Forged Signature Liability

Forged Signature of drawer
Before us are two Petitions for Review 1 under Rule 45 of the Rules of Court, assailing the March 23, 2001 Decision 2 and the August 17, 2001 Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 63561. The decretal portion of the assailed Decision reads as follows: "WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the modification that defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for one-half of the value of the forged checks in the amount of P547,115.00 after deductions subject to REIMBURSEMENT from third party defendant Yabut who is likewise ORDERED to pay the other half to plaintiff corporation [Casa Montessori Internationale (CASA)]." 4 The assailed Resolution denied all the parties' Motions for Reconsideration. The Facts
FIRST DIVISION [G.R. NO. 149454. MAY 28, 2004.] BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. CASA MONTESSORI INTERNATIONALE AND LEONARDO T. YABUT, RESPONDENTS . [G.R. NO. 149507. MAY 28, 2004.] CASA MONTESSORI INTERNATIONALE, PETITIONER, VS. BANK OF THE PHILIPPINE ISLANDS, RESPONDENT .
DECISION
The facts of the case are narrated by the CA as follows: "On November 8, 1982, plaintiff CASA Montessori International 5 opened Current Account No. 02910081-01 with defendant BPI[,] with CASA's President Ms. Ma. Carina C. Lebron as one of its authorized signatories. "In 1991, after conducting an investigation, plaintiff 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, on the following dates and amounts: 'Check No. Date Amount
Nego Sec. 23 Page 1 of 176
PANGANIBAN, J p: By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients, who have the right to expect high standards of integrity and performance from it. Among its obligations in furtherance thereof is knowing the signatures of its clients. Depositors are not estopped from questioning wrongful withdrawals, even if they have failed to question those errors in the statements sent by the bank to them for verification. The Case
1. 839700 April 24, 1990 P43,400.00 2. 839459 Nov. 2, 1990 110,500.00 3. 839609 Oct. 17, 1990 47,723.00 4. 839549 April 7, 1990 90,700.00 5. 839569 Sept. 23, 1990 52,277.00 6. 729149 Mar. 22, 1990 148,000.00 7. 729129 Mar. 16, 1990 51,015.00 8. 839684 Dec. 1, 1990 140,000.00 9. 729034 Mar. 2, 1990 98,985.00
defendant bank praying that the latter be ordered to reinstate the amount of P782,500.00 7 in the current and savings accounts of the plaintiff with interest at 6% per annum. "On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff." 8 Ruling of the Court of Appeals Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss between BPI and CASA. The appellate court took into account CASA's contributory negligence that resulted in the undetected forgery. It then ordered Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA, the other half. It also disallowed attorney's fees and moral and exemplary damages. Hence, these Petitions. 9
Issues Total P782,600.00 6 "It turned out that 'Sonny D. Santos' with account at BPI's 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, plaintiff filed the herein Complaint for Collection with Damages against
In GR No. 149454, Petitioner BPI submits the following issues for our consideration: "I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the applicable decisions of this Honorable Court to the effect that forgery cannot be presumed; that it must be proved by clear, positive and convincing evidence; and that the burden of proof lies on the party alleging the forgery. "II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable laws, in particular the Negotiable Instruments Law (NIL) which precludes CASA, on account of its own negligence, from asserting its forgery claim against
BPI, specially taking into account the absence of any negligence on the part of BPI." 10 In GR No. 149507, Petitioner CASA submits the following issues: "1. The Honorable Court of Appeals erred when it ruled that 'there is no showing that [BPI], although negligent, acted in bad faith . . .' thus denying the prayer for the award of attorney's fees, moral damages and exemplary damages to [CASA]. The Honorable Court also erred when it did not order [BPI] to pay interest on the amounts due to [CASA]. "2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent in the case at bar, thus warranting its conclusion that the loss in the amount of P547,115.00 be 'apportioned between [CASA] and [BPI] . . .'" 11 These issues can be narrowed down to three. First, was there forgery under the Negotiable Instruments Law (NIL)? Second, were any of the parties negligent and therefore precluded from setting up forgery as a defense? Third, should moral and exemplary damages, attorney's fees, and interest be awarded? The Court's Ruling The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly meritorious. First Issue: Forged Signature Wholly Inoperative 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 . . . 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." 12 Under this provision, a forged signature is a real 13 or absolute defense, 14 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. 15 The counterfeiting of any writing, consisting in the signing of another's name with intent to defraud, is forgery. 16 In the present case, we hold that there was forgery of the drawer's signature on the check. First, both the CA 17 and the RTC 18 found that Respondent Yabut himself had voluntarily admitted, through an Affidavit, that he had forged the drawer's signature and encashed the checks. 19 He never refuted these findings. 20 That he had been coerced into admission was not corroborated by any evidence on record. 21 Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its examination of the said checks, 22 had concluded that the handwritings thereon compared to the standard signature of the drawer were not hers. 23 This conclusion was the same as that in the Report 24 that the PNP Crime Laboratory had earlier issued to BPI the drawee bank upon the latter's request.
Indeed, we respect and affirm the RTC's factual findings, especially when affirmed by the CA, since these are supported by substantial evidence on record. 25 Voluntary Admission Not Violative of Constitutional Rights The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial investigation, and (2) against self-incrimination. In the first place, he was not under custodial investigation. 26 His Affidavit was executed in private and before private individuals. 27 The mantle of protection under Section 12 of Article III of the 1987 Constitution 28 covers only the period "from the time a person is taken into custody for investigation of his possible participation in the commission of a crime or from the time he is singled out as a suspect in the commission of a crime although not yet in custody." 29 Therefore, to fall within the ambit of Section 12, quoted above, there must be an arrest or a deprivation of freedom, with "questions propounded on him by the police authorities for the purpose of eliciting admissions, confessions, or any information." 30 The said constitutional provision does "not apply to spontaneous statements made in a voluntary manner" 31 whereby an individual orally admits to authorship of a crime. 32 "What the Constitution proscribes is the compulsory or coercive disclosure of incriminating facts." 33 Moreover, the right against self-incrimination 34 under Section 17 of Article III 35 of the Constitution, which is ordinarily available only in criminal prosecutions, extends to all other government proceedings including civil actions, legislative investigations, 36 and administrative proceedings that possess a criminal or penal aspect 37 but not to private investigations done by private individuals. Even in such government proceedings, this right may be waived, 38 provided the waiver is certain; unequivocal; and intelligently, understandingly and willingly made. 39
If in these government proceedings waiver is allowed, all the more is it so in private investigations. It is of no moment that no criminal case has yet been filed against Yabut. The filing thereof is entirely up to the appropriate authorities or to the private individuals upon whom damage has been caused. As we shall also explain later, it is not mandatory for CASA the plaintiff below to implead Yabut in the civil case before the lower court. Under these two constitutional provisions, "[t]he Bill of Rights 40 does not concern itself with the relation between a private individual and another individual. It governs the relationship between the individual and the State." 41 Moreover, the Bill of Rights "is a charter of liberties for the individual and a limitation upon the power of the [S]tate." 42 These rights 43 are guaranteed to preclude the slightest coercion by the State that may lead the accused "to admit something false, not prevent him from freely and voluntarily telling the truth." 44
Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights "does not automatically entitle him to the constitutional protection." 45 When he freely and voluntarily executed 46 his Affidavit, the State was not even involved. Such Affidavit may therefore be admitted without violating his constitutional rights while under custodial investigation and against self-incrimination. Clear, Positive and Convincing Examination and Evidence The examination by the PNP, though inconclusive, was nevertheless clear, positive and convincing. Forgery "cannot be presumed." 47 It must be established by clear, positive and convincing evidence. 48 Under the best evidence rule as applied to documentary evidence like the checks in question, no secondary or substitutionary evidence may inceptively be introduced,
as the original writing itself must be produced in court. 49 But when, without bad faith on the part of the offeror, the original checks have already been destroyed or cannot be produced in court, secondary evidence may be produced. 50 Without bad faith on its part, CASA proved the loss or destruction of the original checks through the Affidavit of the one person who knew of that fact 51 Yabut. He clearly admitted to discarding the paid checks to cover up his misdeed. 52 In such a situation, secondary evidence like microfilm copies may be introduced in court. The drawer's signatures on the microfilm copies were compared with the standard signature. PNP Document Examiner II Josefina de la Cruz testified on cross-examination that two different persons had written them. 53 Although no conclusive report could be issued in the absence of the original checks, 54 she affirmed that her findings were 90 percent conclusive. 55 According to her, even if the microfilm copies were the only basis of comparison, the differences were evident. 56 Besides, the RTC explained that although the Report was inconclusive, no conclusive report could have been given by the PNP, anyway, in the absence of the original checks. 57 This explanation is valid; otherwise, no such report can ever be relied upon in court. Even with respect to documentary evidence, the best evidence rule applies only when the contents of a document such as the drawer's signature on a check is the subject of inquiry. 58 As to whether the document has been actually executed, this rule does not apply; and testimonial as well as any other secondary evidence is admissible. 59 Carina Lebron herself, the drawer's authorized signatory, testified many times that she had never signed those checks. Her testimonial evidence is admissible; the checks have not been actually executed. The genuineness of her handwriting is proved, not only through the court's comparison of the questioned handwritings and admittedly genuine specimens thereof, 60 but above all by her. The failure of CASA to produce the original checks neither gives rise to the presumption of suppression of evidence 61 nor creates an
unfavorable inference against it. 62 Such failure merely authorizes the introduction of secondary evidence 63 in the form of microfilm copies. Of no consequence is the fact that CASA did not present the signature card containing the signatures with which those on the checks were compared. 64 Specimens of standard signatures are not limited to such a card. Considering that it was not produced in evidence, other documents that bear the drawer's authentic signature may be resorted to. 65 Besides, that card was in the possession of BPI the adverse party. We have held that without the original document containing the allegedly forged signature, one cannot make a definitive comparison that would establish forgery; 66 and that a comparison based on a mere reproduction of the document under controversy cannot produce reliable results. 67 We have also said, however, that a judge cannot merely rely on a handwriting expert's testimony, 68 but should also exercise independent judgment in evaluating the authenticity of a signature under scrutiny. 69 In the present case, both the RTC and the CA conducted independent examinations of the evidence presented and arrived at reasonable and similar conclusions. Not only did they admit secondary evidence; they also appositely considered testimonial and other documentary evidence in the form of the Affidavit. The best evidence rule admits of exceptions and, as we have discussed earlier, the first of these has been met. 70 The result of examining a questioned handwriting, even with the aid of experts and scientific instruments, may be inconclusive; 71 but it is a non sequitur to say that such result is not clear, positive and convincing. The preponderance of evidence required in this case has been satisfied. 72 Second Issue: Negligence Attributable to BPI Alone 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. Clear Negligence in Allowing Payment Under a Forged Signature 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 73 is expected, 74 and high standards of integrity and performance are even required, of it. 75 By the nature of its functions, a bank is "under obligation to treat the accounts of its depositors with meticulous care, 76 always having in mind the fiduciary nature of their relationship." 77 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 78 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." 79 In fact, BPI was the same bank involved when we issued this ruling seventy years ago. Neither Waiver nor Estoppel Results from Failure to Report Error in Bank Statement The monthly statements issued by BPI to its clients contain a notice worded as follows: "If no error is reported in ten (10) days, account
will be correct." 80 Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is it estopped from questioning the mistake after the lapse of the ten-day period. This notice is a simple confirmation 81 or "circularization" in accounting parlance that requests client-depositors to affirm the accuracy of items recorded by the banks. 82 Its purpose is to obtain from the depositors a direct corroboration of the correctness of their account balances with their respective banks. 83 Internal or external auditors of a bank use it as a basic audit procedure 84 the results of which its client-depositors are neither interested in nor privy to to test the details of transactions and balances in the bank's records. 85 Evidential matter obtained from independent sources outside a bank only serves to provide greater assurance of reliability 86 than that obtained solely within it for purposes of an audit of its own financial statements, not those of its client-depositors. Furthermore, there is always the audit risk that errors would not be detected 87 for various reasons. One, materiality is a consideration in audit planning; 88 and two, the information obtained from such a substantive test is merely presumptive and cannot be the basis of a valid waiver. 89 BPI has no right to impose a condition unilaterally and thereafter consider failure to meet such condition a waiver. Neither may CASA renounce a right 90 it has never possessed. 91 Every right has subjects active and passive. While the active subject is entitled to demand its enforcement, the passive one is duty-bound to suffer such enforcement. 92 On the one hand, BPI could not have been an active subject, because it could not have demanded from CASA a response to its notice. Besides, the notice was a measly request worded as follows: "Please examine . . . and report . . ." 93 CASA, on the other hand, could not have been a passive subject, either, because it had no obligation to respond. It could as it did choose not to respond.
Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything contrary to that established as the truth, in legal contemplation. 94 Our rules on evidence even make a juris et de jure presumption 95 that whenever one has, by one's own act or omission, intentionally and deliberately led another to believe a particular thing to be true and to act upon that belief, one cannot in any litigation arising from such act or omission be permitted to falsify that supposed truth. 96 In the instant case, CASA never made any deed or representation that misled BPI. The former's omission, if any, may only be deemed an innocent mistake oblivious to the procedures and consequences of periodic audits. Since its conduct was due to such ignorance founded upon an innocent mistake, estoppel will not arise. 97 A person who has no knowledge of or consent to a transaction may not be estopped by it. 98 "Estoppel cannot be sustained by mere argument or doubtful inference . . .." 99 CASA is not barred from questioning BPI's error even after the lapse of the period given in the notice.
Proximate cause is determined by the facts of the case. 106 "It is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred." 107 Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on checks being encashed, BPI is "expected to use reasonable business prudence." 108 In the performance of that obligation, it is bound by its internal banking rules and regulations that form part of the contract it enters into with its depositors. 109 Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of its branches without privity; 110 that is, without the proper verification of his corresponding identification papers. Second, BPI was unable to discover early on not only this irregularity, but also the marked differences in the signatures on the checks and those on the signature card. Third, despite the examination procedures it conducted, the Central Verification Unit 111 of the bank even passed off these evidently different signatures as genuine. Without exercising the required prudence on its part, BPI accepted and encashed the eight checks presented to it. As a result, it proximately contributed to the fraud and should be held primarily liable 112 for the "negligence of its officers or agents when acting within the course and scope of their employment." 113 It must bear the loss. CASA Not Negligent in Its Financial Affairs In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception 114 to the general rule that a forged signature is wholly inoperative. 115 Contrary to BPI's claim, however, we do not find CASA negligent in handling its financial affairs. CASA, we stress, is not precluded from setting up forgery as a real defense.
Loss Borne by Proximate Source of Negligence For allowing payment 100 on the checks to a wrongful and fictitious payee, BPI the drawee bank becomes liable to its depositordrawer. Since the encashing bank is one of its branches, 101 BPI can easily go after it and hold it liable for reimbursement. 102 It "may not debit the drawer's account 103 and is not entitled to indemnification from the drawer." 104 In both law and equity, when one of two innocent persons "must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong." 105
Role of Independent Auditor The major purpose of an independent audit is to investigate and determine objectively if the financial statements submitted for audit by a corporation have been prepared in accordance with the appropriate financial reporting practices 116 of private entities. The relationship that arises therefrom is both legal and moral. 117 It begins with the execution of the engagement letter 118 that embodies the terms and conditions of the audit and ends with the fulfilled expectation of the auditor's ethical 119 and competent performance in all aspects of the audit. 120 The financial statements are representations of the client; but it is the auditor who has the responsibility for the accuracy in the recording of data that underlies their preparation, their form of presentation, and the opinion 121 expressed therein. 122 The auditor does not assume the role of employee or of management in the client's conduct of operations 123 and is never under the control or supervision 124 of the client. ATDHSC Yabut was an independent auditor 125 hired by CASA. He handled its monthly bank reconciliations and had access to all relevant documents and checkbooks. 126 In him was reposed the client's 127 trust and confidence 128 that he would perform precisely those functions and apply the appropriate procedures in accordance with generally accepted auditing standards. 129 Yet he did not meet these expectations. Nothing could be more horrible to a client than to discover later on that the person tasked to detect fraud was the same one who perpetrated it. Cash Balances Open to Manipulation It is a non sequiturto say that the person who receives the monthly bank statements, together with the cancelled checks and other debit/credit memoranda, shall examine the contents and give notice of
any discrepancies within a reasonable time. Awareness is not equipollent with discernment. Besides, in the internal accounting control system prudently installed by CASA, 130 it was Yabut who should examine those documents in order to prepare the bank reconciliations. 131 He owned his working papers, 132 and his output consisted of his opinion as well as the client's financial statements and accompanying notes thereto. CASA had every right to rely solely upon his output based on the terms of the audit engagement and could thus be unwittingly duped into believing that everything was in order. Besides, "[g]ood faith is always presumed and it is the burden of the party claiming otherwise to adduce clear and convincing evidence to the contrary." 133 Moreover, there was a time gap between the period covered by the bank statement and the date of its actual receipt. Lebron personally received the December 1990 bank statement only in January 1991 134 when she was also informed of the forgery for the first time, after which she immediately requested a "stop payment order." She cannot be faulted for the late detection of the forged December check. After all, the bank account with BPI was not personal but corporate, and she could not be expected to monitor closely all its finances. A preschool teacher charged with molding the minds of the youth cannot be burdened with the intricacies or complexities of corporate existence. There is also a cutoff period such that checks issued during a given month, but not presented for payment within that period, will not be reflected therein. 135 An experienced auditor with intent to defraud can easily conceal any devious scheme from a client unwary of the accounting processes involved by manipulating the cash balances on record especially when bank transactions are numerous, large and frequent. CASA could only be blamed, if at all, for its unintelligent choice in the selection and appointment of an auditor a fault that is not tantamount to negligence.
Negligence is not presumed, but proven by whoever alleges it. 136 Its mere existence "is not sufficient without proof that it, and no other cause," 137 has given rise to damages. 138 In addition, this fault is common to, if not prevalent among, small and medium-sized business entities, thus leading the Professional Regulation Commission (PRC), through the Board of Accountancy (BOA), to require today not only accreditation for the practice of public accountancy, 139 but also the registration of firms in the practice thereof. In fact, among the attachments now required upon registration are the code of good governance 140 and a sworn statement on adequate and effective training. 141 The missing checks were certainly reported by the bookkeeper 142 to the accountant 143 her immediate supervisor and by the latter to the auditor. However, both the accountant and the auditor, for reasons known only to them, assured the bookkeeper that there were no irregularities. The bookkeeper 144 who had exclusive custody of the checkbooks 145 did not have to go directly to CASA's president or to BPI. Although she rightfully reported the matter, neither an investigation was conducted nor a resolution of it was arrived at, precisely because the person at the top of the helm was the culprit. The vouchers, invoices and check stubs in support of all check disbursements could be concealed or fabricated even in collusion and management would still have no way to verify its cash accountabilities. Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If auditors may be held liable for breach of contract and negligence, 146 with all the more reason may they be charged with the perpetration of fraud upon an unsuspecting client. CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency or munificence or both. Money paid under a mistake may rightfully be recovered, 147 and under such terms as the injured party may choose.
Third Issue: Award of Monetary Claims Moral Damages Denied We deny CASA's claim for moral damages. In the absence of a wrongful act or omission, 148 or of fraud or bad faith, 149 moral damages cannot be awarded. 150 The adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for granting such damages. 151 While no proof of pecuniary loss is necessary therefor with the amount to be awarded left to the court's discretion 152 the claimant must nonetheless satisfactorily prove the existence of its factual basis 153 and causal relation 154 to the claimant's act or omission. 155 Regrettably, in this case CASA was unable to identify the particular instance enumerated in the Civil Code upon which its claim for moral damages is predicated. 156 Neither bad faith nor negligence so gross that it amounts to malice 157 can be imputed to BPI. Bad faith, under the law, "does not simply connote bad judgment or negligence; 158 it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud." 159
As a general rule, a corporation being an artificial person without feelings, emotions and senses, and having existence only in legal contemplation is not entitled to moral damages, 160 because it cannot experience physical suffering and mental anguish. 161 However, for breach of the fiduciary duty required of a bank, a corporate client may claim such damages when its good reputation is besmirched by such breach, and social humiliation results therefrom. 162 CASA was unable to prove that BPI had debased the good reputation of, 163 and consequently caused incalculable
embarrassment to, the former. CASA's mere allegation or supposition thereof, without any sufficient evidence on record, 164 is not enough. Exemplary Damages Also Denied We also deny CASA's claim for exemplary damages. Imposed by way of correction 165 for the public good, 166 exemplary damages cannot be recovered as a matter of right. 167 As we have said earlier, there is no bad faith on the part of BPI for paying the checks of CASA upon forged signatures. Therefore, the former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 168 The latter, having no right to moral damages, cannot demand exemplary damages. 169 Attorney's Fees Granted Although it is a sound policy not to set a premium on the right to litigate, 170 we find that CASA is entitled to reasonable attorney's fees based on "factual, legal, and equitable justification." 171 When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the latter's interest, 172 or where the court deems it just and equitable, 173 attorney's fees may be recovered. In the present case, BPI persistently denied the claim of CASA under the NIL to recredit the latter's account for the value of the forged checks. This denial constrained CASA to incur expenses and exert effort for more than ten years in order to protect its corporate interest in its bank account. Besides, we have already cautioned BPI on a similar act of negligence it had committed seventy years ago, but it has remained unrelenting. Therefore, the Court deems it just and equitable to grant ten percent (10%) 174 of the total value adjudged to CASA as attorney's fees. Interest Allowed
For the failure of BPI to pay CASA upon demand and for compelling the latter to resort to the courts to obtain payment, legal interest may be adjudicated at the discretion of the Court, the same to run from the filing 175 of the Complaint. 176 Since a court judgment is not a loan or a forbearance of recovery, the legal interest shall be at six percent (6%) per annum. 177 "If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of . . . legal interest, which is six percent per annum." 178 The actual base for its computation shall be "on the amount finally adjudged," 179 compounded 180 annually to make up for the cost of money 181 already lost to CASA. Moreover, the failure of the CA to award interest does not prevent us from granting it upon damages awarded for breach of contract. 182 Because BPI evidently breached its contract of deposit with CASA, we award interest in addition to the total amount adjudged. Under Section 196 of the NIL, any case not provided for shall be "governed by the provisions of existing legislation or, in default thereof, by the rules of the law merchant." 183 Damages are not provided for in the NIL. Thus, we resort to the Code of Commerce and the Civil Code. Under Article 2 of the Code of Commerce, acts of commerce shall be governed by its provisions and, "in their absence, by the usages of commerce generally observed in each place; and in the absence of both rules, by those of the civil law." 184 This law being silent, we look at Article 18 of the Civil Code, which states: "In matters which are governed by the Code of Commerce and special laws, their deficiency shall be supplied" by its provisions. A perusal of these three statutes unmistakably shows that the award of interest under our civil law is justified. WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No. 149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals is AFFIRMED with modification: BPI is held liable for P547,115, the total value of the forged checks less the amount already recovered by CASA from Leonardo T. Yabut,
plus interest at the legal rate of six percent (6%) per annum compounded annually, from the filing of the complaint until paid in full; and attorney's fees of ten percent (10%) thereof, subject to reimbursement from Respondent Yabut for the entire amount, excepting attorney's fees. Let a copy of this Decision be furnished the Board of Accountancy of the Professional Regulation Commission for such action as it may deem appropriate against Respondent Yabut. No costs. SO ORDERED. Ynares-Santiago, Carpio and Azcuna, JJ ., concur. Davide, Jr., C .J ., is on official leave. Footnotes 1. GR No. 149454 rollo, pp. 2040; GR No. 149507 rollo, pp. 320. 2. Id., pp. 4452 & 2230. Penned by Justice Portia AlioHormachuelos, with the concurrence of Justices Fermin A. Martin Jr. (Second Division chairman) and Mercedes GozoDadole (member). 3. Id., pp. 54 & 32. Penned by Justice Portia Alio-Hormachuelos, with the concurrence of Justices Ramon A. Barcelona (Special Former Second Division chairman) and Mercedes Gozo-Dadole (member). 4. Assailed CA Decision, pp. 89; GR No. 149454 rollo, pp. 5152; GR No. 149507 rollo, pp. 2930. 5. This is also referred to in the records as Casa Montessori Internationale or Casa Montessori International, Inc. 6. The amount was earlier stated in the CA Decision as P782,000.
7. The total amount of the encashed checks was earlier computed in the CA Decision to be P782,600. 8. Assailed CA Decision, pp. 24; GR No. 149454 rollo, pp. 4547; GR No. 149507 rollo, pp. 2325. Citations omitted. 9. These two cases were consolidated and deemed submitted for decision on July 25, 2002, upon the Court's receipt of BPI's Memorandum in GR No. 149454, which was signed by Atty. Justino M. Marquez III. CASA's Memorandum, signed by Atty. Oscar F. Martinez, was filed on July 4, 2002; while Yabut's Memorandum, signed by Atty. Leny L. Mauricio, was filed on June 25, 2002. In GR No. 149507, a Manifestation (re: Memorandum) by Yabut, also signed by Atty. Mauricio, was filed on June 25, 2002. BPI's Memorandum, also signed by Atty. Marquez, was filed on June 3, 2002; while CASA's Memorandum, also signed by Atty. Martinez, was filed on April 19, 2002. 10. BPI's Memorandum, p. 7; GR No. 149454 rollo, p. 140. Boldface and upper case characters copied verbatim. 11. CASA's Memorandum, p. 6; GR No. 149507 rollo, p. 83. 12. Act No. 2031 took effect on June 2, 1911. Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol I (1989 ed.), p. 191. 13. Campos and Lopez-Campos, Notes and Selected Cases on Negotiable Instruments Law (5th ed., 1994), pp. 268269. 14. Gempesaw v. CA, 218 SCRA 682, 689, February 9, 1993. 15. Associated Bank v. CA, 322 Phil. 677, 695, January 31, 1996.
16. Agbayani, supra, p. 191. 17. Assailed CA Decision, p. 7; GR No. 149454 rollo, p. 50; GR No. 149507 rollo, p. 28. 18. RTC Decision, p. 4; GR No. 149454 rollo, p. 59. 19. Yabut's Affidavit, pp. 12; GR No. 149454 records, pp. 323 324. 20. RTC Decision, p. 4; GR No. 149454 rollo, p. 59. 21. Assailed CA Decision, p. 8; id., p. 51; GR No. 149507 rollo, p. 29. 22. Questioned Document Report No. 291-91 dated November 25, 1991; GR No. 149454 records, p. 326. 23. Assailed CA Decision, p. 7; GR No. 149454 rollo, p. 50; GR No. 149507 rollo, p. 28. See also RTC Decision, p. 3; GR No. 149454 rollo, p. 58. 24. Questioned Document Report No. 029-91 dated January 28, 1991, issued upon the request of BPI Vice President Amante S. Bueno; GR No. 149454 records, p. 328. 25. Francisco v. CA, 377 Phil. 368, 378, November 29, 1999. See also Almeda v. CA, 336 Phil. 621, 629, March 13, 1997; Fuentes v. CA, 335 Phil. 1163, 1169, February 26, 1997; and People v. Magallano, 334 Phil. 276, 282, January 16, 1997. 26. Custodial investigation is defined as "any questioning initiated by law enforcement officers after a person has been taken into custody or otherwise deprived of his freedom of action in any significant way." Sebastian Sr. v. Garchitorena, 343 SCRA 463, 470, October 18, 2000, per De Leon Jr., J. See
also Navallo v. Sandiganbayan, 234 SCRA 175, 183184, July 18, 1994; People v. Loveria, 187 SCRA 47, 61, July 2, 1990; and Miranda v. Arizona, 384 US 436, 444, 16 L. Ed. 2d 694, 706, June 13, 1966. In the deliberations on the 1987 Constitution, Commissioner Felicitas Aquino summed up the right as extending to the period of "custodial interrogation, temporary detention and preliminary technical custody." Bernas, The Constitution of the Republic of the Philippines : A Commentary, Vol. I (1st ed., 1987), p. 345; citing Record of the Constitutional Commission: Proceedings and Debates, Vol. I (1986), pp. 713714, 716717. 12 of Article III of the Constitution provides for the rights available to a person facing custodial investigation. Cruz, Constitutional Law (1995 ed.), p. 292. 27. Yabut's Affidavit, supra. 28. ". . . [A]mong the rights of a person under custodial investigation is the right to have competent and independent counsel preferably of his own choice and if the person cannot afford the services of counsel, that he must be provided with one." Marcelo v. Sandiganbayan, 361 Phil. 772, 788, January 26, 1999, per Mendoza, J. See also People v. Porio, 376 SCRA 596, 609610, February 13, 2002; People v. Suela, 373 SCRA 163, 182, January 15, 2002; People v. Tulin, 416 Phil. 365, 382-383, August 30, 2001; People v. Continente, 339 SCRA 1, 1718, 2021, 26, August 25, 2000; People v. Santocildes Jr., 378 Phil. 943, 949950, December 21, 1999; People v. Bermas, 365 Phil. 581, 593596, April 21, 1999; People v. Santos, 347 Phil. 943, 949950, December 22, 1997; People v. Andal, 344 Phil. 889, 911912, September 25, 1997; People v. Fabro,
342 Phil. 708, 772, 726, August 11, 1997; People v. Deniega, 251 SCRA 626, 638639, December 29, 1995; and People v. Duero, 191 Phil. 679, 687688, May 13, 1981.
investigation." Remolona v. CSC, 414 Phil. 590, 599, August 2, 2001, per Puno, J. See also Sebastian Sr. v. Garchitorena, supra; Manuel v. N.C. Construction Supply, 346 Phil. 1014, 1024, November 28, 1997; and Lumiqued v. Exevea, 346 Phil. 807, 822823, November 18, 1997. 33. People v. Dano, supra. See People v. Ordoo, 390 Phil. 169, 183184, June 29, 2000. 34. This provision prohibits the "compulsory oral examination of prisoners before the trial, or upon trial, for the purpose of extorting unwilling confessions or declarations implicating them in the commission of a crime." Bernas, supra, pp. 422 423; citing US v. Tan Teng, 23 Phil. 145, 152, September 7, 1912. The kernel of this right is against testimonial compulsion only. Cruz, supra, p. 283. See Regalado, Remedial Law Compendium, Vol. II (7th rev. ed., 1995), p. 369. 35. People v. Rondero, 378 Phil. 123, 139140, December 9, 1999. See People v. Bacor, 366 Phil. 197, 212, April 30, 1999. 36. Cruz, supra, p. 282. 37. Secretary of Justice v. Lantion, 379 Phil. 165, 200, January 18, 2000; citing Pascual Jr. v. Board of Medical Examiners, 138 Phil. 361, 366, May 26, 1969, and Cabal v. Kapunan Jr., 116 Phil. 1361, 13661369, December 29, 1962. See Bernas, supra, p. 423. 38. Alvero v. Dizon, 76 Phil. 637, 645, May 4, 1946. 39. Cruz, supra, p. 286.
29. People v. Felixminia, 379 SCRA 567, 575, March 20, 2002, per curiam. See also People v. Bariquit, 341 SCRA 600, 618, October 2, 2000; People v. Bravo, 376 Phil. 931, 940, November 22, 1999; People v. Andan, 336 Phil. 91, 102, March 3, 1997; and People v. Marra, 236 SCRA 565, 573, September 20, 1994. These rights are available if a person is in custody, even if not yet a suspect; or if already the suspect, even if not yet in custody. Bernas, supra. 30. People v. Arondain, 418 Phil. 354, 367368, September 27, 2001, per Ynares-Santiago, J. See also People v.Amestuzo, 413 Phil. 500, 508, July 12, 2001; People v. Valdez, 341 SCRA 25, 4142, September 25, 2000; People v. Labtan, 377 Phil. 967, 982, 984, December 8, 1999; People v. De la Cruz, 344 Phil. 653, 660661, September 17, 1997; People v. Del Rosario, 365 Phil. 292, 310, April 14, 1990; People v. Ayson, 175 SCRA 216, 231, July 7, 1989; and Gamboa v. Cruz, 162 SCRA 642, 648, June 27, 1988. 31. People v. Dano, 339 SCRA 515, 528, September 1, 2000, per Quisumbing, J. See also Aballe v. People, 183 SCRA 196, 205, March 15, 1990; People v. Dy, 158 SCRA 111, 123 124, February 23, 1988; and People v. Taylaran, 195 Phil. 226, 233234, October 23, 1981. 32. In fact, the exclusionary rule under 12, paragraph (2) of the Bill of Rights, "applies only to admissions made in a criminal investigation but not to those made in an administrative
40. The Bill of Rights in Article III of the Constitution is a statement of an individual's rights that are normally protected, except in extreme cases of real public necessity, against impairment, usurpation, or removal by any form of State action. Sinco, Philippine Political Law: Principles and Concepts (10th ed., 1954), p. 73. 41. People v. Silvano, 381 SCRA 607, 616, April 29, 2002, per Mendoza, J. See People v. Domantay, 366 Phil. 459, 474, May 11, 1999; People v. Maqueda, 312 Phil. 646, 675676, March 22, 1995; People v. Marti, 193 SCRA 57, 67, January 18, 1991. 42. Filoteo Jr. v. Sandiganbayan, 331 Phil. 531, 574, October 16, 1996, per Panganiban, J. See Bernas, supra, p. 33. 43. A person suspected or accused of a crime is entitled to the specific safeguards embodied in 12 and 17 of the Bill of Rights against arbitrary prosecution or punishment. Cruz, supra, p. 274. 44. People v. Vallejo, 382 SCRA 192, 216, May 9, 2002, per curiam; citing People v. Andan, supra. See also People v. Ordoo, supra; People v. Barlis, 231 SCRA 426, 441, March 24, 1994; and People v. Layuso, 175 SCRA 47, 53, July 5, 1989. 45. Sinco, supra, p. 670. 46. In the absence of coercion, paragraph 17 of Article 32 of the Civil Code does not apply. It states: "Art. 32. Any . . . private individual . . . who directly or indirectly . . . violates or in any manner impedes or impairs any of the following rights and liberties of another person shall be liable to the latter for damages:
"(17) Freedom from being compelled to be a witness against one's self, or from being forced to confess a guilt . . ." 47. American Express International, Inc. v. CA, 367 Phil. 333, 341, June 8, 1999, per Bellosillo, J.; citing Tenio-Obsequio v. CA, 230 SCRA 550, 558, March 1, 1994. See Siasat v. IAC, 139 SCRA 238, 248, October 10, 1985. 48. Metropolitan Bank & Trust Co. v. CA, 194 SCRA 169, 176, February 18, 1991. See MWSS v. CA, 227 Phil. 18, 26, July 14, 1986. 49. Regalado, supra, p. 555. 50. 3(a) of Rule 130 of the Rules of Court. 51. De Vera v. Aguilar, 218 SCRA 602, 607, February 9, 1993. 52. Yabut's Affidavit, p. 1; GR No. 149454 records, p. 323. 53. TSN, January 18, 1994, p. 13. 54. Id., p. 29. 55. Id., pp. 3334. 56. Ibid. 57. RTC Decision, p. 3; GR No. 149454 rollo, p. 58. 58. 3 of Rule 130 of the Rules of Court. 59. Regalado, supra. 60. 22 of Rule 132 of the Rules of Court.
61. This adverse presumption does not arise when the suppression is not willful. Regalado, supra, p. 639; citing People v. Navaja, 220 SCRA 624, 633, March 30, 1993. 62. ". . . [T]he genuineness of a standard writing may be established by any of the following: (1) by the admission of the person sought to be charged with the disputed writing made at or for the purposes of the trial, or by his testimony; (2) by witnesses who saw the standards written or to whom or in whose hearing the person sought to be charged acknowledged the writing thereof; (3) by evidence showing that the reputed writer of the standard has acquiesced in or recognized the same, or that it has been adopted and acted upon by him in his business transactions or other concerns." Security Bank & Trust Company v. Triumph Lumber and Construction Corp., 361 Phil. 463, 478, January 21, 1999, per Davide Jr., CJ, citing BA Finance Corp. v. CA, 161 SCRA 608, 618, May 28, 1988. 63. Regalado, supra, p. 561. 64. This is the normal process followed in verifying signatures for purposes of making bank withdrawals. 65. Chiang Yia Min v. CA, 355 SCRA 608, 622623, March 28, 2001. 66. Heirs of Gregorio v. CA, 360 Phil. 753, 763, December 29, 1998.
71. Regalado, supra, p. 627. 72. 1 of Rule 133 of the Rules of Court. 73. The diligence required of banks is more than that of a pater familias or good father of a family. Bank of the Philippine Islands v. CA, 383 Phil. 538, 554, February 29, 2000. See Philippine Bank of Commerce v. CA, 336 Phil. 667, 681, March 14, 1997. 74. Philippine Commercial International Bank v . CA, 350 SCRA 446, 472, January 29, 2001. 75. 2 of Republic Act No. 8791, otherwise known as "The General Banking Law of 2000." 76. Westmont Bank v. Ong, 375 SCRA 212, 221, January 30, 2002; citing Citytrust Banking Corp. v. IAC, 232 SCRA 559, 564, May 27, 1994. 77. Simex International (Manila), Inc. v. CA, 183 SCRA 360, 367, March 19, 1990, per Cruz, J. 78. Article 1173 of the Civil Code. 79. San Carlos Milling Co., Ltd. v. Bank of the Philippine Islands, 59 Phil. 59, 66, December 11, 1933, per Hull, J. 80. BPI's Memorandum, p. 14; GR No. 149454 rollo, p. 147.
67. Ibid. 68. Id., p. 764. 69. Ibid. 70. 3(a) of Rule 130 of the Rules of Court.
81. Aside from positive confirmations, there are also negative ones that request debtors to respond to an auditor only if the balance in an attached statement is incorrect. Ricchiute, Auditing Concepts and Standards (rev. 2nd ed., 1991), p. 491.
82. Santos, Basic Auditing: Theory and Concepts, Vol. I (1988), p. 111. 83. Association of CPAs in Public Practice, Audit Manual (1985), p. 49. 84. Confirmation of accounts payable balances is normally applied to nearly every audit engagement. Holmes and Burns, Auditing Standards and Procedures (9th ed., 1979), p. 675. A bank deposit is in the nature of a simple loan or mutuum, as provided for in Articles 1953 and 1980 of the Civil Code. See De Leon, Comments and Cases on Credit Transactions, 1995 ed., pp. 3233; Integrated Realty Corp. v. Philippine National Bank, 174 SCRA 295, 309, June 28, 1989; Serrano v. Central Bank of the Philippines, 96 SCRA 96, 102, February 14, 1980; and Central Bank of the Philippines v. Morfe, 63 SCRA 114, 119, March 12, 1975. In bank parlance, a bank deposit is an account payable by the bank to its client-depositor. 85. Santos, supra, p. 102.
91. "The general rule of law is that a person may renounce any right which the law gives . . .." The Manila Railroad Company v. The Attorney-General, 20 Phil. 523, 537, December 1, 1911, per Moreland, J. See Tolentino, supra, p. 30. 92. Tolentino, supra, p. 28. 93. BPI's Memorandum, p. 14; GR No. 149454 rollo, p. 147. 94. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. IV (1991), p. 656. 95. Conclusive or absolute presumption. 2(a) of Rule 131 of the Rules of Court. 96. Art. 1431 of the Civil Code also provides: "Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon." 97. Ramiro v. Grao, 54 Phil. 744, 750, March 31, 1930. 98. Lodovica v. CA, 65 SCRA 154, 158, July 18, 1975.
86. Association of CPAs in Public Practice, Audit Manual, supra. 99. Kalalo v. Luz, 145 Phil. 152, 161, July 31, 1970, per Zaldivar, J. 87. Id., p. 57. 88. Id., p. 24. 89. "Waiver is defined as the relinquishment of a known right with both knowledge of its existence and an intention to relinquish it." Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. I (1990), p. 29. 90. Article 6 of the Civil Code.
100. Under Article 1231(1) of the Civil Code, payment is the actual performance that extinguishes an obligation. It implies not only an assent to the order of the drawer and a recognition of the drawee's obligation to pay the sum therein, but also a compliance with such obligation. Philippine National Bank v. CA, 134 Phil. 829, 833, October 29, 1968.
101. Greenbelt Branch. Assailed CA Decision, p. 3; GR No. 149454 rollo, p. 46; GR No. 149507 rollo, p. 24. 102. The Great Eastern Life Insurance Co. v. Hongkong & Shanghai Banking Corp., 43 Phil. 678, 683, August 23, 1922. 103. Campos and Lopez-Campos, supra, pp. 286287. 104. Associated Bank v. CA, 322 Phil. 677, 697, January 31, 1996, per Romero, J.; citing The Great Eastern Life Insurance Co. v. Hongkong & Shanghai Banking Corp., supra, and Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp., 157 SCRA 188, 198, January 20, 1988. 105. Philippine National Bank v. CA, supra, per Concepcion, CJ; citing Blondeau v. Nano, 61 Phil. 625, 631632, July 26, 1935. See Philippine National Bank v. The National City Bank of New York, 63 Phil. 711, 723726, October 31, 1936. 106. Sangco, Philippine Law on Torts and Damages, Vol. I (rev. ed., 1993), p. 90. 107. Batacln v. Medina, 109 Phil. 181, 185186, October 22, 1957, per Montemayor, J. 108. Philippine National Bank v. Quimpo, 158 SCRA 582, 585, March 14, 1988, per Gancayco, J. 109. Gempesaw v. CA, supra, p. 696.
112. . . . [B]anks are expected to exercise the highest degree of diligence in the selection and supervision of their employees." BPI v. CA, 216 SCRA 51, 71, November 26, 1992, per Gutierrez Jr., J. 113. Philippine Commercial International Bank v. CA, supra, per Quisumbing, J., p. 469. 114. Agbayani, supra, p. 199. 115. BPI v. CA, supra, p. 65. 116. Holmes and Burns, supra, p. 1. During the pendency of this case, an auditor had to ascertain whether the financial statements were in conformity with the Generally Accepted Accounting Principles (GAAP). Valix and Peralta, Financial Accounting (Vol. I, 1985 ed.), p. 8. As of April 2004, the Accounting Standards Council (ASC) of the Philippines has approved many Statements of Financial Accounting Standards (SFAS) and has also adopted several International Accounting Standards (IAS) issued by the International Accounting Standards Council (IASC). http://www.picpa.com.ph/press.htm, last visited April 23, 2004, 12:05 p.m. PST. 117. Holmes and Burns, supra, p. 79. 118. Id., p. 206.
110. Agbayani, supra, p. 207. 111. As testified to on direct examination by Angelita Dandan, senior manager of the BPI Muntinlupa Branch and formerly connected with the BPI Forbes Park Branch. TSN, August 26, 1997, pp. 34, and 7.
119. Certified public accountants or CPAs adhere to a Code of Professional Ethics, promulgated by the Board of Accountancy (BOA) on March 15, 1978. In January 2004, a new Code of Ethics for CPAs was approved by the Board of Directors of the Philippine Institute of CPAs (PICPA), to be
recommended for adoption by the BOA and approval by the Professional Regulation Commission (PRC) as part of the rules and regulations of the BOA for the practice of the accountancy profession in the Philippines. http://www.picpa.com.ph/news/codeofethics2.pdf, last visited April 23, 2004, 12:17 p.m. PST. 120. Holmes and Burns, supra, p. 79. 121. Santos, supra, pp. 11 & 168. 122. Holmes and Burns, supra, p. 80. 123. Ricchiute, supra, p. 48. 124. Santos, supra, pp. 52 & 76. 125. As testified to on cross-examination by Carina Lebron (TSN, February 13, 1992, pp. 1819). See Yabut's Affidavit, p. 1; GR No. 149454 records, p. 323. That Respondent Yabut is a CPA appears in CASA's pretrial Brief. GR No. 149454 records, p. 83. 126. Yabut's Affidavit, supra. 127. Ricchiute, supra, p. 54. 128. Santos, supra, p. 6. 129. Commissioner of Internal Revenue v. TMX Sales, Inc., 205 SCRA 184, 191, January 15, 1992. As of April 2004, many Generally Accepted Auditing Standards (GAAS) have been replaced by International Standards on Auditing (ISA).
130. A depositor has a duty to set up an accounting system that is reasonably calculated to prevent any forgery or to render it difficult to perpetrate. Gempesaw v. CA, supra, p. 690. 131. A bank reconciliation is an audit technique that verifies if the cash balance appearing on a bank statement per bank records is in agreement with that in the depositor's records or books of accounts. Meigs and Meigs, Accounting: The Basis for Business Decisions, Part I (5th ed., 1981), p. 315. 132. 24 of Presidential Decree (PD) No. 692, otherwise known as "The Revised Accountancy Law." 133. Chiang Yia Min v. CA, supra, p. 624, per Gonzaga-Reyes, J. 134. GR No. 149454 records, p. 491. 135. Cutoff bank statements do not represent all the transactions in a given month. Ricchiute, supra, p. 498. 136. Taylor v. The Manila Electric Railroad and Light Co., 16 Phil. 8, 28, March 22, 1910, per Carson, J.; citing Scaevola in Jurisprudencia del Cdigo Civil, Vol. 6 (1902), pp. 551552. 137. Taylor v. The Manila Electric Railroad and Light Co., supra, p. 27, quoting the judgment of the Supreme Court of Spain on June 12, 1900. 138. Before there can be a judgment for damages, "negligence must be affirmatively established by competent evidence." Sor Consuelo Barcel v. The Manila Electric Railroad and Light Co., 29 Phil. 351, 359, January 28, 1915, per Carson, J. 139. 27 of PD 692.
140. Good governance has been defined as a "really strong senior managerial control" exercised by the chief executive officer or "CEO and one of his/her strongest direct reports." Gerry Conroy, Good Governance and Good Management Keys to Successful Project Management. http://www.pwcglobal.com/Extweb/ ncinthenews.nsf/docid/28123C3F882E48B7CA256AFA007 A33EA, last visited May 6, 2004, 1:12 p.m. PST. "Accountability is a key requirement of good governance." As such, it "cannot be enforced without transparency and the rule of law." http://www.unescap.org/huset/gg/governance.htm, last visited May 6, 2004, 12:55 p.m. PST. 141. http://www.picpa.com.ph, last visited May 4, 2004, 1:57 p.m. PST. 142. Isidra Carandang. TSN, February 13, 1992, pp. 1819. 143. Felipa Cabuyao. TSN, February 13, 1992, pp. 1819. Yabut admitted that he had recommended Cabuyao to the position. Yabut's Affidavit, supra. 144. The job of a bookkeeper is so integrated with a corporation that the regular recording of its business accounts and transactions safeguards it from possible fraud, which is adverse to its corporate interest. Pabon v. NLRC, 296 SCRA 7, 14, September 24, 1998. 145. Yabut's Affidavit, p. 1; GR No. 149454 records, p. 323. 146. Holmes and Burns, supra, pp. 8486. 147. Campos and Lopez-Campos, supra, p. 287; Agbayani, supra, p. 211. Both cited Article 2154 of the Civil Code.
148. Ong Yiu v. CA, 91 SCRA 223, 229, June 29, 1979. 149. Suario v. Bank of the Philippine Islands, 176 SCRA 688, 696, August 25, 1989; citing Guita v. CA, 139 SCRA 576, 580, November 11, 1985. 150. Rubio v. CA, 141 SCRA 488, 515516, March 12, 1986; citing R&B Surety & Insurance Co., Inc. v. IAC, 214 Phil. 649, 657, June 22, 1984. 151. Filinvest Credit Corp. v. Mendez, 152 SCRA 593, 601, July 31, 1987. 152. Article 2216 of the Civil Code. 153. Silva v. Peralta, 110 Phil. 57, 64, November 25, 1960. 154. Article 2217 of the Civil Code. 155. Dee Hua Liong Electrical Equipment Corp. v. Reyes, 230 Phil. 101, 107, November 25, 1986. 156. Guilatco v. City of Dagupan, 171 SCRA 382, 389, March 21, 1989; citing Bagumbayan Corp. v. IAC, 217 Phil. 421, 424, September 30, 1984. 157. Soberano v. Manila Railroad Co., 124 Phil. 1330, 1337, November 23, 1966; citing Fores v. Miranda, 105 Phil. 266, 274, 276, March 4, 1959 and Necesito v. Paras, 104 Phil. 75, 8283, June 30, 1958. 158. Northwest Orient Airlines v. CA, 186 SCRA 440, 444, June 8, 1990; citing Sabena Belgian World Airlines v. CA, 171 SCRA 620, 629, March 31, 1989.
159. Cathay Pacific Airways, Ltd. v. Vazquez, 399 SCRA 207, 220, March 14, 2003, per Davide Jr., CJ; citing Francisco v. Ferrer Jr., 353 SCRA 261, 265, February 28, 2001. See also Morris v. CA, 352 SCRA 428, 437, February 21, 2001; Magat Jr. v. CA, 337 SCRA 298, 307, August 4, 2000; and Tan v. Northwest Airlines, Inc., 383 Phil. 1026, 1032, March 3, 2000. 160. LBC Express, Inc. v. CA, 236 SCRA 602, 607, September 21, 1994. See Layda v. CA, 90 Phil. 724, 730, January 29, 1952. 161. Article 2217 of the Civil Code. 162. Morales, The Philippine General Banking Law (Annotated 2002), pp. 34; citing Simex International (Manila), Inc. v. CA, supra, and Mambulao Lumber Co. v. Philippine National Bank, 130 Phil. 366, 391, January 30, 1968. 163. Sangco, supra, p. 989. 164. Grapilon v. Municipal Council of Carigara, Leyte, 112 Phil. 24, 29, May 30, 1961. 165. Article 2229 of the Civil Code. 166. Ledesma v. CA, 160 SCRA 449, 456, April 15, 1988, Prudenciado v. Alliance Transport System, Inc., 148 SCRA 440, 450, March 16, 1987; and Lopez v. Pan American World Airways, 123 Phil. 256, 267, March 30, 1966. 167. De Leon v. CA, 165 SCRA 166, 176, August 31, 1988; Sweet Lines, Inc. v. CA, 206 Phil. 663, 669, April 28, 1983; Octot v. Ybaez, 197 Phil. 76, 82, January 18, 1982; and Ventanilla v. Centeno, 110 Phil. 811, 816, January 28, 1961, citing Article 2233 of the Civil Code.
168. Article 2232 of the Civil Code. See Nadura v. Benguet Consolidated, Inc., 116 Phil. 28, 32, August 24, 1962. 169. Estopa v. Piansay Jr., 109 Phil. 640, 642, September 30, 1960. 170. Firestone Tire & Rubber Co. of the Philippines v. Ines Chaves & Co., Ltd., 124 Phil. 947, 950, October 19, 1966, citing Heirs of Basilisa Justiva vs. Gustilo, 117 Phil. 71, 73, January 31, 1963. See Tan Ti (alias Tan Tico) v. Alvear, 26 Phil. 566, 571, January 16, 1914. 171. Scott Consultants & Resource Development Corporation, Inc. v. CA, 312 Phil. 466, 481, March 16, 1995, per Davide Jr., J. (now CJ.). 172. Article 2208 (2) of the Civil Code. See Rivera v. Litam & Co., Inc., 114 Phil. 1009, 1022, April 25, 1962; and Luneta Motor Co. v. Baguio Bus Co., Inc., 108 Phil. 892, 898, June 30, 1960. 173. Article 2208 (11) of the Civil Code. See Philippine National Bank v. Utility Assurance & Surety Co., Inc., 177 SCRA 208, 219, September 1, 1989; citing Plaridel Surety & Insurance Co., Inc. v. P.L. Galang Machinery Co., Inc., 100 Phil. 679, 682, January 11, 1957. See also Apelario v. Ines Chavez & Co., Ltd., 113 Phil. 215, 217218, October 16, 1961; and Guitarte v. Sabaco, 107 Phil. 437, 440, March 28, 1960.
174. Jarencio, Torts and Damages in Philippine Law (4th ed., 1983), p. 334; citing Pirovano v. The De la Rama Steamship Co., 96 Phil. 335, 367, December 29, 1954. 175. When a claim is made judicially under Article 1169 of the Civil Code.
176. Philippine National Bank v. Utility Assurance & Surety Co., Inc., supra. 177. Cabral v. CA, 178 SCRA 90, 93, September 29, 1989. 178. Article 2209 of the Civil Code. 179. Francisco v. CA, supra, p. 381, per Gonzaga-Reyes, J . 180. In compounding interest, ". . . the amount of interest earned for a certain period is added to the principal for the next period. Interest for the subsequent period is computed on the new amount, which includes both the principal and accumulated interest." Smith and Skousen, Intermediate Accounting, the 11th ed., 1992, p. 235. 181. "The payment (cost) for the use of money is interest." Id., p. 234. 182. Article 2210 of the Civil Code. 183. The law merchant refers to the body of law relating to mercantile transactions and instruments of widespread use. Its usage as adopted by the courts is the origin of the law merchant on negotiable securities. Agbayani, supra, pp. 11 12. 184. A current account is a commercial transaction. In re Liquidation of Mercantile Bank of China, Tan Tiong Tick v. American Apothecaries Co., 65 Phil. 414, 419420, March 31, 1938.
FIRST DIVISION [G.R. NO. 146918. MAY 2, 2006.] CITIBANK, N.A., PETITIONER, VS. SPOUSES LUIS AND CARMELITA CABAMONGAN AND THEIR SONS LUIS CABAMONGAN, JR. AND LITO CABAMONGAN, RESPONDENTS .
DECISION
AUSTRIA-MARTINEZ, J p: Before the Court is a petition for review on certiorari of the Decision 1 dated January 26, 2001 and the Resolution 2 dated July 30, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 59033. The factual background of the case is as follows: On August 16, 1993, spouses Luis and Carmelita Cabamongan opened a joint "and/or" foreign currency time deposit in trust for their sons Luis, Jr. and Lito at the Citibank, N.A., Makati branch, with Reference No. 60-22214372, in the amount of $55,216.69 for a term of 182 days or until February 14, 1994, at 2.5625 per cent interest per annum. 3 Prior to maturity, or on November 10, 1993, a person claiming to be Carmelita went to the Makati branch and pre-terminated the said foreign currency time deposit by presenting a passport, a Bank of America Versatele Card, an ATM card and a Mabuhay Credit Card. 4 She filled up the necessary forms for pre-termination of deposits with the assistance of Account Officer Yeye San Pedro. While the transaction was being processed, she was casually interviewed by San Pedro about her personal circumstances and investment plans. 5 Since the said person failed to surrender the original Certificate of Deposit,
she had to execute a notarized release and waiver document in favor of Citibank, pursuant to Citibank's internal procedure, before the money was released to her. 6 The release and waiver document 7 was not notarized on that same day but the money was nonetheless given to the person withdrawing. 8 The transaction lasted for about 40 minutes. 9 After said person left, San Pedro realized that she left behind an identification card. 10 Thus, San Pedro called up Carmelita's listed address at No. 48 Ranger Street, Moonwalk Village, Las Pias, Metro Manila on the same day to have the card picked up. 11 Marites, the wife of Lito, received San Pedro's call and was stunned by the news that Carmelita preterminated her foreign currency time deposit because Carmelita was in the United States at that time. 12 The Cabamongan spouses work and reside in California. Marites made an overseas call to Carmelita to inform her about what happened. 13 The Cabamongan spouses were shocked at the news. It seems that sometime between June 10 and 16, 1993, an unidentified person broke in at the couple's residence at No. 3268 Baldwin Park Boulevard, Baldwin Park, California. Initially, they reported that only Carmelita's jewelry box was missing, but later on, they discovered that other items, such as their passports, bank deposit certificates, including the subject foreign currency deposit, and identification cards were also missing. 14 It was only then that the Cabamongan spouses realized that their passports and bank deposit certificates were lost. 15 Through various overseas calls, the Cabamongan spouses informed Citibank, thru San Pedro, that Carmelita was in the United States and did not preterminate their deposit and that the person who did so was an impostor who could have also been involved in the break-in of their California residence. San Pedro told the spouses to submit the necessary documents to support their claim but Citibank concluded nonetheless that Carmelita indeed preterminated her deposit. In a letter dated September 16, 1994, the Cabamongan spouses, through counsel, made a formal demand upon Citibank for payment of their preterminated deposit in the amount of $55,216.69 with legal interests. 16 In a letter dated November 28, 1994, Citibank, through counsel,
refused the Cabamongan spouses' demand for payment, asserting that the subject deposit was released to Carmelita upon proper identification and verification. 17 On January 27, 1995, the Cabamongan spouses filed a complaint against Citibank before the Regional Trial Court of Makati for Specific Performance with Damages, docketed as Civil Case No 95-163 and raffled to Branch 150 (RTC). 18 In its Answer dated April 20, 1995, Citibank insists that it was not negligent of its duties since the subject deposit was released to Carmelita only upon proper identification and verification. 19 At the pre-trial conference the parties failed to arrive at an amicable settlement. 20 Thus, trial on the merits ensued. HDTSCc For the plaintiffs, the Cabamongan spouses themselves and Florenda G. Negre, Documents Examiner II of the Philippine National Police (PNP) Crime Laboratory in Camp Crame, Quezon City, testified. The Cabamongan spouses, in essence, testified that Carmelita could not have preterminated the deposit account since she was in California at the time of the incident. 21 Negre testified that an examination of the questioned signature and the samples of the standard signatures of Carmelita submitted in the RTC showed a significant divergence. She concluded that they were not written by one and the same person. 22 For the respondent, Citibank presented San Pedro and Cris Cabalatungan, Vice-President and In-Charge of Security and Management Division. Both San Pedro and Cabalatungan testified that proper bank procedure was followed and the deposit was released to Carmelita only upon proper identification and verification. 23 On July 1, 1997, the RTC rendered a decision in favor of the Cabamongan spouses and against Citibank, the dispositive portion of which reads, thus:
WHEREFORE, premises considered, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following: 1) the principal amount of their Foreign Currency Deposit (Reference No. 6022214372) amounting to $55,216.69 or its Phil. Currency equivalent plus interests from August 16, 1993 until fully paid; 2) Moral damages of P50,000.00; 3) Attorney's fees of P50,000.00; and 4) Cost of suit. SO ORDERED. 24 The RTC reasoned that: . . . Citibank, N.A., committed negligence resulting to the undue suffering of the plaintiffs. The forgery of the signatures of plaintiff Carmelita Cabamongan on the questioned documents has been categorically established by the handwriting expert. . . . Defendant bank was clearly remiss in its duty and obligations to treat plaintiff's account with the highest degree of care, considering the nature of their relationship. Banks are under the obligation to treat the accounts of their depositors with meticulous care. This is the reason for their established procedure of requiring several specimen signatures and recent picture from potential depositors. For every transaction, the depositor's signature is passed upon by personnel to check and countercheck possible irregularities and therefore must bear the blame when they fail to detect the forgery or discrepancy. 25
Despite the favorable decision, the Cabamongan spouses filed on October 1, 1997 a motion to partially reconsider the decision by praying for an increase of the amount of the damages awarded. 26 Citibank opposed the motion. 27 On November 19, 1997, the RTC granted the motion for partial reconsideration and amended the dispositive portion of the decision as follows: From the foregoing, and considering all the evidence laid down by the parties, the dispositive portion of the court's decision dated July 1, 1997 is hereby amended and/or modified to read as follows: WHEREFORE, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following: 1) the principal amount of their foreign currency deposit (Reference No. 6022214372) amounting to $55,216.69 or its Philippine currency equivalent (at the time of its actual payment or execution) plus legal interest from Aug. 16, 1993 until fully paid. 2) moral damages in the amount of P200,000.00; cAISTC 3) exemplary damages in the amount of P100,000.00; 4) attorney's fees of P100,000.00; 5) litigation expenses of P200,000.00; 6) cost of suit. SO ORDERED. 28
Dissatisfied, Citibank filed an appeal with the CA, docketed as CAG.R. CV No. 59033. 29 On January 26, 2001, the CA rendered a decision sustaining the finding of the RTC that Citibank was negligent, ratiocinating in this wise: In the instant case, it is beyond dispute that the subject foreign currency deposit was pre-terminated on 10 November 1993. But Carmelita Cabamongan, who works as a nursing aid (sic) at the Sierra View Care Center in Baldwin Park, California, had shown through her Certificate of Employment and her Daily Time Record from the [sic] January to December 1993 that she was in the United States at the time of the incident. Defendant Citibank, N.A., however, insists that Carmelita was the one who pre-terminated the deposit despite claims to the contrary. Its basis for saying so is the fact that the person who made the transaction on the incident mentioned presented a valid passport and three (3) other identification cards. The attending account officer examined these documents and even interviewed said person. She was satisfied that the person presenting the documents was indeed Carmelita Cabamongan. However, such conclusion is belied by these following circumstances. First, the said person did not present the certificate of deposit issued to Carmelita Cabamongan. This would not have been an insurmountable obstacle as the bank, in the absence of such certificate, allows the termination of the deposit for as long as the depositor executes a notarized release and waiver document in favor of the bank. However, this simple procedure was not followed by the bank, as it terminated the deposit and actually delivered the money to the
impostor without having the said document notarized on the flimsy excuse that another department of the bank was in charge of notarization. The said procedure was obviously for the protection of the bank but it deliberately ignored such precaution. At the very least, the conduct of the bank amounts to negligence.
Second, in the internal memorandum of Account Officer Yeye San Pedro regarding the incident, she reported that upon comparing the authentic signatures of Carmelita Cabamongan on file with the bank with the signatures made by the person claiming to be Cabamongan on the documents required for the termination of the deposit, she noticed that one letter in the latter [sic] signatures was different from that in the standard signatures. She requested said person to sign again and scrutinized the identification cards presented. Presumably, San Pedro was satisfied with the second set of signatures made as she eventually authorized the termination of the deposit. However, upon examination of the signatures made during the incident by the Philippine National Police (PNP) Crime Laboratory, the said signatures turned out to be forgeries. As the qualifications of Document Examiner Florenda Negre were established and she satisfactorily testified on her findings during the trial, we have no reason to doubt the validity of her findings. Again, the bank's negligence is patent. San Pedro was able to detect discrepancies in the signatures but she did not exercise additional precautions to ascertain the identity of the person she was dealing with. In fact, the entire transaction took only 40 minutes to complete despite the anomalous
situation. Undoubtedly, the bank could have done a better job. CDScaT Third, as the bank had on file pictures of its depositors, it is inconceivable how bank employees could have been duped by an impostor. San Pedro admitted in her testimony that the woman she dealt with did not resemble the pictures appearing on the identification cards presented but San Pedro still went on with the sensitive transaction. She did not mind such disturbing anomaly because she was convinced of the validity of the passport. She also considered as decisive the fact that the impostor had a mole on her face in the same way that the person in the pictures on the identification cards had a mole. These explanations do not account for the disparity between the pictures and the actual appearance of the impostor. That said person was allowed to withdraw the money anyway is beyond belief. The above circumstances point to the bank's clear negligence. Bank transactions pass through a successive [sic] of bank personnel, whose duty is to check and countercheck transactions for possible errors. While a bank is not expected to be infallible, it must bear the blame for failing to discover mistakes of its employees despite established bank procedure involving a battery of personnel designed to minimize if not eliminate errors. In the instant case, Yeye San Pedro, the employee who primarily dealt with the impostor, did not follow bank procedure when she did not have the waiver document notarized. She also openly courted disaster by ignoring discrepancies between the actual appearance of the impostor and the pictures she presented, as well as the disparities between the signatures made during the transaction
and those on file with the bank. But even if San Pedro was negligent, why must the other employees in the hierarchy of the bank's work flow allow such thing to pass unnoticed and unrectified? 30 The CA, however, disagreed with the damages awarded by the RTC. It held that, insofar as the date from which legal interest of 12% is to run, it should be counted from September 16, 1994 when extrajudicial demand was made. As to moral damages, the CA reduced it to P100,000.00 and deleted the awards of exemplary damages and litigation expenses. Thus, the dispositive portion of the CA decision reads: WHEREFORE, the decision of the trial court dated 01 July 1997, and its order dated 19 November 1997, are hereby AFFIRMED with the MODIFICATION that the legal interest for actual damages awarded in the amount of $55,216.69 shall run from 16 September 1994; exemplary damages amounting to P100,000.00 and litigation expenses amounting to P200,000.00 are deleted; and moral damages is reduced to P100,000.00. Costs against defendant. SO ORDERED. 31 The Cabamongan spouses filed a motion for partial reconsideration on the matter of the award of damages in the decision. 32 On July 30, 2001, the CA granted in part said motion and modified its decision as follows: 1. The actual damages in amount of $55,216.69, representing the amount of appellees' foreign currency time deposit shall earn an interest of
2.5625% for the period 16 August 1993 to 14 February 1994, as stipulated in the contract; 2. From 16 September 1994 until full payment, the amount of $55,216.69 shall earn interest at the legal rate of 12% per annum, and; 3. The award of moral damages is reduced to P50,000.00. 33 Dissatisfied, both parties filed separate petitions for review on certiorari with this Court. The Cabamongan spouses' petition, docketed as G.R. No. 149234, was denied by the Court per its Resolution dated October 17, 2001. 34 On the other hand, Citibank's petition was given due course by the Court per Resolution dated December 10, 2001 and the parties were required to submit their respective memoranda. 35 Citibank poses the following errors for resolution: 1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY ABUSED ITS DISCRETION IN UPHOLDING THE LOWER COURT'S DECISION WHICH IS NOT BASED ON CLEAR EVIDENCE BUT ON GRAVE MISAPPREHENSION OF FACTS. 2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE DECISION OF THE TRIAL COURT AWARDING MORAL DAMAGES WHEN IN FACT THERE IS NO BASIS IN LAW AND FACT FOR SAID AWARD. IESAac
3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PRINCIPAL AMOUNT OF US$55,216.69 SHOULD EARN INTEREST AT THE RATE OF 12% PER ANNUM FROM 16 SEPTEMBER 1994 UNTIL FULL PAYMENT. 36 Anent the first ground, Citibank contends that the CA erred in affirming the RTC's finding that it was negligent since the said courts failed to appreciate the extra diligence of a good father of a family exercised by Citibank thru San Pedro. As to the second ground, Citibank argues that the Cabamongan spouses are not entitled to moral damages since moral damages can be awarded only in cases of breach of contract where the bank has acted willfully, fraudulently or in bad faith. It submits that it has not been shown in this case that Citibank acted willfully, fraudulently or in bad faith and mere negligence, even if the Cabamongan spouses suffered mental anguish or serious anxiety on account thereof, is not a ground for awarding moral damages. On the third ground, Citibank avers that the interest rate should not be 12% but the stipulated rate of 2.5625% per annum. It adds that there is no basis to pay the interest rate of 12% per annum from September 16, 1994 until full payment because as of said date there was no legal ground yet for the Cabamongan spouses to demand payment of the principal and it is only after a final judgment is issued declaring that Citibank is obliged to return the principal amount of US$55,216.69 when the right to demand payment starts and legal interest starts to run. On the other hand, the Cabamongan spouses contend that Citibank's negligence has been established by evidence. As to the interest rate, they submit that the stipulated interest of 2.5635% should apply for the 182-day contract period from August 16, 1993 to February 14, 1993;
thereafter, 12% should apply. They further contend that the RTC's award of exemplary damages of P100,000.00 should be maintained. They submit that the CA erred in treating the award of litigation expenses as lawyer's fees since they have shown that they incurred actual expenses in litigating their claim against Citibank. They also contend that the CA erred in reducing the award of moral damages in view of the degree of mental anguish and emotional fears, anxieties and nervousness suffered by them. 37 Subsequently, Citibank, thru a new counsel, submitted a Supplemental Memorandum, 38 wherein it posits that, assuming that it was negligent, the Cabamongan spouses were guilty of contributory negligence since they failed to notify Citibank that they had migrated to the United States and were residents thereat and after having been victims of a burglary, they should have immediately assessed their loss and informed Citibank of the disappearance of the bank certificate, their passports and other identification cards, then the fraud would not have been perpetuated and the losses avoided. It further argues that since the Cabamongan spouses are guilty of contributory negligence, the doctrine of last clear chance is inapplicable. Citibank's assertion that the Cabamongan spouses are guilty of contributory negligence and non-application of the doctrine of last clear chance cannot pass muster since these contentions were raised for the first time only in their Supplemental Memorandum. Indeed, the records show that said contention were neither pleaded in the petition for review and the memorandum nor in Citibank's Answer to the complaint or in its appellant's brief filed with the CA. To consider the alleged facts and arguments raised belatedly in a supplemental pleading to herein petition for review at this very late stage in the proceedings would amount to trampling on the basic principles of fair play, justice and due process. 39 The Court has 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 40 is expected, 41 and high standards of integrity and performance are even required, of it. 42 By the nature of its functions, a bank is "under obligation to treat the accounts of its depositors with meticulous care, 43 always having in mind the fiduciary nature of their relationship." 44 In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pretermination of deposits are forgeries. Citibank, with its signature verification procedure, failed to detect the forgery. Its negligence consisted in the omission of that degree of diligence required of banks. The Court has held 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." 45 Such principle equally applies here.
Citibank cannot label its negligence as mere mistake or human error. Banks handle daily transactions involving millions of pesos. 46 By the very nature of their works the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. 47 Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. 48 The Court agrees with the observation of the CA that Citibank, thru Account Officer San Pedro, openly courted disaster when despite noticing discrepancies in the signature and photograph of the person claiming to be Carmelita and the failure to surrender the original certificate of time deposit, the pretermination of the account was allowed. Even the waiver document was not notarized, a procedure meant to protect the bank. For not observing the degree of diligence required of banking institutions, whose business is impressed with public interest, Citibank is liable for damages. SHECcT
As to the interest rate, Citibank avers that the claim of the Cabamongan spouses does not constitute a loan or forbearance of money and therefore, the interest rate of 6%, not 12%, applies. The Court does not agree. The time deposit subject matter of herein petition is a simple loan. The provisions of the New Civil Code on simple loan govern the contract between a bank and its depositor. Specifically, Article 1980 thereof categorically provides that ". . . savings . . . deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan." Thus, the relationship between a bank and its depositor is that of a debtor-creditor, the depositor being the creditor as it lends the bank money, and the bank is the debtor which agrees to pay the depositor on demand. The applicable interest rate on the actual damages of $55,216.69, should be in accordance with the guidelines set forth in Eastern Shipping Lines, Inc. v. Court of Appeals 49 to wit: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest, in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. ScEaAD 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. 50 Thus, in a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum counted from the time of demand. Accordingly, the stipulated interest rate of 2.562% per annum shall apply for the 182day contract period from August 16, 1993 to February 14, 1994. For the period from the date of extra-judicial demand, September 16, 1994, until full payment, the rate of 12% shall apply. As for the intervening period between February 15, 1994 to September 15, 1994, the rate of interest then prevailing granted by Citibank shall apply since the time deposit provided for roll over upon maturity of the principal and interest. 51 As to moral damages, in culpa contractual or breach of contract, as in the case before the Court, moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, 52 or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations. 53 The act of Citibank's employee in allowing the pretermination of Cabamongan spouses' account despite the noted discrepancies in Carmelita's signature and photograph, the absence of the original certificate of time deposit and the lack of notarized waiver dormant, constitutes gross negligence amounting to bad faith under Article 2220 of the Civil Code. There is no hard-and-fast rule in the determination of what would be a fair amount of moral damages since each case must be governed by its own peculiar facts. The yardstick should be that it is not palpably and scandalously excessive. 54 The amount of P50,000.00 awarded by the CA is reasonable and just. Moreover, said award is deemed final and executory insofar as respondents are concerned considering that their
petition for review had been denied by the Court in its final and executory Resolution dated October 17, 2001 in G.R. No. 149234. Finally, Citibank contends that the award of attorney's fees should be deleted since such award appears only in the dispositive portion of the decision of the RTC and the latter failed to elaborate, explain and justify the same. Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be granted. Attorney's fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. 55 The award of attorney's fees is the exception rather than the general rule. As such, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award. The matter of attorney's fees cannot be mentioned only in the dispositive portion of the decision. 56 They must be clearly explained and justified by the trial court in the body of its decision. Consequently, the award of attorney's fees should be deleted. WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision and Resolution are AFFIRMED with MODIFICATIONS, as follows: 1. The interest shall be computed as follows: a. The actual damages in principal amount of $55,216.69, representing the amount of foreign currency time deposit shall earn interest at the stipulated rate of 2.5625% for the period August 16, 1993 to February 14, 1994;
b. From February 15, 1994 to September 15, 1994, the principal amount of $55,216.69 and the interest earned as of February 14, 1994 shall earn interest at the rate then prevailing granted by Citibank; DSIaAE c. From September 16, 1994 until full payment, the principal amount of $55,216.69 and the interest earned as of September 15, 1994, shall earn interest at the legal rate of 12% per annum; 2. The award of attorney's fees is DELETED. No pronouncement as to costs. SO ORDERED. Panganiban, C.J., Ynares-Santiago and Callejo, Sr., JJ., concur. Chico-Nazario, J., is on official leave. Footnotes 1. Penned by Associate Justice Buenaventura J. Guerrero and concurred in by Associate Justices Eriberto U. Rosario, Jr. and Alicia L. Santos (all retired). Rollo, p. 42. 2. Rollo, p. 53.
5. Id. at 7. 6. Id. at 9, 21. 7. Folder of Exhibits, p. 219. 8. TSN, Testimony of Yeye San Pedro, July 5, 1996, pp. 22-24. 9. Id. at 7. 10. Id. at 12, 14. 11. Id. at 12. 12. TSN, Testimony of Luis Cabamongan, July 31, 1995, p. 11; TSN, Testimony of Carmelita Cabamongan, September 18, 1995, p. 5. 13. Id. 14. Records, p. 50. TSN, Testimony of Luis Cabamongan, July 31, 1995, p. 26. 15. TSN, Testimony of Luis Cabamongan, July 31, 1995, pp. 15-16, 26-27; TSN, Testimony of Carmelita Cabamongan, September 18, 1995, p. 12. 16. Records, p. 84. 17. Id. at 90. 18. Id. at 1.
3. Records, pp. 38, 342. 19. Id. at 97. 4. TSN, Testimony of Yeye San Pedro, July 5, 1996, pp. 4-6. 20. Id. at 129.
21. TSN, Testimony of Luis Cabamongan, July 31, 1995, p. 13; TSN, Testimony of Carmelita Cabamongan, September 18, 1995, p. 7. 22. TSN, Testimony of Florenda G. Negre, February 5, 1996, pp. 8, 19. 23. TSN, Testimony of Yeye San Pedro, July 5, 1996; TSN, Testimony of Cris Cabalatungan, September 20, 1990. 24. Records, p. 512. 25. Id. at 511. 26. Id. at 516. 27. Id. at 546. 28. Id. at 556. 29. CA rollo, p. 4. 30. Id. at 99-100. 31. Id. at 103. 32. Id. at 118. 33. Id. at 204. 34. Id. at 222. 35. Rollo, p. 103. 36. Id. at 151.
37. Id. at 118. 38. Id. at 170. 39. Bank of the Philippine Islands v. Leobrera, G.R. Nos. 13714748, November 18, 2003, 416 SCRA 15, 19; Balitaosan v. Secretary of Education, Culture and Sports, G.R. No. 138238, September 2, 2003, 410 SCRA 233, 235-236.
40. Bank of the Philippine Islands v. Court of Appeals, 383 Phil. 538, 554 (2000); Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667, 681 (1997). 41. Philippine Commercial International Bank v. Court of Appeals, G.R. No. 121413, January 29, 2001, 350 SCRA 446, 472. 42. 2 of Republic Act No. 8791, otherwise known as "The General Banking Law of 2000." 43. Westmont Bank v. Ong, G.R. No. 132560, January 30, 2002, 375 SCRA 212, 221; Citytrust Banking Corp. v. Intermediate Appellate Court, May 27, 1994, 232 SCRA 559, 564. 44. Simex International (Manila), Inc. v. Court of Appeals, March 19, 1990, 183 SCRA 360, 367. 45. San Carlos Milling Co., Ltd. v. Bank of the Philippine Islands, 59 Phil. 59, 66 (1933). 46. Philippine Commercial International Bank v. Court of Appeals, supra; Bank of the Philippine Islands v. Court of Appeals, 216 SCRA 51, 71 (1992).
47. Philippine Commercial International Bank v. Court of Appeals, supra. 48. Id. 49. G.R. No. 97412, July 12, 1994, 234 SCRA 78.
Court of Appeals, G.R. No. 118180, September 20, 1996, 262 SCRA 245,253. SECOND DIVISION [G.R. NO. 139130. N OVEMBER 27, 2002.]
50. Id. at 95-97. 51. Records, pp. 38. 52. Article 2220, New Civil Code. Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. 53. Philippine Telegraph & Telephone Corporation v. Court of Appeals, G.R. No. 139268, September 3, 2002, 388 SCRA 270, 276-277. 54. Prudential Bank v. Court of Appeals, G.R. No. 125536, March 16, 2000, 328 SCRA 264, 271; Philippine National Bank v. Court of Appeals, G.R. No. 126152, September 28, 1999, 315 SCRA 309, 315. 55. Country Bankers Insurance Corporation v. Lianga Bay and Community Multi-purpose Cooperative, Inc. G.R. No. 136914, January 25, 2002, 374 SCRA 653, 666; Ibaan Rural Bank, Inc. v. Court of Appeals, G.R. No. 123817, December 17, 1999, 321 SCRA 88, 95. 56. Samatra v. Vda. de Parias, G.R. No. 142958, April 24, 2002, 381 SCRA 522, 533; Development Bank of the Philippines v. RAMON K. ILUSORIO, PETITIONER, VS. HON. COURT OF APPEALS, AND THE MANILA BANKING CORPORATION, RESPONDENTS . People's Law Office for petitioner. Puyat Jacinto & Santos and Asedillo and Associates for TMBC. SYNOPSIS Petitioner is a prominent businessman, and as he was going out of the country a number of times, he entrusted to his secretary his credit cards and his checkbook with blank checks. Subsequently, petitioner filed a criminal action against his aforesaid secretary for estafa thru falsification for encashing and depositing to her personal account seventeen checks drawn against the account of the petitioner at respondent bank. Petitioner then requested the respondent bank to credit back and restore to his account the value of the checks which were wrongfully encashed, but respondent bank refused. Hence, petitioner filed the instant case. Manila Bank sought the expertise of the National Bureau of Investigation in determining the genuineness of the signatures appearing on the checks. However, petitioner failed to submit his specimen signatures for purposes of comparison with those on the questioned checks. Consequently, the trial court dismissed the case. On appeal, the Court of Appeals held that petitioner's own
negligence was the proximate cause of his loss. Hence, this petition. SaDICE In affirming the decision of the Court of Appeals, the Supreme Court ruled that petitioner has no cause of action against Manila Bank. To be entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his specimen signatures and comparing them with those on the questioned checks. Petitioner, by his own inaction, was precluded from setting up forgery. The Court likewise ruled that under Section 23 of the Negotiable Instruments Law, petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account. SYLLABUS 1. REMEDIAL LAW; EVIDENCE; CREDIBILITY; FACTUAL FINDINGS OF TRIAL COURT, GENERALLY NOT DISTURBED ON APPEAL. We stress the rule that the factual findings of a trial court, especially when affirmed by the appellate court, are binding upon us and entitled to utmost respect and even finality. We find no palpable error that would warrant a reversal of the appellate court's assessment of facts anchored upon the evidence on record. 2. CIVIL LAW; QUASI-DELICT; DAMAGES CANNOT BE RECOVERED WHEN PLAINTIFF'S OWN NEGLIGENCE IS THE IMMEDIATE AND PROXIMATE CAUSE OF INJURY; CASE AT BAR. Petitioner's failure to examine his bank statements appears as the proximate cause of his own damage. Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result
would not have occurred. In the instant case, the bank was not shown to be remiss in its duty of sending monthly bank statements to petitioner so that any error or discrepancy in the entries therein could be brought to the bank's attention at the earliest opportunity. But, petitioner failed to examine these bank statements not because he was prevented by some cause in not doing so, but because he did not pay sufficient attention to the matter. Had he done so, he could have been alerted to any anomaly committed against him. In other words, petitioner had sufficient opportunity to prevent or detect any misappropriation by his secretary had he only reviewed the status of his accounts based on the bank statements sent to him regularly. In view of Article 2179 of the New Civil Code, when the plaintiff's own negligence was the immediate and proximate cause of his injury, no recovery could be had for damages. 3. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; FORGERY; EFFECT OF FORGED SIGNATURE; EXCEPTION; CASE AT BAR. Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged check is inoperative, and that Manila Bank had no authority to pay the forged checks. True, it is a rule that when a signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. No right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired through or under such signature. However, the rule does provide for an exception, namely: "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." In the instant case, it is the exception that applies. In our view, petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account. 4. REMEDIAL LAW; CRIMINAL PROCEDURE; PROSECUTION OF OFFENSES; PLAINTIFF IN CRIMINAL ACTION IS THE STATE, FOR THE COMMISSION OF FELONY IS AN OFFENSE
AGAINST THE STATE; CASE AT BAR. [T]he fact that Manila Bank had filed a case for estafa against Eugenio would not stop it from asserting the fact that forgery has not been clearly established. Petitioner cannot hold private respondent in estoppel for the latter is not the actual party to the criminal action. In a criminal action, the State is the plaintiff, for the commission of a felony is an offense against the State. Thus, under Section 2, Rule 110 of the Rules of Court the complaint or information filed in court is required to be brought in the name of the "People of the Philippines." SCDaET
DECISION
Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to encash and deposit to her personal account about seventeen (17) checks drawn against the account of the petitioner at the respondent bank, with an aggregate amount of P119,634.34. Petitioner did not bother to check his statement of account until a business partner apprised him that he saw Eugenio use his credit cards. Petitioner fired Eugenio immediately, and instituted a criminal action against her for estafa thru falsification before the Office of the Provincial Fiscal of Rizal. Private respondent, through an affidavit executed by its employee, Mr. Dante Razon, also lodged a complaint for estafa thru falsification of commercial documents against Eugenio on the basis of petitioner's statement that his signatures in the checks were forged. 4 Mr. Razon's affidavit states: That I have examined and scrutinized the following checks in accordance with prescribed verification procedures with utmost care and diligence by comparing the signatures affixed thereat against the specimen signatures of Mr. Ramon K. Ilusorio which we have on file at our said office on such dates, xxx xxx xxx That the aforementioned checks were among those issued by Manilabank in favor of its client MR. RAMON K. ILUSORIO, . . . That the same were personally encashed by KATHERINE E. ESTEBAN, an executive secretary of MR. RAMON K. ILUSORIO in said Investment Corporation; That I have met and known her as KATHERINE E. ESTEBAN the attending verifier when she personally encashed the above-mentioned checks at our said office;
QUISUMBING, J p: This petition for review seeks to reverse the decision 1 promulgated on January 28, 1999 by the Court of Appeals in CA-G.R. CV No. 47942, affirming the decision of the then Court of First Instance of Rizal, Branch XV (now the Regional Trial Court of Makati, Branch 138) dismissing Civil Case No. 43907, for damages. The facts as summarized by the Court of Appeals are as follows: Petitioner is a prominent businessman who, at the time material to this case, was the Managing Director of Multinational Investment Bancorporation and the Chairman and/or President of several other corporations. He was a depositor in good standing of respondent bank, the Manila Banking Corporation, under current Checking Account No. 06-09037-0. As he was then running about 20 corporations, and was going out of the country a number of times, petitioner entrusted to his secretary, Katherine 2 E. Eugenio, his credit cards and his checkbook with blank checks. It was also Eugenio who verified and reconciled the statements of said checking account. 3
That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning his signature appearing on the checks further alleged to have not authorized the issuance and encashment of the same. . . . 5 Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks which were wrongfully encashed but respondent bank refused. Hence, petitioner filed the instant case. 6 At the trial, petitioner testified on his own behalf, attesting to the truth of the circumstances as narrated above, and how he discovered the alleged forgeries. Several employees of Manila Bank were also called to the witness stand as hostile witnesses. They testified that it is the bank's standard operating procedure that whenever a check is presented for encashment or clearing, the signature on the check is first verified against the specimen signature cards on file with the bank. Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in determining the genuineness of the signatures appearing on the checks. However, in a letter dated March 25, 1987, the NBI informed the trial court that they could not conduct the desired examination for the reason that the standard specimens submitted were not sufficient for purposes of rendering a definitive opinion. The NBI then suggested that petitioner be asked to submit seven (7) or more additional standard signatures executed before or about, and immediately after the dates of the questioned checks. Petitioner, however, failed to comply with this request.
light of the foregoing considerations and established facts, this case would have to be, as it is hereby DISMISSED. Defendant's counterclaim is likewise DISMISSED for lack of sufficient basis. SO ORDERED. 7 Aggrieved, petitioner elevated the case to the Court of Appeals by way of a petition for review but without success. The appellate court held that petitioner's own negligence was the proximate cause of his loss. The appellate court disposed as follows: WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the appellant. SO ORDERED. 8 Before us, petitioner ascribes the following errors to the Court of Appeals: A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT BANK IS ESTOPPED FROM RAISING THE DEFENSE THAT THERE WAS NO FORGERY OF THE SIGNATURES OF THE PETITIONER IN THE CHECK BECAUSE THE RESPONDENT FILED A CRIMINAL COMPLAINT FOR ESTAFA THRU FALSIFICATION OF COMMERCIAL DOCUMENTS AGAINST KATHERINE EUGENIO USING THE AFFIDAVIT OF PETITIONER STATING THAT HIS SIGNATURES WERE FORGED AS PART OF THE AFFIDAVIT-COMPLAINT. 9
After evaluating the evidence on both sides, the court a quo rendered judgment on May 12, 1994 with the following dispositive portion: WHEREFORE, finding no sufficient basis for plaintiff's cause herein against defendant bank, in the
B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23, NEGOTIABLE INSTRUMENTS LAW. 10 C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN OF PROOF IS WITH THE RESPONDENT BANK TO PROVE THE DUE DILIGENCE TO PREVENT DAMAGE, TO THE PETITIONER, AND THAT IT WAS NOT NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES. 11 D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT BANK SHOULD BEAR THE LOSS, AND SHOULD BE MADE TO PAY PETITIONER, WITH RECOURSE AGAINST KATHERINE EUGENIO ESTEBAN. 12 Essentially the issues in this case are: (1) whether or not petitioner has a cause of action against private respondent; and (2) whether or not private respondent, in filing an estafa case against petitioner's secretary, is barred from raising the defense that the fact of forgery was not established. aDSIHc Petitioner contends that Manila Bank is liable for damages for its negligence in failing to detect the discrepant checks. He adds that as a general rule a bank which has obtained possession of a check upon an unauthorized or forged endorsement of the payee's signature and which collects the amount of the check from the drawee is liable for the proceeds thereof to the payee. Petitioner invokes the doctrine of estoppel, saying that having itself instituted a forgery case against Eugenio, Manila Bank is now estopped from asserting that the fact of forgery was never proven.
For its part, Manila Bank contends that respondent appellate court did not depart from the accepted and usual course of judicial proceedings, hence there is no reason for the reversal of its ruling. Manila Bank additionally points out that Section 23 13 of the Negotiable Instruments Law is inapplicable, considering that the fact of forgery was never proven. Lastly, the bank negates petitioner's claim of estoppel. 14 On the first issue, we find that petitioner has no cause of action against Manila Bank. To be entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his specimen signatures and comparing them with those on the questioned checks. Curiously though, petitioner failed to submit additional specimen signatures as requested by the National Bureau of Investigation from which to draw a conclusive finding regarding forgery. The Court of Appeals found that petitioner, by his own inaction, was precluded from setting up forgery. Said the appellate court: We cannot fault the court a quo for such declaration, considering that the plaintiff's evidence on the alleged forgery is not convincing enough. The burden to prove forgery was upon the plaintiff, which burden he failed to discharge. Aside from his own testimony, the appellant presented no other evidence to prove the fact of forgery. He did not even submit his own specimen signatures, taken on or about the date of the questioned checks, for examination and comparison with those of the subject checks. On the other hand, the appellee presented specimen signature cards of the appellant, taken at various years, namely, in 1976, 1979 and 1981 (Exhibits "1", "2", "3" and "7"), showing variances in the appellant's unquestioned signatures. The evidence further shows that the
appellee, as soon as it was informed by the appellant about his questioned signatures, sought to borrow the questioned checks from the appellant for purposes of analysis and examination (Exhibit "9"), but the same was denied by the appellant. It was also the former which sought the assistance of the NBI for an expert analysis of the signatures on the questioned checks, but the same was unsuccessful for lack of sufficient specimen signatures. 15 Moreover, petitioner's contention that Manila Bank was remiss in the exercise of its duty as drawee lacks factual basis. Consistently, the CA and the RTC found that Manila Bank employees exercised due diligence in cashing the checks. The bank's employees in the present case did not have a hint as to Eugenio's modus operandi because she was a regular customer of the bank, having been designated by petitioner himself to transact in his behalf. According to the appellate court, the employees of the bank exercised due diligence in the performance of their duties. Thus, it found that: The evidence on both sides indicates that TMBC's employees exercised due diligence before encashing the checks. Its verifiers first verified the drawer's signatures thereon as against his specimen signature cards, and when in doubt, the verifier went further, such as by referring to a more experienced verifier for further verification. In some instances the verifier made a confirmation by calling the depositor by phone. It is only after taking such precautionary measures that the subject checks were given to the teller for payment. Of course it is possible that the verifiers of TMBC might have made a mistake in failing to detect any forgery if indeed there was. However, a mistake is not equivalent to negligence if they were honest
mistakes. In the instant case, we believe and so hold that if there were mistakes, the same were not deliberate, since the bank took all the precautions. 16 As borne by the records, it was petitioner, not the bank, who was negligent. Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do. 17 In the present case, it appears that petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements, including custody and possession of cancelled checks and reconciliation of accounts. Said the Court of Appeals on this matter: Moreover, the appellant had introduced his secretary to the bank for purposes of reconciliation of his account, through a letter dated July 14, 1980 (Exhibit "8"). Thus, the said secretary became a familiar figure in the bank. What is worse, whenever the bank verifiers call the office of the appellant, it is the same secretary who answers and confirms the checks. The trouble is, the appellant had put so much trust and confidence in the said secretary, by entrusting not only his credit cards with her but also his checkbook with blank checks. He also entrusted to her the verification and reconciliation of his account. Further adding to his injury was the fact that while the bank was sending him the monthly Statements of Accounts, he was not personally checking the same. His testimony did not indicate that he was out of the country during the period covered by the checks. Thus, he had all the opportunities to verify his account as well as the cancelled checks issued thereunder month after month. But he did not, until
his partner asked him whether he had entrusted his credit card to his secretary because the said partner had seen her use the same. It was only then that he was minded to verify the records of his account. 18 The abovecited findings are binding upon the reviewing court. We stress the rule that the factual findings of a trial court, especially when affirmed by the appellate court, are binding upon us 19 and entitled to utmost respect 20 and even finality. We find no palpable error that would warrant a reversal of the appellate court's assessment of facts anchored upon the evidence on record. SCHIcT Petitioner's failure to examine his bank statements appears as the proximate cause of his own damage. Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. 21 In the instant case, the bank was not shown to be remiss in its duty of sending monthly bank statements to petitioner so that any error or discrepancy in the entries therein could be brought to the bank's attention at the earliest opportunity. But, petitioner failed to examine these bank statements not because he was prevented by some cause in not doing so, but because he did not pay sufficient attention to the matter. Had he done so, he could have been alerted to any anomaly committed against him. In other words, petitioner had sufficient opportunity to prevent or detect any misappropriation by his secretary had he only reviewed the status of his accounts based on the bank statements sent to him regularly. In view of Article 2179 of the New Civil Code, 22 when the plaintiff's own negligence was the immediate and proximate cause of his injury, no recovery could be had for damages.
signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. No right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired through or under such signature. However, the rule does provide for an exception, namely: "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority ." In the instant case, it is the exception that applies. In our view, petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account. Petitioner's reliance on Associated Bank vs. Court of Appeals 23 and Philippine Bank of Commerce vs. CA 24 to buttress his contention that respondent Manila Bank as the collecting or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements is misplaced. In the cited cases, the fact of forgery was not in issue. In the present case, the fact of forgery was not established with certainty. In those cited cases, the collecting banks were held to be negligent for failing to observe precautionary measures to detect the forgery. In the case before us, both courts below uniformly found that Manila Bank's personnel diligently performed their duties, having compared the signature in the checks from the specimen signatures on record and satisfied themselves that it was petitioner's. On the second issue, the fact that Manila Bank had filed a case for estafa against Eugenio would not estop it from asserting the fact that forgery has not been clearly established. Petitioner cannot hold private respondent in estoppel for the latter is not the actual party to the criminal action. In a criminal action, the State is the plaintiff, for the commission of a felony is an offense against the State. 25 Thus, under Section 2, Rule 110 of the Rules of Court the complaint or information filed in court is required to be brought in the name of the "People of the Philippines." 26
Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged check is inoperative, and that Manila Bank had no authority to pay the forged checks. True, it is a rule that when a
Further, as petitioner himself stated in his petition, respondent bank filed the estafa case against Eugenio on the basis of petitioner's own affidavit, 27 but without admitting that he had any personal knowledge of the alleged forgery. It is, therefore, easy to understand that the filing of the estafa case by respondent bank was a last ditch effort to salvage its ties with the petitioner as a valuable client, by bolstering the estafa case which he filed against his secretary. All told, we find no reversible error that can be ascribed to the Court of Appeals. AaIDHS WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals dated January 28, 1999 in CA-G.R. CV No. 47942, is AFFIRMED. Costs against petitioner. SO ORDERED. Bellosillo, Acting C.J., Mendoza, Austria-Martinez and Callejo, Sr., JJ., concur. Footnotes
7. Ibid. 8. Id. at 30. 9. Id. at 10. 10. Id. at 14. 11. Id. at 15. 12. Id. at 17. 13. Sec. 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 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. 14. Rollo, p. 49. 15. Id. at 28.
1. Rollo, pp. 26-30. 16. Id. at 29. 2. Also spelled as "Catherine" in some parts of the record. 3. Rollo, p. 26. 4. TSN, October 6, 1983, p. 58. 5. Rollo, pp. 108-109. 6. Id. at 27.
17. Bank of the Philippine Islands vs. Court of Appeals, 326 SCRA 641, 657 (2000). 18. Supra, note 16. 19. Lorenzana vs. People, 353 SCRA 396, 403 (2001). 20. Ong vs. CA, 272 SCRA 725, 730 (1997).
21. Supra, note 17 at 659. 22. Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of his injury, he cannot recover damages. . . . 23. 252 SCRA 620, 633 (1996). 24. 269 SCRA 695, 703-710 (1997). 25. Binay vs. Sandiganbayan, 316 SCRA 65, 100 (1999). 26. SEC. 2. The complaint or information. The complaint or information shall be in writing, in the name of the People of the Philippines and against all persons who appear to be responsible for the offense involved. 27. Rollo, p. 9. SECOND DIVISION [G.R. NO. L-62943. JULY 14, 1986.] METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, PETITIONER, VS. COURT OF APPEALS (NOW INTERMEDIATE APPELLATE COURT) AND THE PHILIPPINE NATIONAL BANK, RESPONDENTS . Juan J. Diaz and Cesar T. Basa for respondent PNB. San Juan, Africa, Gonzales & San Agustin Law Offices for respondent PCIB.
DECISION
GUTIERREZ, JR., J p: This petition for review asks us to set aside the October 29, 1982 decision of the respondent Court of Appeals, now Intermediate Appellate Court which reversed the decision of the Court of First Instance of Manila, Branch XL, and dismissed the plaintiff's complaint, the third party complaint, as well as the defendant's counterclaim. The background facts which led to the filing of the instant petition are summarized in the decision of the respondent Court of Appeals: "Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is a government owned and controlled corporation created under Republic Act No. 6234 as the successor-in-interest of the defunct NWSA. The Philippine National Bank (PNB for short), on the other hand, is the depository bank of MWSS and its predecessor-in-interest NWSA. Among the several accounts of NWSA with PNB is NWSA Account No. 6, otherwise known as Account No. 381-777 and which is presently allocated No. 010-500281. The authorized signature for said Account No. 6 were those of MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor L. Recio. Their respective specimen signatures were submitted by the MWSS to and on file with the PNB. By special arrangement with the PNB, the MWSS used personalized checks in drawing from this account. These checks were printed for MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal Extension, Caloocan City.
"During the months of March, April and May 1969, twenty-three (23) checks were prepared, processed, issued and released by NWSA, all of which were paid and cleared by PNB and debited by PNB against NWSA Account No. 6, to wit: "Check No. Date Payee Amount Date Paid By PNB 1. 59546 8-21-69 Deogracias Estrella P3,187.79 4-2-69 2. 59548 3-31-69 Natividad Rosario 2,848.86 4-23-69 3. 59547 3-31-69 Pangilinan Enterprises 195.00 Unreleased 4. 59549 3-31-69 Natividad Rosario 3,239.88 4-23-69 5. 59552 4-1-69 Villarama & Sons 987.59 5-6-69 6. 59554 4-1-69 Gascom Engineering 6,057.60 4-16-69 7. 59558 4-2-69 The Evening News 112.00 Unreleased 8. 59544 3-27-69 Progressive Const. 18,391.20 4-18-69 9. 59564 4-2-69 Ind. Insp. Int. Inc. 594.06 4-18-69 10. 59568 4-7-69 Roberto Marsan 800.00 4-22-69 11. 59570 4-7-69 Paz Andres 200.00 4-22-69 12. 59574 4-8-69 Florentino Santos 100,000.00 4-11-69 13. 59578 4-8-69 Mla. Daily Bulletin 95.00 Unreleased 14. 59580 4-8-69 Phil. Herald 100.00 5-9-69 15. 59582 4-8-69 Galauran & Pilar 7,729.09 5-6-69 16. 59581 4-8-69 Manila Chronicle 110.00 5-12-69 17. 59588 4-8-69 Treago Tunnel 21,583.00 4-11-69 18. 59587 4-8-69 Delfin Santiago 120,000.00 4-11-69 19. 59589 4-10-69 Deogracias Estrella 1,257.49 4-16-69 20. 59594 4-14-69 Philam Accident Inc. 33.03 4-29-69 21. 59577 4-8-69 Esla 9,429.78 4-29-69 22. 59601 4-16-69 Justino Torres 20,000.00 4-18-69 23. 59595 4-14-69 Neris Phil. Inc. 4,274.00 5-20-69 P320,636.26"
"During the same months of March, April and May 1969, twenty-three (23) checks bearing the same numbers as the aforementioned NWSA checks were likewise paid and cleared by PNB and debited against NWSA Account No. 6, to wit: "Check Date Payee Amount Date Paid No. Issued By PNB 1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69 2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69 3. 59547 3-14-69 Arturo Sison 56,903.00 4-1169 4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69 5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69 6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69 7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69 8. 59544 3-16-69 Antonio Mendoza 38,490.00 4-22-69 9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69 10. 59568 4-2-69 Arturo Sison 134,940.00 4-25-69 11. 59570 4-1-69 Arturo Sison 64,550.00 4-28-69 12. 59574 4-2-69 Arturo Sison 148,610.00 4-29-69 13. 59578 4-10-69 Antonio Mendoza 93,950.00 4-29-69 14. 59580 4-8-69 Arturo Sison 160,000.00 5-2-69 15. 59582 4-10-69 Arturo Sison 155,400.00 5-5-69 16. 59581 4-8-69 Antonio Mendoza 176,580.00 5-6-69 17. 59588 4-16-69 Arturo Sison 176,000.00 5-8-69 18. 59587 4-16-69 Arturo Sison 300,000.00 5-12-69 19. 59589 4-18-69 Arturo Sison 122,000.00 5-14-69 20. 59594 4-18-69 Arturo Sison 280,000.00 5-15-69 21. 59577 4-14-69 Antonio Mendoza 260,000.00 5-16-69 22. 59601 4-18-69 Arturo Sison 400,000.00 5-19-69 23. 59595 4-28-69 Arturo Sison 190,800.00 5-21-69 P3,457,903.00 "The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and Antonio Mendoza in
their respective current accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC) in the months of March, April and May 1969. Thru the Central Bank Clearing, these checks were presented for payment by PBC and PCIB to the defendant PNB, and paid, also in the months of March, April and May 1969. At the time of their presentation to PNB these checks bear the standard indorsement which reads 'all prior indorsement and/or lack of endorsement guaranteed.' "Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo Sison and Antonio Mendoza were all fictitious persons. The respective balances in their current account with the PBC and/or PCIB stood as follows: Raul Dizon P3,455.00 as of April 30, 1969; Antonio Mendoza P18,182.00 as of May 23, 1969; and Arturo Sison P1,398.92 as of June 30, 1969. "On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate restoration to its Account No. 6, of the total sum of P3,457,903.00 corresponding to the total amount of these twentythree (23) checks claimed by NWSA to be forged and/or spurious checks. "In view of the refusal of PNB to credit back to Account No. 6 the said total sum of P3,457,903.00 MWSS filed the instant complaint on November 10, 1972 before the Court of First Instance of Manila and docketed thereat as Civil Case No. 88950. "In its answer, PNB contended among others, that the checks in question were regular on its face in all
respects, including the genuineness of the signatures of authorized NWSA signing officers and there was nothing on its face that could have aroused any suspicion as to its genuineness and due execution and; that NWSA was guilty of negligence which was the proximate cause of the loss. "PNB also filed a third party complaint against the negotiating banks PBC and PCIB on the ground that they failed to ascertain the identity of the payees and their title to the checks which were deposited in the respective new accounts of the payees with them." xxx xxx xxx On February 6, 1976, the Court of First Instance of Manila rendered judgment in favor of the MWSS. The dispositive portion of the decision reads: "WHEREFORE, on the COMPLAINT by a clear preponderance of evidence and in accordance with Section 23 of the Negotiable Instruments Law, the Court hereby renders judgment in favor of the plaintiff Metropolitan Waterworks and Sewerage System (MWSS) by ordering the defendant Philippine National Bank (PNB) to restore the total sum of THREE MILLION FOUR HUNDRED FIFTY SEVEN THOUSAND NINE HUNDRED THREE PESOS (P3,457,903.00) to plaintiff's Account No. 6, otherwise known as Account No. 010-50030-3, with legal interest thereon computed from the date of the filing of the complaint and until as restored in the said Account No. 6. "On the THIRD PARTY COMPLAINT, the Court, for lack of evidence, hereby renders judgment in
favor of the third party defendants Philippine Bank of Commerce (PBC) and Philippine Commercial and Industrial Bank (PCIB) by dismissing the Third Party Complaint. "The counterclaims of the third party defendants are likewise dismissed for lack of evidence. "No pronouncement as to costs." As earlier stated, the respondent court reversed the decision of the Court of First Instance of Manila and rendered judgment in favor of the respondent Philippine National Bank. A motion for reconsideration filed by the petitioner MWSS was denied by the respondent court in a resolution dated January 3, 1983. The petitioner now raises the following assignments of errors for the grant of this petition: I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS WERE FORGED, THE DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW. II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB IN ACCEPTING THE SPURIOUS CHECKS DESPITE THE OBVIOUS IRREGULARITY OF TWO SETS OF CHECKS BEARING IDENTICAL NUMBER BEING ENCASHED WITHIN DAYS OF EACH OTHER. III IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE MWSS BEING CLEARLY FORGED, AND THE CHECKS SPURIOUS, SAME ARE INOPERATIVE AS AGAINST THE ALLEGED DRAWEE.
The appellate court applied Section 24 of the Negotiable Instruments Law which provides: "Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party thereto for value." The petitioner submits that the above provision does not apply to the facts of the instant case because the questioned checks were not those of the MWSS and neither were they drawn by its authorized signatories. The petitioner states that granting that Section 24 of the Negotiable Instruments Law is applicable, the same creates only a prima facie presumption which was overcome by the following documents, to wit: (1) the NBI Report of November 2, 1970; (2) the NBI Report of November 21, 1974; (3) the NBI Chemistry Report No. C-74-891; (4) the Memorandum of Mr. Juan Dio, 3rd Assistant Auditor of the respondent drawee bank addressed to the Chief Auditor of the petitioner; (5) the admission of the respondent bank's counsel in open court that the National Bureau of Investigation found the signature on the twenty-three (23) checks in question to be forgeries; and (6) the admission of the respondent bank's witness, Mr. Faustino Mesina, Jr. that the checks in question were not printed by his printing press. The petitioner contends that since the signatures of the checks were forgeries, the respondent drawee bank must bear the loss under the rulings of this Court.
"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."
xxx xxx xxx "The signatures to the checks being forged, under Section 23 of the Negotiable Instruments Law they are not a charge against plaintiff nor are the checks of any value to the defendant. "It must therefore be held that the proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in honoring and cashing the two forged checks." (San Carlos Milling Co. v. Bank of the P.I., 59 Phil. 59) "It is admitted that the Philippine National Bank cashed the check upon a forged signature, and placed the money to the credit of Maasim, who was the forger. That the Philippine National Bank then endorsed the check and forwarded it to the Shanghai Bank by whom it was paid. The Philippine National Bank had no license or authority to pay the money to Maasim or anyone else upon a forged signature. It was its legal duty to know that Malicor's endorsement was genuine before cashing the check. Its remedy is against Maasim to whom it paid the money." (Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, 43 Phil. 678) We have carefully reviewed the documents cited by the petitioner. There is no express and categorical finding in these documents that the twenty-three (23) questioned checks were indeed signed by persons other than the authorized MWSS signatories. On the contrary, the findings of the National Bureau of Investigation in its Report dated November 2, 1970 show that the MWSS fraud was an "inside job" and that the petitioner's delay in the reconciliation of bank statements and the laxity and loose records control in the printing of its personalized checks facilitated the fraud. Likewise, the questioned Documents
Report No. 159-1074 dated November 21, 1974 of the National Bureau of Investigation does not declare or prove that the signatures appearing on the questioned checks are forgeries. The report merely mentions the alleged differences in the typeface, checkwriting, and printing characteristics appearing in the standard or submitted models and the questioned typewritings. The NBI Chemistry Report No. C-74891 merely describes the inks and pens used in writing the alleged forged signatures. It is clear that these three (3) NBI Reports relied upon by the petitioner are inadequate to sustain its allegations of forgery. These reports did not touch on the inherent qualities of the signatures which are indispensable in the determination of the existence of forgery. There must be conclusive findings that there is a variance in the inherent characteristics of the signatures and that they were written by two or more different persons. Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139 SCRA 238). It must be established by clear, positive, and convincing evidence. This was not done in the present case. The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59 Phil. 59) and Great Eastern Life Ins., Co. v. Hongkong and Shanghai Bank (43 Phil. 678) relied upon by the petitioner are inapplicable in this case because the forgeries in those cases were either clearly established or admitted while in the instant case, the allegations of forgery were not clearly established during trial. Considering the absence of sufficient security in the printing of the checks coupled with the very close similarities between the genuine signatures and the alleged forgeries, the twenty-three (23) checks in question could have been presented to the petitioner's signatories without their knowing that they were bogus checks. Indeed, the cashier of the petitioner whose signatures were allegedly forged was unable to tell the difference between the allegedly forged signature and his own
genuine signature. On the other hand, the MWSS officials admitted that these checks could easily be passed on as genuine. The memorandum of Mr. A. T. Tolentino, Assistant Chief Accountant of the drawee Philippine National Bank to Mr. E. Villatuya, Executive Vice-President of the petitioner dated June 9, 1969 cites an instance where even the concerned NWSA officials could not tell the differences between the genuine checks and the alleged forged checks. "At about 12:00 o'clock on June 6, 1969, VP Maramag requested me to see him in his office at the Cashier's Dept. where Messrs. Jose M. Sanchez, treasurer of NAWASA and Romeo Oliva of the same office were present. Upon my arrival I observed the NAWASA officials questioning the issue of the NAWASA checks appearing in their own list, xerox copy attached. "For verification purposes, therefore, the checks were taken from our file. To everybody there present namely VIP Maramag, the two abovementioned NAWASA officials, AVP, Buhain, Asst. Cashier Castelo, Asst. Cashier Tejada and Messrs. A. Lopez and L. Lechuga, both C/A bookkeepers, no one was able to point out any difference on the signatures of the NAWASA officials appearing on the checks compared to their official signatures on file. In fact 3 checks, one of those under question, were presented to the NAWASA treasurer for verification but he could not point out which was his genuine signature. After intent comparison, he pointed on the questioned check as bearing his correct signature." xxx xxx xxx
Moreover, the petitioner is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law which provides that: "SEC. 23. FORGED SIGNATURE; EFFECT OF . When the signature is forged or made without authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." because it was guilty of negligence not only before the questioned checks were negotiated but even after the same had already been negotiated. (See Republic v. Equitable Banking Corporation, 10 SCRA 8) The records show that at the time the twenty-three (23) checks were prepared, negotiated, and encashed, the petitioner was using its own personalized checks, instead of the official PNB Commercial blank checks. In the exercise of this special privilege, however, the petitioner failed to provide the needed security measures. That there was gross negligence in the printing of its personalized checks is shown by the following uncontroverted facts, to wit: (1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions relative to the safekeeping and disposition of excess forms, check vouchers, and safety papers; (2) The petitioner failed to retrieve from its printer all spoiled check forms;
(3) The petitioner failed to provide any control regarding the paper used in the printing of said checks; (4) The petitioner failed to furnish the respondent drawee bank with samples of typewriting, 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. This gross negligence of the petitioner is very evident from the sworn statement dated June 19, 1969 of Faustino Mesina, Jr., the owner of the printing press which printed the petitioner's personalized checks: xxx xxx xxx "7. Q: Do you have any business transaction with the National Waterworks and Sewerage Authority (NAWASA)? A: Yes, sir. I have a contract with the NAWASA in printing NAWASA Forms such as NAWASA Check Vouchers and Office Forms. xxx xxx xxx "15. Q: Were you given any instruction by the NAWASA in connection with the printing of these check vouchers? A: There is none, sir. No instruction whatsoever was given to me. "16. Q: Were you not advised as to what kind of paper would be used in the check vouchers?
A: Only as per sample, sir. xxx xxx xxx "20. Q: Where did you buy this Hammermill Safety check paper? A: From Tan Chiong, a paper dealer with store located at Juan Luna, Binondo, Manila. (In front of the Metropolitan Bank). xxx xxx xxx "24. Q: Were all these check vouchers printed by you submitted to NAWASA? A: Not all, sir, Because we have to make reservations or allowances for spoilage. "25. Q: Out of these vouchers printed by you, how many were spoiled and how many were the excess printed check vouchers? A: Approximately four hundred (400) sheets, sir. I cannot determine the proportion of the excess and spoiled because the final act of perforating these check vouchers has not yet been done and spoilage can only be determined after this final act of printing. "26. Q: What did you do with these excess check vouchers? A: I keep it under lock and key in my filing cabinet. xxx xxx xxx
"28. Q: Were you not instructed by the NAWASA authorities to burn these excess check vouchers? A: No, sir. I was not instructed. "29. Q: What do you intend to do with these excess printed check vouchers? A: I intend to use them for future orders from the NAWASA. xxx xxx xxx "32. Q: In the process of printing the check vouchers ordered by the NAWASA, how many sheets were actually spoiled? A: I cannot approximate, sir. But there are spoilage in the process of printing and perforating. "33. Q: What did you do with these spoilages? A: Spoiled printed materials are usually thrown out, in the garbage can.
"39. Q: During the period of printing after the days work, what measures do you undertake to safeguard the mold and other paraphernalia used in the printing of these particular orders of NAWASA? A: Inasmuch as I have an employee who sleeps in the printing shop and at the same time do the guarding, we just leave the mold attached to the machine and the other finished or unfinished work check vouchers are left in the rack so that the work could be continued the following day." The National Bureau of Investigation Report dated November 2, 1970 is even more explicit. Thus xxx xxx xxx "60. We observed also that there is some laxity and loose control in the printing of NAWASA checks. We gathered from MESINA ENTERPRISES, the printing firm that undertook the printing of the check vouchers of NAWASA that NAWASA had no representative at the printing press during the process of the printing and no particular security measure instructions adopted to safeguard the interest of the government in connection with printing of this accountable form." Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks in question was the failure of the petitioner to reconcile the bank statements with its own records. It is accepted banking procedure for the depository bank to furnish its depositors bank statements and debt and credit memos through the mail. The records show that the petitioner requested the respondent
"34. Q: Was there any representative of the NAWASA to supervise the printing or watch the printing of these check vouchers? A: None, sir. xxx xxx xxx
drawee bank to discontinue the practice of mailing the bank statements, but instead to deliver the same to a certain Mr. Emiliano Zaporteza. For reasons known only to Mr. Zaporteza however, he was unreasonably delayed in taking prompt deliveries of the said bank statements and credit and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the bank statements with the petitioner's records. If Mr. Zaporteza had not been remiss in his duty of taking the bank statements and reconciling them with the petitioner's records, the fraudulent encashments of the first checks should have been discovered, and further frauds prevented. This negligence was, therefore, the proximate cause of the failure to discover the fraud. Thus, "When a person opens a checking account with a bank, he is given blank checks which he may fill out and use whenever he wishes. Each time he issues a check, he should also fill out the check stub to which the check is usually attached. This stub, if properly kept, will contain the number of the check, the date of its issue, the name of the payee and the amount thereof. The drawer would therefore have a complete record of the checks he issues. It is the custom of banks to send to its depositors a monthly statement of the status of their accounts, together with all the cancelled checks which have been cashed by their respective holders. If the depositor has filled out his check stubs properly, a comparison between them and the cancelled checks will reveal any forged check not taken from his checkbook. It is the duty of a depositor to carefully examine the bank's statement, his cancelled checks, his check stubs and other pertinent records within a reasonable time, and to report any errors without unreasonable delay. If his negligence should cause the bank to honor a forged check or prevent it from recovering the amount it may have already paid on such check, he cannot later complain
should the bank refuse to recredit his account with the amount of such check. (First Nat. Bank of Richmond v. Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA, NS 744 [1907]. See also Leather Manufacturers' Bank v. Morgan, 117 US 96, 6 S. Ct. 657 [1886]; Deer Island Fish and Oyster Co. v. First Nat. Bank of Biloxi, 166 Miss. 162, 146 So. 116 [1933]). Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law, 1971, pp. 267268). This failure of the petitioner to reconcile the bank statements with its cancelled checks was noted by the National Bureau of Investigation in its report dated November 2, 1970: "58. One factor which facilitate this fraud was the delay in the reconciliation of bank (PNB) statements with the NAWASA bank accounts. . . . Had the NAWASA representative come to the PNB early for the statements and had the bank been advised promptly of the reported bogus check, the negotiation of practically all of the remaining checks on May, 1969, totalling P2,224,736.00 could have been prevented." The records likewise show that the petitioner failed to provide appropriate security measures over its own records thereby laying confidential records open to unauthorized persons. The petitioner's own Fact Finding Committee, in its report submitted to their General Manager underscored this laxity of records control. It observed that the "office of Mr. Ongtengco (Cashier No. VI of the Treasury Department at the NAWASA) is quite open to any person known to him or his staff members and that the check writer is merely on top of his table."
When confronted with this report at the Anti-Fraud Action Section of the National Bureau of Investigation, Mr. Ongtengco could only state that: "A. Generally my order is not to allow anybody to enter my office. Only authorized persons are allowed to enter my office. There are some cases, however, where some persons enter my office because they are following up their checks. Maybe, these persons may have been authorized by Mr. Pantig. Most of the people entering my office are changing checks as allowed by the Resolution of the Board of Directors of the NAWASA and the Treasurer. The check writer was never placed on my table. There is a place for the checkwriter which is also under lock and key. "Q. Is Mr. Pantig authorized to allow unauthorized persons to enter your office? "A. No, sir. "Q. Why are you tolerating Mr. Pantig admitting unauthorized persons in your office? "A. I do not want to embarrass Mr. Pantig. Most of the people following up checks are employees of the NAWASA. "Q. Was the authority given by the Board of Directors and the approval by the Treasurer for employees, and other persons to encash their checks carry with it their authority to enter your office?
"A. No, sir. xxx xxx xxx "Q. From the answers that you have given to us we observed that actually there is laxity and poor control on your part with regards to the preparations of check payments inasmuch as you allow unauthorized persons to follow up their vouchers inside your office which may leakout confidential informations or your books of account. After being apprised of all the shortcomings in your office, as head of the Cashiers' Office of the Treasury Department what remedial measures do you intend to undertake? "A. Time and again the Treasurer has been calling our attention not to allow interested persons to hand carry their voucher checks and we are trying our best and if I can do it to follow the instructions to the letter, I will do it but unfortunately the persons who are allowed to enter my office are my co-employees and persons who have connections with our higher ups and I can not possibly antagonize them. Rest assured that even though that everybody will get hurt, I will do my best not to allow unauthorized persons to enter my office. xxx xxx xxx "Q. Is it not possible inasmuch as your office is in charge of the posting of check payments in your books that leakage of payments to the banks came from your office?
"A. I am not aware of it but it only takes us a couple of minutes to process the checks. And there are cases wherein every information about the checks may be obtained from the Accounting Department, Auditing Department, or the Office of the General Manager." Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of Investigation concluded in its Report dated November 2, 1970 that the fraudulent encashment of the twenty-three (23) checks in question was an "inside job". Thus "We have all the reasons to believe that this fraudulent act was an inside job or one pulled with inside connivance at NAWASA. As pointed earlier in this report, the serial numbers of these checks in question conform with the numbers in current use of NAWASA, aside from the fact that these fraudulent checks were found to be of the same kind and design as that of NAWASA's own checks. While knowledge as to such facts may be obtained through the possession of a NAWASA check of current issue, an outsider without information from the inside can not possibly pinpoint which of NAWASA's various accounts has sufficient balance to cover all these fraudulent checks. None of these checks, it should be noted, was dishonored for insufficiency of funds." Even if the twenty three (23) checks in question are considered forgeries, considering the petitioner's gross negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law. Nonetheless, the petitioner claims that it was the negligence of the respondent Philippine National Bank that was the proximate cause of
the loss. The petitioner relies on our ruling in Philippine National Bank v. Court of Appeals (25. SCRA 693) that. "Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found nothing wrong with the check and would honor the same, and by actually paying its amount to the PCIB, the PNB induced the latter, not only to believe that the check was genuine and good in every respect, but, also, to pay its amount to Augusto Lim. In other words, the PNB was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB." The argument has no merit. The records show that the respondent drawee bank, had taken the necessary measures in the detection of forged checks and the prevention of their fraudulent encashment. In fact, long before the encashment of the twenty-three (23) checks in question, the respondent Bank had issued constant reminders to all Current Account Bookkeepers informing them of the activities of forgery syndicates. The Memorandum of the Assistant Vice-President and Chief Accountant of the Philippine National Bank dated February 17, 1966 reads in part:
"SUBJECT: ACTIVITIES OF FORGERY SYNDICATE. "From reliable information we have gathered that personalized checks of current account depositors are now the target of the forgery syndicate. To protect the interest of the bank, you are hereby enjoined to be more careful in examining said checks especially those coming from the clearing, mails and window transactions. As a reminder please be guided with the following:
"1. Signatures of drawers should be properly scrutinized and compared with those we have on file. "2. `The serial numbers of the checks should be compared with the serial numbers registered with the Cashier's Dept. "3. The texture of the paper used and the printing of the checks should be compared with the sample we have on file with the Cashier's Dept. "4. Checks bearing several indorsements should be given a special attention. "5. Alteration in amount both in figures and words should be carefully examined even if signed by the drawer. "6. Checks issued in substantial amounts particularly by depositors who do not usually issue checks in big amounts should be brought to the attention of the drawer by telephone or any fastest means of communication for purposes of confirmation. and your attention is also invited to keep abreast of previous circulars and memo instructions issued to bookkeepers." We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks because the printing of the petitioner's personalized checks was not done under the supervision and control of the Bank. There is no evidence on record indicating that because of this private printing, the petitioner furnished the respondent Bank with samples of checks, pens, and inks or took other precautionary measures with the PNB to safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent encashment of its checks. WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of merit. The decision of the respondent Court of Appeals dated October 29, 1982 is AFFIRMED. No pronouncement as to costs. SO ORDERED. Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur. Paras, **J., took no part. Footnotes ** Justice Paras took no part. Justice Cruz was designated to sit in the Second Division. PHILIPPINE NATIONAL BANK vs. THE NATIONAL CITY BANK OF NEW YORK EN BANC [G.R. NO. 43596. OCTOBER 31, 1936.] PHILIPPINE NATIONAL BANK, PLAINTIFF-APPELLEE , VS. THE NATIONAL CITY BANK OF NEW YORK, AND MOTOR SERVICE COMPANY, INC., DEFENDANTS . MOTOR SERVICE COMPANY, INC., APPELLANT. L.D. Lockwood for appellant. Camus & Delgado for appellee.
SYLLABUS 1. BANKS AND BANKING; ACCEPTANCE OR CERTIFICATION OF CHECKS; ESTOPPEL. Where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the genuineness of the drawer's signature and his capacity to issue the instrument. 2. ID; PAYMENT OF FORGED CHECK. If a drawee bank pays a forged check which was previously accepted or certified by the said bank it cannot recover from a holder who did not participate in the forgery and did not have actual notice thereof. 3. ID; ID. The payment of a check does not include or imply its acceptance in the sense that this word is used in section 62 of the Negotiable Instruments Act. 4. ID.; ID. In the case of the payment of a forged check, even without former acceptance, the drawee can not recover from a holder in due course not chargeable with any act of negligence or disregard of duty. 5. ID.; ID. To entitle the holder of a forged check to retain the money obtained thereon, there must be a showing that the duty to ascertain the genuineness of the signature rested entirely upon the drawee, and that the constructive negligence of such drawee in failing to detect the forgery was not affected by any disregard of duty on the part of the holder, or by failure of any precaution which, from his implied assertion in presenting the check as a sufficient voucher, the drawee had the right to believe he had taken. 6. ID.; ID. In the absence of actual fault on the part of the drawee, his constructive fault in not knowing the signature of the drawer and detecting the forgery will not preclude his recovery from one who took the check under circumstances of suspicion and without proper precaution, or whose conduct has been such as to mislead the drawee or induce him to pay the check without the usual scrutiny or other precautions against mistake or fraud.
7. ID.; ID. One who purchases a check or draft is bound to satisfy himself that the paper is genuine, and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he performed his duty. 8. ID.; ID. While the foregoing rule, chosen from a welter of decisions on the issue as the correct one, will not hinder the circulation of two recognized mediums of exchange by which the great bulk of business is carried on, namely, drafts and checks, on the other hand, it will encourage and demand prudent business methods on the part of those receiving such mediums of exchange. 9. ID.; ID. It being a matter of record in the present case, that the appellee bank is no more chargeable with the knowledge of the drawer's signature than the appellant is, as the drawer was as much the customer of the appellant as of the appellee, the presumption that a drawee bank is bound to know more than any indorser the signature of its depositor does not hold. 10. ID.; ID. According to the undisputed facts of the case the appellant in purchasing the papers in question from unknown persons without making any inquiry as to the identity and authority of the said persons negotiating and indorsing them, acted negligently and contributed to the appellee's constructive negligence in failing to detect the forgery. 11. ID.; ID. Under the circumstances of the case, if the appellee bank is allowed to recover, there will be no change of position as to the injury or prejudice of the appellant.
DECISION
RECTO, J p: This case was submitted for decision to the court below on the following stipulation of facts:
"1. That plaintiff is a banking corporation organized and existing under and by virtue of a special act of the Philippine Legislature, with office as principal place of business at the Masonic Temple Bldg., Escolta, Manila, P.I.; that the defendant National City Bank of New York is a foreign banking corporation with a branch office duly authorized and licensed to carry and engage in banking business in the Philippine Islands, with branch office and place of business in the National City Bank Bldg., City of Manila, P.I., and that the defendant Motor Service Company, Inc., is a corporation organized and existing under and by virtue of the general corporation law of the Philippine Islands, with office and principal place of business at 408 Rizal Avenue, City of Manila, P.I., engaged in the purchase and sale of automobile spare parts and accessories. "2. That on April 7 and 9, 1933, an unknown person or persons negotiated with defendant Motor Service Company, Inc., the checks marked as Exhibits A and A-1, respectively, which are made parts of the stipulation, in payment for automobile tires purchased from said defendant's stores, purporting to have been issued by the 'Pangasinan Transportation Co., Inc. by J.L. Klar, Manager and Treasurer', against the Philippine National Bank and in favor of the International Auto Repair Shop, for P144.50 and P215.75; and said checks were indorsed by said unknown persons in the manner indicated at the back thereof, the Motor Service Co., Inc., believing at the time that the signatures of J.L. Klar, Manager and Treasurer of the Pangasinan Transportation Co., Inc., on both checks were genuine. "3. The checks Exhibits A and A-1 were then indorsed for deposit by the defendant Motor Service
Company, Inc. at the National City Bank of New York and the former was accordingly credited with the amounts thereof, or P144.50 and P215.75. "4. On April 8 and 10, 1933, the said checks were cleared at the clearing house and the Philippine National Bank credited the National City Bank of New York for the amounts thereof, believing at the time that the signatures of the drawer were genuine, that the payee is an existing entity and the endorsements at the bank thereof regular and genuine. "5. The Philippine National Bank then found out that the purported signatures of J.L. Klar, as Manager and Treasurer of the Pangasinan Transportation Company, Inc., in said Exhibits A and A-1 were forged when so informed by the said Company, and it accordingly demanded from the defendants the reimbursement of the amounts for which it credited the National City Bank of New York at the clearing house and for which the latter credited the Motor Service Co., but the defendants refused, and continue to refuse, to make such reimbursements. "6. The Pangasinan Transportation Co., Inc., objected to have the proceeds of said check deducted from their deposit. "7. Exhibits B, C, D, E, F, and G, which were introduced at the trial in the municipal court of Manila and forming part of the record of the present case, are admitted by the parties as genuine and are made part of this stipulation as well as Exhibit H hereto attached and made a part hereof." Upon plaintiff's motion, the case was dismissed before trial as to the defendant National City Bank of New York. A decision was thereafter rendered giving plaintiff judgment for the total amount of P360.25, with interest and costs. From this decision the instant appeal was taken.
Before us is the preliminary question of whether the original appeal taken by the plaintiff from the decision of the municipal court of Manila where this case originated, became perfected because of plaintiff's failure to attach to the record within 15 days from receipt of notice of said decision, the certificate of appeal bond required by section 76 of the Code of Civil Procedure. It is not disputed that both the appeal docket fee and the appeal cash bond were paid and deposited within the prescribed time. The issue is whether the mere failure to file the official receipt showing that such deposit was made within the said period is a sufficient ground to dismiss plaintiff's appeal. This question was settled by our decision in the case of Blanco vs. Bernabe and Lawyers Cooperative Publishing Co. (page 124, ante), and needs no further consideration. No error was committed in allowing said appeal. We now pass on to consider and determine the main question presented by this appeal, namely, whether the appellee has the right to recover from the appellant, under the circumstances of this case, the value of the checks on which the signatures of the drawer were forged. The appellant maintains that the question should be answered in the negative and in support of its contention appellant advanced various reasons presently to be examined carefully. I. It is contended, first of all, that the payment of the checks in question made by the drawee bank constitutes an "acceptance", and, consequently, the case should be governed by the provisions of section 62 of the Negotiable Instruments Law, which says: "SEC. 62. Liability of acceptor. The acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance; and admits: "(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and "(b) The existence of the payee and his then capacity to indorse."
This contention is without merit. A check is a bill of exchange payable on demand and only the rules governing bills of exchange payable on demand are applicable to it, according to section 185 of the Negotiable Instruments Law. In view of the fact that acceptance is a step unnecessary in so far as bills of exchange payable on demand are concerned (sec. 143), it follows that the provisions relative to "acceptance" are without application to checks. Acceptance implies, in effect, subsequent negotiation of the instrument, which is not true in case of the payment of a check because from the moment a check is paid it is withdrawn from circulation. The warranty established by section 62, is in favor of holders of the instrument after its acceptance. When the drawee bank cashes or pays a check, the cycle of negotiation is terminated, and it is illogical thereafter to speak of subsequent holders who can invoke the warranty provided in section 62 against the drawee. Moreover, according to section 191, "acceptance" means "an acceptance completed by delivery or notification" and this concept is entirely incompatible with payment, because when payment is made the check is retained by the bank, and there is no such thing as delivery or notification to the party receiving the payment. (1 Bouvier's Law Dictionary, 476.) There can be no such thing as "acceptance" in the ordinary sense of the term. A check being payable immediately and on demand, the bank can fulfill its duty to the depositor only by paying the amount demanded. The holder has no right to demand from the bank anything but payment of the check, and the bank has no right, as against the drawer, to do anything but pay it. (5 R.C.L., p. 516, par. 38.) A check is not an instrument which in the ordinary course of business calls for acceptance. The holder can never claim acceptance as his legal right. He can present for payment, and only for payment. (1 Morse on Banks and Banking, 6th ed., pp. 898, 899.) There is, however, nothing in the law or in business practice against the presentation of checks for acceptance, before they are paid, in which case we have a "certification" equivalent to "acceptance" according to section 187, which provides that "where
a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance", and it is then that the warranty under section 62 exists. This certification or acceptance consists in the signification by the drawee of his assent to the order of the drawer, which must not express that the drawee will perform his promise by any other means than the payment of money. (Sec. 132.) When the holder of a check procures it to be accepted or certified, the drawer will perform his promise by any other means than the payment of money. (Sec. 132.) When the holder of a check procedures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon (sec. 188), and then the check operates as an assignment of a part of the funds to the credit of the drawer with the bank. (Sec. 189.) There is nothing in the nature of the check which intrinsically precludes its acceptance, in like manner and with like effect as a bill of exchange or draft may be accepted. The bank may accept if it chooses; and it is frequently induced by convenience, by the exigencies of business, or by the desire to oblige customers, voluntarily to incur the obligation. The act by which the bank places itself under obligation to pay to the holder the sum called for by a check must be the expressed promise or undertaking of the bank signifying its intent to assume the obligation, or some act from which the law will imperatively imply such valid promise or undertaking. The most ordinary form which such an act assumes is the acceptance by the bank of the check, or, as it is perhaps more often called, the certifying of the check. (1 Morse on Banks and Banking, pp. 898, 899; 5 R.C.L., p. 520.). No doubt a bank may by an unequivocal promise in writing make itself liable in any event to pay the check upon demand, but this is not an "acceptance" of the check in the true sense of that term. Although a check does not call for acceptance, and the holder can present it only for payment, the certification of checks is a means in constant and extensive use in the business of banking, and its effects and consequences are regulated by the law merchant. Checks drawn upon banks or bankers, thus marked and certified, enter largely into the commercial and financial
transactions of the country; they pass from hand to hand, in the payment of debts, the purchase of property, and in the transfer of balances from one house and one bank to another. In the great commercial centers, they make up no inconsiderable portion of the circulation, and thus perform a useful, valuable, and an almost indispensable office. The purpose of procuring a check to be certified is to impart strength and credit to the paper by obtaining an acknowledgment from the certifying bank that the drawer has funds therein sufficient to cover the check, and securing the engagement of the bank that the check will be paid upon presentation. A certified check has a distinctive character as a species of commercial paper, and performs important functions in banking and commercial business. When a check is certified, it ceases to possess the character, or to perform the functions, of a check, and represents so much money on deposit, payable to the holder on demand. The check becomes a basis of credit an easy mode of passing money from hand to hand, and answers the purposes of money. (5 R.C.L., pp. 516, 517.) All the authorities, both English and American, hold that a check may be accepted, though acceptance is not usual. By the law merchant, the certificate of the bank that a check is good is equivalent to acceptance. It implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is presented for payment. It is an undertaking that the check is good then, and shall continue good, and this agreement is as binding on the bank as its notes of circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it can assume. The object of certifying a check, as regards both parties is to enable the holder to use it as money. The transferee takes it with the same readiness and sense of security that he would take the notes of the bank. It is available also to him for all the purposes of money. Thus it continues to perform its important functions until the course of business it goes back to the bank for redemption, and is extinguished by payment. It cannot be doubted that the certifying bank intended these consequences, and
it is liable accordingly. To hold otherwise would render these important securities only a snare and a delusion. A bank incurs no greater risk in certifying a check than in giving a certificate of deposit. In well-regulated banks the practice is at once to charge the check to the account of the drawer, to credit it in a certified check account, and, when the check is paid, to debit that account with the amount. Nothing can be simpler or safer than this process. (Merchants' Bank vs. States Bank, 10 Wall., 604, at p. 647; 19 Law. ed., 1008, 1019.) Ordinarily the acceptance or certification of a check is performed and evidenced by some word or mark, usually the words "good", "certified" or "accepted" written upon the check by the banker or bank officer. (1 Morse, Banks and Banking, 915; 1 Bouvier's Law Dictionary, 476.) The bank virtually says, that check is good; we have the money of the drawer here ready to pay it. We will pay it now if you will receive it. The holder says, No, I will not take the money; you may certify the check and retain the money for me until this check is presented. The law will not permit a check, when due, to be thus presented, and the money to be left with the bank for the accommodation of the holder without discharging the drawer. The money being due and the check presented, it is his own fault if the holder declines to receive the pay, and for his own convenience has the money appropriated to that check subject to its future presentment at any time within the statute of limitations. (1 Morse on Banks and Banking, p. 920.) The theory of the appellant and of the decisions on which it relies to support its view is vitiated by the fact that they take the word "acceptance" in its ordinary meaning and not in the technical sense in which it is used in the Negotiable Instruments Law. Appellant says that when payment is made, such payment amounts to an acceptance, because he who pays accepts. This is true in common parlance, but it is not "acceptance" in legal contemplation. The word "acceptance" has a peculiar meaning in the Negotiable Instruments Law, and, as has been above stated, in the instant case there was payment but no acceptance, or what is equivalent to acceptance, certification.
With few exceptions, the weight of authority is to the effect that "payment" neither includes nor implies "acceptance". In National Bank vs. First National Bank ([1910], 141 Mo. App., 719; 125 S. W., 513), the court asks, if a mere promise to pay a check is binding on a bank, why should not the absolute payment of the check have the same effect? In response, it is submitted that the two things, that is acceptance and payment, are entirely different. If the drawee accepts the paper after seeing it, and then permits it to go into circulation as genuine, on all the principles of estoppel, he ought to be prevented from setting up forgery to defeat liability to one who has taken the paper on the faith of the acceptance, or certification. On the other hand, mere payment of the paper at the termination of its course does not act as an estoppel. The attempt to state a general rule covering both acceptance and payment is responsible for a large part of the conflicting arguments which have been advanced by the courts with respect to the rule. (Annotation at 12 A.L.R., 1090 [1921].) In First National Bank vs. Brule National Bank ([1917], 12 A.L.R., 1079, 1085), the court said: "We are of the opinion that 'payment is not acceptance'. Acceptance, as defined by section 131, cannot be confounded with payment. . . . "Acceptance, certification, or payment of a check, by the express language of the statute, discharges the liability only of the persons named in the statute, to wit, the drawer and all indorsers, and the contract of indorsement by the negotiator of the check is discharged by acceptance, certification, or payment. But clearly the statute does not says that the contract of warranty of the negotiator, created by section 65, is discharged by these acts." The rule supported by the majority of the cases (14 A.L.R., 764), that payment of a check on a forged or unauthorized indorsement of the payee's name, and charging the same to the drawer's account, do not amount to an acceptance so as to make the
bank liable to the payee, is supported by all of the recent cases in which the question is considered. (Cases cited, Annotation at 69 A.L.R., 1076, 1077, [1930].) Merely stamping a check "Paid" upon its payment on a forged or unauthorized indorsement is not an acceptance thereof so as to render the drawee bank liable to the true payee. (Anderson vs. Tacoma National Bank [1928], 146 Wash., 520; 264 Pac., 8; Annotation at 69 A.L.R., 1077 [1930].) In State Bank of Chicago vs. Mid-City Trust & Savings Bank (12 A.L.R., 989, 991, 992), the court said: "The defendant in error contends that the payment of the check shows acceptance by the bank, urging that there can be no more definite act by the bank upon which a check has been drawn, showing acceptance, than the payment of the check. Section 184 of the Negotiable Instruments Act (sec. 202) provides that the provisions of the act applicable to bills of exchange apply to a check, and section 131 (sec. 149), that the acceptance of a bill must be in writing signed by the drawee. Payment is the final act which extinguishes a bill. Acceptance is a promise to pay in the future and continues the life of the bill. It was held in First National Bank vs. Whitman (94 U.S., 343; 24 L. ed., 229), that payment of a check upon a forged indorsement did not operate as an acceptance in favor of the true owner. The contrary was held in Pickle vs. Muse (Fickle vs. People's Nat. Bank, 88 Tenn., 380; 7 L.R.A., 93; 17 Am. St. Rep., 900; 12 S.W., 919), and Seventh National Bank vs. Cook (73 Pa., 483; 13 Am. Rep., 751) at a time when the Negotiable Instruments Act was not in force in those states. The opinion of the Supreme Court of the United States seems more logical, and the provisions of the Negotiable Instruments Act now require an acceptance to be in writing. Under this statute the
payment of a check on a forged indorsement, stamping it 'paid,' and charging it to the account of the drawer, do not constitute an acceptance of the check or create a liability of the bank to the true holder or the payee. (Elyria Sav. & Bkg. Co. vs. Walker Bin Co., 92 Ohio St., 406; L.R.A., 1916D, 433; 111 N.E., 147; Ann. Cas. 1917D, 1055; Baltimore & O.R. Co. vs. First National Bank, 102 Va., 753; 47 S.E., 837; State Bank of Chicago vs. Mid-City Trust & Savings Bank, 12 A.L.R., pp. 989, 991, 992.)" Before drawee's acceptance of check there is no privity of contract between drawee and payee. Drawee's payment of check on unauthorized indorsement does not constitute "acceptance" of check. (Sinclair Refining Co. vs. Moultrie Banking Co., 165 S.E., 860 [1932].) The great weight of authority is to the effect that the payment of a check upon a forged or unauthorized indorsement and the stamping of it "paid" does not constitute an acceptance. (Dakota Radio Apparatus Co. vs. First Nat. Bank of Rapid City, 244 N.W., 351, 352 [1932].) Payment of the check, cashing it on presentment is not acceptance. (South Boston Trust Co. vs. Levin, 249 Mass., 45, 48, 49; 143 N.E., 816; Blocker, Shepard Co. vs. Granite Trust Company, 187 Me., 53,54 [1933].) In Rauch vs. Bankers National Bank of Chicago (143 Ill. App., 625, 636, 637 [1908]), the language of the decision was as follows: " . . . The plaintiffs say that this acceptance was made by the very unauthorized payments of which they complain. This suggestion does not seem forceful to us. It is the contention which was made before the Supreme Court of the United States in First National Bank vs. Whitman (94 U.S., 343), and
repudiated by that court. The language of the opinion in that case is so apt in the present case that we quote it: "'It is further contended that such an acceptance of a check as creates a privity between the payee and the bank is established by the payment of the amount of this check in the manner described. This argument is based upon the erroneous assumption that the bank has paid this check. If this were true, it would have discharged all of its duty, and there would be an end to the claim against it. The bank supposed that it had paid was upon a pretended and not a real indorsement of the name of the payee. . . . We cannot recognize the argument that payment of the amount of the check or sight draft under such circumstances amounts to an acceptance creating a privity of contract with the real owner. "'It is difficult to construe a payment as an acceptance under any circumstances. . . . A banker or individual may be ready to make actual payment of a check or draft when presented, while unwilling to make a promise to pay at a future time. Many, on the other hand, are more ready to promise to pay than to meet the promise when required. The difference between the transactions is essential and inherent.'" And in Wharf vs. Seattle National Bank (24 Pac. [2d]), 120, 123 [1993]): "It is the rule that payment of a check on unauthorized or forged indorsement does not operate as an acceptance of the check so as to authorize an action by the real owner to recover its amount from the drawee bank. (Michie on Banks and Banking, vol. 5, sec. 278, p. 521.) A full list of the authorities supporting the rule will be found in a footnote to the foregoing citation." (See also, Federal Land Bank vs.
Collins, 156 Miss., 893; 127 So., 570; 69 A.L.R., 1068.) In a very recent case, Federal Land Bank vs. Collins (69 A.L.R., 1068, 1072-1074), this question was discussed at considerable length. The court said: "In the light of the first of these statutes, counsel for appellant is forced to stand upon the narrow ledge that the payment of the check by the two banks will constitute an acceptance. The drawee bank simply marked it 'paid' and did not write anything else except the date. The bank first paying the check, the Commercial National Bank and Trust Company, simply wrote its name as indorser and passed the check on to the drawee bank; does this constitute an acceptance? The precise question has not been presented to this court for decision. Without reference to authorities in other jurisdictions it would appear that the drawee bank had never written its name across the paper and therefore, under the strict terms of the statute, could not be bound as an acceptor; in the second place, it does not appear to us to be illogical and unsound to say that the payment of a check by the drawee, and the stamping of it 'paid', is equivalent to the same thing as the acceptance of a check; however, there is a variety of opinions in the various jurisdictions on this question. Counsel correctly states that the theory upon which the numerous courts hold that the payment of a check creates privity between the holder of the check and the drawee bank is tantamount to a pro tanto assignment of that part of the funds. It is most easily understood how the payment of the check, when not authorized to be done by the drawee bank, might under such circumstances create liability on the part of the drawee to the drawer. Counsel cites the case of Pickle vs. Muse (88 Tenn., 380; 12 S.W., 919; 7
L.R.A., 93; 17 Am. St. Rep., 900), wherein Judge Lurton held that the acceptance of a check was necessary in order to give the holder thereof a right of action thereon against the bank, and further held in a case similar to this, so far as this question is concerned, that the acceptance of a check so as to give a right of action to the payee is inferred from the retention of the check by the bank and its subsequent charge of the amount of the drawer, although it was presented by, and payment made to, an unauthorized person. Judge Lurton cited the case of National Bank of the Republic vs. Millard (10 Wall., 152; 19 L. ed., 897), wherein the Supreme Court of the United States, not having such a case before it, threw out the suggestion that, if it was shown that a bank had charged the check on its books against the drawer and made settlement with the drawee that the holder could recover on account of money had and received, invoking the rule of justice and fairness, it might be said there was an implied promise to the holder to pay it on demand. (See National Bank of the Republic vs. Millard, 10 Wall. [77 U.S.], 152; 19 L. ed., 899.) The Tennessee court then argued that it would be inequitable and unconscionable for the owner and payee of the check to be limited to an action against an insolvent drawer and might thereby lose the debt. They recognized the legal principle that there is no privity between the drawer bank and the holder, or payee, of the check, and proceeded to hold that no particular kind of writing was necessary to constitute an acceptance and that it became a question of fact, and the bank became liable when it stamped it 'paid' and charged it to the account of the drawer, and cites, in support of its opinion, Seventh National Bank vs. Cook (73 Pa., 483; 13 Am. Rep., 353); and Dodge vs. Bank (20 Ohio St., 234; 5 Am. Rep., 648).
"This decision was in 1890, prior to the enactment of the Negotiable Instruments Law by the State of Tennessee. However, in this case Judge Snodgrass points out that the Millard case, supra, was dicta. The Dodge case, from the Ohio court, held exactly as the Tennessee court, but subsequently in the case of Elyria Bank vs. Walker Bin Co. (92 Ohio St., 406; 111 N.E., 147; L.R.A. 1916D, 433; Ann. Cas. 1917D, 1055), the court held to the contrary, called attention to the fact that the Dodge case was no longer the law, and proceeded to announce that, whatever might have been the law before the passage of the Negotiable Instruments Act in that state, it was no longer the law; that the rule announced in the Dodge case had been 'discarded.' The court, in the latter case, expressed its doubts that the courts of Tennessee and Pennysylvania would adhere to the rule announced in the Pickle case, quoted supra, in the face of the Negotiable Instruments Law. Subsequent to the Millard case, the Supreme Court of the United States, in the case of First National Bank of Washington vs. Whitman (94 U.S., 343; 347; 24 L. ed., 229), where the bank, without any knowledge that the indorsement of the payee was unauthorized, paid the check, and it was contended that by the payment the privity of contract existing between the drawer and drawee was imparted to the payee, said: "'It is further contended that such an acceptance of the check as creates a privity between the payee and the bank is established by the payment of the amount of this check in the manner described. This argument is based upon the erroneous assumption that the bank has paid this check. If this were true, it would have discharged all of its duty, and there would be an end of the claim against it. The bank supposed that it had paid the check; but this was
an error. The money it paid was upon a pretended and not a real indorsement of the name of the payee. The real indorsement of the payee was as necessary to a valid payment as the real signature of the drawer; and in law the check remains unpaid. Its pretended payment did not diminish the funds of the drawer in the bank, or put money in the pocket of the person entitled to the payment. The state of the account was the same after the pretended payment as it was before. "'We cannot recognize the argument that a payment of the amount of a check or sight draft under such circumstances amounts to an acceptance, creating a privity of contract with the real owner. It is difficult to construe a payment as an acceptance under any circumstances. The two things are essentially different. One is a promise to perform an act, the other an actual performance. A banker or an individual may be ready to make actual payment of a check or draft when presented, while unwilling to make a promise to pay at a future time. Many, on the other hand, are more ready to promise to pay than to meet the promise when required. The difference between the transactions is essential and inherent.' "Counsel for appellant cite other cases holding that the stamping of the check 'paid' and the charging of the amount thereof to the drawer constituted an acceptance, but we are of opinion that none of these cases cited hold that it is in compliance with the Negotiable Instruments Act; paying the check and stamping same is not the equivalent of accepting the check in writing signed by the drawee. The cases holding that payment as indicated above constituted acceptance were rendered prior to the adoption of the Negotiable Instruments Act in the particular state, and these decisions are divided into two classes; the one holding that the check delivered by the drawer to the
holder and presented to the bank or drawee constitutes an assignment pro tanto; the other holding that the payment of the check and the charging of same to the drawee although paid to an unauthorized person creates privity of contract between the holder and the drawee bank. "We have already seen that our own court has repudiated the assignment pro tanto theory, and since the adoption of the Negotiable Instruments Act by this state we are compelled to say that payment of a check is not equivalent to accepting a check in writing and signing the name of the acceptor thereon. Payment of the check and the charging of same to the drawer does not constitute an acceptance. Payment of the check is the end of the voyage; acceptance of the check is to fuel the vessel and strengthen it for continued operation on the commercial sea. What we have said applies to the holder and not to the drawer of the check. On this question we conclude that the general rule is that an action cannot be maintained by a payee of the check against the bank on which it is drawn, unless the check has been certified or accepted by the bank in compliance with the statute, even though at the time the check is that an action cannot be maintained by a payee of the drawer of the check out of which the check is legally payable; and that the payment of the check by the bank on which it is drawn, even though paid on the unauthorized indorsement of the name of the holder (without notice of the defect by the bank), does not constitute a certification thereof, neither is it an acceptance thereof; and without acceptance or certification, as provided by statute, there is no privity of contract between the drawee bank and the payee, or holder of the check. Neither is there an assignment pro tanto of
the funds where the check is not drawn or a particular fund, or does not show on its face that it is an assignment of a particular fund. The above rule as stated seems to have been the rule in the majority of the states even before the passage of the uniform Negotiable Instruments Act in the several states." The decision in the case of First National Bank vs. Bank of Cottage Grove (59 Or., 388), which appellant cites in its brief (pp. 12, 13) has been expressly overruled by the Supreme Court of Massachusetts in South Boston Trust Co. vs. Levin (143 N.E., 816, 817), in the following language: "In First National Bank vs. Bank of Cottage Grove (59 Or., 388; 117 Pac., 293, 296, at page 396), it was said: 'The payment of a bill or check by the drawee amounts to more than an acceptance. The rule, holding that such a payment has all the efficacy of an acceptance, is founded upon the principle that the greater includes the less.' We are unable to agree with this statement as there is no similarity between acceptance and payment; payment discharges the instrument, and no one else is expected to advance anything on the faith of it; acceptance contemplates further circulation, induced by the fact of acceptance. The rule that the acceptor makes certain admissions which will inure to the benefit of subsequent holders, has no applicability to payment of the instrument where subsequent holders can never exist." II. The old doctrine that a bank was bound to know its correspondent's signature and that a drawee could not recover money paid upon a forgery of the drawer's name, because, it was said, the drawee was negligent not to know for forgery and it must bear the consequence of its negligence, is fact fading into the misty past, where it belongs. It was founded in misconception of the fundamental principles of law and common sense. (2 Morse, Banks and Banking, p. 1031.)
Some of the cases carried the rule to its furthest limit and held that under no circumstances (except, of course, where the purchaser of the bill has participated in the fraud upon the drawee) would the drawee be allowed to recover bank money paid under a mistake of fact upon a bill of exchange to which the name of the drawer had been forged. This doctrine has been freely criticized by eminent authorities, as a rule too favorable to the holder, not the most fair, nor best calculated to effectuate justice between the drawee and the drawer. (5 R.C.L., p. 556.) The old rule which was originally announced by Lord Mansfield in the leading case of Price vs. Neal (3 Burr., 1354), elicited the following comment from Justice Holmes, then Chief Justice of the Supreme Court of Massachusetts, in the case of Dedham National Bank vs. Everett National Bank (177 Mass., 392). "Probably the rule was adopted from an impression of convenience rather than for any more academic reason; or perhaps we may say that Lord Mansfield took the case out of the doctrine as to payments under a mistake of fact by the assumption that a holder who simply presents negotiable paper for payment makes no representation as to the signature, and that the drawee pays at his peril." Such was the reaction that followed Lord Mansfield's rule which Justice Story of the United States Supreme Court adopted in the case of Bank of United States vs. Georgia (10 Wheat., 333), that in B.B. Ford & Co. vs. People's Bank of Orangeburg (74 S.C., 180), it was held that "an unrestricted indorsement of a draft and presentation to the drawee is a representation that the signature of the drawer is genuine", and in Lisbon First National Bank vs. Wyndmere Bank (15 N.D., 299), it was also held that "the drawee of a forged check who has paid the same without detecting the forgery, may upon discovery of the forgery, recover the money paid from the party who received the money, even though the latter was a good faith holder, provided the latter has not been misled or prejudiced by the drawee's failure to detect the forgery."
Daniel, in his treatise on Negotiable Instruments, has the following to say: "In all the cases which hold the drawee absolutely estopped by acceptance or payment from denying genuineness of the drawer's name, the loss in thrown upon him on the ground of negligence on his part in accepting or paying, until he has ascertained the bill to be genuine. But the holder has preceded him in negligence, by himself not ascertaining the true character of the paper before he receive it, or presented it for acceptance or payment. And although, as a general rule, the drawee is more likely to know the drawer's handwriting than a stranger is, if he is in fact deceived as to its genuineness, we do not perceive that he should suffer more deeply by a mistake than a stranger, who, without knowing the handwriting, has taken the paper without previously ascertaining its genuineness. And the mistake of the drawee should always be allowed to be corrected, unless the holder, acting upon faith and confidence induced by his honoring the draft, would be placed in a worse position by according such privilege to him. This view has been applied in a well considered case, and is intimated in another; and is forcibly presented by Mr. Chitty, who says it is going a great way to charge the acceptor with knowledge of his correspondent's handwriting, 'unless some bona fide holder has purchased the paper on the faith of such an act.' Negligence in making payment under a mistake of fact is not now deemed a bar to recovery of it, and we do not see why any exception should be made to the principle, which would apply as well to release an obligation not consummated by payment." (Vol. 2, 6th edition, pp. 1537-1539.) III. But now the rule is perfectly well settled that in determining the relative rights of a drawee who, under a mistake of
fact, has paid, and a holder who has received such payment, upon a check to which the name of the drawer has been forged, it is only fair to consider the question of diligence or negligence of the parties in respect thereto. (Woods and Malone vs. Colony Bank [1902], 56 L.R.A., 929, 932.) The responsibility of the drawer's signature, is absolute only in favor of one who has not, by his own fault or negligence, contributed to the success of the fraud or to mislead the drawee. (National Bank of America vs. Bangs, 106 Mass., 441; 8 Am. Rep., 349; Woods and Malone vs. Colony Bank, supra; De Feriet vs. Bank of America, 23 La. Ann., 310; B.B. Ford & Co. vs. People's Bank of Orangeburg, 74 S.C., 180; 10 L.R.A. [N.S.], 63.) If it appears that the one to whom payment was made was not an innocent sufferer, but was guilty of negligence in not an innocent sufferer, but was guilty of negligence in not doing something, which plain duty demanded, and which, if it had been done, would have avoided entailing loss of any one, he is not entitled to retain the moneys paid through a mistake on the part of the drawee bank. (First Nat. Bank of Danvers vs. First Nat. Bank of Salem, 151 Mass., 280; 24 N.E., 44; 21 A.S.R., 450; First Nat. Bank of Orleans vs. State Bank of Alma, 22 Neb., 769; 36 N.W., 289; 3 A.S.R., 294; American Exp. Co. vs. State Nat. Bank, 27 Okla., 824; 113 Pac., 711; 33 L.R.A. [N.S.], 188; B.B. Ford & Co. vs. People's Bank of Orangeburg, 74 S.C., 180; 54 S.E., 204; 114 A.S.R., 986; 7 Ann. Cas., 744; 10 L.R.A. [N.S.], 63; People's Bank vs. Franklin Bank, 88 Tenn., 299; 12 S.W., 716; 17 A.S.R., 884; 6 L.R.A., 724; Canadian Bank of Commerce vs. Bingham, 30 Wash., 484; 71 Pac., 43; 60 L.R.A., 955.) In other words, to entitle the holder of a forged check to retain the money obtained thereon, he must be able to show that the whole responsibility of determining the validity of the signature was upon the drawee, and that the negligence of such drawee was not lessened by any failure of any precaution which, from his implied assertion in presenting the check as a sufficient voucher, the drawee had the right to believe he had taken. (Ellis vs. Ohio Life Insurance & Trust Co., 4 Ohio St., 628; Rouvant vs. Bank, 63 Tex., 610; Bank vs. Ricker, 71 Ill., 429; First National Bank of Danvers vs. First Nat. Bank of Salem, 24 N.E., 44, 45; B.B. Ford & Co. vs. People's Bank of Orangeburg,
supra.) The recovery is permitted in such case, because, although the drawee was constructively negligent in failing to detect the forgery, yet if the purchaser had performed his duty, the forgery would in all probability have been detected and the fraud defeated. (First National Bank of Lisbon vs. Bank of Wyndmere, 15 N.D., 209; 10 L.R.A. [N.S.], 49.) In the absence of actual fault on the part of the drawee, his constructive fault in not knowing the signature of the drawer and detecting the forgery will not preclude his recovery from one who took the check under circumstances of suspicion without proper precaution, or whose conduct has been such as to mislead the drawee or induce him to pay the check without the usual scrutiny or other precautions against mistake or fraud. (National Bank of America vs. Bangs, supra; First National Bank vs. Indiana National Bank, 30 N.E., 808-810; Woods and Malone vs. Colony Bank, supra; First National Bank of Danvers vs. First Nat. Bank of Salem, 151 Mass., 280.) Where a loss, which must be borne by one of two parties alike innocent of forgery, can be traced to the neglect or fault of either, it is reasonable that it would be borne by him, even if innocent of any intentional fraud, through whose means it has succeeded. (Gloucester Bank vs. Salem Bank, 17 Mass., 33; First Nat. Bank of Danvers vs. First National Bank of Salem, supra; B.B. Ford & Co. vs. People's Bank of Orangeburg, supra.) Again if the indorser is guilty of negligence in receiving and paying the check or draft, or has reason to believe that the instrument is not genuine, but fails to inform the drawee of his suspicions the indorser according to the reasoning of some courts will be held liable to the drawee upon his implied warranty that the instrument is genuine. (B.B. Ford & Co. vs. People's Bank of Orangeburg, supra; Newberry Sav. Bank vs. Bank of Columbia, 93 S.C., 294; 38 L.R.A. [N.S.], 1200.) Most of the courts now agree that one who purchases a check or draft is bound to satisfy himself that the paper is genuine; and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty, the drawee, who has, without actual negligence on his part, paid the forged demand, may recover the money paid from such negligent purchaser. (Lisbon First National Bank vs. Wyndmere
Bank, supra.) Of course, the drawee must, in order to recover back the holder, show that he himself was free from fault. (See also R.C.L., pp. 556-558.) So, if a collecting bank is alone culpable, and, on account of its negligence only, the loss has occurred, the drawee may recover the amount it paid on the forged draft or check. (Security Commercial & Sav. Bank vs. Southern Trust & C. Bank [1925], 74 Cal. App., 734;241 Pac., 945.) But we are aware of no case in which the principle that the drawee is bound to know the signature of the drawer of a bill or check which he undertakes to pay has been held to be decisive in favor of a payee of a forged bill or check to which he has himself given credit by his indorsement. (Secalso, Mckleroy vs. Bank, 14 La. Ann., 458; Canal Bank vs. Bank of Albany, 1 Hill., 287; Rouvant vs. Bank, supra; First Nat. Bank vs. Indiana National Bank, 30 N.E., 808-810.) In First Nat. Bank vs. United States National Bank ([1921], 100 Or., 264; 14 A.L.R., 479; 197 Pac., 547), the court declared: "A holder cannot profit by a mistake which his negligent disregard of duty has contributed to induce the drawee to commit. . . . The holder must refund, if by his negligence he has contributed to the consummation of the mistake on the part of the drawee by misleading him. . . . If the only fault attributable to the drawee is the constructive fault which the law raises from the bald fact that he has failed to detect the forgery, and if he is not chargeable with actual fault in addition to such constructive fault, then he is not precluded from recovery from a holder whose conduct has been such as to mislead the drawee or induce him to pay the check or bill of exchange without the usual security against fraud. The holder must refund to a drawee who is not guilty of actual fault if the holder was negligent in not making due inquiry concerning the validity of the check before he took it, and if the drawee can be said to have been excused from making inquiry before taking the
check because of having had a right to presume that the holder had made such inquiry." The rule that one who first negotiates forged paper without taking some precaution to learn whether or not it is genuine should not be allowed to retain the proceeds of the draft or check from the drawee, whose sole fault was that he did not discover the forgery before he paid the draft or check, has been followed by the later cases. (Security Commercial & Savings Bank vs. Southern Trust & C. Bank [1925], 74 Cal. App., 734; 241 Pac., 945; Hutcheson Hardware Co. vs. Planters State Bank [1921], 26 Ga. App., 321; 105 S.E., 854; [Annotation at 71 A.L.R., 337].). Where a bank, without inquiry or identification of the person presenting a forged check, purchases it, indorses it generally, and presents it to the drawee bank, which pays it, the latter may recover if its only negligence was it mistake in having failed to detect the forgery, since its mistake did not mislead the purchaser or bring about a change in position. (Security Commercial & Savings Bank vs. Southern Trust & C. Bank [1925], 74 Cal. App., 734; 241 Pac., 945.) Also, a drawee bank could recover from another bank the portion of the proceeds of a forged check cashed by the latter and deposited by the forger in the second bank and never withdrawn, upon the discovery of the forgery three months later, after the drawee had paid the check and returned the voucher to the purported drawer, where the purchasing bank was negligent in taking the check, and was not injured by the drawee's negligence in discovering and reporting the forgery as to the amount left on deposit, since it was not a purchaser for value. (First State Bank & T. Co. vs. First Nat. Bank [1924], 314 Ill., 269; 145 N. E., 382.) Similarly, it has been held that the drawee of a check could recover the amount paid on the check, after discovery of the forgery, from another bank, which put the check into circulation by cashing it for the one who had forged the signature of both drawer and payee, without making any inquiry as to who he was, although he was a stranger, after which the check reached, and was paid by,
the drawee, after going through the hands of several intermediate indorsees. (71 A.L.R., p. 340.). In First National Bank vs. Brule National Bank ([1917], 12 A.L.R., 1079, 1085), the following statement was made: "We are clearly of opinion, therefore, that the warranty of gunuineness, arising upon the act of the Brule National Bank in putting the check in circulation, was not discharged by payment of the check by the drawee (First National Bank), nor was the Brule National Bank deceived or misled to its prejudice by such payment. The Brule National Bank by its indorsement and delivery warranted its own identification of Kost and the genuineness of his signature. The indorsement of the check by the Brule National Bank was such as to assign the title to the check to its assignee, the Whitbeck National Bank, and the amount was credited to the indorser. The check bore no indication that it was deposited for collection, and was not in any manner restricted so as to constitute the indorsee the agent of the indorser, nor did it prohibit further negotiation of the instrument, nor did it appear to be in trust for, or to the use of, any other person, nor was it conditional. Certainly the Pukwana Bank was justified in relying upon the warrant of genuineness, which implied the full identification of Kost, and his signature by the defendant bank. This view of the statute is in accord with the decisions of many courts. (First National Bank vs. State Bank, 22 Neb., 769; 3 Am. St. Rep., 294; 36 N.W., 289; First National Bank vs. First National Bank, 151 Mass., 280; 21 Am. St. Rep. 450; 24 N.E., 44; People's Bank vs. Franklin Bank, 88 Tenn., 299;6 L.R.A., 727; 17 Am. St. Rep., 884;12 S.W., 716.)"
The appellant leans heavily on the case of Fidelity & Co. vs. Planenscheck (71 A.L.R., 331), decided in 1929. We have carefully examined this decision and we do not feel justified in accepting its conclusions. It is but a restatement of the long abandoned rule of Neal vs. Price, and it is predicated on the wrong premise that payment includes acceptance, and that a bank drawee paying a check drawn on it becomes ipso facto an acceptor within the meaning of section 62 of the Negotiable Instruments Act. Moreover in a more recent decision, that of Louisa National Bank vs. Kentucky National Bank (39 S.W. [2nd], 497, 501) decided in 1931, the Court of Appeals of Kentucky held the following: "The appellee, on presentation for payment of the $600 check, failed to discover it was a forgery. It was bound to know the signature of its customer, Armstrong, and it was derelict in failing to give his signature to the check sufficient attention and examination to enable it to discover instantly the forgery. The appellant, when the check was presented to it by Banfield, failed to make any inquiry of or about him and did not cause or have him to be identified. Its act in so paying to him the check is a degree of negligence on its part equivalent to positive negligence. It indorsed the check, and, while such indorsement may not be regarded within the meaning of the Negotiable Instrument Law as amounting to a warranty to appellant of that which it indorsed, it at least substantially served as a representation to it that it had exercised ordinary care and had complied with the rules and customs of prudent banking. Its indorsement was calculated, if it did not in fact do so, to lull the drawee bank into indifference as to the drawer's signature to it when paying the check and charging it to its customer's account and remitting its proceeds to appellant's correspondent. "If in such a transaction between the drawee and the holder of a check both are without fault, no
recovery may be had of the money so paid. (Deposit Bank of George town vs. Fayette National Bank, supra, and cases cited.) Or the rule may be more accurately state that, where the drawee pays the money, he cannot stated that, where the drawee pays the money, he cannot recover it back from a holder in good faith, for value and without fault. "If, on the other hand, the holder acts in bad faith, or is guilty of culpable negligence, a recovery may be had by the drawee of such holder. The negligence of the Bank of Louisa in failing to inquire of and about Banfield, and to cause or to have him identified before it parted with its money on the forged check, may be regarded as the primary and proximate cause of the loss. Its negligence in this respect reached in its effect the appellee, and induced incaution on its part. In comparison of the degrees of the negligence of the two, it is apparent that of the appellant excels in culpability. Both appellant and appellee inadvertently made a mistake, doubtless due to a hurry incident to business. The first and most grievous one was made by the appellant, amounting to its disregard of the duty, it owed itself as well as the duty it owed to the appellee, and it cannot on account thereof retain as against the appellee the money which it so received. It cannot shift the loss to the appellee, for such disregard of its duty inevitably contributed to induce the appellee to omit its duty critically to examine the signature of Armstrong, even if it did not know it instantly at the time it paid the check. (Farmers' Bank of Augusta vs. Farmers' Bank of Maysville, supra, and cases cited.)" IV. The question now is to determine whether the appellant's negligence in purchasing the checks in question is such as to give the appellee the right to recover upon said checks, and on the other hand, whether the drawee bank was not itself
negligent, except for its constructive fault in now knowing the signature of the drawer and detecting the forgery. We quote with approval the following conclusions of the court a quo: "Check Exhibit A bears number 637023-D and is dated April 6, 1933, whereas check Exhibit A-1 bears number 637020-D and is dated April 7, 1933. Therefore, the later check, which is prior in number to the former check, is however, issued on a later date. This circumstance must have aroused at least the curiosity of the Motor Service Co., Inc. "The Motor Service Co., Inc., accepted the two checks from unknown persons. And not only this; check Exhibit A is indorsed by a subagent of the agent of the payee, International Auto Repair Shop. The Motor Service Co., Inc., made no inquiry whatsoever as to the extent of the authority of these unknown persons. Our Supreme Court said once that 'any person taking checks made payable to a corporation, which can act only by agents, does so at his peril, and must abide by the consequences if the agent who indorses the same is without authority' (Insular Drug Co. vs. National Bank, 58 Phil., 684). xxx xxx xxx "Check Exhibit A-1, aside from having been indorsed by a supposed agent of the International Auto Repair Shop is crossed generally. The existence of two parallel lines transversally drawn on the face of this check was a warning that the check could only be collected through a banking institution (Jacobs, Law of Bills of Exchange, etc., pp., 179, 180; Bills of Exchange Act of England, secs. 76 and 79). Yet the
Motor Service Co., Inc., accepted the check in payment for merchandise. ". . . In Exhibit H attached to the stipulation of facts as an integral part thereof, the Motor Service Co., Inc., stated the following: "'The Pangasinan Transportation Co. is a good customer of this firm and we received checks from them every month in payment of their account. The two checks in question seem to be exactly similar to the checks which we received from the Pangasinan Transportation Co. every month.' "If the failure of the Motor Service Co., Inc., to detect the forgery of the drawer's signature in the two checks, may be considered as an omission in good faith because of the similarity stated in the letter, then the same consideration applies to the Philippine National Bank, for the drawer is a customer of both the Motor Service Co., Inc., and the Philippine National Bank." (B. of E., pp. 25, 28, 35.) We are of opinion that the facts of the present case do not make it one between two equally innocent persons, the drawee bank and the holder, and that they are governed by the authorities already cited and also the following: "The point in issue has sometimes been said to be that of negligence. The drawee who has paid upon the forged signature is held to bear the loss, because he has been negligent in failing to recognize that the handwriting is not that of his customer. But it follows obviously that if the payee, holder, or presenter of the forged paper has himself been in default, if he has himself been guilty of a negligence prior to that of the banker, or if by any act of his own he has at all contributed to induce the banker's negligence, then he may loss his right to cast the loss upon banker. The courts have shown a steadily increasing disposition to
extend the application of this rule over the new conditions of fact which from time to time arise, until it can now rarely happen that the holder, payee, or presenter can escape the imputation of having been in some degree contributory towards the mistake. Without any actual change in the abstract doctrines of the law, which are clear, just, and simple enough, the gradual but sure tendency and effect of the decisions have been to put as heavy a burden of responsibility upon the payee as upon the drawee, contrary to the original custom. . . ." (2 Morse on Banks and Banking, 5th ed., secs. 464 and 466, pp. 82-85 and 86,87.). In First National Bank, vs. Brule National Bank (12 A.L.R., 1079, 1088, 1089), the following statement appears in the concurring opinion: "What, then, should be the rule? The drawee asks to recover for money had and received. If his claim did not rest upon a transaction relating to a negotiable instrument plaintiff could recover as for money paid under mistake, unless defendant could show some equitable reason, such as changed condition since, and relying upon, payment by plaintiff. In the Wyndmere Case, the North Dakota court holds that this rule giving right to recover money paid under mistake should extend to negotiable paper, and it rejects in its entirely the theory of estoppel and puts a case of this kind on exactly the same basis as the ordinary case of payment under mistake. But the great weight of authority, and that based on the better reasoning, holds that the exigencies of business demand a different rule in relation to negotiable paper. What is that rule? Is it an absolute estoppel against the drawee in favor of a holder, no matter how negligent such holder has been? It surely is not. The correct rule
recognizes the fact that, in case of payment without a prior acceptance or certification, the holder takes the paper upon the credit of the prior indorsers and the credit of the drawer, and not upon the credit of the drawee; that the drawee, in making payment, has a right to rely upon the assumption that the payee used due diligence, especially where such payee negotiated the bill or check to a holder, thus representing that it had so fully satisfied itself as to the identity and signature of the maker than it was willing to warrant as relates thereto to all subsequent holders. (Uniform Act, secs. 65 and 66.) Such correct rule denies the drawee the right to recover when the holder was without fault or when there has been some change of position calling for equitable relief. When a holder of a bill of exchange uses all due care in the taking of bill or check and the drawee thereafter pays same, the transaction is absolutely closed modern business could not be done on any other basis. While the correct rule promotes the fluidity of two recognized mediums of exchange, those mediums by which the great bulk of business is carried on, checks and drafts, upon the other hand it encourages and demands prudent business methods upon the part of those receiving such mediums of exchange. (Pennington County Bank vs. First State Bank, 110 Minn., 263;26 L.R.A. [N.S.], 849;136 Am. St. Rep., 496;125 N.W., 119; First National Bank vs. State Bank, 22 Neb., 769; 3 Am. St. Rep., 294;36 N.W., 289; Bank of Williamson, vs. McDowell County Bank, 66 W. Va., 545;36 L.R.A. [N.S.], 605;66 S.E., 761; Germania Bank vs. Boutell, 60 Minn., 189;27 L.R.A., 635;51 Am. St. Rep., 519;62 N.W., 327; American Express Co. vs. State National Bank, 27 Okla., 834;33 L.R.A. [N.S.], 188;113 Pac., 711; Farmers' National Bank vs. Farmers' & Traders Bank, L.R.A., 1915A, 77, and note [159 Ky., 141;166 S.W., 986].)
"That the defendant bank did not use reasonable business prudence is clear. It took this check from a stranger without other identification than that given by another stranger; its cashier witnessed the mark of such stranger thus vouching for the identity and signature of the marker; and it indorsed the check as 'Paid,' thus further throwing plaintiff off guard. Defendant could not but have known, when negotiating such check and putting it into the channel through which it would finally be presented to plaintiff for payment, that plaintiff, if it paid such check, as defendant was asking it to do, would have to rely solely upon the apparent faith and credit that defendant had placed in the drawer. From the very circumstances of this case plaintiff had to act on the facts as presented to it by defendant, and upon such facts only. "But appellant argues that it so changed its position, after payment by plaintiff, that in 'equity and good conscience' plaintiff should not recover it says it did not pay over any money to the forger until after plaintiff had paid the check. There would be merit in such contention if defendant had indorsed the check for 'collection,' thus advising plaintiff that it was relying on plaintiff and not on the drawer. It stands in court where it would have been if it had done as it represented." In Woods and Malone vs. Colony Bank (56 L.R.A., 929, 932), the court said: ". . . If the holder has been negligent in paying the forged paper, or has by his conduct, however innocent, misled or deceived the drawee to his damage, it would be unjust for him to be allowed to shield himself from the results of his own
carelessness by asserting that the drawee was bound in law to know his drawer's signature." V. Section 23 of the Negotiable Instruments Act provides that "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." It not appearing that the appellee bank did not warrant to the appellant the genuineness of the checks in question, by its acceptance thereof, nor did it perform any act which would have induced the appellant to believe in the genuineness of said instruments before appellant purchased them for value, it can not be said that the appellee is precluded from setting up the forgery and, therefore, the appellant is not entitled to retain the amount of the forged check paid to it by the appellee. VI. It has been held by many courts that a drawee of a check, who is deceived by a forgery of the drawer's signature may recover the payment back, unless his mistake has placed an innocent holder of the paper in a worse position than he would have been in if the discover of the forgery had been made on presentation. (5 R.C.L., p. 559;2 Daniel on Negotiable Instruments, 1538.) Forgeries often deceived the eye of the most cautions experts; and when a bank has been so deceived, it is a harsh rule which compels it to suffer although no one has suffered by its being deceived. (17 A.L.R., 891;5 R.C.L., 559.) In the instant case should the drawee bank be allowed recovery, the appellant's position would not become worse than if the drawee had refused the payment of these checks upon their presentation. The appellant has lost nothing by anything which the drawee has done. It had in its hands some forged worthless papers. It did not purchase or acquire these papers because of any representation made to it by the drawee. It purchased them from
unknown persons and under suspicious circumstances. It had no valid title to them, because the persons from whom it received them did not have such title. The appellant could not have compelled the drawee to pay them, and the drawee could have refused payment had it been able to detect the forgery. By making a refund, the appellant would only be returning what it had received without any title or right. And when appellant pays back the money it has received it will be entitled to have restored to it the forged papers it parted with. There is no good reason why the accidental payment made by the appellee should inure to the benefit of the appellant. If there were injury to the appellant said injury was caused not by the failure of the appellee to detect the forgery but by the very negligence of the appellant in purchasing commercial papers from unknown persons without making inquiry as to their genuineness. In the light of the foregoing discussion, we conclude: 1. That where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the genuineness of the drawer's signature and his capacity to issue the instrument; 2. That if a drawee bank pays a forged check which was previously accepted or certified by the said bank it cannot recover from a holder who did not participate in the forgery and did not have actual notice thereof; 3. That the payment of a check does not include or imply its acceptance in the sense that this word is used in section 62 of the Negotiable Instruments Law; 4. That in the case of the payment of a forged check, even without former acceptance, the drawee can not recover from a holder in due course not chargeable with any act of negligence or disregard of duty; 5. That to entitle the holder of a forged check to retain the money obtained thereon, there must be a showing that the duty to ascertain the genuineness of the signature rested entirely upon the
drawee, and that the constructive negligence of such drawee in failing to detect the forgery was not affected by any disregard of duty on the part of the holder, or by failure of any precaution which, from his implied assertion in presenting the check as a sufficient voucher, the drawee had the right to believe he had taken; 6. That in the absence of actual fault on the part of the drawee, his constructive fault in not knowing the signature of the drawer and detecting the forgery will not preclude his recovery from one who took the check under circumstances of suspicion and without proper precaution, or whose conduct has been such as to mislead the drawee or induce him to pay the check without the usual scrutiny or other precautions against mistake or fraud; 7. That one who purchases a check or draft is bound to satisfy himself that the paper is genuine, and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he performed his duty; 8. That while the foregoing rule, chosen from a welter of decisions on the issue as the correct one, will not hinder the circulation of two recognized mediums of exchange by which the great bulk of business is carried on, namely, drafts and checks, on the other hand, it will encourage and demand prudent business methods on the part of those receiving such mediums of exchange; 9. That it being a matter of record in the present case, that the appellee bank is no more chargeable with the knowledge of the drawer's signature than the appellant is, as the drawer was as much the customer of the appellant as of the appellee, the presumption that a drawee bank is bound to know more than any indorser the signature nature of its depositor does not hold; 10. That according to the undisputed facts of the case the appellant in purchasing the papers in question from unknown persons without making any inquiry as to the identity and authority of the said persons negotiating and indorsing them, acted negligently and contributed to the appellee's constructive negligence in failing to detect the forgery;
11. That under the circumstances of the case, if the appellee bank is allowed to recover, there will be no change of position as to the injury or prejudice of the appellant. Wherefore, the assignments of error are overruled, and the judgment appealed from must be, as it is hereby, affirmed, with costs against the appellant. So ordered. Avancea, C.J., Villa-Real, Abad Santos, Imperial, Diaz and Laurel, JJ., concur. FIRST DIVISION [G.R. NO. 53194. MARCH 14, 1988.] PHILIPPINE NATIONAL BANK, PETITIONER, VS. HON. ROMULO S. QUIMPO, PRESIDING JUDGE, C OURT OF FIRST INSTANCE OF RIZAL, BRANCH XIV, AND FRANCISCO S. GOZON II, RESPONDENTS . SYLLABUS 1. MERCANTILE LAW; NEGOTIABLE INSTRUMENTS; CHECKS; BANK'S PRIME DUTY IS TO ASCERTAIN GENUINENESS OF SIGNATURE OF DRAWER OR DEPOSITOR. 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. 2. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACTS OF THE TRIAL COURT, CONCLUSIVE. In this case 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. 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. Notwithstanding the testimony of Col. Fernandez, 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. 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. 3. MERCANTILE LAW; NEGOTIABLE INSTRUMENTS; CHECKS; NEGLIGENCE ON THE PART OF THE DRAWER TO ABSOLVE BANK FROM LIABILITY ON FORGED CHECK, ABSENT. 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 otherwise. Private respondent trusted 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 check book without the knowledge and consent of private respondent. No doubt private respondent cannot be considered negligent under the circumstances of the case.
DECISION
GANCAYCO, J p:
On July 3, 1973, Francisco S. Gozon II, who was a depositor of the Caloocan City Branch of the Philippine National Bank, went to the bank in his car accompanied by his friend Ernesto Santos whom he left in the car while he transacted business in the bank. When Santos saw that Gozon left his check book he took a check therefrom, filled it up for the amount of P5,000.00, forged the signature of Gozon, and thereafter he encashed the check in the bank on the same day. The account of Gozon was debited the said amount. Upon receipt of the statement of account from the bank, Gozon asked that the said amount of P5,000.00 should be returned to his account as his signature on the check was forged but the bank refused. Upon complaint of private respondent on February 1, 1974 Ernesto Santos was apprehended by the police authorities and upon investigation he admitted that he stole the check of Gozon, forged his signature and encashed the same with the Bank. Hence Gozon filed the complaint for recovery of the amount of P5,000.00, plus interest, damages, attorney's fees and costs against the bank in the Court of First Instance of Rizal. After the issues were joined and the trial on the merits ensued, a decision was rendered on February 4, 1980, the dispositive part of which reads as follows: "WHEREFORE, judgment is hereby rendered in favor of the plaintiff. The defendant is hereby condemned to return to plaintiff the amount of P5,000.00 which it had unlawfully withheld from the latter, with interest at the legal rate from September 22, 1972 until the amount is fully delivered. The defendant is further condemned to pay plaintiff the sum of P2,000.00 as attorney's fees and to pay the costs of this suit." Not satisfied therewith, the bank now filed this petition for review on certiorari in this Court raising the sole legal issue that
"THE ACT OF RESPONDENT FRANCISCO GOZON, II IN PUTTING HIS CHECKBOOK CONTAINING THE CHECK IN QUESTION INTO THE HANDS OF ERNESTO SANTOS WAS INDEED THE PROXIMATE CAUSE OF THE LOSS, THEREBY PRECLUDING HIM FROM SETTING UP THE DEFENSE OF FORGERY OR WANT OF AUTHORITY UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW, ACT NO. 3201" The petition is devoid of merit. This Court reproduces with approval the disquisition of the court a quo as follows: "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' (San Carlos Milling Co. vs. Bank of the P.I., 59 Phil. 59). 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. . . . 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 of 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' (12 ALR, 1901, citing many cases found in I Agbayani, supra). 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. A comparison of the signature (Exhibit 'A-1') on the forged check (Exhibit 'A') with plaintiff's exemplar signatures (Exhibits '5-A' 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-1'. That alone should have alerted a more careful and prudent signature verifier." 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. 1 It is expected to use reasonable business prudence in accepting and cashing a check presented to it. In this case 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. 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. Notwithstanding the testimony of Col. Fernandez, 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. 2 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. 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: "The act of plaintiff in leaving his checkbook in the car while he went out for a short while can not be considered negligence sufficient to excuse the defendant bank from its own negligence. It should be borne 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." We agree. Private respondent trusted 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 check book without the knowledge and consent of private respondent. No doubt private respondent cannot be considered negligent under the circumstances of the case. WHEREFORE, the petition is DISMISSED for lack of merit with costs against petitioner. SO ORDERED. Teehankee, C.J., Narvasa, Cruz and Grio-Aquino, JJ., concur. Footnotes 1. PNB vs. National City Bank, 63 Phil. 711, 742; Banco de Oro Savings & Mortgage Bank vs. Equitable Bank Corp., G.R. No. 74917, Jan. 20, 1988. 2. See Decision; p. 59, Rollo. EN BANC [G.R. NO. L-26001. OCTOBER 29, 1968.] PHILIPPINE NATIONAL BANK, PETITIONER, VS. THE COURT OF APPEALS AND PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK, RESPONDENTS . Tomas Besa, Jose B. Galang and Juan C. Jimenez for petitioner. San Juan, Africa & Benedicto for respondents. SYLLABUS
1.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; CHECKS; INDORSEMENTS; FORGERY; LIABILITY OF DRAWEE THEREON. The question whether or not the indorsements have been falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from the PCIB, for, as against the drawee, the indorsement of an intermediate bank does not guarantee the signature of the drawer, since the forgery of the indorsement is not the cause of the loss. 2.ID.; ID.; ID.; WARRANTY; NO RIGHT OF RECOVERY THEREUNDER BY PNB. With respect to the warranty on the back of the check, it should be noted that the PCIB thereby guaranteed "all prior indorsements", not the authenticity of the signatures of the officers of the GSIS who signed on its behalf, because the GSIS is not an indorser of the check, but its drawer. Said warranty is irrelevant, therefore, to the PNB's alleged right to recover from the PCIB. It could have been availed of by a subsequent indorsee or a holder in due course subsequent to the PCIB, but, the PNB is neither. Indeed, upon payment by the PNB, as drawee, the check ceased to be a negotiable instrument, and became a mere voucher or proof of payment. 3.ID.; ID.; ID.; ACCEPTANCE AND PAYMENT DISTINGUISHED. The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer, which in the case of checks, is the payment on demand, of a given sum of money. Upon the other hand, actual payment of the amount of a check implies not only an assent to said order of the drawer and a recognition of the drawee's obligation to pay the aforementioned sum, but, also, a compliance with such obligation. 4.ID.; ID.; ID.; PAYMENT OF A FORGED CHECK; RECOVERY OF PAYMENT; LIABILITY OF PROXIMATE CAUSE OF THE LOSS; CASE AT BAR. The PCIB did not cash the check upon its presentation by Augusto Lim; the latter had merely deposited it in his current account with the PCIB; on the same day, the PCIB sent it, through the Central Bank, to the PNB for clearing; the PNB did not
return the check to the PCIB the next day or at any other time; said failure to return the check to the PCIB induced, under the current banking practice, that the PNB considered the check good and would honor it; in fact, the PNB honored the check and paid its amount to the PCIB; and only then did the PCIB allow Augusto Lim to draw said amount from his aforementioned current account. Thus, by not returning to the check to the PCIB, by thereby indicating that the PNB had found nothing wrong with the check and would honor the same, and by actually paying its amount to the PCIB, the PNB induced the latter, not only to believe that the check was genuine and good in every respect, but, also, to pay its amount to Augusto Lim. In other words, the PNB was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB. 5.ID.; ID.; ID.; ID.; ID.; SETTLED RULE. It is a well-settled maxim of law and equity that when one of two innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong.
branch at Padre Faura, Manila, GSIS Check No. 645915-B, in the sum of P57,415.00, drawn against the PNB; that, following an established banking practice in the Philippines, the check was, on the same date, forwarded, for clearing, through the Central Bank, to the PNB, which did not return said check the next day, or at any other time, but retained, and paid its amount to the PCIB as well as debited it against account of the GSIS in the PNB; that, subsequently, or on January 31, 1962, upon demand from the GSIS, said sum of P57,415.00 was recredited to the latter's account, for the reason that the signatures of its officers on the check were forged; and that, thereupon, or on February 2, 1962, the PNB demanded from PCIB the refund of said sum, which the PCIB refused to do. Hence, the present action against the PCIB, which was dismissed the Court of First Instance of Manila, whose decision was, in turn, affirmed by the Court of Appeals. It is not disputed that the signatures of the General Manager and the Auditor of the GSIS on the check, as drawer thereof, are forged; that the person named in the check as its payee was Mariano D. Pulido, who purportedly indorsed it to one Manuel Go; that the check purports to have been indorsed by Manuel Go to Augusto Lim, who, in turn, deposited it with the PCIB, on January 15, 1962; that thereupon, the PCIB stamped following on the back of the check: "All prior indorsements/or Lack of Endorsement Guaranteed, Philippine Commercial Industrial Bank," Padre Faura Branch, Manila; that, on the same date, the PCIB sent the check to the PNB, for clearance, through the Central Bank; and that, over two (2) months before, or on November 13, 1961, the GSIS had notified the PNB, which acknowledged receipt of the notice, that said check had been lost, and, accordingly, requested that its payment be stopped. In its brief, the PNB maintains that the lower court erred: (1) in not finding the PCIB guilty of negligence; (2) in not finding that the indorsements at the back of the check are forged; (3) in not finding the PCIB liable to the PNB by virtue of the former's warranty on the back of the check; (4) in not holding that "clearing" is not "acceptance", in contemplation of the Negotiable Instruments Law; (5) in not finding
DECISION
CONCEPCION, J p: The Philippine National Bank hereinafter referred to as the PNB seeks the review by certiorari of a decision of the Court of Appeals, which affirmed that of the Court of First Instance of Manila, dismissing plaintiff's complaint against the Philippine Commercial and Industrial Bank hereinafter referred to as the PCIB for the recovery of P57,415.00. A partial stipulation of facts entered into by the parties and the decision of the Court of Appeals show that, on or about January 15, 1962, one Augusto Lim deposited in his current account with the PCIB
that, since the check had not been accepted by the PNB, the latter is entitled reimbursement therefor; and (6) in denying the PNB's right to recover from the PCIB. The first assignment of error will be discussed later, together with the last, with which it is interrelated. As regards the second assignment of error, the PNB argues that, since the signatures of the drawer are forged, so must the signatures of the supposed indorsers be; but this conclusion does not necessarily follow from said premise. Besides, there is absolutely no evidence, and the PNB has not even tried to prove that the aforementioned indorsements are spurious. Again, the PNB refunded the amount of the check to the GSIS, on account of the forgery in the signatures, not of the indorsers or supposed indorsers, but of the officers of the GSIS as drawer of the instrument. In other words, the question whether or not the indorsements have been falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from the PCIB 1 , for, as against the drawee, the indorsement of an intermediate bank does not guarantee the signature of the drawer 2 , since the forgery of the indorsement is not the cause of the loss. 3 With respect to the warranty on the back of the check, to which the third assignment of error refers, it should be noted that the PCIB thereby guaranteed "all prior indorsements", not the authenticity of the signatures of the officers of the GSIS who signed on its behalf, because the GSIS is not an indorser of the check, but its drawer. 4 Said warranty is irrelevant, therefore, to the PNB's alleged right to recover from the PCIB. It could have been availed of by a subsequent indorsee 5 or a holder in due course 6 subsequent to the PCIB, but, the PNB is neither. 7 Indeed, upon payment by the PNB, as drawee, the, check ceased to be a negotiable instrument, and became a mere voucher or proof of payment. 8 Referring to the fourth and fifth assignments of error, we must bear in mind that, in general, "acceptance", in the sense in which this term is
used in the Negotiable Instruments Law 9 is not required for checks, for the same are payable on demand. 10 Indeed, "acceptance" and "payment" are, within the purview of said Law, essentially different things, for the former is "a promise to perform an act," whereas the latter is the "actual performance" thereof. 11 In the words of the law, 12 "the acceptance of a bill is the signification by the drawee of his assent to the order of the drawer," which, in the case of checks, is the payment, on demand, of a given sum of money. Upon the other hand, actual payment of the amount of a check implies not only an assent to said order of the drawer and a recognition of the drawee's obligation to pay the aforementioned sum, but, also, a compliance with such obligation. Let us now consider the first and the last assignments of error. The PNB maintains that the lower court erred in not finding that the PCIB had been guilty of negligence in not discovering that the check was forged. Assuming that there had been such negligence on the part of the PCIB, it is undeniable, however, that the PNB has, also, been negligent, with the particularity that the PNB had been guilty of a greater degree of negligence, because it had a previous and formal notice from the GSIS that the check had been lost, with the request that payment thereof be stopped. Just as important, if not more important and decisive, is the fact that the PNB's negligence was the main or proximate cause for the corresponding loss.
In this connection, it will be recalled that the PCIB did not cash the check upon its presentation by Augusto Lim; that the latter had merely deposited it in his current account with the PCIB; that, on the same day, the PCIB sent it, through the Central Bank, to the PNB, for clearing; that the PNB did not return the check to the PCIB the next day or at any other time; that said failure to return the check to the PCIB implied, under the current banking practice, that the PNB considered the check good and would honor it; that, in fact, the PNB honored the check and paid its amount to the PCIB; and that only then
did the PCIB allow Augusto Lim to draw said amount from his aforementioned current account. Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found nothing wrong with the check and would honor the same, and by actually paying its amount to the PCIB, the PNB induced the latter, not only to believe that the check was genuine and good in every respect, but, also, to pay its amount to Augusto Lim. In other words, the PNB was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB. 13 It is a well-settled maxim of law and equity that when one of two (2) innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong. 14 Then, again, it has, likewise, been held that, where the collecting (PCIB) and the drawee (PNB) banks are equally at fault, the court will leave the parties where it finds them. 15 Lastly, Section 62 of Act No. 2031 provides: "The acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance; and admits: "(a)The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and "(b)The existence of the payee and his then capacity to indorse." The prevailing view is that the same rule applies in the case of a drawee who pays a bill without having previously accepted it. 16
WHEREFORE, the decision appealed from is hereby affirmed, with costs against the Philippine National Bank. It is so ordered. Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles, Fernando, and Capistrano, JJ., concur.
Zaldivar, J., did not take part.
Footnotes 1.First National Bank of Wichita Falls. v. First National Bank of Borger, 37 S.W. (2d) 802. 2.VI Banks & Banking, Zollmann, 378. 3.First National Bank of Marshalltown v. Marshalltown State Bank, 77 N.W. 1045. 4.First National Bank of Wichita Falls v. First National Bank of Borger, supra. 5.American Hominy Co. v. Millikin National Bank, 273 F. 550, 556. 6.Wells Fargo Bank & Union Trust Co. v. Bank of Italy, 4P (2d) 781, 784-785. 7.The PNB had previous notice of the infirmity of the check when it came into its possession. Art. 52 (d), Act No. 2031. 8.National Bank of Commerce of Seattle v. Seattle Nat. Bank, 187 p. 342, 346. 9.Section 132, Act No. 2031. 10.Sections 143 and 185, Act No. 2031; Phil. Nat. Bank v. Nat. City Bank of New York, 63 Phil. 711; I Morse on Banks and
Banking, 6th ed. 898, 899; Wachtel v. Rosen, 249 N.Y. 386, 164 N.E. 326. 11.First National Bank of Washington v. Whitman, 94 U.S. 343, 347, 24 L. ed. 229. 12.Section 132 thereof. 13.Marlin National Bank v. Reed, 164 S.W. (2d) 260; First National Bank of Wichita Falls v. First National Bank of Borger, 37 S.W. (2d) 802. See also, Commerce-Guardian Bank v. Toledo Trust Co., 21 N.E. (2d) 173, 176; National Bank of Rolla v. First National Bank of Salem, 125 S.W. 513, 516; Philippine National Bank v. National City Bank of NY, supra; VIII Banks and Banking, Zollman, 421. 14.Blondeau v. Nano, 61 Phil. 625, 631, 632. 15.VI Banks and Banking by Zollman, 416.
EN BANC [G.R. NO. L-15894. JANUARY 30, 1964.] REPUBLIC OF THE PHILIPPINES, PLAINTIFF-APPELLANT , VS. EQUITABLE BANKING CORPORATION, DEFENDANT -APPELLEE. [G.R. NO. L-15895. JANUARY 30, 1964] REPUBLIC OF THE PHILIPPINES, PLAINTIFF-APPELLANT , VS. THE BANK OF THE PHILIPPINE ISLANDS, DEFENDANT -APPELLEE. CORPORACION DE LOS P. DOMINICOS DE FILIPINAS, THIRD -PARTY-DEFENDANT APPELLEE. Solicitor General for plaintiff-appellant.
16.First National Bank of Portland v. United States National Bank of Portland, 197 P. 547; Fidelity & Casualty Co. of New York v. Planenscheck, 227 NW 387; US v. Bank of NY, National Banking Association, 219 F. 648; US Fidelity & Guaranty Co. v. First Nat. Bank of Omaha, 260 NW 798; First National Bank of Cottage Grove v. 117 B. 293.
Claudio Teehankee and Aranda & Aviado for defendant-appellee. Ignacio B. Alcuaz for third-party-defendant-appellee. SYLLABUS 1. BANKS AND BANKING; PAYMENT OF CHECKS; "24-HOUR CLEARING HOUSE RULE COVERS GOVERNMENT TREASURY. The "24-hour clearing house rule" of the Central Bank covers the Government Treasury because the Treasury is a member of the Clearing Office and documentary evidence shows that the Treasury "has agreed to clear its clearable items through" the said office "subject to the rules and regulations of the Central Bank, and, besides, the said rule applies not only to banks, but, also, to the institutions and entities therein alluded to.
2. ID.; ID.; ID.; LIABILITY DUE TO NEGLIGENCE OF THE TREASURY. Where the Treasury had not only been negligent in clearing its own warrants, but had, also, thereby induced the two defendant banks to pay the amounts thereof to their respective depositors, and where, moreover, the irregularity of said warrants was apparent on the face thereof from the viewpoint of the Treasury, and said defendant banks had not been informed of said irregularity until after the said warrants had been cleared and honored, it is held that the loss of the amounts represented by said warrants is mainly imputable to acts and omissions of the Treasury, for which said banks should not and cannot be penalized.
value of twenty-four (24) warrants similarly paid by the Treasurer to the PI Bank. These claims for refund are based upon a common ground although said twenty-eight (28) warrants were executed on genuine government forms, the signature thereon of the drawing office and that of the representative of the Auditor General in that office are forged. It is not disputed that, from July to December 1952, the Corporation de los Padres Dominicos hereinafter referred to as the Corporacion had acquired the twenty-four (24) treasury warrants involved in case G. R. No. L-15895 by accommodating its former trusted employee one Jacinto Carranza who asked the Corporacion to cash the warrants, alleging that it was difficult to do so directly with the Government and that his wife expected a sort of commission for the encashment; that the Corporacion acceded to Carranza's request, provided that the warrants would first be deposited with the PI Bank, and that actual payment of the value of the warrants would be made only after the same had been duly accepted and cleared by the Treasurer and the proceeds thereof duly credited to the account of the Corporacion in the PI Bank; that the warrants were, accordingly, deposited by the Corporacion with said bank, which accepted them "subject to collection only"; that when the warrants were deposited with the PI Bank, each bore the indorsement of the respective payees and that of the Corporacion; that subsequently, the PI Bank presented the warrants for payment to the drawee thereof the Government thru the Clearing Office of the Central Bank hereinafter referred to as the Clearing Office; that after being cleared, the warrants were paid by the Treasurer as follows: Date Date T/W No Payee ISSUED Amount Cleared. 2132655 Marcela Antonio Domingo 6-18-52 P8,722.37 7-1-52 2132650 Gregoria Santos Castro 6-23-52 14,605.91 7-8-52
DECISION
CONCEPCION, J p: Appeal from a decision of the Court of First Instance of Manila dismissing the complaints and the third-party complaints in the above entitled cases, without special pronouncement as to costs. The cases are before us, only questions of law being raised in the appeal, apart from the fact that the amount involved in G. R. No. L-16895 exceeds P200,000, and that the evidence introduced therein is the same evidence in G. R. No. L-15894. The Republic of the Philippines, hereinafter referred to as the Government, seeks to recover: (1) from the Equitable Banking Corporation hereinafter referred to as the Equitable Bank in case G. R. No. L-15894, the sum of P17,100, representing the aggregate value of four (4) treasury warrants hereinafter referred to as warrants paid to said bank by the Treasurer of the Philippines hereinafter referred to as the Treasurer thru the Clearing Office of the Central Bank of the Philippines; and (2) from the Bank of the Philippine Islands hereinafter referred to as the PI Bank in G. R. No. L-15895, the total sum of P342,767.63, representing the aggregate
2468943 Josefa Castro de Villanueva 10-24-52 14,250.15 11-14-52 2159698 Anacleta Santos de Angeles 10-18-52 15,800.00 12-5-52 2159668 Virginia Salem de Marcelino 11-13-52 16,900.00 12-10-52 2159692 Brigida San Luis de Santos 9-15-52 13,900.00 11-3-52 2159673 Silva Sanches de Apolinario 10-14-52 14,810.00 11-11-52 2159667 Francisca Gomez de Galvez 10-12-52 16,200.75 11-11-52 2451488 Gaudencia Ruiz Alvarez 7-1-52 12,702.76 7-15-52 2132653 Anastacia Capili Trinidad 6-25-52 8,794.21 7-15-52 2468979 Monica Anselmo de Pascua 7-12-52 13,870.24 9-8-52 2468944 Rozalia Manalo de Nazario 7-10-52 14,701.76 9-8-52 2159682 Luisa Santos de Arellano 11-18-52 16,400.50 12-8-52 2159669 Leticia Moreno de Ocampo 11-16-52 15,880.75 12-8-52 2159670 Juana Castro de Jesus 10-12-52 16,200.00 12-15-52 2159671 Antonia Sison de Mauricio 9-9-52 12,900.75 11-10-52 2159660 Rosario Pilapil de Rodrigo 9-4-52 13,950.39 9-23-52 2159653 Mauricia Sison de Angeles 9-12-52 15,200.76 9-23-52 2159686 Lucia Angeles de Natalio 9-12-52 12,890.74 10-27-52 2468977 Nicolasa Alvares Jaranilla 7-2-52 15,340.76 7-25-52 2468978 Maria Antonio de
los Reyes 7-2-52 14,722.31 7-25-52 2159659 Je Jastive de Fernandez 8-16-52 14,820.00 8-27-52 2159656 Gregoria Pascual de Lira 8-15-52 12,900.75 8-27-52 2159666 Luisa Dancel de Mendoza 10-11-52 16,300.75 12-2-52 and that, accordingly, the PI Bank credited the proceeds of said warrants to the Corporacion, which, in turn, withdrew said proceeds by means of its own checks and eventually paid the corresponding amounts to Jacinto Carranza. On December 23, 1952, the Treasurer returned three (3) of said warrants (Nos. 2159659, 2159656, and 2159666) to the Central Bank, and demanded, on the ground that they had been forged, that the value thereof be charged against the accounts of the PI Bank in the Clearing Office and credited back to the demand deposit of the Bureau of the Treasury, hereinafter referred to as the Treasury. Four (4) days later, two (2) more warrants (Nos. 2468977 and 2468978), and, finally, on January 16, 1953, the remaining nineteen (19) warrants were returned by the Treasury to the Central Bank for the same reason and with the same demand. The Central Bank in turn referred said warrants, together with the letters of demand of the Treasurer, for appropriate action to the PI Bank, which opposed the return of the warrants or to have the value thereof charged against its account in the Clearing Office and requested the Central Bank to return the warrants to the Treasurer. The records of G. R. No. L-15894 show that the four (4) warrants involved therein were deposited with the Equitable Bank by persons known thereto as its depositors or customers, namely, Robert Wong, Lu Chiu Kau and Chung Ching; that, in due course, the Equitable Bank cleared said warrants, thru the Clearing Office, then collected the corresponding amounts from the Treasurer and thereafter credited said amounts to the accounts of the respective depositors; that on January
15, 1953, the Treasurer notified the Equitable Bank of the alleged defect of said warrants and demanded reimbursement of the amounts thereof; and that this demand was rejected by the Equitable Bank. Hence, the institution of G. R. No. L-15895 (Civil Case No. 19599 of the Court of First Instance of Manila), against the PI Bank, for the recovery of P342,767.63, and of G. R. No. L-15894 (Civil Case No. 19600 of the Court of First Instance of Manila), against the Equitable Bank or, the recovery of P17,100.00. Upon leave of the lower court, the PI Bank filed a third-party complaint against the Corporacion in G. R. No. L-15895, and the Equitable Bank filed a similar complaint against Robert Wong, Lu Chiu Kau and Chung Ching in G. R. No. L-15894, for whatever reimbursements the PI Bank and the Equitable Bank may respectively be sentenced to make to the Government. By agreement of the parties, the two (2) cases were jointly heard, and after appropriate proceedings, the lower court rendered the decision adverted to above. The clearing of the aforementioned twenty-eight (28) warrants thru the Clearing Office was made pursuant to the "24-hour clearing house rule", which had been adopted by the Central Bank in a conference with representatives and officials of the different banking institutions in the Philippines. The rule is embodied in Section 4, subsection (c) of Circular No. 9 of the Central Bank, dated February 17, 1949 (Exhibit B), as amended by a letter of the Governor of the Central Bank, dated June 4, 1949 (Exhibit D), reading: "Items which should be returned for any reason whatsoever shall be returned directly to the bank, institution or entity from which the item was received. For this purpose, the Receipt for Returned Checks (Cash Form No. 9) should be used. The original and duplicate copies of said Receipt shall be given to the bank, institution or entity which returned the items and the triplicate copy should be retained by the bank, institution or entity whose demand is being returned.
At the following clearing, the original of the Receipt for Returned Checks shall be presented through the Clearing Office as demand against the bank, institution or entity whose item has been returned. Nothing in this section shall prevent the returned items from being settled by direct reimbursement to the bank, institution or entity returning the items. All items cleared at 11:00 o'clock a.m. shall be returned not later than 2:00 o'clock p.m. on the same day and all items cleared at 3:00 o'clock p.m. shall be returned not later than 8:50 a.m. of the following business day, except for items cleared on Saturday which may be returned not later than 8:30 a.m. of the following day." (Emphasis supplied).
The Government maintains that it is not bound by this rule because: (1) the Treasury is not a bank; and (2) the Treasurer has objected to the application of said rule to his office. This contention is, however, untenable for, admittedly, the Treasury is a member of the aforementioned Clearing Office and Exh. A clearly shows that the former "has agreed to clear its clearable items through" the latter "subject to the rules and regulations of the Central Bank." Besides, the above quoted rule applies not only to banks, but, also, to the institutions and entities therein alluded to. Then, too, the opposition of the Treasurer to the "24-hour clearing house rule" is not sufficient to exempt the Treasury from the operation thereof. Upon the other hand, said opposition is predicated upon the allegation that it is physically impossible for the Treasury to check and verify the genuineness of treasury warrants within twenty-four (24) hours, because, during 1952, said office used to receive daily from 3,000 to 4,000 warrants, which, considering its very limited personnel at that time, would have required one (1) or two (2) months to clear. This claim is belied, however, by the statements of the Treasurer, Exhibits
38 and 38-A to 38-C, showing that on September 15, 23 and 24 and November 25, 1952, his office had cleared 1,618, 2,851, 1,742 and 2,360 warrants, respectively. Moreover, if the rule was unwise, the Treasurer could have secured the proper remedy through the President of the Philippines, since the Treasury and the Central Bank are both agencies of the Government. At any rate, the aforementioned twenty-eight (28) warrants were cleared and paid by the Treasurer, in view of which the PI Bank and the Equitable Bank credited the corresponding amounts to the respective depositors of the warrants and then honored their checks for said amounts. Thus, the Treasury had not only been negligent in clearing its own warrants, but had, also, thereby induced the PI Bank and the Equitable Bank to pay the amounts thereof to said depositors. The gross nature of the negligence of the Treasury becomes more apparent when we consider that each one of the twenty-four (24) warrants involved in G. R. No. L-15895 was for over P5,000, and, hence, beyond the authority of the auditor of the Treasury whose signature thereon had been forged to approve. In other words, the irregularity of said warrants was apparent on the face thereof, from the viewpoint of the Treasury. Moreover, the same had not advertised the loss of genuine forms of its warrants. Neither had the PI Bank nor the Equitable Bank been informed of any irregularity in connection with any of the warrants involved in these two (2) cases, until after December 23, 1952 or after the warrants had been cleared and honored when the Treasury gave notice of the forgeries adverted to above. As a consequence, the loss of the amounts thereof is mainly imputable to acts and omissions of the Treasury, for which the PI Bank and the Equitable Bank should not and cannot be penalized. "Where a loss, which must be borne by one of two parties alike innocent of forgery, can be traced to the neglect of fault of either, it is reasonable that it would be borne by him, even if innocent of any intentional fraud, through whose means it has succeeded." (Phil.
National Bank v. National City Bank of New York, 63 Phil. 711, 723). "Generally, where a drawee bank otherwise would have a right of recovery against a collecting or indorsing bank for its payment of a forged check, its action will be barred if it is guilty of an unreasonable delay in discovering the forgery and in giving notice thereof." (C.J.S. 769-700). "Where defendant bank, on presentation to it on September 2, of forged check drawn on another bank, paid part of amount to presenter, drawee paying check through clearing house on said day, held that the latter, not giving notice of forgery until December 5, could not hold defendant for amount so paid." (First State Bank & Trust Co. v. First Nat. Bank, 145 N. E. 382, 314 111. 269, affirming 234, 111. App. 39.) WHEREFORE, the decision appealed from is hereby affirmed, without special pronouncement as to cost. It is so ordered. Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur. Bengzon, C.J., took no part.
SECOND DIVISION [G.R. NO. 37467. DECEMBER 11, 1933.] SAN CARLOS MILLING CO., LTD., PLAINTIFFAPPELLANT , VS. BANK OF THE PHILIPPINES ISLANDS AND CHINA BANKING CORPORATION, DEFENDANTS APPELLEES . Gibbs & McDonough and Roman Ozaeta for appellant. Araneta, De Joya, Zaragoza & Araneta for appellee Bank of the Philippine Islands. Marcelo Nubla and Guevara, Francisco & Recto for appellee China Banking Corporation. SYLLABUS 1. BANKS AND BANKING; PAYMENT OF FORGED CHECKS. It is an elementary principle of banking that "A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forges." (7. C. J., 683.) There is no act of the plaintiff that led the Bank of the Philippine Islands astray. If it was in fact lulled into a false sense of security, it was by the effrontery of D, the messenger to whom it entrusted the large sum of money in question. 2. ID.; ID.; PROXIMATE CAUSE OF LOSS. The signatures of the checks in question being forged, under section 23 of the Negotiable Instruments Law they are not a charge against plaintiff nor are the checks of any value to the defendant. The proximate cause of loss was due to the negligence of the Bank of
the Philippine Islands in honoring and cashing the two forged checks. 3. ID.; DEPOSITOR AND BANKER; CREDITOR AND DEBTOR. It is very clear that the relation of plaintiff with the Bank of the Philippine Islands in regard to the checks in question, was that of depositor and banker, creditor and debtor. The contention of the bank that it was a gratuitous bailee is without merit, and absolutely contrary to what the bank did. It did not take it up as a separate account but it transferred the credit to plaintiff's current account as a depositor of the bank. Banks are not gratuitous bailees of the funds deposited with them by their customers. 4. ID.; ID.; ID. As the money in question was in fact paid to the plaintiff corporation the China Banking Corporation was indebted neither to the plaintiff nor to the Bank of the Philippine Islands and consequently was properly absolved from any responsibility.
DECISION
HULL, J p: Plaintiff corporation, organized under the laws of the Territory of Hawaii, is authorized to engage in business in the Philippine Islands, and maintains its main office in their Islands in the City of Manila. The business of the Philippine Islands was in the hands of Alfred D. Cooper, its agent under general power of attorney with authority of substitution. The principal employee in the Manila office was one Joseph L. Wilson, to whom had been given a general power of attorney but without power of substitution. In 1926 Cooper, desiring to go on vacation, gave a general power of attorney to Newland Baldwin and at the same time revoked the
power of Wilson relative to the dealings with the Bank of the Philippine Islands, one of the banks in Manila in which plaintiff maintained a deposit. About a year thereafter Wilson, conspiring together with one Alfredo Dolores, a messenger-clerk in plaintiff's Manila office, sent a cablegram in code to the company in Honolulu requesting a telegraphic transfer to the China Banking Corporation of Manila of $100,000. The money was transferred by cable, and upon its receipt the China Banking Corporation, likewise a bank in which plaintiff maintained a deposit, sent an exchange contract to plaintiff corporation offering the sum of P201,000, which was then the current rate of exchange. On this contract was forged the name of Newland Baldwin and typed on the body of the contract was a note: "Please sent us certified check in our favor when transfer in received." A manager's check on the China Banking Corporation for P201,000 payable to San Carlos Milling Company or order was receipted for by Dolores. On the same date, September 28, 1927, the manager's check was deposited with the Bank of the Philippine Islands by the following endorsement: "For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos Milling Co., Ltd. "By (Sgd.) NEWLAND BALDWIN "For Agent" The endorsement to which the name of the Newland Baldwin was affixed was spurious. The Bank of the Philippine Islands thereupon credited the current account of plaintiff in the sum of P201,000 and passed the cashier's check in the ordinary course of business through the clearing house, where it was paid by the China Banking Corporation.
On the same day the cashier of the Bank of the Philippine Islands received a letter, purporting to be signed by Newland Baldwin, directing that P200,000 in bills of various denominations, named in the letter, be packed for shipment and delivery the next day. The next day, Dolores witnessed the counting and packing of the money, and shortly afterwards returned with the check for the sum of P200,000, purporting to be signed by Newland Baldwin as agent. Plaintiff had frequently withdrawn currency for shipment to its mill from the Bank of the Philippine Islands but never in so large an amount, and according to the record, never under the sole supervision of Dolores as the representative of plaintiff. Before delivering the money, the bank asked Dolores for P1 to cover the cost of packing the money, and he left the bank and shortly afterwards returned with another check for P1, purporting to be signed by Newland Baldwin. Whereupon the money was turned over to Dolores, who took it to plaintiff's office, where he turned the money over to Wilson and received as his share, P10,000. Shortly thereafter the crime was discovered, and upon the defendant bank refusing to credit plaintiff with the amount withdrawn by the two forged checks of P200,000 and P1, suit was brought against the Bank of the Philippine Islands, and finally on the suggestion of the defendant bank, an amended complaint was filed by plaintiff against both the Bank of the Philippine Islands and the China Banking Corporation. At the trial the China Banking Corporation contended that they had drawn a check to the credit of the plaintiff company, that the check had been endorsed for deposit, and that as the prior endorsement had in law been guaranteed by the Bank of the Philippine Islands, when they presented the cashier's check to it for payment, the China Banking Corporation was absolved even if the endorsement of Newland Baldwin on the check was a forgery. The Bank of the Philippine Islands presented many special defenses, but in the main their contentions were that they had been
guilty of no negligence, that they had dealt with the accredited representatives of the company in the due course of business, and that the loss was due to the dishonesty of plaintiff's employees and the negligence of plaintiff's general agent. In plaintiff's Manila office, besides the general agent, Wilson, and Dolores, most of the time there was employed a woman stenographer and cashier. The agent did not keep in his personal possession either the code-book or the blank checks of either the Bank of the Philippine Islands or the China Banking Corporation. Baldwin was authorized to draw checks on either of the depositories. Wilson could draw checks in the name of the plaintiff on the China Banking Corporation. After trial in which much testimony was taken, the trial court held that the deposit of P201,000 in the Bank of the Philippine Islands being the result of a forged endorsement, the relation of depositor and banker did not exist, but the bank was only a gratuitous bailee; that the Bank of the Philippine Islands acted in good faith in the ordinary course of its business, was not guilty of negligence, and therefore under article 1902 of the Civil Code which should control the case, plaintiff could not recover; and that as the cause of loss was the criminal actions of Wilson and Dolores, employees of plaintiff, and as Newland Baldwin, the agent, had not exercised adequate supervision over plaintiff's Manila office, therefore plaintiff was guilty of negligence, which ground would likewise defect recovery. From the decision of the trial court absolving the defendants, plaintiff brings this appeal and makes nine assignments of error which we do not deem it necessary to discuss it detail. There is a mild assertion on the part of the defendant bank that the disputed signatures on Newland Baldwin were genuine and that he had been in the habit of signing checks in blank and turning the checks so signed over to Wilson. The proof as to the falsity of the questioned signatures of Baldwin places the matter beyond reasonable doubt, nor is it
believed that Baldwin signed checks in blank and turned them over to Wilson. As to the China Banking Corporation, it will be seen that it drew its check payable to the order of plaintiff and delivered it to plaintiff's agent who was authorized to receive it. A bank that cashes a check must know to whom it pays. In connection with the cashier's check, this duty was therefore upon the Bank of the Philippine Islands, and the China Banking Corporation was not bound to inspect and verify all endorsements of the check, even if some of them were also those of depositors in the bank. It had a right to rely upon the endorsement of the Bank of the Philippine Islands when it gave the latter bank credit for its own cashier's check. Even if we would treat the China Banking Corporation's cashier's check the same as the check of a depositor and attempt to apply the doctrines of the great Eastern Life Insurance Co. vs. Hongkong & Shanghai Banking Corporation and National Bank (43 Phil., 678), and hold the China Banking Corporation indebted to plaintiff, we would at the same time have to hold that the Bank of the Philippine Islands was indebted to the China Banking Corporation in the same amount. As, however, the money was in fact paid to plaintiff corporation, we must hold that the China Banking Corporation is indebted neither to plaintiff not to the Bank of the Philippine Islands, and the judgment of the lower court so far as it absolved the China Banking Corporation from responsibility is affirmed. Returning to the relation between plaintiff and the Bank of the Philippine Islands, we will now consider the effect of the deposit of P201,000. It must be noted that this was not a presenting of the check for cash payment but for deposit only. It is a matter of general knowledge that most endorsements for deposit only, are informal. Most are by means of a rubber stamp. The bank would have been justified in accepting the check for deposit even with only a typed endorsement. It accepted the check and duly credited plaintiff's account with the amount on the face of the check.
Plaintiff was not harmed by the transaction as the only result was the removal of that sum of money from a bank from which Wilson could have drawn it out in his own name to a bank where Wilson would not have authority to draw checks and where funds could only be drawn out by the check of Baldwin. Plaintiff in its letter of December 23, 1928, to the Bank of the Philippine Islands said in part: ". . . we now beg leave to demand that you pay over to us the entire amount of said manager's check of two hundred one thousand (P201,000) pesos, together with interest thereon at the agreed rate of 3 1/2 per cent per annum on daily balanced of our credit in account current with your bank to this date. In the even of your refusal to pay, we shall claim interest at the legal rate of 6 per cent from and after the date of this demand inasmuch as we desire to withdraw and make use of the money." Such language might well be treated as a ratification of the deposit. The contention of the bank that it was a gratuitous bailee is without merit. In the first place, it is absolutely contrary to what the bank did. It did not take it up as a separate account but it transferred the credit to plaintiff's current account as a depositor of that bank. Furthermore, banks are not gratuitous bailees of the funds deposited with them by their customers. Banks are run for gain, and they solicit deposits in order that they can use the money for that very purpose. In this case the action was neither gratuitous nor was it a bailment. On the other hand, we cannot agree with the theory of plaintiff that the Bank of the Philippine Islands was an intermeddling bank. In the many cases cited by plaintiff where the bank that cashed the forged endorsement was held as an intermeddler, in none was the claimant a regular depositor of the bank, nor in any of the cases cited, was the endorsement for deposit only. It is therefore clear that the relation of plaintiff with
the Bank of the Philippine Islands in regard to this item of P201,000 was that of depositor and banker, creditor and debtor. We now come to consider the legal effect of payment by the bank of the Dolores of the sum of P200,001, on two checks on which the name of Baldwin was forged as drawer. As above stated, the fact that these signatures were forged is beyond question. It is an elementary principle both of banking and of the Negotiable Instruments Law that "A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged." (7 C. J., 683.) There is no act of the plaintiff that led the Bank of the Philippine Islands astray. If it was in fact lulled into a false sense of security, it was by the effrontery of Dolores, the messenger to whom it entrusted this large sum of money. The bank paid out its money because it relied upon the genuineness of the purported signatures of Baldwin. These, they never questioned at the time its employees should have used care. In fact, even today the bank represents that it has a belief that they are genuine signatures. The signatures to the checks being forged, under section 23 of the Negotiable Instruments Law they are not a charge against plaintiff nor are the checks of any value to the defendant. 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. So ordered. Malcolm, Villa-Real, Vickers, and Imperial, JJ., concur.
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. 2. ID.; ID.; ID.; EFFECTS. In State Investment House vs. IAC, (175 SCRA 310) 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 purpose." 3. ID.; ID.; ID.; PRESENTMENT FOR PAYMENT; RULE FOR SUFFICIENCY THEREOF. 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. 4. ID.; ID.; ID.; LIABILITY OF A BANK IN ACCEPTING THEREOF ON A FORGED OR UNAUTHORIZED INDORSEMENT; CASE AT BAR. The petitioners argue that the cause of action for violation of the common instruction found on the face of the checks exclusively belongs to the issuers thereof and not to the payee. Moreover, having acted in good faith as they merely facilitated the encashment of the checks, they cannot be made liable to the private respondent. 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 a check on a forged or unauthorized indorsement is
Forged Indorsement
FIRST DIVISION [G.R. NO. 89802. MAY 7, 1992.] ASSOCIATED BANK AND CONRADO CRUZ, PETITIONERS , VS. HON. COURT OF APPEALS, AND MERLE V. REYES, DOING BUSINESS UNDER THE NAME AND STYLE "M ELISSA'S RTW," RESPONDENTS . Soluta, Leonides, Marifosque, Javier, Liboon & Aguila Law Offices for petitioners. Roberto B. Lugue for private respondent. SYLLABUS 1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; CROSSED CHECK; CONSTRUED. 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
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. 5. ID.; ID.; ID.; DUTY OF THE BANK TO SCRUTINIZE CHECKS DEPOSITED WITH IT FOR THE PURPOSE OF DETERMINING THEIR GENUINENESS AND REGULARITY; CASE AT BAR. 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. When the Bank paid the checks so endorsed notwithstanding that title had not passed to the endorser, it did so at its peril and became liable to the payee for the value of the checks. This liability attached whether or not the Bank was aware of the unauthorized endorsement. 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. As the Court stressed in Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corp., "the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this filed, and the law thus holds it to high standard of conduct." The petitioners insist that the private respondent has no cause of action against them because they have no privity of contract with her. They also argue that it was Eddie Reyes, the private respondent's own husband, who endorsed the checks. Assuming that Eddie Reyes did
endorse the crossed checks, we hold that the Bank would still be liable to the private respondent because he was not authorized to make the endorsements. And even if the endorsements were forged, as alleged, the Bank would still be liable to the private respondent for not verifying the endorser's authority. There is no substantial difference between an actual forging of a name to a check as an endorsement by a person not authorized to make the signature and the affixing of a name to a check as an endorsement by a person not authorized to endorse it. The Bank does not deny collecting the money on the endorsement. It was its responsibility to inquire as to the authority of Rafael Sayson to deposit crossed checks payable to Melissa's RTW upon a prior endorsement by Eddie Reyes. The failure of the Bank to make this inquiry was a breach of duty that made it liable to the private respondent for the amount of the checks. 6. ID.; ID.; ID.; RIGHT OF PAYEE OF AN ILLEGALLY ENCASHED CHECKS; RULE. There being no evidence that the crossed checks were actually received by the private respondent, she would have a right of action against the drawer companies, which in turn could go against their respective drawee banks, which in turn could sue the herein petitioner as collecting bank. In a similar situation, it was held that, to simplify proceedings, the payee of the illegally encashed checks should be allowed to recover directly from the bank responsible for such encashment regardless of whether or not the checks were actually delivered to the payee. We approve such direct action in the case at bar. It is worth repeating that before presenting the checks for clearing and for payment, the Bank had stamped on the back thereof the words: "All prior endorsements and/or lack of endorsements guaranteed," and thus made the assurance that it had ascertained the genuineness of all prior endorsements.
DECISION
CRUZ, J p:
The sole issue raised in this case is whether or not the private respondent has a cause of action against the petitioners for their encashment and payment to another person of certain crossed checks issued in her favor. 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 in the amounts and on the dates indicated below: PAYOR BANK AMOUNT DATE Payless Solid Bank P3,960.00 January 19, 1982 Robinson's FEBTC 4,140.00 December 18, 1981 Robinson's FEBTC 1,650.00 December 24, 1981 Robinson's FEBTC 1,980.00 January 12, 1982 Rempson TRB 1,575.00 January 9, 1982 Corona RCBC 2,500.00 December 22, 1981 When she went to these companies to collect on what she thought were still unpaid accounts, she was informed of the issuance of the abovelisted crossed checks. Further inquiry revealed that the said checks had been deposited with the Associated Bank (hereinafter, "the 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. prcd The private respondent sued the petitioners in the Regional Trial Court of Quezon City for recovery of the total value of the checks plus damages. After trial, judgment was rendered requiring them to pay the private respondent the total value of the subject checks in the amount
of P15,805.00 plus 12% interest, P50,000.00 actual damages, P25,000.00 exemplary damages, P5,000.00 attorney's fees, and the costs of the suit. 1 The petitioners appealed to the respondent court, reiterating their argument that the private respondent had no cause of action against them and should have proceeded instead against the companies that issued the checks. In disposing of this contention, the Court of Appeals 2 said: The cause of action of the appellee in the case at bar arose from the illegal, anomalous and irregular acts of the appellants in violating common banking practices to the damage and prejudice of the appellees, in allowing to be deposited and encashed as well as paying to improper parties without the knowledge, consent, authority or endorsement of the appellee which totalled P15,805.00, the six (6) checks in dispute which were "crossed checks" or "for payee's account only," the appellee being the payee. The three (3) elements of a cause of action are present in the case at bar, namely: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach thereof. (Republic Planters Bank vs. Intermediate Appellate Court, 131 SCRA 631).
And such cause of action has been proved by evidence of great weight. The contents of the said checks issued by the customers of the appellee had
not been questioned. There is no dispute that the same are crossed checks or for payee's account only, which is Melissa's RTW. The appellee had clearly shown that she had never authorized anyone to deposit the said checks nor to encash the same; that the appellants had allowed all said checks to be deposited, cleared and paid to one Rafael Sayson in violation of the instructions in the said crossed checks that the same were for payee's account only; and that the appellee maintained a savings account with the Prudential Bank, Cubao Branch, Quezon City which never cleared the said checks and the appellee had been damaged by such encashment of the same. We affirm. 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. 3 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. 4 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 purpose." prLL 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 petitioners argue that the cause of action for violation of the common instruction found on the face of the checks exclusively belongs to the issuers thereof and not to the payee. Moreover, having acted in good faith as they merely facilitated the encashment of the checks, they cannot be made liable to the private respondent. 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 a 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.'" 6 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. 7 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. When the Bank paid the checks so endorsed notwithstanding that title had not passed to the endorser, it did so at its peril and became liable to the payee for the value of the checks. This liability attached whether or not the Bank was aware of the unauthorized endorsement. 8 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. LLphil As the Court stressed in Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corp., 9 "the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct." The petitioners insist that the private respondent has no cause of action against them because they have no privity of contract with her. They also argue that it was Eddie Reyes, the private respondent's own husband, who endorsed the checks. Assuming that Eddie Reyes did endorse the crossed checks, we hold that the Bank would still be liable to the private respondent because he was not authorized to make the endorsements. And even if the endorsements were forged, as alleged, the Bank would still be liable to the private respondent for not verifying the endorser's authority. There is no substantial difference between an actual forging of a name to a
check as an endorsement by a person not authorized to make the signature and the affixing of a name to a check as an endorsement by a person not authorized to endorse it. 10 The Bank does not deny collecting the money on the endorsement. It was its responsibility to inquire as to the authority of Rafael Sayson to deposit crossed checks payable to Melissa's RTW upon a prior endorsement by Eddie Reyes. The failure of the Bank to make this inquiry was a breach of duty that made it liable to the private respondent for the amount of the checks. There being no evidence that the crossed checks were actually received by the private respondent, she would have a right of action against the drawer companies, which in turn could go against their respective drawee banks, which in turn could sue the herein petitioner as collecting bank. In a similar situation, it was held that, to simplify proceedings, the payee of the illegally encashed checks should be allowed to recover directly from the bank responsible for such encashment regardless of whether or not the checks were actually delivered to the payee. 11 We approve such direct action in the case at bar. cdphil It is worth repeating that before presenting the checks for clearing and for payment, the Bank had stamped on the back thereof the words: "All prior endorsements and/or lack of endorsements guaranteed," and thus made the assurance that it had ascertained the genuineness of all prior endorsements. We find that the respondent court committed no reversible error in holding that the private respondent had a valid cause of action against the petitioners and that the latter are indeed liable to her for their unauthorized encashment of the subject checks. We also agree with the reduction of the award of the exemplary damages for lack of sufficient evidence to support them.
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered. Narvasa, C .J ., Grio-Aquino, Medialdea and Bellosillo, JJ ., concur. Footnotes 1. Orig. rec., pp. 149-158.
11. Hoffman vs. First Nat. Bank, 20 N.E. (2d.) 121; Possaic-Bergen Lumber Co. vs. United States Trust Co., supra.; Agbayani, Commentaries and Jurisprudence on the commercial Laws of the Phil., 1978 Ed., Vol. 1, p. 197. SECOND DIVISION [G.R. NO. 107382. JANUARY 31, 1996.]
2. Paras, G.C., J., ponente with Aldecoa and Ordoez-Benitez, JJ., concurring. 3. State Investment House vs. Intermediate Appellate Court, 175 SCRA 310. 4. Vicente R. de Ocampo & Co. vs. Gatchalian, 3 SCRA 596. 5. 175 SCRA 310. 6. Buckley vs. Second Nat. Bank, 35 N.J.L. 400; United States Portland Cement Co. vs. United States Nat. Bank, 61 Colo. 334; People vs. Bank of North America, 75 N.J. 547; Schaap vs. First Nat. Bank, 208 S.W. 309; Merchants' Bank vs. National Capital Press, 31 A.L.R. 1066; Allen vs. M. Mendelsohn & Son, 31 A.L.R. 1063. 7. Meyer vs. Rosenheim, 73 S.W. 1129; Talbot vs. Bank of Rochester, 1 N.Y. 295; People vs. Bank of North America, 75 N.Y. 547; Johnson vs. First Nat. Bank, 68 N.Y. 616. 8. Teas vs. Third National Bank & Trust Co., 4 A 2d. 64. 9. 157 SCRA 188. 10. Possaic-Bergen Lumber Co. vs. United States Trust Co., 164 A. 580.
ASSOCIATED BANK, PETITIONER, VS. HON. COURT OF APPEALS, PROVINCE OF TARLAC AND PHILIPPINE NATIONAL BANK, RESPONDENTS . [G.R. NO. 107612. JANUARY 31, 1996.] PHILIPPINE NATIONAL BANK, PETITIONER, VS. HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, AND ASSOCIATED BANK, RESPONDENTS . Jose A. Soluta, Jr. and Associates, for Associated Bank. Santiago, Jr., Vidad, Corpus & Associates, for PNB. The Solicitor General, for public respondent. SYLLABUS 1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; A FORGED SIGNATURE IS WHOLLY INOPERATIVE AND NO ONE CAN GAIN TITLE TO THE INSTRUMENT THROUGH IT. A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through
it. A person whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not operate as the payee's indorsement. 2. ID.; ID.; ID.; EXCEPTION. The exception to the general rule in Section 23 is where "a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority." Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument. 3. ID.; ID.; BEARER INSTRUMENT; SIGNATURE OF PAYEE OR HOLDER, NOT NECESSARY TO PASS TITLE TO THE INSTRUMENT. In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. 4. ID.; ID.; ORDER INSTRUMENT; SIGNATURE OF HOLDER, ESSENTIAL TO TRANSFER TITLE TO THE INSTRUMENT; EFFECT OF FORGED INDORSEMENT OF HOLDER. Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holder's indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. cdasia 5. ID.; ID.; ID.; LIABILITY OF GENERAL ENDORSER An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to be; that he has a good
title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting." He cannot interpose the defense that signatures prior to him are forged. 6. ID.; ID.; ID.; ID.; COLLECTING BANK WHERE CHECK IS DEPOSITED AND INDORSES CHECK, AN INDORSER. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the bank's client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. 7. ID.; ID.; ID.; PAYMENT UNDER A FORGED INDORSEMENT IS NOT TO THE DRAWERS' ORDER; REASON. The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawer's instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawer's order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customer's (the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule then is that the drawee bank may not debit the drawer's account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. 8. ID.; ID.; ID.; ID.; EXCEPTIONS. If the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank.
9. ID.; ID.; ID.; WHERE THE DRAWERS' SIGNATURE IS FORGED, THE DRAWER CAN RECOVER FROM THE DRAWEE BANK. In cases involving a forged check, where the drawer's signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank whose responsibility it is to know the drawer's signature since the latter is its customer. 10. ID.; ID.; ID.; IN CASES OF FORGED INDORSEMENTS, THE LOSS FALLS ON THE PARTY WHO TOOK THE CHECK FROM THE FORGER OR THE FORGER HIMSELF. In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and, of course, to the forger himself, if available. In other words, the drawee bank can seek reimbursement or a return of the amount it paid from the presentor bank or person. Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or on the forger himself. Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must necessarily return the money paid by the latter because it was paid wrongfully. 11. ID.; ID.; ID.; ID.; CASE AT BAR. In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery is that of the payee's or holder's indorsement, the collecting bank is held liable, without prejudice to the latter proceeding against the forger. 12. ID.; ID.; ID.; GENERAL INDORSER; COLLECTING BANK OR LAST ENDORSER SUFFERS LOSS ON FORGED INDORSEMENT; REASON. More importantly, by reason of the
statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement. The Court has consistently ruled that "the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements." Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement. 13. ID.; ID.; ID.; DRAWEE BANK NOT LIABLE FOR LOSS ON FORGED INDORSEMENT; REASON. The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. The drawee bank's duty is but to verify the genuineness of the drawer's signature and not of the indorsement because the drawer is its client. 14. ID.; ID.; ID.; ID.; DUTY OF DRAWEE BANK TO PROMPTLY INFORM PRESENTOR OF THE FORGERY UPON DISCOVERY; EFFECT OF FAILURE TO PROMPTLY INFORM. The drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery,
thereby depriving said presentor of the right to recover from the forger, the former is deemed negligent and can no longer recover from the presentor. 15. ID.; ID.; ID.; ID.; ID.; ID.; EFFECT OF CONTRIBUTORY NEGLIGENCE IN CASE AT BAR. Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent, the loss should be properly apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to bear the loss. After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss from the checks bearing a forged indorsement. The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer connected with the hospital. With the exception of the first check (dated January 17, 1978), all the checks were issued and released after Pangilinan's retirement on February 28, 1978. After nearly three years, the Treasurer's office was still releasing the checks to the retired cashier. In addition, some of the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurer's office of the fraud being committed. There is also evidence indicating that the provincial employees were aware of Pangilinan's retirement and consequent dissociation from the hospital. The failure of the Province of Tarlac to exercise due care
contributed to a significant degree to the loss tantamount to negligence. Hence, the Province of Tarlac should be liable for part of the total amount paid on the questioned checks. The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and should also bear part of the loss. The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospital's real cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payee's indorsement.
16. ID.; ID.; ID.; FORGERY; DELAY IN INFORMING COLLECTING BANK OF FORGERY BY THE DRAWEE BANK SIGNIFIES NEGLIGENCE. A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement. 17. ID.; ID.; ID.; RETURN OF FORGED INDORSEMENT; 24HOUR PERIOD BUT NOT BEYOND PERIOD FOR FILING LEGAL ACTION FOR BANKS OUTSIDE METRO MANILA;
CASE AT BAR. Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be returned within twenty-four (24) hours after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a forged endorsement should be returned within twenty-four hours. Associated Bank now argues that the aforementioned Central Bank Circular is applicable. Since PNB did not return the questioned checks within twenty-four hours, but several days later, Associated Bank alleges that PNB should be considered negligent and not entitled to reimbursement of the amount it paid on the checks. The Central Bank circular was in force for all banks until June 1980 when the Philippine Clearing House Corporation (PCHC) was set up and commenced operations. Banks in Metro Manila were covered by the PCHC while banks located elsewhere still had to go through Central Bank Clearing. In any event, the twenty-four-hour return rule was adopted by the PCHC until it was changed in 1982. The contending banks herein, which are both branches in Tarlac province, are therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly then, the CB circular was applicable when the forgery of the checks was discovered in 1981. 18. ID.; ID.; ID.; ID.; RATIONALE. The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by the law for filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not given, the collecting bank may be prejudiced and lose the opportunity to go after its depositor. 19. ID.; ID.; ID.; ID.; FAILURE TO RETURN FORGED INDORSEMENT WITHIN 24 HOURS FROM DISCOVERY DOES NOT PREJUDICE COLLECTING BANK WHICH PRESENTED FORGER AS ITS REBUTTAL WITNESS. The Court finds that even if PNB did not return the questioned checks to Associated Bank within twenty-four hours, as mandated by the rule, PNB did not
commit negligent delay. Under the circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect the checks and conduct its own investigation. Thereafter, it requested the Provincial Treasurer's office on March 31, 1981 to return the checks for verification. The Province of Tarlac returned the checks only on April 22, 1981. Two days later, Associated Bank received the checks from PNB. Associated Bank was also furnished a copy of the Province's letter of demand to PNB dated March 20, 1981, thus giving it notice of the forgeries. At this time, however, Pangilinan's account with Associated had only P24.63 in it. Had Associated Bank decided to debit Pangilinan's account, it could not have recovered the amounts paid on the questioned checks. In addition, while Associated Bank filed a fourth-party complaint against Fausto Pangilinan, it did not present evidence against Pangilinan and even presented him as its rebuttal witness. Hence, Associated Bank was not prejudiced by PNB's failure to comply with the twenty-four-hour return rule. 20. REMEDIAL LAW; ACTIONS; ESTOPPEL; WILL NOT APPLY TO DRAWEE BANK WHO PAID AND CLEARED CHECKS WITH FORGED INDORSEMENT. Associated Bank contends that PNB is estopped from requiring reimbursement because the latter paid and cleared the checks. The Court finds this contention unmeritorious. Even if PNB cleared and paid the checks, it can still recover from Associated Bank. This is true even if the payee's Chief Officer who was supposed to have indorsed the checks is also a customer of the drawee bank. PNB's duty was to verify the genuineness of the drawer's signature and not the genuineness of payee's indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify the genuineness of the payee's indorsement. 21. CIVIL LAW; OBLIGATIONS AND CONTRACTS; THERE IS NO PRIVITY OF CONTRACT BETWEEN THE DRAWER AND COLLECTING BANK; DRAWER CAN RECOVER FROM DRAWEE BANK AND DRAWEE BANK CAN SEEK
REIMBURSEMENT FROM COLLECTING BANK. PNB also avers that respondent court erred in adjudicating circuitous liability by directing PNB to return to the Province of Tarlac the amount of the checks and then directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the mode of the award. The drawer, Province of Tarlac, is a client or customer of the PNB, not of Associated Bank. There is no privity of contract between the drawer and the collecting bank. 22. COMMERCIAL LAW; BANKS; BANK DEPOSITS ARE LOANS; RECOVERY OF AMOUNT DEPOSITED IN CURRENT ACCOUNT GIVEN 6% INTEREST PER ANNUM. The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981, the date of extrajudicial demand made by the Province of Tarlac on PNB. The payments to be made in this case stem from the deposits of the Province of Tarlac in its current account with the PNB. Bank deposits are considered under the law as loans. Central Bank Circular No. 416 prescribes a twelve percent (12%) interest per annum for loans, forebearance of money, goods or credits in the absence of express stipulation. Normally, current accounts are likewise interestbearing, by express contract, thus excluding them from the coverage of CB Circular No 416. In this case, however, the actual interest rate, if any, for the current account opened by the Province of Tarlac with PNB was not given in evidence. Hence, the Court deems it wise to affirm the trial court's use of the legal interest rate, or six percent (6%) per annum. The interest rate shall be computed from the date of default, or the date of judicial or extrajudicial demand. The trial court did not err in granting legal interest from March 20, 1981, the date of extrajudicial demand.
Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank? This is the main issue in these consolidated petitions for review assailing the decision of the Court of Appeals in "Province of Tarlac v. Philippine National Bank v. Associated Bank v. Fausto Pangilinan, et. al." (CA-G.R. No. CV No. 17962). 1 The facts of the case are as follows: cdasia The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds are deposited. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan. A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. 2 The allotment checks for said government hospital are drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac." The checks are released by the Office of 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. cdasia 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.
DECISION
ROMERO, J p:
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. 3 Pangilinan sought to encash the first check 4 with Associated Bank. However, the manager of Associated Bank refused and suggested that Pangilinan deposit the check in his personal savings account with the same bank. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank, PNB. After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same procedure for the second check, in the amount of P5,000.00 and dated April 20, 1978, 5 as well as for twenty-eight other checks of various amounts and on various dates. The last check negotiated by Pangilinan was for P8,000.00 and dated February 10, 1981. 6 All the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed ASSOCIATED BANK." cdasia Jesus David, the manager of Associated Bank testified that Pangilinan made it appear that the checks were paid to him for certain projects with the hospital. 7 He did not find as irregular the fact that the checks were not payable to Pangilinan but to the Concepcion Emergency Hospital. While he admitted that his wife and Pangilinan's wife are first cousins, the manager denied having given Pangilinan preferential treatment on this account. 8 On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited from the current account of the Province. 9
As both banks resisted payment, the Province of Tarlac brought suit against PNB which, in turn, impleaded Associated Bank as third-party defendant. The latter then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. 11 After trial on the merits, the lower court rendered its decision on March 21, 1988, disposing as follows: "WHEREFORE, in view of the foregoing, judgment is hereby rendered: cdasia 1. On the basic complaint, in favor of plaintiff Province of Tarlac and against defendant Philippine National Bank (PNB), ordering the latter to pay to the former, the sum of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interest thereon from March 20, 1981 until fully paid; 2. On the third-party complaint, in favor of defendant/third-party plaintiff Philippine National Bank (PNB) and against third-party defendant/fourthparty plaintiff Associated Bank ordering the latter to reimburse to the former the amount of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interests thereon from March 20, 1981 until fully paid; 3. On the fourth-party complaint, the same is hereby ordered dismissed for lack of cause of action as against fourth-party defendant Adena Canlas and lack of jurisdiction over the person of fourth-party defendant Fausto Pangilinan as against the latter. cdasia
In turn, the PNB manager demanded reimbursement from the Associated Bank on May 15, 1981. 10 cdasia
4. On the counterclaims on the complaint, third-party complaint and fourth-party complaint, the same are hereby ordered dismissed for lack of merit. SO ORDERED." 12 PNB and Associated Bank appealed to the Court of Appeals. 13 Respondent court affirmed the trial court's decision in toto on September 30, 1992. cdasia Hence these consolidated petitions which seek a reversal of respondent appellate court's decision. PNB assigned two errors. First, the bank contends that respondent court erred in exempting the Province of Tarlac from liability when, in fact, the latter was negligent because it delivered and released the questioned checks to Fausto Pangilinan who was then already retired as the hospital's cashier and administrative officer. PNB also maintains its innocence and alleges that as between two innocent persons, the one whose act was the cause of the loss, in this case the Province of Tarlac, bears the loss. Next, PNB asserts that it was error for the court to order it to pay the province and then seek reimbursement from Associated Bank. According to petitioner bank, respondent appellate Court should have directed Associated Bank to pay the adjudged liability directly to the Province of Tarlac to avoid circuity. 14 cdasia Associated Bank, on the other hand, argues that the order of liability should be totally reversed, with the drawee bank (PNB) solely and ultimately bearing the loss. Respondent court allegedly erred in applying Section 23 of the Philippine Clearing House Rules instead of Central Bank Circular No. 580, which, being an administrative regulation issued pursuant to law, has the force and effect of law. 15 The PCHC Rules are merely
contractual stipulations among and between member-banks. As such, they cannot prevail over the aforesaid CB Circular. It likewise contends that PNB, the drawee bank, is estopped from asserting the defense of guarantee of prior indorsements against Associated Bank, the collecting bank. In stamping the guarantee (for all prior indorsements), it merely followed a mandatory requirement for clearing and had no choice but to place the stamp of guarantee; otherwise, there would be no clearing. The bank will be in a "no-win" situation and will always bear the loss as against the drawee bank. 16 cdasia Associated Bank also claims that since PNB already cleared and paid the value of the forged checks in question, it is now estopped from asserting the defense that Associated Bank guaranteed prior indorsements. The drawee bank allegedly has the primary duty to verify the genuineness of payee's indorsement before paying the check. 17 While both banks are innocent of the forgery, Associated Bank claims that PNB was at fault and should solely bear the loss because it cleared and paid the forged checks. xxx xxx xxx The case at bench concerns checks payable to the order of Concepcion Emergency Hospital or its Chief. They were properly issued and bear the genuine signatures of the drawer, the Province of Tarlac. The infirmity in the questioned checks lies in the payee's (Concepcion Emergency Hospital) indorsements which are forgeries. At the time of their indorsement, the checks were order instruments. cdasia Checks having forged indorsements should be differentiated from forged checks or checks bearing the forged signature of the drawer. Section 23 of the Negotiable Instruments Law (NIL) provides:
Sec. 23. FORGED SIGNATURE, EFFECT OF. When a signature is forged or made without authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. cdasia A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument. 18 Section 23 does not avoid the instrument but only the forged signature. 19 Thus, a forged indorsement does not operate as the payee's indorsement. The exception to the general rule in Section 23 is where "a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority." Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument. 20 In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. 21 cdasia
The checks involved in this case are order instruments, hence, the following discussion is made with reference to the effects of a forged indorsement on an instrument payable to order. Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holder's indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. 22 An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting." 23 He cannot interpose the defense that signatures prior to him are forged. cdasia A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the banks' client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawer's instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawer's order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customer's (the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. 24 The general rule then is that the drawee bank may not debit the drawer's account and is not entitled to indemnification from the drawer. 25 The risk of loss must perforce fall on the drawee bank.
However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. cdasia If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank. 26 In cases involving a forged check, where the drawer's signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank whose responsibility it is to know the drawer's signature since the latter is its customer. 27 In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and, of course, to the forger himself, if available. 28 In other words, the drawee bank can seek reimbursement or a return of the amount it paid from the presentor bank or person. 29 Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or on the forger himself. cdasia
Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must necessarily return the money paid by the latter because it was paid wrongfully. 30 More importantly, by reason of the statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement. cdasia The Court has consistently ruled that "the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements." 31 The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. 32 The drawee bank's duty is but to verify the genuineness of the drawer's signature and not of the indorsement because the drawer is its client. Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement. cdasia
In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery is that of the payee's or holder's indorsement, the collecting bank is held liable, without prejudice to the latter proceeding against the forger.
Hence, the drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said presentor of the right to recover from the forger, the former is deemed negligent and can no longer recover from the presentor. 33 Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent, the loss should be properly apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable. cdasia If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to bear the loss. After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss from the checks bearing a forged indorsement. The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer connected with the hospital. With the exception of the first check (dated January 17, 1978), all the checks were issued and released after Pangilinan's retirement on February 28, 1978. After nearly three years, the Treasurer's office was still releasing the checks
to the retired cashier. In addition, some of the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurer's office of the fraud being committed. There is also evidence indicating that the provincial employees were aware of Pangilinan's retirement and consequent dissociation from the hospital. Jose Meru, the Provincial Treasurer, testified: cdasia "ATTY. MORGA: Q Now, is it true that for a given month there were two releases of checks, one went to Mr. Pangilinan and one went to Miss Juco? JOSE MERU: cdasia A Yes, sir. Q Will you please tell us how at the time (sic) when the authorized representative of Concepcion Emergency Hospital is and was supposed to be Miss Juco? A Well, as far as my investigation show (sic) the assistant cashier told me that Pangilinan represented himself as also authorized to help in the release of these checks and we were apparently misled because they accepted the representation of Pangilinan that he was helping them in the release of the checks and besides according to them they were, Pangilinan, like the rest, was able to present an official receipt to acknowledge these receipts and according to them since this is a
government check and believed that it will eventually go to the hospital following the standard procedure of negotiating government checks, they released the checks to Pangilinan aside from Miss Juco." 34 cdasia The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount to negligence. Hence, the Province of Tarlac should be liable for part of the total amount paid on the questioned checks. The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and should also bear part of the loss. As earlier stated, PNB can recover from the collecting bank. cdasia In the case of Associated Bank v. CA, 35 six crossed checks with forged indorsements were deposited in the forger's account with the collecting bank and were later paid by four different drawee banks. The Court found the collecting bank (Associated) to be negligent and held: "The Bank should have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the checks to his own account. The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit only to the private respondent's account. . . ." The situation in the case at bench is analogous to the above case, for it was not the payee who deposited the checks with the collecting bank. Here, the checks were all payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who deposited the checks in his personal savings account. cdasia
Although Associated Bank claims that the guarantee stamped on the checks (All prior and/or lack of endorsements guaranteed) is merely a requirement forced upon it by clearing house rules, it cannot but remain liable. The stamp guaranteeing prior indorsements is not an empty rubric which a bank must fulfill for the sake of convenience. A bank is not required to accept all the checks negotiated to it. It is within the bank's discretion to receive a check for no banking institution would consciously or deliberately accept a check bearing a forged indorsement. When a check is deposited with the collecting bank, it takes a risk on its depositor. It is only logical that this bank be held accountable for checks deposited by its customers. A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement. It is here that Associated Bank's assignment of error concerning C.B. Circular No. 580 and Section 23 of the Philippine Clearing House Corporation Rules comes to fore. Under Section 4 (c) of CB Circular No. 580, items bearing a forged endorsement shall be returned within twenty-four (24) hours after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a forged endorsement should be returned within twenty-four hours. Associated Bank now argues that the aforementioned Central Bank Circular is applicable. Since PNB did not return the questioned checks within twenty-four hours, but several days later, Associated Bank alleges that PNB should be considered negligent and not entitled to reimbursement of the amount it paid on the checks. cdasia The Court deems it unnecessary to discuss Associated Bank's assertions that CB Circular No. 580 is an administrative regulation issued pursuant to law and as such, must prevail over the PCHC rule. The Central Bank circular was in force for all banks until June 1980
when the Philippine Clearing House Corporation (PCHC) was set up and commenced operations. Banks in Metro Manila were covered by the PCHC while banks located elsewhere still had to go through Central Bank Clearing. In any event, the twenty-four-hour return rule was adopted by the PCHC until it was changed in 1982. The contending banks herein, which are both branches in Tarlac province, are therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly then, the CB circular was applicable when the forgery of the checks was discovered in 1981.
Pangilinan's account, it could not have recovered the amounts paid on the questioned checks. In addition, while Associated Bank filed a fourth-party complaint against Fausto Pangilinan, it did not present evidence against Pangilinan and even presented him as its rebuttal witness. 38 Hence, Associated Bank was not prejudiced by PNB's failure to comply with the twenty-four-hour return rule. Next, Associated Bank contends that PNB is estopped from requiring reimbursement because the latter paid and cleared the checks. The Court finds this contention unmeritorious. Even if PNB cleared and paid the checks, it can still recover from Associated Bank. This is true even if the payee's Chief Officer who was supposed to have indorsed the checks is also a customer of the drawee bank. 39 PNB's duty was to verify the genuineness of the drawer's signature and not the genuineness of payee's indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify the genuineness of the payee's indorsement. PNB also avers that respondent court erred in adjudging circuitous liability by directing PNB to return to the Province of Tarlac the amount of the checks and then directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the mode of the award. The drawer, Province of Tarlac, is a client or customer of the PNB, not of Associated Bank. There is no privity of contract between the drawer and the collecting bank. cdasia The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981, the date of extrajudicial demand made by the Province of Tarlac on PNB. The payments to be made in this case stem from the deposits of the Province of Tarlac in its current account with the PNB. Bank deposits are considered under the law as loans. 40 Central Bank Circular No. 416 prescribes a twelve percent (12%) interest per annum for loans, forebearance of money, goods or credits in the absence of express stipulation. Normally, current accounts are likewise interest-bearing, by express contract, thus excluding them from the coverage of CB Circular No. 416. In this
The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not given, the collecting bank may be prejudiced and lose the opportunity to go after its depositor. The Court finds that even if PNB did not return the questioned checks to Associated Bank within twenty-four hours, as mandated by the rule, PNB did not commit negligent delay. Under the circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect the checks and conduct its own investigation. Thereafter, it requested the Provincial Treasurer's office on March 31, 1981 to return the checks for verification. The Province of Tarlac returned the checks only on April 22, 1981. Two days later, Associated Bank received the checks from PNB. 36 cdasia Associated Bank was also furnished a copy of the Province's letter of demand to PNB dated March 20, 1981, thus giving it notice of the forgeries. At this time, however, Pangilinan's account with Associated had only P24.63 in it. 37 Had Associated Bank decided to debit
case, however, the actual interest rate, if any, for the current account opened by the Province of Tarlac with PNB was not given in evidence. Hence, the Court deems it wise to affirm the trial court's use of the legal interest rate, or six percent (6%) per annum. The interest rate shall be computed from the date of default, or the date of judicial or extrajudicial demand. 41 The trial court did not err in granting legal interest from March 20, 1981, the date of extrajudicial demand. The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospital's real cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payee's indorsement. IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The petition for review filed by the Associated Bank (G.R. No. 107382) is hereby DENIED. The decision of the trial court is MODIFIED. The Philippine National Bank shall pay fifty percent (50%) of P203,300.00 to the Province of Tarlac, with legal interest from March 20, 1981 until the payment thereof. Associated Bank shall pay fifty percent (50%) of P203,300.00 to the Philippine National
Bank, likewise, with legal interest from March 20, 1981 until payment is made. cdasia SO ORDERED Regalado, Puno and Mendoza, JJ., concur. Footnotes 1. Penned by Justice Asaali S. Isnani, with Associate Justices Arturo B. Buena and Ricardo P. Galvez, concurring, dated September 30, 1992, Rollo, p. 22. 2. Provincial aid was given irregularly. Hospital staff would often call the provincial treasurer's office to inquire whether there was an allotment check for the hospital. The hospital's administrative officer and cashier would then go to the provincial treasurer's office to pick up the check. Checks received by the hospital are deposited in the account of the National Treasury with the PNB. All income of the hospital in excess of the amount which the National Government has directed it to raise, is excess income. The latter is given back to the hospital after a supplemental budget is prepared. When the latter is approved, an advice of allotment is made. Then the hospital requests a cash disbursement ceiling. When approved, this is brought to the Ministry of Health. The regional office of said Ministry then prepares a check for the hospital. The check will be deposited in the hospital's current account at the PNB. (Culled from the testimony of Dr. Adena Canlas, TSN, October 17, 1983, pp. 8-11; December 6, 1983, pp. 43-44). cdasia 3. TSN, March 13, 1984, pp. 51-60. 4. Check No. 530863 K, dated January 17, 1978 for P10,000.00.
5. Check No. 526788 K. cdasia 6. Check No. 391351 L. 7. TSN, July 10, 1985, pp. 14-15. 8. TSN, July 10, 1985, p. 20-21; 34-35; September 24, 1985. cdasia 9. Exhibit FF for Province of Tarlac. On March 20, 1981, the Province of Tarlac reiterated its request in another letter to PNB. Associated Bank was allegedly furnished with a copy of this letter. (Records, pp. 246-247) PNB requested the Province to return the checks in a letter dated March 31, 1981. The checks were returned to PNB on April 22, 1981. (Exhibit GG) On April 24, 1981, PNB gave the checks to Associated Bank. (Exhibit 5) Associated Bank returned the checks to PNB on April 28, 1981, along with a letter stating its refusal to return the money paid by PNB. (Exhibit 6) 10. Exhibit "MM" for Province of Tarlac. 11. Civil Case No. 6227, "Province of Tarlac v. Philippine National Bank; Philippine National Bank v. Associated Bank; Associated Bank v. Fausto Pangilinan and Adena G. Canlas," Regional Trial Court Branch 64, Tarlac, Tarlac. cdasia 12. Penned by Judge Arturo U. Barias, Jr., Rollo, pp. 391-392. 13. CA-G.R. CV No. 17962. 14. Petition, pp. 6-7; Rollo, pp. 13-14, G.R. No. 107612. cdasia 15. Citing Antique Sawmills, Inc. v. Zayco, 17 SCRA 316, et al., Petition, p. 9, Rollo, p. 10.
16. Associated Bank's Petition, p. 13. 17. Id., at 12. cdasia 18. J. CAMPOS & M. LOPEZ-CAMPOS, NEGOTIABLE INSTRUMENTS LAW, 227-230 (4th ed., 1990). 19. I. A. AGBAYANI, COMMENTARIES AND JURISPRUDENCE ON THE COMMERCIAL LAWS OF THE PHILIPPINES 198 (1989 ed.). 20. Id., at 199. cdasia 21. J. VITUG, PANDECT OF COMMERCIAL LAW AND JURISPRUDENCE 51-53 (Rev. ed., 1990). 22. Id. 23. Section 66, Negotiable Instruments Law. cdasia 24. S. NICKLES, NEGOTIABLE INSTRUMENTS AND OTHER RELATED COMMERCIAL PAPER 416 (2nd ed., 1993). 25. Great Eastern Life Insurance Co. v. Hongkong and Shanghai Banking Corp., 43 Phil. 678; Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation, G.R. No. L-74917, January 20, 1988, 157 SCRA 188; CAMPOS & LOPEZ-CAMPOS, op. cit. note 18 at 283, citing La Fayette v. Merchants Bank, 73 Ark 561; Wills v. Barney, 22 Cal 240; Wellington National Bank v. Robbins, 71 Kan 748. 26. R. JORDAN & W. WARREN, NEGOTIABLE INSTRUMENTS AND LETTERS OF CREDIT 216 (1992). cdasia 27. Id.
28. Id., at 216-235; VITUG, op. cit. note 21 at 53. 29. Banco de Oro v. Equitable Banking Corp., supra; Great Eastern Life Insurance Co. v. HSBC, supra. 30. Article 2154 of the Civil Code provides: "If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises." Banco de Oro v. Equitable Banking Corp., supra. cdasia 31. Bank of the Phil. Islands v. CA, G.R. No. 102383, November 26, 1992, 216 SCRA 51, 63 citing Banco de Oro v. Equitable Banking Corp., supra; Great Eastern Life Insurance Co. v. HSBC, supra.
39. San Carlos Milling Co. Ltd. v. BPI, 59 Phil. 59. 40. Article 1980 of the Civil Code reads: Fixed savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. 41. Eastern Shipping Lines, Inc. v. CA, G.R. No. 97412, July 12, 1994, 234 SCRA 78. cdasia FIRST DIVISION [G.R. NO. 74917. JANUARY 20, 1988.] BANCO DE ORO SAVINGS AND MORTGAGE BANK, PETITIONER , VS. EQUITABLE BANKING CORPORATION, PHILIPPINE CLEARING HOUSE CORPORATION, AND REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH XCII (92) RESPONDENTS . SYLLABUS 1.COMMERCIAL LAW; BANKING; PHILIPPINE CLEARING HOUSE CORPORATION (PCHC); AUTHORITY TO CLEAR CHECKS AND/OR CHECKING ITEMS; TRANSACTIONS ON NON-NEGOTIABLE CHECKS WITHIN THE AMBIT OF ITS JURISDICTION. As provided in the articles of incorporation of PCHC its operation extend to "clearing checks and other clearing items." No doubt transactions on non-negotiable checks are within the ambit of its jurisdiction. In a previous case, this Court had occasion to rule: "Ubilex non distinguit nec nos distinguere debemos." There should be no distinction in the application of a statute where none is indicated for courts are not authorized to distinguish where the law makes no distinction. They should instead administer the law not as they think it ought to be but as they find it and without regard to
32. CAMPOS & LOPEZ-CAMPOS, op. cit. note 18 at 283 citing Inter-state Trust Co. v. U.S. National Bank, 185 Pac. 260; Hongkong and Shanghai Banking Corp. v. People's Bank and Trust Co., supra. 33. JORDAN & WARREN, op. cit. note 26 at 217; CAMPOS & LOPEZ-CAMPOS, op. cit. note 18 at 283. 34. TSN, June 19, 1984, pp. 10-11. cdasia 35. G.R. No. 89802, May 7, 1992, 208 SCRA 465. 36. See footnote 9. 37. Exhibit "3-G" for Associated Bank. 38. TSN, January 8, 1987. cdasia
consequences. The participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of their submission to its jurisdiction. Viewing the provisions the conclusion is clear that the PCHC Rules and Regulations should not be interpreted to be applicable only to checks which are negotiable instruments but also to non-negotiable instruments, and that the PCHC has jurisdiction over this case even as the checks subject of this litigation are admittedly non-negotiable. 2.STATUTORY CONSTRUCTION; APPLICATION OF A STATUTE; NO DISTINCTION WHERE NONE IS INDICATED. The term, check as used in the said Articles of Incorporation of PCHC can only connote checks in general use in commercial and business activities. It cannot be conceived to be limited to negotiable checks only. Checks are used between banks and bankers and their customers, and are designed to facilitate banking operations. It is of the essence to be payable on demand, because the contract between the banker and the customer is that the money is needed on demand. 3.COMMERCIAL LAW; BANKING: STAMPING GUARANTEE OF PRIOR ENDORSEMENT AT THE BACK OF A CHECK EQUIVALENT TO ASSUMPTION OF WARRANTY OF AN ENDORSER. The petitioner having stamped its guarantee of "all prior endorsements and/or lack of endorsements" (Exh. A-2 to F-2) is now estopped from claiming that the checks under consideration are not negotiable instruments. The checks were accepted for deposit by the petitioner stamping thereon its guarantee, in order that it can clear the said checks with the respondent bank. By such deliberate and positive attitude of the petitioner it has for all legal intents and purposes treated the said checks as negotiable instruments and accordingly assumed the warranty of the endorser when it stamped its guarantee of prior endorsements at the back of the checks. It led the said respondent to believe that it was acting as endorser of the checks and on the strength of this guarantee said respondent cleared the checks in question and credited the account of the petitioner. Petitioner
is now barred from taking an opposite posture by claiming that the disputed checks are not negotiable instrument. 4.ID.; ID.; ID.; BASES OF THE DOCTRINE OF ESTOPPEL. The Court enunciated in Philippine National Bank vs. Court of Appeals, a point relevant to the issue when it stated "the doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice and its purpose is to forbid one to speak against his own act, representations or commitments to the injury of one to whom they were directed and who reasonably relied thereon." 5.ID.; ID.; ID.; FORGERY IN ENDORSEMENT; LOSS SUFFERED BY THE COLLECTING BANK OR LAST ENDORSER. Apropos the matter of forgery in endorsements, this Court has succinctly emphasized that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. This is laid down in the case of PNB vs. National City Bank. In another case, this court held that if the drawee-bank discovers that the signature of the payee was forged after it has paid the amount of the check to the holder thereof, it can recover the amount paid from the collecting bank. 6.ID.; ID.; CHECKS: DUTY OF DILIGENCE NOT OWNED BY THE DRAWER TO THE COLLECTING BANK. It has been enunciated in an American case particularly in American Exchange National Bank vs. Yorkville Bank that: "the drawer owes no duty of diligence to the collecting bank (one who had accepted an altered check and had paid over the proceeds to the depositor) except of seasonably discovering the alteration by a comparison of its returned checks and check stubs or other equivalent record, and to inform the drawee thereof." Thus We hold that while the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it
for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct.
defendant sent the checks for clearing through the Philippine Clearing House Corporation (PCHC). Accordingly, plaintiff paid the Checks; its clearing account was debited for the value of the Checks and defendant's clearing account was credited for the same amount. Thereafter, plaintiff discovered that the endorsements appearing at the back of the Checks and purporting to be that of the payees were forged and/or unauthorized or otherwise belong to persons other than the payees. Pursuant to the PCHC Clearing Rules and Regulations, plaintiff presented the Checks directly to the defendant for the purpose of claiming reimbursement from the latter. However, defendant refused to accept such direct presentation and to reimburse the plaintiff for the value of the Checks; hence, this case. In its Complaint, plaintiff prays for judgment to require the defendant to pay the plaintiff the sum of P45,982.23 with interest at the rate of 12% per annum from the date of the complaint plus attorney's fees in the amount of P10,000.00 as well as the cost of the suit. In accordance with Section 38 of the Clearing House Rules and Regulations, the dispute was presented for Arbitration; and Atty. Ceasar Querubin was designated as the Arbitrator. After an exhaustive investigation and hearing the Arbiter rendered a decision in favor of the plaintiff and against the defendant ordering the PCHC to debit the clearing account of the defendant, and to credit
DECISION
GANCAYCO, J p: This is a petition for review on certiorari of a decision of the Regional Trial Court of Quezon City promulgated on March 24, 1986 in Civil Case No. Q-46517 entitled Banco de Oro Savings and Mortgage Bank versus Equitable Banking Corporation and the Philippine Clearing House Corporation after a review of the Decision of the Board of Directors of the Philippine Clearing House Corporation (PCHC) in the case of Equitable Banking Corporation (EBC) vs. Banco de Oro Savings and Mortgage (BCO), ARBICOM Case No. 84-033. The undisputed facts are as follows: "It appears that sometime in March, April, May and August 1983, plaintiff through its Visa Card Department, drew six crossed Manager's check (Exhibits 'A' to 'F', and herein referred to as Checks) having an aggregate amount of Forty Five Thousand Nine Hundred and Eighty Two & 23/100 (P45,982.23) Pesos and payable to certain member establishments of Visa Card. Subsequently, the Checks were deposited with the defendant to the credit of its depositor, a certain Aida Trencio. Following normal procedures, and after stamping at the back of the Checks the usual endorsements: 'All prior and/or lack of endorsement guaranteed' the
the clearing account of the plaintiff of the amount of P45,982.23 with interest at the rate of 12% per annum from date of the complaint and Attorney's fee in the amount of P5,000.00. No pronouncement as to cost was made." 1 In a motion for reconsideration filed by the petitioner, the Board of Directors of the PCHC affirmed the decision of the said Arbiter in this wise: "'In view of all the foregoing the decision of the Arbiter is confirmed"; and the Philippine Clearing House Corporation is hereby ordered to debit the clearing account of the defendant and credit the clearing account of plaintiff the amount of Forty Five Thousand Nine Hundred Eighty Two & 23/100 (P45,982.23) Pesos with interest at the rate of 12% per annum from date of the complaint, and the Attorney's fee in the amount of Five Thousand (P5,000.00) Pesos.'" Thus, a petition for review was filed with the Regional Trial Court of Quezon City, Branch XCII, wherein in due course a decision was rendered affirming in toto the decision of the PCHC. Hence this petition. The petition is focused on the following issues: 1.Did the PCHC have any jurisdiction to give due course to and adjudicate Arbicom Case No. 84-033? 2.Were the subject checks non-negotiable and if not, does it fall under the ambit of the power of the PCHC?
3.Is the Negotiable Instrument Law, Act No. 2031 applicable in deciding controversies of this nature by the PCHC? 4.What law should govern in resolving controversies of this nature? 5.Was the petitioner bank negligent and thus responsible for any undue payment? Petitioner maintains that the PCHC is not clothed with jurisdiction because the Clearing House Rules and Regulations of PCHC cover and apply only to checks that are genuinely negotiable. Emphasis is laid on the primary purpose of the PCHC in the Articles of Incorporation, which states:
"To provide, maintain and render an effective, convenient, efficient, economical and relevant exchange and facilitate service limited to check processing and sorting by way of assisting member banks, entities in clearing checks and other clearing items as defined in existing and in future Central Bank of the Philippines circulars, memoranda, circular letters, rules and regulations and policies in pursuance to the provisions of Section 107 of R.A. 265. . ." and Section 107 of R.A. 265 which provides: xxx xxx xxx The deposit reserves maintained by the banks in the Central Bank, in accordance with the provisions of
Section 1000 shall serve as a basis for the clearing of checks, and the settlement of interbank balances . . ." Petitioner argues that by law and common sense, the term check should be interpreted as one that fits the articles of incorporation of the PCHC, the Central Bank and the Clearing House Rules stating that it is a negotiable instrument citing the definition of a "check" as basically a "bill of exchange" under Section 185 of the NIL and that it should be payable to "order" or to "bearer" under Section 126 of same law. Petitioner alleges that with the cancellation of the printed word "or bearer" from the face of the check, it becomes non-negotiable so the PCHC has no jurisdiction over the case. The Regional Trial Court took exception to this stand and conclusion put forth by the herein petitioner as it held: "Petitioner's theory cannot be maintained. As will be noted, the PCHC makes no distinction as to the character or nature of the checks subject of its jurisdiction. The pertinent provisions quoted in petitioner's memorandum simply refer to check(s). Where the law does not distinguish, we shall not distinguish. In the case of Reyes vs. Chuanico (CA-G.R. No. 20813-R, Feb. 5, 1962) the Appellate Court categorically stated that there are four kinds of checks in this jurisdiction; the regular check; the cashier's check; the traveller's check; and the crossed check. The Court, further elucidated, that while the Negotiable Instruments Law does not contain any provision on crossed checks, it is common practice in commercial and banking operations to issue checks of this character, obviously in accordance with Article 541 of the Code of Commerce. Attention is likewise
called to Section 185 of the Negotiable Instruments Law: 'Sec. 185.Check defined. A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this act applicable to a bill of exchange payable on demand apply to a check.' and the provisions of Section 61 (supra) that the drawer may insert in the instrument an express stipulation negating or limiting his own liability to the holder. Consequently, it appears that the use of the term 'check' in the Articles of Incorporation of PCHC is to be perceived as not limited to negotiable checks only, but to checks as is generally known in use in commercial or business transactions. Anent Petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC Board of Directors that: 'In presenting the Checks for clearing and for payment, the defendant made an express guarantee on the validity of 'all prior endorsements'. Thus, stamped at the back of the checks are the defendant's clear warranty; ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the checks. No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and
inaccurate, the defendant is liable for any damage arising out of the falsity of its representation. The principle of estoppel, effectively prevents the defendant from denying liability for any damage sustained by the plaintiff which, relying upon an action or declaration of the defendant, paid on the Checks. The same principle of estoppel effectively prevents the defendant from denying the existence of the Checks.' (Pp. 10-11 Decision; pp. 43-44, Rollo)" We agree. As provided in the aforecited articles of incorporation of PCHC its operation extend to "clearing checks and other clearing items." No doubt transactions on non-negotiable checks are within the ambit of its jurisdiction. In a previous case this Court had occasion to rule: "Ubilex non distinguit nec nos distinguere debemos." 2 It was enunciated in Loc Cham v. Ocampo, 77 Phil. 636 (1946): "The rule, founded on logic, is a corollary of the principle that general words and phrases in a statute should ordinarily be accorded their natural and general significance. In other words, there should be no distinction in the application of a statute where none is indicated." There should be no distinction in the application of a statute where none is indicated for courts are not authorized to distinguish where the law makes no distinction. They should instead administer the law not
as they think it ought to be but us they find it and without regard to consequences. 3 The term, check as used in the said Articles of Incorporation of PCHC can only connote checks in general use in commercial, and business activities. It cannot be conceived to be limited to negotiable checks only. cdreo Checks are used between banks and bankers and their customers, and are designed to facilitate banking operations. It is of the essence to be payable on demand, because the contract between the banker and the customer is that the money is needed on demand. 4 The participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of their submission to its jurisdiction. Sec. 3 and 36.6 of the PCHC-CHRR clearing rules and regulations provide: "SEC. 3.AGREEMENT TO THESE RULES. It is the general agreement and understanding that any participant in the Philippine Clearing House Corporation, MICR clearing operations by the mere fact of their participation, thereby manifests its agreement to these Rules and Regulations and its subsequent amendments." Sec. 36.6.(ARBITRATION) The fact that a bank participates in the clearing operations of the PCHC shall be deemed its written and subscribed consent to the binding effect of this arbitration agreement as if it had done so in accordance with section 4 of (the) Republic Act No. 876, otherwise known as the Arbitration Law." Further Section 2 of the Arbitration Law mandates:
"Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy existing between them at the time of the submission and which may be the subject of an action, or the parties of any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such submission or contract shall be valid and irrevocable, save upon grounds as exist at law for the revocation of any contract. "Such submission or contract may include question arising out of valuations, appraisals or other controversies which may be collateral, incidental, precedent or subsequent to any issue between the parties . . ." Sec. 21 of the same rules, says: "Items which have been the subject of material alteration or items bearing forged endorsement when such endorsement is necessary for negotiation shall be returned by direct presentation or demand to the Presenting Bank and not through the regular clearing house facilities within the period prescribed by law for the filing of a legal action by the returning bank/branch, institution or entity sending the same." (Emphasis supplied) Viewing these provisions the conclusion is clear that the PCHC Rules and Regulations should not be interpreted to be applicable only to checks which are negotiable instruments but also to non-negotiable instruments, and that the PCHC has jurisdiction over this case even as the checks subject of this litigation are admittedly non-negotiable. Moreover, petitioner is estopped from raising the defense of nonnegotiability of the checks in question. It stamped its guarantee on the
back of the checks and subsequently presented these checks for clearing and it was on the basis of these endorsements by the petitioner that the proceeds were credited in its clearing account. The petitioner by its own acts and representation can not now deny liability because it assumed the liabilities of an endorser by stamping its guarantee at the back of the checks. The petitioner having stamped its guarantee of "all prior endorsements and/or lack of endorsements" (Exh. A-2 to F-2) is now estopped from claiming that the checks under consideration are not negotiable instruments. The checks were accepted for deposit by the petitioner stamping thereon its guarantee, in order that it can clear the said checks with the respondent bank. By such deliberate and positive attitude of the petitioner it has for all legal intents and purposes treated the said checks as negotiable instruments and accordingly assumed the warranty of the endorser when it stamped its guarantee of prior endorsements at the back of the checks. It led the said respondent to believe that it was acting as endorser of the checks and on the strength of this guarantee said respondent cleared the checks in question and credited the account of the petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed checks are not negotiable instrument. This Court enunciated in Philippine National Bank vs. Court of Appeals, 5 a point relevant to the issue when it stated "the doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice and its purpose is to forbid one to speak against his own act, representations or commitments to the injury of one to whom they were directed and who reasonably relied thereon." A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged endorsement. Whenever any bank treats the signature at the back of the checks as endorsements and thus logically guarantees the same as such there can be no doubt said bank has considered the checks as negotiable. cdrep
The point that comes uppermost is whether the drawee bank was negligent in failing to discover the alteration or the forgery. Apropos the matter of forgery in endorsements, this Court has succinctly emphasized that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. This is laid down in the case of PNB vs. National City Bank. 6 In another case, this court held that if the drawee-bank discovers that the signature of the payee was forged after it has paid the amount of the check to the holder thereof, it can recover the amount paid from the collecting bank. 7 A truism stated by this Court is that "The doctrine of estoppel precludes a party from repudiating an obligation voluntarily assumed after having accepted benefits therefrom. To countenance such repudiation would be contrary to equity and put premium on fraud or misrepresentation." 8 We made clear in Our decision in Philippine National Bank vs. The National City Bank of NY & Motor Service Co. that: "Where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the genuineness of the drawer's signature and his capacity to issue the instrument. If a drawee bank pays a forged check which "was previously accepted or certified by the said bank, it can not recover from a holder who did not participate in the forgery and did not have actual notice thereof. The payment of a check does not include or imply its acceptance in the sense that this word is used in Section 62 of the Negotiable Instruments Act." 9 Very akin to the case at bar is one which involves a suit filed by the drawer of checks against the collecting bank and this came about in Farmers State Bank 10 where it was held: "A cause of action against the (collecting bank) in favor of the appellee (the drawer) accrued as a result of the bank breaching its implied warranty of the genuineness of the indorsements of the name of the payee by bringing about the presentation of the checks (to the drawee bank) and collecting the amounts thereof, the right to enforce that cause of action was not destroyed by the circumstance that another cause of action for the recovery of the amounts paid on the checks would have accrued in favor of the appellee against another or to others than the bank if when the checks were paid they have been indorsed by the payee." (United States vs. National Exchange Bank, 214 US, 302, 29 S CT-665, 53 L. Ed 1006,16 Am. Cas. 1184; Onondaga County Savings Bank vs. United States (E.C.A.) 64 F 703)". Section 66 of the Negotiable Instruments ordains that: "Every indorser who indorses without qualification, warrants to all subsequent holders in due course" (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has good title to it; (c) that all prior parties have capacity to contract; and (d) that the instrument is at the time of his indorsement valid and subsisting. 11 It has been enunciated in an American case particularly in American Exchange National Bank vs. Yorkville Bank 12 that: "the drawer owes
no duty of diligence to the collecting bank (one who had accepted an altered check and had paid over the proceeds to the depositor) except of seasonably discovering the alteration by a comparison of its returned checks and check stubs or other equivalent record, and to inform the drawee thereof." In this case it was further held that: "The real and underlying reasons why negligence of the drawer constitutes no defense to the collecting bank are that there is no privity between the drawer and the collecting bank (Corn Exchange Bank vs. Nassau Bank, 204 N.Y.S. 80) and the drawer owes to that bank no duty of vigilance (New York Produce Exchange Bank vs. Twelfth Ward Bank, 204 N.Y.S. 54) and no act of the collecting bank is induced by any act or representation or admission of the drawer (Seaboard National Bank vs. Bank of America (supra) and it follows that negligence on the part of the drawer cannot create any liability from it to the collecting bank, and the drawer thus is neither a necessary nor a proper party to an action by the drawee bank against such bank. It is quite true that depositors in banks are under the obligation of examining their passbooks and returned vouchers as a protection against the payment by the depository bank against forged checks, and negligence in the performance of that obligation may relieve that bank of liability for the repayment of amounts paid out on forged checks, which but for such negligence it would he bound to repay. A leading case on that subject is Morgan vs. United States Mortgage and Trust Col. 208 N.Y. 218, 101 N.E. 871 Amn. Cas. 1914D, 462, L.R.A. 1915D, 74."
Thus We hold that while the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct. LLpr And although the subject checks are non-negotiable the responsibility of petitioner as indorser thereof remains. To countenance a repudiation by the petitioner of its obligation would be contrary to equity and would deal a negative blow to the whole banking system of this country. The court reproduces with approval the following disquisition of the PCHC in its decision "II.Payments To Persons Other Than The Payees Are Not Valid And Give Rise To An Obligation To Return Amounts Received. Nothing is more clear than that neither the defendant's depositor nor the defendant is entitled to receive payment payable for the Checks. As the checks are not payable to defendant's depositor, payments to persons other than payees named therein, their successor-in-interest or any person authorized to receive payment are not valid. Article 1240, New Civil Code of the Philippines unequivocably provides that: 'Art. 1240.Payment shall be made to the person in whose favor the obligation has
been constituted, or his successor-in-interest, or any person authorized to receive it.' Considering that neither the defendant's depositor nor the defendant is entitled to receive payments for the Checks, payments to any of them give rise to an obligation to return the amounts received. Section 2154 of the New Civil Code mandates that: 'Article 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. It is contended that plaintiff should be held responsible for issuing the Checks notwithstanding that the underlying transactions were fictitious. This contention has no basis in our jurisprudence. The nullity of the underlying transactions does not diminish, but in fact strengthens, plaintiff's right to recover from the defendant. Such nullity clearly emphasizes the obligation of the payees to return the proceeds of the Checks. If a failure of consideration is sufficient to warrant a finding that a payee is not entitled to payment or must return payment already made, with more reason the defendant, who is neither the payee nor the person authorized by the payee, should be compelled to surrender the proceeds of the Checks received by it. Defendant does not have any title to the Checks; neither can it claim any derivative title to them. "III.Having Violated Its Warranty On Validity Of All Endorsements, Collecting Bank Cannot Deny
Liability To Those Who Relied On Its Warranty. In presenting the Checks for clearing and for payment, the defendant made an express guarantee on the validity of 'all prior endorsements'. Thus, stamped at the bank of the checks are the defendant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the checks. No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation. The principle of estoppel effectively prevents the defendant from denying liability for any damages sustained by the plaintiff which, relying upon an action or declaration of the defendant, paid on the Checks. The same principle of estoppel effectively prevents the defendant from denying the existence of the Checks. Whether the Checks have been issued for valuable considerations or not is of no serious moment to this case. These Checks have been made the subject of contracts of endorsement wherein the defendant made expressed warranties to induce payment by the drawer of the Checks; and the defendant cannot now refuse liability for breach of warranty as a consequence of such forged endorsements. The defendant has falsely warranted in favor of plaintiff the validity of all
endorsements and the genuineness of the checks in all respects what they purport to be. cdreo The damage that will result if judgment is not rendered for the plaintiff is irreparable. The collecting bank has privity with the depositor who is the principal culprit in this case. The defendant knows the depositor; her address and her history, Depositor is defendant's client. It has taken a risk on its depositor when it allowed her to collect on the crossed-checks. Having accepted the crossed checks from persons other than the payees, the defendant is guilty of negligence; the risk of wrongful payment has to be assumed by the defendant. On the matter of the award of the interest and attorney's fees, the Board of Directors finds no reason to reverse the decision of the Arbiter. The defendant's failure to reimburse the plaintiff has constrained the plaintiff to hire the services of counsel in order to protect its interest notwithstanding that plaintiff's claim is plainly valid, just and demandable. In addition, defendant's clear obligation is to reimburse plaintiff upon direct presentation of the checks; and it is undenied that up to this time the defendant has failed to make such reimbursement."
Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur. Footnotes 1.Decision, pp. 2-3, pp. 35-36, Rollo. These are the findings of facts in the said decision of the Philippine Clearing House Corporation (PCHC), board of directors in Arbitration Case No. 84-033, which are final and conclusive upon all parties in said arbitration dispute appealable only on question of law. (Section 13 PCHC-ARR, rules of procedure). 2.Phil. Veiriah Assurance Co. Inc. vs. The Honorable Intermediate Appellate Court, Sycwin Coating and Wires Inc. and Aminador Cacpal, Chief Deputy Sheriff of Manila D.R. 72005. 3.Loc Cham vs. Ocampo, supra. 4.Harker v. Anderson, 21 Wend. (N.Y.), 2 Sto. 502, Fed. Case No. 1,985; Merchants National Bank v. Bank, 10 Wall (U.S.) 647,19 L. Ed. 1008; Wood River Bank v. Bank, 36 Neb. 744 N.W. 239. 5.94 SCRA 357. 6.63 Phil. 711. 7.Republic Bank vs. Ebrada, 65 SCRA 680. 8.10 Saura Import & Export Co., 24 SCRA 974.
WHEREFORE, the petition is DISMISSED for lack of merit without pronouncement as to costs. The decision of the respondent court of 24 March 1986 and its order of 3 June 1986 are hereby declared to be immediately executory. SO ORDERED.
9.Supra. 10.Markel vs. United States, 62 F ed. 178. 11.Ang Tiong vs. Ting, L-16767, Feb. 28, 1968, 22 SCRA 713.
12.204 N.Y.S. 621 101 N.E. 871 Amn. Cas. 1914D, 462, L.R.A. 191D, 74. THIRD DIVISION [G.R. NO. 102383. N OVEMBER 26, 1992.] BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. THE HON. COURT OF APPEALS (SEVENTH JUDICIAL), HON. JUDGE REGIONAL TRIAL COURT OF MAKATI, BRANCH 59, CHINA BANKING CORP., AND PHILIPPINE CLEARING HOUSE CORPORATION, RESPONDENTS . Padilla Law Office for petitioner. William R. Veto for Phil. Clearing House Corp. Cruz, Durian, Agabin, Atienza, Alday and Tuason for China Banking Corp. SYLLABUS 1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; CHECKS; EFFECT OF REPRESENTING OR COLLECTING BANK'S GUARANTEE OF "ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS"; EFFECT OF FORGED ENDORSEMENTS OF PAYEES. We agreed with the following disquisition of the Regional Trial Court, to wit: "Anent petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC Board of Directors that: In presenting the checks for clearing and/for payment, the defendant made an express guarantee on the validity of 'all prior endorsements.' Thus, stamped at the back of
the checks are the defendant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the checks. No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation. The principle of estoppel, effectively prevents the defendant from denying liability for any damage sustained by the plaintiff which, relying upon an action or declaration of the defendant, paid on the checks. The same principle of estoppel effectively prevents the defendant from denying the existence of the checks (pp. 10-11, Decision, pp. 43-44, Rollo)" (at pp 194-195) We also ruled: "Apropos the matter of forgery in endorsements, this Court has presently succinctly emphasized that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. This is laid down in the case of PNB v. National City Bank (63 Phil. 1711) In another case, this court held that if the drawee-bank discovers that the signature of the payee was forged after it has paid the amount of the check to the holder thereof, it can recover the amount paid from the collecting bank. . . . The point that comes uppermost is whether the drawee bank wa negligent in failing to discover the alteration or the forgery. . . . The court reproduces with approval the following disquisition of the PCHC in its decision. 'III. Having Violated Its Warranty On Validity Of All Endorsements, Collective Bank Cannot Deny Liability To Those Who Relied On Its Warranty. . . . 'The damage that will result if judgment is not rendered for the plaintiff is irreparable. The collecting bank has privity with the depositor who is the principal culprit in this case. The defendant knows the depositor; her address and her history. Depositor is defendant's client. It has taken a risk on its depositor when it allowed her to collect on the crossed-checks. 'Having accepted the crossed checks from persons other than the payees, the defendant is guilty of negligence; the risk of wrongful payment has to be assumed by the defendant." As can be gleaned from the decision, one of the
main considerations in affirming the PCHC's decision was the finding that as between the drawee bank (Equitable Bank) and the representing or collecting bank (Banco de Oro) the latter was negligent and thus responsible for undue payment. 2. ID.; ID.; FORGERY; GENERAL RULE; FORGED SIGNATURE WHOLLY INOPERATIVE AND PAYMENT MADE THROUGH OR UNDER SUCH SIGNATURE INEFFECTUAL AND DOES NOT DISCHARGE INSTRUMENT; EXCEPTION; NEGLIGENCE OF PARTY INVOKING FORGERY A RECOGNIZED EXCEPTION TO GENERAL RULE. Section 23 of the Negotiable Instruments Law states: "When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative and no right to retain the instrument, or to give discharge therefore, or to enforce payment thereof, against any party thereto, can be acquired through or under such forged signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." There are two (2) parts of the provision. The first part states the general rule while the second part states the exception to the general rule. The general rule is to the effect that a forged signature is "wholly inoperative", and payment made "through or under such signature" is ineffectual or does not discharge the instrument. The exception to this rule is when the party relying on the forgery is "precluded from setting up the forgery or want of authority." In this jurisdiction we recognize negligence of the party invoking forgery as an exception to the general rule. (See Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation supra; Philippine National Bank v. Quimpo, 158 SCRA 582 [1988]; Philippine National Bank v. Court of Appeals, 25 SCRA 693 [1968]; Republic v. Equitable Banking Corporation, 10 SCRA 8 [1964]; National Bank v. National City Bank of New York, 63 Phil. 711 [1936]; San Carlos Milling Co. v. Bank of P.I., 59 Phil. 59 [1933]). In these cases we determined the rights and liabilities of the parties under a forged endorsement by looking at the legal effects of the relative negligence of the parties thereto. In the present petition the payee's names in the two (2) subject checks were forged. Following the
general rule, the checks are "wholly inoperative" and of no effect. However, the underlying circumstances of the case show that the general rule on forgery is not applicable. The issue as to who between the parties should bear the loss in the payment of the forged checks necessitates the determination of the rights and liabilities of the parties involved in the controversy in relation to the forged checks. The records show that petitioner BPI as drawee bank and respondent CBC as representing or collecting bank were both negligent resulting in the encashment of the forged checks. 3. ID.; ID.; ID.; ID.; ID.; ID.; IN CASE AT BAR, DEMANDS OF SUBSTANTIAL JUSTICE SATISFIED BY ALLOCATING AMOUNT OF LOSS BASED ON COMPARATIVE NEGLIGENCE OF BOTH BANKS. Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. For obvious reasons, the banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. In the present case, there is no question that the banks were negligent in the selection and supervision of their employees. The Arbitration Committee, the PCHC Board of Directors and the lower courts, however disagree in the evaluation of the degree of negligence of the banks. While the Arbitration Committee declared the negligence of respondent CBC graver, the PCHC Board of Directors and the lower courts declared that petitioner BPI's negligence was graver. To the extent that the degree of negligence is equated to the proximate cause of the loss, we rule that the issue as to whose negligence is graver is relevant. No matter how many justifications both banks present to avoid responsibility, they cannot erase the fact that they were both guilty in not exercising extraordinary diligence in the selection and supervision of their employees. . . . Both banks were negligent in the selection and supervision of their employees resulting in the encashment of the forged checks by an impostor. Both banks were not able to overcome, the presumption of negligence in the selection and supervision of their employees. It was the gross negligence of the
employees of both banks which resulted in the fraud and the subsequent loss. While it is true that petitioner BPI's negligence may have been the proximate cause of the loss, respondent CBC's negligence contributed equally to the success of the impostor in encashing the proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the Civil Code to the effect that while respondent CBC may recover its losses, such losses are subject to mitigation by the courts (See Phoenix Construction, Inc. v. Intermediate Appellate Court, 148 SCRA 353 [1987]). Considering the comparative negligence of the two (2) banks, we rule that the demands of substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs of the arbitration proceedings in the amount of P7,250.00 and the costs of litigation on a 60-40 ratio. Conformably with this ruling, no interests and attorney's fees can be awarded to either of the parties. 4. CIVIL LAW; QUASI-DELICTS; DOCTRINE OF LAST CLEAR CHANCE; DISCUSSED; CASE AT BAR. We ruled: "The question presented for decision is whether or not the defendant in maneuvering his car in the manner above described was guilty of negligence such as gives rise to a civil obligation to repair the damage done; and we are of the opinion that he is so liable. As the defendant started across the bridge, he had the right to assume that the horse and rider would pass over to the proper side; but as he moved toward the center of the bridge it was demonstrated to his eyes that this would not be done, and he must in a moment have perceived that it was too late for the horse to cross with safety in front of the moving vehicle. In the nature of things this change of situation occurred while the automobile was yet some distance away; and from this moment it was no longer within the power of the plaintiff to escape being run down by going to a place of greater safety. The control of the situation had then passed entirely to the defendant; and it was his duty to either to bring his car to an immediate stop or, seeing that there were no other persons on the bridge, to take the other side and pass sufficiently far away from the horse to avoid the danger of collision. Instead of doing this, the defendant ran straight on until he was almost upon the horse. He was,
we think, deceived into doing this by the fact that the horse had not yet exhibited fright. But in view of the known nature of horses, there was an appreciable risk that, if the animal in question was unacquainted with automobiles, he might get excited and jump under the conditions which here confronted him. When the defendant exposed the horse and rider to this danger he was, in our opinion, negligent in the eyes of the law. The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. . . . It goes without saying that the plaintiff himself was not free from fault, for he was guilty of antecedent negligence in planting himself on the wrong side of the road. But as we have already stated, the defendant was also negligent; and in such case the problem always is to discover which agent is immediately and directly responsible. It will be noted that the negligent acts of the two parties were not contemporaneous, since the negligence of the defendant succeeded the negligence of the plaintiff by an appreciable interval. Under these circumstances the law is that the person who has the last fair chance to avoid the impending harm and fails to do so is chargeable with the consequences, without reference to the prior negligence of the other party." Applying these principles, petitioner BPI's reliance on the doctrine of last clear chance to clear it from liability is not well-taken. CBC had no prior notice of the fraud perpetrated by BPI's employees on the pretermination of Eligia G. Fernando's money market placement. Moreover, Fernando is not a depositor of CBC. Hence, a comparison of the signature of Eligia G. Fernando with that of the impostor Eligia G. Fernando, which respondent CBC did, could not have resulted in the discovery of the fraud. Hence, unlike in the Picart case wherein the defendant, had he used reasonable care and caution, would have recognized the risk he was taking and would have foreseen harm to the horse and the plaintiff but did not, respondent CBC had no way to discover the fraud at all. In fact the records fail to show that respondent CBC had knowledge, actual or implied, of the fraud perpetrated by the impostor and the employees of BPI.
5. ID.; ID.; PROXIMATE CAUSE; DEFINED; DISCUSSED; CASE AT BAR. In the case of Vda. de Bataclan, et al. v. Medina (102 Phil. 181 [1957]), we had occasion to discuss the doctrine of proximate cause. There is no question that under the circumstances, the defendant carrier is liable. The only question is to what degree. The trial court was of the opinion that the proximate cause of the death of Bataclan was not the overturning of the bus, but rather the fire that burned the bus, including himself and his co-passengers who were unable to leave it; that at the time the fire started, Bataclan, though he must have suffered physical injuries, perhaps serious, was still alive and so damages were awarded, not for his death, but for the physical injuries suffered by him. We disagree. A satisfactory definition of proximate cause is found in Volume 38, pages 695-696 of American Jurisprudence, cited by plaintiffs-appellants in their brief. It is as follows: '. . . that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. And more comprehensively, 'the proximate legal cause is that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final event in the chain immediately effecting the injury as natural and probable result of the cause which first acted, under such circumstances that the person responsible for the first event should, as an ordinarily prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom.' It may be that ordinarily, when a passenger bus overturns, and pins down a passenger, merely causing him physical injuries, if through some event, unexpected and extraordinary, the overturned bus is set on fire, say, by lightning, or if some highwaymen after looting the vehicle sets it on fire, and the passenger is burned to death, one might still contend that the proximate cause of his death was the fire and not the overturning of the vehicle. But in the present case and under the circumstances
obtaining in the same, we do not hesitate to hold that the proximate cause of the death of Bataclan was the overturning of the bus, this for the reason that when the vehicle turned not only on its side but completely on its back, the leaking of the gasoline from the tank was not unnatural or unexpected; that the coming of the men with a lighted torch was in response to the call for help, made not only by the passengers, but most probably, by the driver and the conductor themselves, and that because it was very dark (about 2:30 in the morning), the rescuers had to carry a light with them; and coming as they did from a rural area where lanterns and flashlights were not available, they had to use a torch, the most handy and available; and what was more natural than that said rescuers should innocently approach the overturned vehicle to extend the aid and effect the rescue requested from them. In other words, the coming of the men with the torch was to be expected and was natural sequence of the overturning of the bus, the trapping of some of its passengers bus, the trapping of some of its passengers and the call for outside help." Again, applying the doctrine of proximate cause, petitioner BPI's contention that CBC alone should bear the loss must fail. The gap of one (1) day between the issuance and delivery of the checks bearing the impostor's name as payee and the impostor's negotiating the said forged checks by opening an account and depositing the same with respondent CBC is not controlling. It is not unnatural or unexpected that after taking the risk of impersonating Eligia G. Fernando with the connivance of BPI's employees, the impostor would complete her deception by encashing the forged checks. There is, therefore, greater reason to rule that the proximate cause of the payment of the forged checks by an impostor was due to the negligence of petitioner BPI. 6. ADMINISTRATIVE LAW; ADMINISTRATIVE RULES AND REGULATIONS; MUST CONFORM TO AND NOT GO BEYOND TERMS AND PROVISIONS OF BASIC LAW; CASE AT BAR. petitioner BPI's theory that the present clearing guarantee requirement imposed on the representing or collecting bank under the PCHC rules and regulations is independent of the Negotiable Instruments Law is not in order. Another reason why the petitioner's theory is uncalled for
is the fact that the Negotiable Instruments Law (Act No. 2031) applies to negotiable instruments as defined under section one thereof. Undeniably, the present case involves checks as defined by and under the coverage of the Negotiable Instruments Law. To affirm the theory of the petitioner would, therefore, violate the rule that rules and regulations implementing the law should conform to the law, otherwise the rules and regulations are null and void. Thus, we held in Shell Philippines, Inc. v. Central Bank of the Philippines (162 SCRA 628 [1988]): ". . . while it is true that under the same law the Central Bank was given the authority to promulgate rules and regulations to implement the statutory provision in question, we reiterate the principle that this authority is limited only to carrying into effect what the law being implemented provides. "In People v. Maceren (79 SCRA 450, 458 and 460), this Court ruled that: Administrative regulations adopted under legislative authority by a particular department must be in harmony with the provisions of the law, and should be for the sole purpose of carrying into effect its general provisions. By such regulations, of course, the law itself cannot be extended. (U.S. v. Tupasi Molina, supra). An administrative agency cannot amend an act of Congress (Santos v. Estenzo, 109 Phil. 419, 422; Teoxon v. Members of the Board of Administrators, L-25619, June 30, 1970, 33 SCRA 585; Manuel v. General Auditing Office, L-28952, December 29, 1971, 42 SCRA 660; Deluao v. Casteel, L-21906, August 29, 1969, 29 SCRA 350). The rule-making power must be confined to details for regulating the mode or proceeding to carry into effect the law as it has been enacted. The power cannot be extended to amending or expanding the statutory requirements or to embrace matters not covered by the statute. Rules that subvert the statute cannot be sanctioned. (University of Santo Tomas v. Board of Tax Appeals, 93 Phil. 376, 382, citing 12 C.J. 845-46. As to invalid regulations, see Collector of Internal Revenue v. Villaflor, 69 Phil. 319; Wise & Co v. Meer, 78 Phil. 655, 676, Del Mar v. Phil. Veterans Administration, L27299, June 27, 1973, 51 SCRA 340, 349). . . . ". . . The rule or regulation should be within the scope of the statutory authority granted by the legislature to the administrative agency (Davis, Administrative Law, p. 194, 197, cited in Victorias Milling Co., Inc. v. Social Security Commission, 114 Phil. 555, 558). In case of discrepancy between the
basic law and a rule or regulation issued to implement said law the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law (People v. Lim, 108 Phil. 1091)." (at pp. 633-634).
DECISION
GUTIERREZ, JR., J p: The present petition asks us to set aside the decision and resolution of the Court of Appeals in CA-G.R. SP No. 24306 which affirmed the earlier decision of the Regional Trial Court of Makati, Branch 59 in Civil Case No. 14911 entitled Bank of the Philippine Islands v. China Banking Corporation and the Philippine Clearing House Corporation, the dispositive portion of which reads: "WHEREFORE, premises considered, judgment is hereby rendered dismissing petitioner-appellant's (BPI's) appeal and affirming the appealed order of August 26, 1986 (Annex B of BPI's Petition) with modification as follows: 1. Ordering the petitioner-appellant (BPI) to pay respondent-appellee (CBC): (a) the amount of One Million Two Hundred Six Thousand, Six Hundred Seven Pesos and Fifty Eight Centavos (P1,206,607.58) with interest at the legal rate of twelve percent (12%) per annum starting August 26, 1986, the date when the order of the PCHC Board of Directors was issued until the full amount is finally paid; and
(b) the amount of P150,000.00 representing attorney's fees; 2. BPI shall also bear 75% or P5,437.50 and CBC, 25% or P1,812.50 of the cost of the arbitration proceedings amounting to P7,250.00; 3. The ownership of respondent-appellee (CBC) of the other sum of One Million Two Hundred Six Thousand Six Hundred Seven Pesos and Fifty Eight Centavos (P1,206,607.58) previously credited to its clearing account on August 12, 1983 per PCHC Stockholders' Resolution No. 6083 dated April 6, 1983, is hereby confirmed. 4. The PCHC is hereby directed to immediately debit the clearing account of BPI the sum of One Million Two Hundred Six Thousand Six Hundred Seven Pesos and Fifty Eight Centavos (P1,206,607.58) together with its interest as decreed in paragraph 1(a) herein above stated and credit the same to the clearing account of CBC; 5. The PCHC's counterclaim and crossclaim are dismissed for lack of merit; and 6. With costs against the petitioner-appellant." (Rollo, pp. 161-162) The controversy in this case arose from the following facts as found by the Arbitration Committee of respondent Philippine Clearing House Corporation in Arbicom Case No. 83-029 entitled Bank of the Philippine Islands v. China Banking Corporation: "The story underlying this case began in the afternoon of October 9, 1981 with a phone call to BPI's Money
Market Department by a woman who identified herself as Eligia G. Fernando who had a money market placement as evidenced by a promissory note with a maturity date of November 11, 1981 and a maturity value of P2,462,243.19. The caller wanted to preterminate the placement, but Reginaldo Eustaquio, Dealer Trainee in BPI's Money Market Department, who received the call and who happened to be alone in the trading room at the time, told her 'trading time' was over for the day, which was a Friday, and suggested that she call again the following week. The promissory note that the caller wanted to preterminate was a roll-over of an earlier 50-day money market placement that had matured on September 24, 1981.
Later that afternoon, Eustaquio conveyed the request for pretermination to the officer who before had handled Eligia G. Fernando's account, Penelope Bulan, but Eustaquio was left to attend to the pretermination process. The next Monday, October 12, 1981, in the morning, the caller of the previous Friday followed up with Eustaquio, merely by phone again, on the pretermination of the placement. Although not familiar with the voice of the real Eligia G. Fernando, Eustaquio 'made certain' that the caller was the real Eligia G. Fernando by 'verifying' that the details the caller gave about the placement tallied with the details in 'the ledger/folder' of the account. Eustaquio knew the real Eligia G. Fernando to be the Treasurer of Philippine American Life Insurance Company (Philamlife) since he was handling Philamlife's corporate money market account But neither
Eustaquio nor Bulan who originally handled Fernando's account, nor anybody else at BPI, bothered to call up Fernando at her Philamlife office to verify the request for pretermination. Informed that the placement would yield less than the maturity value because of its pretermination, the caller insisted on the pretermination just the same and asked that two checks be issued for the proceeds, one for P1,800,000.00 and the second for the balance, and that the checks be delivered to her office at Philamlife. Eustaquio, thus, proceeded to prepare the 'purchase order slip' for the requested pretermination as required by office procedure, and from his desk, the papers, following the processing route, passed through the position analyst, securities clerk, verifier clerk and documentation clerk, before the two cashier's checks, nos. 021759 and 021760 for P1,800,000.00 and P613,215.16, respectively, both payable to Eligia G. Fernando, covering the preterminated placement, were prepared. The two cashier's checks, together with the papers consisting of the purchase order slip indicating that the money market placement was to be preterminated and the promissory note (no. 35623) to be preterminated, were sent to Gerlanda E. de Castro and Celestino Sampiton, Jr., Manager and Administrative Assistant, respectively, in BPI's Treasury Operations Department, both authorized signatories for BPI, who signed the two checks that very morning. Having been signed, the checks now went to the dispatcher for delivery.
Later in the same morning, however, the same caller changed the delivery instructions; instead of the checks being delivered to her office at Philamlife, she would herself pick up the checks or send her niece, Rosemarie Fernando, to pick them up. Eustaquio then told her that if it were her niece who was going to get the checks, her niece would have to bring a written authorization from her to pick up the checks. This telephone conversation ended with the caller's statement that 'definitely' it would be her niece, Rosemarie Fernando, who would pick up the checks. Thus, Eustaquio had to hurriedly go to the dispatcher, Bernardo Laderas, to tell him of the new delivery instructions for the checks; in fact, he changed the delivery instruction on the purchase order slip, writing thereon 'Rosemarie Fernando release only with authority to pick up.' It was, in fact, Rosemarie Fernando who got the two checks from the dispatcher, as shown by the delivery receipt. Actually, as it turned out, the same impersonated both Eligia G. Fernando and Rosemarie Fernando. Although the checks represented the termination proceeds of Eligia G. Fernando's placement, not just a roll-over of the placement, the dispatcher failed to get or to require the surrender of the promissory note evidencing the placement. There is also no showing that Eligia G. Fernando's purported signature on the letter requesting the pretermination and the letter authorizing Rosemarie Fernando to pick up the two checks, both of which letters were presumably handed to the dispatcher by Rosemarie Fernando, was compared or verified with Eligia G. Fernando's signature in BPI's file. Such purported nature has been established to be forged although it has a 'close similarity' to the real signature
of Eligia G. Fernando (TSN of January 15, 1985, pp. 24 and 26). The story's scene now shifted when, in the afternoon of October 13, 1981, a woman who represented herself to be Eligia G. Fernando applied at CBC's Head Office for the opening of a current account. She was accompanied and introduced to Emily Sylianco Cuaso, Cash Supervisor, by Antonio Concepcion whom Cuaso knew to have opened, earlier that year, an account upon the instruction of Valentin Co, a lone-standing 'valued client' of CBC. What Cuaso indicated in the application form, however, was that the new client was introduced by Valentin Co. and with her initials on the form signifying her approval, she referred the application to the New Accounts Section for processing. As finally processed, the application form shows the signature of 'Eligia G. Fernando', 'her' date of birth, sex, civil status, nationality, occupation ('business woman'), tax account number, and initial deposit of P10,000.00. The final approval of the new current account to indicated on the application form by the initials of Regina G. Dy, Cashier, who did not interview the new client but affixed her initials on the application form after reviewing it. The new current account was given the number: 26310-3. The following day, October 14, 1981, the woman holding herself out as Eligia G. Fernando deposited the two checks in controversy with Current Account No. 126310-3. Her endorsement on the two checks was found to conform with the depositor's specimen signature. CBC's guaranty of prior endorsements and/or lack of endorsement was then stamped on the
two checks, which CBC forthwith sent to clearing and which BPI cleared on the same day. Two days after, withdrawals began on Current Account No. 26310-3: On October 16, 1981, by means of Check No. 240005 dated the same day for P1,000,000.00, payable to 'cash', which the woman holding herself out as Eligia G. Fernando encashed over the counter, and Check No. 240003 dated October 15, 1981 for P48,500.00, payable to 'cash' which was received through clearing from PNB Pasay Branch; on October 19, 1981, by means of Check No. 240006 dated the same day for P1,000,000.00, payable to 'cash,' which the woman identifying herself as Eligia G. Fernando encashed over the counter; on October 22, 1981, by means of Check No. 240007 dated the same day for P370,000.00, payable to 'cash' which the woman herself also encashed over the counter; and on November 4, 1981, by means of Check No. 240001 dated November 3, 1981 for P4,100.00, payable to 'cash,' which was received through clearing from Far East Bank. All these withdrawals were allowed on the basis of the verification of the drawer's signature with the specimen signature on file and the sufficiency of the funds in the account. However, the balance shown in the computerized teller terminal when a withdrawal is serviced at the counter, unlike the ledger or usual statement prepared at month-end, does not show the account's historical data such as the account's opening date, the amounts and dates of deposits and withdrawals. The last withdrawal on November 4, 1981 left Current Account No. 26310-3 with a balance of only P571.61.
The day of reckoning came on November 11, 1981, the maturity date of Eligia G. Fernando's money market placement with BPI, when the real Eligia G. Fernando went to BPI for the roll-over of her placement. She disclaimed having preterminated her placement on October 12, 1981. She executed an affidavit stating that while she was the payee of the two checks in controversy, she never received nor endorsed them and that her purported signature on the back of the checks was not hers but forged. With her surrender of the original of the promissory note (no. 35623 with maturity value of P2,462,243.19) evidencing the placement which matured that day, BPI issued her a new promissory note (no. 40314 with maturity date of December 23, 1981 and maturity value of P2,500,266.77) to evidence a rollover of the placement. On November 12, 1981, supported by Eligia G. Fernando's affidavit, BPI returned the two checks in controversy to CBC for the reason 'Payee's endorsement forged'. A ping-pong started when CBC, in turn, returned the checks for reason 'Beyond Clearing Time', and the stoppage of this ping-pong, as we mentioned at the outset, prompted the filing of this case. Investigation of the fraud by the Presidential Security Command led to the filing of criminal actions for 'Estafa Thru Falsification of Commercial Documents' against four employees of BPI, namely Quirino Victorio, Virgilio Gayon, Bernardo Laderas and Jorge Atayan, and the woman who impersonated Eligia G. Fernando, Susan Lopez San Juan. Victorio and Gayon were both bookkeepers in BPI's Money Market
Operations Department, Laderas was a dispatcher in the same department. . . ." (Rollo, pp. 74-79). The Arbitration Committee ruled in favor of petitioner BPI. The dispositive portion of the decision reads: cdll "WHEREFORE, we adjudged in favor of the Bank of the Philippine Islands and hereby order China Banking Corporation to pay with former the amount of P1,206,607.58 with interest thereon at 12% per annum from August 12, 1983, or the date when PCHC, pursuant to its procedure for compulsory arbitration of the ping-pong checks under Stockholders' Resolution No. 6-83 was implemented, up to the date of actual payment. Costs of suit in the total amount of P7,250.00 are to be assessed the litigant banks in the following proportion: a) Plaintiff BPI 25% P1,812.50 b) Defendant China 75% P5,437.50 Total Assessment P7,250.00 conformably with PCHC Resolution Nos. 46-83 dated October 25, 1983 and 4-85 dated February 25, 1985. The PCHC is hereby directed to effect the corresponding entries to the litigant banks' clearing accounts in accordance with the foregoing decision " (Rollo, pp. 97-98).
However, upon motion for reconsideration filed by respondent CBC, the Board of Directors of the PCHC reversed the Arbitration Committee's decision in its Order, the dispositive portion of which reads: "WHEREFORE, the Board hereby reconsiders the Decision of the Arbitration Committee dated March 24, 1986 in Arbicom Case No. 183-029 and in lieu thereof, one is rendered modifying the decision so that the Complaint of BPI is dismissed, and on the Counterclaim of CBC, BPI is sentenced to pay CBC the sum of P1,206,607.58. In view of the facts, no interest nor attorney's fees are awarded BPI shall also bear 75% or P5,437.50 and CBC, 25% or P1,812.50 of the cost of the Arbitration proceedings amounting to P7,250.00. The PCHC is hereby directed to debit the clearing account of the BPI the sum of P1,206,607.58 and credit the same to that of CBC. The cost of Arbitration proceedings are to be debited from the accounts of the parties in the proportion above stated." (Rollo, pp. 112-113) BPI then filed a petition for review of the abovestated order with the Regional Trial Court of Makati. The trial court dismissed the petition but modified the order as can be gleaned from the dispositive portion of its decision quoted earlier. Not satisfied with the trial court's decision petitioner BPI filed with us a petition for review on certiorari under Rule 45 of the Rules of Court. The case was docketed as G.R. No. 96376. However, in a Resolution dated February 6, 1991, we referred the case to the Court of Appeals for proper determination and disposition. The appellate court affirmed the trial court's decision.
Hence, this petition. In a resolution dated May 20, 1992 we gave due course to the petition. Petitioner BPI now asseverates: I THE DECISION AND RESOLUTION OF THE RESPONDENT COURT LEAVES THE UNDESIRABLE RESULT OF RENDERING NUGATORY THE VERY PURPOSE FOR THE UNIFORM BANKING PRACTICE OF REQUIRING THE CLEARING GUARANTEE OF COLLECTING BANKS. II CONTRARY TO THE RULING OF THE RESPONDENT COURT, THE PROXIMATE CAUSE FOR THE LOSS OF THE PROCEEDS OF THE TWO CHECKS IN QUESTION WAS THE NEGLIGENCE OF THE EMPLOYEES OF CBC AND NOT BPI; CONSEQUENTLY, EVEN UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW, BPI WAS NOT PRECLUDED FROM RAISING THE DEFENSE OF FORGERY. III THE RESPONDENT COURT COMMITTED REVERSIBLE ERROR IN FAILING TO APPRECIATE THE FACT THAT CBC HAD THE "LAST CLEAR CHANCE" OF AVOIDING THE LOSS OCCASIONED BY THE FRAUDULENT
ACTS INVOLVED IN THE INSTANT CASE " (Rollo, p. 24) LLphil The main issues raised in the assignment of errors are: When a bank (in this case CBC) presents checks for clearing and payment, what is the extent of the bank's warranty of the validity of all prior endorsements stamped at the back of the checks? In the event that the payee's signature is forged, may the drawer/drawee bank (in this case BPI) claim reimbursement from the collecting bank [CBC]) which earlier paid the proceeds of the checks after the same checks were cleared by petitioner BPI through the PCHC? Anent the first issue, petitioner BPI contends that respondent CBC's clear warranty that "all prior endorsements and/or lack of endorsements guaranteed" stamped at the back of the checks was an unrestrictive clearing guaranty that all prior endorsements in the checks are genuine. Under this premise petitioner BPI asserts that the presenting or collecting bank, respondent CBC, had an unquestioned liability when it turned out that the payee's signature on the checks were forged. With these circumstances, petitioner BPI maintains that considerations of relative negligence becomes totally irrelevant. In sum, petitioner BPI theorizes that the Negotiable Instruments Law, specifically Section 23 thereof is not applicable in the light of the absolute liability of the representing or collecting bank as regards forged endorsements in consonance with the clearing guarantee requirement imposed upon the presenting or collecting banks "as it is worded today." Petitioner BPI first returned to CBC the two (2) checks on the ground that "Payee's endorsement (was) forged" an November 12, 1981. At that time the clearing regulation then in force under PCHC's Clearing House Rules and Regulations as revised on September 19, 1980 provides:
"Items which have been the subject of material alteration or items bearing a forged endorsement when such endorsement is necessary for negotiation shall be returned within twenty four (24) hours after discovery of the alteration or the forgery, but in no event beyond the period prescribed by law for the filing of a legal action by the returning bank/branch institution or entity against the bank/branch, institution or entity sending the same." (Section 23) In the case of Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation (157 SCRA 188 [1988] the clearing regulation (this is the present clearing regulation) at the time the parties' dispute occurred was as follows: "SECTION 21. . . . . Items which have been the subject of material alteration or items bearing forged endorsement when such endorsement is necessary for negotiation shall be returned by direct presentation or demand to the Presenting Bank and not through the regular clearing house facilities within the period prescribed by law for the filing of a legal action by the returning bank/branch, institution or entity sending the same." It is to be noted that the above-cited clearing regulations are substantially the same in that it allows a return of a check "bearing forged endorsement when such endorsement is necessary for negotiation" even beyond the next regular clearing although not beyond the prescriptive period "for the filing of a legal action by the returning bank." Bearing in mind this similarity in the clearing regulation in force at the time the forged checks in the present case and the Banco de Oro case were dishonored and returned to the presenting or collecting banks, we
can be guided by the principles enunciated in the Banco de Oro case on the relevance of negligence of the drawee vis-a-vis the forged checks. The facts in the Banco de Oro case are as follows: Sometime in March, April, May and August 1983 Equitable Banking Corporation through its Visa Card Department drew six (6) crossed Manager's check with the total amount of Forty Five Thousand Nine Hundred and Eighty Two Pesos and Twenty Three Centavos (P45,982.23) and payable to certain member establishments of Visa Card. Later, the checks were deposited with Banco de Oro to the credit of its depositor, a certain Aida Trencio. Following normal procedures, and after stamping at the back of the checks the endorsements: "All prior and/or lack of endorsements guaranteed" Banco de Oro sent the checks for clearing through the PCHC. Accordingly, Equitable Banking Corporation paid the checks; its clearing amount was debited for the value of the checks and Banco de Oro's clearing account was credited for the same amount. When Equitable Banking Corporation discovered that the endorsements at the back of the checks and purporting to be that of the payees were forged it presented the checks directly to Banco de Oro for reimbursement Banco de Oro refused to reimburse Equitable Banking Corporation for the value of the checks. Equitable Banking Corporation then filed a complaint with the Arbitration Committee of the PCHC. The Arbiter, Atty. Ceasar Querubin, ruled in favor of Equitable Banking Corporation. The Board of Directors of the PCHC affirmed the Arbiter's decision. A petition for review of the decision filed by Banco de Oro with the Regional Trial Court of Quezon City was dismissed. The decision of the PCHC was affirmed in toto. One of the main issues threshed out in this case centered on the effect of Banco de Oro's (representing or collecting bank) guarantee of "all prior endorsements and/or lack of endorsements" at the back of the checks. A corollary issue was the effect of the forged endorsements of the payees which were later discovered by the Equitable Banking Corporation (drawee bank) resulting in the latter's claim for
reimbursement of the value of checks after it paid the proceeds of the checks. LLjur We agreed with the following disquisition of the Regional Trial Court, to wit: "Anent petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC Board of Directors that: In presenting the checks for clearing and/for payment, the defendant made an express guarantee on the validity of 'all prior endorsements.' Thus, stamped at the back of the checks are the defendant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the checks. No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation. The principle of estoppel, effectively prevents the defendant from denying liability for any damage sustained by the plaintiff which, relying upon an action or declaration of the defendant, paid on the checks. The same principle of estoppel effectively prevents the defendant from denying the existence of the checks (pp. 10-11, Decision, pp. 43-44, Rollo)" (at pp 194-195) We also ruled:
"Apropos the matter of forgery in endorsements, this Court has presently succinctly emphasized that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. This is laid down in the case of PNB v. National City Bank (63 Phil. 1711) In another case, this court held that if the drawee-bank discovers that the signature of the payee was forged after it has paid the amount of the check to the holder thereof, it can recover the amount paid from the collecting bank.
'The damage that will result if judgment is not rendered for the plaintiff is irreparable. The collecting bank has privity with the depositor who is the principal culprit in this case. The defendant knows the depositor; her address and her history. Depositor is defendant's client. It has taken a risk on its depositor when it allowed her to collect on the crossed-checks. 'Having accepted the crossed checks from persons other than the payees, the defendant is guilty of negligence; the risk of wrongful payment has to be assumed by the defendant."(Emphasis supplied, at pp. 198-202). As can be gleaned from the decision, one of the main considerations in affirming the PCHC's decision was the finding that as between the drawee bank (Equitable Bank) and the representing or collecting bank (Banco de Oro) the latter was negligent and thus responsible for undue payment. Parenthetically, petitioner BPI's theory that the present clearing guarantee requirement imposed on the representing or collecting bank under the PCHC rules and regulations is independent of the Negotiable Instruments Law is not in order. Another reason why the petitioner's theory is uncalled for is the fact that the Negotiable Instruments Law (Act No. 2031) applies to negotiable instruments as defined under section one thereof. Undeniably, the present case involves checks as defined by and under the coverage of the Negotiable Instruments Law. To affirm the theory of the petitioner would, therefore, violate the rule that rules and regulations implementing the law should conform to the law, otherwise the rules and regulations are null and void. Thus, we held in Shell Philippines, Inc. v. Central Bank of the Philippines (162 SCRA 628 [1988]):
xxx xxx xxx The point that comes uppermost is whether the drawee bank wa negligent in failing to discover the alteration or the forgery. (Emphasis supplied) xxx xxx xxx The court reproduces with approval the following disquisition of the PCHC in its decision. xxx xxx xxx 'III. Having Violated Its Warranty On Validity Of All Endorsements, Collective Bank Cannot Deny Liability To Those Who Relied On Its Warranty. xxx xxx xxx
". . . while it is true that under the same law the Central Bank was given the authority to promulgate rules and regulations to implement the statutory provision in question, we reiterate the principle that this authority is limited only to carrying into effect what the law being implemented provides. "In People v. Maceren (79 SCRA 450, 458 and 460), this Court ruled that: Administrative regulations adopted under legislative authority by a particular department must be in harmony with the provisions of the law, and should be for the sole purpose of carrying into effect its general provisions. By such regulations, of course, the law itself cannot be extended. (U.S. v. Tupasi Molina, supra). An administrative agency cannot amend an act of Congress (Santos v. Estenzo, 109 Phil. 419, 422; Teoxon v. Members of the Board of Administrators, L-25619, June 30, 1970, 33 SCRA 585; Manuel v. General Auditing Office, L-28952, December 29, 1971, 42 SCRA 660; Deluao v. Casteel, L-21906, August 29, 1969, 29 SCRA 350). The rule-making power must be confined to details for regulating the mode or proceeding to carry into effect the law as it has been enacted. The power cannot be extended to amending or expanding the statutory requirements or to embrace matters not covered by the statute. Rules that subvert the statute cannot be sanctioned. (University of Santo Tomas v. Board of Tax Appeals, 93 Phil. 376, 382, citing 12 C.J. 845-46. As to invalid regulations, see Collector of Internal Revenue v. Villaflor, 69 Phil. 319; Wise & Co v. Meer, 78 Phil. 655, 676, Del Mar v. Phil.
Veterans Administration, L-27299, June 27, 1973, 51 SCRA 340, 349). xxx xxx xxx ". . . The rule or regulation should be within the scope of the statutory authority granted by the legislature to the administrative agency (Davis, Administrative Law, p. 194, 197, cited in Victorias Milling Co., Inc. v. Social Security Commission, 114 Phil. 555, 558). In case of discrepancy between the basic law and a rule or regulation issued to implement said law the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law (People v. Lim, 108 Phil. 1091)." (at pp. 633-634). Section 23 of the Negotiable Instruments Law states: "When 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 discharge therefore, or to enforce payment thereof, against any party thereto, can be acquired through or under such forged signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." There are two (2) parts of the provision. The first part states the general rule while the second part states the exception to the general rule. The general rule is to the effect that a forged signature is "wholly inoperative", and payment made "through or under such signature" is ineffectual or does not discharge the instrument. The exception to this rule is when the party relying on the forgery is "precluded from setting
up the forgery or want of authority." In this jurisdiction we recognize negligence of the party invoking forgery as an exception to the general rule. (See Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation supra; Philippine National Bank v. Quimpo, 158 SCRA 582 [1988]; Philippine National Bank v. Court of Appeals, 25 SCRA 693 [1968]; Republic v. Equitable Banking Corporation, 10 SCRA 8 [1964]; National Bank v. National City Bank of New York, 63 Phil. 711 [1936]; San Carlos Milling Co. v. Bank of P.I., 59 Phil. 59 [1933]). In these cases we determined the rights and liabilities of the parties under a forged endorsement by looking at the legal effects of the relative negligence of the parties thereto. In the present petition the payee's names in the two (2) subject checks were forged. Following the general rule, the checks are "wholly inoperative" and of no effect. However, the underlying circumstances of the case show that the general rule on forgery is not applicable. The issue as to who between the parties should bear the loss in the payment of the forged checks necessitates the determination of the rights and liabilities of the parties involved in the controversy in relation to the forged checks. The records show that petitioner BPI as drawee bank and respondent CBC as representing or collecting bank were both negligent resulting in the encashment of the forged checks. The Arbitration Committee in its decision analyzed the negligence of the employees of petitioner BPI involved in the processing of the pretermination of Eligia G. Fernando's money market placement and in the issuance and delivery of the subject checks in this wise: "a) The impostor could have been readily unmasked by a mere telephone call, which nobody in BPI bothered to make to Eligia G. Fernando, a vicepresident of Philamlife (Annex C, p. 13).
b) It is rather curious, too, that the officer who used to handle Eligia G. Fernando's account did not do anything about the account's pre-termination (Ibid, p. 13). c) Again no verification appears to have been made by (sic) Eligia G. Fernando's purported signature on the letter requesting the pre-termination and the letter authorizing her niece to pick-up the checks, yet, her signature was in BPI's file (Ibid , p. 13). d) Another step that could have foiled the fraud, but which BPI neglected to take, was requiring before the two checks in controversy were delivered, the surrender of the promissory note evidencing the money market placement that was supposedly preterminated." (Rollo, p. 13) The Arbitration Committee, however, belittled petitioner BPI's negligence compared to that of respondent CBC which it declared as graver and the proximate cause of the loss of the subject checks to the impostor who impersonated Eligia G. Fernando. Petitioner BPI now insists on the adoption of the Arbitration Committee's evaluation of the negligence of both parties, to wit: "a) But what about the lapses of BPI's employees who processed the pretermination of Eligia G. Fernando's placement and issued the checks? We do not think it was a serious lapse not to confirm the telephone request for pretermination purportedly made by Eligia G. Fernando, considering that it is common knowledge that business in the money market is done mostly by telephone. Then, too, the initial request of the caller was for the two checks representing the pretermination proceeds to be delivered to 'her' office, meaning Eligia G. Fernando's office at Philamlife,
this clever ruse must have put off guard the employee preparing the 'purchase order slip', enough at least for him to do away with having to call Eligia G. Fernando at her office (Annex C at p. 17) b) We also do not think it unusual that Penelope Bulan, who used to handle Eligia G. Fernando's account, should do nothing about the request for pretermination and leave it to Eustaquio to process the pretermination In a bank the size of BPI, it would be quite normal for an officer to take over from another the handling of an account. (Ibid, p. 17) c) The failure to verify or compare Eligia G. Fernando's purported signature on the letter requesting the pretermination and the letter authorizing the pick-up of the checks in controversy with her signature in BPI's file showed lack of care and prudence required by the circumstances, although it is doubtful that such comparison would have disclosed the deception considering the 'close similarity' between her purported signature and her signature in BPI's file. (Ibid., p. 17)
such failure contributed to the consummation of the fraud. (Ibid., pp. 17-18) The Arbitration Committee Decision's conclusion was expressed thus 'Except for Laderas, not one of the BPI personnel tasked with the pretermination of Eligia G. Fernando's placement and the issuance of the pretermination checks colluded in the fraud, although there may have been lapses of negligence on their part which we shall discuss later. The secreting out of BPI of Fernando's specimen signature, which, as admitted by the impostor herself (Exhibit E-2; page 5), helped her in forging Fernando's signature was no doubt, an 'inside job' but done by any of the four employees colluding in the fraud, not by the personnel directly charged with the custody of Fernando's records.' (Annex C, p. 15) With respect to the negligence of the CBC employees in the payment of the two (2) BPI cashier's checks involved in this case, the Arbitration Committee's Decision made incontrovertible findings undisputed in the statement of facts found in the Court of Appeals' decision of 8 August 1991, the Regional Trial Court decision of 28 November 1990 and the PCHC Board of Directors' Order of 26 August 1986 (Annexes A, E, D, respectively). These findings point to negligence of the CBC employees which led to: (a) the opening of the impostor's current account in the name of Eligia G. Fernando; (b) the deposit to said account of the two (2) checks in controversy and (c) the withdrawal of their proceeds from said account.
d) A significant lapse was, however, committed when the two checks in controversy were delivered without requiring the surrender of the promissory note evidencing the placement that was supposedly preterminated. Although, as we already said, it is hard to determine whether the failure to require the surrender of the promissory note was a deliberate act of Laderas, the dispatcher, or simply because the 'purchase order slip' note, (sic) the fact remains that
The Arbitration Committee found that 1. Since the impostor presented only her tax account number as a means of identification, we feel that Emily Sylianco Cuaso, Cash Supervisor, approved the opening of her current account in the name of Eligia G. Fernando on the strength of the introduction of Antonio Concepcion who had himself opened an account earlier that year. That Mrs. Cuaso was not comfortable with the introduction of Antonio Concepcion who had himself opened an account earlier that year. That Mrs. Cuaso was not comfortable with the introduction of the new depositor by Concepcion is betrayed by the fact that she made it appear in the application form that the new depositor was introduced by Valentin Co a long-standing valued client of CBC, who had introduced Concepcion when he opened his account. We find this misrepresentation significant because when she reviewed the application from she assumed that the new client was introduced by Valentin Co as indicated in the application form (tsn of March 19, 1985, page 13). Thus we find that the impostor was able to open with CBC's current account in the name of Eligia G. Fernando due to the negligence, if not misrepresentation, of its Cash Supervisor, (Annex C, p. 18). 2. Even with negligence attending the impostor's opening of a current account, her encashment of the two checks in controversy could still have been prevented if only the care and diligence demanded by the circumstances
were exercised. On October 14, 1981, just a day after she opened her account, the impostor deposited the two checks which had an aggregate value of P2,413,215.16, which was grossly disproportionate to her initial deposit of P10,000. The very date of both checks, October 12, 1981, should have tipped off the real purpose of the opening of the account on October 13, 1981. But what surely can be characterized only as abandonment of caution was allowing the withdrawal of the checks' proceeds which started on October 16, 1981 only two days after the two checks were deposited; by October 22, 1981, the account had been emptied of the checks' proceeds. (Annex C, p. 19). 3. We can not accept CBC's contention that 'big withdrawals' are 'usual business' with it. Huge withdrawals might be a matter of course with an established account but not for a newly opened account, especially since the supposed check proceeds being withdrawn were grossly disproportionate to the initial cash deposit.' (Annex C, p. 19) As intimated earlier, the foregoing findings of fact were not materially disputed either by the respondent PCHC Board of Directors or by the respondent courts (compare statement of facts of respondent court as reproduced in pp. 9-11 of this petition). Having seen the negligence of the employees of both Banks, the relevant question is: which negligence was graver. The Arbitration Committee's Decision found and concluded thus
'Since there were lapses by both BPI and CBC, the question is: whose negligence was the graver and which was the proximate cause of the loss? Even viewing BPI's lapses in the worst light, it can be said that while its negligence may have introduced the two checks in controversy into the commercial stream, CBC's lack of care in approving the opening with it of the impostor's current account, and its allowing the withdrawals of the checks' proceeds, the aggregate value of which was grossly disproportionate to the initial cash deposit, so soon after such checks were deposited, caused the 'payment' of the checks. Being closest to the event of loss, therefore, CBC's negligence must be held to be the proximate cause of the loss.'" (Annex C, pp. 19-20) (Rollo, pp. 38-41) While it is true that the PCHC Board of Directors, and the lower courts did not dispute the findings of facts of the Arbitration Committee, the PCHC Board of Directors evaluated the negligence of the parties, to wit: "The Board finds the ruling that the negligence of the employees of CBC is graver than that of the BPI not warranted by the facts because: 1. The acts and omissions of which BPI employees are guilty are not only negligent but criminal as found by the decision. 2. The act of BPI's dealer-trainee Eustaquio of disclosing information about the money market placement of its client over the telephone is a violation, if not of Republic Act 1405. of Sec. 87 (a)
of the General Banking Act which penalizes any officer employee or agent of any banking institution who discloses to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individual, corporations. or any other entity; and the bland excuse given by the decision that 'business in the money market is done mostly by the telephone' cannot be accepted nor tolerated for it is an elementary rule of law that no custom or usage of business can override what a law specifically provides. (Ang Tek Lian v. CA, 87 Phil. 383). 3. The failure of BPI employees to verify or compare Eligia G. Fernando's purported signature on the letter requesting for pre-termination and the letter authorizing the pick-up of the checks in controversy with the signatures on file is not even justified but admitted in the decision as showing lack of care and prudence required by the circumstances. The conjectural excuse made in the decision that 'it is doubtful that such comparison would have disclosed the deception' does not give an excuse for the omission by BPI employees of the act of verifying the signature,a duty which is the basic requirement of all acts in the bank. From the very first time an employee enters the services of a bank up to the time he becomes the highest officer thereof, the cautionary rule is drilled on him to always be sure that when he acts on the basis of any signature presented before him, the signature is to be verified as genuine and that if the bank acts on the basis of a forgery of such signature, the bank will be held liable. There can be no excuse therefore for such an omission on the part of BPI employees.
4. The decision admits that: 'A significant lapse was, however, committed when the two checks in controversy were delivered without requiring the surrender of the promissory note evidencing the placement that was supposedly preterminated.' This omission of the BPI to require the surrender of the promissory notes evidencing the placement is justified by the decision by saying that Sec 74 of the Negotiable Instruments Law is not violated by this omission of the BPI employees because said provision is intended for the benefit of the person paying (in this case the BPI) so that since the omission to surrender having been waived by BPI, so the non-surrender does not invalidate the payment. The fallacy of this argument is that the issue in this case is: whether or not such non-surrender is a necessary ingredient in the cause of the success of the fraud and not whether or not the payment was valid. This excuse may perhaps be acceptable if the omission did not cause damage to any other person. In this case, however, it did cause tremendous damage. Moreover, this statement obviously overlooks the provision in Art 1240 of the Civil Code requiring the payor (which in this case is the BPI) to be sure he pays to the right person and as Art 1242 states, he can claim good faith in paying to the right person only if he pays to the person in possession of the credit (which in this case is the promissory note evidencing the money market placement). Clearly therefore, the excuse given in the decision for the non-surrender of this promissory note evidencing the money market placement cannot be accepted.
xxx xxx xxx "The decision, however, discusses in detail the negligent acts of the CBC in its lapses or certain requirements in the opening of the account and in allowing withdrawals against the deposited checks soon after the deposit thereof. As stated by the decision however, in computerized banks the history of the account is not shown in the computer terminal whenever a withdrawal is made.
The Board therefore believes that these withdrawals, without any further showing that the CBC employees 'had actual knowledge of the infirmity or defect, or knowledge of such facts' (Sec. 56, Negotiable Instruments Law) that their action in accepting their checks for deposit and allowing the withdrawals against the same 'amounted to bad faith' cannot be considered as basis for holding CBC liable." (Rollo, pp. 107-111) Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. For obvious reasons, the banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. In the present case, there is no question that the banks were negligent in the selection and supervision of their employees. The Arbitration Committee, the PCHC Board of Directors and the lower courts, however disagree in the evaluation of the degree of negligence of the banks. While the Arbitration Committee declared the negligence of respondent CBC graver, the PCHC Board of Directors and the lower
courts declared that petitioner BPI's negligence was graver. To the extent that the degree of negligence is equated to the proximate cause of the loss, we rule that the issue as to whose negligence is graver is relevant. No matter how many justifications both banks present to avoid responsibility, they cannot erase the fact that they were both guilty in not exercising extraordinary diligence in the selection and supervision of their employees. The next issue hinges on whose negligence was the proximate cause of the payment of the forged checks by an impostor. Petitioner BPI accuses the Court of Appeals of inconsistency when it affirmed the PCHC's Board of Directors' Order but in the same breath declared that the negligent acts of the CBC employees occurred immediately before the actual loss. In this regard petitioner BPI insists that the doctrine of last clear chance enunciated in the case of Picart v. Smith (37 Phil. 809 [1918]) should have been applied considering the circumstances of the case. In the Picart case, Amado Picart was then riding on his pony over the Carlatan Bridge at San Fernando, La Union when Frank Smith approached from the opposite direction in a car. As Smith neared the bridge he saw Picart and blew his horn to give warning of his approach. When he was already on the bridge Picart gave two more successive blasts as it appeared to him that Picart was not observing the rule of the road Picart saw the car coming and heard the warning signals. An accident then ensued resulting in the death of the horse and physical injuries suffered by Picart which caused him temporary unconsciousness and required medical attention for several days. Thereafter, Picart sued Smith for damages. We ruled: "The question presented for decision is whether or not the defendant in maneuvering his car in the manner above described was guilty of negligence such as
gives rise to a civil obligation to repair the damage done; and we are of the opinion that he is so liable. As the defendant started across the bridge, he had the right to assume that the horse and rider would pass over to the proper side; but as he moved toward the center of the bridge it was demonstrated to his eyes that this would not be done, and he must in a moment have perceived that it was too late for the horse to cross with safety in front of the moving vehicle. In the nature of things this change of situation occurred while the automobile was yet some distance away; and from this moment it was no longer within the power of the plaintiff to escape being run down by going to a place of greater safety. The control of the situation had then passed entirely to the defendant; and it was his duty to either to bring his car to an immediate stop or, seeing that there were no other persons on the bridge, to take the other side and pass sufficiently far away from the horse to avoid the danger of collision. Instead of doing this, the defendant ran straight on until he was almost upon the horse. He was, we think, deceived into doing this by the fact that the horse had not yet exhibited fright. But in view of the known nature of horses, there was an appreciable risk that, if the animal in question was unacquainted with automobiles, he might get excited and jump under the conditions which here confronted him. When the defendant exposed the horse and rider to this danger he was, in our opinion, negligent in the eyes of the law. The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used
in the same situation? If not, then he is guilty of negligence. xxx xxx xxx It goes without saying that the plaintiff himself was not free from fault, for he was guilty of antecedent negligence in planting himself on the wrong side of the road. But as we have already stated, the defendant was also negligent; and in such case the problem always is to discover which agent is immediately and directly responsible. It will be noted that the negligent acts of the two parties were not contemporaneous, since the negligence of the defendant succeeded the negligence of the plaintiff by an appreciable interval. Under these circumstances the law is that the person who has the last fair chance to avoid the impending harm and fails to do so is chargeable with the consequences, without reference to the prior negligence of the other party." Applying these principles, petitioner BPI's reliance on the doctrine of last clear chance to clear it from liability is not well-taken. CBC had no prior notice of the fraud perpetrated by BPI's employees on the pretermination of Eligia G. Fernando's money market placement. Moreover, Fernando is not a depositor of CBC. Hence, a comparison of the signature of Eligia G. Fernando with that of the impostor Eligia G. Fernando, which respondent CBC did, could not have resulted in the discovery of the fraud. Hence, unlike in the Picart case wherein the defendant, had he used reasonable care and caution, would have recognized the risk he was taking and would have foreseen harm to the horse and the plaintiff but did not, respondent CBC had no way to discover the fraud at all. In fact the records fail to show that respondent CBC had knowledge, actual or implied, of the fraud perpetrated by the impostor and the employees of BPI.
However, petitioner BPI insists that even if the doctrine of proximate cause is applied, still, respondent CBC should be held responsible for the payment to the impostor of the two (2) checks. It argues that the acts and omissions of respondent CBC are the cause "that set into motion the actual and continuous sequence of events that produced the injury and without which the result would not have occurred." On the other hand, it asserts that its acts and omissions did not end in a loss. Petitioner BPI anchors its argument on its stance that there was "a gap, a hiatus, an interval between the issuance and delivery of said checks by petitioner BPI to the impostor and their actual payment of CBC to the impostor. Petitioner BPI points out that the gap of one (1) day that elapsed from its issuance and delivery of the checks to the impostor is material on the issue of proximate cause. At this stage, according to petitioner BPI, there was yet no loss and the impostor could have decided to desist from completing the same plan and could have held to the checks without negotiating them. We are not persuaded. In the case of Vda. de Bataclan, et al. v. Medina (102 Phil. 181 [1957]), we had occasion to discuss the doctrine of proximate cause. Briefly, the facts of this case are as follows: At about 2:00 o'clock in the morning of September 13, 1952 a bus carrying about eighteen (18) passengers on its way to Amadeo, Cavite figured in an accident. While the bus was running, one of the front tires burst and the bus began to zigzag until it fell into a canal on the right side of the road and turned turtle. Some passengers managed to get out from the overturned bus except for four (4) passengers, among them, Bataclan. The passengers who got out heard shouts for help from Bataclan and another passenger Lara who said they could not get out from the bus. After half an hour, about ten men came, one of them carrying a lighted torch made of bamboo with a wick on one end fueled with petroleum. These men approached the overturned bus, and almost immediately, a fierce fire started burning and all but consuming
the bus including the four (4) passengers trapped inside. It turned out that as the bus overturned, gasoline began to leak and escape from the gasoline tank on the side of the chassis spreading over and permeating the body of the bus and the ground under and around it. The lighted torch brought by one of the men who answered the call for help set it on fire. On the same day, the charred bodies of the trapped passengers were removed and identified. By reason of his death, Juan Bataclan's wife and her children filed a suit for damages against Maximo Medina, the operator and owner of the bus in the then Court of First Instance of Cavite. The trial court ruled in favor of the defendant. However, we reversed and set aside the trial court's decision and said: "There is no question that under the circumstances, the defendant carrier is liable. The only question is to what degree. The trial court was of the opinion that the proximate cause of the death of Bataclan was not the overturning of the bus, but rather the fire that burned the bus, including himself and his copassengers who were unable to leave it; that at the time the fire started, Bataclan, though he must have suffered physical injuries, perhaps serious, was still alive and so damages were awarded, not for his death, but for the physical injuries suffered by him. We disagree. A satisfactory definition of proximate cause is found in Volume 38, pages 695-696 of American Jurisprudence, cited by plaintiffs-appellants in their brief. It is as follows:
and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final event in the chain immediately effecting the injury as natural and probable result of the cause which first acted, under such circumstances that the person responsible for the first event should, as an ordinarily prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom.' It may be that ordinarily, when a passenger bus overturns, and pins down a passenger, merely causing him physical injuries, if through some event, unexpected and extraordinary, the overturned bus is set on fire, say, by lightning, or if some highwaymen after looting the vehicle sets it on fire, and the passenger is burned to death, one might still contend that the proximate cause of his death was the fire and not the overturning of the vehicle. But in the present case and under the circumstances obtaining in the same, we do not hesitate to hold that the proximate cause of the death of Bataclan was the overturning of the bus, this for the reason that when the vehicle turned not only on its side but completely on its back, the leaking of the gasoline from the tank was not unnatural or unexpected; that the coming of the men with a lighted torch was in response to the call for help, made not only by the passengers, but most probably, by the driver and the conductor themselves, and that because it was very dark (about 2:30 in the morning), the rescuers had to carry a light with them;
'. . . that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. And more comprehensively, 'the proximate legal cause is that acting first
and coming as they did from a rural area where lanterns and flashlights were not available, they had to use a torch, the most handy and available; and what was more natural than that said rescuers should innocently approach the overturned vehicle to extend the aid and effect the rescue requested from them. In other words, the coming of the men with the torch was to be expected and was natural sequence of the overturning of the bus, the trapping of some of its passengers bus, the trapping of some of its passengers and the call for outside help." (Emphasis supplied, at pp. 185-187) Again, applying the doctrine of proximate cause, petitioner BPI's contention that CBC alone should bear the loss must fail. The gap of one (1) day between the issuance and delivery of the checks bearing the impostor's name as payee and the impostor's negotiating the said forged checks by opening an account and depositing the same with respondent CBC is not controlling. It is not unnatural or unexpected that after taking the risk of impersonating Eligia G. Fernando with the connivance of BPI's employees, the impostor would complete her deception by encashing the forged checks. There is, therefore, greater reason to rule that the proximate cause of the payment of the forged checks by an impostor was due to the negligence of petitioner BPI. This finding, notwithstanding, we are not inclined to rule that petitioner BPI must solely bear the loss of P2,413,215.16, the total amount of the two (2) forged checks. Due care on the part of CBC could have prevented any loss. The Court cannot ignore the fact that the CBC employees closed their eyes to the suspicious circumstances of huge over-the-counter withdrawals made immediately after the account was opened. The opening of the account itself was accompanied by inexplicable acts clearly showing negligence. And while we do not apply the last clear chance doctrine as controlling in this case, still the CBC employees had ample opportunity to avoid the harm which befell both CBC and
BPI. They let the opportunity slip by when the ordinary prudence expected of bank employees would have sufficed to seize it. Both banks were negligent in the selection and supervision of their employees resulting in the encashment of the forged checks by an impostor. Both banks were not able to overcome, the presumption of negligence in the selection and supervision of their employees. It was the gross negligence of the employees of both banks which resulted in the fraud and the subsequent loss. While it is true that petitioner BPI's negligence may have been the proximate cause of the loss, respondent CBC's negligence contributed equally to the success of the impostor in encashing the proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the Civil Code to the effect that while respondent CBC may recover its losses, such losses are subject to mitigation by the courts (See Phoenix Construction, Inc. v. Intermediate Appellate Court, 148 SCRA 353 [1987]). Considering the comparative negligence of the two (2) banks, we rule that the demands of substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs of the arbitration proceedings in the amount of P7,250.00 and the costs of litigation on a 60-40 ratio. Conformably with this ruling, no interests and attorney's fees can be awarded to either of the parties. WHEREFORE, the questioned DECISION and RESOLUTION of the Court of Appeals are MODIFIED as outlined above. Petitioner Bank of the Philippine Islands shall be responsible for sixty percent (60%) while respondent China Banking Corporation shall share forty percent (40%) of the loss of TWO MILLION FOUR HUNDRED THIRTEEN THOUSAND, TWO HUNDRED FIFTEEN PESOS and SIXTEEN CENTAVOS (P2,413,215.16) and the arbitration costs of SEVEN THOUSAND, TWO HUNDRED FIFTY PESOS (P7,250.00). The Philippine Clearing House Corporation is hereby directed to effect the corresponding entries to the banks' clearing accounts in accordance with this decision. Costs in the same proportion against the Bank of the Philippine Islands and the China Banking Corporation.
SO ORDERED. Bidin, Davide, Jr., Romero and Melo, JJ ., concur. SECOND DIVISION [G.R. NO. 92244. FEBRUARY 9, 1993.] NATIVIDAD GEMPESAW, PETITIONER , VS. THE HONORABLE COURT OF APPEALS AND PHILIPPINE BANK OF COMMUNICATIONS, RESPONDENTS . L.B. Camins for petitioner. Angara, Abello, Concepcion, Regala & Cruz for private respondent. SYLLABUS 1. MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; CHECKS; DRAWER DUTY BOUND TO SET UP AN ACCOUNTING SYSTEM AND TO REPORT FORGED INDORSEMENT TO DRAWEE. While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up an accounting system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of indorsements, particularly by the depositor's own employees. And if the drawer (depositor) learns that a check drawn by him has been paid under a forged indorsement, the drawer in under duty promptly to report such fact to the drawee bank. (Britton, Bills and Notes, Sec. 143, pp. 663-664)
2. ID.; ID.; ID.; ID.; DRAWER LOSES RIGHT AGAINST DRAWEE FOR FAILURE TO DISCOVER FORGERY OR REPORT PROMPTLY SAID FORGERY. For his negligence or failure either to discover or to report promptly the fact of such forgery to the drawee, the drawer loses his right against the drawee who has debited his account under the forged indorsement. (City of New York vs. Bronx County Trust Co., 261 N.Y. 64, 184 N.E. 495 (1933); Detroit Piston Ring Co. vs. Wayne County & Home Savings Bank, 252 Mich. 163, 233 N.W. 185 [1930]; C.E. Erickson Co. vs. Iowa Nat. Bank, 211 Iowa 495, 230 N.W. 342 [1930] In other words, he is precluded from using forgery as a basis for his claim for recrediting of his account. 3. ID.; ID.; ISSUANCE OF INSTRUMENT, CONSTRUED. Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument to the payee for the purpose of giving effect thereto. (NIL, Sec. 16) The first delivery of the instrument, complete in form, to the payee who takes it as a holder, is called issuance of the instrument. Without the initial delivery of the instrument from the drawer of the check to the payee, there can be no valid and binding contract and no liability on the instrument. 4. ID.; ID.; CHECKS; DRAWEE BANK WHO PAID A CHECK ON A FORGED INDORSEMENT GENERALLY CANNOT CHARGE THE DRAWER'S ACCOUNT; EXCEPTION. As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the amount of said check. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. 5. ID.; ID.; ID.; FORGED INDORSEMENT; DRAWER CAN NOT DEMAND FROM DRAWEE BANK TO RECREDIT HER ACCOUNT WHERE HER NEGLIGENCE WAS THE PROXIMATE CAUSE OF HER LOSS; CASE AT BAR. The petitioner failed to examine her records with reasonable diligence whether before she signed the checks or after receiving her bank statements. Had the petitioner examined her records more carefully, particularly the
invoice receipts, cancelled checks, check book stubs, and had she compared the sums written as amounts payable in the eighty-two (82) checks with the pertinent sales invoices, she would have easily discovered that in some checks, the amounts did not tally with those appearing in the sales invoices. Had she noticed these discrepancies, she should not have signed those checks, and should have conducted an inquiry as to the reason for the irregular entries. Likewise, had petitioner been more vigilant in going over her current account by taking careful note of the daily reports made by respondent drawee Bank on her issued checks, or at least made random scrutiny of her cancelled checks returned by respondent drawee Bank at the close of each month, she could have easily discovered the fraud being perpetrated by Alicia Galang, and could have reported the matter to the respondent drawee Bank. The respondent drawee Bank then could have taken immediate steps to prevent further commission of such fraud. Thus, petitioner's negligence was the proximate cause of her loss. And since it was her negligence which caused the respondent drawee Bank to honor the forged checks or prevented it from recovering the amount it had already paid on the checks, petitioner cannot now complain should the bank refuse to recredit her account with the amount of such checks. Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's debiting of her account. 6. ID.; ID.; ID.; RESTRICTIVE INDORSEMENT; PROHIBITION TO TRANSFER OR NEGOTIATE MUST BE WRITTEN IN EXPRESS WORDS. Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof. In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that any subsequent party may be forewarned that it ceases to be negotiable. However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so.
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; DRAWEE BANK WHICH CONTRIBUTED TO THE LOSS INCURRED BY THE DRAWER BY ITS OWN VIOLATION OF INTERNAL RULES ADJUDGED LIABLE TO SHARE THE LOSS; CASE AT BAR. There is no question that there is a contractual relation between petitioner as depositor (obligee) and the respondent drawee bank as the obligor. In the performance of its obligation, the drawee bank is bound by its internal banking rules and regulations which form part of any contract it enters into with any of its depositors. When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence. Furthermore, the fact that the respondent drawee Bank did not discover the irregularity with respect to the acceptance of checks with second indorsement for deposit even without the approval of the branch manager despite periodic inspection conducted by a team of auditors from the main office constitutes negligence on the part of the bank in carrying out its obligations to its depositors. We hold that banking business is so impressed with public interests 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. Surely, respondent drawee Bank cannot claim it exercised such a degree of diligence that is required of it. There is no way We can allow it now to escape liability for such negligence. Its liability as obligor is not merely vicarious but primary wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment. Premises considered, respondent drawee Bank is adjudged liable to share the loss with the petitioner on a fifty-fifty ratio in accordance with Article 1172.
DECISION
CAMPOS, JR., J p: From the adverse decision * of the Court of Appeals (CA-G.R. CV No. 16447), petitioner, Natividad Gempesaw, appealed to this Court in a Petition for Review, on the issue of the right of the drawer to recover from the drawee bank who pays a check with a forged indorsement of the payee, debiting the same against the drawer's account. The records show that on January 23, 1985, petitioner 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 respondent drawee Bank on the ground that the payees' indorsements were forgeries. The Regional Trial Court, Branch CXXVIII of Caloocan City, which tried the case, rendered a decision on November 17, 1987 dismissing the complaint as well as the respondent drawee Bank's counterclaim. On appeal, the Court of Appeals in a decision rendered on February 22, 1990, affirmed the decision of the RTC on two grounds, namely (1) that the plaintiff's (petitioner herein) gross negligence in issuing the checks was the proximate cause of the loss and (2) assuming that the bank was also negligent, the loss must nevertheless be borne by the party whose negligence was the proximate cause of the loss. On March 5, 1990, the petitioner filed this petition under Rule 45 of the Rules of Court setting forth the following as the alleged errors of the respondent Court. 1 : "I THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT 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. Cdpr
II THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT FINDING AND RULING THAT IT IS THE GROSS AND INEXCUSABLE NEGLIGENCE AND FRAUDULENT ACTS OF THE OFFICIALS AND EMPLOYEES OF THE RESPONDENT BANK IN FORGING THE SIGNATURE OF THE PAYEES AND THE WRONG AND/OR ILLEGAL PAYMENTS MADE TO PERSONS, OTHER THAN TO THE INTENDED PAYEES SPECIFIED IN THE CHECKS, IS THE DIRECT AND PROXIMATE CAUSE OF THE DAMAGE TO PETITIONER WHOSE SAVING (SIC) ACCOUNT WAS DEBITED. III THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT ORDERING THE RESPONDENT BANK TO RESTORE OR RE-CREDIT THE CHECKING ACCOUNT OF PETITIONER IN THE CALOOCAN CITY BRANCH BY THE VALUE OF THE EIGHTY TWO (82) CHECKS WHICH IS IN THE AMOUNT OF P1,208,606.89 WITH LEGAL INTEREST." From the records, the relevant facts are as follows: Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery stores located at Rizal Avenue Extension and at Second Avenue, both in Caloocan City. Among these groceries are D.G. Shopper's Mart and D.G. Whole Sale Mart. Petitioner maintains a checking account numbered 13-00038-1 with the Caloocan City Branch of the respondent drawee Bank. To facilitate payment of debts
to her suppliers, 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. After the bookkeeper prepared the checks, the completed checks were submitted to the petitioner for her signature, together with the corresponding invoice receipts which indicate the correct obligations due and payable to her suppliers. Petitioner signed each and every check without bothering to verify the accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper. The issuance and delivery of the checks to the payees named therein were left to the bookkeeper. Petitioner admitted that she did not make any verification as to whether or not the checks were actually delivered to their respective payees. 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. These checks were all presented by the indorsees as holders thereof to, and honored by, the respondent drawee Bank. Respondent drawee Bank correspondingly debited the amounts thereof against petitioner's checking account numbered 30-00038-1. Most of the aforementioned checks were for amounts in excess of her actual obligations to the various payees as shown in their corresponding invoices. To mention a few:
No. 652282 issued on September 18, 1984 in favor of Senson Enterprises in the amount of P11,041.20 (Exh. A-67) appellant's actual obligation to said payee was only P1,041.20 (Exh. 7); (3) in Check No. 589092 dated April 7, 1984 for the amount of P11,672.47 in favor of Marchem (Exh. A-61) appellant's obligation was only P1,672.47 (Exh. B); (4) in Check No. 620450 dated May 10, 1984 in favor of Knotberry for P11,677.10 (Exh. A-31) her actual obligation was only P677.10 (Exhs. C and C-1); (5) in Check No. 651862 dated August 9, 1984 in favor of Malinta Exchange Mart for P11,107.16 (Exh. A-62), her obligation was only P1,107.16 (Exh. D-2); (6) in Check No. 651863 dated August 11, 1984 in favor of Grocer's International Food Corp. in the amount of P11,335.60 (Exh. A-66), her obligation was only P1,335.60 (Exh. E and E-1); (7) in Check No. 589019 dated March 17, 1984 in favor of Sophy Products in the amount of P11,648.00 (Exh. A-78), her obligation was only P648.00 (Exh. G); (8) in Check No. 589028 dated March 10, 1984 for the amount of P11,520.00 in favor of the Yakult Philippines (Exh. A-73), the latter's invoice was only P520.00 (Exh. H-2); (9) in Check No. 62033 dated May 24, 1984 in the amount of P11,504.00 in favor of Monde Denmark Biscuit (Exh. A-34), her obligation was only P504.00 (Exhs. I-1 and I-2)." 2 Practically, all the checks issued and honored by the respondent drawee Bank were crossed checks. 3 Aside from the daily notice given to the petitioner by the respondent drawee Bank, the latter also furnished her with a monthly statement of her bank transactions, attaching thereto all the cancelled checks she had issued and which were debited against her current account. It was only after the lapse of more than two (2) years that petitioner found out about the fraudulent manipulations of her bookkeeper. cdphil
". . . 1) in Check No. 621127, dated June 27, 1984 in the amount of P11,895.23 in favor of Kawsek Inc. (Exh. A-60), appellant's actual obligation to said payee was only P895.33 (Exh. A-83); (2) in Check
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. Ernest L. Boon was a very close friend of Alfredo Y. Romero. Sixty-three (63) out of the eighty-two (82) checks were deposited in Savings Account No. 00844-5 of Alfredo Y. Romero at the respondent drawee Bank's Buendia branch, and four (4) checks in his Savings Account No. 3281-9 at its Ongpin branch. The rest of the checks were deposited in Account No. 0443-4, under the name of Benito Lam at the Elcano branch of the respondent drawee Bank. 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. The team of auditors from the main office of the respondent drawee Bank which conducted periodical inspection of the branches' operations failed to discover, check or stop the unauthorized acts of Ernest L. Boon. Under the rules of the respondent drawee Bank, only a Branch Manager, and no other official of the respondent drawee Bank, may accept a second indorsement on a check for deposit. In the case at bar, all the deposit slips of the eighty-two (82) checks in question were initialed and/or approved for deposit by Ernest L. Boon. The Branch Managers of the Ongpin and Elcano branches accepted the deposits made in the Buendia branch and credited the accounts of Alfredo Y. Romero and Benito Lam in their respective branches. On November 7, 1984, 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.
This is not a suit by the party whose signature was forged on a check drawn against the drawee bank. The payees are not parties to the case. Rather, it is the drawer, whose signature is genuine, who instituted this action to recover from the drawee bank the money value of eighty-two (82) checks paid out by the drawee bank to holders of those checks where the indorsements of the payees were forged. How and by whom the forgeries were committed are not established on the record, but the respective payees admitted that they did not receive those checks and therefore never indorsed the same. The applicable law is the Negotiable Instruments Law 4 (heretofore referred to as the NIL). Section 23 of the NIL provides: "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." LibLex Under the aforecited provision, forgery is a real or absolute defense by the party whose signature is forged. A party whose signature to an instrument was forged was never a party and never gave his consent to the contract which gave rise to the instrument. Since his signature does not appear in the instrument, he cannot be held liable thereon by anyone, not even by a holder in due course. Thus, if a person's signature is forged as a maker of a promissory note, he cannot be made to pay because he never made the promise to pay. Or where a person's signature as a drawer of a check is forged, the drawee bank cannot charge the amount thereof against the drawer's account because he never gave the bank the order to pay. And said section does not refer only to the forged signature of the maker of a promissory note and of the drawer of a check. It covers also a forged indorsement, i.e., the forged signature of the
payee or indorsee of a note or check. Since under said provision a forged signature is "wholly inoperative", no one can gain title to the instrument through such forged indorsement. Such an indorsement prevents any subsequent party from acquiring any right as against any party whose name appears prior to the forgery. Although rights may exist between and among parties subsequent to the forged indorsement, not one of them can acquire rights against parties prior to the forgery. Such forged indorsement cuts off the rights of all subsequent parties as against parties prior to the forgery. However, the law makes an exception to these rules where a party is precluded from setting up forgery as a defense. As a matter of practical significance, problems arising from forged indorsements of checks may generally be broken into two types of cases: (1) where forgery was accomplished by a person not associated with the drawer for example a mail robbery; and (2) where the indorsement was forged by an agent of the drawer. This difference in situations would determine the effect of the drawer's negligence with respect to forged indorsements. While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up an accounting system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of indorsements, particularly by the depositor's own employees. And if the drawer (depositor) learns that a check drawn by him has been paid under a forged indorsement, the drawer is under duty promptly to report such fact to the drawee bank. 5 For his negligence or failure either to discover or to report promptly the fact of such forgery to the drawee, the drawer loses his right against the drawee who has debited his account under the forged indorsement. 6 In other words, he is precluded from using forgery as a basis for his claim for recrediting of his account. In the case at bar, petitioner admitted that the checks were filled up and completed by her trusted employee, Alicia Galang, and were later given to her for her signature. Her signing the checks made the
negotiable instrument complete. Prior to signing the checks, there was no valid contract yet. Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument to the payee for the purpose of giving effect thereto. 7 The first delivery of the instrument, complete in form, to the payee who takes it as a holder, is called issuance of the instrument. 8 Without the initial delivery of the instrument from the drawer of the check to the payee, there can be no valid and binding contract and no liability on the instrument. Petitioner completed the checks by signing them as drawer and thereafter authorized her employee Alicia Galang to deliver the eightytwo (82) checks to their respective payees. Instead of issuing the checks to the payees as named in the checks, Alicia Galang delivered them to the Chief Accountant of the Buendia branch of the respondent drawee Bank, a certain Ernest L. Boon. It was established that the signatures of the payees as first indorsers were forged. The record fails to show the identity of the party who made the forged signatures. The checks were then indorsed for the second time with the names of Alfredo Y. Romero and Benito Lam, and were deposited in the latter's accounts as earlier noted. The second indorsements were all genuine signatures of the alleged holders. All the eighty-two (82) checks bearing the forged indorsements of the payees and the genuine second indorsements of Alfredo Y. Romero and Benito Lam were accepted for deposit at the Buendia branch of respondent drawee Bank to the credit of their respective savings accounts in the Buendia, Ongpin and Elcano branches of the same bank. The total amount of P1,208,606.89, represented by eighty-two (82) checks, were credited and paid out by respondent drawee Bank to Alfredo Y. Romero and Benito Lam, and debited against petitioner's checking account No. 13-00038-1, Caloocan branch. LLpr
As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the amount of said check. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. If a check is stolen from the payee, it is quite obvious that the drawer cannot possibly discover the forged indorsement by mere examination of his cancelled check. This accounts for the rule that although a depositor owes a duty to his drawee bank to examine his cancelled checks for forgery of his own signature, he has no similar duty as to forged indorsements. A different situation arises where the indorsement was forged by an employee or agent of the drawer, or done with the active participation of the latter. Most of the cases involving forgery by an agent or employee deal with the payee's indorsement. The drawer and the payee oftentimes have business relations of long standing. The continued occurrence of business transactions of the same nature provides the opportunity for the agent/employee to commit the fraud after having developed familiarity with the signatures of the parties. However, sooner or later, some leak will show on the drawer's books. It will then be just a question of time until the fraud is discovered. This is specially true when the agent perpetrates a series of forgeries as in the case at bar. The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the depositor to act as a prudent businessman would under the circumstances. In the case at bar, the petitioner relied implicitly upon the honesty and loyalty of her bookkeeper, and did not even verify the accuracy of the amounts of the checks she signed against the invoices attached thereto. Furthermore, although she regularly received her bank statements, she apparently did not carefully examine the same nor the check stubs and the returned checks, and did not compare them with the sales invoices. Otherwise, she could have easily discovered the discrepancies between the checks and the documents serving as bases for the checks. With such discovery, the subsequent forgeries would not have been accomplished. It was not until two years after the bookkeeper commenced her fraudulent scheme that petitioner discovered that
eighty-two (82) checks were wrongfully charged to her account, at which time she notified the respondent drawee Bank. It is highly improbable that in a period of two years, not one of petitioner's suppliers complained of non-payment. Assuming that even one single complaint had been made, petitioner would have been dutybound, as far as the respondent drawee Bank was concerned, to make an adequate investigation on the matter. Had this been done, the discrepancies would have been discovered, sooner or later. Petitioner's failure to make such adequate inquiry constituted negligence which resulted in the bank's honoring of the subsequent checks with forged indorsements. On the other hand, since the record mentions nothing about such a complaint, the possibility exists that the checks in question covered inexistent sales. But even in such a case, considering the length of a period of two (2) years, it is hard to believe that petitioner did not know or realize that she was paying much more than she should for the supplies she was actually getting. A depositor may not sit idly by, after knowledge has come to her that her funds seem to be disappearing or that there may be a leak in her business, and refrain from taking the steps that a careful and prudent businessman would take in such circumstances and if taken, would result in stopping the continuance of the fraudulent scheme. If she fails to take such steps, the facts may establish her negligence, and in that event, she would be estopped from recovering from the bank. 9 One thing is clear from the records that the petitioner failed to examine her records with reasonable diligence whether before she signed the checks or after receiving her bank statements. Had the petitioner examined her records more carefully, particularly the invoice receipts, cancelled checks, check book stubs, and had she compared the sums written as amounts payable in the eighty-two (82) checks with the pertinent sales invoices, she would have easily discovered that in some checks, the amounts did not tally with those appearing in the sales invoices. Had she noticed these discrepancies, she should not have signed those checks, and should have conducted an inquiry as to the reason for the irregular entries. Likewise, had
petitioner been more vigilant in going over her current account by taking careful note of the daily reports made by respondent drawee Bank on her issued checks, or at least made random scrutiny of her cancelled checks returned by respondent drawee Bank at the close of each month, she could have easily discovered the fraud being perpetrated by Alicia Galang, and could have reported the matter to the respondent drawee Bank. The respondent drawee Bank then could have taken immediate steps to prevent further commission of such fraud. Thus, petitioner's negligence was the proximate cause of her loss. And since it was her negligence which caused the respondent drawee Bank to honor the forged checks or prevented it from recovering the amount it had already paid on the checks, petitioner cannot now complain should the bank refuse to recredit her account with the amount of such checks. 10 Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's debiting of her account. cdphil The doctrine in the case of Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Bank 11 is not applicable to the case at bar because in said case, the check was fraudulently taken and the signature of the payee was forged not by an agent or employee of the drawer. The drawer was not found to be negligent in the handling of its business affairs and the theft of the check by a total stranger was not attributable to negligence of the drawer; neither was the forging of the payee's indorsement due to the drawer's negligence. Since the drawer was not negligent, the drawee was duty-bound to restore to the drawer's account the amount theretofore paid under the check with a forged payee's indorsement because the drawee did not pay as ordered by the drawer. Petitioner argues that respondent drawee Bank should not have honored the checks because they were crossed checks. Issuing a crossed check imposes no legal obligation on the drawee not to honor such a check. It is more of a warning to the holder that the check cannot be presented to the drawee bank for payment in cash. Instead, the check can only be deposited with the payee's bank which in turn
must present it for payment against the drawee bank in the course of normal banking transactions between banks. The crossed check cannot be presented for payment but it can only be deposited and the drawee bank may only pay to another bank in the payee's or indorser's account. Petitioner likewise contends that banking rules prohibit the drawee bank from having checks with more than one indorsement. 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 the said check. In effect, this rule destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the payee. Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof. "Sec. 36. When indorsement restrictive. An indorsement is restrictive which either. (a) Prohibits further negotiation of the instrument; or. xxx xxx xxx" In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that any subsequent party may be forewarned that it ceases to be negotiable. However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so. 12 Although the holder of a check cannot compel a drawee bank to honor it because there is no privity between them, as far as the drawer-
depositor is concerned, such bank may not legally refuse to honor a negotiable bill of exchange or a check drawn against it with more than one indorsement if there is nothing irregular with the bill or check and the drawer has sufficient funds. The drawee cannot be compelled to accept or pay the check by the drawer or any holder because as a drawee, he incurs no liability on the check unless he accepts it. But the drawee will make itself liable to a suit for damages at the instance of the drawer for wrongful dishonor of the bill or check. LLpr Thus, it is clear that under the NIL, petitioner is precluded from raising the defense of forgery by reason of her gross negligence. But under Section 196 of the NIL, any case not provided for in the Act shall be governed by the provisions of existing legislation. Under the laws of quasi-delict, she cannot point to the negligence of the respondent drawee Bank in the selection and supervision of its employees as being the cause of the loss because her negligence is the proximate cause thereof and under Article 2179 of the Civil Code, she may not be awarded damages. However, under Article 1170 of the same Code the respondent drawee Bank may be held liable for damages. The article provides "Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages."
of its obligation at the very least, if it were not actually guilty of fraud or negligence. Furthermore, the fact that the respondent drawee Bank did not discover the irregularity with respect to the acceptance of checks with second indorsement for deposit even without the approval of the branch manager despite periodic inspection conducted by a team of auditors from the main office constitutes negligence on the part of the bank in carrying out its obligations to its depositors. Article 1173 provides "The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and correspondents with the circumstance of the persons, of the time and of the place. . . ." We hold that 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. Surely, respondent drawee Bank cannot claim it exercised such a degree of diligence that is required of it. There is no way We can allow it now to escape liability for such negligence. Its liability as obligor is not merely vicarious but primary wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment. Premises considered, respondent drawee Bank is adjudged liable to share the loss with the petitioner on a fifty-fifty ratio in accordance with Article 1172 which provides: "Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances."
There is no question that there is a contractual relation between petitioner as depositor (obligee) and the respondent drawee bank as the obligor. In the performance of its obligation, the drawee bank is bound by its internal banking rules and regulations which form part of any contract it enters into with any of its depositors. When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the tenor
With the foregoing provisions of the Civil Code being relied upon, it is being made clear that the decision to hold the drawee bank liable is based on law and substantial justice and not on mere equity. And although the case was brought before the court not on breach of contractual obligations, the courts are not precluded from applying to the circumstances of the case the laws pertinent thereto. Thus, the fact that petitioner's negligence was found to be the proximate cause of her loss does not preclude her from recovering damages. The reason why the decision dealt on a discussion on proximate cause is due to the error pointed out by petitioner as allegedly committed by the respondent court. And in breaches of contract under Article 1173, due diligence on the part of the defendant is not a defense. 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, considering that she partly benefited from the issuance of the questioned checks since the obligation for which she issued them were apparently extinguished, such that only the excess amount over and above the total of these actual obligations must be considered as loss of which one half must be paid by respondent drawee bank to herein petitioner. SO ORDERED. Narvasa, C . J ., Feliciano, Regalado and Nocon, JJ., concur. Footnotes * Penned by Associate Celso L. Magsino, Associate Justices Nathanael P. De Pano, Jr. and Cesar D. Francisco, concurring. 1. Rollo, p. 11.
3. A crossed check is defined as a check crossed with two (2) lines, between which are either the name of a bank or the words "and company," in full or abbreviated. In the former case, the banker on whom it is drawn must not pay the money for the check to any other than the banker named; in the latter case, he must not pay it to any other than a banker. Black's Law Dictionary 301 (4th Ed.), citing 2 Steph. Comm. 118, note C; 7 Exch. 389; [1903] A.C. 240; Farmers' Bank V. Johnson, King & Co., 134 Ga. 486, 68 S.E. 85, 30 L.R.A., N.S. 697. 4. Act No. 2031, enacted on February 3, 1911. 5. Britton, Bills and Notes, Sec. 143, pp. 663-664. 6. City of New York vs. Bronx County Trust Co., 261 N.Y. 64, 184 N.E. 495 (1933); Detroit Piston Ring Co. vs. Wayne County & Home Savings Bank, 252 Mich. 163, 233 N.W. 185 (1930); C.E. Erickson Co. vs. Iowa Nat. Bank, 211 Iowa 495, 230 N.W. 342 (1930). 7. NIL, Sec. 16. 8. Ibid., Sec. 191, par. 10. 9. Detroit Piston Ring Co. vs. Wayne County & Home Savings Bank, supra, note 3. 10. Defiance Lumber Co. vs. Bank of California, N.A., 180 Wash. 533, 41 P. 2d 135 (1935); National Surety Co. vs. President and Directors of Manhattan Co., et al., 252 N.Y. 247, 169 N.E. 372 (1929); Erickson Co. vs. Iowa National Bank, supra, note 3. 11. 43 Phil. 678 (1922).
2. Rollo, pp. 20-21; CA Decision, pp. 2-3. See Notes 2-6 thereof. 12. NIL, Sec. 37.
EN BANC [G.R. NO. 18657. AUGUST 23, 1922.] THE GREAT EASTERN LIFE INSURANCE CO., PLAINTIFF-APPELLANT , VS. HONGKONG & SHANGHAI BANKING CORPORATION AND PHILIPPINE NATIONAL BANK, DEFENDANTS-APPELLEES . Camus & Delgado for appellant. Fisher & DeWitt and A. M. Opisso for Hongkong and Shanghai Bank. Roman J. Lacson for Philippine National Bank. SYLLABUS 1. LIABILITY OF BANKS ON THE INDORSEMENT OF THE PAYEE OF A CHECK. Where an insurance company drew its check for P2,000 on the H. & S. B. Corporation payable to the order of M, and a third person fraudulently obtained possession of the check and forged M's signature, as an endorser, and then personally endorsed and presented it to the P. N. Bank, by which it was honored and the amount of the check placed to his credit, and on the next day the P. N. Bank endorsed the check to the H. & S. B Corporation, which paid it and charged the amount of the check to the insurance company; Held: That the H. & S. B. Corporation was liable to the insurance company for the amount of the check, and that the P. N. Bank was in turn liable to the H. & S. B. Corporation. 2. THE ONLY REMEDY OF A BANK PAYING A CHECK TO A PERSON WHO HAS FORGED THE NAME OF THE PAYEE IS AGAINST THE FORGER. Where a check is
drawn payable to the order of one person and is presented to a bank by another and purports upon its face to have been duly endorsed by the payee of the check, it is the duty of the bank to know that the check was duly endorsed by the original payee, and where the bank pays the amount of the check to a third person, who has forged the signature of the payee, the loss falls upon the bank who cashed the check, and its only remedy is against the person to whom it paid the money.
DECISION
STATEMENT The plaintiff is an insurance corporation, and the defendants are banking corporations, and each is duly licensed to do its respective business in the Philippine Islands. May 3, 1920, the plaintiff drew its check for P2,000 on the Hongkong and Shanghai Banking Corporation with whom it had an account, payable to the order of Lazaro Melicor. E.M. Maasim fraudulently obtained possession of the check, forged Melicor's signature, as an endorser, and then personally endorsed and presented it to the Philippine National Bank where the amount of the check was placed to his credit. After having paid the check, and on the next day, the Philippine National Bank endorsed the check to the Hongkong and Shanghai Banking Corporation, which paid it, and charged the amount of the check to the account of the plaintiff. In the ordinary course of business, the Hongkong and Shanghai Banking Corporation rendered a bank statement to the plaintiff showing that the amount of the check was charged to its account, and no objection was then made to the statement. About four months after the check was charged to the account of the plaintiff, it developed that Lazaro Melicor, to whom the check was made payable, had never received it, and that his signature, as an endorser, was forged by Maasim, who presented and deposited it to
his private account in the Philippine National Bank. With this knowledge, the plaintiff promptly made a demand upon the Hongkong and Shanghai Banking Corporation that it should be given credit for the amount of the forged check, which the bank refused to do, and the plaintiff commenced this action to recover the P2,000 which was paid on the forged check. On the petition of the Shanghai Bank, the Philippine National Bank was made defendant. The Shanghai Bank denies any liability, but prays that, if a judgment should be rendered against it, in turn, it should have like judgment against the Philippine National Bank which denies all liability to either party. Upon the issued being joined, a trial was had and judgment was rendered against the plaintiff and in favor of each of the defendants, from which the plaintiff appeals, claiming that the court erred in dismissing the case, notwithstanding is finding of fact, and in not rendering a judgment in its favor, as prayed for in its complaint. JOHNS, J p: There is no dispute about any of the findings of fact made by the trial court, and the plaintiff relies upon them for a reversal. Among other things, the trial court says: "Who is responsible for the refund to the drawer of the amount of the check drawn and payable to order, when its value was collected by a third person by means of forgery of the signature of the payee? Is it the drawee or the last indorser, who ignored the forgery at the time of making the payment, or the forger?" The lower court found that Melicor's name was forged to the check. "So that the person to whose order the check was issued did not receive the money, which was collected by E. M. Maasim," and then says:
"Now then, the National Bank should not be held responsible for the payment made to Maasim in good faith of the amount of the check, because the indorsement of Maasim is unquestionable and his signature perfectly genuine, and the bank was not obliged to identify the signature of the former indorser. Neither could the Hongkong and Shanghai Banking Corporation be held responsible in making payment in good faith to the National Bank, because the latter is a holder in due course of the check in question. In other words, the two defendant banks can not be held civilly responsible for the consequences of the falsification or forgery of the signature of Lazaro Melicor, the National Bank having had no notice of said forgery in making payment to Maasim, nor the Hongkong Bank in making payment to National Bank. Neither bank incurred in any responsibility arising from that crime, nor was either of the said banks by subsequent acts, guilty of negligence or fault." This was fundamental error. Plaintiff's check was drawn on the Shanghai Bank payable to the order of Melicor. In other words, the plaintiff authorized and directed the Shanghai Bank to pay Melicor, or his order, P2,000. It did not authorize or direct the bank to pay the check to any other person than Melicor, or his order, and the testimony is undisputed that Melicor never did part with his title or endorse the check, and never received any of its proceeds. Neither is the plaintiff estopped or bound by the bank statement, which was made to it by the Shanghai Bank. This is not a case where the plaintiff's own signature was forged to one of its checks. In such a case, the plaintiff would have known of the forgery, and it would have been its duty to have promptly notified the bank of any forged signature, and any failure on its part would have released the bank from any liability. That is not this case. Here, the forgery was that of Melicor, who was the payee of the check, and the legal
presumption is that the bank would not honor the check without the genuine endorsement of Melicor. In other words, when the plaintiff received its bank statement, it had a right to assume that Melicor had personally endorsed the check, and that, otherwise, the bank would not have paid it. Section 23 of Act No. 2031, known as the Negotiable Instruments Law, says: "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." That section is square in point. The money was on deposit in the Shanghai Bank, and it had no legal right to pay it out to anyone except the plaintiff or its order. Here, the plaintiff ordered the Shanghai Bank to pay the P2,000 to Melicor, and the money was actually paid to Maasim and was never paid to Melicor, and he never personally endorsed the check, or authorized any one to endorse it for him, and the alleged endorsement was a forgery. Hence, upon the undisputed facts, it must follow that the Shanghai Bank has no defense to this action. It is admitted that the Philippine National Bank cashed the check upon a forged signature, and placed the money to the credit of Maasim, who was the forger. That the Philippine National Bank then endorsed the check and forwarded it to the Shanghai Bank by whom it was paid. The Philippine National Bank had no license or authority to pay the money to Maasim or anyone else upon a forged signature. It was its legal duty to know that Melicor's endorsement was genuine before cashing the check. Its remedy is against Maasim to whom it paid the money.
The judgment of the lower court is reversed, and one will be entered here in favor of the plaintiff and against the Hongkong and Shanghai Banking Corporation for P2,000, with interest thereon from November 8, 1920, at the rate of 6 per cent per annum, and the costs of this action, and a corresponding judgment will be entered in favor of the Hongkong and Shanghai Banking Corporation against the Philippine National Bank for the same amount, together with the amount of its costs in this action. So ordered. Araullo, C. J., Johnson, Street, Malcolm, Avancena, Villamor, Ostrand, and Romualdez, JJ., concur.
FIRST DIVISION [G.R. NO. L-29432. AUGUST 6, 1975.] JAI-ALAI CORPORATION OF THE PHILIPPINES, PETITIONER , VS. BANK OF THE PHILIPPINE ISLAND, RESPONDENT . Bausa, Ampil & Suarez for petitioner. Aviado & Aranda for respondent. SYNOPSIS Petitioner deposited in its current account with respondent bank several checks with a total face value of P8,030.58, all acquired from Antonio J. Ramirez, a regular bettor at the jai-alai games and a sale agent of the Inter-Island Gas Service, Inc., the payee of the checks. The deposits were all temporarily credited to petitioner's account in
accordance with the clause printed on the bank's deposit slip. Subsequently, Ramirez resigned and after the checks had been submitted to inter-bank clearing, the Inter-Island Gas discovered that all the indorsement made on the cheeks purportedly by its cashiers, as well as the rubber stamp impression thereon reading "Inter-Island Gas Service, Inc.", were forgeries. It informed petitioner, the respondent, the drawers and the drawee banks of the said checks and forgeries and filed a criminal complaint against its former employee. In view of these circumstances, the respondent Bank debited the petitioner's current account and forwarded to the latter the checks containing the forged indorsements, which petitioner refused to accept. Later, petitioner drew against its current account a check for P135,000.00. This check was dishonored by respondent as its records showed that petitioner's balance after netting out the value of the checks with the forged indorsement, was insufficient to cover the value of the check drawn. A complaint was filed by petitioner with the Court of First Instance of Manila. The same was dismissed by the said court after due trial, as well as by the Court of Appeals, on appeal. Hence, this petition for review. The Supreme Court ruled that respondent acted within legal bounds when it debited petitioner's account; that the payments made by the drawee banks to the respondent on account of the checks with forged indorsements were ineffective; that on account thereof, no creditordebtor relationship was created between the parties; that petitioner was grossly recreant in accepting the checks in question from Ramirez without making any inquiry as to authority to exchange checks belonging to the payee-corporation; and that petitioner, in indorsing the said checks when it deposited them with respondent, guaranteed the genuineness of all prior indorsement thereon so that the respondent, which relied upon its warranty, cannot be held liable for the resulting loss. Judgment affirmed SYLLABUS
1. NEGOTIABLE INSTRUMENT; CHECKS; FORGED INDORSEMENTS EFFECT. A forged signature in a negotiable instrument makes it wholly inoperative and no right to discharge it or enforce its payment can be acquired through or under the forged signature except against a party who cannot invoke the forgery. 2. ID.; ID.; ID.; NO RELATION OF CREDITOR-DEBTOR BETWEEN THE PARTIES CREATED EVEN IF DEPOSITARY OR COLLECTING BANK HAD ALREADY COLLECTED THE PROCEEDS OF THE CHECKS WHEN IT DEBITED PETITIONER'S ACCOUNT; REASON. Where the indorsement made on the checks were forged prior to their delivery to depositor, the payments made by the drawee-banks to the collecting bank on account of the said checks were ineffective. Such being the case, the relationship of creditor and debtor between the depositor and the depository had not been validly effected, the checks not having properly and legitimately converted into cash. 3. ID.; ID.; ID.; COLLECTING BANKS HAS DUTY TO REIMBURSE TO DRAWEE-BANKS THE VALUE OF CHECKS CONTAINING FORGED INDORSEMENT; RULING IN THE CASE OF GREAT EASTERN LIFE INSURANCE CO. vs. HONGKONG & SHANGHAI BANK. In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 43 Phil. 678 (1992), the Court ruled that it is the obligation of the collecting bank to reimburse the drawee-bank the value of the checks subsequently found to contain the forged indorsement of the payee. The reason is that the bank with which the check was deposited has no right to pay the sum stated therein to the forger "or to anyone else upon a forged signature." "It was its duty to know," said the Court, "that (the payee's) endorsement was genuine before cashing the check. " The depositor must in turn shoulder the loss of the amounts which the respondent, as its collecting agent, had no reimburse to the drawee-banks. 4. ID.; ID.; ACCEPTANCE OF CHECKS INDORSED BY AN AGENT; RULING IN THE CASE OF INSULAR DRUG CO. vs.
NATIONAL. In Insular Drug Co. vs. National, 58 Phil. 685 (1933), the Court made the pronouncement that ". . .The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred. A salesman with authority to collect money belonging to his principal does not have the implied authority to indorse checks received in payment. Any person taking checks made payable to a corporation which can act by agents, does so at his peril, and must abide by the consequences if the agent who endorses the same is without authority." 5. ID.; ID.; LIABILITY OF AN INDORSER; NO LOSS TO BE SUFFERED BY A BANK WHO RELIED ON INDORSER'S WARRANTY. Under Section 67 of the Negotiable Instruments Law, "Where a person places his indorsement on an instrument negotiable by delivery he incurs all the liability of an indorser," and under Section 66 of the same statute a general indorser warrants that the instrument "is genuine and in all respects what it purports to be." Where the depositor indorsed the checks with forged indorsement when it deposited them with the collecting bank, the former as an endorser guaranteed the genuineness of all prior indorsement thereon. The collecting bank which relied upon this warranty cannot be held liable for the resulting loss. 6. ID.; ID.; FORGED CHECKS; TRANSFER OF FUNDS FROM DRAWEE TO COLLECTING BANK; APPLICATION OF ART. 2154 OF THE CIVIL CODE. The transfer by the drawee-banks of funds to the collecting bank on account of forged checks would be ineffectual when made under the mistaken and valid assumption that the indorsement of the payee thereon were genuine. Under Article 2154 of the New Civil Code "If something is received when there is no right to demand it and it was unduly delivered through mistake, the obligation to return it arises, " By virtue thereof, there can be no valid payment of money by drawee-banks to the collecting bank on account of forged checks.
DECISION
CASTRO, J p: This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter referred to as the petitioner) for review of the decision of the Court of Appeals in C.A.-G.R. 34042-R dated June 25, 1968 in favor of the Bank of the Philippine Islands (hereinafter referred to as the respondent). From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58 were deposited by the petitioner in its current account with the respondent bank. The particulars of these checks are as follows: 1. Drawn by the Delta Engineering Service upon the Pacific Banking Corporation and payable to the Inter-Island Gas Service Inc. or order: Date Check Exhibit Deposited Number Amount Number 4/2/59 B-352680 P500.00 18 4/20/59 A-156907 372.32 19 4/24/59 A-156924 397.82 20 5/4/59 B-364764 250.00 23 5/6/59 B-364775 250.00 24 2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation and payable to the Inter-Island Gas Service, Inc. or bearer: 4/13/59 B-335063 P 2108.70 21 4/27/59 B-335072 P2210.94 22
3. Drawn by the Luzon Tinsmith & Company upon the China Banking Corporation and payable to the Inter-Island Gas Service, Inc. or bearer: 5/18/59 VN430188 P940.80 25 4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank and payable to the Inter-Island Gas Service, Inc. order: 5/14/59 1860160 P 500.00 26 5/18/59 1860660 P 500.00 27 All the foregoing checks, which were acquired by the petitioner from one Antonio J. Ramirez, a sales agent of the Inter-Island Gas and a regular bettor at jai-alai games, were, upon deposit, temporarily credited to the petitioner's account in accordance with the clause printed on the deposit slips issued by the respondent and which reads: "Any credit allowed the depositor on the books of the Bank for checks or drafts hereby received for deposit, is provisional only, until such time as the proceeds thereof, in current funds or solvent credits, shall have been actually received by the Bank and the latter reserves to itself the right to charge back the item to the account of its depositor, at any time before that event, regardless of whether or not the item itself can be returned." About the latter part of July 1959, after Ramirez had resigned from the Inter-Island Gas and after the checks had been submitted to inter-bank clearing, the Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers, Santiago Amplayo and Vicenta Mucor (who were merely authorized to deposit checks issued payable to the said company) as well as the rubber stamp impression
thereon reading "Inter-Island Gas Service, Inc.," were forgeries. In due time, the Inter-Island Gas advised the petitioner, the respondent, the drawers and the drawee-banks of the said checks about the forgeries, and filed a criminal complaint against Ramirez with the Office of the City Fiscal of Manila. 1 The respondent's cashier, Ramon Sarthou, upon receipt of the latter of Inter-Island Gas dated August 31, 1959, called up the petitioner's cashier, Manuel Garcia, and advised the latter that in view of the circumstances he would debit the value of the checks against the petitioner's account as soon as they were returned by the respective drawee-banks. Meanwhile, the drawers of the checks, having been notified of the forgeries, demanded reimbursement to their respective accounts from the drawee-banks, which in turn demanded from the respondent, as collecting bank, the return of the amounts they had paid on account thereof. When the drawee-banks returned the checks to the respondent, the latter paid their value which the former in turn paid to the InterIsland Gas. The respondent, for its part, debited the petitioner's current account and forwarded to the latter the checks containing the forged indorsements, which the petitioner, however, refused to accept.
On October 8, 1959 the petitioner drew against its current account with the respondent a check for P135,000 payable to the order of the Mariano Olondriz y Cia. in payment of certain shares of stock. The check was, however, dishonored by the respondent as its records showed that as of October 8, 1959 the current account of the petitioner, after netting out the value of the checks P8,030.58) with the forged indorsements, had a balance of only P128,257.65. The petitioner then filed a complaint against the respondent with the Court of First Instance of Manila, which was however dismissed by
the trial court after due trial, and as well by the Court of Appeals, on appeal. Hence, the present recourse. The issues posed by the petitioner in the instant petition may be briefly stated as follows: (a) Whether the respondent had the right to debit the petitioner's current account in the amount corresponding to the total value of the checks in question after more than three months had elapsed from the date their value was credited to the petitioner's account:(b) Whether the respondent is estopped from claiming that the amount of P8,030.58, representing the total value of the checks with the forged indorsements, had not been properly credited to the petitioner's account, since the same had already been paid by the drawee-banks and received in due course by the respondent; and(c) On the assumption that the respondent had improperly debited the petitioner's current account, whether the latter is entitled to damages. These three issues interlock and will be resolved jointly. In our opinion, the respondent acted within legal bounds when it debited the petitioner's account. When the petitioner deposited the checks with the respondent, the nature of the relationship created at that stage was one of agency, that is, the bank was to collect from the drawees of the checks the corresponding proceeds. It is true that the respondent had already collected the proceeds of the checks when it debited the petitioner's account, so that following the rule in Gullas vs. Philippine National Bank 2 it might be argued that the relationship between the parties had become that of creditor and debtor as to preclude the respondent from using the petitioner's funds to make payments not authorized by the latter. It is our view nonetheless that no creditor-debtor relationship was created between the parties.
Section 23 of the Negotiable Instruments Law (Act 2031) states that 3 "When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." Since under the foregoing provision, a forged signature in a negotiable instrument is wholly inoperative and no right to discharge it or enforce its payment can be acquired through or under the forged signature except against a party who cannot invoke the forgery, it stands to reason, upon the facts of record, that the respondent, as a collecting bank which indorsed the checks to the drawee-banks for clearing, should be liable to the latter for reimbursement, for, as found by the court a quo and by the appellate court, the indorsements on the checks had been forged prior to their delivery to the petitioner. In legal contemplation, therefore, the payments made by the drawee-banks to the respondent on account of the said checks were ineffective; and, such being the case, the relationship of creditor and debtor between the petitioner and the respondent had not been validly effected, the checks not having been properly and legitimately converted into cash. 4 In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5 the Court ruled that it is the obligation of the collecting bank to reimburse the drawee-bank the value of the checks subsequently found to contain the forged indorsement of the payee. The reason is that the bank with which the check was deposited has no right to pay the sum stated therein to the forger "or anyone else upon a forged signature." "It was its duty to know," said the Court, "that [the payee's] endorsement was genuine before cashing the check." The petitioner must in turn
shoulder the loss of the amounts which the respondent; as its collecting agent, had to reimburse to the drawee-banks. We do not consider material for the purposes of the case at bar that more than three months had elapsed since the proceeds of the checks in question were collected by the respondent. The record shows that the respondent had acted promptly after being informed that the indorsements on the checks were forged. Moreover, having received the checks merely for collection and deposit, the respondent cannot he expected to know or ascertain the genuineness of all prior indorsements on the said checks. Indeed, having itself indorsed them to the respondent in accordance with the rules and practices of commercial banks, of which the Court takes due cognizance, the petitioner is deemed to have given the warranty prescribed in Section 66 of the Negotiable Instruments Law that every single one of those checks "is genuine and in all respects what it purports to be.". The petitioner was, moreover, grossly recreant in accepting the checks in question from Ramirez. It could not have escaped the attention of the petitioner that the payee of all the checks was a corporation the Inter-Island Gas Service, Inc. Yet, the petitioner cashed these checks to a mere individual who was admittedly a habitue at its jai-alai games without making any inquiry as to his authority to exchange checks belonging to the payee-corporation. In Insular Drug Co. vs. National 6 the Court made the pronouncement that. ". . . The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred. A salesman with authority to collect money belonging to his principal does not have the implied authority to indorse checks received in payment. Any person taking checks made payable to a corporation, which can act only by agents, does so at his peril, and must abide by the consequences if the agent who indorses the same is without authority." (underscoring supplied)
It must be noted further that three of the checks in question are crossed checks, namely, exhs. 21, 25 and 27, which may only be deposited, but not encashed; yet, the petitioner negligently accepted them for cash. That two of the crossed checks, namely, exhs. 21 and 25, are bearer instruments would not, in our view, exculpate the petitioner from liability with respect to them. The fact that they are bearer checks and at the same time crossed checks should have aroused the petitioner's suspicion as to the title of Ramirez over them and his authority to cash them (apparently to purchase jai-alai tickets from the petitioner), it appearing on their face that a corporate entity the Inter Island Gas Service, Inc. was the payee thereof and Ramirez delivered the said checks to the petitioner ostensibly on the strength of the payee's cashiers' indorsements. At all events, under Section 67 of the Negotiable Instruments Law, "Where a person places his indorsement on an instrument negotiable by delivery he incurs all the liability of an indorser," and under Section 66 of the same statute a general indorser warrants that the instrument "is genuine and in all respects what it purports to be." Considering that the petitioner indorsed the said checks when it deposited them with the respondent, the petitioner as an indorser guaranteed the genuineness of all prior indorsements thereon. The respondent which relied upon the petitioner's warranty should not be held liable for the resulting loss. This conclusion applied similarly to exh. 22 which is an uncrossed bearer instrument, for under Section 65 of the Negotiable Instrument Law. "Every person negotiating an instrument by delivery . . . warrants (a) That the instrument is genuine and in all respects what it purports to be." Under that same section this warranty "extends in favor of no holder other than the immediate transferee," which, in the case at bar, would be the respondent. The provision in the deposit slip issued by the respondent which stipulates that it "reserves to itself the right to charge back the item to the account of its depositor," at any time before "current funds or solvent credits shall have been actually received by the Bank," would not materially affect the conclusion we have reached. That stipulation
prescribes that there must be an actual receipt by the bank of current funds or solvent credits; but as we have earlier indicated the transfer by the drawee-banks of funds to the respondent on account of the checks in question was ineffectual because made under the mistaken and valid assumption that the indorsements of the payee thereon were genuine. Under article 2154 of the New Civil Code "If something is received when there is no right to demand it and it was unduly delivered through mistake, the obligation to return it arises." There was, therefore, in contemplation of law, no valid payment of money made by the drawee-banks to the respondent on account of the questioned checks. ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at petitioner's cost. Makasiar, Esguerra, Muoz Palma and Martin, JJ., concur. Teehankee, J., is on leave. Footnotes 1. The City Fiscal dropped the charges on the ground that the InterIsland Gas which was later reimbursed by the drawee-banks, was no longer qualified to be regarded as an offended party which could properly file a complaint against Ramirez because it had not suffered any damage at all. 2. 62 Phil. 519 (1935). 3. A bank check is a negotiable instrument and is governed by the Negotiable Instruments Law (Ang Tiong vs. Ting, 22 SCRA 713).
4. The collecting hank may certainly set up as defense the so-called "24-hour clearing house rule" of the Central Bank. This rule is not, however, invoked here. See Hongkong & Shanghai Banking Corp. vs. People's Bank & Trust Co., 35 SCRA 141. 5. 43 Phil. 678 (1922). 6. 58 Phil. 685 (1933). FIRST DIVISION [G.R. NO. L-50373. FEBRUARY 15, 1990.] MANILA LIGHTER TRANSPORTATION, INC., PETITIONER, VS. COURT OF APPEALS AND CHINA BANKING CORPORATION, RESPONDENTS . Sergio L. Guadiz and Jose Diokno & Associates for petitioner. Sycip, Salazar, Hernandez & Gatmaitan for private respondent. SYLLABUS REMEDIAL LAW; APPEAL; SUPREME COURT DECIDES ONLY ISSUES INVOLVING QUESTIONS OF LAW. The instant petition for review must necessarily fail. The issues raised therein are factual. The main issue of petitioner's negligence had already been determined by the trial court against petitioner and affirmed by the Court of Appeals after examining the evidence in the records. The Supreme Court decides appeals which only involve questions of law. It is not the function of the Supreme Court to analyze or weigh the
evidence all over again, its jurisdiction being limited to resolving errors of law that might have been committed by the lower court. (Dihiansan vs. Court of Appeals, 153 SCRA 712; Francisco vs. Mandi, 152 SCRA 711; Director of Lands vs. Funtilar, 142 SCRA 57).
Upon leave of court, respondent Bank filed a third-party complaint against Cao Pek & Co. and Ko Lit who had deposited the checks in question in their respective accounts with the former and had thereafter withdrawn the proceeds thereof. The trial court, in its decision dated January 22, 1972, made the following findings of facts: LLphil ". . . Over a period of eighteen months, from January 29, 1960 (Exh. B) to June 22, 1961 (Exh. B-11), Augusto Perez collected from different clients of plaintiff company some 49 checks (Exhs. A to E-2) with a total value of P91,153.11. The endorsement of the payee, plaintiff Manila Lighter Transportation, Inc., by its general manager, Luis Gaskell, appear on the checks. The latter disclaimed such signatures and presented a handwriting expert who gave the opinion that the signatures "L. Gaskell" on the indorsement were indeed forgeries. The checks as thus endorsed were negotiated by Wilfredo Lagamon, accountant of the plaintiff company and relative of Luis Gaskell, with Cao Pek and Co., an electronic store, whose treasurer is Ko Lit. Most of the checks, with a total amount of P90,500.24, were deposited by Ko Lit in his account with defendant bank (Exh. 4). Three checks with a total amount of P1,115.05 were deposited in the account of Cao Pek & Co. while one check for P2,735.19 was deposited in the accounts of Lu Siu Po, manager of Cao Pek & Co. These accounts have no more balances at present. "As late as July 21, 1961, plaintiff apparently did not know what was happening because on that date it sent S. Quintos Transportation, Inc., one of its clients whose checks were collected by Augusto Perez, the following letter:
DECISION
GRIO-AQUINO, J p: A complaint for recovery of the value of forty-nine (49) checks with alleged forged/unauthorized indorsements of the payee of which 26 were paid to the petitioner or order and twenty-three (23) to petitioner or bearer, was filed by herein petitioner against private respondent China Banking Corporation on May 22, 1962. The complaint alleged that the checks were issued by customers of the petitioner in payment of brokerage/lighterage services and were all delivered, without petitioner's knowledge, to its collector, Augusto Perez. Upon forged indorsements of the petitioner's general manager, the checks found their way into the accounts of third persons in the respondent bank and the proceeds were later withdrawn, to the damage of the petitioner who sought reimbursement or restoration by said bank of the value of the checks. Respondent Bank denied liability for the petitioner's loss which was due to its own negligence. It alleged that petitioner is estopped from denying its collector's authority to receive the checks from the drawers/customers; that petitioner failed to give defendant Bank and the drawee Banks notice of the alleged forged or unauthorized indorsements within a reasonable time; and that its loss was occasioned by its own failure to observe the proper degree of diligence in the supervision of its employees, particularly its collector, Augusto Perez.
'Upon a detailed examination of our records, we found out that various jobs undertaking (sic) by us in your behalf in 1960 and 1961 are still pending payment as of this date. 'We are sending you herewith our statement covering these jobs which amount to P23,520.30 and would request you to kindly confirm its correctness at your earliest.' "It may be assumed that similar letters were sent to other clients of plaintiff in a similar situation, namely: Go Fay and Co., for P12,568.77; Peter Paul Phil. Corp. for P36,967.80; Central Azucarera Don Pedro for P11,190.14; and Helena Cigar Co. for P4,296.90. 'Another client, Cia. Gral. de Tabacos de Filipinas, had also paid plaintiff four checks in the total amount of P3,453.53 all drawn against Hongkong and Shanghai Banking Corp. (Exhs. 2-a to 2-d). Upon complaint of the drawer after the anomalies were discovered (Exhs. 2-F, 2) defendant bank refunded the amount to drawee bank (Exh. 3) and the amount is not included in the complaint, although defendant bank has entered a counterclaim for the amount against plaintiff. 'Plaintiff made its initial demand against defendant bank for the refund of the amount of the checks on September 9, 1961 (Exh. T). There were some attempts made to negotiate an amicable settlement, but nothing came of it.'
"On May 30, 1962, the defendant Bank filed a thirdparty complaint against Cao Pek and Co. and Ko Lit. Cao Pek and Co., in turn, filed a crossclaim against Ko Lit." (pp. 38-40, Rollo.) The lower court found both parties equally negligent, the plaintiff (herein petitioner), for allowing a state of affairs in which its employees could appropriate the checks and falsify the indorsement thereon of its manager with impunity, and the defendant (private respondent herein), for not detecting the falsification made by the plaintiff's employees when the checks were presented to it. The dispositive portion of the trial court's decision reads: "WHEREFORE, judgment is hereby rendered: "1. Ordering defendant China Banking Corporation to pay plaintiff Manila Lighter Transportation, Inc., an amount equal to 50% of the total amount of the checks Exhibits A to E-2; "2. Ordering plaintiff to pay defendant 50% of the amount of the Tabacalera checks Exhibits 2-A to 2-D; "3. Ordering third-party defendant Ko Lit to pay P90,500.24 and third-party defendant Cao Pek & Co. to pay P1,215.05, both to China Banking Corporation; "4. Ordering China Banking Corporation to pay plaintiff 50% of any amount it may recover from Ko Lit and Cao Pek & Co. "The parties shall bear their own costs and attorney's fees." (p. 40, Rollo.)
Both petitioner and private respondent appealed to the Court of Appeals, contending that the other should be entirely liable. Ko Lit and Cao Pek also appealed but their appeal was dismissed for failure to pay the docket fee and to file the record on appeal. On January 18, 1979, the Court of Appeals rendered judgment, the dispositive portion of which states: WHEREFORE, the judgment appealed from is hereby modified such that the complaint is dismissed and the defendant-appellant is freed from any liability to the plaintiff-appellant. The counterclaim of P3,453.53 is granted with interests from the date the amended counterclaim was filed. The third-party defendants are adjudged directly liable to the plaintiff-appellant for the checks they respectively indorsed. No costs." (p. 49, Rollo.) Petitioner filed a motion for reconsideration of the decision but it was denied, hence, this petition for review, alleging that the Court of Appeals erred: LibLex 1. in finding that the petitioner was negligent; 2. in holding that said negligence constituted sufficient ground to preclude it from alleging forgery or want of authority; 3. in not ruling that the proximate cause for the loss was the respondent Bank's failure in its duty to ascertain the genuineness of the signatures appearing in the checks; 4. in not ruling that the respondent Bank should have been held entirely liable for the loss; and
5. in not condemning respondent Bank to pay petitioner damages, attorney's fees, expenses and costs. The instant petition for review must necessarily fail. The issues raised therein are factual. The main issue of petitioner's negligence had already been determined by the trial court against petitioner and affirmed by the Court of Appeals after examining the evidence in the records. Since the petitioner was not a client of respondent Bank, i.e., did not maintain an account in said Bank, the latter had no way of ascertaining the authenticity of its indorsements on the checks which were deposited in the accounts of the third-party defendants in said Bank. Respondent Bank was not negligent because, in accordance with banking practice, it caused the checks to pass through the clearing house before it allowed their proceeds to be withdrawn by the depositors (third-party defendants in the lower court). (p. 117, Rollo.) LexLib The Supreme Court decides appeals which only involve questions of law. It is not the function of the Supreme Court to analyze or weigh the evidence all over again, its jurisdiction being limited to resolving errors of law that might have been committed by the lower court. (Dihiansan vs. Court of Appeals, 153 SCRA 712; Francisco vs. Mandi, 152 SCRA 711; Director of Lands vs. Funtilar, 142 SCRA 57). WHEREFORE, the petition for review is denied for lack of merit. Costs against the petitioner. SO ORDERED. Narvasa, Cruz and Gancayco, JJ., concur. Medialdea, J., is on leave.
FIRST DIVISION [G.R. NO. L-40796. JULY 31, 1975.] REPUBLIC BANK, PLAINTIFF-APPELLEE, VS. MAURICIA T. EBRADA, DEFENDANT-APPELLANT. Sabino de Leon, Jr. for plaintiff-appellee. Julio Baldonado for defendant-appellant. SYNOPSIS A check with a face value of P1,246.08 was issued to one Martin Lorenzo who turned out to have been dead almost eleven years before it was issued. It was encashed by Mauricia Ebrada at the Republic Bank's main office at the Escolta. Informing the Bank that the payee's (Lorenzo) indorsement on the reverse side of the check was a forgery, the Bureau of Treasury requested the Bank to refund the amount. The Bank sued Mauricia Ebrada before the city court when she refused to return the money. The court ruled for the Bank, so the case was elevated to the Court of First Instance which likewise rendered an adverse decision against Mauricia Ebrada. An appeal was filed. The Supreme Court upheld the lower court. Although Mauricia Ebrada was not the author of the forgery, as the last indorser of the check, she warranted good title to it. The negotiation from Martin Lorenzo, the original payee, to Ramon Lorenzo is of no effect but the negotiation from Ramon Lorenzo to Adelaida Dominguez and from her to Mauricia Ebrada who did not know of the forgery is valid and enforceable. The bank can recover from her the money paid on the forged check. Judgment affirmed.
SYLLABUS 1. NEGOTIABLE INSTRUMENT; CHECK; FORGED INDORSEMENT; EFFECT. Where the signature on a negotiable instrument is forged, the negotiation of the check is without force of effect. But the existence of the forged signature therein will not render void all the other negotiations of the check with respect to the other parties whose signatures are genuine. It is only the negotiation predicated on the forged indorsement that should be declared inoperative. 2. ID.; ID.; ID.; DRAWEE BANK SUFFERED THE LOSS BUT RECOVERY FROM THE ONE WHO ENCASHED THE CHECK AVAILABLE. Where after the drawee bank has paid the amount of the check to the holder thereof, it was discovered that the signature of the payee was forged, the bank can still recover from the one who encashed the check. In the case of Great Eastern Life Insurance Company vs. Hongkong and Shanghai Banking Corporation, 43 Phil. 678, it was held "where a check is drawn payable to the order of one person and is presented to a bank by another and purports upon its face to have been duly indorsed by the payee of the check, it is the duty of the bank to know that the check was duly indorsed by the original payee, and where the Bank pays the amount of the check to a third person, who has forged the signature of the payee, the loss falls upon the bank who cashed the check, and its only remedy is against the person to whom it paid the money." 3. ID.; ID.; ID.; DRAWEE BANK NOT DUTY BOUND TO ASCERTAIN GENUINESS OF SIGNATURES OF PAYEE OR INDORSERS. It is not supposed to be the duty of a drawee bank to ascertain whether the signatures of the payee or indorsers are genuine or not. This is because the indorser is supposed to warrant to the drawee that the signatures of the payee and previous indorsers are genuine, warranty not extending only to holders in due course.
4. ID.; ID.; ID.; PURCHASER OF CHECK OR DRAFT BOUND TO ASCERTAIN GENUINENESS OF INSTRUMENT. One who purchases a check or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty, and the drawee who has paid the forged check, without actual negligence on his part, may recover the money paid from such negligent purchaser. In such cases the recovery is permitted because although the drawee was in a way negligent in failing to detect the forgery, yet if the encasher of the check had performed his duty, the forgery would in all probability, have been detected and the fraud defeated. 5. ID.; ID.; ID.; LIABILITY OF ACCOMMODATION PARTY. Although the one to whom the Bank paid the check was not proven to be the author of the supposed forgery, as last indorser of the check, she has warranted that she has good title to it even if in fact she did not have it because the payee of the check was already dead eleven years before the check was issued. The fact that immediately after receiving the cash proceeds of the check in question from the drawee bank she immediately turned over said amount to another party, who in turn handed the amount to somebody else on the same date would not exempt her from liability because by doing so, she acted as an accommodation party in the check for which she is also liable under Section 29 of the Negotiable Instrument Law.
On or about February 27, 1963 defendant Mauricia T. Ebrada, encashed Back Pay Check No. 508060 dated January 15, 1963 for P1,246.08 at the main office of the plaintiff Republic Bank at Escolta, Manila. The check was issued by the Bureau of Treasury. 1 Plaintiff Bank was later advised by the said bureau that the alleged indorsement on the reverse side of the aforesaid check by the payee, "Martin Lorenzo" was a forgery 2 since the latter had allegedly died as of July 14, 1952. 3 Plaintiff Bank was then requested by the Bureau of Treasury to refund the amount of P1,246.08. 4 To recover what it had refunded to the Bureau of Treasury, plaintiff Bank made verbal and formal demands upon defendant Ebrada to account for the sum of P1,246.08, but said defendant refused to do so. So plaintiff Bank sued defendant Ebrada before the City Court of Manila. On July 11, 1966, defendant Ebrada filed her answer denying the material allegations of the complaint and as affirmative defenses alleged that she was a holder in due course of the check in question, or at the very least, has acquired her rights from a holder in due course and therefore entitled to the proceeds thereof. She also alleged that the plaintiff Bank has no cause of action against her; that it is in estoppel, or so negligent as not to be entitled to recover anything from her. 5 About the same day, July 11, 1966 defendant Ebrada filed a ThirdParty complaint against Adelaida Dominguez who, in turn, filed on September 14, 1966 a Fourth-Party complaint against Justina Tinio. On March 21, 1967, the City Court of Manila rendered judgment for the plaintiff Bank against defendant Ebrada; for Third-Party plaintiff against Third-Party defendant, Adelaida Dominguez, and for FourthParty plaintiff against Fourth-Party defendant, Justina Tinio. From the judgment of the City Court, defendant Ebrada took an appeal to the Court of First Instance of Manila where the parties submitted a partial stipulation of facts as follows:
DECISION
MARTIN, J p: Appeal on a question of law of the decision of the Court of First Instance of Manila, Branch XXIII in Civil Case No. 69288, entitled "Republic Bank vs. Mauricia T. Ebrada."
"COME NOW the undersigned counsel for the plaintiff, defendant, Third-Party defendant and Fourth-Party plaintiff and unto this Honorable Court most respectfully submit the following: PARTIAL STIPULATION OF FACTS 1. That they admit their respective capacities to sue and be sued; 2. That on January 15, 1963 the Treasury of the Philippines issued its Check No. BP-508060, payable to the order of one MARTIN LORENZO, in the sum of P1,246.08, and drawn on the Republic Bank, plaintiff herein, which check will be marked as Exhibit "A" for the plaintiff; 3. That the back side of aforementioned check hears the following signatures, in this order: 1) MARTIN LORENZO: 2) RAMON R. LORENZO; 3) DELIA DOMINGUEZ; and 4) MAURICIA T. EBRADA; 4. That the aforementioned check was delivered to the defendant MAURICIA T. EBRADA by the ThirdParty defendant and Fourth-Party plaintiff ADELAIDA DOMINGUEZ, for the purpose of encashment;
5. That the signature of defendant MAURICIA T. EBRADA was affixed on said check on February 27, 1963 when she encashed it with the plaintiff Bank; 6. That immediately after defendant MAURICIA T. EBRADA received the cash proceeds of said check in the sum of P1,246.08 from the plaintiff Bank, she immediately turned over the said amount to the thirdparty defendant and fourth-party plaintiff ADELAIDA DOMINGUEZ, who in turn handed the said amount to the fourth-party defendant JUSTINA TINIO on the same date, as evidenced by the receipt signed by her which will be marked as Exhibit "1Dominguez"; and 7. That the parties hereto reserve the right to present evidence on any other fact not covered by the foregoing stipulations. Manila, Philippines, June 6, 1969." Based on the foregoing stipulation of facts and the documentary evidence presented, the trial court rendered a decision, the dispositive portion of which reads as follows: "WHEREFORE, the Court renders judgment ordering the defendant Mauricia T. Ebrada to pay the plaintiff the amount of ONE THOUSAND TWO FORTY-SIX 08/100 (P1,246.08), with interest as the legal rate from the filing of the complaint on June 16, 1966, until fully paid, plus the costs in both instances against Mauricia T. Ebrada. The right of Mauricia T. Ebrada to file whatever claim she may have against Adelaida Dominguez in connection with this case is hereby reserved. The
right of the estate of Dominguez to file the fourthparty complaint against Justina Tinio is also reserved. SO ORDERED." In her appeal, defendant-appellant presses that the lower court erred: "IN ORDERING THE APPELLANT TO PAY THE APPELLEE THE FACE VALUE OF THE SUBJECT CHECK AFTER FINDING THAT THE DRAWER ISSUED THE SUBJECT CHECK TO A PERSON ALREADY DECEASED FOR 11-1/2 YEARS AND THAT THE APPELLANT DID NOT BENEFIT FROM ENCASHING SAID CHECK." From the stipulation of facts it is admitted that the check in question was delivered to defendant-appellant by Adelaida Dominguez for the purpose of encashment and that her signature was affixed on said check when she cashed it with the plaintiff Bank. Likewise it is admitted that defendant-appellant was the last indorser of the said check. As such indorser, she was supposed to have warranted that she has good title to said check; for under Section 5 of the Negotiable Instruments Law: 6
"Every indorser who indorses without qualification warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding sections; (b) That the instrument is at the time of his indorsement valid and subsisting." It turned out, however, that the signature of the original payee of the check, Martin Lorenzo was a forgery because he was already dead 7 almost 11 years before the check in question was issued by the Bureau of Treasury. Under Section 23 of the Negotiable Instruments Law (Act 2031): "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 instruments, or to give a discharge 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." It is clear from the provision that where the signature on a negotiable instrument if forged, the negotiation of the check is without force or effect. But does this mean that the existence of one forged signature therein will render void all the other negotiations of the check with respect to the other parties whose signature are genuine? In the case of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590, where a check has several indorsements on it, it was held that it is only the negotiation based on the forged or unauthorized signature which is inoperative. Applying this principle to the case before Us, it can be safely concluded that it is only the negotiation predicated on the forged indorsement that should be declared inoperative. This means that the
"Every person negotiating an instrument by delivery or by qualified indorsement, warrants: (a) That the instrument is genuine and in all respects what it purports to be. (b) That she has good title to it." xxx xxx xxx and under Section 65 of the same Act:
negotiation of the check in question from Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the second indorser, should be declared of no effect, but the negotiation of the aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, the third indorser, and from Adelaida Dominguez to the defendant-appellant who did not know of the forgery, should be considered valid and enforceable, barring any claim of forgery. What happens then, if, after the drawee bank has paid the amount of the check to the holder thereof, it was discovered that the signature of the payee was forged? Can the drawee bank recover from the one who encashed the check? In the case of State v. Broadway Mut. Bank, 282 S.W. 196, 197, it was held that the drawee of a check can recover from the holder the money paid to him on a forged instrument. It is not supposed to be its duty to ascertain whether the signatures of the payee or indorsers are genuine or not. This is because the indorser is supposed to warrant to the drawee that the signatures of the payee and previous indorsers are genuine, warranty not extending only to holders in due course. One who purchases a check or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the drawee who has paid the forged check, without actual negligence on his part, may recover the money paid from such negligent purchasers. In such cases the recovery is permitted because although the drawee was in a way negligent in failing to detect the forgery, yet if the encasher of the check had performed his duty, the forgery would in all probability, have been detected and the fraud defeated. The reason for allowing the drawee bank to recover from the encasher is: "Every one with even the least experience in business knows that no business man would accept a check in exchange for money or goods unless he is satisfied that the check is genuine. He accepts it only because
he has proof that it is genuine, or because he has sufficient confidence in the honesty and financial responsibility of the person who vouches for it. If he is deceived he has suffered a loss of his cash or goods through his own mistake. His own credulity or recklessness, or misplaced confidence was the sole cause of the loss. Why should he be permitted to shift the loss due to his own fault in assuming the risk, upon the drawee, simply because of the accidental circumstance that the drawee afterwards failed to detect the forgery when the check was presented?" 8 Similarly, in the case before Us, the defendant-appellant, upon receiving the check in question from Adelaida Dominguez, was dutybound to ascertain whether the check in question was genuine before presenting it to plaintiff Bank for payment. Her failure to do so makes her liable for the loss and the plaintiff Bank may recover from her the money she received for the check. As reasoned out above, had she performed the duty of ascertaining the genuineness of the check, in all probability the forgery would have been detected and the fraud defeated. In our jurisdiction We have a case of similar import. 9 The Great Eastern Life Insurance Company drew its check for P2000.00 on the Hongkong and Shanghai Banking Corporation payable to the order of Lazaro Melicor. A certain E. M. Maasin fraudulently obtained the check and forged the signature of Melicor, as an indorser, and then personally indorsed and presented the check to the Philippine National Bank where the amount of the check was placed to his (Maasin's) credit. On the next day, the Philippine National Bank indorsed the check to the Hongkong and Shanghai Banking Corporation which paid it and charged the amount of the check to the insurance company. The Court held that the Hongkong and Shanghai Banking Corporation was liable to the insurance company for the amount of the check and that the Philippine National Bank was in turn liable to the Hongkong and Shanghai Banking Corporation. Said the Court:
"Where a check is drawn payable to the order of one person and is presented to a bank by another and purports upon its face to have been duly indorsed by the payee of the check, it is the duty of the bank to know that the check was duly indorsed by the original payee, and where the Bank pays the amount of the check to a third person, who has forged the signature of the payee, the loss falls upon the bank who cashed the check, and its only remedy is against the person to whom it paid the money." With the foregoing doctrine We are to concede that the plaintiff Bank should suffer the loss when it paid the amount of the check in question to defendant-appellant, but it has the remedy to recover from the latter the amount it paid to her. Although the defendant-appellant to whom the plaintiff Bank paid the check was not proven to be the author of the supposed forgery, yet as last indorser of the check, she has warranted that she has good title to it 10 even if in fact she did not have it because the payee of the check was already dead 11 years before the check was issued. The fact that immediately after receiving the cash proceeds of the check in question in the amount of P1,246.08 from the plaintiff Bank, defendant-appellant immediately turned over said amount to Adelaida Dominguez (Third-Party defendant and the Fourth-Party plaintiff) who in turn handed the amount to Justina Tinio on the same date would not exempt her from liability because by doing so, she acted as an accommodation party in the check for which she is also liable under Section 29 of the Negotiable Instruments Law (Act 231), thus: "An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, 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
taking the instrument knew him to be only an accommodation party." IN VIEW OF THE FOREGOING, the judgment appealed from is hereby affirmed in toto with costs against defendant-appellant. SO ORDERED. Makalintal, C.J., Castro, Makasiar and Esguerra, JJ., concur. Footnotes 1. ROA, p. 2. 2. ROA, p. 2. 3. ROA, p. 2. 4. Exhibit "F-1". 5. ROA, p. 5. 6. Act No. 2031. 7. He died July 14, 1952 as shown by the Certificate of Death issued by the Local Civil Registrar of the Municipality of Lubao, Pampanga (Exhibit B). 8. Gloucester Bank v. Salem Bank, 17 Mass. 33; Bank of U.S. Bank of Georgia, 10 Wheat 333, 6 L. Ed. 334; National Bank of America v. Bangs, 196 Mass. 441, 8 Am. Rep. 349; First National Bank of Danvers v. First National Bank of Salem, 151 Mass. 280, 24 N.E. 44, 21 Am. St. Rep. 450; First National Bank v. Ricker, 71 Ill. 439, 22 Am. Rep. 104; Rouvant v. Bank, 63 Tex. 610; Bank v. Bank 30 Il. 96 Am Dec. 554; People's Bank v. Franklyn Bank, 88 Tenn. 299, 12
S.W. 716, 6 L.R.A. 724, 17 Am St. Rep. 884; Ellis & Morton v. Trust Co., 4 Ohio St. 628, 64 Am. Dec. 610; Bank v. Bank, 58 Ohio St. 207, 50 N.E. 723; Bank v. Bank, 22 Neb. 769, 36 N.W. 289, 3 Am. St. Rep. 294; Canadian Bank v. Bingham, 20 Wash. 484, 71 Pac. 43, 60 L.R.A. 955. 9. Great Eastern Life Insurance Company vs. Hongkong and Shanghai Banking Corporation, 43 Phil. 678. 10. Sec. 65, par. (b). Negotiable Instruments Law (Act 2031). Every person negotiating an instrument by delivery or by a qualified instrument warrants: (a) . . . (b) That he has a good title to it." SECOND DIVISION [G.R. NO. 132560. JANUARY 30, 2002.] WESTMONT BANK (FORMERLY ASSOCIATED BANKING CORP.), PETITIONER, VS. EUGENE ONG, RESPONDENT . Villanueva Caa & Associates Law Offices for petitioner. Alberto Salazar & Associates for respondent E. Ong. SYNOPSIS Respondent, a current account depositor with petitioner bank, was debited the amount of P1,754,787.50 representing the
face value of two Pacific Banking Corporation's Manager's checks containing respondent's forged signature. These two checks were deposited by respondent's friend, Paciano Tanlimco, in his account with petitioner bank which accepted and credited both checks without verifying the signature of respondent. Tanlimco immediately withdrew the money. Respondent sought the help of Tanlimco's family to recover the amount, but to no avail. Hence, he filed the collection case almost five months from the discovery of the fraud. 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, petitioner assailing, among others, that respondent was guilty of laches. 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. SYLLABUS 1. REMEDIAL LAW; ACTIONS; CAUSE OF ACTION, DEFINED. A cause of action is the act or omission by which a party violates a right of another. The essential elements of a cause of action are: (a) a legal right or rights of the plaintiff, (b) a correlative obligation of the defendant, and (c) an act or omission of the defendant in violation of said legal right.
2. ID.; ID.; ID.; CASE AT BAR. The complaint filed before the trial court expressly alleged respondent's right as payee of the manager's checks to receive the amount involved, petitioner's correlative duty as collecting bank to ensure that the amount gets to the rightful payee or his order, and a breach of that duty because of a blatant act of negligence on the part of petitioner which violated respondent's rights. 3. MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; CHECKS; FORGED INDORSEMENT; COLLECTING BANK LIABLE TO PAYEE. Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an indorsement in favor of the forger, such signature should be deemed as inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to recover from the collecting bank. The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payee's endorsement was genuine before cashing the check. As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payee's signature and who collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained. 4. ID.; ID.; ID.; ID.; ID.; RATIONALE. The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is wrongful, and when the money had been collected on the check, the bank or other person or corporation can be held as for moneys had and received, and the proceeds are held for the rightful owners who may recover them. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected the money without indorsement at all and the act of the bank amounts to conversion of the check. TaEIcS
5. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE TRIAL COURT, BINDING ON APPEAL. 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. In the present case, petitioner was held to be grossly negligent in performing its duties. Given the substantial face value of the two checks, totalling P1,754,787.50, and the fact that they were being deposited by a person not the payee, the very least defendant bank should have done, as any reasonable prudent man would have done, was to verify the genuineness of the indorsements thereon. The Court cannot help but note that had defendant conducted even the most cursory comparison with plaintiff's specimen signatures in its files (Exhibit "L-1" and "M1") it would have at once seen that the alleged indorsements were falsified and were not those of the plaintiff-payee. However, defendant apparently failed to make such a verification or, what is worse did so but, chose to disregard the obvious dissimilarity of the signatures. The first omission makes it guilty of gross negligence; the second of bad faith. In either case, defendant is liable to plaintiff for the proceeds of the checks in question. These findings are binding and conclusive on the appellate and the reviewing courts. 6. CIVIL LAW; LACHES; DEFINED. Laches may be defined as the failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled thereto has either abandoned or declined to assert it. It concerns itself with whether or not by reason of long inaction or inexcusable neglect, a person claiming a right should be barred from asserting the same, because to allow him to do so would be unjust to the person against whom such right is sought to be enforced.
7. ID.; ID.; NEGATED WHERE CASE WAS FILED ONLY AFTER DEPOSITOR HAD EXHAUSTED POSSIBILITIES SETTLING THE MATTER AMICABLY. In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted after knowing of the forgery by proceeding to seek help from the Tanlimco family and later the Central Bank, to remedy the situation and recover his money from the forger, Paciano Tanlimco. Only after he had exhausted possibilities of settling the matter amicably with the family of Tanlimco and through the CB, about five months after the unlawful transaction took place, did he resort to making the demand upon the petitioner and eventually before the court for recovery of the money value of the two checks. These acts cannot be construed as undue delay in or abandonment of the assertion of his rights. 8. ID.; ID.; NOT AVAILABLE TO PARTY WHICH HAD THE LAST CLEAR CHANCE TO STOP THE FRAUDULENT ENCASHMENT OF SUBJECT CHECKS. Moreover, the claim of petitioner that respondent should be barred by laches is clearly a vain attempt to deflect responsibility for its negligent act. As explained by the appellate court, it is petitioner which had the last clear chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and followed the proper and regular banking procedures in clearing checks. 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.
interest per annum computed from October 7, 1977, the date of the first extrajudicial demand, plus damages. The facts of this case are undisputed. Respondent Eugene Ong maintained a current account with petitioner, formerly the Associated Banking Corporation, but now known as Westmont Bank. Sometime in May 1976, he sold certain shares of stocks through Island Securities Corporation. To pay Ong, Island Securities purchased two (2) Pacific Banking Corporation manager's checks, 2 both dated May 4, 1976, issued in the name of Eugene Ong as payee. Before Ong could get hold of the checks, his friend 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. Instead of going straight to the bank to stop or question the payment, Ong first sought the help of Tanlimco's family to recover the amount. Later, he reported the incident to the Central Bank, which like the first effort, unfortunately proved futile. It was only on October 7, 1977, about five (5) months from discovery of the fraud, did Ong cry foul and demanded in his complaint that petitioner pay the value of the two checks from the bank on whose gross negligence he imputed his loss. In his suit, he insisted that he did not "deliver, negotiate, endorse or transfer to any person or entity" the subject checks issued to him and asserted that the signatures on the back were spurious. 3
DECISION
QUISUMBING, J p: This is a petition for review of the decision 1 dated January 13, 1998, of the Court of Appeals in CA-G.R. CV No. 28304 ordering the petitioner to pay respondent P1,754,787.50 plus twelve percent (12%)
The bank did not present evidence to the contrary, but simply contended that since plaintiff Ong claimed to have never received the
originals of the two (2) checks in question from Island Securities, much less to have authorized Tanlimco to receive the same, he never acquired ownership of these checks. Thus, he had no legal personality to sue as he is not a real party-in-interest. The bank then filed a demurrer to evidence which was denied. On February 8, 1989, after trial on the merits, the Regional Trial Court of Manila, Branch 38, rendered a decision, thus: IN VIEW OF THE FOREGOING, the court hereby renders judgment for the plaintiff and against the defendant, and orders the defendant to pay the plaintiff: 1. The sum of P1,754,787.50 representing the total face value of the two checks in question, Exhibits "A" and "B", respectively, with interest thereon at the legal rate of twelve percent (12%) per annum computed from October 7, 1977 (the date of the first extrajudicial demand) up to and until the same shall have been paid in full; 2. Moral damages in the amount of P250,000.00; 3. Exemplary or corrective damages in the sum of P100,000.00 by way of example or correction for the public good; 4. Attorney's fees of P50,000.00 and costs of suit. Defendant's counterclaims are dismissed for lack of merit. SO ORDERED. 4
Petitioner elevated the case to the Court of Appeals without success. In its decision, the appellate court held: WHEREFORE, in view of the foregoing, the appealed decision is AFFIRMED in toto. 5 Petitioner now comes before this Court on a petition for review, alleging that the Court of Appeals erred: I . . . IN AFFIRMING THE TRIAL COURT'S CONCLUSION THAT RESPONDENT HAS A CAUSE OF ACTION AGAINST THE PETITIONER. II . . . IN AFFIRMING THE TRIAL COURT'S DECISION FINDING PETITIONER LIABLE TO RESPONDENT AND DECLARING THAT THE LATTER MAY RECOVER DIRECTLY FROM THE FORMER; AND III . . . IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN NOT ABSOLVING PETITIONER FROM LIABILITY. Essentially the issues in this case are: (1) whether or not respondent Ong has a cause of action against petitioner Westmont Bank; and (2) whether or not Ong is barred to recover the money from Westmont Bank due to laches.
Respondent admitted that he was never in actual or physical possession of the two (2) checks of the Island Securities nor did he authorize Tanlimco or any of the latter's representative to demand, accept and receive the same. For this reason, petitioner argues, respondent cannot sue petitioner because under Section 51 of the Negotiable Instruments Law 6 it is only when a person becomes a holder of a negotiable instrument can he sue in his own name. Conversely, prior to his becoming a holder, he had no right or cause of action under such negotiable instrument. Petitioner further argues that since Section 191 7 of the Negotiable Instruments Law defines a "holder" as the 'payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof,' in order to be a holder, it is a requirement that he be in possession of the instrument or the bearer thereof. Simply stated, since Ong never had possession of the checks nor did he authorize anybody, he did not become a holder thereof hence he cannot sue in his own name. 8 Petitioner also cites Article 1249 9 of the Civil Code explaining that a check, even if it is a manager's check, is not legal tender. Hence, the creditor cannot be compelled to accept payment thru this means. 10 It is petitioner's position that for all intents and purposes, Island Securities has not yet tendered payment to respondent Ong, thus, any action by Ong should be directed towards collecting the amount from Island Securities. Petitioner claims that Ong's cause of action against it has not ripened as of yet. It may be that petitioner would be liable to the drawee bank but that is a matter between petitioner and draweebank, Pacific Banking Corporation. 11 For its part, respondent Ong leans on the ruling of the trial court and the Court of Appeals which held that the suit of Ong against the petitioner bank is a desirable shortcut to reach the party who ought in any event to be ultimately liable. 12 It likewise cites the ruling of the courts a quo which held that according to the general rule, a bank who has obtained possession of a check upon an unauthorized or forged indorsement of the payee's signature and who collects the amount of the check from the drawee is liable for the proceeds thereof to the
payee. The theory of said rule is that the collecting bank's possession of such check is wrongful. 13 Respondent also cites Associated Bank vs. Court of Appeals 14 which held that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements. The collecting bank is also made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. Hence, it is in a better position to detect forgery, fraud or irregularity in the indorsement. 15 Anent Article 1249 of the Civil Code, Ong points out that bank checks are specifically governed by the Negotiable Instruments Law which is a special law and only in the absence of specific provisions or deficiency in the special law may the Civil Code be invoked. 16 Considering the contentions of the parties and the evidence on record, we find no reversible error in the assailed decisions of the appellate and trial courts, hence there is no justifiable reason to grant the petition. Petitioner's claim that respondent has no cause of action against the bank is clearly misplaced. As defined, a cause of action is the act or omission by which a party violates a right of another. 17 The essential elements of a cause of action are: (a) a legal right or rights of the plaintiff, (b) a correlative obligation of the defendant, and (c) an act or omission of the defendant in violation of said legal right. 18 The complaint filed before the trial court expressly alleged respondent's right as payee of the manager's checks to receive the amount involved, petitioner's correlative duty as collecting bank to ensure that the amount gets to the rightful payee or his order, and a breach of that duty because of a blatant act of negligence on the part of petitioner which violated respondent's rights. 19 Under Section 23 of the Negotiable Instruments Law:
When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an 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. 20 As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payee's signature and who collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained. 21 The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is wrongful, and when the money had been collected on the check, the bank or other person or corporation can be held as for moneys had and received, and the proceeds are held for the rightful owners who may recover them. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected the money without indorsement at all and the act of the bank amounts to conversion of the check. 22
Petitioner's claim that since there was no delivery yet and respondent has never acquired possession of the checks, respondent's remedy is with the drawer and not with petitioner bank. Petitioner relies on the view to the effect that where there is no delivery to the payee and no title vests in him, he ought not to be allowed to recover on the ground that he lost nothing because he never became the owner of the check and still retained his claim of debt against the drawer. 23 However, another view in certain cases holds that even if the absence of delivery is considered, such consideration is not material. The rationale for this view is that in said cases the plaintiff uses one action to reach, by a desirable short cut, the person who ought in any event to be ultimately liable as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not. 24 Considering the circumstances in this case, in our view, petitioner could not escape liability for its negligent acts. Admittedly, respondent Eugene Ong at the time the fraudulent transaction took place was a depositor of petitioner bank. Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business with them. 25 They have the obligation to treat their client's account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family. 26 In the present case, petitioner was held to be grossly negligent in performing its duties. As found by the trial court:
. . . (A)t the time the questioned checks were accepted for deposit to Paciano Tanlimco's account by defendant bank, defendant bank, admittedly had in its files specimen signatures of plaintiff who maintained a current account with them (Exhibits "L-1" and "M-
1"; testimony of Emmanuel Torio). Given the substantial face value of the two checks, totalling P1,754,787.50, and the fact that they were being deposited by a person not the payee, the very least defendant bank should have done, as any reasonable prudent man would have done, was to verify the genuineness of the indorsements thereon. The Court cannot help but note that had defendant conducted even the most cursory comparison with plaintiff's specimen signatures in its files (Exhibit "L-1" and "M-1") it would have at once seen that the alleged indorsements were falsified and were not those of the plaintiff-payee. However, defendant apparently failed to make such a verification or, what is worse did so but, chose to disregard the obvious dissimilarity of the signatures. The first omission makes it guilty of gross negligence; the second of bad faith. In either case, defendant is liable to plaintiff for the proceeds of the checks in question. 27 These findings are binding and conclusive on the appellate and the reviewing courts. On the second issue, petitioner avers that respondent Ong is barred by laches for failing to assert his right for recovery from the bank as soon as he discovered the scam. The lapse of five months before he went to seek relief, from the bank, according to petitioner, constitutes laches. In turn, respondent contends that petitioner presented no evidence to support its claim of laches. On the contrary, the established facts of the case as found by the trial court and affirmed by the Court of Appeals are that respondent left no stone unturned to obtain relief from his predicament. On the matter of delay in reporting the loss, respondent calls attention to the fact that the checks were issued on May 4, 1976, and on the very
next day, May 5, 1976, these were already credited to the account of Paciano Tanlimco and presented for payment to Pacific Banking Corporation. So even if the theft of the checks were discovered and reported earlier, respondent argues, it would not have altered the situation as the encashment of the checks was consummated within twenty-four hours and facilitated by the gross negligence of the petitioner bank. 28 Laches may be defined as the failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled thereto has either abandoned or declined to assert it. 29 It concerns itself with whether or not by reason of long inaction or inexcusable neglect, a person claiming a right should be barred from asserting the same, because to allow him to do so would be unjust to the person against whom such right is sought to be enforced. 30 In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted after knowing of the forgery by proceeding to seek help from the Tanlimco family and later the Central Bank, to remedy the situation and recover his money from the forger, Paciano Tanlimco. Only after he had exhausted possibilities of settling the matter amicably with the family of Tanlimco and through the CB, about five months after the unlawful transaction took place, did he resort to making the demand upon the petitioner and eventually before the court for recovery of the money value of the two checks. These acts cannot be construed as undue delay in or abandonment of the assertion of his rights. Moreover, the claim of petitioner that respondent should be barred by laches is clearly a vain attempt to deflect responsibility for its negligent act. As explained by the appellate court, it is petitioner which had the last clear chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and followed the
proper and regular banking procedures in clearing checks. 31 As we had earlier ruled, the one who had the last clear opportunity to avoid the impending harm but failed to do so is chargeable with the consequences thereof. 32 WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals, sustaining the judgment of the Regional Trial Court of Manila, is AFFIRMED. CSIcHA Costs against petitioner. SO ORDERED. Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur. Footnotes 1 Rollo, pp. 32-39. 2. No. NI-141439 for P880,850.00 (Exh. "A") and No. 141476 for P873,937.50 (Exh. "B"), RTC Records, pp. 9-10. 3. Supra, note 1 at 34-35.
"Holder" means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof; xxx xxx xxx 8. Supra, note 1 at 24-25. 9. Art. 1249. . . . The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance. 10. Supra, note 1 at 25. 11. Id. at 26. 12. Id. at 47-48. 13. Id. at 48.
4. CA Rollo, pp. 99-100. 14. G.R. No. 107382, 252 SCRA 620, 633 (1996). 5. Supra, note 1 at 38. 15. Supra, note 1 at 48. 6. Sec. 51. Right of holder to sue payment. - The holder of a negotiable instrument may sue thereon in his own name; and payment to him in due course discharges the instrument. 7. Sec. 191. Definitions and meaning of terms. In this Act, unless the contract otherwise requires: xxx xxx xxx
16. Supra, note 1 at 49-50 citing Art. 18. Civil Code of the Philippines. "In matters which are governed by the Code of Commerce and special laws, their deficiency shall be supplied by the provisions of this Code." 17. Sec. 2, Rule 2, 1997 Rules of Court.
18. R.J. Francisco, CIVIL PROCEDURE 86 (First Edition 241) Vol. I, citing Ma-ao Sugar Central Co. vs. Barrios, G.R. No. L1539, 79 Phil. 666, 667 (1947). 19. RTC Records, pp. 5-6. 20. A. F. Agbayani, COMMERCIAL LAWS OF THE PHILIPPINES 200 (Vol. I 1987) citing Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, G.R. No. 18657, 43 Phil. 678, 682-683 (1922). 21. Agbayani, op. cit. 201 citing 21 A.L.R. 1068. 22. Agbayani, op. cit. 202 citing 31 A.L.R. 1070; U.S. Portland Co. vs. U.S. Nat. Bank; L.R.A. 1917-A, 145, 146.; 21 A.L.R. 1072; 31 A.L.R. 1071. 23. Agbayani, op. cit. 207 citing 31 Mich. L. Rev. 819. 24. Agbayani, op. cit. 206-207 citing 31 A.L.R. 1021-2; Brannan, 7th ed., 453. 25. Citytrust Banking Corp. vs. Intermediate Appellate Court, G.R. No. 84281, 232 SCRA 559, 563 (1994). 26. Bank of the Philippine Islands vs. Court of Appeals, G.R. No. 112392, 326 SCRA 641, 657 (2000), Philippine Bank of Commerce vs. Court of Appeals, G.R. No. 97626, 269 SCRA 695, 708-709 (1997). 27. Supra, note 2 at 251-252. 28. Supra, note 1 at 50-52. 29. Felizardo et al. vs. Fernandez, G.R. No. 137509, August 15, 2001, p. 8, citing Heirs of Pedro Lopez vs. De Castro, G.R.
No. 112905, 324 SCRA 591, 614-615 (2000), Catholic Bishop of Balanga vs. Court of Appeals, G.R. No. 112519, 332 Phil. 206, 218-219 (1996), 264 SCRA 181, 192-194 (1996). 30. Felizardo vs. Fernandez, id. citing Heirs of Teodoro Dela Cruz vs. Court of Appeals, G.R. No. 117384, 298 SCRA 172, 182 (1998), Pablate vs. Echarri, Jr., G.R. No. L-24357, 37 SCRA 518, 521-522 (1971). 31. Supra, note 1 at 51-52. 32. Philippine Bank of Commerce vs. CA, G.R. No. 97626, 269 SCRA 695, 707-708 (1997).

Forged Signature Liability

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Forged Signature Liability

Uploaded by

Copyright:

Available Formats

Forged Signature of drawer

Nego Sec. 23 Page 3 of 176

Nego Sec. 23 Page 4 of 176

Nego Sec. 23 Page 5 of 176

Nego Sec. 23 Page 7 of 176

Nego Sec. 23 Page 8 of 176

Nego Sec. 23 Page 9 of 176

Nego Sec. 23 Page 10 of 176

Nego Sec. 23 Page 21 of 176

Nego Sec. 23 Page 22 of 176

Nego Sec. 23 Page 27 of 176

Nego Sec. 23 Page 29 of 176

Nego Sec. 23 Page 32 of 176

Nego Sec. 23 Page 33 of 176

Nego Sec. 23 Page 34 of 176

Nego Sec. 23 Page 36 of 176

Nego Sec. 23 Page 38 of 176

Nego Sec. 23 Page 40 of 176

Nego Sec. 23 Page 43 of 176

Nego Sec. 23 Page 44 of 176

Nego Sec. 23 Page 45 of 176

Nego Sec. 23 Page 48 of 176

Nego Sec. 23 Page 70 of 176

Nego Sec. 23 Page 72 of 176

Nego Sec. 23 Page 74 of 176

Nego Sec. 23 Page 75 of 176

Nego Sec. 23 Page 76 of 176

Nego Sec. 23 Page 77 of 176

Nego Sec. 23 Page 78 of 176

Nego Sec. 23 Page 80 of 176

Nego Sec. 23 Page 86 of 176

Nego Sec. 23 Page 87 of 176

Nego Sec. 23 Page 88 of 176

Nego Sec. 23 Page 89 of 176

Nego Sec. 23 Page 90 of 176

Nego Sec. 23 Page 92 of 176

Nego Sec. 23 Page 93 of 176

Nego Sec. 23 Page 94 of 176

Nego Sec. 23 Page 95 of 176

Nego Sec. 23 Page 96 of 176

Nego Sec. 23 Page 98 of 176

Nego Sec. 23 Page 100 of 176

Nego Sec. 23 Page 101 of 176

Nego Sec. 23 Page 102 of 176

Nego Sec. 23 Page 103 of 176

Nego Sec. 23 Page 104 of 176

Nego Sec. 23 Page 107 of 176

Nego Sec. 23 Page 111 of 176

Nego Sec. 23 Page 112 of 176

Nego Sec. 23 Page 117 of 176

Nego Sec. 23 Page 118 of 176

Nego Sec. 23 Page 119 of 176

Nego Sec. 23 Page 120 of 176

Nego Sec. 23 Page 121 of 176

Nego Sec. 23 Page 125 of 176

Nego Sec. 23 Page 126 of 176

Nego Sec. 23 Page 128 of 176

Nego Sec. 23 Page 131 of 176

Nego Sec. 23 Page 137 of 176

Nego Sec. 23 Page 139 of 176

Nego Sec. 23 Page 140 of 176

Nego Sec. 23 Page 141 of 176