NEGOTIABLE INSTRUMENTS CASE NO.
2 || 1
G.R. No. 116320 November 29, 1999
ADALIA FRANCISCO, petitioner,
vs.
COURT OF APPEALS, HERBY COMMERCIAL & CONSTRUCTION CORPORATION AND
JAIME C. ONG, respondents.
GONZAGA-REYES, J.:
Assailed in this petition for review on certiorari is the decision 1 of the Court of Appeals affirming
the decision 2 rendered by Branch 168 of the Regional Trial Court of Pasig in Civil Case No.
35231 in favor of private respondents.
The controversy before this Court finds its origins in a Land Development and Construction
Contract which was entered into on June 23, 1977 by A. Francisco Realty & Development
Corporation (AFRDC), of which petitioner Adalia Francisco (Francisco) is the president, and
private respondent Herby Commercial & Construction Corporation (HCCC), represented by its
President and General Manager private respondent Jaime C. Ong (Ong), pursuant to a housing
project of AFRDC at San Jose del Monte, Bulacan, financed by the Government Service
Insurance System (GSIS). Under the contract, HCCC agreed to undertake the construction of 35
housing units and the development of 35 hectares of land. The payment of HCCC for its services
was on a turn-key basis, that is, HCCC was to be paid on the basis of the completed houses and
developed lands delivered to and accepted by AFRDC and the GSIS. To facilitate payment,
AFRDC executed a Deed of Assignment in favor of HCCC to enable the latter to collect payments
directly from the GSIS. Furthermore, the GSIS and AFRDC put up an Executive Committee
Account with the Insular Bank of Asia & America (IBAA) in the amount of P4,000,000.00 from
which checks would be issued and co-signed by petitioner Francisco and the GSIS Vice-President
Armando Diaz (Diaz).
On February 10, 1978, HCCC filed a complaint 3 with the Regional Trial Court of Quezon City
against Francisco, AFRDC and the GSIS for the collection of the unpaid balance under the Land
Development and Construction Contract in the amount of P515,493.89 for completed and
delivered housing units and land development. However, the parties eventually arrived at an
amicable settlement of their differences, which was embodied in a Memorandum Agreement
executed by HCCC and AFRDC on July 21, 1978. Under the agreement, the parties stipulated
that HCCC had turned over 83 housing units which have been accepted and paid for by the
GSIS. The GSIS acknowledged that it still owed HCCC P520,177.50 representing incomplete
construction of housing units, incomplete land development and 5% retention, which amount
will be discharged when the defects and deficiencies are finally completed by HCCC. It was also
provided that HCCC was indebted to AFRDC in the amount of P180,234.91 which the former
agreed would be paid out of the proceeds from the 40 housing units still to be turned over by
HCCC or from any amount due to HCCC from the GSIS. Consequently, the trial court dismissed
the case upon the filing by the parties of a joint motion to dismiss.
Sometime in 1979, after an examination of the records of the GSIS, Ong discovered that Diaz
and Francisco had executed and signed seven checks 4 , of various dates and amounts, drawn
against the IBAA and payable to HCCC for completed and delivered work under the contract.
Ong, however, claims that these checks were never delivered to HCCC. Upon inquiry with Diaz,
Ong learned that the GSIS gave Francisco custody of the checks since she promised that she
would deliver the same to HCCC. Instead, Francisco forged the signature of Ong, without his
knowledge or consent, at the dorsal portion of the said checks to make it appear that HCCC had
indorsed the checks; Francisco then indorsed the checks for a second time by signing her name
at the back of the checks and deposited the checks in her IBAA savings account. IBAA credited
Francisco's account with the amount of the checks and the latter withdrew the amount so
credited.
On June 7, 1979, Ong filed complaints with the office of the city fiscal of Quezon City, charging
Francisco with estafa thru falsification of commercial documents. Francisco denied having forged
Ong's signature on the checks, claiming that Ong himself indorsed the seven checks in behalf of
HCCC and delivered the same to Francisco in payment of the loans extended by Francisco to
HCCC. According to Francisco, she agreed to grant HCCC the loans in the total amount of
P585,000.00 and covered by eighteen promissory notes in order to obviate the risk of the non-
completion of the project. As a means of repayment, Ong allegedly issued a Certification
authorizing Francisco to collect HCCC's receivables from the GSIS. Assistant City Fiscal Ramon M.
Gerona gave credence to Francisco's claims and accordingly, dismissed the complaints, which
dismissal was affirmed by the Minister of Justice in a resolution issued on June 5, 1981.
The present case was brought by private respondents on November 19, 1979 against Francisco
and IBAA for the recovery of P370,475.00, representing the total value of the seven checks, and
for damages, attorney's fees, expenses of litigation and costs. After trial on the merits, the trial
court rendered its decision in favor of private respondents, the dispositive portion of which
provides —
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against the defendants INSULAR BANK OF ASIA & AMERICA and ATTY. ADALIA FRANCISCO,
to jointly and severally pay the plaintiffs the amount of P370.475.00 plus interest thereon at
the rate of 12% per annum from the date of the filing of the complaint until the full amount
is paid; moral damages to plaintiff Jaime Ong in the sum of P50,000.00; exemplary damages
of P50,000.00; litigation expenses of P5,000.00; and attorney's fees of P50,000.00.
With respect to the cross-claim of the defendant IBAA against its co-defendant Atty. Adalia
Francisco, the latter is ordered to reimburse the former for the sums that the Bank shall pay
to the plaintiff on the forged checks including the interests paid thereon.
Further, the defendants are ordered to pay the costs.

Based upon the findings of handwriting experts from the National Bureau of Investigation (NBI),
the trial court held that Francisco had indeed forged the signature of Ong to make it appear that
he had indorsed the checks. Also, the court ruled that there were no loans extended, reasoning
that it was unbelievable that HCCC was experiencing financial difficulties so as to compel it to
obtain the loans from AFRDC in view of the fact that the GSIS had issued checks in favor of
HCCC at about the same time that the alleged advances were made. The trial court stated that it
was plausible that Francisco concealed the fact of issuance of the checks from private
respondents in order to make it appear as if she were accommodating private respondents,
when in truth she was lending HCCC its own money.
With regards to the Memorandum Agreement entered into between AFRDC and HCCC in Civil
Case No. Q-24628, the trial court held that the same did not make any mention of the forged
checks since private respondents were as of yet unaware of their existence, that fact having
been effectively concealed by Francisco, until private respondents acquired knowledge of
Francisco's misdeeds in 1979.
IBAA was held liable to private respondents for having honored the checks despite such obvious
irregularities as the lack of initials to validate the alterations made on the check, the absence of
the signature of a co-signatory in the corporate checks of HCCC and the deposit of the checks on
a second indorsement in the savings account of Francisco. However, the trial court allowed IBAA
recourse against Francisco, who was ordered to reimburse the IBAA for any sums it shall have to
pay to private respondents. 5
Both Francisco and IBAA appealed the trial court's decision, but the Court of Appeals dismissed
IBAA's appeal for its failure to file its brief within the 45-day extension granted by the appellate
court. IBAA's motion for reconsideration and petition for review on certiorari filed with this Court
were also similarly denied. On November 21, 1989, IBAA and HCCC entered into a Compromise
Agreement which was approved by the trial court, wherein HCCC acknowledged receipt of the
amount of P370,475.00 in full satisfaction of its claims against IBAA, without prejudice to the
right of the latter to pursue its claims against Francisco.
On June 29, 1992, the Court of Appeals affirmed the trial court's ruling, hence this petition for
review on certiorari filed by petitioner, assigning the following errors to the appealed decision —
1. The respondent Court of Appeals erred in concluding that private respondents did not
owe Petitioner the sum covered by the Promissory Notes Exh. 2-2-A-2-P (FRANCISCO).
Such conclusion was based mainly on conjectures, surmises and speculation contrary to
the unrebutted pleadings and evidence presented by petitioner.
2. The respondent Court of Appeals erred in holding that Petitioner falsified the signature
of private respondent ONG on the checks in question without any authority therefor which
is patently contradictory to the unrebutted pleading and evidence that petitioner was
NEGOTIABLE INSTRUMENTS CASE NO. 2 || 2
expressly authorized by respondent HERBY thru ONG to collect all receivables of HERBY
from GSIS to pay the loans extended to them. (Exhibit 3).
3. That respondent Court of Appeals erred in holding that the seven checks in question
were not taken up in the liquidation and reconciliation of all outstanding account between
AFRDC and HERBY as acknowledged by the parties in Memorandum Agreement (Exh. 5)
is a pure conjecture, surmise and speculation contrary to the unrebutted evidence
presented by petitioners. It is an inference made which is manifestly mistaken.
4. The respondent Court of Appeals erred in affirming the decision of the lower court and
dismissing the appeal. 6
The pivotal issue in this case is whether or not Francisco forged the signature of Ong on the
seven checks. In this connection, we uphold the lower courts' finding that the subject matter of
the present case, specifically the seven checks, drawn by GSIS and AFRDC, dated between
October to November 1977, in the total amount of P370,475.00 and payable to HCCC, was not
included in the Memorandum Agreement executed by HCCC and AFRDC in Civil Case No. Q-
24628. As observed by the trial court, aside from there being absolutely no mention of the
checks in the said agreement, the amounts represented by said checks could not have been
included in the Memorandum Agreement executed in 1978 because private respondents only
discovered Francisco's acts of forgery in 1979. The lower courts found that Francisco was able to
easily conceal from private respondents even the fact of the issuance of the checks since she
was a co-signatory thereof. 7 We also note that Francisco had custody of the checks, as proven
by the check vouchers bearing her uncontested signature, 8 by which she, in effect,
acknowledged having received the checks intended for HCCC. This contradicts Francisco's claims
that the checks were issued to Ong who delivered them to Francisco already indorsed. 9
As regards the forgery, we concur with the lower courts', finding that Francisco forged the
signature of Ong on the checks to make it appear as if Ong had indorsed said checks and that,
after indorsing the checks for a second time by signing her name at the back of the checks,
Francisco deposited said checks in her savings account with IBAA. The forgery was satisfactorily
established in the trial court upon the strength of the findings of the NBI handwriting
expert. 10 Other than petitioner's self-serving denials, there is nothing in the records to rebut the
NBI's findings. Well-entrenched is the rule that findings of trial courts which are factual in
nature, especially when affirmed by the Court of Appeals, deserve to be respected and affirmed
by the Supreme Court, provided it is supported by substantial evidence on record, 11 as it is in
the case at bench.
Petitioner claims that she was, in any event, authorized to sign Ong's name on the checks by
virtue of the Certification executed by Ong in her favor giving her the authority to collect all the
receivables of HCCC from the GSIS, including the questioned checks. 12 Petitioner's alternative
defense must similarly fail. The Negotiable Instruments Law provides that where any person is
under obligation to indorse in a representative capacity, he may indorse in such terms as to

negative personal liability. 13 An agent, when so signing, should indicate that he is merely signing
in behalf of the principal and must disclose the name of his principal; otherwise he shall be held
personally liable. 14 Even assuming that Francisco was authorized by HCCC to sign Ong's name,
still, Francisco did not indorse the instrument in accordance with law. Instead of signing Ong's
name, Francisco should have signed her own name and expressly indicated that she was signing
as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of
forgery.
Every person who, contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for the same. 15 Due to her forgery of Ong's signature which enabled her to
deposit the checks in her own account, Francisco deprived HCCC of the money due it from the
GSIS pursuant to the Land Development and Construction Contract. Thus, we affirm respondent
court's award of compensatory damages in the amount of P370,475.00, but with a modification
as to the interest rate which shall be six percent (6%)  per annum, to be computed from the
date of the filing of the complaint since the amount of damages was alleged in the
complaint; 16 however, the rate of interest shall be twelve percent (12%) per annum from the
time the judgment in this case becomes final and executory until its satisfaction and the basis for
the computation of this twelve percent (12%) rate of interest shall be the amount of
P370,475.00. This is in accordance with the doctrine enunciated in Eastern Shipping
Lines, Inc. vs. Court of Appeals, et al., 17 which was reiterated in Philippine National Bank
vs. Court of Appeals, 18 Philippine Airlines, Inc. vs. Court of Appeals 19 and in Keng Hua Paper
Products Co., Inc. vs. Court of Appeals, 20 which provides that —
1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12%  per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
NEGOTIABLE INSTRUMENTS CASE NO. 2 || 3
twelve percent (12%) per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
We also sustain the award of exemplary damages in the amount of P50,000.00. Under Article
2229 of the Civil Code, exemplary damages are imposed by way of example or correction for the
public good, in addition to the moral, temperate, liquidated or compensatory damages.
Considering petitioner's fraudulent act, we hold that an award of P50,000.00 would be adequate,
fair and reasonable. The grant of exemplary damages justifies the award of attorney's fees in
the amount of P50,000.00, and the award of P5,000.00 for litigation
expenses. 21
The appellate court's award of P50,000.00 in moral damages is warranted. Under Article 2217 of
the Civil Code, moral damages may be granted upon proof of physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation
and similar injury. 22 Ong testitified that he suffered sleepless nights, embarrassment, humiliation
and anxiety upon discovering that the checks due his company were forged by petitioner and
that petitioner had filed baseless criminal complaints against him before the fiscal's office of
Quezon City which disrupted HCCC's business operations. 23
WHEREFORE, we AFFIRM the respondent court's decision promulgated on June 29, 1992,
upholding the February 16, 1988 decision of the trial court in favor of private respondents, with
the modification that the interest upon the actual damages awarded shall be at six percent
(6%) per annum, which interest rate shall be computed from the time of the filing of the
complaint on November 19, 1979. However, the interest rate shall be twelve percent (12%)  per
annum from the time the judgment in this case becomes final and executory and until such
amount is fully paid. The basis for computation of the six percent and twelve percent rates of
interest shall be the amount of P370,475.00. No pronouncement as to costs.
SO ORDERED.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate of
six percent (6%) per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be

[G.R. No. 37467. December 11, 1933.]
SAN CARLOS MILLING CO., LTD., Plaintiff-Appellant, v. BANK OF THE PHILIPPINES
ISLANDS and CHINA BANKING CORPORATION, Defendants-Appellees.
SYLLABUS
1. BANKS AND BANKING; PAYMENT OF FORGED CHECKS. — It is an elementary principle of
banking that "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 own funds, and cannot ordinarily
charge the amount so paid to the account of the depositor whose name was forges." (7. C. J.,
683.) There is no act of the plaintiff that led the Bank of the Philippine Islands astray. If it was in
fact lulled into a false sense of security, it was by the effrontery of D, the messenger to whom it
entrusted the large sum of money in question.
2. ID.; ID.; PROXIMATE CAUSE OF LOSS. — The signatures of the checks in question 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. 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.
3. ID.; DEPOSITOR AND BANKER; CREDITOR AND DEBTOR. — It is very clear that the relation
of plaintiff with the Bank of the Philippine Islands in regard to the checks in question, was that
of depositor and banker, creditor and debtor. The contention of the bank that it was a gratuitous
bailee is without merit, and absolutely contrary to what the bank did. It did not take it up as a
separate account but it transferred the credit to plaintiff’s current account as a depositor of the
bank. Banks are not gratuitous bailees of the funds deposited with them by their customers.
4. ID.; ID.; ID. — As the money in question was in fact paid to the plaintiff corporation the China
Banking Corporation was indebted neither to the plaintiff nor to the Bank of the Philippine
Islands and consequently was properly absolved from any responsibility.
HULL, J.:
Plaintiff corporation, organized under the laws of the Territory of Hawaii, is authorized to engage
in business in the Philippine Islands, and maintains its main office in their Islands in the City of
Manila.
The business of the Philippine Islands was in the hands of Alfred D. Cooper, its agent under
general power of attorney with authority of substitution. The principal employee in the Manila
office was one Joseph L. Wilson, to whom had been given a general power of attorney but
NEGOTIABLE INSTRUMENTS CASE NO. 2 || 4
without power of substitution. In 1926 Cooper, desiring to go on vacation, gave a general power
of attorney to Newland Baldwin and at the same time revoked the power of Wilson relative to
the dealings with the Bank of the Philippine Islands, one of the banks in Manila in which plaintiff
maintained a deposit.
About a year thereafter Wilson, conspiring together with one Alfredo Dolores, a messenger-clerk
in plaintiff’s Manila office, sent a cablegram in code to the company in Honolulu requesting a
telegraphic transfer to the China Banking Corporation of Manila of $100,000. The money was
transferred by cable, and upon its receipt the China Banking Corporation, likewise a bank in
which plaintiff maintained a deposit, sent an exchange contract to plaintiff corporation offering
the sum of P201,000, which was then the current rate of exchange. On this contract was forged
the name of Newland Baldwin and typed on the body of the contract was a note:
"Please sent us certified check in our favor when transfer in received."
A manager’s check on the China Banking Corporation for P201,000 payable to San Carlos Milling
Company or order was receipted for by Dolores. On the same date, September 28, 1927, the
manager’s check was deposited with the Bank of the Philippine Islands by the following
endorsement:
"For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos Milling
Co., Ltd.
"By (Sgd.) NEWLAND BALDWIN
"For Agent"
The endorsement to which the name of the Newland Baldwin was affixed was spurious.
The Bank of the Philippine Islands thereupon credited the current account of plaintiff in the sum
of P201,000 and passed the cashier’s check in the ordinary course of business through the
clearing house, where it was paid by the China Banking Corporation.
On the same day the cashier of the Bank of the Philippine Islands received a letter, purporting to
be signed by Newland Baldwin, directing that P200,000 in bills of various denominations, named
in the letter, be packed for shipment and delivery the next day. The next day, Dolores witnessed
the counting and packing of the money, and shortly afterwards returned with the check for the
sum of P200,000, purporting to be signed by Newland Baldwin as agent.
Plaintiff had frequently withdrawn currency for shipment to its mill from the Bank of the
Philippine Islands but never in so large an amount, and according to the record, never under the
sole supervision of Dolores as the representative of plaintiff.

Before delivering the money, the bank asked Dolores for P1 to cover the cost of packing the
money, and he left the bank and shortly afterwards returned with another check for P1,
purporting to be signed by Newland Baldwin. Whereupon the money was turned over to Dolores,
who took it to plaintiff’s office, where he turned the money over to Wilson and received as his
share, P10,000.
Shortly thereafter the crime was discovered, and upon the defendant bank refusing to credit
plaintiff with the amount withdrawn by the two forged checks of P200,000 and P1, suit was
brought against the Bank of the Philippine Islands, and finally on the suggestion of the
defendant bank, an amended complaint was filed by plaintiff against both the Bank of the
Philippine Islands and the China Banking Corporation.
At the trial the China Banking Corporation contended that they had drawn a check to the credit
of the plaintiff company, that the check had been endorsed for deposit, and that as the prior
endorsement had in law been guaranteed by the Bank of the Philippine Islands, when they
presented the cashier’s check to it for payment, the China Banking Corporation was absolved
even if the endorsement of Newland Baldwin on the check was a forgery.
The Bank of the Philippine Islands presented many special defenses, but in the main their
contentions were that they had been guilty of no negligence, that they had dealt with the
accredited representatives of the company in the due course of business, and that the loss was
due to the dishonesty of plaintiff’s employees and the negligence of plaintiff’s general agent.
In plaintiff’s Manila office, besides the general agent, Wilson, and Dolores, most of the time
there was employed a woman stenographer and cashier. The agent did not keep in his personal
possession either the code-book or the blank checks of either the Bank of the Philippine Islands
or the China Banking Corporation. Baldwin was authorized to draw checks on either of the
depositories. Wilson could draw checks in the name of the plaintiff on the China Banking
Corporation.
After trial in which much testimony was taken, the trial court held that the deposit of P201,000
in the Bank of the Philippine Islands being the result of a forged endorsement, the relation of
depositor and banker did not exist, but the bank was only a gratuitous bailee; that the Bank of
the Philippine Islands acted in good faith in the ordinary course of its business, was not guilty of
negligence, and therefore under article 1902 of the Civil Code which should control the case,
plaintiff could not recover; and that as the cause of loss was the criminal actions of Wilson and
Dolores, employees of plaintiff, and as Newland Baldwin, the agent, had not exercised adequate
supervision over plaintiff’s Manila office, therefore plaintiff was guilty of negligence, which
ground would likewise defect recovery.
From the decision of the trial court absolving the defendants, plaintiff brings this appeal and
NEGOTIABLE INSTRUMENTS CASE NO. 2 || 5
makes nine assignments of error which we do not deem it necessary to discuss it detail.
There is a mild assertion on the part of the defendant bank that the disputed signatures on
Newland Baldwin were genuine and that he had been in the habit of signing checks in blank and
turning the checks so signed over to Wilson.
The proof as to the falsity of the questioned signatures of Baldwin places the matter beyond
reasonable doubt, nor is it believed that Baldwin signed checks in blank and turned them over to
Wilson.
As to the China Banking Corporation, it will be seen that it drew its check payable to the order of
plaintiff and delivered it to plaintiff’s agent who was authorized to receive it. A bank that cashes
a check must know to whom it pays. In connection with the cashier’s check, this duty was
therefore upon the Bank of the Philippine Islands, and the China Banking Corporation was not
bound to inspect and verify all endorsements of the check, even if some of them were also those
of depositors in the bank. It had a right to rely upon the endorsement of the Bank of the
Philippine Islands when it gave the latter bank credit for its own cashier’s check. Even if we
would treat the China Banking Corporation’s cashier’s check the same as the check of a
depositor and attempt to apply the doctrines of the great Eastern Life Insurance Co. v.
Hongkong & Shanghai Banking Corporation and National Bank (43 Phil., 678), and hold the
China Banking Corporation indebted to plaintiff, we would at the same time have to hold that the
Bank of the Philippine Islands was indebted to the China Banking Corporation in the same
amount. As, however, the money was in fact paid to plaintiff corporation, we must hold that the
China Banking Corporation is indebted neither to plaintiff not to the Bank of the Philippine
Islands, and the judgment of the lower court so far as it absolved the China Banking Corporation
from responsibility is affirmed.
Returning to the relation between plaintiff and the Bank of the Philippine Islands, we will now
consider the effect of the deposit of P201,000. It must be noted that this was not a presenting
of the check for cash payment but for deposit only. It is a matter of general knowledge that
most endorsements for deposit only, are informal. Most are by means of a rubber stamp. The
bank would have been justified in accepting the check for deposit even with only a typed
endorsement. It accepted the check and duly credited plaintiff’s account with the amount on the
face of the check. Plaintiff was not harmed by the transaction as the only result was the removal
of that sum of money from a bank from which Wilson could have drawn it out in his own name
to a bank where Wilson would not have authority to draw checks and where funds could only be
drawn out by the check of Baldwin.
Plaintiff in its letter of December 23, 1928, to the Bank of the Philippine Islands said in part:
". . . we now beg leave to demand that you pay over to us the entire amount of said manager’s
 NEGOTIABLE INSTRUMENTS CASE NO. 2 || 6
check of two hundred one thousand (P201,000) pesos, together with interest thereon at the It must therefore be held that the proximate cause of loss was due to the negligence of the
agreed rate of 3 1/2 per cent per annum on daily balanced of our credit in account current with Bank of the Philippine Islands in honoring and cashing the two forged checks.
your bank to this date. In the even of your refusal to pay, we shall claim interest at the legal
rate of 6 per cent from and after the date of this demand inasmuch as we desire to withdraw The judgment absolving the Bank of the Philippine Islands must therefore be reversed, and a
and make use of the money." Such language might well be treated as a ratification of the judgment entered in favor of plaintiff- appellant and against the Bank of the Philippine Islands,
deposit. defendant- appellee, for the sum of P200,001, with legal interest thereon from December 23,
1928, until payment, together with costs in both instances. So ordered
The contention of the bank that it was a gratuitous bailee is without merit. In the first place, it is
absolutely contrary to what the bank did. It did not take it up as a separate account but it
transferred the credit to plaintiff’s current account as a depositor of that bank. Furthermore,
banks are not gratuitous bailees of the funds deposited with them by their customers. Banks are
run for gain, and they solicit deposits in order that they can use the money for that very
purpose. In this case the action was neither gratuitous nor was it a bailment.

On the other hand, we cannot agree with the theory of plaintiff that the Bank of the Philippine
Islands was an intermeddling bank. In the many cases cited by plaintiff where the bank that
cashed the forged endorsement was held as an intermeddler, in none was the claimant a regular
depositor of the bank, nor in any of the cases cited, was the endorsement for deposit only. It is
therefore clear that the relation of plaintiff with the Bank of the Philippine Islands in regard to
this item of P201,000 was that of depositor and banker, creditor and debtor.

We now come to consider the legal effect of payment by the bank of the Dolores of the sum of
P200,001, on two checks on which the name of Baldwin was forged as drawer. As above stated,
the fact that these signatures were forged is beyond question. It is an elementary principle both
of banking and of the Negotiable Instruments Law that —

"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 own funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged."

There is no act of the plaintiff that led the Bank of the Philippine Islands astray. If it was in fact
lulled into a false sense of security, it was by the effrontery of Dolores, the messenger to whom
it entrusted this large sum of money.

The bank paid out its money because it relied upon the genuineness of the purported signatures
of Baldwin. These, they never questioned at the time its employees should have used care. In
fact, even today the bank represents that it has a belief that they are genuine signatures.

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.