unlike the ledger or usual statement prepared at
month-end, does not show the account's opening date, the amounts and dates of
deposits and withdrawals. The last withdrawal on November 4, 1981 left Current
Account No. 26310-3 with a balance of only P571.61.
The day of reckoning came on November 11, 1981, the maturity date of Eligia G.
Fernado's money market placement with BPI, when the real Eligia G. Fernando went to
BPI for the roll-over of her placement. She disclaimed having preterminated her
placement on October 12, 1981. She executed an affidavit stating that while she was
the payee of the two checks in controversy, she never received nor endorsed them and
that her purported signature on the back of the checks was not hers but forged. With her
surrender of the original of the promissory note (No. 35623 with maturity value of
P2,462,243.19) evidencing the placement which matured that day, BPI issued her a
new promissory note (No. 40314 with maturity date of December 23, 1981 and maturity
value of P2,500.266.77) to evidence a roll-over of the placement.
On November 12, 1981, supported by Eligia G. Fernando's affidavit, BPI returned the
two checks in controversy to CBC for the reason "Payee's endorsement forged". A ping-
pong started when CBC, in turn, returned the checks for reason "Beyond Clearing
Time", and the stoppage of this ping-pong, as we mentioned at the outset, prompted the
filing of this case.
Investigation of the fraud by the Presidential Security Command led to the filing of
criminal actions for "Estafa Thru Falsification of Commercial Documents" against four
employees of BPI, namely Quirino Victorio, Virgilio Gayon, Bernardo Laderas and Jorge
Atayan, and the woman who impersonated Eligia G. Fernando, Susan Lopez San Juan.
Victorio and Gayon were both bookkeepers in BPI's Money Market Operations
Department, Laderas was a dispatcher in the same department. . . . (Rollo, pp. 74-79)
The Arbitration Committee ruled in favor of petitioner BPI. The dispositive portion of the
decision reads:
WHEREFORE, we adjudge in favor of the Bank of the Philippine Islands and hereby
order China Banking Corporation to pay the former the amount of P1,206,607.58 with
interest thereon at 12% per annum from August 12, 1983, or the date when PCHC,
pursuant to its procedure for compulsory arbitration of the ping-pong checks under
Stockholders' Resolution No. 6-83 was implemented, up to the date of actual payment.
Costs of suit in the total amount of P7,250.00 are to be assessed the litigant banks in
the following proportion:
a) Plaintiff BPI —– P1,812.50
b) Defendant China — P5,437.50
Total Assessment — P7,250.00
conformably with PCHC Resolution Nos. 46-83 dated October 25, 1983 and 4-85 dated
February 25, 1985.
The PCHC is hereby directed to effect the corresponding entries to the litigant banks'
clearing accounts in accordance with the foregoing decision. (Rollo, pp. 97-98)
However, upon motion for reconsideration filed by respondent CBC, the Board of
Directors of the PCHC reversed the Arbitration Committee's decision in its Order, the
dispositive portion of which reads:
WHEREFORE, the Board hereby reconsiders the Decision of the Arbitration Committee
dated March 24, 1986 in Arbicom Case No. 183-029 and in lieu thereof, one is rendered
modifying the decision so that the Complaint of BPI is dismissed, and on the
Counterclaim of CBC, BPI is sentenced to pay CBC the sum of P1,206,607.58. In view
of the facts, no interest nor attorney's fees are awarded. BPI shall also bear 75% or
P5,437.50 and CBC, 25% or P1,812.50 of the cost of the Arbitration proceedings
amounting to P7,250.00.
The PCHC is hereby directed to debit the clearing account of the BPI the sum of
P1,206,607.58 and credit the same to that of CBC. The cost of Arbitration proceedings
are to be debited from the accounts of the parties in the proportion above stated. (Rollo,
pp. 112-113)
BPI then filed a petition for review of the abovestated order with the Regional Trial Court
of Makati. The trial court dismissed the petition but modified the order as can be
gleaned from the dispositive portion of its decision quoted earlier.
Not satisfied with the trial court's decision petitioner BPI filed with us a petition for review
on certiorari under Rule 45 of the Rules of Court. The case was docketed as G.R. No.
96376. However, in a Resolution dated February 6, 1991, we referred the case to the
Court of Appeals for proper determination and disposition. The appellate court affirmed
the trial court's decision.
Hence, this petition.
In a resolution dated May 20, 1992 we gave due course to the petition:
Petitioner BPI now asseverates:
I
THE DECISION AND RESOLUTION OF THE RESPONDENT COURT LEAVES THE
UNDESIRABLE RESULT OF RENDERING NUGATORY THE VERY PURPOSE FOR
THE UNIFORM BANKING PRACTICE OF REQUIRING THE CLEARING GUARANTEE
OF COLLECTING BANKS.
II
CONTRARY TO THE RULING OF THE RESPONDENT COURT, THE PROXIMATE
CAUSE FOR THE LOSS OF THE PROCEEDS OF THE TWO CHECKS IN QUESTION
WAS THE NEGLIGENCE OF THE EMPLOYEES OF CBC AND NOT BPI;
CONSEQUENTLY, EVEN UNDER SECTION 23 OF THE NEGOTIABLE
INSTRUMENTS LAW, BPI WAS NOT PRECLUDED FROM RAISING THE DEFENSE
OF FORGERY.
III
THE RESPONDENT COURT COMMITTED REVERSIBLE ERROR IN FAILING TO
APPRECIATE THE FACT THAT CBC HAD THE "LAST CLEAR CHANCE" OF
AVOIDING THE LOSS OCCASIONED BY THE FRAUDULENT ACTS INVOLVED IN
THE INSTANT CASE. (Rollo, p. 24)
The main issues raised in the assignment of errors are: When a bank (in this case CBC)
presents checks for clearing and payment, what is the extent of the bank's warranty of
the validity of all prior endorsements stamped at the back of the checks? In the event
that the payee's signature is forged, may the drawer/drawee bank (in this case BPI)
claim reimbursement from the collecting bank [CBC] which earlier paid the proceeds of
the checks after the same checks were cleared by petitioner BPI through the PCHC?
Anent the first issue, petitioner BPI contends that respondent CBC's clear warranty that
"all prior endorsements and/or lack of endorsements guaranteed" stamped at the back
of the checks was an unrestrictive clearing guaranty that all prior endorsements in the
checks are genuine. Under this premise petitioner BPI asserts that the presenting or
collecting bank, respondent CBC, had an unquestioned liability when it turned out that
the payee's signature on the checks were forged. With these circumstances, petitioner
BPI maintains that considerations of relative negligence becomes totally irrelevant.
In sum, petitioner BPI theorizes that the Negotiable Instruments Law, specifically
Section 23 thereof is not applicable in the light of the absolute liability of the
representing or collecting bank as regards forged endorsements in consonance with the
clearing guarantee requirement imposed upon the presenting or collecting banks "as it
is worded today."
Petitioner BPI first returned to CBC the two (2) checks on the ground that "Payee's
endorsement (was) forged" on November 12, 1981. At that time the clearing regulation
then in force under PCHC's Clearing House Rules and Regulations as revised on
September 19, 1980 provides:
Items which have been the subject of material alteration or items bearing a forged
endorsement when such endorsement is necessary for negotiation shall be returned
within twenty four (24) hours after discovery of the alteration or the forgery, but in no
event beyond the period prescribed by law for the filing of a legal action by the returning
bank/branch institution or entity against the bank/branch, institution or entity sending the
same. (Section 23)
In the case of Banco de Oro Savings and Mortgage Bank v. Equitable Banking
Corporation (157 SCRA 188 [1988]) the clearing regulation (this is the present clearing
regulation) at the time the parties' dispute occurred was as follows:
Sec. 21. . . . .
Items which have been the subject of material alteration or items bearing forged
endorsement when such endorsement is necessary for negotiation shall be returned by
direct presentation or demand to the Presenting Bank and not through the regular
clearing house facilities within the period prescribed by law for the filing of a legal action
by the returning bank/branch, institution or entity sending the same.
It is to be noted that the above-cited clearing regulations are substantially the same in
that it allows a return of a check "bearing forged endorsement when such endorsement
is necessary for negotiation" even beyond the next regular clearing although not beyond
the prescriptive period "for the filing of a legal action by the returning bank."
Bearing in mind this similarity in the clearing regulation in force at the time the forged
checks in the present case and the Banco de Oro case were dishonored and returned
to the presenting or collecting banks, we can be guided by the principles enunciated in
the Banco de Oro case on the relevance of negligence of the drawee vis-a-vis the
forged checks.
The facts in the Banco de Oro case are as follows: Sometime in March, April, May and
August 1983 Equitable Banking Corporation through its Visa Card Department drew six
(6) crossed Manager's check with the total amount of Forty Five Thousand Nine
Hundred and Eighty Two Pesos and Twenty Three Centavos (P45,982.23) and payable
to certain member establishments of Visa Card. Later, the checks were deposited with
Banco de Oro to the credit of its depositor, a certain Aida Trencio. Following normal
procedures, and after stamping at the back of the checks the endorsements: "All prior
and/or lack of endorsements guaranteed" Banco de Oro sent the checks for clearing
through the PCHC. Accordingly, Equitable Banking Corporation paid the checks; its
clearing amount was debited for the value of the checks and Banco de Oro's clearing
account was credited for the same amount. When Equitable Banking Corporation
discovered that the endorsements at the back of the checks and purporting to be that of
the payees were forged it presented the checks directly to Banco de Oro for
reimbursement. Banco de Oro refused to reimburse Equitable Banking Corporation for
the value of the checks. Equitable Banking Corporation then filed a complaint with the
Arbitration Committees of the PCHC. The Arbiter, Atty. Ceasar Querubin, ruled in favor
of Equitable Banking Corporation. The Board of Directors of the PCHC affirmed the
Arbiter's decision. A petition for review of the decision filed by Banco de Oro with the
Regional Trial Court of Quezon City was dismissed. The decision of the PCHC was
affirmed in toto.
One of the main issues threshed out in this case centered on the effect of Banco de
Oro's (representing or collecting bank) guarantee of "all prior endorsements and/or lack
of endorsements" at the back of the checks. A corollary issue was the effect of the
forged endorsements of the payees which were late discovered by the Equitable
Banking Corporation (drawee bank) resulting in the latter's claim for reimbursement of
the value of checks after it paid the proceeds of the checks.
We agreed with the following disquisition of the Regional Trial Court, to wit:
Anent petitioner's liability on said instruments, this court is in full accord with the ruling of
the PCHC Board of Directors that:
In presenting the checks for clearing and for payment, the defendant made an express
guarantee on the validity of "all prior endorsements." Thus, stamped at the back of the
checks are the defendant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR
LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not
have paid on the checks.
No amount of legal jargon can reverse the clear meaning of defendant's warranty. As
the warranty has proven to be false and inaccurate, the defendant is liable for any
damage arising out of the falsity of its representation.
The principle of estoppel, effectively prevents the defendant from denying liability for
any damage sustained by the plaintiff which, relying upon an action or declaration of the
defendant, paid on the checks. The same principle of estoppel effectively prevents the
defendant from denying the existence of the checks. (pp. 10-11, Decision, pp. 43-
44, Rollo) (at pp. 194-195)
We also ruled:
Apropos the matter of forgery in endorsements, this Court has presently succintly
emphasized that the collecting bank or last endorser generally suffers the loss because
it has the duty to ascertain the genuineness of all prior endorsements considering that
the act of presenting the check for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the genuineness of the
endorsements. This is laid down in the case of PNB v. National City Bank. (63 Phil.
1711) In another case, this court held that if the drawee-bank discovers that the
signature of the payee was forged after it has paid the amount of the check to the holder
thereof, it can recover the amount paid from the collecting bank.
xxx xxx xxx
The point that comes uppermost is whether the drawee bank was negligent in failing to
discover the alteration or the forgery. (Emphasis supplied)
xxx xxx xxx
The court reproduces with approval the following disquisition of the PCHC in its
decision.
xxx xxx xxx
III. Having Violated Its Warranty On Validity Of All Endorsements, Collecting Bank
Cannot Deny Liability To Those Who Relied On Its Warranty.
xxx xxx xxx
The damage that will result if judgment is not rendered for the plaintiff is irreparable.
The collecting bank has privity with the depositor who is the principal culprit in this
case. The defendant knows the depositor; her address and her history. Depositor is
defendant's client. It has taken a risk on its depositor when it allowed her to collect on
the crossed-checks.
Having accepted the crossed checks from persons other than the payees, the
defendant is guilty of negligence; the risk of wrongful payment has to be assumed by
the defendant. (Emphasis supplied, at pp. 198-202)
As can be gleaned from the decision, one of the main considerations in affirming the
PCHC's decision was the finding that as between the drawee bank (Equitable Bank)
and the representing or collecting bank (Banco de Oro) the latter was negligent and
thus responsible for undue payment.
Parenthetically, petitioner BPI's theory that the present clearing guarantee requirement
imposed on the representing or collecting bank under the PCHC rules and regulations is
independent of the Negotiable Instruments Law is not in order.
Another reason why the petitioner's theory is uncalled for is the fact that the Negotiable
Instruments Law (Act No. 2031) applied to negotiable instruments as defined under
section one thereof. Undeniably, the present case involves checks as defined by and
under the coverage of the Negotiable Instruments Law. To affirm the theory of the
petitioner would, therefore, violate the rule that rules and regulations implementing the
law should conform to the law, otherwise the rules and regulations are null and void.
Thus, we held Shell Philippines, Inc. v. Central Bank of the Philippines (162 SCRA 628
[1988]):
. . . while it is true that under the same law the Central Bank was given the authority to
promulgate rules and regulations to implement the statutory provision in question, we
reiterate the principle that this authority is limited only to carrying into effect what the law
being implemented provides.
In People v. Maceren (79 SCRA 450, 458 and 460), this Court ruled that:
Administrative regulations adopted under legislative authority by a particular department
must be in harmony with the provisions of the law, and should be for the sole purpose of
carrying into effect its general provisions. By such regulations, of course, the law itself
cannot be extended. (U.S. v. Tupasi Molina, supra). An administrative agency cannot
amend an act of Congress (Santos v. Estenzo, 109 Phil. 419, 422; Teoxon v. Members
of the Board of Administrators, L-25619, June 30, 1970, 33 SCRA 585; Manuel v.
General Auditing Office, L-28952, December 29, 1971, 42 SCRA 660; Deluao v.
Casteel, L-21906, August 29, 1969, 29 SCRA 350).
The rule-making power must be confined to details for regulating the mode or
proceeding to carry into effect the law as it has been enacted. The power cannot be
extended to amending or expanding the statutory requirements or to embrace matters
not covered by the statute. Rules that subvert the statute cannot be sanctioned.
(University of Santo Tomas v. Board of Tax Appeals, 93 Phil. 376, 382, citing 12 C.J.
845-46. as to invalid regulations, see Collector of Internal Revenue v. Villaflor, 69 Phil.
319; Wise & Co. v. Meer, 78 Phil. 655, 676; Del Mar v. Phil. Veterans Administration, L-
27299, June 27, 1973, 51 SCRA 340, 349).
xxx xxx xxx
. . . The rule or regulation should be within the scope of the statutory authority granted
by the legislature to the administrative agency. (Davis, Administrative Law, p. 194, 197,
cited in Victorias Milling Co., Inc. v. Social Security Commission, 114 Phil. 555, 558).
In case of discrepancy between the basic law and a rule or regulation issued to
implement said law the basic law prevails because said rule or regulation cannot go
beyond the terms and provisions of the basic law (People v. Lim 108 Phil. 1091). (at pp.
633-634)
Section 23 of the Negotiable Instruments Law states:
When signature is forged or made without the authority of the person whose signature it
purports to be, it is wholly inoperative and no right to retain the instrument, or to give
discharge therefore, or to enforce payment thereof, against any party thereto, can be
acquired through or under such forged signature, unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of
authority.
There are two (2) parts of the provision. The first part states the general rule while the
second part states the exception to the general rule. The general rule is to the effect
that a forged signature is "wholly inoperative", and payment made "through or under
such signature" is ineffectual or does not discharge the instrument. The exception to this
rule is when the party relying in the forgery is "precluded from setting up the forgery or
want of authority. In this jurisdiction we recognize negligence of the party invoking
forgery as an exception to the general rule. (See Banco de Oro Savings and Mortgage
Bank v. Equitable Banking Corporation supra; Philippine National Bank v. Quimpo, 158
SCRA 582 [1988]; Philippine National Bank v. Court of Appeals, 25 SCRA 693 [1968];
Republic v. Equitable Banking Corporation, 10 SCRA 8 [1964]; National Bank v.
National City Bank of New York, 63 Phil. 711 [1936]; San Carlos Milling Co. v. Bank of
P.I., 59 Phil. 59 [1933]). In these cases we determined the rights and liabilities of the
parties under a forged endorsement by looking at the legal effects of the relative
negligence of the parties thereto.
In the present petition the payee's names in the two (2) subject checks were forged.
Following the general rule, the checks are "wholly inoperative" and of no effect.
However, the underlying circumstances of the case show that the general rule on
forgery is not applicable. The issue as to who between the parties should bear the loss
in the payment of the forged checks necessities the determination of the rights and
liabilities of the parties involved in the controversy in relation to the forged checks.
The records show that petitioner BPI as drawee bank and respondent CBC as
representing or collecting bank were both negligent resulting in the encashment of the
forged checks.
The Arbitration Committee in its decision analyzed the negligence of the employees of
petitioner BPI involved in the processing of the pre-termination of Eligia G. Fernando's
money market placement and in the issuance and delivery of the subject checks in this
wise:
a) The impostor could have been readily unmasked by a mere telephone call, which
nobody in BPI bothered to make to Eligia G. Fernando, a vice-president of Philamlife
(Annex C, p. 13).
b) It is rather curious, too, that the officer who used to handle Eligia G. Fernando's
account did not do anything about the account's pre-termination (Ibid, p. 13).
c) Again no verification appears to have been made by (sic) Eligia G. Fernando's
purported signature on the letter requesting the pre-termination and the letter
authorizing her niece to pick-up the checks, yet, her signature was in BPI's file (Ibid., p.
13).
d) Another step that could have foiled the fraud, but which BPI neglected to take, was
requiring before the two checks in controversy were delivered, the surrender of the
promissory note evidencing the money market placement that was supposedly pre-
terminated. (Rollo, p. 13).
The Arbitration Committee, however, belittled petitioner BPI's negligence compared to
that of respondent CBC which it declared as graver and the proximate cause of the loss
of the subject checks to the impostor who impersonated Eligia G. Fernando. Petitioner
BPI now insists on the adoption of the Arbitration Committee's evaluation of the
negligence of both parties, to wit:
a) But what about the lapses of BPI's employees who processed the pretermination of
Eligia G. Fernando's placement and issued the checks? We do not think it was a
serious lapse not to confirm the telephone request for pretermination purportedly made
by Eligia G. Fernando, considering that it is common knowledge that business in the
money market is done mostly by telephone. Then, too, the initial request of the caller
was for the two checks representing the pretermination proceeds to be delivered to
"her" office, meaning Eligia G. Fernando's office at Philamlife, this clever ruse must
have put off guard the employee preparing the "purchase order slip", enough at least for
him to do away with having to call Eligia G. Fernando at her office. (Annex C at p. 17).
b) We also do not think it unusual that Penelope Bulan, who used to handle Eligia G.
Fernando's account, should do nothing about the request for pretermination and leave it
to Eustaquio to process the pretermination. In a bank the of BPI, it would be quite
normal for an officer to take over from another the handling of an account. (Ibid. p. 17)
c) The failure to verify or compare Eligia G. Fernando's purported signature on the letter
requesting the pretermination and the letter authorizing the pick-up of the checks in
controversy with her signature in BPI's file showed lack of care and prudence required
by the circumstances, although it is doubtful that such comparison would have disclosed
the deception considering the "close similarity" between her purported signature and her
signature in BPI's file. (Ibid., p. 17).
d) A significant lapse was, however, committed when the two checks in controversy
were delivered without requiring the surrender of the promissory note evidencing the
placement that was supposedly preterminated. Although, as we already said, it is hard
to determine whether the failure to require the surrender of the promissory note was a
deliberate act of Laderas, the dispatcher, or simply because the "purchase order slip"
note, (sic) the fact remains that such failure contributed to the consummation of the
fraud. (Ibid., p. 17-18)
The Arbitration Committee Decision's conclusion was expressed thus —
Except for Laderas, not one of the BPI personnel tasked with the pretermination of
Eligia G. Fernando's placement and the issuance of the pretermination checks colluded
in the fraud, although there may have been lapses of negligence on their part which we
shall discuss later. The secreting out of BPI of Fernando's specimen signature, which,
as admitted by the impostor herself (Exhibit E-2, page 5), helped her in forging
Fernando's signature was no doubt an "inside job" but done by any of the four
employees colluding in the fraud, not by the personnel directly charged with the custody
of Fernando's records. (Annex C, p. 15)
With respect to the negligence of the CBC employees in the payment of the two (2) BPI
cashier's checks involved in this case, the Arbitration Committee's Decision made
incontrovertible findings undisputed in the statement of facts found in the Court of
Appeals' decision of 8 August 1991, the Regional Trial Court decision of 28 November
1990 and the PCHC Board of Directors' Order of 26 August 1986 (Annexes A, E, D,
respectively). These findings point to negligence of the CBC employees which led to: (a)
the opening of the impostor's current account in the name of Eligia G. Fernando; (b) the
deposit of said account of the two (2) checks in controversy and (c) the withdrawal of
their proceeds from said account.
The Arbitration Committee found that —
1. Since the impostor presented only her tax account number as a means of
identification, we feel that Emily Sylianco Cuaso, Cash Supervisor, approved the
opening of her current account in the name of Eligia G. Fernando on the strength of the
introduction of Antonio Concepcion who had himself opened an account earlier that
year. That Mrs. Cuaso was not comfortable with the introduction of the new depositor by
Concepcion is betrayed by the fact that she made it appear in the application form that
the new depositor was introduced by Valentin Co a long-standing valued client of CBC
who had introduced Concepcion when he opened his account. We find this
misrepresentation significant because when she reviewed the application form she
assumed that the new client was introduced by Valentin Co as indicated in the
application form (tsn of March 19, 1985, page 13). Thus we find that the impostor was
able to open with CBC's current account in the name of Eligia G. Fernando due to the
negligence, if not misrepresentation, of its Cash Supervisor, (Annex C, p. 18).
2. Even with negligence attending the impostor's opening of a current account, her
encashment of the two checks in controversy could still have been prevented if only the
care and diligence demanded by the circumstances were exercised. On October 14,
1981, just a day after she opened her account, the impostor deposited the two checks
which had an aggregate value of P2,413,215.16, which was grossly disproportionate to
her initial deposit of P10,000. The very date of both checks, October 12, 1981, should
have tipped off the real purpose of the opening of the account on October 13, 1981. But
what surely can be characterized only as abandonment of caution was allowing the
withdrawal of the checks' proceeds which started on October 16, 1981 only two days
after the two checks were deposited; by October 22, 1981, the account had been
emptied of the checks' proceeds. (Annex C, p. 19).
3. We cannot accept CBC's contention that "big withdrawals" are "usual business" with
it. Huge withdrawals might be a matter of course with an established account but not for
a newly opened account, especially since the supposed check proceeds being
withdrawn were grossly disproportionate to the initial cash deposit. (Annex C, p. 19).
As intimated earlier, the foregoing findings of fact were not materially disputed either by
the respondent PCHC Board of Directors or by the respondent courts (compare
statement of facts of respondent court as reproduced in pp. 9-11 of this petition).
Having seen the negligence of the employees of both Banks, the relevant question is:
which negligence was graver. The Arbitration Committee's Decision found and
concluded thus —
Since there were lapses by both BPI and CBC, the question is: whose negligence was
the graver and which was the proximate cause of the loss? Even viewing BPI's lapses in
the worst light, it can be said that while its negligence may have introduced the two
checks in controversy into the commercial stream. CBC's lack of care in approving the
opening with it of the impostor's current account, and its allowing the withdrawal's of the
checks' proceeds, the aggregate value of which was grossly disproportionate to the
initial cash deposit, so soon after such checks were deposited, caused the "payment" of
the checks. Being closest to the vent of loss, therefore, CBC's negligence must be held
to be proximate cause of the loss. (Annex C, pp. 19-20) (Rollo, pp. 38-41)
While it is true that the PCHC Board of Directors, and the lower courts did not dispute
the findings of facts of the Arbitration Committee, the PCHC Board of Directors
evaluated the negligence of the parties, to wit:
The Board finds the ruling that the negligence of the employees of CBC is graver than
that of the BPI not warranted by the facts because:
1. The acts and omissions of which BPI employees are guilty are not only negligent but
criminal as found by the decision.
2. The act of BPI's dealer-trainee Eustaquio of disclosing information about the money
market placement of its client over the telephone is a violation, if not of Republic Act
1405, of Sec. 87 (a) of the General Banking Act which penalizes any officer-employee
or agent of any banking institution who discloses to any unauthorized person any
information relative to the funds or properties in the custody of the bank belonging to
private individual, corporations, or any other entity; and the bland excuse given by the
decision that "business in the money market is done mostly by the telephone" cannot be
accepted nor tolerated for it is an elementary rule of law that no custom or usage of
business can override what a law specifically provides. (Ang Tek v. CA, 87 Phil. 383).
3. The failure of BPI employees to verify or compare Eligia G. Fernando's purported
signature on the letter requesting for pre-termination and the letter authorizing the pick-
up of the checks in controversy with the signatures on file is not even justified but
admitted in the decision as showing lack of care and prudence required by the
circumstances. The conjectural excuse made in the decision that "it is doubtful that such
comparison would have disclosed the deception" does not give an excuse for the
omission by BPI employees of the act of verifying the signature, a duty which is the
basic requirement of all acts in the bank. From the very first time an employee enters
the services of a bank up to the time he becomes the highest officer thereof, the
cautionary rule is drilled on him to always be sure that when he acts on the basis of any
signature presented before him, the signature is to be verified as genuine and that if the
bank acts on the basis of a forgery of such signature, the bank will be held liable. There
can be no excuse therefore for such an omission on the part of BPI employees.
4. The decision admits that:
A significant lapse was, however, committed when the two checks in controversy were
delivered without requiring the surrender of the promissory note evidencing the
placement that was supposedly preterminated.
This omission of the BPI to require the surrender of the promissory notes evidencing the
placement is justified by the decision by saying that Sec. 74 of the Negotiable
Instrument Law is not violated by this omission of the BPI employees because said
provision is intended for the benefit of the person paying (in this case the BPI) so that
since the omission to surrender having been waived by BPI, so the non-surrender does
not invalidate the payment. The fallacy of this argument is that the in this case is:
whether or not such non-surrender is a necessary ingredient in the cause of the
success of the fraud and not whether or not the payment was valid. This excuse may
perhaps be acceptable if the omission did not cause damage to any other person. In
this case, however, it did cause tremendous damage. Moreover, this statement
obviously overlooks the provision in Art. 1240 of the Civil Code requiring the payor
(which in this case is the BPI) to be sure he pays to the right person and as Art. 1242
states, he can claim good faith in paying to the right person only if he pays to the person
possession of the credit (which in this case is the promissory note evidencing the
money market placement). Clearly therefore, the excuse given in the decision for the
non-surrender of this promissory note evidencing the money market placement cannot
be accepted.
xxx xxx xxx
The decision, however, discusses in detail the negligent acts of the CBC in its lapses or
certain requirements in the opening of the account and in allowing withdrawals against
the deposited checks soon after the deposit thereof. As stated by the decision however,
in computerized banks the history of the account is not shown in the computer terminal
whenever a withdrawal is made.
The Board therefore believes that these withdrawals, without any further showing that
the CBC employees "had actual knowledge of the infirmity or defect, or knowledge of
such facts" (Sec. 56, Negotiable Instruments Law) that their action in accepting their
checks for deposit and allowing the withdrawals against the same "amounted to bad
faith" cannot be considered as basis for holding CBC liable. (Rollo, pp. 107-111)
Banks handle daily transactions involving millions of pesos. By the very nature of their
work the degree of responsibility, care and trustworthiness expected of their employees
and officials is far greater than those of ordinary clerks and employees. For obvious
reasons, the banks are expected to exercise the highest degree of diligence in the
selection and supervision of their employees.
In the present case, there is no question that the banks were negligent in the selection
and supervision of their employees. The Arbitration Committee, the PCHC Board of
Directors and the lower court, however disagree in the evaluation of the degree of
negligence of the banks. While the Arbitration Committee declared the negligence of
respondent CBC graver, the PCHC Board of Directors and the lower courts declared
that petitioner BPI's negligence was graver. To the extent that the degree of negligence
is equated to the proximate cause of the loss, we rule that the issue as to whose
negligence is graver is relevant. No matter how many justifications both banks present
to avoid responsibility, they cannot erase the fact that they were both guilty in not
exercising extraordinary diligence in the selection and supervision of their employees.
The next issue hinges on whose negligence was the proximate cause of the payment of
the forged checks by an impostor.
Petitioner BPI accuses the Court of Appeals of inconsistency when it affirmed the
PCHC's Board of Directors' Order but in the same breath declared that the negligent
acts of the CBC employees occurred immediately before the actual loss.
In this regard petitioner BPI insists that the doctrine of last clear chance enunciated in
the case of Picart v. Smith (37 Phil. 809 [1918]) should have been applied considering
the circumstances of the case.
In the Picart case, Amado Picart was then riding on his pony over the Carlatan Bridge
at San Fernando, La Union when Frank Smith approached from the opposite direction
in a car. As Smith neared the bridge he saw Picart and blew his horn to give warning of
his approach. When he was already on the bridge Picart gave two more successive
blasts as it appeared to him that Picart was not observing the rule of the road. Picart
saw the car coming and heard the warning signals. An accident then ensued resulting in
the death of the horse and physical injuries suffered by Picart which caused him
temporary unconsciousness and required medical attention for several days. Thereafter,
Picart sued Smith for damages.
We ruled:
The question presented for decision is whether or not the defendant in maneuvering his
car in the manner above described was guilty of negligence such as gives rise to a civil
obligation to repair the damage done; and we are of the opinion that he is so liable. As
the defendant started across the bridge, he had the right to assume that the horse and
rider would pass over to the proper side; but as he moved toward the center of the
bridge it was demonstrated to his eyes that this would not be done; and he must in a
moment have perceived that it was too late for the horse to cross with safety in front of
the moving vehicle. In the nature of things this change of situation occurred while the
automobile was yet some distance away; and from this moment it was no longer within
the power of the plaintiff to escape being run down by going to a place of greater
safety. The control of the situation had then passed entirely to the defendant; and it was
his duty to either to bring his car to an immediate stop or, seeing that there were no
other persons on the bridge, to take the other side and pass sufficiently far away from
the horse to avoid the danger of collision. Instead of doing this, the defendant ran
starlight on until he was almost upon the horse. He was, we think, deceived into doing
this by the fact that the horse had not yet exhibited fright. But in view of the known
nature of horses, there was an appreciable risk that, if the animal in question was
unacquainted with automobiles, he might get excited and jump under the conditions
which here confronted him. When the defendant exposed the horse and rider to this
danger he was, in our opinion, negligent in the eyes of the law.
The test by which by which to determine the existence of negligence in a particular case
may be stated as follows: Did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person would have used in the
same situation? If not, then he is guilty of negligence.
xxx xxx xxx
It goes without saying that the plaintiff himself was not free from fault, for he was guilty
of antecedent negligence in planting himself on the wrong side of the road. But as we
have already stated, the defendant was also negligent; and in such case the problem
always is to discover which agent is immediately and directly responsible. It will be
noted that the negligent acts of the two parties were not contemporaneous, since the
negligence of the defendant succeeded the negligence of the plaintiff by an appreciable
interval. Under these circumstances the law is that the person who has the last fair
chance to avoid the impending harm and fails to do so is chargeable with the
consequences, without reference to the prior negligence of the other party."
Applying these principles, petitioner BPI's reliance on the doctrine of last clear chance to
clear it from liability is not well-taken. CBC had no prior notice of the fraud perpetrated
by BPI's employees on the pretermination of Eligia G. Fernando's money market
placement. Moreover, Fernando is not a depositor of CBC. Hence, a comparison of the
signature of Eligia G. Fernando with that of the impostor Eligia G. Fernando, which
respondent CBC did, could not have resulted in the discovery of the fraud. Hence,
unlike in the Picart case herein the defendant, had he used reasonable care and
caution, would have recognized the risk he was taking and would have foreseen harm
to the horse and the plaintiff but did not, respondent CBC had no way to discover the
fraud at all. In fact the records fail to show that respondent CBC had knowledge, actual
or implied, of the fraud perpetrated by the impostor and the employees of BPI.
However, petitioner BPI insists that even if the doctrine of proximate cause is applied,
still, respondent CBC should be held responsible for the payment to the impostor of the
two (2) checks. It argues that the acts and omissions of respondent CBC are the cause
"that set into motion the actual and continuous sequence of events that produced the
injury and without which the result would not have occurred." On the other hand, it
assets that its acts and omissions did not end in a loss. Petitioner BPI anchors its
argument on its stance that there was "a gap, a hiatus, an interval between the issuance
and delivery of said checks by petitioner BPI to the impostor and their actual payment of
CBC to the impostor. Petitioner BPI points out that the gap of one (1) day that elapsed
from its issuance and delivery of the checks to the impostor is material on the issue of
proximate cause. At this stage, according to petitioner BPI, there was yet no loss and
the impostor could have decided to desist from completing the same plan and could
have held to the checks without negotiating them.
We are not persuaded.
In the case of Vda. de Bataclan, et al, v. Medina (102 Phil. 181 [1957]), we had
occasion to discuss the doctrine of proximate cause.
Briefly, the facts of this case are as follows:
At about 2:00 o'clock in the morning of September 13, 1952 a bus carrying about
eighteen (18) passengers on its way to Amandeo, Cavite figured in an accident. While
the bus was running, one of the front tires burst and the bus began to zigzag until it fell
into a canal on the right side of the road and turned turtle. Some passengers managed
to get out from the overturned bus except for four (4) passengers, among them,
Bataclan. The passengers who got out heard shouts for help from Bataclan and another
passenger Lara who said they could not get out from the bus. After half an hour, about
ten men came, one of them carrying a lighted torch made of bamboo with a wick on one
end fueled with petroleum. These men approached the overturned bus, and almost
immediately, a fierce fire started burning and all but consuming the bus including the
four (4) passengers trapped inside. It turned out that as the bus overturned, gasoline
began to leak and escape from the gasoline tank on the side of the chassis spreading
over and permeating the body of the bus and the ground under and around it. The
lighted torch brought by one of the men who answered the call for help set it on fire. On
the same day, the charred bodies of the trapped passengers were removed and
identified. By reason of his death, Juan Bataclan's wife and her children filed a suit for
damages against Maximo Medina, the operator and owner of the bus in the then Court
of First Instance of Cavite. The trial court ruled in favor of the defendant. However, we
reversed and set aside the trial court's decision and said:
There is no question that under the circumstances, the defendant carrier is liable. The
only question is to what degree. The trial court was of the opinion that the proximate
cause of the death of Bataclan was not the overturning of the bus, but rather the fire that
burned the bus, including himself and his co-passengers who were unable to leave it;
that at the time the fire started, Bataclan, though the must have suffered, physical
injuries, perhaps serious, was still alive and so damages were awarded, not for his
death, but for the physical satisfactory definition of promote cause is found in Volume
38, pages 695-696 of American Jurisprudence, cited by plaintiffs-appellants in their
brief. It is as follows:
. . . that cause, which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the result would not have
occurred. And more comprehensively, the proximate legal cause in that acting first and
producing the injury, either immediately or by setting other events in motion, all
constituting a natural and continuous chain of events, each having a close causal
connection with its immediate predecessor, the final event in the chain immediately
effecting the injury as natural and probable result of the cause which first acted, under
such circumstances that the person responsible for the first event should, as an
ordinarily prudent and intelligent person, have reasonable ground to expect at the
moment of his act or default that an injury to some person might probably result
therefrom.
It may be that ordinarily, when a passenger bus overturns, and pins down a passenger,
merely causing him physical injuries, if through some event, unexpected and
extraordinary, the overturned bus is set on fire, say, by lightning, or if some highwaymen
after looting the vehicle sets it on fire, and the passenger is burned to death, on might
still contend that the proximate cause of his death was the fire and not the overturning
of the vehicle. But in the present case and under the circumstances obtaining in the
same, we do not hesitate to hold that the proximate cause of the death of Bataclan was
the overturning of the bus, this for the reason that when the vehicle turned not only on
its side but completely on its back, the leaking of the gasoline from the tank was not
unnatural or unexpected; that the coming of the men with a lighted torch was in
response to the call for help, made not only by the passengers, but most probably, by
the driver and the conductor themselves, and that because it was very dark (about 2:30
in the morning), the rescuers had to carry a light with them; and coming as they did from
a rural area where lanterns and flashlights were not available, they had to use a torch,
the most handy and available; and what was more natural than that said rescuers
should innocently approach the overturned vehicle to extend the aid and effect the
rescue requested from them. In other words, the coming of the men with the torch was
to be expected and was natural sequence of the overturning of the bus, the trapping of
some of its passengers and the call for outside help. (Emphasis Supplied, at pp. 185-
187)
Again, applying the doctrine of proximate cause, petitioner BPI's contention that CBC
alone should bear the loss must fail. The gap of one (1) day between the issuance and
delivery of the checks bearing the impostor's name as payee and the impostor's
negotiating the said forged checks by opening an account and depositing the same with
respondent CBC is not controlling. It is not unnatural or unexpected that after taking the
risk of impersonating Eligia G. Fernando with the connivance of BPI's employees, the
impostor would complete her deception by encashing the forged checks. There is
therefore, greater reason to rule that the proximate cause of the payment of the forged
checks by an impostor was due to the negligence of petitioner BPI. This finding,
notwithstanding, we are not inclined to rule that petitioner BPI must solely bear the loss
of P2,413,215.16, the total amount of the two (2) forged checks. Due care on the part of
CBC could have prevented any loss.
The Court cannot ignore the fact that the CBC employees closed their eyes to the
suspicious circumstances of huge over-the-counter withdrawals made immediately after
the account was opened. The opening of the account itself was accompanied by
inexplicable acts clearly showing negligence. And while we do not apply the last clear
chance doctrine as controlling in this case, still the CBC employees had ample
opportunity to avoid the harm which befell both CBC and BPI. They let the opportunity
slip by when the ordinary prudence expected of bank employees would have sufficed to
seize it.
Both banks were negligent in the selection and supervision of their employees resulting
in the encashment of the forged checks by an impostor. Both banks were not able to
overcome the presumption of negligence in the selection and supervision of their
employees. It was the gross negligence of the employees of both banks which resulted
in the fraud and the subsequent loss. While it is true that petitioner BPI's negligence
may have been the proximate cause of the loss, respondent CBC's
negligence contributed equally to the success of the impostor in encashing the
proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the
Civil Code to the effect that while respondent CBC may recover its losses, such losses
are subject to mitigation by the courts. (See Phoenix Construction Inc. v. Intermediate
Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule that the demands
of substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs
of the arbitration proceeding in the amount of P7,250.00 and the cost of litigation on a
60-40 ratio. Conformably with this ruling, no interests and attorney's fees can be
awarded to either of the parties.
WHEREFORE, the questioned DECISION and RESOLUTION of the Court of Appeals
are MODIFIED as outlined above. Petitioner Bank of the Philippine Islands shall be
responsible for sixty percent (60%) while respondent China Banking Corporation shall
share forty percent (40%) of the loss of TWO MILLION FOUR HUNDRED THIRTEEN
THOUSAND, TWO HUNDRED FIFTEEN PESOS and SIXTEEN CENTAVOS
(2,413,215.16) and the arbitration costs of SEVEN THOUSAND, TWO HUNDRED
FIFTY PESOS (7,250.00). The Philippine Clearing House Corporation is hereby
directed to effect the corresponding entries to the banks' clearing accounts in
accordance with this decision. Costs in the same proportion against the Bank of the
Philippine Islands and the China Banking Corporation.
SO ORDERED

G.R. No. 132560               January 30, 2002

WESTMONT BANK (formerly ASSOCIATED BANKING
CORP.), petitioner,
vs.
EUGENE ONG, respondent.
DECISION
QUISUMBING, J.:
This is a petition for review of the decision 1 dated January 13, 1998, of the Court of
Appeals in CA-G.R. CV No. 28304 ordering the petitioner to pay respondent
₱1,754,787.50 plus twelve percent (12%) interest per annum computed from October 7,
1977, the date of the first extrajudicial demand, plus damages.
The facts of this case are undisputed.
Respondent Eugene Ong maintained a current account with petitioner, formerly the
Associated Banking Corporation, but now known as Westmont Bank. Sometime in May
1976, he sold certain shares of stocks through Island Securities Corporation. To pay
Ong, Island Securities purchased two (2) Pacific Banking Corporation manager’s
checks,2 both dated May 4, 1976, issued in the name of Eugene Ong as payee. Before
Ong could get hold of the checks, his friend Paciano Tanlimco got hold of them, forged
Ong’s signature and deposited these with petitioner, where Tanlimco was also a
depositor. Even though Ong’s specimen signature was on file, petitioner accepted and
credited both checks to the account of Tanlimco, without verifying the ‘signature
indorsements’ appearing at the back thereof. Tanlimco then immediately withdrew the
money and absconded.
Instead of going straight to the bank to stop or question the payment, Ong first sought
the help of Tanlimco’s family to recover the amount. Later, he reported the incident to
the Central Bank, which like the first effort, unfortunately proved futile.
It was only on October 7, 1977, about five (5) months from discovery of the fraud, did
Ong cry foul and demanded in his complaint that petitioner pay the value of the two
checks from the bank on whose gross negligence he imputed his loss. In his suit, he
insisted that he did not "deliver, negotiate, endorse or transfer to any person or entity"
the subject checks issued to him and asserted that the signatures on the back were
spurious.3
The bank did not present evidence to the contrary, but simply contended that since
plaintiff Ong claimed to have never received the originals of the two (2) checks in
question from Island Securities, much less to have authorized Tanlimco to receive the
same, he never acquired ownership of these checks. Thus, he had no legal personality
to sue as he is not a real party in interest. The bank then filed a demurrer to evidence
which was denied.
On February 8, 1989, after trial on the merits, the Regional Trial Court of Manila, Branch
38, rendered a decision, thus:
IN VIEW OF THE FOREGOING, the court hereby renders judgment for the plaintiff and
against the defendant, and orders the defendant to pay the plaintiff:
1. The sum of P1,754,787.50 representing the total face value of the two checks in
question, exhibits "A" and "B", respectively, with interest thereon at the legal rate of
twelve percent (12%) per annum computed from October 7, 1977 (the date of the first
extrajudicial demand) up to and until the same shall have been paid in full;
2. Moral damages in the amount of P250,000.00;
3. Exemplary or corrective damages in the sum of P100,000.00 by way of example or
correction for the public good;
4. Attorney’s fees of P50,000.00 and costs of suit.
Defendant’s counterclaims are dismissed for lack of merit.
SO ORDERED.4
Petitioner elevated the case to the Court of Appeals without success. In its decision, the
appellate court held:
WHEREFORE, in view of the foregoing, the appealed decision is AFFIRMED in toto.5
Petitioner now comes before this Court on a petition for review, alleging that the Court
of Appeals erred:
I
... IN AFFIRMING THE TRIAL COURT’S CONCLUSION THAT RESPONDENT HAS A
CAUSE OF ACTION AGAINST THE PETITIONER.
II
... IN AFFIRMING THE TRIAL COURT’S DECISION FINDING PETITIONER LIABLE
TO RESPONDENT AND DECLARING THAT THE LATTER MAY RECOVER
DIRECTLY FROM THE FORMER; AND
III
... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN NOT
ABSOLVING PETITIONER FROM LIABILITY.
Essentially the issues in this case are: (1) whether or not respondent Ong has a cause
of action against petitioner Westmont Bank; and (2) whether or not Ong is barred to
recover the money from Westmont Bank due to laches.
Respondent admitted that he was never in actual or physical possession of the two (2)
checks of the Island Securities nor did he authorize Tanlimco or any of the latter’s
representative to demand, accept and receive the same. For this reason, petitioner
argues, respondent cannot sue petitioner because under Section 51 of the Negotiable
Instruments Law6 it is only when a person becomes a holder of a negotiable instrument
can he sue in his own name. Conversely, prior to his becoming a holder, he had no right
or cause of action under such negotiable instrument. Petitioner further argues that since
Section 1917 of the Negotiable Instruments Law defines a "holder" as the ‘payee or
indorsee of a bill or note, who is in possession of it, or the bearer thereof,’ in order to be
a holder, it is a requirement that he be in possession of the instrument or the bearer
thereof. Simply stated, since Ong never had possession of the checks nor did he
authorize anybody, he did not become a holder thereof hence he cannot sue in his own
name.8
Petitioner also cites Article 12499 of the Civil Code explaining that a check, even if it is a
manager’s check, is not legal tender. Hence, the creditor cannot be compelled to accept
payment thru this means.10 It is petitioner’s position that for all intents and purposes,
Island Securities has not yet tendered payment to respondent Ong, thus, any action by
Ong should be directed towards collecting the amount from Island Securities. Petitioner
claims that Ong’s cause of action against it has not ripened as of yet. It may be that
petitioner would be liable to the drawee bank - - but that is a matter between petitioner
and drawee-bank, Pacific Banking Corporation.11
For its part, respondent Ong leans on the ruling of the trial court and the Court of
Appeals which held that the suit of Ong against the petitioner bank is a desirable
shortcut to reach the party who ought in any event to be ultimately liable. 12 It likewise
cites the ruling of the courts a quo which held that according to the general rule, a bank
who has obtained possession of a check upon an unauthorized or forged indorsement
of the payee’s signature and who collects the amount of the check from the drawee is
liable for the proceeds thereof to the payee. The theory of said rule is that the collecting
bank’s possession of such check is wrongful.13
Respondent also cites Associated Bank vs. Court of Appeals14 which held that the
collecting bank or last endorser generally suffers the loss because it has the duty to
ascertain the genuineness of all prior endorsements. The collecting bank is also made
liable because it is privy to the depositor who negotiated the check. The bank knows
him, his address and history because he is a client. Hence, it is in a better position to
detect forgery, fraud or irregularity in the indorsement.15
Anent Article 1249 of the Civil Code, Ong points out that bank checks are specifically
governed by the Negotiable Instruments Law which is a special law and only in the
absence of specific provisions or deficiency in the special law may the Civil Code be
invoked.16
Considering the contentions of the parties and the evidence on record, we find no
reversible error in the assailed decisions of the appellate and trial courts, hence there is
no justifiable reason to grant the petition.
Petitioner’s claim that respondent has no cause of action against the bank is clearly
misplaced. As defined, a cause of action is the act or omission by which a party violates
a right of another.17 The essential elements of a cause of action are: (a) a legal right or
rights of the plaintiff, (b) a correlative obligation of the defendant, and (c) an act or
omission of the defendant in violation of said legal right.18
The complaint filed before the trial court expressly alleged respondent’s right as payee
of the manager’s checks to receive the amount involved, petitioner’s correlative duty as
collecting bank to ensure that the amount gets to the rightful payee or his order, and
a breach of that duty because of a blatant act of negligence on the part of petitioner
which violated respondent’s rights.19
Under Section 23 of the Negotiable Instruments Law:
When a signature is forged or made without the authority of the person whose signature
it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give
a discharge therefor, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of authority.
Since the signature of the payee, in the case at bar, was forged to make it appear that
he had made an indorsement in favor of the forger, such signature should be deemed
as inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making
payment by virtue of said forged signature. The payee, herein respondent, should
therefore be allowed to recover from the collecting bank.
The collecting bank is liable to the payee and must bear the loss because it is its legal
duty to ascertain that the payee’s endorsement was genuine before cashing the
check.20 As a general rule, a bank or corporation who has obtained possession of a
check upon an unauthorized or forged indorsement of the payee’s signature and who
collects the amount of the check from the drawee, is liable for the proceeds thereof to
the payee or other owner, notwithstanding that the amount has been paid to the person
from whom the check was obtained.21
The theory of the rule is that the possession of the check on the forged or unauthorized
indorsement is wrongful, and when the money had been collected on the check, the
bank or other person or corporation can be held as for moneys had and received, and
the proceeds are held for the rightful owners who may recover them. The position of the
bank taking the check on the forged or unauthorized indorsement is the same as if it
had taken the check and collected the money without indorsement at all and the act of
the bank amounts to conversion of the check.22
Petitioner’s claim that since there was no delivery yet and respondent has never
acquired possession of the checks, respondent’s remedy is with the drawer and not with
petitioner bank. Petitioner relies on the view to the effect that where there is no delivery
to the payee and no title vests in him, he ought not to be allowed to recover on the
ground that he lost nothing because he never became the owner of the check and still
retained his claim of debt against the drawer.23 However, another view in certain cases
holds that even if the absence of delivery is considered, such consideration is not
material. The rationale for this view is that in said cases the plaintiff uses one action to
reach, by a desirable short cut, the person who ought in any event to be ultimately liable
as among the innocent persons involved in the transaction. In other words, the payee
ought to be allowed to recover directly from the collecting bank, regardless of whether
the check was delivered to the payee or not.24
Considering the circumstances in this case, in our view, petitioner could not escape
liability for its negligent acts. Admittedly, respondent Eugene Ong at the time the
fraudulent transaction took place was a depositor of petitioner bank. Banks are engaged
in a business impressed with public interest, and it is their duty to protect in return their
many clients and depositors who transact business with them.25 They have the
obligation to treat their client’s account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. The diligence required of banks,
therefore, is more than that of a good father of a family. 26 In the present case, petitioner
was held to be grossly negligent in performing its duties. As found by the trial court:
xxx (A)t the time the questioned checks were accepted for deposit to Paciano
Tanlimco’s account by defendant bank, defendant bank, admittedly had in its files
specimen signatures of plaintiff who maintained a current account with them (Exhibits
"L-1" and "M-1"; testimony of Emmanuel Torio). Given the substantial face value of the
two checks, totalling P1,754,787.50, and the fact that they were being deposited by a
person not the payee, the very least defendant bank should have done, as any
reasonable prudent man would have done, was to verify the genuineness of the
indorsements thereon. The Court cannot help but note that had defendant conducted
even the most cursory comparison with plaintiff’s specimen signatures in its files (Exhibit
"L-1" and "M-1") it would have at once seen that the alleged indorsements were falsified
and were not those of the plaintiff-payee. However, defendant apparently failed to make
such a verification or, what is worse did so but, chose to disregard the obvious
dissimilarity of the signatures. The first omission makes it guilty of gross negligence; the
second of bad faith. In either case, defendant is liable to plaintiff for the proceeds of the
checks in question.27
These findings are binding and conclusive on the appellate and the reviewing courts.
On the second issue, petitioner avers that respondent Ong is barred by laches for failing
to assert his right for recovery from the bank as soon as he discovered the scam. The
lapse of five months before he went to seek relief from the bank, according to petitioner,
constitutes laches.
In turn, respondent contends that petitioner presented no evidence to support its claim
of laches. On the contrary, the established facts of the case as found by the trial court
and affirmed by the Court of Appeals are that respondent left no stone unturned to
obtain relief from his predicament.
On the matter of delay in reporting the loss, respondent calls attention to the fact that
the checks were issued on May 4, 1976, and on the very next day, May 5, 1976, these
were already credited to the account of Paciano Tanlimco and presented for payment to
Pacific Banking Corporation. So even if the theft of the checks were discovered and
reported earlier, respondent argues, it would not have altered the situation as the
encashment of the checks was consummated within twenty four hours and facilitated by
the gross negligence of the petitioner bank.28
Laches may be defined as the failure or neglect for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence, could or should have been
done earlier. It is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled thereto has either abandoned or
declined to assert it.29 It concerns itself with whether or not by reason of long inaction or
inexcusable neglect, a person claiming a right should be barred from asserting the
same, because to allow him to do so would be unjust to the person against whom such
right is sought to be enforced.30
In the case at bar, it cannot be said that respondent sat on his rights. He immediately
acted after knowing of the forgery by proceeding to seek help from the Tanlimco family
and later the Central Bank, to remedy the situation and recover his money from the
forger, Paciano Tanlimco. Only after he had exhausted possibilities of settling the matter
amicably with the family of Tanlimco and through the CB, about five months after the
unlawful transaction took place, did he resort to making the demand upon the petitioner
and eventually before the court for recovery of the money value of the two checks.
These acts cannot be construed as undue delay in or abandonment of the assertion of
his rights.
Moreover, the claim of petitioner that respondent should be barred by laches is clearly a
vain attempt to deflect responsibility for its negligent act.1âwphi1 As explained by the
appellate court, it is petitioner which had the last clear chance to stop the fraudulent
encashment of the subject checks had it exercised due diligence and followed the
proper and regular banking procedures in clearing checks.31 As we had earlier ruled, the
one who had the last clear opportunity to avoid the impending harm but failed to do so is
chargeable with the consequences thereof.32
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of
the Court of Appeals, sustaining the judgment of the Regional Trial Court of Manila, is
AFFIRMED.
Costs against petitioner.
SO ORDERED.

G.R. No. 179952               December 4, 2009

METROPOLITAN BANK AND TRUST COMPANY (formerly
ASIANBANK CORPORATION), Petitioner,
vs.
BA FINANCE CORPORATION and MALAYAN INSURANCE
CO., INC., Respondents.
DECISION
CARPIO MORALES, J.:
Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA
Finance) a ₱329,2801 loan to secure which, he mortgaged his car to respondent BA
Finance.2 The mortgage contained the following stipulation:
The MORTGAGOR covenants and agrees that he/it will cause the property(ies)
hereinabove mortgaged to be insured against loss or damage by accident, theft and fire
for a period of one year from date hereof with an insurance company or companies
acceptable to the MORTGAGEE in an amount not less than the outstanding balance of
mortgage obligations and that he/it will make all loss, if any, under such policy or
policies, payable to the MORTGAGEE or its assigns as its interest may appear x x
x.3 (emphasis and underscoring supplied)
Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc.
(Malayan Insurance)4 which issued a policy stipulating that, inter alia,
Loss, if any shall be payable to BA FINANCE CORP. as its interest may appear. It is
hereby expressly understood that this policy or any renewal thereof, shall not be
cancelled without prior notification and conformity by BA FINANCE
CORPORATION.5 (emphasis and underscoring supplied)
The car was stolen. On Bitanga’s claim, Malayan Insurance issued a check payable to
the order of "B.A. Finance Corporation and Lamberto Bitanga" for ₱224,500, drawn
against China Banking Corporation (China Bank). The check was crossed with the
notation "For Deposit Payees’ Account Only."6
Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the
check to his account with the Asianbank Corporation (Asianbank), now merged with
herein petitioner Metropolitan Bank and Trust Company (Metrobank). Bitanga
subsequently withdrew the entire proceeds of the check.
In the meantime, Bitanga’s loan became past due, but despite demands, he failed to
settle it.
BA Finance eventually learned of the loss of the car and of Malayan Insurance’s
issuance of a crossed check payable to it and Bitanga, and of Bitanga’s depositing it in
his account at Asianbank and withdrawing the entire proceeds thereof.
BA Finance thereupon demanded the payment of the value of the check from
Asianbank7 but to no avail, prompting it to file a complaint before the Regional Trial
Court (RTC) of Makati for sum of money and damages against Asianbank and
Bitanga,8 alleging that, inter alia, it is entitled to the entire proceeds of the check.
In its Answer with Counterclaim,9 Asianbank alleged that BA Finance "instituted [the]
complaint in bad faith to coerce [it] into paying the whole amount of the CHECK knowing
fully well that its rightful claim, if any, is against Malayan [Insurance]."10
Asianbank thereafter filed a cross-claim against Bitanga,11 alleging that he fraudulently
induced its personnel to release to him the full amount of the check; and that on being
later informed that the entire amount of the check did not belong to Bitanga, it took
steps to get in touch with him but he had changed residence without leaving any
forwarding address.12
And Asianbank filed a third-party complaint against Malayan Insurance,13 alleging that
Malayan Insurance was grossly negligent in issuing the check payable to both Bitanga
and BA Finance and delivering it to Bitanga without the consent of BA Finance.14
Bitanga was declared in default in Asianbank’s cross-claim.15
Branch 137 of the Makati RTC, finding that Malayan Insurance was not privy to the
contract between BA Finance and Bitanga, and noting the claim of Malayan Insurance
that it is its policy to issue checks to both the insured and the financing company, held
that Malayan Insurance cannot be faulted for negligence for issuing the check payable
to both BA Finance and Bitanga.
The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the
check to his account and to withdraw the proceeds thereof, without his co-payee BA
Finance having either indorsed it or authorized him to indorse it in its behalf, 16 found
Asianbank and Bitanga jointly and severally liable to BA Finance following Section 41 of
the Negotiable Instruments Law and Associated Bank v. Court of Appeals.17
Thus the trial court disposed:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendants
Asian Bank Corporation and Lamberto Bitanga:
1) To pay plaintiff jointly and severally the sum of P224,500.00 with interest thereon at
the rate of 12% from September 25, 1992 until fully paid;
2) To pay plaintiff the sum of P50,000.00 as exemplary damages; P20,000.00 as actual
damages; P30,000.00 as attorney’s fee; and
3) To pay the costs of suit.
Asianbank’s and Bitanga’s [sic] counterclaims are dismissed.
The third party complaint of defendant/third party plaintiff against third-party defendant
Malayan Insurance, Co., Inc. is hereby dismissed. Asianbank is ordered to pay Malayan
attorney’s fee of P50,000.00 and a per appearance fee of P500.00.
On the cross-claim of defendant Asianbank, co-defendant Lamberto Bitanga is
ordered to pay the former the amounts the latter is ordered to pay the plaintiff in
Nos. 1, 2 and 3 above-mentioned.
SO ORDERED.18 (emphasis and underscoring supplied)
Before the Court of Appeals, Asianbank, in its Appellant’s Brief, submitted the following
issues for consideration:
3.01.1.1 Whether BA Finance has a cause of action against Asianbank.
3.01.1.2 Assuming that BA Finance has a valid cause of action, may it claim from
Asianbank more than one-half of the value of the check  considering that it is a mere co-
payee or joint payee of the check?
3.01.1.3 Whether BA Finance is liable to Asianbank for actual and exemplary
damages for wrongfully bringing the case to court.
3.01.1.4 Whether Malayan is liable to Asianbank for reimbursement of any sum of
money which this Honorable Court may award to BA Finance in this
case.19 (underscoring supplied)
And it proffered the following arguments:
A. BA Finance has no cause of action against Asianbank as it has no legal right and title
to the check considering that the check was not delivered to BA Finance. Hence, BA
Finance is not a holder thereof under the Negotiable Instruments Law.
B. Asianbank, as collecting bank, is not liable to BA Finance as there was no privity of
contract between them.
C. Asianbank, as collecting bank, is not liable to BA Finance, considering that, as the
intermediary between the payee and the drawee Chinabank, it merely acted on the
instructions of drawee Chinabank to pay the amount of the check to Bitanga, hence, the
consequent damage to BA Finance was due to the negligence of Chinabank.
D. Malayan’s act of issuing and delivering the check solely to Bitanga in violation of the
"loss payee" clause in the Policy, is the proximate cause of the alleged damage to BA
Finance.
E. Assuming Asianbank is liable, BA Finance can claim only his proportionate interest
on the check as it is a joint payee thereof.
F. Bitanga alone is liable for the amount to BA Finance on the ground of unjust
enrichment or solutio indebiti.
G. BA Finance is liable to pay Asianbank actual and exemplary
damages.20 (underscoring supplied)
The appellate court, "summarizing" the errors attributed to the trial court by Asianbank
to be "whether…BA Finance has a cause of action against [it] even if the subject check
had not been delivered to…BA Finance by the issuer itself," held in the affirmative and
accordingly affirmed the trial court’s decision but deleted the award of ₱20,000 as actual
damages.21
Hence, the present Petition for Review on Certiorari22 filed by Metrobank (hereafter
petitioner) to which Asianbank was, as earlier stated, merged, faulting the appellate
court
I. x x x in applying the case of Associated Bank v. Court of Appeals, in the absence of
factual similarity and of the legal relationships necessary for the application of the
desirable shortcut rule. x x x
II. x x x in not finding that x x x the general rule that the payee has no cause of
action against the collecting bank absent delivery to him must be applied.
III. x x x in finding that all the elements of a cause of action by BA Finance Corporation
against Asianbank Corporation are present.
IV. x x x in finding that Article 1208 of the Civil Code is not applicable.
V. x x x in awarding of exemplary damages even in the absence of moral, temperate,
liquidated or compensatory damages and a finding of fact that Asianbank acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.
xxxx
VII. x x x in dismissing Asianbank’s counterclaim and Third Party complaint [against
Malayan Insurance].23 (italics in the original; underscoring supplied)
Petitioner proffers the following arguments against the application of Associated Bank v.
CA to the case:
x x x [T]he rule established in the Associated Bank case has provided a speedier
remedy for the payee to recover from erring collecting banks despite the absence of
delivery of the negotiable instrument. However, the application of the rule demands
careful consideration of the factual settings and issues raised in the case x x x.
One of the relevant circumstances raised in Associated Bank is the existence of forgery
or unauthorized indorsement. x x x
xxxx
In the case at bar, Bitanga is authorized to indorse the check as the drawer names him
as one of the payees. Moreover, his signature is not a forgery nor has he or anyone
forged the signature of the representative of BA Finance Corporation. No unauthorized
indorsement appears on the check.
xxxx
Absent the indispensable fact of forgery or unauthorized indorsement, the desirable
shortcut rule cannot be applied,24 (underscoring supplied)
The petition fails.
Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees or indorsees who
are not partners, all must indorse unless the one indorsing has authority to indorse for
the others. (emphasis and underscoring supplied)
Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and
release of the proceeds thereof, despite the absence of authority of Bitanga’s co-payee
BA Finance to endorse it on its behalf.25
Denying any irregularity in accepting the check, petitioner maintains that it followed
normal banking procedure. The testimony of Imelda Cruz, Asianbank’s then accounting
head, shows otherwise, however, viz:
Q Now, could you be familiar with a particular policy of the bank with respect to checks
with joined (sic) payees?
A Yes, sir.
Q And what would be the particular policy of the bank regarding this transaction?
A The bank policy and procedure regarding the joint checks. Once it is deposited
to a single account, we are not accepting joint checks for single account,
depositing to a single account (sic).
Q What happened to the bank employee who allowed this particular transaction to
occur?
A Once the branch personnel, the bank personnel (sic) accepted it, he is liable.
Q What do you mean by the branch personnel being held liable?
A Because since (sic) the bank policy, we are not supposed to accept joint
checks to a [single] account, so we mean that personnel would be held liable in
the sense that (sic) once it is withdrawn or encashed, it will not be allowed.
Q In your experience, have you encountered any bank employee who was subjected to
disciplinary action by not following bank policies?
A The one that happened in that case, since I really don’t know who that personnel is,
he is no longer connected with the bank.
Q What about in general, do you know of any disciplinary action, Madam
witness?
A Since there’s a negligence on the part of the bank personnel, it will be a ground
for his separation [from] the bank.26 (emphasis, italics and underscoring supplied)
Admittedly, petitioner dismissed the employee who allowed the deposit of the check in
Bitanga’s account.
Petitioner’s argument that since there was neither forgery, nor unauthorized
indorsement because Bitanga was a co-payee in the subject check, the dictum in
Associated Bank v. CA does not apply in the present case fails. The payment of an
instrument over a missing indorsement is the equivalent of payment on a forged
indorsement27 or an unauthorized indorsement in itself in the case of joint payees.28
Clearly, petitioner, through its employee, was negligent when it allowed the deposit of
the crossed check, despite the lone endorsement of Bitanga, ostensibly ignoring the fact
that the check did not, it bears repeating, carry the indorsement of BA Finance.29
As has been repeatedly emphasized, the banking business is imbued with public
interest such that the highest degree of diligence and highest standards of integrity and
performance are expected of banks in order to maintain the trust and confidence of the
public in general in the banking sector.30 Undoubtedly, BA Finance has a cause of
action against petitioner.
Is petitioner liable to BA Finance for the full value of the check?
Petitioner, at all events, argue that its liability to BA Finance should only be one-half of
the amount covered by the check as there is no indication in the check that Bitanga and
BA Finance are solidary creditors to thus make them presumptively joint creditors under
Articles 1207 and 1208 of the Civil Code which respectively provide:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one
and the same obligation does not imply that each one of the former has a right to
demand, or that each one of the latter is bound to render, entire compliance with the
prestations. There is a solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.
Art. 1208. If from the law, or the nature or wording of the obligations to which the
preceding article refers to the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors or debtors, the
debts or credits being considered distinct from one another, subject to the Rules of
Court governing the multiplicity of suits.
Petitioner’s argument is flawed.
The provisions of the Negotiable Instruments Law and underlying jurisprudential
teachings on the black-letter law provide definitive justification for petitioner’s full liability
on the value of the check.
To be sure, a collecting bank, Asianbank in this case, where a check is deposited and
which indorses the check upon presentment with the drawee bank, is an indorser.
[31]
 This is because in indorsing a check to the drawee bank, a collecting bank stamps
the back of the check with the phrase "all prior endorsements and/or lack of
endorsement guaranteed"32 and, for all intents and purposes, treats the check as a
negotiable instrument, hence, assumes the warranty of an indorser.33 Without
Asianbank’s warranty, the drawee bank (China Bank in this case) would not have paid
the value of the subject check.
Petitioner, as the collecting bank or last indorser, generally suffers the loss because it
has the duty to ascertain the genuineness of all prior indorsements considering that the
act of presenting the check for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the genuineness of prior
indorsements.34
Accordingly, one who credits the proceeds of a check to the account of the indorsing
payee is liable in conversion to the non-indorsing payee for the entire amount of the
check.35
It bears noting that in petitioner’s cross-claim against Bitanga, the trial court ordered
Bitanga to return to petitioner the entire value of the check ─ ₱224,500.00 ─ with
interest as well as damages and cost of suit. Petitioner never questioned this aspect of
the trial court’s disposition, yet it now prays for the modification of its liability to BA
Finance to only one-half of said amount. To pander to petitioner’s supplication would
certainly amount to unjust enrichment at BA Finance’s expense. Petitioner’s remedy—
which is the reimbursement for the full amount of the check from the perpetrator of the
irregularity — lies with Bitanga.
Articles 1207 and 1208 of the Civil Code cannot be applied to the present case as these
are completely irrelevant. The drawer, Malayan Insurance in this case, issued the check
to answer for an underlying contractual obligation (payment of insurance proceeds). The
obligation is merely reflected in the instrument and whether the payees would jointly
share in the proceeds or not is beside the point.
Moreover, granting petitioner’s appeal for partial liability would run counter to the
existing principles on the liabilities of parties on negotiable instruments, particularly on
Section 68 of the Negotiable Instruments Law which instructs that joint payees who
indorse are deemed to indorse jointly and severally.36 Recall that when the maker
dishonors the instrument, the holder thereof can turn to those secondarily liable — the
indorser — for recovery.37 And since the law explicitly mandates a solidary liability on
the part of the joint payees who indorse the instrument, the holder thereof (assuming
the check was further negotiated) can turn to either Bitanga or BA Finance for full
recompense.
Respecting petitioner’s challenge to the award by the appellate court of exemplary
damages to BA Finance, the same fails. Contrary to petitioner’s claim that no moral,
temperate, liquidated or compensatory damages were awarded by the trial court, 38 the
RTC did in fact award compensatory or actual damages of ₱224,500, the value of the
check, plus interest thereon.
Petitioner argues, however, that assuming arguendo that compensatory damages had
been awarded, the same contravened Article 2232 of the Civil Code which provides that
in contracts or quasi-contracts, the court may award exemplary damages only if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Since, so petitioner concludes, there was no finding that it acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner,39 it is not liable for exemplary damages.
The argument fails. To reiterate, petitioner’s liability is based not on contract or quasi-
contract but on quasi-delict since there is no pre-existing contractual relation between
the parties.40 Article 2231 of the Civil Code, which provides that in quasi-delict,
exemplary damages may be granted if the defendant acted with gross negligence, thus
applies. For "gross negligence" implies a want or absence of or failure to exercise even
slight care or diligence, or the entire absence of care,41 evincing a thoughtless disregard
of consequences without exerting any effort to avoid them.42
x x x The law allows the grant of exemplary damages to set an example for the public
good. The business of a bank is affected with public interest; thus it makes a sworn
profession of diligence and meticulousness in giving irreproachable service. For this
reason, the bank should guard against in injury attributable to negligence or bad faith on
its part. The award of exemplary damages is proper as a warning to [the petitioner] and
all concerned not to recklessly disregard their obligation to exercise the highest and
strictest diligence in serving their depositors.43 (Italics and underscoring supplied)
As for the dismissal by the appellate court of petitioner’s third-party complaint against
Malayan Insurance, the same is well-taken. Petitioner based its third-party complaint on
Malayan Insurance’s alleged gross negligence in issuing the check payable to both BA
Finance and Bitanga, despite the stipulation in the mortgage and in the insurance policy
that liability for loss shall be payable to BA Finance.44 Malayan Insurance countered,
however, that it
x x x paid the amount of ₱224,500 to ‘BA Finance Corporation and Lamberto Bitanga’ in
compliance with the decision in the case of "Lamberto Bitanga versus Malayan
Insurance Co., Inc., Civil Case No. 88-2802, RTC-Makati Br. 132, and affirmed on
appeal by the Supreme Court [3rd Division], G.R. no. 101964, April 8, 1992 x x
x.45 (underscoring supplied)
It is noted that Malayan Insurance, which stated that it was a matter of company policy
to issue checks in the name of the insured and the financing company, presented a
witness to rebut its supposed negligence. 46 Perforce, it thus wrote a crossed check with
joint payees so as to serve warning that the check was issued for a definite
purpose.47 Petitioner never ever disputed these assertions.
The Court takes exception, however, to the appellate court’s affirmance of the trial
court’s grant of legal interest of 12% per annum on the value of the check. For the
obligation in this case did not arise out of a loan or forbearance of money, goods or
credit. While Article 1980 of the Civil Code provides that:
Fixed savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan,
said provision does not find application in this case since the nature of the relationship
between BA Finance and petitioner is one of agency whereby petitioner, as collecting
bank, is to collect for BA Finance the corresponding proceeds from the check.48 Not
being a loan or forbearance of money, the interest should be 6% per annum computed
from the date of extrajudicial demand on September 25, 1992 until finality of judgment;
and 12% per annum from finality of judgment until payment, conformably with Eastern
Shipping Lines, Inc. v. Court of Appeals.[49]
WHEREFORE, the Decision of the Court of Appeals dated May 18, 2007 is AFFIRMED
with MODIFICATION in that the rate of interest on the judgment obligation of ₱224,500
should be 6% per annum, computed from the time of extrajudicial demand on
September 25, 1992 until its full payment before finality of judgment; thereafter, if the
amount adjudged remains unpaid, the interest rate shall be 12% per annum computed
from the time the judgment becomes final and executory until fully satisfied.
Costs against petitioner.
SO ORDERED.

G.R. No. 205839

LAND BANK OF THE PHILIPPINES, Petitioner
vs.
NARCISO L. KHO, Respondent
x-----------------------x
G.R. No. 205840
MA.LORENA FLORES and ALEXANDER CRUZ, Petitioners,
vs.
NARCISO L. KHO, Respondent.
DECISION
BRION, J.:
These are consolidated petitions for review on certiorari assailing the Court of
Appeals' (CA) August 30, 2012 decision and February 14, 2013 Resolution in CA-G.R.
CV No. 93881.1The CA set aside the Regional Trial Court’s (RTC) dismissal of Civil
Case No. Q-06-571542and remanded the case for further proceedings.
Antecedents
The respondent Narciso Kho is the sole proprietor of United Oil Petroleum, a business
engaged in trading diesel fuel. Sometime in December 2006, he entered into a verbal
agreement to purchase lubricants from Red Orange International Trading (Red Orange),
represented by one Rudy Medel. Red Orange insisted that it would only accept a Land
Bank manager’s check as payment.
On December 28, 2005, Kho, accompanied by Rudy Medel, opened Savings Account
No. 0681-0681-80 at the Araneta Branch of petitioner Land Bank of the
Philippines (Land Bank).3His initial ₱25,993,537.37 deposit4 consisted of the following
manager’s checks:

1 UCPB Del Monte Branch PHP 15,000,000

Check No. 19107

2 E-PCI Banawe Branch PHP 2,900,000

Check No. 26200720

3 I.E. Bank Retiro Branch PHP 8,093,537.37

Check No. 1466

These checks were scheduled for clearance on January 2, 2006.

Kho also purchased Land Bank Manager’s Check No. 07410 leveraged by his newly
opened savings account. Recem Macarandan, the Acting Operations Supervisor of the
Araneta branch, and Leida Benitez, the Document Examiner, prepared and signed the
check.5
The check was postdated to January 2, 2006, and scheduled for actual delivery on the
same date after the three checks were expected to have been cleared. It was valued at
₱25,000,000.00 and made payable to Red Orange.6
Kho requested a photocopy of the manager’s check to provide Red Orange with proof
that he had available funds for the transaction.1âwphi1 The branch manager, petitioner
Ma. Lorena Flores, accommodated his request. Kho gave the photocopy of the check to
Rudy Medel.7
On January 2, 2006, Kho returned to the bank and picked up check No. 07410.
Accordingly, ₱25,000,000.00 was debited from his savings account.
Unfortunately, his deal with Red Orange did not push through.
On January 3, 2006, an employee of the Bank of the Philippine Islands (BPI) called
Land Bank, Araneta Branch, to inform them that Red Orange had deposited check No.
07410 for payment. Flores confirmed with BPI that Land Bank had issued the check to
Kho.8
On January 4, 2006, the Central Clearing Department (CCD) of the Land Bank Head
Office faxed a copy of the deposited check to the Araneta branch for payment. The
officers of the Araneta branch examined the fax copy and thought that the details
matched the check purchased by Kho. Thus, Land Bank confirmed the deposited
check.9
On January 5, 2006, Flores informed Kho by phone that Check No. 07410 was cleared
and paid by the BPI, Kamuning branch.10
Shocked, Kho informed Flores that he never negotiated the check because the deal did
not materialize. More importantly, the actual check was still in his possession.11
Kho immediately went to Land Bank with the check No. 07410. They discovered that
what was deposited and encashed with BPI was a spurious manager’s check.12 Kho
demanded the cancellation of his manager’s check and the release of the remaining
money in his account (then ₱995,207.27).13 However, Flores refused his request
because she had no authority to do so at the time.
Kho returned to the Land Bank, Araneta branch on January 12, 2006, with the same
demands. He was received by petitioner Alexander Cruz who was on his second day as
the Officer in Charge (OIC) of the Araneta branch.14 Cruz informed him that there was a
standing freeze order on his account because of the (then) ongoing investigation on the
fraudulent withdrawal of the manager’s check.15
On January 16, 2006, Kho sent Land Bank a final demand letter for the return of his
₱25,000,000.00 and the release of the ₱995,207.27 from his account but the bank did
not comply.
Hence, on January 23, 2006, Kho filed a Complaint for Specific Performance and
Damages against Land Bank, represented by its Araneta Avenue Branch Manager
Flores and its OIC Cruz. He also impleaded Flores and Cruz in their personal
capacities. The complaint was docketed as Civil Case No. Q-06-57154.
Kho asserted that the manager’s check No. 07410 was still in his possession and that
he had no obligation to inform Land Bank whether or not he had already negotiated the
check.16
On the other hand, Land Bank argued that Kho was negligent because he handed
Medel a photocopy of the manager’s check and that this was the proximate cause of his
loss.17
On April 30, 2009, the RTC dismissed the complaint.18
Citing Associated Bank v. Court of Appeals, the RTC reasoned that the failure of the
purchaser/drawer to exercise ordinary care that substantially contributed to the making
of the forged check precludes him from asserting the forgery.19 It held that (1) Kho’s act
of giving Medel a photocopy of the check and (2) his failure to inform the bank that the
transaction with Red Orange did not push through were the proximate causes of his
loss.20
The RTC also found that Flores and Cruz acted in good faith in performing their duties
as officers of Land Bank when they refused to cancel the manager’s check and
disallowed Kho from withdrawing from his account.21
Kho appealed to the CA where the case was docketed as CA-G.R. CV No. 93881.
On August 30, 2012, the CA set aside the RTC’s decision and remanded the case for
further proceedings.
The CA pointed out that Land Bank was conducting an investigation to determine
whether there was a fraudulent negotiation of the manager’s check No. 07410. It held
that the outcome of the investigation – which was not yet available during the trial – is
crucial to the resolution of the case. It noted that the RTC’s ruling on Kho’s negligence
in dealing with Medel preempted the outcome of Land Bank’s investigation.22 Thus, it
remanded the case to the RTC with the directive to consider the outcome of the
investigation.
Dissatisfied, Land Bank, Flores, and Cruz, filed separately petitions for review
on certiorari before this Court.
The Arguments
Land Bank asserts that neither party denied the spurious nature of the manager’s check
that was deposited with BPI. Therefore, the conclusion of its investigation as to the
fraudulent negotiation of check No. 07410 is immaterial to the resolution of the case.23
Land Bank adopts the RTC’s conclusion that Kho is precluded from asserting the
forgery of check No. 07410 because his negligence substantially contributed to his
loss.24
The bank highlights the following instances of Kho’s negligence:
(1) Kho transacted with Rudy Medel, a person he barely knew, without verifying Medel’s
actual relationship with Red Orange. In fact, Kho even mistook him as "Rudy Rodel" in
his complaint;
(2) Kho accorded Medel an unusual degree of trust. He brought Medel with him to the
bank and carelessly gave the latter a photocopy of the manager’s check; and
(3) When he picked up check No. 07410 on January 2, 2006, Kho did not even bother
to inform Land Bank that his transaction with Red Orange did not push through. He
could have prevented or detected the duplication of the check if he had simply notified
the bank.25
Flores and Cruz maintain that they did not incur any personal liability to Kho because
they were only performing their official duties in good faith. They insist that their alleged
wrongdoing, if there was any, were corporate acts performed within the scope of their
official authority; therefore, only Land Bank should be made liable for the
consequences.26
For his part, Kho adopts the CA’s arguments and reasoning in CA-G. R. CV No.
93881.27
Our Ruling
At the outset, we agree with Land Bank’s contention that the result of its investigation is
not indispensable to resolving this case. After all, it was not conducted by an
independent party but by a party-litigant. We cannot expect the report to yield a
completely impartial result. At best, the investigation report will be of doubtful probative
value.
More importantly, all the facts necessary to decide the case are already available.
Although they have reached different legal conclusions, both the RTC and the CA agree
that:
 On December 28, 2005, Kho opened an account with Land Bank in order to leverage
a business deal with Red Orange;
 He purchased Land Bank Manager’s check No. 07410 worth ₱25,000,000.00 payable
to Red Orange and dated January 2, 2006;
 He also gave Rudy Medel a photocopy of the check that the bank had given him;
 After his visit to the Bank, the deal with Medel and Red Orange did not push through;
 He picked up check No. 07410 from the bank on January 2, 2006, without informing
the bank that the deal did not materialize;
 Afterwards, Red Orange presented a spurious copy of check No. 07410 to BPI,
Kamuning for payment;
 Land Bank cleared the check;
 However, Kho never negotiated the actual check. It was in his possession the whole
time.
This case can already be resolved based on these undisputed facts. Therefore, the CA
erred when it remanded the case for further proceedings.
That said, we cannot agree that the proximate causes of the loss were Kho’s act of
giving Medel a photocopy of check No. 07410 and his failure to inform Land Bank that
his deal with Red Orange did not push through.
Proximate cause – which is determined by a mixed consideration of logic, common
sense, policy, and precedent – is "that cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred."28
We cannot understand how both the RTC and the CA overlooked the fact that Land
Bank’s officers cleared the counterfeit check. We stress that the signatories of the
genuine check No. 07410 were Land Bank’s officers themselves.
The business of banking is imbued with public interest; it is an industry where the
general public’s trust and confidence in the system is of paramount
importance.29 Consequently, banks are expected to exert the highest degree of, if not
the utmost, diligence. They are obligated to treat their depositors’ accounts with
meticulous care, always keeping in mind the fiduciary nature of their relationship.30
Banks hold themselves out to the public as experts in determining the genuineness of
checks and corresponding signatures thereon.31 Stemming from their primordial duty of
diligence, one of a bank’s prime duties is to ascertain the genuineness of the drawer’s
signature on check being encashed.32 This holds especially true for manager’s checks.
A manager’s check is a bill of exchange drawn by a bank upon itself, and is accepted by
its issuance. It is an order of the bank to pay, drawn upon itself, committing in effect its
total resources, integrity, and honor behind its issuance. The check is signed by the
manager (or some other authorized officer) for the bank. In this case, the signatories
were Macarandan and Benitez.
The genuine check No. 07410 remained in Kho’s possession the entire time and Land
Bank admits that the check it cleared was a fake. When Land Bank’s CCD forwarded
the deposited check to its Araneta branch for inspection, its officers had every
opportunity to recognize the forgery of their signatures or the falsity of the check.
Whether by error or neglect, the bank failed to do so, which led to the withdrawal and
eventual loss of the ₱25,000,000.00.
This is the proximate cause of the loss. Land Bank breached its duty of diligence and
assumed the risk of incurring a loss on account of a forged or counterfeit check. Hence,
it should suffer the resulting damage.
We cannot agree with the Land Bank and the RTC’s positions that Kho is precluded
from invoking the forgery. A drawer or a depositor of the bank is precluded from
asserting the forgery if the drawee bank can prove his failure to exercise ordinary care
and if this negligence substantially contributed to the forgery or the perpetration of the
fraud.
In Gempesaw v. Court of Appeals,33 Natividad Gempesaw, a businesswoman,
completely placed her trust in her bookkeeper. Gempesaw allowed her bookkeeper to
prepare the checks payable to her suppliers. She signed the checks without verifying
their amounts and their corresponding invoices. Despite receiving her banks
statements, Gempesaw never verified the correctness of the returned checks nor
confirmed if the payees actually received payment. This went on for over two years,
allowing her bookkeeper to forge the indorsements of over 82 checks.
Gempesaw failed to examine her records with reasonable diligence before signing the
checks and after receiving her bank statements. Her gross negligence allowed her
bookkeeper to benefit from the subsequent forgeries for over two years.
Gempesaw’s negligence precluded her from asserting the forgery. Nevertheless, we
adjudged the drawee Bank liable to share evenly in her loss for its failure to exercise
utmost diligence, which amounted to a breach of its contractual obligations to the
depositor.34
In Associated Bank v. Court of Appeals,35 the province of Tarlac (the
depositor) released 30 checks payable to the order of a government hospital to
a retired administrative officer/cashier of the hospital. The retired officer forged the
hospital’s indorsement and deposited the checks into his personal account. This took
place for over three years resulting in the accumulated loss of ₱203,300.00. We found
the province of Tarlac grossly negligent, to the point of substantially contributing to its
loss.36
Nevertheless, we apportioned the loss evenly between the province of Tarlac and the
drawee bank because of the bank’s failure to pay according to the terms of the check. It
violated its duty to charge the customer’s account only for properly payable items.37
Kho’s negligence does not even come close to approximating those of Gempesaw or of
the province of Tarlac. While his act of giving Medel a photocopy of the check may have
allowed the latter to create a duplicate, this cannot possibly excuse Land Bank’s failure
to recognize that the check itself –not just the signatures – is a fake instrument. More
importantly, Land Bank itself furnished Kho the photocopy without objecting to the
latter’s intention of giving it to Medel.
Kho' s failure to inform Land Bank that the deal did not push through as of January 2,
2006, does not justify Land Bank's confirmation and clearing of a fake check bearing
the forged signatures of its own officers. Whether or not the deal pushed through, the
check remained in Kho's possession. He was entitled to a reasonable expectation that
the bank would not release any funds corresponding to the check.
Lastly, we agree with the RTC's finding that neither Flores nor Cruz is liable to Kho in
their private capacities. Their refusal to honor Kho' s demands was made in good faith
pursuant to the directives of the Land Bank's management.
As a pillar of economic development, the banking industry is impressed with public
interest. The general public relies on banks' sworn duty to serve with utmost diligence.
Public trust and confidence in banks is critical to a healthy, stable, and well-functioning
economy. Let this serve as a reminder for banks to always act with the highest degree
of diligence and the most meticulous attention to detail.
WHEREFORE, we PARTLY GRANT the petitions. The Court of Appeals' August 30,
2012 decision and February 14, 2013 resolution in CA-G.R. CV No. 93881 are SET
ASIDE. The Regional Trial Court's April 30, 2009 decision in Civil Case No. Q-06-
57154 is REVERSED.
Petitioner Land Bank of the Philippines is ORDERED:
(1) to PAY Narciso Kho the sum of TWENTY FIVE MILLION PESOS (₱25,000,000.00),
plus interest at the legal rate reckoned from the filing of the complaint; and
(2) to ALLOW Narciso Kho to withdraw his remaining funds from Savings Account No.
0681-0681-80.
SO ORDERED.