THE PHILIPPINE BANK OF COMMERCE, Plaintiff-appellee, -versus- JOSE M.

ARUEGO, Defendant-appellant.

FACTS: Jose Aruego obtained a credit accommodation from the Philippine Bank of
Commerce to facilitate the payment of printing of “World Current Events”, the periodical he is
publishing. Thus, for every printing of the periodical, the printer, Encal Press and Photo
Engraving, collected the cost of printing by drawing a draft against the plaintiff, said draft
being sent later to the defendant for acceptance. As an added security for the payment of
the amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also required
defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant
undertook to hold in trust for plaintiff the periodicals and to sell the same with the promise to turn
over to the plaintiff the proceeds of the sale of said publication to answer for the payment of all
obligations arising from the draft. The Philippine Bank of Commerce instituted an action
against Aruego to recover the cost of printing of the latter’s periodical. Aruego however
argues that he signed the supposed bills of exchange only as an agent of the Philippine
Education Foundation Company where he is president.

ISSUE: Whether Aruego can be held liable by the petitioner although he signed the supposed
bills of
exchange only as an agent of Philippine Education Foundation Company.

RULING
YES. The first defense of the defendant is that he signed the supposed bills of exchange as an
agent of the Philippine Education Foundation Company where he is president. Section 20 of the
Negotiable Instruments Law provides that "Where the instrument contains or a person adds to
his signature words indicating that he signs for or on behalf of a principal or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of
words describing him as an agent or as filing a representative character, without disclosing his
principal, does not exempt him from personal liability." An inspection of the drafts accepted by
the defendant shows that nowhere has he disclosed that he was signing as a representative of
the Philippine Education Foundation Company. He merely signed as follows: "JOSE ARUEGO
(Acceptor) (SGD) JOSE ARGUEGO. For failure to disclose his principal, Aruego is personally
liable for the drafts he accepted. The defendant also contends that he signed the drafts only as
an accommodation party and as such, should be made liable only after a showing that the
drawer is incapable of paying. This contention is also without merit. An accommodation party
is one who has signed the instrument as maker, drawer, indorser, without receiving value
therefore and for the purpose of lending his name to some other person. Such a person
is liable on the instrument to a holder for value, notwithstanding such holder, at the time
of the taking of the instrument knew him to be only an accommodation party. In lending
his name to the accommodated party, the accommodation party is in effect a surety for
the latter. He lends his name to enable the accommodated party to obtain credit or to
raise money. He receives no part of the consideration for the instrument but assumes
liability to the other parties thereto because he wants to accommodate another. In the
instant case, the defendant signed as a drawee/acceptor. Under the Negotiable
Instrument Law, a drawee is primarily liable. Thus, if the defendant is a lawyer, he should
not have signed as an acceptor/drawee. In doing so, he became primarily and personally
liable for the drafts.
The defendant also contends that the drafts signed by him were not really bills of exchange but
mere pieces of evidence of indebtedness because payments were made before acceptance.
This is also without merit. Under the Negotiable Instruments Law, a bill of exchange is an
unconditional order in writing addressed by one person to another, signed by the person giving
it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or to bearer. As long as a commercial paper
conforms with the definition of a bill of exchange, that paper is considered a bill of exchange.
The nature of acceptance is important only in the determination of the kind of liabilities of the
parties involved, but not in the determination of whether a commercial paper is a bill of
exchange or not.
 Westmont Bank v. Ong
[G.R. No. 132560, January 30, 2002]
FACTS: Respondent Eugene Ong maintained a current account with petitioner, formerly the Associated
Banking Corporation, but now known as Westmont Bank. He sold certain shares of stocks through Island
Securities Corporation. The latter purchased 2 Pacific Banking Corporation manager’s checks issued in
the name of Eugene Ong as payee. Before Ong could get hold of the checks, his friend Faciano Tanlimco
got hold of them, forged Ong's signature and deposited these with petitioner, where Tanlimco was also
a depositor. Even though Ong's specimen signature was on file, petitioner accepted and credited both
checks to the account of Tanlimco, without verifying the 'signature indorsements' appearing at the back
thereof. Tanlimco then immediately withdrew the money and absconded.
He sought the help of Tanlimco’s family to recover the amount, then Central Bank, but to no avail. After
5 months from discovery of the fraud, Ong filed a complaint, demanding that petitioner pay the value of
the two checks.
Petitioner argues that since Ong never had possession of the checks nor did he authorize anybody, he
did not become a holder thereof hence he cannot sue in his own name (Section 51 and 191 of the NIL).
Respondent cites the ruling of the court a quo, which held that according to the general rule, a bank
who has obtained possession of a check upon an unauthorized or forged indorsement of the payee's
signature and who collects the amount of the check from the drawee is liable for the proceeds thereof
to the payee. Respondent also cites Associated Bank vs. Court of Appeals which held that the collecting
bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of
all prior endorsements. The collecting bank is also made liable because it is privy to the depositor who
negotiated the check. The bank knows him, his address and history because he is a client. Hence, it is in
a better position to detect forgery, fraud or irregularity in the indorsement.
The trial court ruled in favor of respondent. It found that petitioner bank was grossly negligent in
encashing the checks without verifying the signature of its own depositor, herein respondent. It ordered
petitioner to pay the amount of the manager's checks with legal interest and moral and exemplary
damages. The Court of Appeals affirmed the trial court's decision. Hence, the present recourse.
ISSUES:
1. WON Ong may still recover from Westmont Bank - YES
2. WON Ong is barred to recover the money from Westmont Bank due to laches - NO

RULING: SC did not grant the petition. It was held that a forged signature or one made without authority
is inoperative and ineffectual under Section 24 of the Negotiable Instruments Law; that a collecting bank
has the legal duty to ascertain that the payee's endorsement was genuine before cashing the check and
is liable to the payee and must bear the loss for payment made on a forged signature; that findings of
the trial court are binding and conclusive on appeal; that there is no laches where a party filed the case
only after exhausting possibilities of settling the case amicably.

1. Since the signature of the payee, in the case at bar, was forged to make it appear that he had made
an endorsement in favor of the forger, such signature should be deemed as inoperative and
ineffectual. Petitioner, as the collecting bank grossly erred in making payment by virtue of said
forged signature. The payee, herein respondent, should therefore be allowed to recover from the
 collecting bank. The collecting bank is liable to the payee and must bear the loss because it is its
legal duty to ascertain that the payee's endorsement was genuine before cashing the check. As a
general rule, a bank or a corporation who has obtained possession of a check upon an unauthorized
or forged indorsement of the payee's signature and who collects the amount of the check from the
drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the
amount has been paid to the person from whom the check was obtained.

The theory for this rule is that the possession of the check on the forged or unauthorized
indorsement is wrongful, and when the money had been collected on the check, the bank or other
person or corporation can be held as for moneys had and received, and the proceeds are held for
the rightful owners who may recover them. The position of the bank taking the check on the forged
or unauthorized indorsement is the same as if it had taken the check and collected the money
without indorsement at all and the act of the bank amounts to conversion of the check.

Petitioner relies on the view to the effect that where there is no delivery to the payee and no title
vests in him, he ought not to be allowed to recover on the ground that he lost nothing because he
never became the owner of the check and still retained his claim of debt against the drawer.
However, another view in certain cases holds that even if the absence of delivery is considered, such
consideration is not material. The rationale for this view is that in said cases the plaintiff uses one
action to reach, by a desirable short cut, the person who ought in any event to be ultimately liable
as among the innocent persons involved in the transaction. In other words, the payee ought to be
allowed to recover directly from the collecting bank regardless of whether the check was delivered
to the payee or not. Hence, petitioner could not escape liability for its negligent acts.

Banks are engaged in a business impressed with public interest, and it is their duty to protect in
return their many clients and depositors who transact business with them. They have the obligation
to treat their client's account meticulously and with the highest degree of care, considering the
fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of
a good father of a family. The bank was held to be grossly negligent in performing its duties since it
apparently failed to make such a verification or, what is worse did so but, chose to disregard the
obvious dissimilarity of the signatures. The first omission makes it guilty of gross negligence; the
second of bad faith. In either case, defendant is liable to plaintiff for the proceeds of the checks in
question.

2. As for the second issue, it cannot be said that Ong sat on his rights. This can be fairly seen on the
remedies he took and exhausted before bringing the matter to the Central Bank and then the courts.
These acts cannot be construed as undue delay in or abandonment of the assertion of his rights.
Moreover, it is petitioner who had the last clear chance to stop the fraudulent encashment of the
subject checks had it exercised due diligence and followed the proper and regular banking
procedures in clearing checks. As we had earlier ruled, the one who had the last clear opportunity to
avoid the impending harm but failed to do so is chargeable with the consequences thereof.

3. ASSOCIATED BANK v COURT OF APPEALS

DOCTRINE: The weight of authority is to the effect that "the possession of check on a forged or
unauthorized indorsement is wrongful, and when the money is collected on the check, the bank can
be held 'for moneys had and received." The proceeds are held for the rightful owner of the
payment and may be recovered by him. The position of the bank taking the check on the forged or
unauthorized indorsement is the same as if it had taken the check and collected without
indorsement at all. The act of the bank amounts to conversion of the check.
FACTS:
The private respondent is engaged in the business of ready-to-wear garments under the firm name
"Melissa's RTW." She deals with, among other customers, Robinson's Department Store, Payless
Department Store, Rempson Department Store, and the Corona Bazaar. These companies issued in
payment of their respective accounts crossed checks payable to Melissa's RTW.
When she went to these companies to collect on what she thought were still unpaid accounts, she was
informed of the issuance of the above-listed crossed checks. Further inquiry revealed that the said checks
had been deposited with the Associated Bank and subsequently paid by it to one Rafael Sayson, one of its
"trusted depositors," in the words of its branch manager and co-petitioner, Conrado Cruz, Sayson had not
been authorized by the private respondent to deposit and encash the said checks.
ISSUE:
Whether or not private respondent Melissa Reyes can recover from petitioner Associated Bank for
the forged indorsement of checks?
RULING:
YES. Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally
on the left top portion of the checks. The crossing is special where the name of a bank or a business
institution is written between the two parallel lines, which means that the drawee should pay only with the
intervention of that company. The crossing is general where the words written between the two parallel
lines are "and Co." or "for payee's account only," as in the case at bar. This means that the drawee bank
should not encash the check but merely accept it for deposit.
In State Investment House vs. IAC, 5 this Court declared that "the effects of crossing a check are: (1) that
the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated only
once –– to one who has an account with a bank; and (3) that the act of crossing the check serves as a
warning to the holder that the check has been issued for a definite purpose so that he must inquire if he
has received the check pursuant to that purpos." The effects therefore of crossing a check relate to the
mode of its presentment for payment. Under Sec. 72 of the Negotiable Instruments Law, presentment for
payment, to be sufficient, must be made by the holder or by some person authorized to receive payment
on his behalf. Who the holder or authorized person is depends on the instruction stated on the face of the
check.
The six checks in the case at bar had been crossed and issued "for payee's account only." This could only
signify that the drawers had intended the same for deposit only by the person indicated, to wit, Melissa's
RTW. The subject checks were accepted for deposit by the Bank for the account of Rafael Sayson
although they were crossed checks and the payee was not Sayson but Melissa's RTW. The Bank stamped
thereon its guarantee that "all prior endorsements and/or lack of endorsements (were) guaranteed." By
such deliberate and positive act, the Bank had for all legal intents and purposes treated the said checks as
negotiable instruments and, accordingly, assumed the warranty of the endorser.
The weight of authority is to the effect that "the possession of check on a forged or unauthorized
indorsement is wrongful, and when the money is collected on the check, the bank can be held 'for moneys
had and received." The proceeds are held for the rightful owner of the payment and may be recovered by
him. The position of the bank taking the check on the forged or unauthorized indorsement is the same as
if it had taken the check and collected without indorsement at all. The act of the bank amounts to
conversion of the check. It is not disputed that the proceeds of the subject checks belonged to the private
respondent. As she had not at any time authorized Rafael Sayson to endorse or encash them, there was
conversion of the funds by the Bank.
The petitioners were negligent when they permitted the encashment of the checks by Sayson. 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. Its
failure to inquire into Sayson's authority was a breach of a duty it owed to the private respondent.
 BANK OF THE PHILIPPINE ISLANDS v. CASA MONTESSORI INTERNATIONALE
LEONARDO T. YABUT
G.R. No. 149454, 28 May 2004, FIRST DIVISION (Panganiban J.)

DOCTRINE OF THE CASE

Section 23 of the NIL provides: "Section 23. Forged signature; effect of. -- When a signature is
forged or made without the authority of the person whose signature it purports to be, it is wholly
inoperative, and no right x x x 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."
Under this provision, a forged signature is a real or absolute defense, and a person whose
signature on a negotiable instrument is forged is deemed to have never become a party thereto and to
have never consented to the contract that allegedly gave rise to it.
The counterfeiting of any writing, consisting in the signing of another's name with intent to
defraud, is forgery.
In the present case, the Court held that there was forgery of the drawer's signature on the check.
FACTS:
CASA Montessori International opened a current account with BPI with CASAs President Ms.
Ma. Carina C. Lebron as one of its authorized signatories. In 1991, after conducting an investigation,
CASA discovered that nine (9) of its checks had been encashed by a certain Sonny D. Santos since 1990
in the total amount of P782,000.00. It turned out that Sonny D. Santos with account at BPIs Greenbelt
Branch [was] a fictitious name used by third party defendant Leonardo T. Yabut who worked as external
auditor of CASA. Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron
and encashed the checks.

The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that
the handwritings thereon compared to the standard signature of Ms. Lebron were not written by the latter.

On March 4, 1991, CASA filed the herein Complaint for Collection with Damages against
defendant bank.

ISSUES:
(1) Was there was forgery under the Negotiable Instruments Law (NIL)?

(2) Is BPI liable as the drawee bank for allowing payment on the checks to a wrongful and fictitious
payee?

RULING:

(1). YES. Section 23 of the NIL provides: "Section 23. Forged signature; effect of. -- When a
signature is forged or made without the authority of the person whose signature it purports to be, it is
wholly inoperative, and no right x x x 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."

Under this provision, a forged signature is a real or absolute defense, and a person whose
signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have
never consented to the contract that allegedly gave rise to it.

The counterfeiting of any writing, consisting in the signing of another's name with intent to
defraud, is forgery.

In the present case, the Court held that there was forgery of the drawer's signature on the check.

First, both the CA and the RTC found that Respondent Yabut himself had voluntarily admitted,
through an Affidavit, that he had forged the drawer’s signature and encashed the checks. He never refuted
these findings. That he had been coerced into admission was not corroborated by any evidence on record.

Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its
examination of the said checks, had concluded that the handwritings thereon -- compared to the standard
signature of the drawer -- were not hers. This conclusion was the same as that in the Report that the PNP
Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon the latter’s request.

(2) YES. Having established the forgery of the drawer’s signature, BPI - the drawee erred in
making payments by virtue thereof. The forged signatures are wholly inoperative, and CASA -the drawer
whose authorized signatures do not appear on the negotiable instruments cannot be held liable thereon.
Neither is the latter precluded from setting up forgery as a real defense.

We have repeatedly emphasized that, since the banking business is impressed with public interest,
of paramount importance thereto is the trust and confidence of the public in general. Consequently, the
highest degree of diligence is expected, and high standards of integrity and performance are even
required, of it. By the nature of its functions, a bank is "under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their relationship."

BPI contends that it has a signature verification procedure, in which checks are honored only
when the signatures therein are verified to be the same with or similar to the specimen signatures on the
signature cards. Nonetheless, it still failed to detect the eight instances of forgery. Its negligence consisted
in the omission of that degree of diligence required of a bank. It cannot now feign ignorance, for very
early on we have already ruled 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." In fact, BPI
was the same bank involved when we issued this ruling seventy years ago.
 Samsung Construction Company Philippines v. Far East Bank
[G.R. No. 129015, August 13, 2004]
FACTS: Samsung Construction Company Philippines maintained a current account with Far East Bank
and Trust Company. The sole signatory to Samsung Construction’s account was Jong Kyu Lee (“Jong”), its
Project Manager, while the checks remained in the custody of the company’s accountant, Kyu Yong Lee
(“Kyu”).
A certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 in the amount of
P999,500.00, payable to cash and drawn against Samsung Construction’s current account. After
ascertaining there were enough funds to cover the check, the bank teller compared the signature
appearing on the check with the specimen signature of Jong as contained in the specimen signature card
with the bank. Satisfied as to the authenticity of the signature appearing on the check, the same was
forwarded for approval to two other bank officers for approval. Sempio, the assistant accountant of
Samsung Construction, who was also in the bank at that time, also vouched for the genuineness of
Jong’s signature and confirmed the identity of Gonzaga and said that the check was for the purchase of
equipment for Samsung Construction. Satisfied with the genuineness of the signature, the bank
authorized the encashment of the check to Gonzaga.
The following day, the accountant of Samsung Construction discovered that a check amounting to
P999,500.00 was encashed and found that the last blank check was missing. Jong learned of the
encashment and realized that his signature was forged. The Bank Manager reputedly told Jong that he
would be reimbursed for the amount of the check. A criminal case for qualified theft was filed against
Sempio before the Laguna court.
Samsung Construction demanded that FEBTC credit to it the amount of P999,500.00 with interest.
FEBTC said that it was still investigating on the matter. Unsatisfied, Samsung Construction filed a
complaint for violation of Section 23 of the NIL and prayed for the payment of the amount debited as a
result of the questioned check plus interest, and attorney’s fees.
Samsung Corporation presented Senior NBI Document Examiner who testified that Jong’s signature had
been forged on the check. FEBTC presented a document examiner from the PNP Crime Laboratory and
testified that Jong’s signature on the check was genuine.
RTC held that Jong’s signature on the check was forged and accordingly directed the bank to pay or
credit back to Samsung Construction’s account the amount together with interest tolled from the time
the complaint was filed and attorney’s fees. CA reversed the RTC decision.
ISSUE: WON the bank is liable to reimburse the amount encashed through forgery - YES
RULING: 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. If payment
is made, the drawee cannot charge it to the drawer’s account. The traditional justification for the result
is that the drawee is in a superior position to detect a forgery because he has the maker’s signature and
is expected to know and compare it.
Brady, in his treatise The Law of Forged and Altered Checks, elucidates: When a person deposits money
in a general account in a bank, against which he has the privilege of drawing checks in the ordinary
course of business, the relationship between the bank and the depositor is that of debtor and creditor.
So far as the legal relationship between the two is concerned, the situation is the same as though the
bank had borrowed money from the depositor, agreeing to repay it on demand, or had bought goods
from the depositor, agreeing to pay for them on demand. The bank owes the depositor money in the
same sense that any debtor owes money to his creditor. Added to this, in the case of bank and
depositor, there is, of course, the bank’s obligation to pay checks drawn by the depositor in proper form
and presented in due course. When the bank receives the deposit, it impliedly agrees to pay only upon
the depositor’s order. When the bank pays a check, on which the depositor’s signature is a forgery, it
has failed to comply with its contract in this respect. Therefore, the bank is held liable . The fact that the
forgery is a clever one is immaterial. The forged signature may so closely resemble the genuine as to
defy detection by the depositor himself. And yet, if a bank pays the check, it is paying out its own money
and not the depositor’s.
This rule of liability can be stated briefly in these words: “A bank is bound to know its depositors’
signature.” The rule is variously expressed in the many decisions in which the question has been
considered. But they all sum up to the proposition that a bank must know the signatures of those whose
general deposits it carries.
Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party
whose signature is forged. On the premise that Jong’s signature was indeed forged, FEBTC is liable for
the loss since it authorized the discharge of the forged check. Such liability attaches even if the bank
exerts due diligence and care in preventing such faulty discharge.
We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the
defense of forgery if it is guilty of negligence. Yet, we are unable to conclude that Samsung Construction
was guilty of negligence in this case. The appellate court failed to explain precisely how the Korean
accountant was negligent or how more care and prudence on his part would have prevented the
forgery.
In the absence of evidence to the contrary, we can conclude that there was no negligence on Samsung
Construction’s part. The presumption remains that every person takes ordinary care of his concerns, and
that the ordinary course of business has been followed. Negligence is not presumed but must be proven
by him who alleges it.
Still, even if the bank performed with utmost diligence, the drawer whose signature was forged may still
recover from the bank if he or she is not precluded from setting up the defense of forgery. After all,
Section 23 of the Negotiable Instruments Law plainly states that no right to enforce the payment of a
check can arise out of a forged signature. Since the drawer, Samsung Construction, is not precluded by
negligence from setting up the forgery, the general rule should apply. Consequently, if a bank pays a
forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to
the account of the depositor. A bank is liable, irrespective of its good faith, in paying a forged check.
 PHILIPPINE NATIONAL BANK vs. F.F. CRUZ and CO., INC.
G.R. No. 173259 | July 25, 2011

Doctrine: As between a bank and its depositor, where the bank’s negligence is the proximate
cause of the loss and the depositor is guilty of contributory negligence, the greater proportion of
the loss shall be borne by the bank.

FACTS: In its complaint, it is alleged that F.F. Cruz & Co., Inc. (FFCCI) opened savings/current
or so-called combo account and dollar savings account with Philippine National Bank (PNB) at
its Timog Avenue Branch. Its President Felipe Cruz (Felipe) and Secretary-Treasurer Angelita
A. Cruz (Angelita) were the named signatories for the said accounts.

The said signatories left for and returned from the USA (Felipe on March 18, 1995 until June 10,
1995 while Angelita followed him on March 29, 1995 and returned ahead on May 9, 1995).

While they were thus out of the country, applications for cashier’s and manager’s checks
bearing Felipe’s signature were presented to and both approved by the PNB. The first was on
March 27, 1995 for ₱9,950,000.00 payable to a certain Gene B. Sangalang and the other one
was on April 24, 1995 for ₱3,260,500.31 payable to one Paul Bautista. The amounts of these
checks were then debited by the PNB against the combo account of FFCCI.

When Angelita returned to the country, she had occasion to examine the PNB statements of
account of FFCCI for the months of February to August 1995 and she noticed the deductions of
₱9,950,000.00 and ₱3,260,500.31. Claiming that these were unauthorized and fraudulently
made, FFCCI requested PNB to credit back and restore to its account the value of the checks.
PNB refused, and thus constrained FFCCI filed the instant suit for damages against the PNB
and its (FFCCI) own accountant Aurea Caparas (Caparas).

PNB alleged that it exercised due diligence in handling the account of FFCCI. The applications
for manager’s check have passed through the standard bank procedures and it was only after
finding no infirmity that these were given due course. In fact, it was no less than Caparas, the
accountant of FFCCI, who confirmed the regularity of the transaction. The delay of FFCCI in
picking up and going over the bank statements was the proximate cause of its self-proclaimed
injury. Had FFCCI been conscientious in this regard, the alleged chicanery would have been
detected early on and Caparas effectively prevented from absconding with its millions.

PNB contends that it was not negligent in verifying the genuineness of the signatures appearing
on the subject applications for manager’s check. It claims that it followed the standard operating
procedure in the verification process and that four bank officers examined the signatures and
found the same to be similar with those found in the signature cards of FFCCI’s authorized
signatories on file with the bank.

ISSUE: Whether or not PNB is guilty of negligence.

RULING: YES. PNB failed to make the proper verification because the applications for the
manager’s check do not bear the signature of the bank verifier. PNB concedes the absence of
the subject signature but argues that the same was the result of inadvertence. It posits that the
testimonies of Geronimo Gallego (Gallego), then the branch manager of PNB Timog Branch,
and Stella San Diego (San Diego), then branch cashier, suffice to establish that the signature
verification process was duly followed.
First, oral testimony is not as reliable as documentary evidence. Second, PNB’s own witness,
San Diego, testified that in the verification process, the principal duty to determine the
genuineness of the signature devolved upon the account analyst. However, PNB did not present
the account analyst to explain his or her failure to sign the box for signature and balance
verification of the subject applications for manager’s check, thus, casting doubt as to whether he
or she did indeed verify the signatures thereon. Third, we cannot fault the appellate court for not
giving weight to the testimonies of Gallego and San Diego considering that the latter are
naturally interested in exculpating themselves from any liability arising from the failure to detect
the forgeries in the subject transactions. Fourth, Gallego admitted that PNB’s employees
received training on detecting forgeries from the National Bureau of Investigation. However,
Emmanuel Guzman, then NBI senior document examiner, testified, as an expert witness, that
the forged signatures in the subject applications for manager’s check contained noticeable and
significant differences from the genuine signatures of FFCCI’s authorized signatories and that
the forgeries should have been detected or observed by a trained signature verifier of any bank.

Given the foregoing, we find no reversible error in the findings of the appellate court that PNB
was negligent in the handling of FFCCI’s combo account, specifically, with respect to PNB’s
failure to detect the forgeries in the subject applications for manager’s check which could have
prevented the loss. As we have often ruled, the banking business is impressed with public
trust. A higher degree of diligence is imposed on banks relative to the handling of their affairs
than that of an ordinary business enterprise. Thus, the degree of responsibility, care and
trustworthiness expected of their officials and employees is far greater than those of ordinary
officers and employees in other enterprises.

In the case at bar, PNB failed to meet the high standard of diligence required by the
circumstances to prevent the fraud. In Philippine Bank of Commerce v. Court of
Appeals and The Consolidated Bank & Trust Corporation v. Court of Appeals, where the bank’s
negligence is the proximate cause of the loss and the depositor is guilty of contributory
negligence, we allocated the damages between the bank and the depositor on a 60-40 ratio. We
apply the same ruling in this case considering that, as shown above, PNB’s negligence is the
proximate cause of the loss while the issue as to FFCCI’s contributory negligence has been
settled with finality in G.R. No. 173278. Thus, the appellate court properly adjudged PNB to bear
the greater part of the loss consistent with these rulings.

Contributory negligence of FF cruz – clothing Caparas with apparent authority to transact

business w/ PNB + failure to timely examine monthly statement and report discrepancy to PNB.
 Philippine Commercial International Bank v. Balmaceda
G.R. No. 158143, 21 September 2011

FACTS:

● PCIB filed an action for recovery of sum of money with damages against Antonio Balmaceda , the
Branch Manager of its Sta. Cruz, Manila branch. PCIB alleged that between 1991 and 1993,
Balmaceda, by taking advantage of his position as branch manager, fraudulently obtained and
encashed 31 Manager's checks in the total amount of P10,782,150.00.
● PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as one of the
recipients of a portion of the proceeds from Balmaceda's alleged fraud. PCIB also increased the
number of fraudulently obtained and encashed Manager's checks to 34, in the total amount of
P11,937,150.00. The RTC granted this motion.
● Since Balmaceda did not file an Answer, he was declared in default. On the other hand, Ramos
filed an Answer denying any knowledge of Balmaceda's scheme. According to Ramos, he is a
reputable businessman engaged in the business of buying and selling fighting cocks, and
Balmaceda was one of his clients. Ramos admitted receiving money from Balmaceda as payment
for the fighting cocks that he sold to Balmaceda but maintained that he had no knowledge of the
source of Balmaceda's money.
● RTC: Found that Balmaceda, by taking undue advantage of his position and authority as
branch manager of the Sta. Cruz, Manila branch of PCIB, successfully obtained and
misappropriated the bank's funds by falsifying several commercial documents. He
accomplished this by claiming that he had been instructed by one of the Bank's corporate clients
to purchase Manager's checks on its behalf, with the value of the checks to be debited from the
client's corporate bank account. First, he would instruct the Bank staff to prepare the
application forms for the purchase of Manager's checks, payable to several persons. Then,
he would forge the signature of the client's authorized representative on these forms and
sign the forms as PCIB's approving officer. Finally, he would have an authorized officer of
PCIB issue the Manager's checks. Balmaceda would subsequently ask his subordinates to
release the Manager's checks to him, claiming that the client had requested that he deliver
the checks. After receiving the Manager's checks, he encashed them by forging the
signatures of the payees on the checks.
● In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the
Manager's checks payable to Ramos were crossed checks, Balmaceda was still able to encash the
checks. After Balmaceda encashed three of these Manager's checks, he deposited most of the
money into Ramos' account. The RTC concluded that from the P11,937,150.00 that Balmaceda
misappropriated from PCIB, P895,000.00 actually went to Ramos. Since the RTC disbelieved
Ramos' allegation that the sum of money deposited into his Savings Account (PCIB, Pasig
branch) were proceeds from the sale of fighting cocks, it held Ramos liable to pay PCIB the
amount of P895,000.00.
● CA: Dismissed the complaint against Ramos, holding that no sufficient evidence existed to prove
that Ramos colluded with Balmaceda in the latter's fraudulent manipulations. The mere fact that
Balmaceda made Ramos the payee in some of the Manager's checks does not suffice to prove that
Ramos was complicit in Balmaceda's fraudulent scheme. It observed that other persons were also
named as payees in the checks that Balmaceda acquired and encashed, and PCIB only chose to go
after Ramos. With PCIB's failure to prove Ramos' actual participation in Balmaceda's fraud, no
legal and factual basis exists to hold him liable.

ISSUE: Whether Ramos, who received a portion of the money that Balmaceda took from PCIB, should
also be held liable for the return of this money to the Bank.
RULING: NO.

Ramos' participation in Balmaceda's scheme not proven

On its face, all that PCIB's evidence proves is that Balmaceda used Ramos' name as a payee when he
filled up the application forms for the Manager's checks. But, as the CA correctly observed, the mere
fact that Balmaceda made Ramos the payee on some of the Manager's checks is not enough basis to
conclude that Ramos was complicit in Balmaceda's fraud; a number of other people were made
payees on the other Manager's checks yet PCIB never alleged them to be liable, nor did the Bank
adduce any other evidence pointing to Ramos' participation that would justify his separate
treatment from the others. Also, while Ramos is Balmaceda's brother-in-law, their relationship is not
sufficient, by itself, to render Ramos liable, absent concrete proof of his actual participation in the
fraudulent scheme. Moreover, the evidence on record clearly shows that Balmaceda acted on his own
when he applied for the Manager's checks against the bank account of one of PCIB's clients, as well as
when he encashed the fraudulently acquired Manager's checks.

Given that PCIB failed to establish Ramos' participation in Balmaceda's scheme, it was not even
necessary for Ramos to provide an explanation for the money he received from Balmaceda. Even if the
evidence adduced by the plaintiff appears stronger than that presented by the defendant, a judgment
cannot be entered in the plaintiff's favor if his evidence still does not suffice to sustain his cause of action;
to reiterate, a preponderance of evidence as defined must be established to achieve this result.

PCIB itself at fault as employer

In considering this case, one point that cannot be disregarded is the significant role that PCIB played
which contributed to the perpetration of the fraud. We cannot ignore that Balmaceda managed to
carry out his fraudulent scheme primarily because other PCIB employees failed to carry out their
assigned tasks - flaws imputable to PCIB itself as the employer.

Despite Balmaceda's gross violations of bank procedures - mainly in the processing of the
applications for Manager's checks and in the releasing of the Manager's checks - Balmaceda's co-
employees not only turned a blind eye to his actions, but actually complied with his instructions. In
this way, PCIB's own employees were unwitting accomplices in Balmaceda's fraud.

Another telling indicator of PCIB's negligence is the fact that it allowed Balmaceda to encash the
Manager's checks that were plainly crossed checks. A crossed check is one where two parallel lines are
drawn across its face or across its corner. Based on jurisprudence, the crossing of a check has the
following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be
negotiated only once -- to the one who has an account with the bank; and (c) the act of crossing the check
serves as a warning to the holder that the check has been issued for a definite purpose and he must inquire
if he received the check pursuant to this purpose; otherwise, he is not a holder in due course. In other
words, the crossing of a check is a warning that the check should be deposited only in the account of
the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the check is
only deposited to the payee's account. In complete disregard of this duty, PCIB's systems allowed
Balmaceda to encash 26 Manager's checks which were all crossed checks or checks payable to the
"payee's account only."
 Metropolitan Waterworks and Sewerage System v. CA and PNB
Facts:
PNB is the depository bank of MWSS and its predecessor-in-interest, NWSA (or NAWASA).
Among the several accounts of NWSA with PNB is NWSA Account No. 6. 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.
By special arrangement with the PNB, the MWSS used personalized checks in drawing from
this account. These checks were printed for MWSS by its printer, F. Mesina Enterprises
From March to May 1969, NWSA 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 were likewise paid and cleared by PNB and debited against NWSA Acct No. 6. The
aggregate amount of the forged checks amounted to P3,457,903.00, and were deposited by
payees Arturo Sison, Antonio Mendoza, and Raul Dizon.
It was later found that said payees were all fictitious persons. NWSA requested PNB to restore
the sum paid corresponding to the 23 forged checks. PNB refused to credit back the amount.
The trial court ruled in favor of MWSS but the Court of Appeals reversed the trial court’s
decision. 
Issue: Whether or not PNB should restore the said amount
Ruling: NO.
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.
MWSS relied on the NBI reports. However, the NBI reports 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.
The NBI did not declare or prove that the signatures appearing on the questioned checks are
forgeries. The report merely mentions the alleged differences in the typeface, checkwriting, and
printing characteristics appearing in the standard or submitted models and the questioned
typewritings. The NBI Chemistry Report merely describes the inks and pens used in writing the
alleged forged signatures.
The 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.
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.
Moreover, the petitioner is barred from setting up the defense of forgery under
Section 23 of NIL because it was guilty of negligence not only before the questioned checks
were negotiated but even after the same had already been negotiated.
 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, check 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.

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.
 10. Associated Bank v. CA

FACTS: 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. 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 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. Pangilinan sought to encash the first check 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, as well as for twenty-eight other checks of various amounts and on various dates. 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. 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.

Through post-audit, the province discovered that the hospital did not receive several allotted
checks, and sought the restoration of the debited amounts from PNB. In turn, PNB demanded
reimbursement from Associated Bank. Both banks resisted payment. Hence, the present action.

RTC: PNB is liable.

CA: Confirmed the decision of the lower court.

ISSUE: Whether or not PNB shall bear the loss resulting from the forged checks.

RULING: Yes (pero slight lang chz)

PNB is not negligent as it is not required to return the check to the collecting bank within 24 hours
as the banks involved are covered by Central Bank Circular 580 and not the rules of the Philippine
Clearing House.

Associated Bank, and not PNB, is the one duty-bound to warrant the instrument as genuine, valid
and subsisting at the time of indorsement pursuant to Section 66 of the Negotiable Instruments
Law. The stamp guaranteeing prior indorsement is not an empty rubric; the collecting bank is held
accountable for checks deposited by its customers.

However, due to the fact that the Province of Tarlac is equally negligent in permitting Pangilinan to
collect the checks when he was no longer connected with the hospital, it shares the burden of loss
from the checks bearing a forged indorsement. Therefore, the Province can only recover 50% of
the amount from the drawee bank (PNB), and the collecting bank (Associated Bank) is liable to
PNB for 50% of the same amount.
 PNB v. Hon. Romulo S. Quimpo
G.R. No. 53194. March 14, 1988.

Petitioner: Philippine National Bank

Respondents: Hon. Romulo S. Quimpo and Francisco S. Gozon II

Facts:
- In June 1973, Francisco Gozon II went to the Philippine National Bank (Caloocan City
Branch) accompanied by his friend Ernesto Santos.
- Gozon left Santos in his car and while Gozon was at the bank, Santos took a check from
Gozon’s checkbook.
- Santos forged Gozon’s signature and filled out the check with the amount of P5,000.00.
- Santos was able to encash the check that day with PNB.
- Gozon learned of this when his statement arrived.
- Santos eventually admitted to forging Gozon’s signature.
- Gozon then demanded the PNB to refund him the amount.
- PNB refused. Judge Romulo Quimpo ruled in favor of Gozon.
- PNB imputes the act of Gozon leaving his personal belongings with Santos as the
proximate cause for his own loss
Issue: Whether or not Gozon is the negligent party? –NO
Ruling:
Summary: The prime duty of a bank is to ascertain the genuineness of the signature of the
drawer or the depositor on the check being encashed. It is expected to use reasonable business
prudence in accepting and cashing a check presented to it. The findings of facts of the court a
quo are conclusive. The trial court found that a comparison of the signature on the forged check
and the sample signatures of private respondent show marked differences as the graceful lines
in the sample signature which is completely different from those of the signature on the forged
check.
1. The prime duty of a bank is to ascertain the genuineness of the signature of the
drawer or the depositor on the check being encashed.
2. It is expected to use reasonable business prudence in accepting and cashing a check
presented to it.
3. According to the Trial Court’s findings and decision:
a. 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 change the amount so paid to the account of the depositor whose
name was forged
b. This rule is absolutely necessary to the circulation of drafts and checks, and is based
upon the presumed negligence of the drawee in failing to meet its obligation to know the
signature of its correspondent.
c. There is nothing inequitable in such a rule. If the paper comes to the drawee in the
regular course of business, and he, having the opportunity ascertaining its character,
pronounces it to be valid and pays it, it is not only a question of payment under mistake,
but payment in neglect of duty which the commercial law places upon him, and the result
of his negligence must rest upon him
d. Defendant, however, interposed the defense that it exercised diligence in accordance
with the accepted norms of banking practice when it accepted and paid Exhibit "A". It
 presented evidence that the check had to pass scrutiny by a signature verifier as well as
an officer of the bank.
e. A comparison of the signature (Exhibit "A-l") on the forged check (Exhibit "A") with
plaintiffs exemplar signatures (Exhibits "5-N" and "5-B") found in the PNB Form 35-A
would immediately show the negligence of the employees of the defendant bank. Even a
not too careful comparison would immediately arrest one's attention and direct it
to the graceful lines of plaintiff’s exemplar signatures found in Exhibits "5-A" and
"5-B". The formation of the first letter "F" in the exemplars, which could be
regarded as artistic, is completely different from the way the same letter is formed
in Exhibit "A-l". That alone should have alerted a more careful and prudent signature
verifier.
4. In this case the findings of facts of the court a quo are conclusive.
5. The trial court found that a comparison of the signature on the forged check and the sample
signatures of private respondent show marked differences as the graceful lines in the sample
signature which is completely different from those of the signature on the forged check.
6. Indeed the NBI handwriting expert Estelita Santiago Agnes whom the trial court
considered to be an "unbiased scientific expert" indicated the marked differences between the
signature of private respondent on the sample signatures and the questioned signature.
7. Notwithstanding the testimony of the witness for petitioner, advancing the opinion that the
questioned signature appears to be genuine, the trial court by merely examining the pictorial
report presented by said witness, found a marked difference in the second "c" in Francisco as
written on the questioned signature as compared to the sample signatures, and the separation
between the "s" and the "c" in the questioned signature while they are connected in the
sample signatures.
8. Obviously, petitioner was negligent in encashing said forged check without carefully
examining the signature which shows marked variation from the genuine signature of
private respondent.
9. In reference to the allegation of the petitioner that it is the negligence of private respondent
that is the cause of the loss which he suffered, the trial court held:
a. The act of plaintiff in leaving his checkbook in the car while he went out for a
short while cannot be considered negligence sufficient to excuse the
defendant bank from its own negligence.
b. It should be home in mind that when defendant left his car, Ernesto Santos, a long
time classmate and friend remained in the same. Defendant could not have
been expected to know that the said Ernesto Santos would remove a check
from his checkbook. Defendant had trust in his classmate and friend. He had no
reason to suspect that the latter would breach that trust.
10. Private respondent trustee Ernesto Santos as a classmate and a friend. He brought him
along in his car to the bank and he left his personal belongings in the car. Santos however
removed and stole a check from his cheek book without the knowledge and consent of private
respondent. No doubt private respondent cannot be considered negligent under the
circumstances of the case.
 SAN CARLOS v BPI

FACTS: San Carlos Milling is a corporation organized under the laws of Hawaii, which is authorised to
engage in business in the Philippines, and maintains its main office in 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. Joseph Wilson is the principal employee in the Manila office with the same
powers but without the authority of substitution.

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 the plaintiff maintained a deposit.

After a year, Wilson conspired with a messenger from the Manila office, Dolores, to steal money by
forging Baldwin’s signature. He requested for $100,000 from the Honolulu office. 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 credited the current account of plaintiff San Carlos Milling in the sum of Php 201,000
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.

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 be packed for shipment and delivery
the next day. Dolores witnessed the counting and packing of the money, and returned with the check for
the sum of P200,000, purporting to be signed by Newland Baldwin as agent.
San Carlos Milling had frequently withdrawn currency for shipment to its mill from the Bank of the
Philippine Islands but never in such a large amount, and according to the record, never under the sole
supervision of Dolores as the representative of plaintiff. 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.

Suit was brought against the Bank of the Philippine Islands, and an amended complaint was filed 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.

BPI asserted they had been guilty of no negligence and 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.

The trial court held that the deposit of Php 201,000 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.

Hence, the petition.

ISSUE: Whether or not BPI was bound to inspect the checks and therefore must be liable in case of
forgery

RULING: Yes. 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. The bank paid
out its money because it relied upon the genuineness of the purported signatures of Baldwin. The
signatures to the checks being forged, under section 23 of the Negotiable Instruments Law they are not
a charge against the 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.

The judgment absolving the Bank of the Philippine Islands must therefore be reversed, and a judgment
entered in favor of plaintiff- appellant and against the Bank of the Philippine Islands, defendant-
appellee, for the sum of P200,001, with legal interest thereon from December 23, 1928, until payment,
together with costs in both instances.
Bank of America v. Philippine Racing Club Inc.

FACTS: PRCI is a domestic corporation which maintains several accounts with different banks in
Manila. Among the accounts maintained was with Bank of America (BA), under the authorized joint
signatories of PRCI’s President and VP for Finance. As they were scheduled to go out of the country for a
business trip, the President and VP pre-signed several checks relating to their current account with BA, to
avoid disruption of operations in their absence by making available money to settle obligations that might
become due. These checks were entrusted to the accountant with instruction to make use of the same by
preparing the voucher and completing the entries on the pre-signed checks when needed.

Consequently, a John Doe presented to BA for encashment two of PRCI’s checks amounting to P220K. It
is found that the checks were among those pre-signed by PRCI’s authorized signatories. The checks had
similar entries with infirmities and irregularities. On the space where the name of the payee should be
indicated, the following 2-line entries were instead typewritten: on the upper line was the word "CASH"
while the lower line said "ONE HUNDRED TEN THOUSAND PESOS ONLY." Despite the highly
irregular entries on the face of the checks, BA, without as much as verifying and confirming the
legitimacy of the checks considering the substantial amount involved and its obvious infirmity, encashed
them.

The checks appeared to have come into the hands of an employee of PRCI, who was criminally charged
for qualified theft, and who completed without authority the entries on the pre-signed checks. PRCI
demanded for BA to pay but to no avail.

The RTC rendered a decision in favor of PRCI, which ordered BA to pay the former the amount of the
encashed checks. BA appealed to the CA, which affirmed the RTC’s decision. The Motion for
Reconsideration was also subsequently denied.

ISSUE: Whether or not the CA gravely erred in holding that the proximate cause of PRCI’s loss was
BA’s encashment of the checks with failure to make a verification, and not PRCI’s grossly negligent
practice of pre-signing checks without payees and amounts.

RULING: NO. There is no dispute that the signatures appearing on the subject checks were genuine
signatures of the PRCI’s authorized joint signatories, who pre-signed the checks since they were both
scheduled to go abroad and it was their practice to leave with the company accountant checks signed in
blank to answer for company obligations that might fall due during the their absence. It is likewise
admitted that neither of the subject checks contains any material alteration or erasure.

However, the presence of the aforementioned irregularities in each check should have alerted BA to be
cautious before proceeding to encash them which it did not do. It is well-settled that banks are engaged in
a business impressed with public interest, and it is their duty to protect in return their clients and
depositors who transact business with them. They have the obligation to treat their client's account
meticulously and with the highest degree of care, considering the fiduciary nature of their relationship.
The diligence required of banks, therefore, is more than that of a good father of a family.

Extraordinary diligence demands that petitioner should have ascertained from respondent the authenticity
of the subject checks or the accuracy of the entries therein not only because of the presence of highly
irregular entries on the face of the checks but also of the unusual circumstances surrounding their
encashment. However, the Court agrees that PRCI’s officers' practice of pre-signing of blank checks
should be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the
efficient operation of businesses.

Nevertheless, in instances where both parties are at fault, the Court has consistently applied the Doctrine
of Last Clear Chance in order to assign liability. Even if it was concurred that PRCI was indeed negligent
in pre-signing blank checks, BA had the last clear chance to avoid the loss. Failing to make the necessary
verification due to the volume of banking transactions on that particular day is a flimsy and unacceptable
excuse, considering that the banking business is so impressed with public interest where the trust and
confidence of the public in general is of paramount importance such that the appropriate standard of
diligence must be a high degree of diligence, if not the utmost diligence.

Following established jurisprudential precedents, the Court allocated 60% of the actual damages involved
in this case to BA, and the remaining 40% to PRCI, in light of its contributory negligence.
Traders Royal Bank v. Radio Phils. Network Inc., Banahaw Broadcasting Corp., and
Security Bank and Trust Co.
Facts:
Respondent networks purchased from petitioner Traders Royal Bank (TRB) three manager's
checks payable to the BIR to be used as payment for their tax liabilities. TRB turned over the
checks to Lourdes Vera, respondents’ comptroller, who was supposed to deliver the same to
BIR.
It was, however, discovered that the three checks were never paid to the payee BIR but were
presented for payment to respondent Security Bank and Trust Company (SBTC) by some
unknown persons who, in order to receive payment therefor, forged the name of the payee.
Despite this fraud, petitioner paid the three checks in the total amount of P9,790,716.87.
For failure of the plaintiffs to settle their obligations, the BIR issued warrants of levy, distraint
and garnishment against them. Respondent Networks sent demand letters to TRB and SBTC
for the amounts covered by the checks. When the 2 banks refused, respondent networks filed a
complaint for damages against the two banks. The trial court found both banks liable. On
appeal, the Court of Appeals absolved SBTC from liability and held TRB solely liable to
respondent networks. Hence, the instant petition for review on certiorari.
Issue: Whether or not TRB should be held solely liable when it paid the amount of the checks in
question to a person other than the payee indicated on the face of the check, the Bureau of
Internal Revenue.
Ruling: YES
"When a signature is forged or made without the authority of the person whose signature
it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto, can be acquired
through or under such signature." Consequently, if a bank pays a forged check, it must be
considered as paying out of its funds and cannot charge the amount so paid to the account of
the depositor.
In the instant case, the 3 checks were payable to the BIR. It was established, however,
that said checks were never delivered or paid to the payee BIR but were in fact presented for
payment by some unknown persons who, in order to receive payment therefor, forged the name
of the payee. Despite this fraud, petitioner TRB paid the 3 checks.
Petitioner ought to have known that, where a check is drawn payable to the order of one
person and is presented for payment by another and purports upon its face to have been duly
indorsed by the payee of the check, it is the primary duty of petitioner to know that the check
was duly indorsed by the original payee and, where it pays the amount of the check to a third
person who has forged the signature of the payee, the loss falls upon petitioner who cashed the
check. Its only remedy is against the person to whom it paid the money.
By encashing in favor of unknown persons checks which were on their face payable to
the BIR, a government agency which can only act only through its agents, petitioner did so at its
peril and must suffer the consequences of the unauthorized or wrongful endorsement. In this
light, petitioner TRB cannot exculpate itself from liability by claiming that respondent networks
were themselves negligent.
Why TRB is not entitled to reimbursement from SBTC
 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 itself,
and ultimately should be held liable therefor. However, it is doubtful if the subject checks were
ever presented to and accepted by SBTC so as to hold it liable as a collecting bank, as held by
the Court of Appeals.
Since TRB did not pay the rightful holder or other person or entity entitled to receive
payment, it has no right to reimbursement. Petitioner TRB was remiss in its duty and obligation,
and must therefore suffer the consequences of its own negligence and disregard of established
banking rules and procedures.

Gempesaw v. CA and Philippine Bank of Communications

G.R. No. 92244. February 9, 1993.

Petitioners: Natividad Gempesaw

Respondents: Court of Appeals and Philippine Bank of Communications

Facts:
- Gempesaw filed a Complaint against the private respondent Philippine Bank of
Communications (respondent drawee Bank) for recovery of the money value of eighty-
two (82) checks charged against the petitioner's account with the respondent drawee
Bank on the ground that the payees' indorsements were forgeries.

- Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery stores
located at Rizal Avenue Extension and at Second Avenue, Caloocan City. Among these
groceries are D.G. Shopper's Mart and D.G. Whole Sale Mart.
- Petitioner draws checks against her checking account with the respondent bank as
drawee. Her customary practice of issuing checks in payment of her suppliers was as
follows: the checks were prepared and filled up as to all material particulars by her
trusted bookkeeper, Alicia Galang, an employee for more than eight (8) years.
- Although the respondent drawee Bank notified her of all checks presented to and paid
by the bank, petitioner did not verify the correctness of the returned checks, much less
check if the payees actually received the checks in payment for the supplies she
received. In the course of her business operations covering a period of two years,
petitioner issued, following her usual practice stated above, a total of eighty-two (82)
checks in favor of several suppliers
- All the eighty-two (82) checks with forged signatures of the payees were brought to
Ernest L. Boon, Chief Accountant of respondent drawee Bank at the Buendia branch,
who, without authority therefor, accepted them all for deposit at the Buendia branch to
the credit and/or in the accounts of Alfredo Y. Romero and Benito Lam.
- About thirty (30) of the payees whose names were specifically written on the checks
testified that they did not receive nor even see the subject checks and that the
indorsements appearing at the back of the checks were not theirs.
- petitioner made a written demand on respondent drawee Bank to credit her account with
the money value of the eighty-two (82) checks totalling P1,208.606.89 for having been
wrongfully charged against her account. Respondent drawee Bank refused to grant
petitioner's demand. On January 23, 1985, petitioner filed the complaint with the
Regional Trial Court.

Issue:
Who bears the loss resulting from the forged indorsements?
Whether or not the negligence of the drawer is the proximate cause of the resulting injury to the
drawee bank and the drawer is precluded from setting up the forgery or want of authority

Ruling:
Forgery is a real defense by the party whose signature was forged. A party whose
signature was forged was never a party and never gave his consent to the instrument. Since his
signature doesn’t appear in the instrument, the same cannot be enforced against him even by a
holder in due course. The drawee bank cannot charge the account of the drawer whose
signature was forged because he never gave the bank the order to pay.

In the case at bar the checks were filled up by petitioner’s employee Galang and were
later given to her for signature. Her signing the checks made the negotiable instruments
complete. Prior to signing of the checks, there was no valid contract yet. Petitioner completed
the checks by signing them and thereafter authorized Galang to deliver the same to their
respective payees. The checks were then indorsed, forged indorsements thereon.

As a rule, a drawee bank who has paid a check on which an indorsement has been
forged cannot debit the account of a drawer for the amount of said check. An exception
to this rule is when the drawer is guilty of negligence which causes the bank to honor
such checks.

Petitioner in this case has relied solely on the honesty and loyalty of her bookkeeper and
never bothered to verify the accuracy of the amounts of the checks she signed the invoices
attached thereto. And though she received her bank statements, she didn't carefully examine
the same to double-check her payments. Petitioner didn't exercise reasonable diligence
which eventually led to the fruition of her bookkeeper’s fraudulent schemes.

Her negligence was the proximate cause of her loss, and under Section 23 of the
Negotiable Instruments Law, is precluded from using forgery as a defense. On the other hand,
the banking rule banning acceptance of checks for deposit or cash payment with more than one
indorsement unless cleared by some bank officials does not invalidate the instrument; neither
does it invalidate the negotiation or transfer of said checks. The only kind of indorsement which
stops the further negotiation of an instrument is a restrictive indorsement which prohibits the
further negotiation thereof, pursuant to Section 36 of the Negotiable Instruments Law. In light of
any case not provided for in the Act that is to be governed by the provisions of existing
legislation, pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held
liable for damages in accordance with Article 1170 of the Civil Code. The drawee bank, in its
failure to discover the fraud committed by its employee and in contravention banking
rules in allowing a chief accountant to deposit the checks bearing second indorsements,
was adjudged liable to share the loss with Gempesaw on a 50:50 ratio.

When a signature is forged or made without the authority of the person whose signature
it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto, can be acquired
through or under such signature, unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of authority.

PREMISES CONSIDERED, the case is hereby ordered REMANDED to the trial court for the
reception of evidence to determine the exact amount of loss suffered by the petitioner.
 Ilusorio vs CA
FACTS: Ilusorio was a businessman who was in charge of 20 or so corporations. He was a depositor in
good standing of Manila Banking Corporation. As he was in charge of a big number of corporations, he
was usually out of the country for business. He then entrusted his credit cards, checkbook, blank checks,
passbooks, etc to his secretary, Katherine Eugenio. Eugenio was also in charge of verifying and
reconciling the statements of Ilusorio’s checking account.
Eugenio was able to encash and deposit to her personal account checks drawn against Ilusorio’s account
with an aggregate amount of 119K. Ilusorio didn’t bother to check his statement of account until a
business partner informed him that he saw Eugenio using his credit cards. Ilusorio then fired her and
instituted criminal case of Estafa thru falsification against Eugenio. Manila Banking Corp. also instituted a
complaint of estafa against Eugenio based on the affidavit of Dante Razon, an employee. Razon stated
that he personally examined and scrutinized the encashed checks in accordance with their verification
procedures.
Manila Bank sought the expertise of NBI in determining the genuineness of the checks but Ilusorio failed
to submit specimen signatures and thus, NBI could not conduct the examination.
Issue: W/N Manila Bank is liable for damages for failing to detect a forged check
Held: No. To be entitled to damages, Ilusorio has the burden of poving that the bank was negligent in
failing to detect the discrepancy in the signatures on the checks. Ilusorio had to establish the fact of
forgery which he failed to do by failing to submit his specimen signatures for NBI to conclusively
establish forgery.
Furthermore, the Bank was not negligent in verifying the checks as they verified the drawer’s signatures
against their specimen signatures and in doubt, referred to more experienced verifier for further
verification.
On the contrary, it was Ilusorio who was found to be negligent. He accorded his secretary with an
unusual degree of trust and unrestricted access to his finances. Furthermore, despite the fact that the
bank was regularly sending statements of account, he failed to check them until he found out that his
secretary was using his credit cards.
Sec. 23 of the Negotiable Instruments law provides that a forged check is inoperative, meaning there
was no right to enforce payment against any party. But it also provides an exception: “unless the party
against whom it is sought enforce such right is precluded from setting up the forgery or want of
authority”. This case falls under the exception since Ilusorio is precluded from setting up forgery due to
his own negligence considering that he allowed his secretary access to his credit cards, checkbook, and
allowed his secretary to verify his statements of account.
MANAGER’S CHECKS

METROPOLITAN BANK AND TRUST COMPANY v. JUNNEL'S MARKETING

CORPORATION, PURIFICACION DELIZO, AND BANK OF COMMERCE
G.R. No. 235511, June 20, 2018

BANK OF COMMERCE, Petitioner, v. JUNNEL'S MARKETING CORPORATION,

PURIFICACION DELIZO, AND METROPOLITAN BANK AND TRUST COMPANY
 G.R. No. 235565 | June 20, 2018

FACTS: Junnel's Marketing Corporation (JMC) is a domestic corporation engaged in the

business of selling wines and liquors. It has a current account with Metrobank from which it
draws checks to pay its different suppliers. Among JMC's suppliers are Jardine Wines and
Spirits (Jardine) and Premiere Wines (Premiere).

In 2000, during an audit of its financial records, JMC discovered an anomaly involving 11

checks (subject checks) it had issued to the orders of Jardine and Premiere on various dates
between October 1998 to May 1999. As it was, the subject checks had already been charged
against JMC's current account but were, for some reason, not covered by any official receipt
from Jardine or Premiere. The subject checks, which are all crossed checks, amounted to
P1,481,292.00 in total.

Examination of the dorsal portion of the subject checks revealed that all had been deposited
under an account with Bankcom, Dau branch. Upon inquiring with Jardine and Premiere,
however, JMC was able to confirm that neither of the said suppliers owns the said Bankcom
Account.

Meanwhile, Purificacion Delizo (Delizo), a former accountant of JMC, executed a handwritten

letter addressed to one Nelvia Yusi, President of JMC. Delizo confessed that, during her time as
an accountant for JMC, she stole several company checks drawn against JMC's current
account. She professed that the said checks were never given to the named payees but were
forwarded by her to one Lita Bituin (Bituin). Delizo further admitted that she, Bituin and an
unknown bank manager colluded to cause the deposit and encashing of the stolen checks and
shared in the proceeds thereof.

JMC surmised that the subject checks are among the checks purportedly stolen by Delizo. JMC
filed before the RTC of Pasay City a complaint for sum of money against Delizo, Bankcom and
Metrobank.

In its complaint, JMC alleged that the wrongful conversion of the subject checks was caused by
a combination of the "tortious and felonious" scheme of Delizo and the "negligent and unlawful
acts" of Bankcom and Metrobank. On the basis of the foregoing averments, JMC prayed that
Delizo, Bankcom and Metrobank be held solidarily liable in its favor for the amount of the
subject checks.

Delizo, Bankcom and Metrobank filed their individual answers denying liability. Incorporated in
Metrobank's answer, moreover, is a cross-claim against Bankcom and Delizo wherein
Metrobank asks for the right to be reimbursed in the event it is ordered liable in favor of JMC.

ISSUES: 1) Whether or not Metrobank is liable to return to JMC the entire amount of the subject
checks. 2) Whether or not Bankcom is liable to reimburse Metrobank the same amount plus
interest.

RULING: The Court ruled that the two banks should have been ordered sequentially liable for
the entire amount of the subject checks pursuant to the case of Bank of America v. Associated
Citizens Bank.

Bank of America is the leading jurisprudence that illustrates the respective liabilities of a
collecting bank and a drawee bank in cases of unauthorized payment of valid checks. Notably,
the facts of Bank America are parallel to the facts of the present case. Both Bank of
America and the present case involved crossed checks payable to the order of a specified
payee that were deposited in a collecting bank under an account not belonging to the payee or
his indorsee but which, upon presentment, were subsequently honored by the drawee bank.

Bank of America held that, in cases involving the unauthorized payment of valid checks, the
drawee bank becomes liable to the drawer for the amount of the checks but the drawee bank, in
turn, can seek reimbursement from the collecting bank. The rationale of this rule on sequence of
recovery lies in the very basis and nature of the liability of a drawee bank and a collecting bank
in said cases. As the recent case of BDO Unibank v. Lao explains:

The liability of the drawee bank is based on its contract with the drawer and its duty to
charge to the latter's accounts only those payables authorized by him. A drawee bank is
under strict liability to pay the check only to the payee or to the payee's order. When the
drawee bank pays a person other than the payee named in the check, it does not comply
with the terms of the check and violates its duty to charge the drawer's account only for
properly payable items.

On the other hand, the liability of the collecting bank is anchored on its guarantees as the
last endorser of the check. Under Section 66 of the NIL, an endorser warrants "that the
instrument is genuine and in all respects what it purports to be; that he has good title to it;
that all prior parties had capacity to contract; and that the instrument is at the time of his
endorsement valid and subsisting."

It has been repeatedly held that in check transactions, the collecting bank 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. If
any of the warranties made by the collecting bank turns out to be false, then the drawee bank
may recover from it up to the amount of the check.

This rule should have been applied to the case at bench.

1) Yes. Metrobank liable to return to JMC the entire amount of the subject checks plus interest

Metrobank, as drawee bank, is liable to return to JMC the amount of the subject checks.

A drawee bank is contractually obligated to follow the explicit instructions of its drawer-clients
when paying checks issued by them. The drawer's instructions-including the designation of the
payee or to whom the check should be paid-are reflected on the face and by the terms
thereof. When a drawee bank pays a person other than the payee named on the check, it
essentially commits a breach of its obligation and renders the payment it made unauthorized. In
such cases and under normal circumstances, the drawee bank may be held liable to the drawer
for the amount charged against the latter's account.
The liability of the drawee bank to the drawer in cases of unauthorized payment of checks has
been regarded in jurisprudence to be strict by nature. This means that once an unauthorized
payment on a check has been made, the resulting liability of the drawee bank to the drawer for
such payment attaches even if the former had acted merely upon the guarantees of a collecting
bank. Indeed, it is only when the unauthorized payment of a check had been caused or was
attended by the fault or negligence of the drawer himself can the drawee bank be excused,
whether wholly or partially, from being held liable to the drawer for the said payment.
In the present case, it is apparent that Metrobank had breached JMC's instructions when it paid
the value of the subject checks to Bankcom for the benefit of the unknown account. The
payment to the said account was unauthorized as it was established that the said account does
not belong to Jardine or Premiere, the payees of the subject checks, or to their indorsees. In
addition, causal or concurring negligence on the part of JMC had not been proven. Under such
circumstances, Metrobank is clearly liable to return to JMC the amount of the subject checks.

2) Yes. Bankcom liable to reimburse Metrobank the same amount plus interest.

While Metrobank's reliance upon the guarantees of Bankcom does not excuse it from being
liable to JMC, such reliance does enable Metrobank to seek reimbursement from Bankcom-the
collecting bank.

A collecting or presenting bank-i.e., the bank that receives a check for deposit and that presents
the same to the drawee bank for payment-is an indorser of such check. When a collecting bank
presents a check to the drawee bank for payment, the former thereby assumes the same
warranties assumed by an indorser of a negotiable instrument pursuant to Section 66 of the NIL.
These warranties are: (1) that the instrument is genuine and in all respects what it purports to
be; (2) that the indorser has good title to it; (3) that all prior parties had capacity to contract; and
(4) that the instrument is, at the time of the indorsement, valid and subsisting. If any of the
foregoing warranties turns out to be false, a collecting hank becomes liable to the drawee bank
for payments made under such false warranty.

Here, it is clear that Bankcom had assumed the warranties of an indorser when it forwarded the
subject checks to PCHC for presentment to Metrobank. By such presentment, Bankcom
effectively guaranteed to Metrobank that the subject checks had been deposited with it to an
account that has good title to the same. This guaranty, however, is a complete falsity because
the subject checks were, in truth, deposited to an account that neither belongs to the payees of
the subject checks nor to their indorsees. Hence, as the subject checks were paid under
Bankcom's false guaranty, the latter-as collecting bank-stands liable to return the value of such
checks to Metrobank.

Interests

In Nacar v. Gallery Frames, the Court laid out the following guidelines for the imposition and
computation of legal interests. Applying these guidelines to the case at bench, we fix the legal
interests due against Metrobank and Bankcom thusly:

1. The liability of Metrobank to JMC consists in returning the amount it charged against
JMC's current account. Current accounts, like all bank deposits, are considered under the
law as loans. Normally, current accounts are interest-bearing by express contract.
However, the actual interest rate, if any, for the current account opened by JMC with
Metrobank was not given in evidence.

Under these circumstances, we find it proper to subject Metrobank's principal liability to

JMC to a legal interest of 6% per annum from 28 January 2002 until full satisfaction. The
date 28 January 2002 is the date when JMC filed its complaint with the RTC.

2. The liability of Bankcom to Metrobank, on the other hand, consists in returning the
amount it was paid by Metrobank. This stems from a breach by Bankcom of its warranties
 as a collecting bank.

Accordingly, we find it proper to subject Bankcom's principal liability to Metrobank to a

legal interest of 6% per annum from 5 March 2003 until full satisfaction. The date 5 March
2003 is the date when Metrobank filed its answer with cross-claim against Bankcom.

RCBC Savings Bank v. Odrada

G.R. No. 219037, 19 October 2016

*Lim did not inform Odrada through a letter

*Odrada impleaded RCBC because it was the check of RCBC (manager’s check)
*Odrada sued RCBC bc the check was dishonored
*Theory of Odrada : diba manager’s check is as good as cash? Bakit nadishonor? So he filed a
complaint
*Can a manager’s check be countermanded/dishonored? – Yes, although accepted because issued
by the bank itself, may raise personal defenses against a not holder in due course.
*Odrada is not a holder in due course because Odrada was informed of the problem but still
deposited the check in the bank

*MetroBank v. Chiok – is there still a clearing procedure pag manager’s check? Yes.
*Clearing means checks are sent to clearing houses to verify if check is drawn against a sufficient
account, or if it is closed, or genuine

FACTS:

● Respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi Montero (Montero) to

Teodoro L. Lim (Lim) for P1,510,000. Of the total consideration, P610,000 was initially paid by
Lim and the balance of P900,000 was financed by petitioner RCBC Savings Bank (RCBC)
through a car loan obtained by Lim.
● As a requisite for the approval of the loan, RCBC required Lim to submit the original copies of
the Certificate of Registration (CR) and Official Receipt (OR) in his name. Unable to produce the
Montero’s OR and CR, Lim requested RCBC to execute a letter addressed to Odrada informing
the latter that his application for a car loan had been approved.
● RCBC issued a letter that the balance of the loan would be delivered to Odrada upon submission
of the OR and CR. Following the letter and initial down payment, Odrada executed a Deed of
Absolute Sale on 9 April 2002 in favor of Lim and the latter took possession of the Montero.
● When RCBC received the documents, RCBC issued two manager’s checks dated 12 April 2002
payable to Odrada for P900,000 and P13,500. After the issuance of the manager’s checks and
their turnover to Odrada but prior to the checks’ presentation, Lim notified Odrada in a letter
dated 15 April 2002 that there was an issue regarding the roadworthiness of the Montero.
● Odrada did not go to the slated meeting mentioned in said letter and instead deposited the
manager’s checks with International Exchange Bank (Ibank) on 16 April 2002 and redeposited
them on 19 April 2002 but the checks were dishonored both times apparently upon Lim’s
instruction to RCBC. Consequently, Odrada filed a collection suit against Lim and RCBC in the
Regional Trial Court of Makati.
 ● RTC: The trial court ruled in favor of Odrada. The trial court ruled that the defective condition of
the Montero was not a supervening event that would justify the dishonor of the manager’s checks.
The trial court reasoned that a manager’s check is equivalent to cash and is really the bank’s own
check. It may be treated as a promissory note with the bank as maker. Hence, the check becomes
the primary obligation of the bank which issued it and constitutes a written promise to pay on
demand. Being the party primarily liable, the trial court ruled that RCBC was liable to Odrada for
the value of the manager’s checks.
● CA: The Court of Appeals ruled that the two manager’s checks, which were complete and
regular, reached the hands of Lim who deposited the same in his bank account with Ibank. RCBC
knew that the amount reflected on the manager’s checks represented Lim’s payment for the
remaining balance of the Montero’s purchase price. The appellate court held that when RCBC
issued the manager’s checks in favor of Odrada, RCBC admitted the existence of the payee and
his then capacity to endorse and undertook that on due presentment the checks which were
negotiable instruments would be accepted or paid, or both according to its tenor. The appellate
court held that the effective delivery of the checks to Odrada made RCBC liable for the checks.

ISSUES:

1. Whether or not the drawee bank of a manager’s check has the option of refusing payment by
interposing a personal defense of the purchaser of the manager’s check who delivered the check
to a third party.
2. Whether or not the drawee bank can interpose a personal defense of the purchaser if the holder of
a manager’s check is not a holder in due course.
3. Whether or not Odrada is a holder in due course, therefore, personal defenses cannot be set up
against him.

RULING:

1. YES. RCBC may refuse to pay manager’s checks.

Jurisprudence defines a manager’s check as a check drawn by the bank’s manager upon the bank
itself and accepted in advance by the bank by the act of its issuance. It is really the bank’s own
check and may be treated as a promissory note with the bank as its maker. Consequently, upon its
purchase, the check becomes the primary obligation of the bank and constitutes its written
promise to pay the holder upon demand. It is similar to a cashier’s check both as to effect and use
in that the bank represents that the check is drawn against sufficient funds.

As a general rule, the drawee bank is not liable until it accepts. Prior to a bill’s acceptance, no
contractual relation exists between the holder and the drawee. Acceptance, therefore, creates a
privity of contract between the holder and the drawee so much so that the latter, once it
accepts, becomes the party primarily liable on the instrument. Accordingly, acceptance is
the act which triggers the operation of the liabilities of the drawee (acceptor) under Section
62 of the Negotiable Instruments Law. Thus, once he accepts, the drawee admits the following:
(a) existence of the drawer; (b) genuineness of the drawer’s signature; (c) capacity and authority
of the drawer to draw the instrument; and (d) existence of the payee and his then capacity to
endorse.

As can be gleaned in a long line of cases decided by this Court, a manager’s check is accepted by
the bank upon its issuance. As compared to an ordinary bill of exchange where acceptance occurs
after the bill is presented to the drawee, the distinct feature of a manager’s check is that it is
accepted in advance. Notably, the mere issuance of a manager’s check creates a privity of
 contract between the holder and the drawee bank, the latter primarily binding itself to pay
according to the tenor of its acceptance.

The drawee bank, as a result, has the unconditional obligation to pay a manager’s check to a
holder in due course irrespective of any available personal defenses. However, while this
Court has consistently held that a manager’s check is automatically accepted, a holder
other than a holder in due course is still subject to defenses.

In International Corporate Bank, this Court considered whether the holder presented the
manager’s check within a reasonable time after its issuance – a circumstance required for holding
the instrument in due course.

Similarly, in Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation, the

Court observed that the mere issuance of a manager’s check does not ipso facto work as an
automatic transfer of funds to the account of the payee. In order for the holder to acquire
title to the instrument, there still must have been effective delivery. Accordingly, the Court,
taking exception to the manager’s check automatic transfer of funds to the payee, declared that:
“the doctrine that the deposit represented by a manager’s check automatically passes to the
payee is inapplicable, because the instrument – although accepted in advance remains
undelivered.” This Court ruled that the holder did not acquire the instrument in due course since
title had not passed for lack of delivery.

2. YES. The foregoing rulings (Mesina v. Intermediate Appellate Court and United Coconut
Planters Bank v. Intermediate Appellate Court) clearly establish that the drawee bank of a
manager’s check may interpose personal defenses of the purchaser of the manager’s check
if the holder is not a holder in due course. In short, the purchaser of a manager’s check may
validly countermand payment to a holder who is not a holder in due course. Accordingly,
the drawee bank may refuse to pay the manager’s check by interposing a personal defense
of the purchaser.

ADDITIONAL NOTES:

In Mesina: “Petitioner’s allegations hold no water. Theories and examples advanced by petitioner on
causes and effects of a cashier’s check such as (1) it cannot be countermanded in the hands of a holder
in due course and (2) a cashier’s check is a bill of exchange drawn by the bank against itself – are
general principles which cannot be aptly applied to the case at bar, without considering other things.
Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or value
as shown by the established facts of the case. Admittedly, petitioner became the holder of the
cashier’s check as endorsed by Alexander Lim who stole the check. He refused to say how and
why it was passed to him. He had therefore notice of the defect of his title over the check from the
start. Ultimately, the notice of defect affected Mesina’s claim as a holder of the manager’s check.
This Court ruled that the issuing bank could validly refuse payment because Mesina was not a
holder in due course. Unequivocally, the Court declared: “the holder of a cashier’s check who is not
a holder in due course cannot enforce such check against the issuing bank which dishonors the
same.”

In UCPB: In upholding UCPB’s refusal to pay the value of the manager’s check, this Court reasoned
that Makati Bel-Air Developers, Inc.’s title to the instrument became defective when there arose a
partial failure of consideration. We held that UCPB could validly invoke a personal defense of the
purchaser against Makati Bel-Air Developers, Inc. because the latter was not a holder in due
course of the manager’s check: “There are other considerations supporting the conclusion reached by
this Court that respondent appellate court had committed reversible error. Makati Bel-Air was a party to
the contract of sale of an office condominium unit to Altiura, for the payment of which the manager’s
check was issued. Accordingly, Makati Bel-Air was fully aware, at the time it had received the
manager’s check, that there was, or had arisen, at least partial failure of consideration since it
was unable to comply with its obligation to deliver office space amounting to 165 square meters to
Altiura. Makati Bel-Air was also aware that petitioner Bank had been informed by Altiura of the
claimed defect in Makati Bel-Air’s title to the manager’s check or its right to the proceeds
thereof. © both Altiura and petitioner Bank, Makati Bel-Air was not a holder in due course of the
manager’s check.”

3. NO. The Court of Appeals gravely erred when it considered Odrada as a holder in due course.
Section 52 of the Negotiable Instruments Law defines a holder in due course as one who has
taken the instrument under the following conditions:

xxx

© That he took it in good faith and for value;

xxx

To be a holder in due course, the law requires that a party must have acquired the instrument in
good faith and for value. Good faith means that the person taking the instrument has acted
with due honesty with regard to the rights of the parties liable on the instrument and that at
the time he,took the instrument, the holder has no knowledge of any defect or infirmity of
the instrument. Value, on the other hand, is defined as any consideration sufficient to
support a simple contract.

In the present case, Odrada attempted to deposit the manager’s checks on 16 April 2002, a day
after Lim had informed him that there was a serious problem with the Montero. Instead of
addressing the issue, Odrada decided to deposit the manager’s checks. Odrada’s actions do not
amount to good faith. Clearly, Odrada failed to make an inquiry even when the circumstances
strongly indicated that there arose, at the very least, a partial failure of consideration due to the
hidden defects of the Montero. Odrada’s action in depositing the manager’s checks despite
knowledge of the Montero’s defects amounted to bad faith. Moreover, when Odrada
redeposited the manager’s checks on 19 April 2002, he was already formally notified by RCBC
the previous day of the cancellation of Lim’s auto loan transaction. Following UCPB, RCBC may
refuse payment by interposing a personal defense of Lim – that the title of Odrada had become
defective when there arose a partial failure or lack of consideration.

RCBC acted in good faith in following the instructions of Lim. The records show that Lim
notified RCBC of the defective condition of the Montero before Odrada presented the manager’s
checks. Lim informed RCBC of the hidden defects of the Montero including a misaligned engine,
smashed condenser, crippled bumper support, and defective transmission. RCBC also received a
formal notice of cancellation of the auto loan from Lim and this prompted RCBC to cancel the
manager’s checks since the auto loan was the consideration for issuing the manager’s checks.
RCBC acted in good faith in stopping the payment of the manager’s checks.

Section 58 of the Negotiable Instruments Law provides: “In the hands of any holder other than a
holder in due course, a negotiable instrument is subject to the same defenses as if it were non-
 negotiable, x x x.” Since Odrada was not a holder in due course, the instrument becomes
subject to personal defenses under the Negotiable Instruments Law. Hence, RCBC may
legally act on a countermand by Lim, the purchaser of the manager’s checks.

Lastly, since Lim’s testimony involving the Montero’s hidden defects was stricken off the record
by the trial court, Lim failed to prove the existence of the hidden defects and thus Lim remains
liable to Odrada for the purchase price of the Montero. Lim’s failure to file an appeal from the
decision of the Court of Appeals made the decision of the appellate court final and executory as
to Lim. RCBC cannot be made liable because it acted in good faith in carrying out the stop
payment order of Lim who presented to RCBC the complaint letter to Odrada when Lim
issued the stop payment order.

Metrobank v. Chiok
November 26, 2014 | Leornardo-De Castro, J. | Section 62 of the Negotiable Instruments Law
*Manager’s check and cashier’s check must still undergo clearing
*cannot be countermanded in the event that they are drawn from a closed or insufficient account
*since good as cash, the issuance of the check means there is a sufficient account from which it is
drawn
*the act of chiok in not delivering the check in question, it absolved the bank from liability (chiok
did not inform with the

JUDGE
WON a cashier or manager’s check still subject to clearing?
- Since the bank is the drawer and the drawee, manager’s and cashier’s are pre-accepted.
But it does not mean they should not undergo clearing procedure to ensure if it is genuine,
counterfeited, etc.., the purpose is to ensure any material alteration..
- But they can be countermanded by a holder not in due course

Petitioner: Metropolitan Bank and Trust Company

Respondent: Wilfred N. Chiok

Summary:  On July 5, 1995, respondent Wilfred N. Chiok (Chiok) bought US$1,022,288.50 dollars from
Gonzalo B. Nuguid (Nuguid) where Chiok deposited the three manager’s checks (Asian Bank MC Nos.
025935 and 025939, and Metrobank CC No. 003380), with an aggregate value of ₱26,068,350.00 in
Nuguid’s account with petitioner Bank of the Philippine Islands (BPI). Nuguid, however, failed to deliver
the dollar equivalent of the three checks as agreed upon, prompting Chiok to request that payment on the
three checks be stopped. On the following day, July 6, 1995, Chiok filed a Complaint for damages with
application for ex parte restraining order and/or preliminary injunction with the Regional Trial Court
(RTC) of Quezon City against the spouses Gonzalo and Marinella Nuguid, and the depositary banks,
Asian Bank and Metrobank. On July 25, 1995, the RTC issued an Order directing the issuance of a writ of
preliminary prohibitory injunction. When checks were presented for payment, Asian Bank refused to
honor MC Nos. 025935 and 025939 in deference to the TRO.

Doctrine: While manager’s and cashier’s checks are still subject to clearing, they cannot be
countermanded for being drawn against a closed account, for being drawn against insufficient funds, or
for similar reasons such as a condition not appearing on the face of the check.

FACTS: Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several years. He
usually buys dollars from Gonzalo B. Nuguid (Nuguid) at the exchange rate prevailing on the date of the
sale. Chiok pays Nuguid either in cash or manager's check, to be picked up by the latter or deposited in
the latter's bank account. Nuguid delivers the dollars either on the same day or on a later date as may be
agreed upon between them, up to a week later. Chiok and Nuguid had been dealing in this manner for
about six to eight years, with their transactions running into millions of pesos. For this purpose, Chiok
maintained accounts with petitioners Metropolitan Bank and Trust Company (Metrobank) and
Global Business Bank, Inc. (Global Bank), the latter being then referred to as the Asian Banking
Corporation (Asian Bank). Chiok likewise entered into a Bills Purchase Line Agreement (BPLA) with
Asian Bank. Under the BPLA, checks drawn in favor of, or negotiated to, Chiok may be purchased by
Asian Bank. Upon such purchase, Chiok receives a discounted cash equivalent of the amount of the check
earlier than the normal clearing period.

On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased" Security Bank & Trust Company
(SBTC) Manager's Check (MC) No. 037364 in the amount of P25,500,000.00 issued in the name of
Chiok, and credited the same amount to the latter's Savings Account No. 2-007-03-00201-3.
On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the amount of P7,550,000.00 and
MC No. 025939 in the amount of P10,905,350.00 to Gonzalo Bernardo, who is the same person as
Gonzalo B. Nuguid. The two Asian Bank manager's checks, with a total value of P18,455,350.00 were
issued pursuant to Chiok's instruction and was debited from his account. Likewise upon Chiok's
application, Metrobank issued Cashier's Check (CC) No. 003380 in the amount of P7,613,000.00 in the
name of Gonzalo Bernardo. The same was debited from Chiok's Savings Account No. 154-42504955.

Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and 025939, and Metrobank CC No.
003380), with an aggregate value of P26,068,350.00 in Nuguid's account with Far East Bank & Trust
Company (FEBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). Nuguid
was supposed to deliver US$1,022,288.50, 4 the dollar equivalent of the three checks as agreed upon, in
the afternoon of the same day. Nuguid, however, failed to do so, prompting Chiok to request that
payment on the three checks be stopped.

On July 25, 1995, the RTC issued an Order directing the issuance of a writ of preliminary prohibitory
injunction.

The RTC went on to rule that manager's checks and cashier's checks may be the subject of a Stop
Payment Order from the purchaser on the basis of the payee's contractual breach.
According to the RTC, both manager's and cashier's checks are still subject to regular clearing under the
regulations of the Bangko Sentral ng Pilipinas. Since manager's and cashier's checks are the subject of
regular clearing, they may consequently be refused for cause by the drawee, which refusal is in fact
provided for in the PCHC Rule Book.

ISSUE: Whether or Not payment of manager's and cashier's checks are subject to the condition that the
payee thereof should comply with his obligations to the purchaser of the checks.

RULING: No. A manager’s check, like a cashier’s check, is an order of the bank to pay, drawn upon
itself, committing in effect its total resources, integrity, and honor behind its issuance. By its peculiar
character and general use in commerce, a manager’s check or a cashier’s check is regarded substantially
to be as good as the money it represents. While manager’s and cashier’s checks are still subject to
clearing, they cannot be countermanded for being drawn against a closed account, for being drawn against
insufficient funds, or for similar reasons such as a condition not appearing on the face of the check. Long
standing and accepted banking practices do not countenance the countermanding of manager’s and
cashier’s checks on the basis of a mere allegation of failure of the payee to comply with its obligations
towards the purchaser. Therefore, when Nuguid failed to deliver the agreed amount to Chiok, the latter
had a cause of action against Nuguid to ask for the rescission of their contract; but, Chiok did not have a
cause of action against Metrobank and Global Bank that would allow him to rescind the contracts of sale
of the manager’s or cashier’s checks, which would have resulted in the crediting of the amounts thereof
back to his accounts.

RATIO: While manager’s and cashier’s checks are still subject to clearing, they cannot be
countermanded for being drawn against a closed account, for being drawn against insufficient funds, or
for similar reasons such as a condition not appearing on the face of the check.