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NEGOTIABLE INSTRUMENTS 2017 1

BPI V. CA 216 SCRA 51

FACTS:
Someone who identified herself to be Fernando called up BPI, requesting for
the pre-termination of her money market placement with the bank. The person
who took the call didn't bother to verify with Fernandos office if whether or not she
really intended to preterminate her money market
placement. Instead, he relied on the verification stated by the caller. He proceeded
with the processing of the termination. Thereafter, the caller gave delivery
instructions that instead of delivering the checks to her office, it would be picked
up by her niece and it indeed happen as such. It was found out later on that the
person impersonated Fernando and her alleged niece in getting the checks.
The dispatcher also didn't bother to get the promissory note evincing the
placement when he gave the checks to the impersonated niece. This was
aggravated by the fact that this impersonator opened an account with the bank
and deposited the subject checks. It then withdrew the amounts.

The day of the maturity of the money market placement happened and the real
Fernando surfaced herself. She denied preterminating the money market
placements and though she was the payee of the checks in issue, she didn't receive
any of its proceeds. This prompted the bank to
surrender to CBC the checks and asking for reimbursement on alleged forgery
of payees indorsements.

HELD:
The general rule shall apply in this case. Since the payees indorsement has
been forged, the instrument is wholly inoperative. However, underlying
circumstances of the case show that the general rule on forgery isnt applicable. The
issue as to who between the parties should bear the
loss in the payment of the forged checks necessitates the determination of the rights
and liabilities of the parties involved in the controversy in relation to the forged
checks.

The acts of the employees of BPI were tainted with more negligence if not criminal
than the acts of CBC. First, the act of disclosing information about the money market
placement over the phone is a violation of the General Banking Law. Second, there
was failure on the banks part to even compare the signatures during the
termination of the placement, opening of a new account with the specimen
signature in file of Fernando. And third, there was failure to ask the surrender
of the promissory note evidencing the placement.

The acts of BPI employees was the proximate cause to the loss. Nevertheless,
the negligence of the employees of CBC should be taken also into consideration.
They closed their eyes to the suspicious large amount withdrawals made over the
counter as well as the opening of the account.
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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;
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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.
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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.
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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
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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.
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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:

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
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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:
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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:
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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


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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
NEGOTIABLE INSTRUMENTS 2017 12

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.
NEGOTIABLE INSTRUMENTS 2017 13

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
NEGOTIABLE INSTRUMENTS 2017 14

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)
NEGOTIABLE INSTRUMENTS 2017 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
NEGOTIABLE INSTRUMENTS 2017 16

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
NEGOTIABLE INSTRUMENTS 2017 17

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
NEGOTIABLE INSTRUMENTS 2017 18

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.
NEGOTIABLE INSTRUMENTS 2017 19

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
NEGOTIABLE INSTRUMENTS 2017 20

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
NEGOTIABLE INSTRUMENTS 2017 21

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
NEGOTIABLE INSTRUMENTS 2017 22

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 byOPENING 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
NEGOTIABLE INSTRUMENTS 2017 23

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
NEGOTIABLE INSTRUMENTS 2017 24

PNB V. CA - Acceptance of Checks 25 SCRA 693

FACTS:
Lim deposited in his PCIB account a GSIS check drawn against PNB. Following
standard banking procedures, the check was sent to petitioner for clearing. He
didnt return said check but paid the amount to PCIB as well as debited it against the
account of GSIS. Thereafter, a demand was received from GSIS asking for the
credit of the amount since the signatures found in the check were forged. This
was done by PNB and it now comes after PCIB but the latter wouldnt want to return
the money.

HELD:
Acceptance is not required for checks, for the same are payable on demand.
Acceptance and payment are distinguished with each other. The former pertains to a
promise to perform an act while the latter is the actual performance of the act.
PNB had also been negligent with the particularity that it had been guilty of a greater
degree of negligence because it had a previous and formal notice from GSIS that the
check had been lost, with the request that payment be stopped. Just as important is
that it is its acts, which are the proximate cause of the loss.

Lessons Applicable:
Forgery (Negotiable Instruments Law)
Liabilities of the parties (Negotiable Instruments Law)

FACTS:
January 15, 1962: Augusto Lim deposited in his current account with the PCIB branch
at Padre Faura, Manila a GSIS Check of P57,415.00 drawn against the PNB PCIB
stamped the following on the back of the check: "All prior indorsements and/or Lack
of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura
Branch, Manila

Same date: following an established banking practice in the Philippines, the check
was forwarded for clearing through the Central Bank to the PNB did not return said
check the next day, or at any other time, but retained it and paid its amount to the
PCIB, as well as debited it against the account of the GSIS in the PNB

PNB received a formal notice from the GSIS that the check had been lost, with the
request that payment thereof be stopped

January 31, 1962: Upon demand from the GSIS, the P57,415.00 was re-credited to
them bec. the signatures of its officers on the check were forged signatures of the
General Manager and the Auditor of the GSIS on the check, as drawer, are forged
payee Mariano D. Pulido indorsed it to Manuel Go and then indorsed by Manuel Go to
Augusto Lim

February 2, 1962: PNB demanded from the PCIB the refund


PNB filed against the PCIB

CA affirmed CFI: dismissed

ISSUE: W/N PCIB as indorser is liable despite the fact that the check is forged when
PNB is also negligent
NEGOTIABLE INSTRUMENTS 2017 25

HELD: NO. Affirmed


PCIB stamped on the back of the check: "All prior indorsements and/or Lack of
Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre
Faura Branch, Manila
indorsements falsified is immaterial to the PNB's liability as a drawee, or to its
right to recover from the PCIB, for, as against the drawee, the indorsement of an
intermediate bank does not guarantee the signature of the drawer, since the
forgery of the indorsement is not the cause of the loss.
Guaranteed not the authenticity of the signatures of the officers of the GSIS who
signed because the GSIS is not an indorser of the check, but its drawer
warranty is irrelevant to the PNB's alleged right to recover from the PCIB
in general, "acceptance" is not required for checks since they are payable on
demand
acceptance
promise to perform an act
the acceptance of a bill is the signification by the drawee of his assent to the
order of the drawer
payment
actual performance
compliance with obligation
PNB had been guilty of a greater degree of negligence, because it had a previous
and formal notice from the GSIS that the check had been lost, with the request
that payment thereof be stopped
PNB's negligence was the main or proximate cause for the corresponding loss
PNB did not return the check
when 1 of 2 innocent persons must suffer by the wrongful act of a third person,
the loss must be borne by the one whose negligence was the proximate cause of
the loss or who put it into the power of the third person to perpetrate the wrong
where the collecting (PCIB) and the drawee (PNB) banks are equally at fault, the
court will leave the parties where it finds them
applies in the case of a drawee who pays a bill without having previously
accepted it

Section 62 of Act No. 2031 provides


The acceptor by accepting the instrument engages that he will pay it according to the
tenor of hisacceptance; and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity
and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
NEGOTIABLE INSTRUMENTS 2017 26

G.R. No. L-26001 October 29, 1968

PHILIPPINE NATIONAL BANK, petitioner,


vs.
THE COURT OF APPEALS and PHILIPPINE COMMERCIAL AND INDUSTRIAL
BANK, respondents.

Tomas Besa, Jose B. Galang and Juan C. Jimenez for petitioner.


San Juan, Africa & Benedicto for respondents.

CONCEPCION, C.J.:

The Philippine National Bank hereinafter referred to as the PNB seeks the
review by certiorari of a decision of the Court of Appeals, which affirmed that of the
Court of First Instance of Manila, dismissing plaintiff's complaint against the
Philippine Commercial and Industrial Bank hereinafter referred to as the PCIB
for the recovery of P57,415.00.

A partial stipulation of facts entered into by the parties and the decision of the Court
of Appeals show that, on about January 15, 1962, one Augusto Lim deposited in his
current account with the PCIB branch at Padre Faura, Manila, GSIS Check No.
645915- B, in the sum of P57,415.00, drawn against the PNB; that, following an
established banking practice in the Philippines, the check was, on the same date,
forwarded, for clearing, through the Central Bank, to the PNB, which did not return
said check the next day, or at any other time, but retained it and paid its amount to
the PCIB, as well as debited it against the account of the GSIS in the PNB; that,
subsequently, or on January 31, 1962, upon demand from the GSIS, said sum of
P57,415.00 was re-credited to the latter's account, for the reason that the signatures
of its officers on the check were forged; and that, thereupon, or on February 2, 1962,
the PNB demanded from the PCIB the refund of said sum, which the PCIB refused to
do. Hence, the present action against the PCIB, which was dismissed by the Court of
First Instance of Manila, whose decision was, in turn, affirmed by the Court of
Appeals.

It is not disputed that the signatures of the General Manager and the Auditor of the
GSIS on the check, as drawer thereof, are forged; that the person named in the
check as its payee was one Mariano D. Pulido, who purportedly indorsed it to one
Manuel Go; that the check purports to have been indorsed by Manuel Go to Augusto
Lim, who, in turn, deposited it with the PCIB, on January 15, 1962; that, thereupon,
the PCIB stamped the following on the back of the check: "All prior indorsements
and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial
Bank," Padre Faura Branch, Manila; that, on the same date, the PCIB sent the check
to the PNB, for clearance, through the Central Bank; and that, over two (2) months
before, or on November 13, 1961, the GSIS had notified the PNB, which
NEGOTIABLE INSTRUMENTS 2017 27

acknowledged receipt of the notice, that said check had been lost, and, accordingly,
requested that its payment be stopped.

In its brief, the PNB maintains that the lower court erred: (1) in not finding the PCIB
guilty of negligence; (2) in not finding that the indorsements at the back of the check
are forged; (3) in not finding the PCIB liable to the PNB by virtue of the former's
warranty on the back of the check; (4) in not holding that "clearing" is not
"acceptance", in contemplation of the Negotiable Instruments law; (5) in not finding
that, since the check had not been accepted by the PNB, the latter is entitled to
reimbursement therefor; and (6) in denying the PNB's right to recover from the PCIB.

The first assignment of error will be discussed later, together with the last,with which
it is interrelated.

As regards the second assignment of error, the PNB argues that, since the
signatures of the drawer are forged, so must the signatures of the supposed
indorsers be; but this conclusion does not necessarily follow from said premise.
Besides, there is absolutely no evidence, and the PNB has not even tried to prove
that the aforementioned indorsements are spurious. Again, the PNB refunded the
amount of the check to the GSIS, on account of the forgery in the signatures, not of
the indorsers or supposed indorsers, but of the officers of the GSIS as drawer of the
instrument. In other words, the question whether or not the indorsements have been
falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from
the PCIB,1 for, as against the drawee, the indorsement of an intermediate bank does
not guarantee the signature of the drawer,2 since the forgery of the indorsement
is not the cause of the loss.3

With respect to the warranty on the back of the check, to which the third assignment
of error refers, it should be noted that the PCIB thereby guaranteed "all
prior indorsements," not the authenticity of the signatures of the officers of the GSIS
who signed on its behalf, because the GSIS is not an indorser of the check, but its
drawer.4Said warranty is irrelevant, therefore, to the PNB's alleged right to recover
from the PCIB. It could have been availed of by a subsequent indorsee 5 or a holder
in due course6 subsequent to the PCIB, but, the PNB is neither.7 Indeed, upon
payment by the PNB, as drawee, the check ceased to be a negotiable instrument,
and became a mere voucher or proof of payment. 8

Referring to the fourth and fifth assignments of error, we must bear in mind that, in
general, "acceptance", in the sense in which this term is used in the Negotiable
Instruments Law9 is not required for checks, for the same are payable on
demand.10 Indeed, "acceptance" and "payment" are, within the purview of said Law,
essentially different things, for the former is "a promise to perform an act," whereas
the latter is the "actual performance" thereof.11 In the words of the Law,12 "the
acceptance of a bill is the signification by the drawee of his assent to the order of the
drawer," which, in the case of checks, is the payment, on demand, of a given sum of
money. Upon the other hand, actual payment of the amount of a check implies not
only an assent to said order of the drawer and a recognition of the drawer's
obligation to pay the aforementioned sum, but, also, a compliance with such
obligation.
NEGOTIABLE INSTRUMENTS 2017 28

Let us now consider the first and the last assignments of error. The PNB maintains
that the lower court erred in not finding that the PCIB had been guilty of negligence
in not discovering that the check was forged. Assuming that there had been such
negligence on the part of the PCIB, it is undeniable, however, that the PNB has, also,
been negligent, with the particularity that the PNB had been guilty of a greater
degree of negligence, because it had a previous and formal notice from the GSIS
that the check had been lost, with the request that payment thereof be stopped. Just
as important, if not more important and decisive, is the fact that the PNB's
negligence was the main or proximate cause for the corresponding loss.

In this connection, it will be recalled that the PCIB did not cash the check upon its
presentation by Augusto Lim; that the latter had merely deposited it in his current
account with the PCIB; that, on the same day, the PCIB sent it, through the Central
Bank, to the PNB, for clearing; that the PNB did not return the check to the PCIB the
next day or at any other time; that said failure to return the check to the PCIB
implied, under the current banking practice, that the PNB considered the check good
and would honor it; that, in fact, the PNB honored the check and paid its amount to
the PCIB; and that only then did the PCIB allow Augusto Lim to draw said amount
from his aforementioned current account.

Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had
found nothing wrong with the check and would honor the same, and by actually
paying its amount to the PCIB, the PNB induced the latter, not only to believe that
the check was genuine and good in every respect, but, also, to pay its amount to
Augusto Lim. In other words, the PNB was the primary or proximate cause of the
loss, and, hence, may not recover from the PCIB. 13

It is a well-settled maxim of law and equity that when one of two (2) innocent persons
must suffer by the wrongful act of a third person, the loss must be borne by the one
whose negligence was the proximate cause of the loss or who put it into the power of
the third person to perpetrate the wrong.14

Then, again, it has, likewise, been held that, where the collecting (PCIB) and the
drawee (PNB) banks are equally at fault, the court will leave the parties where it finds
them.15
Lastly, Section 62 of Act No. 2031 provides:
The acceptor by accepting the instrument engages that he will pay it
according to the tenor of his acceptance; and admits:
(a) The existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
The prevailing view is that the same rule applies in the case of a drawee who pays a
bill without having previously accepted it.16

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the
Philippine National Bank. It is so ordered.
ASSOCIATED BANK V. CA 252 SCRA 620

FACTS:
NEGOTIABLE INSTRUMENTS 2017 29

The province of Tarlac maintains an account with PNB-Tarlac. Part of its funds
is appropriated for the benefit of Concepcion Emergency Hospital. During a
post-audit done by the province, it was found out that 30 of its checks werent
received by the hospital. Upon further investigation, it was found out that the checks
were encashed by Pangilinan who was a former cashier and administrative officer
of the hospital through forged indorsements. This prompted the
provincial treasurer to ask for
reimbursement from PNB and thereafter, PNB from Associated Bank. As the
two banks didn't want to reimburse, an action was filed against them.

HELD:
There is a distinction on forged indorsements with regard bearer
instruments and instruments payable to order.
With instruments payable to bearer, the signature of the payee or holder is
unnecessary to pass title to the instrument. Hence, when the indorsement is a
forgery, only the person whose signature is forged can raise the defense of
forgery against holder in due course.
In instruments payable to order, the signature of the rightful holder is
essential to transfer title to the same instrument. When the holders signature
is forged, all parties prior to the forgery may raise the real defense of forgery
against all parties subsequent thereto. In connection to this, an indorser warrants
that the instrument is genuine. A collecting bank is such an indorser. So
even if the indorsement is forged, the collecting bank is bound by his warranties
as an indorser and cannot set up the defense of forgery as against the drawee bank.
Furthermore, in cases involving checks with forged indorsements, such as the case
at bar, the chain of liability doesn't end with the drawee bank. The drawee
bank may not debit the account of the drawer but may generally pass liability
back through the collection chain to the party who took from the forger and of
course, the forger himself, if available. In other words, the drawee bank can
seek reimbursement or a return of the amount it paid from the collecting bank or
person. The collecting bank generally suffers the loss because it has te 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 indorsements.
With regard the issue of delay, a delay in informing the bank of the forgery,
which deprives it of the opportunity to go after the forger, signifies negligence on
the part of the drawee bank and will preclude it from claiming reimbursement.
In this case, PNB wasn't guilty of any negligent delay. Its delay hasn't prejudiced
Associated Bank in any way because even if there wasn't delay, the fact that
there was nothing left of the account of Pangilinan, there couldn't be anymore
reimbursement.

252 SCRA 620 Mercantile Law Negotiable Instruments Law Liabilities of Parties
Forgery Collecting Bank vs Drawee Bank
The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via
checks drawn against its account with the Philippine National Bank (PNB). These
checks were drawn payable to the order of Concepcion Emergency Hospital. Fausto
NEGOTIABLE INSTRUMENTS 2017 30

Pangilinan was the cashier of Concepcion Emergency Hospital in Tarlac until his
retirement in 1978. He used to handle checks issued by the provincial government of
Tarlac to the said hospital. However, after his retirement, the provincial government
still delivered checks to him until its discovery of this irregularity in 1981. By forging
the signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan was
able to deposit 30 checks amounting to P203k to his account with the Associated
Bank.
When the province of Tarlac discovered this irregularity, it demanded PNB to
reimburse the said amount. PNB in turn demanded Associated Bank to reimburse said
amount. PNB averred that Associated Bank is liable to reimburse because of its
indorsement borne on the face of the checks:
All prior endorsements guaranteed ASSOCIATED BANK.

ISSUE: What are the liabilities of each party?

HELD: The checks involved in this case are order instruments.


Liability of Associated Bank
Where the instrument is payable to order at the time of the forgery, such as the
checks in this case, the signature of its rightful holder (here, the payee hospital) is
essential to transfer title to the same instrument. When the holders indorsement is
forged, all parties prior to the forgery may raise the real defense of forgery against all
parties subsequent thereto.
A collecting bank (in this case Associated Bank) where a check is deposited and
which indorses the check upon presentment with the drawee bank (PNB), is such an
indorser. So even if the indorsement on the check deposited by the bankss client is
forged, Associated Bank is bound by its warranties as an indorser and cannot set up
the defense of forgery as against the PNB.
EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in
notifying the collecting bank (Associated Bank) of the fact of the forgery so much so
that the latter can no longer collect reimbursement from the depositor-forger.
Liability of PNB
The bank on which a check is drawn, known as the drawee bank (PNB), is under strict
liability to pay the check to the order of the payee (Provincial Government of Tarlac).
Payment under a forged indorsement is not to the drawers order. When the drawee
bank pays a person other than the payee, it does not comply with the terms of the
check and violates its duty to charge its customers (the drawer) account only for
properly payable items. Since the drawee bank did not pay a holder or other person
entitled to receive payment, it has no right to reimbursement from the drawer. The
general rule then is that the drawee bank may not debit the drawers account and is
not entitled to indemnification from the drawer. The risk of loss must perforce fall on
the drawee bank.
EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer
(Tarlac Province) to exercise ordinary care that substantially contributed to the
making of the forged signature, the drawer is precluded from asserting the forgery.
In sum, by reason of Associated Banks indorsement and warranties of prior
indorsements as a party after the forgery, it is liable to refund the amount to PNB.
The Province of Tarlac can ask reimbursement from PNB because the Province is a
party prior to the forgery. Hence, the instrument is inoperative. HOWEVER, it has
NEGOTIABLE INSTRUMENTS 2017 31

been proven that the Provincial Government of Tarlac has been negligent in issuing
the checks especially when it continued to deliver the checks to Pangilinan even
when he already retired. Due to this contributory negligence, PNB is only ordered to
pay 50% of the amount or half of P203 K.
BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of
Associated Banks warranties), PNB can ask the 50% reimbursement from Associated
Bank. Associated Bank can ask reimbursement from Pangilinan but unfortunately in
this case, the court did not acquire jurisdiction over him.

G.R. No. 107382/G.R. No. 107612 January 31, 1996

ASSOCIATED BANK, petitioner,


vs.
HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE
NATIONAL BANK, respondents.

xxxxxxxxxxxxxxxxxxxxx

G.R. No. 107612 January 31, 1996

PHILIPPINE NATIONAL BANK, petitioner,


vs.
HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and
ASSOCIATED BANK, respondents.

DECISION

ROMERO, J.:

Where thirty checks bearing forged endorsements are paid, who bears the loss, the
drawer, the drawee bank or the collecting bank?

This is the main issue in these consolidated petitions for review assailing the
decision of the Court of Appeals in "Province of Tarlac v. Philippine National Bank v.
Associated Bank v. Fausto Pangilinan, et. al." (CA-G.R. No. CV No. 17962). 1

The facts of the case are as follows:

The Province of Tarlac maintains a current account with the Philippine National Bank
(PNB) Tarlac Branch where the provincial funds are deposited. Checks issued by the
Province are signed by the Provincial Treasurer and countersigned by the Provincial
Auditor or the Secretary of the Sangguniang Bayan.

A portion of the funds of the province is allocated to the Concepcion Emergency


Hospital. 2 The allotment checks for said government hospital are drawn to the order
of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion
Emergency Hospital, Concepcion, Tarlac." The checks are released by the Office of
NEGOTIABLE INSTRUMENTS 2017 32

the Provincial Treasurer and received for the hospital by its administrative officer and
cashier.

In January 1981, the books of account of the Provincial Treasurer were post-audited
by the Provincial Auditor. It was then discovered that the hospital did not receive
several allotment checks drawn by the Province.

On February 19, 1981, the Provincial Treasurer requested the manager of the PNB
to return all of its cleared checks which were issued from 1977 to 1980 in order to
verify the regularity of their encashment. After the checks were examined, the
Provincial Treasurer learned that 30 checks amounting to P203,300.00 were
encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting
bank.

It turned out that Fausto Pangilinan, who was the administrative officer and cashier
of payee hospital until his retirement on February 28, 1978, collected the questioned
checks from the office of the Provincial Treasurer. He claimed to be assisting or
helping the hospital follow up the release of the checks and had official
receipts. 3Pangilinan sought to encash the first check 4 with Associated Bank.
However, the manager of Associated Bank refused and suggested that Pangilinan
deposit the check in his personal savings account with the same bank. Pangilinan
was able to withdraw the money when the check was cleared and paid by the
drawee bank, PNB.

After forging the signature of Dr. Adena Canlas who was chief of the payee hospital,
Pangilinan followed the same procedure for the second check, in the amount of
P5,000.00 and dated April 20, 1978, 5 as well as for twenty-eight other checks of
various amounts and on various dates. The last check negotiated by Pangilinan was
for f8,000.00 and dated February 10, 1981. 6 All the checks bore the stamp of
Associated Bank which reads "All prior endorsements guaranteed ASSOCIATED
BANK."

Jesus David, the manager of Associated Bank testified that Pangilinan made it
appear that the checks were paid to him for certain projects with the hospital. 7 He
did not find as irregular the fact that the checks were not payable to Pangilinan but to
the Concepcion Emergency Hospital. While he admitted that his wife and
Pangilinan's wife are first cousins, the manager denied having given Pangilinan
preferential treatment on this account. 8

On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB
seeking the restoration of the various amounts debited from the current account of
the Province. 9

In turn, the PNB manager demanded reimbursement from the Associated Bank on
May 15, 1981. 10

As both banks resisted payment, the Province of Tarlac brought suit against PNB
which, in turn, impleaded Associated Bank as third-party defendant. The latter then
filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. 11
NEGOTIABLE INSTRUMENTS 2017 33

After trial on the merits, the lower court rendered its decision on March 21, 1988,
disposing as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. On the basic complaint, in favor of plaintiff Province of Tarlac and against


defendant Philippine National Bank (PNB), ordering the latter to pay to the
former, the sum of Two Hundred Three Thousand Three Hundred
(P203,300.00) Pesos with legal interest thereon from March 20, 1981 until
fully paid;

2. On the third-party complaint, in favor of defendant/third-party plaintiff


Philippine National Bank (PNB) and against third-party defendant/fourth-party
plaintiff Associated Bank ordering the latter to reimburse to the former the
amount of Two Hundred Three Thousand Three Hundred (P203,300.00)
Pesos with legal interests thereon from March 20, 1981 until fully paid;.

3. On the fourth-party complaint, the same is hereby ordered dismissed for


lack of cause of action as against fourth-party defendant Adena Canlas and
lack of jurisdiction over the person of fourth-party defendant Fausto
Pangilinan as against the latter.

4. On the counterclaims on the complaint, third-party complaint and fourth-


party complaint, the same are hereby ordered dismissed for lack of merit.

SO ORDERED. 12

PNB and Associated Bank appealed to the Court of Appeals. 13 Respondent court
affirmed the trial court's decision in toto on September 30, 1992.

Hence these consolidated petitions which seek a reversal of respondent appellate


court's decision.

PNB assigned two errors. First, the bank contends that respondent court erred in
exempting the Province of Tarlac from liability when, in fact, the latter was negligent
because it delivered and released the questioned checks to Fausto Pangilinan who
was then already retired as the hospital's cashier and administrative officer. PNB
also maintains its innocence and alleges that as between two innocent persons, the
one whose act was the cause of the loss, in this case the Province of Tarlac, bears
the loss.

Next, PNB asserts that it was error for the court to order it to pay the province and
then seek reimbursement from Associated Bank. According to petitioner bank,
respondent appellate Court should have directed Associated Bank to pay the
adjudged liability directly to the Province of Tarlac to avoid circuity. 14

Associated Bank, on the other hand, argues that the order of liability should be totally
reversed, with the drawee bank (PNB) solely and ultimately bearing the loss.

Respondent court allegedly erred in applying Section 23 of the Philippine Clearing


House Rules instead of Central Bank Circular No. 580, which, being an
administrative regulation issued pursuant to law, has the force and effect of
NEGOTIABLE INSTRUMENTS 2017 34

law. 15 The PCHC Rules are merely contractual stipulations among and between
member-banks. As such, they cannot prevail over the aforesaid CB Circular.

It likewise contends that PNB, the drawee bank, is estopped from asserting the
defense of guarantee of prior indorsements against Associated Bank, the collecting
bank. In stamping the guarantee (for all prior indorsements), it merely followed a
mandatory requirement for clearing and had no choice but to place the stamp of
guarantee; otherwise, there would be no clearing. The bank will be in a "no-win"
situation and will always bear the loss as against the drawee bank. 16

Associated Bank also claims that since PNB already cleared and paid the value of
the forged checks in question, it is now estopped from asserting the defense that
Associated Bank guaranteed prior indorsements. The drawee bank allegedly has the
primary duty to verify the genuineness of payee's indorsement before paying the
check. 17

While both banks are innocent of the forgery, Associated Bank claims that PNB was
at fault and should solely bear the loss because it cleared and paid the forged
checks.

xxx xxx xxx

The case at bench concerns checks payable to the order of Concepcion Emergency
Hospital or its Chief. They were properly issued and bear the genuine signatures of
the drawer, the Province of Tarlac. The infirmity in the questioned checks lies in the
payee's (Concepcion Emergency Hospital) indorsements which are forgeries. At the
time of their indorsement, the checks were order instruments.

Checks having forged indorsements should be differentiated from forged checks or


checks bearing the forged signature of the drawer.

Section 23 of the Negotiable Instruments Law (NIL) provides:

Sec. 23. FORGED SIGNATURE, EFFECT OF. When a signature is forged


or made without 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.

A forged signature, whether it be that of the drawer or the payee, is wholly


inoperative and no one can gain title to the instrument through it. A person whose
signature to an instrument was forged was never a party and never consented to the
contract which allegedly gave rise to such instrument. 18 Section 23 does not avoid
the instrument but only the forged signature. 19 Thus, a forged indorsement does not
operate as the payee's indorsement.

The exception to the general rule in Section 23 is where "a party against whom it is
sought to enforce a right is precluded from setting up the forgery or want of
authority." Parties who warrant or admit the genuineness of the signature in question
NEGOTIABLE INSTRUMENTS 2017 35

and those who, by their acts, silence or negligence are estopped from setting up the
defense of forgery, are precluded from using this defense. Indorsers, persons
negotiating by delivery and acceptors are warrantors of the genuineness of the
signatures on the instrument. 20

In bearer instruments, the signature of the payee or holder is unnecessary to pass


title to the instrument. Hence, when the indorsement is a forgery, only the person
whose signature is forged can raise the defense of forgery against a holder in due
course. 21

The checks involved in this case are order instruments, hence, the following
discussion is made with reference to the effects of a forged indorsement on an
instrument payable to order.

Where the instrument is payable to order at the time of the forgery, such as the
checks in this case, the signature of its rightful holder (here, the payee hospital) is
essential to transfer title to the same instrument. When the holder's indorsement is
forged, all parties prior to the forgery may raise the real defense of forgery against all
parties subsequent thereto. 22

An indorser of an order instrument warrants "that the instrument is genuine and in all
respects what it purports to be; that he has a good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his indorsement valid
and subsisting." 23 He cannot interpose the defense that signatures prior to him are
forged.

A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank, is such an indorser. So even if the indorsement
on the check deposited by the banks's client is forged, the collecting bank is bound
by his warranties as an indorser and cannot set up the defense of forgery as against
the drawee bank.

The bank on which a check is drawn, known as the drawee bank, is under strict
liability to pay the check to the order of the payee. The drawer's instructions are
reflected on the face and by the terms of the check. Payment under a forged
indorsement is not to the drawer's order. When the drawee bank pays a person other
than the payee, it does not comply with the terms of the check and violates its duty to
charge its customer's (the drawer) account only for properly payable items. Since the
drawee bank did not pay a holder or other person entitled to receive payment, it has
no right to reimbursement from the drawer. 24 The general rule then is that the
drawee bank may not debit the drawer's account and is not entitled to
indemnification from the drawer. 25 The risk of loss must perforce fall on the drawee
bank.

However, if the drawee bank can prove a failure by the customer/drawer to exercise
ordinary care that substantially contributed to the making of the forged signature, the
drawer is precluded from asserting the forgery.

If at the same time the drawee bank was also negligent to the point of substantially
contributing to the loss, then such loss from the forgery can be apportioned between
the negligent drawer and the negligent bank. 26
NEGOTIABLE INSTRUMENTS 2017 36

In cases involving a forged check, where the drawer's signature is forged, the drawer
can recover from the drawee bank. No drawee bank has a right to pay a forged
check. If it does, it shall have to recredit the amount of the check to the account of
the drawer. The liability chain ends with the drawee bank whose responsibility it is to
know the drawer's signature since the latter is its customer. 27

In cases involving checks with forged indorsements, such as the present petition, the
chain of liability does not end with the drawee bank. The drawee bank may not debit
the account of the drawer but may generally pass liability back through the collection
chain to the party who took from the forger and, of course, to the forger himself, if
available. 28 In other words, the drawee bank canseek reimbursement or a return of
the amount it paid from the presentor bank or person. 29 Theoretically, the latter can
demand reimbursement from the person who indorsed the check to it and so on. The
loss falls on the party who took the check from the forger, or on the forger himself.

In this case, the checks were indorsed by the collecting bank (Associated Bank) to
the drawee bank (PNB). The former will necessarily be liable to the latter for the
checks bearing forged indorsements. If the forgery is that of the payee's or holder's
indorsement, the collecting bank is held liable, without prejudice to the latter
proceeding against the forger.

Since a forged indorsement is inoperative, the collecting bank had no right to be paid
by the drawee bank. The former must necessarily return the money paid by the latter
because it was paid wrongfully. 30

More importantly, by reason of the statutory warranty of a general indorser in section


66 of the Negotiable Instruments Law, a collecting bank which indorses a check
bearing a forged indorsement and presents it to the drawee bank guarantees all prior
indorsements, including the forged indorsement. It warrants that the instrument is
genuine, and that it is valid and subsisting at the time of his indorsement. Because
the indorsement is a forgery, the collecting bank commits a breach of this warranty
and will be accountable to the drawee bank. This liability scheme operates without
regard to fault on the part of the collecting/presenting bank. Even if the latter bank
was not negligent, it would still be liable to the drawee bank because of its
indorsement.

The Court has consistently ruled 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." 31

The drawee bank is not similarly situated as the collecting bank because the former
makes no warranty as to the genuineness. of any indorsement. 32 The drawee bank's
duty is but to verify the genuineness of the drawer's signature and not of the
indorsement because the drawer is its client.

Moreover, the collecting bank is 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
NEGOTIABLE INSTRUMENTS 2017 37

client. It has taken a risk on his deposit. The bank is also in a better position to detect
forgery, fraud or irregularity in the indorsement.

Hence, the drawee bank can recover the amount paid on the check bearing a forged
indorsement from the collecting bank. However, a drawee bank has the duty to
promptly inform the presentor of the forgery upon discovery. If the drawee bank
delays in informing the presentor of the forgery, thereby depriving said presentor of
the right to recover from the forger, the former is deemed negligent and can no
longer recover from the presentor. 33

Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the
current account of the Province of Tarlac because it paid checks which bore forged
indorsements. However, if the Province of Tarlac as drawer was negligent to the
point of substantially contributing to the loss, then the drawee bank PNB can charge
its account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent,
the loss should be properly apportioned between them.

The loss incurred by drawee bank-PNB can be passed on to the collecting bank-
Associated Bank which presented and indorsed the checks to it. Associated Bank
can, in turn, hold the forger, Fausto Pangilinan, liable.

If PNB negligently delayed in informing Associated Bank of the forgery, thus


depriving the latter of the opportunity to recover from the forger, it forfeits its right to
reimbursement and will be made to bear the loss.

After careful examination of the records, the Court finds that the Province of Tarlac
was equally negligent and should, therefore, share the burden of loss from the
checks bearing a forged indorsement.

The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the
latter, having already retired from government service, was no longer connected with
the hospital. With the exception of the first check (dated January 17, 1978), all the
checks were issued and released after Pangilinan's retirement on February 28,
1978. After nearly three years, the Treasurer's office was still releasing the checks to
the retired cashier. In addition, some of the aid allotment checks were released to
Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there
were now two persons collecting the checks for the hospital is an unmistakable sign
of an irregularity which should have alerted employees in the Treasurer's office of the
fraud being committed. There is also evidence indicating that the provincial
employees were aware of Pangilinan's retirement and consequent dissociation from
the hospital. Jose Meru, the Provincial Treasurer, testified:.

ATTY. MORGA:

Q Now, is it true that for a given month there were two releases of checks,
one went to Mr. Pangilinan and one went to Miss Juco?

JOSE MERU:

A Yes, sir.
NEGOTIABLE INSTRUMENTS 2017 38

Q Will you please tell us how at the time (sic) when the authorized
representative of Concepcion Emergency Hospital is and was supposed to be
Miss Juco?

A Well, as far as my investigation show (sic) the assistant cashier told me that
Pangilinan represented himself as also authorized to help in the release of
these checks and we were apparently misled because they accepted the
representation of Pangilinan that he was helping them in the release of the
checks and besides according to them they were, Pangilinan, like the rest,
was able to present an official receipt to acknowledge these receipts and
according to them since this is a government check and believed that it will
eventually go to the hospital following the standard procedure of negotiating
government checks, they released the checks to Pangilinan aside from Miss
Juco.34

The failure of the Province of Tarlac to exercise due care contributed to a significant
degree to the loss tantamount to negligence. Hence, the Province of Tarlac should
be liable for part of the total amount paid on the questioned checks.

The drawee bank PNB also breached its duty to pay only according to the terms of
the check. Hence, it cannot escape liability and should also bear part of the loss.

As earlier stated, PNB can recover from the collecting bank.

In the case of Associated Bank v. CA, 35 six crossed checks with forged
indorsements were deposited in the forger's account with the collecting bank and
were later paid by four different drawee banks. The Court found the collecting bank
(Associated) to be negligent and held:

The Bank should have first verified his right to endorse the crossed checks, of
which he was not the payee, and to deposit the proceeds of the checks to his
own account. The Bank was by reason of the nature of the checks put upon
notice that they were issued for deposit only to the private respondent's
account. . . .

The situation in the case at bench is analogous to the above case, for it was not the
payee who deposited the checks with the collecting bank. Here, the checks were all
payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who
deposited the checks in his personal savings account.

Although Associated Bank claims that the guarantee stamped on the checks (All
prior and/or lack of endorsements guaranteed) is merely a requirement forced upon
it by clearing house rules, it cannot but remain liable. The stamp guaranteeing prior
indorsements is not an empty rubric which a bank must fulfill for the sake of
convenience. A bank is not required to accept all the checks negotiated to it. It is
within the bank's discretion to receive a check for no banking institution would
consciously or deliberately accept a check bearing a forged indorsement. When a
check is deposited with the collecting bank, it takes a risk on its depositor. It is only
logical that this bank be held accountable for checks deposited by its customers.
NEGOTIABLE INSTRUMENTS 2017 39

A delay in informing the collecting bank (Associated Bank) of the forgery, which
deprives it of the opportunity to go after the forger, signifies negligence on the part of
the drawee bank (PNB) and will preclude it from claiming reimbursement.

It is here that Associated Bank's assignment of error concerning C.B. Circular No.
580 and Section 23 of the Philippine Clearing House Corporation Rules comes to
fore. Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement
shall be returned within twenty-Sour (24) hours after discovery of the forgery but in
no event beyond the period fixed or provided by law for filing of a legal action by the
returning bank. Section 23 of the PCHC Rules deleted the requirement that items
bearing a forged endorsement should be returned within twenty-four hours.
Associated Bank now argues that the aforementioned Central Bank Circular is
applicable. Since PNB did not return the questioned checks within twenty-four hours,
but several days later, Associated Bank alleges that PNB should be considered
negligent and not entitled to reimbursement of the amount it paid on the checks.

The Court deems it unnecessary to discuss Associated Bank's assertions that CB


Circular No. 580 is an administrative regulation issued pursuant to law and as such,
must prevail over the PCHC rule. The Central Bank circular was in force for all banks
until June 1980 when the Philippine Clearing House Corporation (PCHC) was set up
and commenced operations. Banks in Metro Manila were covered by the PCHC
while banks located elsewhere still had to go through Central Bank Clearing. In any
event, the twenty-four-hour return rule was adopted by the PCHC until it was
changed in 1982. The contending banks herein, which are both branches in Tarlac
province, are therefore not covered by PCHC Rules but by CB Circular No. 580.
Clearly then, the CB circular was applicable when the forgery of the checks was
discovered in 1981.

The rule mandates that the checks be returned within twenty-four hours after
discovery of the forgery but in no event beyond the period fixed by law for filing a
legal action. The rationale of the rule is to give the collecting bank (which indorsed
the check) adequate opportunity to proceed against the forger. If prompt notice is not
given, the collecting bank maybe prejudiced and lose the opportunity to go after its
depositor.

The Court finds that even if PNB did not return the questioned checks to Associated
Bank within twenty-four hours, as mandated by the rule, PNB did not commit
negligent delay. Under the circumstances, PNB gave prompt notice to Associated
Bank and the latter bank was not prejudiced in going after Fausto Pangilinan. After
the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect
the checks and conduct its own investigation. Thereafter, it requested the Provincial
Treasurer's office on March 31, 1981 to return the checks for verification. The
Province of Tarlac returned the checks only on April 22, 1981. Two days later,
Associated Bank received the checks from PNB. 36

Associated Bank was also furnished a copy of the Province's letter of demand to
PNB dated March 20, 1981, thus giving it notice of the forgeries. At this time,
however, Pangilinan's account with Associated had only P24.63 in it. 37 Had
Associated Bank decided to debit Pangilinan's account, it could not have recovered
the amounts paid on the questioned checks. In addition, while Associated Bank filed
NEGOTIABLE INSTRUMENTS 2017 40

a fourth-party complaint against Fausto Pangilinan, it did not present evidence


against Pangilinan and even presented him as its rebuttal witness. 38Hence,
Associated Bank was not prejudiced by PNB's failure to comply with the twenty-four-
hour return rule.

Next, Associated Bank contends that PNB is estopped from requiring reimbursement
because the latter paid and cleared the checks. The Court finds this contention
unmeritorious. Even if PNB cleared and paid the checks, it can still recover from
Associated Bank. This is true even if the payee's Chief Officer who was supposed to
have indorsed the checks is also a customer of the drawee bank. 39 PNB's duty was
to verify the genuineness of the drawer's signature and not the genuineness of
payee's indorsement. Associated Bank, as the collecting bank, is the entity with the
duty to verify the genuineness of the payee's indorsement.

PNB also avers that respondent court erred in adjudging circuitous liability by
directing PNB to return to the Province of Tarlac the amount of the checks and then
directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the
mode of the award. The drawer, Province of Tarlac, is a clientor customer of the
PNB, not of Associated Bank. There is no privity of contract between the drawer and
the collecting bank.

The trial court made PNB and Associated Bank liable with legal interest from March
20, 1981, the date of extrajudicial demand made by the Province of Tarlac on PNB.
The payments to be made in this case stem from the deposits of the Province of
Tarlac in its current account with the PNB. Bank deposits are considered under the
law as loans. 40 Central Bank Circular No. 416 prescribes a twelve percent (12%)
interest per annum for loans, forebearance of money, goods or credits in the
absence of express stipulation. Normally, current accounts are likewise interest-
bearing, by express contract, thus excluding them from the coverage of CB Circular
No. 416. In this case, however, the actual interest rate, if any, for the current account
opened by the Province of Tarlac with PNB was not given in evidence. Hence, the
Court deems it wise to affirm the trial court's use of the legal interest rate, or six
percent (6%) per annum. The interest rate shall be computed from the date of
default, or the date of judicial or extrajudicial demand. 41 The trial court did not err in
granting legal interest from March 20, 1981, the date of extrajudicial demand.

The Court finds as reasonable, the proportionate sharing of fifty percent - fifty
percent (50%-50%). Due to the negligence of the Province of Tarlac in releasing the
checks to an unauthorized person (Fausto Pangilinan), in allowing the retired
hospital cashier to receive the checks for the payee hospital for a period close to
three years and in not properly ascertaining why the retired hospital cashier was
collecting checks for the payee hospital in addition to the hospital's real cashier,
respondent Province contributed to the loss amounting to P203,300.00 and shall be
liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can
only recover fifty percent (50%) of P203,300.00 from PNB.

The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of
P203,300.00. It is liable on its warranties as indorser of the checks which were
deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior
indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas.
NEGOTIABLE INSTRUMENTS 2017 41

Associated Bank was also remiss in its duty to ascertain the genuineness of the
payee's indorsement.

IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine
National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The petition for
review filed by the Associated Bank (G.R. No. 107382) is hereby DENIED. The
decision of the trial court is MODIFIED. The Philippine National Bank shall pay fifty
percent (50%) of P203,300.00 to the Province of Tarlac, with legal interest from
March 20, 1981 until the payment thereof. Associated Bank shall pay fifty percent
(50%) of P203,300.00 to the Philippine National Bank, likewise, with legal interest
from March 20, 1981 until payment is made.

SO ORDERED.
REPUBLIC V. EQUITABLE BANK 10 SCRA 8

FACTS:
The corporation had acquired 24 treasury warrants by accommodating its former
trusted employee who asked the corporation to cash the warrants, alleging it was
difficulty to do directly with the government and that his wife expected a sort of
commission for the encashment. The corporation acceded to the request
provided that it be first cleared and that the corporation would receive the
amount before paying for it. The warrants were then cleared but later on, at different
periods of time, the treasurer returned 24 warrants to the CB on the ground that they
have forged. The bank refused to return the cash.
The clearing of the checks, it should be noted, was in accordance to the 24-
hour clearing rule by the CB.

HELD:
The warrants were cleared and paid by the Treasurer, in view of which
Equitable and PI bank credited the corresponding amounts to the
respective depositors of the warrants and then honored the checks for said amounts.
Thus, the treasury had not been only negligent in clearing its own warrants
but had already thereby induced the banks to pay the amounts thereof to said
depositors. This gross negligence becomes more apparent when each of the
warrants were valued for more than the authority of the treasurer to approve.

REPUBLIC V. EQUITABLE BANK 10 SCRA 8

FACTS: Corporacion had acquired 24 treasury warrants through


Carranza (its former trusted employee) who asked Corporacion to cash
the warrants, alleging that it was difficult to do so directly with the
Government and that his wife expected a sort of commission for the
encashment. Corporacion acceded to Carranza's request, provided that
the warrants would first be deposited with BPI, and that actual
payment of the value of the warrants would be made only after the
same had been duly accepted and cleared by the Treasurer and the
proceeds duly credited to the account of the Corporacion in the BPI.
NEGOTIABLE INSTRUMENTS 2017 42

The warrants were deposited by the Corporacion with BPI. When the
warrants were deposited with the BPI, each bore the indorsement of
the respective payees and that of the Corporation. BPI then presented
the warrants for payment to the drawee the Government thru the
Clearing Office.

After clearance, the BPI credited the proceeds of said warrants to the
account of Corporacion. Corporacion withdrew the proceeds by means
of its own checks and eventually paid the corresponding amounts to
Carranza. Later, the Treasurer returned the treasury warrants to the
Central Bank, and demanded, on the ground that they had been
forged, that the value thereof be charged against the accounts of the
BPI Bank.

The Central Bank in turn referred said warrants and letters of demand
to the BPI. BPI opposed the return of the warrants or to have the value
thereof charged against its account in the Clearing Office and
requested the Central Bank to return the warrants to the Treasurer.

In another case, 4 Treasury Warrants were deposited to Equitable Bank


by customers Wong, and Ching. Equitable Bank then presented the
warrants to the Central Bank. It was cleared and the bank collected
the amounts from theTreasurer. Again, the Treasurer returned the
warrants claiming they were forged. The Government filed 2 cases
separately against BPI and Equitable Bank seeking to recover:

(1) from the Equitable Banking Corporation the sum of P17,100,


representing the value of 4 treasury warrants paid to said bank by the
Treasurer of the Philippines; and

(2) from the Bank of the Philippine the total sum of P342,767.63,
representing the value of 24 warrants similarly paid by the Treasurer
to the said Bank.

These claims for refund are based upon a common ground: although
said 28 warrants were executed on genuine government forms, the
signature thereon of the drawing office and that of the representative
of the Auditor General in that office are forged.

ISSUES:
WON the Government can recover the amounts paid erroneously in
consideration of the 28 treasury warrants,which in fact, were forged.
NEGOTIABLE INSTRUMENTS 2017 43

HELD:
NO.
The Government was found to be negligent, thus they are not entitled
to recovery. It was the Treasurer who initially cleared the 28 treasury
warrant, being a member of the aforementioned Clearing Office.

The gross nature of the negligence of the Treasury becomes more


apparent when we consider that each one of the 24 warrants was for
over P5,000, and, hence; beyond the authority of the auditor of the
Treasury whose signature thereon had been forged to approve. In
other words, the irregularity of said warrants was apparent the face
thereof, from the viewpoint of the Treasury. Moreover, the same had
not advertised the loss of genuine forms of its warrants. Neither had
the BPI nor the Equitable Bank been informed of any irregularity in
connection with any of the warrants involved in these 2 cases, until
after the warrants had been cleared and honored. As a consequence,
the loss of the amounts thereof is mainly imputable to acts and
omissions of the Treasury, for which the BPI and the Equitable Bank
should not and cannot be penalized.

Where a loss, which must be borne by one of two parties alike


innocent of forgery, 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 succeeded, (Phil.
National Bank v. National City Bank of New York, 63 Phil. 711, 723.)

L-15894 January 30, 1964


Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
July to December 1952: Corporacion de los Padres Dominicos acquired the 24
treasury warrants by accommodating Jacinto Carranza who asked the Corporacion to
cash the warrants

provided: deposited first with BPI Bank, and that actual payment of the value of the
warrants would be made only after the same had been duly accepted and cleared by
the Treasurer

BPI accepted them w/ "subject to collection only"


each bore the indorsement of the payees and that of the Corporation

BPI Bank credited the proceeds


December 23, 1952: 3 warrants returned - forged
December 27, 1952: 2 warrants returned - forged
January 16, 1953: 19 warrants returned - forged
January 15, 1958: Treasurer notified the Equitable Bank of the 4 forged warrants
deposited to it by and demanded reimbursement
NEGOTIABLE INSTRUMENTS 2017 44

Republic of the Philippines seeks to recover from the Equitable Banking Corporation
P17,100, representing 4 treasury warrants and BPI Bank P342,767.63 24 paid to
them by the Treasurer of the Philippines

genuine forms but signature of the drawing office and that of the representative of
the Auditor General in that office are forged
CFI: dismissed the case

ISSUE: W/N Republic has the right to recover from the banks

HELD: YES. Affirmed


All items cleared at 11:00 o'clock a.m. shall be returned not later than 2:00 o'clock
p.m. on the same day and all items cleared at 3:00 o'clock p.m. shall be returned not
later than 8:30 a.m. of the following business day, except for items cleared on
Saturday which may be returned not later than 3:30 a.m. of the following day
irregularity of warrants was apparent the face from the viewpoint of the Treasury
each over P5,000 - beyond the authority of the auditor of the Treasury

it also did not advise the loss of genuine forms of its warrants
did not inform the irregularity until after December 23, 1952 - not giving notice of
forgery until December 5

Where a loss, which must be borne by one of two parties alike innocent of forgery,
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
succeeded

G.R. No. L-15894 January 30, 1964


REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
EQUITABLE BANKING CORPORATION, defendant-appellee.
-----------------------------
G.R. No. L-15894 January 30, 1964
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
THE BANK OF THE PHILIPPINE ISLANDS, defendant-appellee,
CORPORATION DE LOS P. DOMINICOS DE FILIPINAS, third-party-
defendant-appellee.
Office of the Solicitor General for plaintiff-appellant.
Claudio Teehankee and Aranda and Aviado for defendant-appellee.
Ignacio B. Alcuaz for third-party-defendant-appellee.
CONCEPCION, J.:
NEGOTIABLE INSTRUMENTS 2017 45

Appeal from a decision of the Court of First Instance of Manila dismissing


the complaints and the third-party complaints in the above entitled cases,
without special pronouncement as to costs. The cases are before us, only
questions of law being raised in the appeal, apart from the fact that the
amount involved in G.R. No. L-16895 exceeds P200,000, and that the
evidence introduced therein is the same evidence in G.R. No. L-15894.
The Republic of the Philippines, hereinafter referred to as the Government,
seeks to recover: (1) from the Equitable Banking Corporation
hereinafter referred to as the Equitable Bank in case G.R. No. L-15894,
the sum of P17,100, representing the aggregate value of four (4) treasury
warrants hereinafter referred to as warrants paid to said bank by the
Treasurer of the Philippines hereinafter referred to as the Treasurer
thru the Clearing Office of the Central Bank of the Philippines; and (2) from
the Bank of the Philippine Islands hereinafter referred to as the PI Bank
in G.R. No. L-15895, the total sum of P342,767.63, representing the
aggregate value of twenty-four (24) warrants similarly paid by the
Treasurer to the PI Bank. These claims for refund are based upon a
common ground although said twenty-eight (28) warrants were
executed on genuine government forms, the signature thereon of the
drawing office and that of the representative of the Auditor General in that
office are forged.
It is not disputed that from July to December 1952, the Corporacion de los
Padres Dominicos hereinafter referred to as the Corporacion had
acquired the twenty-four (24) treasury warrants involved in case G.R. No.
L-15895 by accommodating its former trusted employee one Jacinto
Carranza who asked the Corporacion to cash the warrants, alleging that
it was difficult to do so directly with the Government and that his wife
expected a sort of commission for the encashment; that the Corporacion
acceded to Carranza's request, provided that the warrants would first be
deposited with PI Bank, and that actual payment of the value of the
warrants would be made only after the same had been duly accepted and
cleared by the Treasurer and the proceeds thereof duly credited to the
account of the Corporacion in the PI Bank; that the warrants were,
accordingly, deposited by the Corporacion with said bank, which accepted
them "subject to collection only"; that when the warrants were deposited
with the PI Bank, each bore the indorsement of the respective payees and
that of the Corporation; that, subsequently, the PI Bank presented the
warrants for payment to the drawee thereof the Government thru the
Clearing Office of the Central Bank hereinafter referred to as the
Clearing Office; that after being cleared, the warrants were paid by the
Treasurer as follows:
NEGOTIABLE INSTRUMENTS 2017 46

T/W No. Payee Date ISSUED Amount Date Cleared

2132655 Marcela Antonio Domingo 6-18-52 P8,722.37 7- 1-52

2132650 Gregoria Santos Castro 6-23-52 14,605.91 7- 8-52

2468943 Josefa Castro de Villanueva 10-34-52 14,250.15 11-14-52

2159698 Anacleta Santos de Angeles 10-18-52 15,800.00 12- 5-52

2159668 Virginia Salem de Marcelino 11-13-52 16,900.00 12-10-52

2159692 Brigida San Luis de Santos 9-15-52 13,900.00 11- 3-52

2159673 Silva Sanches de Apolinario 10-14-52 14,810.00 11-11-52

2159667 Francisca Gomez de Galvez 10-12-52 16,200.75 11-11-52

2451448 Gaudencia Ruiz Alvarez 7- 1-52 12,702.76 7-15-52

2132653 Anastacia Capili Trinidad 6-25-52 8,794.21 7-15-52

2468979 Monica Anselmo de Pascua 7- 1-52 13,870.24 9- 852

2468944 Rosalia Manalo de Nazario 7-10-52 14,701.76 9- 8-52

2159682 Luisa Santos de Arellano 11-18-52 16,400.50 12- 8-52

2159669 Leticia Moreno de Ocampo 11-16-52 15,880.75 12- 8-52

2159670 Juana Castro de Jesus 10-12-52 16,200.00 12-15-52

2159671 Antonia Sison de Mauricio 9- 9-52 12,900.75 11-10-52

2159660 Rosario Pilapil de Rodrigo 9- 4-52 13,950.39 9-23-52

2169658 Mauricia Sison de Angeles 9-12-52 15,200.76 9-23-52

2159686 Lucia Angeles de Natalio 9-12-52 12,890.74 10-27-52

2468977 Nicolasa Alvares Jaranilla 7- 2-52 15,340.76 7-25-52

2468978 Maria Antonio de los Reyes 7- 2-52 14,722.31 7-25-52

2159659 Je Jastive de Fernandez 8-16-52 14,820.00 8-27-52

2159656 Gregoria Pascual de Lira 8-15-52 12,900.75 8-27-52

2159666 Luisa Dancel de Mendoza 10-11-52 16,300.75 12- 2-52

and that, accordingly, the PI Bank credited the proceeds of said warrants to
the Corporation, which, in turn, withdrew said proceeds by means of its
own checks and eventually paid the corresponding amounts to Jacinto
Carranza. On December 23, 1952, the Treasurer returned three (3) of said
warrants (Nos. 2159659, 2159656, and 2159666) to the Central Bank, and
demanded, on the ground that they had been forged, that the value thereof
be charged against the accounts of the PI Bank in the Clearing Office and
credited back to the demand deposit of the Bureau of the Treasury,
hereinafter referred to as the Treasury. Four (4) days later, two (2) more
warrants (Nos. 2468977 and 2468978), and, finally, on January 16, 1953,
the remaining nineteen (19) warrants were returned by the Treasury to the
Central Bank for the same reason and with the same demand. The Central
Bank in turn referred said warrants, together with the letters of demand of
the Treasurer, for appropriate action to the PI Bank, which opposed the
return of the warrants or to have the value thereof charged against its
NEGOTIABLE INSTRUMENTS 2017 47

account in the Clearing Office and requested the Central Bank to return the
warrants to the Treasurer.
The records of G.R. No. L-15894 show that the four (4) warrants involved
therein were deposited with the Equitable Bank by persons known thereto
as its depositors or customers, namely, Robert Wong, Lu Chill Kau and
Chung Ching; that, in due course, the Equitable Bank cleared said
warrants, thru the Clearing Office, then collected the corresponding
amounts from the Treasurer and thereafter credited said amounts to the
accounts of the respective depositors; that on January 15, 1958, the
Treasurer notified the Equitable Bank of the alleged defect of said warrants
and demanded reimbursement of the amounts thereof; and that this
demand was rejected by the Equitable Bank. Hence, the institution of G.R.
No. L-15895 (Civil Case No. 19599 of the Court of First Instance of
Manila), against the PI Bank, for the recovery of P342,767.63, and of G.R.
No. L-15894 (Civil Case No. 19600 of the Court of First Instance of
Manila), against the Equitable Bank for, the recovery of P17,100.00.
Upon leave of the lower court, the PI Bank filed a third-party complaint
against the Corporacion. In G.R. No. L-15895, and the Equitable Bank filed
a similar complaint against, Robert Wong, Lu Chill Kau and Chung Ching
in G.R. No. L-15894, for whatever reimbursements the PI Bank and the
Equitable Bank may respectively be sentenced to make to the
Government. By agreement of the parties, the two (2) cases were jointly
heard, and after appropriate proceedings, the lower court rendered the
decision adverted to above. 1wph1.t

The clearing of the aforementioned twenty-eight (28) warrants thru the


Clearing Office was made pursuant to the "24-hour clearing house rule",
which had been adopted by the Central Bank in a conference with
representatives and officials of the different banking institutions in the
Philippines. The rule is embodied in Section 4, subsection (c) of Circular
No. 9 of the Central Bank, dated February 17, 1949 (Exhibit B), as
amended by the letter of the Governor of the Central Bank, dated June 4,
1949 (Exhibit D), reading:
Items which should be returned for any reason whatsoever shall be
returned directly to the bank, institution or entity from which the item
was received. For this purpose, the Receipt for Returned Checks
(Cash Form No. 9) should be used. The original and duplicate
copies of said Receipt shall be given to the bank, institution or entity
which returned the items and the triplicate copy should be retained
by the bank, institution or entity whose demand is being returned. At
the following clearing, the original of the Receipt for returned Checks
NEGOTIABLE INSTRUMENTS 2017 48

shall be presented through the Clearing Office as a demand against


the bank, institution or entity whose item has been returned. Nothing
in this section shall prevent the resumed items from being settled by
direct reimbursement to the bank, institution or entity returning the
items. All items cleared at 11:00 o'clock a.m. shall be returned not
later than 2:00 o'clock p.m. on the same day and all items cleared at
3:00 o'clock p.m. shall be returned not later than 8:30 a.m. of the
following business day, except for items cleared on Saturday which
may be returned not later than 3:30 a.m. of the following day.
(Emphasis supplied.)
The Government maintains that it is not bound by this rule because: (1) the
Treasury is not a bank; and (2) the Treasurer has objected to the
application of said rule to his office. This contention, however, untenable
for, admittedly, the Treasury is a member of the aforementioned Clearing
Office and Exh. A clearly shows that the former "has agreed to clear its
clearable items through" the latter "subject to the rules and regulations of
the Central Bank." Besides, the above quoted rule applies not only to
banks, but, also, to the institutions and entities therein alluded to. Then too,
the opposition of the Treasurer to the "24-hour clearing house rule" is not
sufficient to exempt the Treasury from the operation thereof. Upon the
other hand, said opposition is predicated upon the allegation that it is
physically impossible for the Treasury to check and verify the genuineness
of treasury warrants within twenty-four (24) hours, because, during 1952
said office used to receive daily from 3,000 to 4,000 warrants which,
considering its very limited personnel at that time, would have required one
(1) or two (2) months clear. This claim is belied, however, by the
statements the Treasurer, Exhibits 38 and 38-A to 38-C, showing that on
September 15, 23 and 24 and November 25, 1952, his office had cleared
1,618, 2,851, 1,742 and 2,360 warrant respectively. Moreover, if the rule
was unwise, the Treasurer could have secured the proper remedy through
the President of the Philippines, since the Treasury and Central Bank are
both agencies of the Government.
At any rate, the aforementioned twenty-eight (28) warrants were cleared
and paid by the Treasurer, in view which the PI Bank and the Equitable
Bank credited the corresponding amounts to the respective depositors of
the warrants and then honored their checks for said amounts. Thus, the
Treasury had not only been negligent in clearing its own warrants, but had,
also, thereby induced the PI Bank and the Equitable Bank to pay the
amounts thereof to said depositors. The gross nature of the negligence of
the Treasury becomes more apparent when we consider that each one of
the twenty-four (24) warrants involve in G.R. No. L-15895 was for over
P5,000, and, hence; beyond the authority of the auditor of the Treasury
NEGOTIABLE INSTRUMENTS 2017 49

whose signature thereon had been forged to approve. In other words,


the irregularity of said warrants was apparent the face thereof, from the
viewpoint of the Treasury. Moreover, the same had not advertised the loss
of genuine forms of its warrants. Neither had the PI Bank nor the Equitable
Bank been informed of any irregularity in connection with any of the
warrants involved in these two (2) cases, until after December 23, 1952,
or after the warrants had been cleared and honored when the Treasury
gave notice of the forgeries adverted to above. As a consequence, the loss
of the amounts thereof is mainly imputable to acts and omissions of the
Treasury, for which the PI Bank and the Equitable Bank should not and
cannot be penalized.
Where a loss, which must be borne by one of two parties alike
innocent of forgery, 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 succeeded, (Phil.
National Bank v. National City Bank of New York, 63 Phil. 711, 723.)
Generally, where a drawee bank otherwise would have a right of
recovery against a collecting or indorsing bank for its payment of a
forged check its action will be barred if it is guilty of an unreasonable
delay in discovering the forgery and in giving notice? thereof. (C.J.S.
769-700.).
Where defendant bank, on presentation to it on September 2, of
forged check drawn on another bank, paid part of amount to
presenter, drawee paying check through clearing house on said day,
held that the latter, not giving notice of forgery until December 5,
could not hold defendant for amount so paid. (First State Bank &
Trust Co. v. First Nat. Bank, 145 N. E. 382, 314 Ill. 269, affirming 234
Ill. App. 39.)
WHEREFORE, the decision appealed from is hereby affirmed, without
special pronouncement as to costs. It is so ordered.
NEGOTIABLE INSTRUMENTS 2017 50

MWSS V. CA 143 SCRA 20

FACTS:
MWSS had an account from PNB. Its treasurer, auditor, and General Manager
are the ones authorized to sign checks. During a period of time, 23 checks were
drawn and debited against the account of petitioner. Bearing the same check
numbers, the amounts stated therein were again
debited from the account of petitioner. The amounts drawn were deposited in the
accounts of the payees in PCIB. It was found out though that the names stated in the
drawn checks were all fictitious. Petitioner demanded the return of the amounts
debited but the bank refused to do so. Thus, it filed a complaint.

HELD:
There was no categorical finding that the 23 checks were signed by persons
other than those authorized to sign. On the contrary, the NBI reports shows
that the fraud was an inside job and that the delay in the reconciliation of the
bank statements and the laxity and loss of records control in the printing of the
personalized checks facilitated the fraud. It further doesnt provide that the
signatures were forgeries.

Forgery cannot be presumed. It should be proven by clear, convincing and positive


evidence. This wasnt done in the present case.

The petitioner cannot invoke Section 23 because it was guilty of negligence not only
before the questioned checks but even after the same had already been negotiated.

143 SCRA 20 Mercantile Law Negotiable Instruments Law Liabilities of Parties


Forgery Negligence of Drawer
Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB.
When it was still called NAWASA, MWSS made a special arrangement with PNB so
that it may have personalized checks to be printed by Mesina Enterprises. These
personalized checks were the ones being used by MWSS in its business transactions.
From March to May 1969, MWSS issued 23 checks to various payees in the aggregate
amount of P320,636.26. During the same months, another set of 23 checks
containing the same check numbers earlier issued were forged. The aggregate
amount of the forged checks amounted to P3,457,903.00. This amount was
distributed to the bank accounts of three persons: Arturo Sison, Antonio Mendoza,
and Raul Dizon.
MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused. The
trial court ruled in favor of MWSS but the Court of Appeals reversed the trial courts
decision.
ISSUE: Whether or not PNB should restore the said amount.
HELD: No. MWSS is precluded from setting up the defense of forgery. It has been
proven that MWSS has been negligent in supervising the printing of its personalized
checks. It failed to provide security measures and coordinate the same with PNB.
Further, the signatures in the forged checks appear to be genuine as reported by the
National Bureau of Investigation so much so that the MWSS itself cannot tell the
NEGOTIABLE INSTRUMENTS 2017 51

difference between the forged signature and the genuine one. The records likewise
show that MWSS failed to provide appropriate security measures over its own records
thereby laying confidential records open to unauthorized persons. Even if the twenty-
three (23) checks in question are considered forgeries, considering the MWSSs gross
negligence, it is barred from setting up the defense of forgery under Section 23 of the
Negotiable Instruments Law.
The Supreme Court further emphasized that forgery cannot be presumed. It must be
established by clear, positive, and convincing evidence. This was not done in the
present case.

G.R. No. L-62943 July 14, 1986

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,


vs.
COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE
PHILIPPINE NATIONAL BANK, respondents.

Juan J. Diaz and Cesar T. Basa for respondent PNB.

San Juan, Africa, Gonzales & San Agustin Law Offices for respondent PCIB.

GUTIERREZ, JR., J.:

This petition for review asks us to set aside the October 29, 1982 decision of the
respondent Court of Appeals, now Intermediate Appellate Court which reversed the
decision of the Court of First Instance of Manila, Branch XL, and dismissed the
plaintiff's complaint, the third party complaint, as well as the defendant's
counterclaim.

The background facts which led to the filing of the instant petition are summarized in
the decision of the respondent Court of Appeals:

Metropolitan Waterworks and Sewerage System (hereinafter referred


to as MWSS) is a government owned and controlled corporation
created under Republic Act No. 6234 as the successor-in- interest of
the defunct NWSA. The Philippine National Bank (PNB for short), on
the other hand, is the depository bank of MWSS and its predecessor-
in-interest NWSA. Among the several accounts of NWSA with PNB is
NWSA Account No. 6, otherwise known as Account No. 381-777 and
which is presently allocated No. 010-500281. The authorized signature
for said Account No. 6 were those of MWSS treasurer Jose Sanchez,
its auditor Pedro Aguilar, and its acting General Manager Victor L.
Recio. Their respective specimen signatures were submitted by the
MWSS to and on file with the PNB. By special arrangement with the
PNB, the MWSS used personalized checks in drawing from this
NEGOTIABLE INSTRUMENTS 2017 52

account. These checks were printed for MWSS by its printer, F.


Mesina Enterprises, located at 1775 Rizal Extension, Caloocan City.

During the months of March, April and May 1969, twenty-three (23)
checks were prepared, processed, issued and released by NWSA, all
of which were paid and cleared by PNB and debited by PNB against
NWSA Account No. 6, to wit:
Check No. Date Payee Amount Date Paid 21. 59577 4-8-69 Esla 9,429.78 4-29 69
By PNB 22. 59601 4-16-69 Justino 20,000.00 4-18-69
1. 59546 8-21-69 Deogracias P 3,187.79 4-2-69 Torres
Estrella 23. 59595 4-14-69 Neris Phil. 4,274.00 5-20-69
2. 59548 3-31-69 Natividad 2,848.86 4-23 69 Inc. --------------------
Rosario P 320,636.26
3. 59547 3-31-69 Pangilinan 195.00 Unreleased During the same months of March, April and May 1969,
Enterprises twenty-three (23) checks bearing the same numbers as
4. 59549 3-31-69 Natividad 3,239.88 4-23-69 the aforementioned NWSA checks were likewise paid
Rosario and cleared by PNB and debited against NWSA
5. 59552 4-1-69 Villarama 987.59 5-6-69 Account No. 6, to wit:
& Sons Check Date Payee Amount Date Paid
6. 59554 4-1-69 Gascom 6,057.60 4-16 69 No. Issued By PNB
Engineering 1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69
7. 59558 4-2-69 The Evening 112.00 Unreleased 2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69
News 3. 59547 3-14-69 Arturo Sison 56,903.00 4-11-69
8. 59544 3-27-69 Progressive 18,391.20 4-18 69 4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69
Const. 5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69
9. 59564 4-2-69 Ind. Insp. 594.06 4-18 69 6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69
Int. Inc. 7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69
10. 59568 4-7-69 Roberto 800.00 4-22-69 8. 59544 3-16-69 Antonio 38,490.00 4-22-69 Mendoza
Marsan 9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69
11. 59570 4-7-69 Paz Andres 200.00 4-22-69 10.59568 4-2-69 Arturo Sison 134,940.00 4- 5-69
12. 59574 4-8-69 Florentino 100,000.00 4-11-69 11.59570 4-1-69 Arturo Sison 64,550.00 4-28-69
Santos 12.59574 4-2-69 Arturo Sison 148,610.00 4-29-69
13. 59578 4-8-69 Mla. Daily 95.00 Unreleased 13.59578 4-10-69 Antonio 93,950.00 4-29-69
Bulletin Mendoza
14. 59580 4-8-69 Phil. Herald 100.00 5-9-69 14.59580 4-8-69 Arturo Sison 160,000.00 5-2-69
15. 59582 4-8-69 Galauran 7,729.09 5-6-69 15.59582 4-10-69 Arturo Sison 155,400.00 5-5-69
& Pilar 16.59581 4-8-69 Antonio 176,580.00 5-6-69
16. 59581 4-8-69 Manila 110.00 5-12 69 Mendoza
Chronicle 17.59588 4-16-69 Arturo Sison 176,000.00 5-8-69
17. 59588 4-8-69 Treago 21,583.00 4-11 69 18.59587 4-16-69 Arturo Sison 300,000.00 5-12-69
Tunnel 19.59589 4-18-69 Arturo Sison 122,000.00 5-14-69
18. 59587 4-8-69 Delfin 120,000.00 4-11-69 20.59594 4-18-69 Arturo Sison 280,000.00 5-15-69
Santiago 21.59577 4-14-69 Antonio 260,000.00 5-16-69
19. 59589 4-10-69 Deogracias 1,257.49 4-16 69 Mendoza
Estrella 22.59601 4-18-69 Arturo Sison 400,000.00 5-19-69
20. 59594 4-14-69 Philam Ac- 33.03 4-29 69 23.59595 4-28-69 Arturo Sison 190,800.00 5-21-69
cident Inc.

---------------

P3,457,903.00

The foregoing checks were deposited by the payees Raul Dizon,


Arturo Sison and Antonio Mendoza in their respective current accounts
with the Philippine Commercial and Industrial Bank (PCIB) and
Philippine Bank of Commerce (PBC) in the months of March, April and
May 1969. Thru the Central Bank Clearing, these checks were
presented for payment by PBC and PCIB to the defendant PNB, and
paid, also in the months of March, April and May 1969. At the time of
their presentation to PNB these checks bear the standard indorsement
which reads 'all prior indorsement and/or lack of endorsement
guaranteed.'
NEGOTIABLE INSTRUMENTS 2017 53

Subsequent investigation however, conducted by the NBI showed that


Raul Dizon, Arturo Sison and Antonio Mendoza were all fictitious
persons. The respective balances in their current account with the
PBC and/or PCIB stood as follows: Raul Dizon P3,455.00 as of April
30, 1969; Antonio Mendoza P18,182.00 as of May 23, 1969; and
Arturo Sison Pl,398.92 as of June 30, 1969.

On June 11, 1969, NWSA addressed a letter to PNB requesting the


immediate restoration to its Account No. 6, of the total sum of
P3,457,903.00 corresponding to the total amount of these twenty-three
(23) checks claimed by NWSA to be forged and/or spurious checks.
"In view of the refusal of PNB to credit back to Account No. 6 the said
total sum of P3,457,903.00 MWSS filed the instant complaint on
November 10, 1972 before the Court of First Instance of Manila and
docketed thereat as Civil Case No. 88950.

In its answer, PNB contended among others, that the checks in


question were regular on its face in all respects, including the
genuineness of the signatures of authorized NWSA signing officers
and there was nothing on its face that could have aroused any
suspicion as to its genuineness and due execution and; that NWSA
was guilty of negligence which was the proximate cause of the loss.

PNB also filed a third party complaint against the negotiating banks
PBC and PCIB on the ground that they failed to ascertain the Identity
of the payees and their title to the checks which were deposited in the
respective new accounts of the payees with them.

xxx xxx xxx

On February 6, 1976, the Court of First Instance of Manila rendered judgment in


favor of the MWSS. The dispositive portion of the decision reads:

WHEREFORE, on the COMPLAINT by a clear preponderance of


evidence and in accordance with Section 23 of the Negotiable
Instruments Law, the Court hereby renders judgment in favor of the
plaintiff Metropolitan Waterworks and Sewerage System (MWSS) by
ordering the defendant Philippine National Bank (PNB) to restore the
total sum of THREE MILLION FOUR HUNDRED FIFTY SEVEN
THOUSAND NINE HUNDRED THREE PESOS (P3,457,903.00) to
plaintiff's Account No. 6, otherwise known as Account No. 010-50030-
3, with legal interest thereon computed from the date of the filing of the
complaint and until as restored in the said Account No. 6.

On the THIRD PARTY COMPLAINT, the Court, for lack of evidence,


hereby renders judgment in favor of the third party defendants
Philippine Bank of Commerce (PBC) and Philippine Commercial and
Industrial Bank (PCIB) by dismissing the Third Party Complaint.

The counterclaims of the third party defendants are likewise dismissed


for lack of evidence.
NEGOTIABLE INSTRUMENTS 2017 54

No pronouncement as to costs.

As earlier stated, the respondent court reversed the decision of the Court of First
Instance of Manila and rendered judgment in favor of the respondent Philippine
National Bank.

A motion for reconsideration filed by the petitioner MWSS was denied by the
respondent court in a resolution dated January 3, 1983.

The petitioner now raises the following assignments of errors for the grant of this
petition:

I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS


WERE FORGED, THE DRAWEE BANK WAS LIABLE FOR THE
LOSS UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS
LAW.

II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF


PNB IN ACCEPTING THE SPURIOUS CHECKS DESPITE THE
OBVIOUS IRREGULARITY OF TWO SETS OF CHECKS BEARING
IdENTICAL NUMBER BEING ENCASHED WITHIN DAYS OF EACH
OTHER.

III. IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE


MWSS BEING CLEARLY FORGED, AND THE CHECKS SPURIOUS,
SAME ARE INOPERATIVE AS AGAINST THE ALLEGED DRAWEE.

The appellate court applied Section 24 of the Negotiable Instruments Law which
provides:

Every negotiable instrument is deemed prima facie to have been


issued for valuable consideration and every person whose signature
appears thereon to have become a party thereto for value.

The petitioner submits that the above provision does not apply to the facts of the
instant case because the questioned checks were not those of the MWSS and
neither were they drawn by its authorized signatories. The petitioner states that
granting that Section 24 of the Negotiable Instruments Law is applicable, the same
creates only a prima facie presumption which was overcome by the following
documents, to wit: (1) the NBI Report of November 2, 1970; (2) the NBI Report of
November 21, 1974; (3) the NBI Chemistry Report No. C-74891; (4) the
Memorandum of Mr. Juan Dino, 3rd Assistant Auditor of the respondent drawee bank
addressed to the Chief Auditor of the petitioner; (5) the admission of the respondent
bank's counsel in open court that the National Bureau of Investigation found the
signature on the twenty-three (23) checks in question to be forgeries; and (6) the
admission of the respondent bank's witness, Mr. Faustino Mesina, Jr. that the checks
in question were not printed by his printing press. The petitioner contends that since
the signatures of the checks were forgeries, the respondent drawee bank must bear
the loss under the rulings of this Court.
NEGOTIABLE INSTRUMENTS 2017 55

A bank is bound to know the signatures of its customers; and if it pays


a forged check it must be considered as making the payment out of its
obligation funds, and cannot ordinarily charge the amount so paid to
the account of the depositor whose name was forged.

xxx xxx xxx

The signatures to the checks being forged, under Section 23 of the


Negotiable Instruments Law they are not a charge against plaintiff nor
are the checks of any value to the defendant.

It must therefore be held that the proximate cause of loss was due to
the negligence of the Bank of the Philippine Islands in honoring and
cashing the two forged checks. (San Carlos Milling Co. v. Bank of the
P. I., 59 Phil. 59)

It is admitted that the Philippine National Bank cashed the check upon
a forged signature, and placed the money to the credit of Maasim, who
was the forger. That the Philippine National Bank then endorsed the
chock and forwarded it to the Shanghai Bank by whom it was paid.
The Philippine National Bank had no license or authority to pay the
money to Maasim or anyone else upon a forged signature. It was its
legal duty to know that Malicor's endorsement was genuine before
cashing the check. Its remedy is against Maasim to whom it paid the
money. (Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, 43
Phil. 678).

We have carefully reviewed the documents cited by the petitioner. There is no


express and categorical finding in these documents that the twenty-three (23)
questioned checks were indeed signed by persons other than the authorized MWSS
signatories. On the contrary, the findings of the National Bureau of Investigation in its
Report dated November 2, 1970 show that the MWSS fraud was an "inside job" and
that the petitioner's delay in the reconciliation of bank statements and the laxity and
loose records control in the printing of its personalized checks facilitated the fraud.
Likewise, the questioned Documents Report No. 159-1074 dated November 21,
1974 of the National Bureau of Investigation does not declare or prove that the
signatures appearing on the questioned checks are forgeries. The report merely
mentions the alleged differences in the type face, checkwriting, and printing
characteristics appearing in the standard or submitted models and the questioned
typewritings. The NBI Chemistry Report No. C-74-891 merely describes the inks and
pens used in writing the alleged forged signatures.

It is clear that these three (3) NBI Reports relied upon by the petitioner are
inadequate to sustain its allegations of forgery. These reports did not touch on the
inherent qualities of the signatures which are indispensable in the determination of
the existence of forgery. There must be conclusive findings that there is a variance in
the inherent characteristics of the signatures and that they were written by two or
more different persons.
NEGOTIABLE INSTRUMENTS 2017 56

Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139
SCRA 238). It must be established by clear, positive, and convincing evidence. This
was not done in the present case.

The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59
Phil. 59) and Great Eastern Life Ins., Co. v. Hongkong and Shanghai Bank (43 Phil.
678) relied upon by the petitioner are inapplicable in this case because the forgeries
in those cases were either clearly established or admitted while in the instant case,
the allegations of forgery were not clearly established during trial.

Considering the absence of sufficient security in the printing of the checks coupled
with the very close similarities between the genuine signatures and the alleged
forgeries, the twenty-three (23) checks in question could have been presented to the
petitioner's signatories without their knowing that they were bogus checks. Indeed,
the cashier of the petitioner whose signatures were allegedly forged was unable to
ten the difference between the allegedly forged signature and his own genuine
signature. On the other hand, the MWSS officials admitted that these checks could
easily be passed on as genuine.

The memorandum of Mr. A. T. Tolentino, no, Assistant Chief Accountant of the


drawee Philippine National Bank to Mr. E. Villatuya, Executive Vice-President of the
petitioner dated June 9, 1969 cites an instance where even the concerned NWSA
officials could not ten the differences between the genuine checks and the alleged
forged checks.

At about 12:00 o'clock on June 6, 1969, VP Maramag requested me to


see him in his office at the Cashier's Dept. where Messrs. Jose M.
Sanchez, treasurer of NAWASA and Romeo Oliva of the same office
were present. Upon my arrival I observed the NAWASA officials
questioning the issue of the NAWASA checks appearing in their own
list, xerox copy attached.

For verification purposes, therefore, the checks were taken from our
file. To everybody there present namely VIP Maramag, the two
abovementioned NAWASA officials, AVP, Buhain, Asst. Cashier
Castelo, Asst. Cashier Tejada and Messrs. A. Lopez and L. Lechuga,
both C/A bookkeepers, no one was able to point out any difference on
the signatures of the NAWASA officials appearing on the checks
compared to their official signatures on file. In fact 3 checks, one of
those under question, were presented to the NAWASA treasurer for
verification but he could not point out which was his genuine signature.
After intent comparison, he pointed on the questioned check as
bearing his correct signature.

xxx xxx xxx

Moreover, the petitioner is barred from setting up the defense of forgery under
Section 23 of the Negotiable Instruments Law which provides that:

SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is


forged or made without authority of the person whose signature it
NEGOTIABLE INSTRUMENTS 2017 57

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.

because it was guilty of negligence not only before the questioned checks were
negotiated but even after the same had already been negotiated. (See Republic v.
Equitable Banking Corporation, 10 SCRA 8) The records show that at the time the
twenty-three (23) checks were prepared, negotiated, and encashed, the petitioner
was using its own personalized checks, instead of the official PNB Commercial blank
checks. In the exercise of this special privilege, however, the petitioner failed to
provide the needed security measures. That there was gross negligence in the
printing of its personalized checks is shown by the following uncontroverted facts, to
wit:

(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions
relative to the safekeeping and disposition of excess forms, check vouchers, and
safety papers;

(2) The petitioner failed to retrieve from its printer all spoiled check forms;

(3) The petitioner failed to provide any control regarding the paper used in the
printing of said checks;

(4) The petitioner failed to furnish the respondent drawee bank with samples of
typewriting, cheek writing, and print used by its printer in the printing of its checks
and of the inks and pens used in signing the same; and

(5) The petitioner failed to send a representative to the printing office during the
printing of said checks.

This gross negligence of the petitioner is very evident from the sworn statement
dated June 19, 1969 of Faustino Mesina, Jr., the owner of the printing press which
printed the petitioner's personalized checks:
xxx xxx xxx
7. Q: Do you have any business transaction with the National Waterworks and Sewerage Authority (NAWASA)?
A: Yes, sir. I have a contract with the NAWASA in printing NAWASA Forms such as NAWASA Check
xxx xxx xxx
15. Q: Were you given any ingtruction by the NAWASA in connection with the printing of these check vouchers?
A: There is none, sir. No instruction whatsoever was given to me.
16. Q: Were you not advised as to what kind of paper would be used in the check vouchers?
A: Only as per sample, sir.
xxx xxx xxx
20. Q: Where did you buy this Hammermill Safety check paper?
A: From Tan Chiong, a paper dealer with store located at Juan Luna, Binondo, Manila. (In front of the Metropolitan Bank).
xxx xxx xxx
24. Q: Were all these check vouchers printed by you submitted to NAWASA?
A: Not all, sir. Because we have to make reservations or allowances for spoilage.
25. Q: Out of these vouchers printed by you, how many were spoiled and how many were the excess printed check
vouchers?
A: Approximately four hundred (400) sheets, sir. I cannot determine the proportion of the excess and spoiled because the
final act of perforating these check vouchers has not yet been done and spoilage can only be determined after this final
act of printing.
26. Q: What did you do with these excess check vouchers?
A: I keep it under lock and key in my firing cabinet.
xxx xxx xxx
NEGOTIABLE INSTRUMENTS 2017 58

28. Q: Were you not instructed by the NAWASA authorities to bum these excess check vouchers?
A: No, sir. I was not instructed.
29. Q: What do you intend to do with these excess printed check vouchers?
A: I intend to use them for future orders from the
xxx xxx xxx
32. Q: In the process of printing the check vouchers ordered by the NAWASA, how many sheets were actually spoiled?
A: I cannot approximate, sir. But there are spoilage in the process of printing and perforating.
33. Q: What did you do with these spoilages?
A: Spoiled printed materials are usually thrown out, in the garbage can.
34. Q: Was there any representative of the NAWASA to supervise the printing or watch the printing of these check
vouchers?
A: None, sir.
xxx xxx xxx
39. Q: During the period of printing after the days work, what measures do you undertake to safeguard the mold and other
paraphernalia used in the printing of these particular orders of NAWASA?
A: Inasmuch as I have an employee who sleeps in the printing shop and at the same time do the guarding, we just leave
the mold attached to the machine and the other finished or unfinished work check vouchers are left in the rack so that the
work could be continued the following day.

The National Bureau of Investigation Report dated November 2, 1970 is even more
explicit. Thus

xxx xxx xxx

60. We observed also that there is some laxity and loose control in the
printing of NAWASA cheeks. We gathered from MESINA ENTERPRISES, the
printing firm that undertook the printing of the check vouchers of NAWASA
that NAWASA had no representative at the printing press during the process
of the printing and no particular security measure instructions adopted to
safeguard the interest of the government in connection with printing of this
accountable form.

Another factor which facilitated the fraudulent encashment of the twenty-three (23)
checks in question was the failure of the petitioner to reconcile the bank statements
with its own records.

It is accepted banking procedure for the depository bank to furnish its depositors
bank statements and debt and credit memos through the mail. The records show
that the petitioner requested the respondent drawee bank to discontinue the practice
of mailing the bank statements, but instead to deliver the same to a certain Mr.
Emiliano Zaporteza. For reasons known only to Mr. Zaporteza however, he was
unreasonably delayed in taking prompt deliveries of the said bank statements and
credit and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the
bank statements with the petitioner's records. If Mr. Zaporteza had not been remiss
in his duty of taking the bank statements and reconciling them with the petitioner's
records, the fraudulent encashments of the first checks should have been
discovered, and further frauds prevented. This negligence was, therefore, the
proximate cause of the failure to discover the fraud. Thus,

When a person opens a checking account with a bank, he is given blank checks
which he may fill out and use whenever he wishes. Each time he issues a check, he
should also fill out the check stub to which the check is usually attached. This stub, if
properly kept, will contain the number of the check, the date of its issue, the name of
the payee and the amount thereof. The drawer would therefore have a complete
record of the checks he issues. It is the custom of banks to send to its depositors a
monthly statement of the status of their accounts, together with all the cancelled
NEGOTIABLE INSTRUMENTS 2017 59

checks which have been cashed by their respective holders. If the depositor has
filled out his check stubs properly, a comparison between them and the cancelled
checks will reveal any forged check not taken from his checkbook. It is the duty of a
depositor to carefully examine the bank's statement, his cancelled checks, his check
stubs and other pertinent records within a reasonable time, and to report any errors
without unreasonable delay. If his negligence should cause the bank to honor a
forged check or prevent it from recovering the amount it may have already paid on
such check, he cannot later complain should the bank refuse to recredit his account
with the amount of such check. (First Nat. Bank of Richmond v. Richmond Electric
Co., 106 Va. 347, 56 SE 152, 7 LRA, NS 744 [1907]. See also Leather
Manufacturers' Bank v. Morgan, 117 US 96, 6 S. Ct. 657 [1886]; Deer Island Fish
and Oyster Co. v. First Nat. Bank of Biloxi, 166 Miss. 162, 146 So. 116 [1933]).
Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law,
1971, pp. 267-268).

This failure of the petitioner to reconcile the bank statements with its cancelled
checks was noted by the National Bureau of Investigation in its report dated
November 2, 1970:

58. One factor which facilitate this fraud was the delay in the reconciliation of
bank (PNB) statements with the NAWASA bank accounts. x x x. Had the
NAWASA representative come to the PNB early for the statements and had
the bank been advised promptly of the reported bogus check, the negotiation
of practically all of the remaining checks on May, 1969, totalling
P2,224,736.00 could have been prevented.

The records likewise show that the petitioner failed to provide appropriate security
measures over its own records thereby laying confidential records open to
unauthorized persons. The petitioner's own Fact Finding Committee, in its report
submitted to their General manager underscored this laxity of records control. It
observed that the "office of Mr. Ongtengco (Cashier No. VI of the Treasury
Department at the NAWASA) is quite open to any person known to him or his staff
members and that the check writer is merely on top of his table."

When confronted with this report at the Anti-Fraud Action Section of the National
Bureau of Investigation. Mr. Ongtengco could only state that:
A. Generally my order is not to allow anybody to enter my office. Only authorized persons are allowed to enter
my office. There are some cases, however, where some persons enter my office because they are following up
their checks. Maybe, these persons may have been authorized by Mr. Pantig. Most of the people entering my
office are changing checks as allowed by the Resolution of the Board of Directors of the NAWASA and the
Treasurer. The check writer was never placed on my table. There is a place for the check write which is also
under lock and key.
Q. Is Mr. Pantig authorized to allow unauthorized persons to enter your office?
A. No, sir.
Q. Why are you tolerating Mr. Pantig admitting unauthorized persons in your office?
A. I do not want to embarrass Mr. Pantig. Most of the people following up checks are employees of the
NAWASA.
Q. Was the authority given by the Board of Directors and the approval by the Treasurer for employees, and
other persons to encash their checks carry with it their authority to enter your office?
A. No, sir.
xxx xxx xxx
Q. From the answers that you have given to us we observed that actually there is laxity and poor control on
your part with regards to the preparations of check payments inasmuch as you allow unauthorized persons to
follow up their vouchers inside your office which may leakout confidential informations or your books of account.
NEGOTIABLE INSTRUMENTS 2017 60

After being apprised of all the shortcomings in your office, as head of the Cashiers' Office of the Treasury
Department what remedial measures do you intend to undertake?
A. Time and again the Treasurer has been calling our attention not to allow interested persons to hand carry
their voucher checks and we are trying our best and if I can do it to follow the instructions to the letter, I will do it
but unfortunately the persons who are allowed to enter my office are my co-employees and persons who have
connections with our higher ups and I can not possibly antagonize them. Rest assured that even though that
everybody will get hurt, I win do my best not to allow unauthorized persons to enter my office.
xxx xxx xxx
Q. Is it not possible inasmuch as your office is in charge of the posting of check payments in your books that
leakage of payments to the banks came from your office?
A. I am not aware of it but it only takes us a couple of minutes to process the checks. And there are cases
wherein every information about the checks may be obtained from the Accounting Department, Auditing
Department, or the Office of the General Manager.

Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of


Investigation concluded in its Report dated November 2, 1970 that the fraudulent
encashment of the twenty-three (23)cheeks in question was an "inside job". Thus-

We have all the reasons to believe that this fraudulent act was an inside job
or one pulled with inside connivance at NAWASA. As pointed earlier in this
report, the serial numbers of these checks in question conform with the
numbers in current use of NAWASA, aside from the fact that these fraudulent
checks were found to be of the same kind and design as that of NAWASA's
own checks. While knowledge as to such facts may be obtained through the
possession of a NAWASA check of current issue, an outsider without
information from the inside can not possibly pinpoint which of NAWASA's
various accounts has sufficient balance to cover all these fraudulent checks.
None of these checks, it should be noted, was dishonored for insufficiency of
funds. . .

Even if the twenty-three (23) checks in question are considered forgeries,


considering the petitioner's gross negligence, it is barred from setting up the defense
of forgery under Section 23 of the Negotiable Instruments Law.

Nonetheless, the petitioner claims that it was the negligence of the respondent
Philippine National Bank that was the proximate cause of the loss. The petitioner
relies on our ruling in Philippine National Bank v. Court of Appeals (25 SCRA 693)
that.
Thus, by not returning the cheek to the PCIB, by thereby indicating that the
PNB had found nothing wrong with the check and would honor the same, and
by actually paying its amount to the PCIB, the PNB induced the latter, not
only to believe that the check was genuine and good in every respect, but,
also, to pay its amount to Augusto Lim. In other words, the PNB was the
primary or proximate cause of the loss, and, hence, may not recover from the
PCIB.
The argument has no merit. The records show that the respondent drawee bank,
had taken the necessary measures in the detection of forged checks and the
prevention of their fraudulent encashment. In fact, long before the encashment of the
twenty-three (23) checks in question, the respondent Bank had issued constant
reminders to all Current Account Bookkeepers informing them of the activities of
forgery syndicates. The Memorandum of the Assistant Vice-President and Chief
Accountant of the Philippine National Bank dated February 17, 1966 reads in part:
SUBJECT: ACTIVITIES OF FORGERY SYNDICATE
NEGOTIABLE INSTRUMENTS 2017 61

From reliable information we have gathered that personalized checks of


current account depositors are now the target of the forgery syndicate. To
protect the interest of the bank, you are hereby enjoined to be more careful in
examining said checks especially those coming from the clearing, mails and
window transactions. As a reminder please be guided with the following:
1. Signatures of drawers should be properly scrutinized and compared with
those we have on file.
2. The serial numbers of the checks should be compared with the serial
numbers registered with the Cashier's Dept.
3. The texture of the paper used and the printing of the checks should be
compared with the sample we have on file with the Cashier's Dept.
4. Checks bearing several indorsements should be given a special attention.
5. Alteration in amount both in figures and words should be carefully
examined even if signed by the drawer.
6. Checks issued in substantial amounts particularly by depositors who do not
usually issue checks in big amounts should be brought to the attention of the
drawer by telephone or any fastest means of communication for purposes of
confirmation.
and your attention is also invited to keep abreast of previous circulars and
memo instructions issued to bookkeepers.
We cannot fault the respondent drawee Bank for not having detected the fraudulent
encashment of the checks because the printing of the petitioner's personalized
checks was not done under the supervision and control of the Bank. There is no
evidence on record indicating that because of this private printing the petitioner
furnished the respondent Bank with samples of checks, pens, and inks or took other
precautionary measures with the PNB to safeguard its interests.

Under the circumstances, therefore, the petitioner was in a better position to detect
and prevent the fraudulent encashment of its checks.

WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of
merit. The decision of the respondent Court of Appeals dated October 29, 1982 is
AFFIRMED. No pronouncement as to costs.

SO ORDERED.