SAN MIGUEL CORPORATION,

Petitioner, vs.
BARTOLOME PUZON, JR.,
Respondent.Delivery in relation to sec 16 - Delivery when effectual, when presumed

Facts:
Bartolome V. Puzon, Jr., was a dealer of beer products of petitioner San Miguel Corporation(SMC). Puzon purchased
SMC products on credit. To ensure payment and as a business practice, SMCrequired him to issue postdated checks
equivalent to the value of the products purchased on credit beforethe same were released to him. Said checks were
returned to Puzon when the transactions covered bythese checks were paid or settled in full.On December 2000, Puzon
purchased products on credit and issued two BPI checks. to cover the saidtransaction. Check Nos. 27904 (for
P309,500.00) and 27903 (forP11,510,827.00)

On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office to reconcile hisaccount with
SMC. During that visit Puzon allegedly requested to see BPI Check No. 17657. However,when he got hold of BPI
Check No. 27903 which was attached to a bond paper together with BPI CheckNo. 17657 he allegedly immediately left
the office with his accountant, bringing the checks with them.SMC sent a letter to Puzon demanding the return of the
said checks. Puzon ignored the demand hence
SMC filed a complaint against him for theft with the City Prosecutors Office of Paraaque City.

Issue:

WHETHER OR NOT THE DELIVERY OF THE CHECKS TO SMC VESTED THE LATTEROWNERSHIP
OVER THE CHECKS
(so as to make Puzon liable for theft, an element of which consiststhe taking of personal property
belonging to another )

Held:
No, the delivery of the checks did not make SMC the owner thereof. The check was not given aspayment, there being
no intent to give effect to the instrument,then ownership of the check was nottransferred to SMC.Sec 12
of the Negotiable Instruments Law provides: Sec. 12. Antedated and postdated

The instrumentis not invalid for the reason only that it is antedated or postdated, provided this is not done for an illegal
orfraudulent purpose
. The person to whom an instrument so dated is delivered acquires the titlethereto as of the date of delivery

Note however that delivery as the term is used in the aforementioned provision means that theparty delivering
did so for the purpose of giving effect thereto. Otherwise, it cannot be said thatthere has been delivery of the
negotiable instrument. Once there is delivery, the person to whomthe instrument is delivered gets the title to the
instrument completely and irrevocably.Not really quoted in the case:
SEC. 16. Every contract on a negotiable instrument is incomplete andrevocable until
delivery of the instrument for the purpose of giving effect thereto
xxxxxxx
The evidence of SMC failed to establish that the check was given in payment of the obligation ofPuzon.
There was no provisional receipt or official receipt issued for the amount of the check. What wasissued was a receipt
for the
document,
a

"POSTDATED CHECK SLIP." The petitioner's demand lettersent to respondent states "As per company policies on
receivables, all issuances are to be covered bypost-dated checks. However, you have deviated from this policy by
forcibly taking away the check youhave issued to us to cover the December issuance."
Notably, the term "payment" was not usedinstead the terms "covered" and "cover" were used.
The affidavit of petitioners witness further
reveals that the term "cover" was not meant to be used interchangeably with "payment." In said affidavit
it becomes clear that both parties did not intend for the checkto
pay
for the beer products. The evidence proves that the check was accepted, not as payment,but in accordance with
the long-standing policy of SMC to require its dealers to issue postdatedchecks to cover its receivables. The
check was only meant to
c o v e r
the transaction and in themeantime Puzon was to pay for the transaction by some other means other than the
check. Thisbeing so, title to the check did not transfer to SMC; it remained with Puzon.
The second element ofthe felony of theft was therefore not established. Petitioner was not able to show that Puzon
took a checkthat
belonged to another
FRANCISCO VS CA

Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:

June 23, 1977: Adalia Francisco (Francisco) president of A. Francisco Realty & Development Corporation
(AFRDC) and Jaime C. Ong (Ong) President and General Manager of Herby Commercial & Construction
Corporation (HCCC), entered into a contract where HCCC agreed to undertake the construction of 35 housing
units and the development of 35 hectares of land.

HCCC was to be paid on turn-key basis (basis of the completed houses and developed lands delivered
to and accepted by AFRDC and the GSIS)

To facilitate payment, AFRDC executed a Deed of Assignment in favor of HCCC to enable the it to
collect payments directly from the GSIS.

Furthermore, the GSIS and AFRDC put up an Executive Committee Account with the Insular Bank of
Asia & America (IBAA) of P4M from which checks would be issued and co-signed by petitioner Francisco and the
GSIS Vice-President Armando Diaz (Diaz).

February 10, 1978: HCCC filed a complaint w/ the RTC against Francisco, AFRDC and the GSIS for the
collection of the unpaid balance under the Land Development and Construction Contract in the amount of
P515,493.89 for completed and delivered housing units and land development.

Sometime in 1979: Ong discovered that Diaz and Francisco had executed and signed 7 checks drawn against
the IBAA and payable to HCCC but were never delivered to HCCC

GSIS gave Francisco custody of the checks since she promised that she would deliver the same to
HCCC.

Francisco forged the signature of Ong, without his knowledge or consent, at the dorsal portion
of the said checks to make it appear that HCCC had indorsed the checks; Francisco then indorsed the checks for a
second time by signing her name at the back of the checks and deposited the checks in her IBAA savings account

June 7, 1979: Ong filed complaints charging Francisco with estafa thru falsification of commercial documents
- dismmised by the Assistant City Fiscal

According to Francisco, she agreed to grant HCCC the loans in the total amount of P585K and covered
by 18 promissory notes in order to obviate the risk of the non-completion of the project.
 As a means of repayment, Ong allegedly issued a Certification authorizing Francisco to collect
HCCCs receivables from the GSIS

RTC: favored Ong and against IBAA and Francisco

November 21, 1989: IBAA and HCCC entered into a Compromise Agreement which was approved by the trial
court, wherein HCCC acknowledged receipt of the amount of P370,475.00 in full satisfaction of its claims against
IBAA, without prejudice to the right of IBAA to pursue its claims against Francisco.

CA affirmed RTC

Francisco claims that she was, in any event, authorized to sign Ongs name on the checks by virtue of the
Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC from the
GSIS, including the questioned checks.

ISSUE: W/N Francisco can sign Ongs name on the checks and it was not forgery

HELD: NO.
Francisco had custody of the checks, as proven by the check vouchers bearing her uncontested signature

Francisco forged the signature of Ong on the checks to make it appear as if Ong had indorsed said checks

The Negotiable Instruments Law provides that where any person is under obligation to indorse in a
representative capacity, he may indorse in such terms as to negative personal liability

An agent, when so signing, should indicate that he is merely signing in behalf of the principal and must
disclose the name of his principal; otherwise he shall be held personally liable

Instead of signing Ongs name, Francisco should have signed her own name and expressly
indicated that she was signing as an agent of HCCC
ASSOCIATED BANK V. CA

252 SCRA 620

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

HELD:
There is a distinction on forged indorsements with regard bearer instruments and instruments payable to
order.

With instruments payable to bearer, the signature of the payee or holder is unnecessary to pass title to the instrument.
Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of
forgery against holder in due course.

In instruments payable to order, the signature of the rightful holder is essential to transfer title to the same
instrument. When the holders signature is forged, all parties prior to the forgery may raise the real defense
of forgery against all parties subsequent thereto. In connection to this, an indorser warrants that the instrument is
genuine. A collecting bank is such an indorser. So even if the indorsement is forged, the collecting bank is
bound by his warranties as an indorser and cannot set up
the defense of forgery as against the drawee bank.

Furthermore, in cases involving checks with forged indorsements, such as the case at bar, the chain of liability
doesn't end with the drawee bank. The drawee bank may not debit the account of the drawer but may
generally pass liability back through the collection chain to the party who took from the forger and of course, the
forger himself, if available. In other words, the drawee bank can seek reimbursement or a return of the amount it
paid from the collecting bank or person. The collecting bank generally suffers the loss because it has te
duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the party making the presentment has done its duty to
ascertain the
genuineness of the indorsements.

With regard the issue of delay, a delay in informing the bank of the forgery, which deprives it of the
opportunity to go after the forger, signifies negligence on the part of the drawee bank and will preclude it from
claiming reimbursement. In this case, PNB wasn't guilty of any negligent delay. Its delay hasn't prejudiced
Associated Bank in any way because even if there wasn't delay, the fact that there was nothing left of the
account of Pangilinan, there couldn't be anymore reimbursement.
G.R. No. L-53194 March 14, 1988

PHILIPPINE NATIONAL BANK petitioner,

vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of First Instance of Rizal, Branch XIV, and
FRANCISCO S. GOZON II, respondents.

GANCAYCO, J.:

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 CHECK BOOK

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 0F 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 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-l") on the forged check (Exhibit "A") with plaintiffs
exemplar signatures (Exhibits "5-N" and "5-B") found in the PNB Form 35-A would immediately
show the negligence of the employees of the defendant bank. Even a not too careful comparison would
immediately arrest one's attention and direct it to the graceful lines of plaintiffs exemplar signatures
found in Exhibits "5-A" and "5-B". The formation of the first letter "F" in the exemplars, which could
be regarded as artistic, is completely different from the way the same letter is formed in Exhibit "A-l".
That alone should have alerted a more careful and prudent signature verifier.

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
home in mind that when defendant left his car, Ernesto Santos, a long time classmate and friend
remained in the same. Defendant could not have been expected to know that the said Ernesto Santos
would remove a check from his checkbook. Defendant had trust in his classmate and friend. He had
no reason to suspect that the latter would breach that trust .

We agree.

Private respondent trustee Ernesto Santos as a classmate and a friend. He brought him along in his car to the bank and
he left his personal belongings in the car. Santos however removed and stole a check from his cheek book without the
knowledge and consent of private respondent. No doubt private respondent cannot be considered negligent under the
circumstances of the case.

WHEREFORE, the petition is DISMISSED for lack of merit with costs against petitioner.

SO ORDERED.
Samsung Construction v. Far East Bank (August 15, 2004)
Post under case digests, Commercial Law at Monday, February 20, 2012 Posted by Schizophrenic Mind
Facts: Samsung Construction held an account with Far East Bank. One day a check worth 900,000, payable to cash,
was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. Thecheck was certified to be true by
Jose Sempio, the assistant accountant of Samsung, who was also present during the time thecheck was cashed. Later
however it was discovered that no suchcheck was ever approved by the Samsungs head accountant, the president of
the company also never signed any such check.

Issue: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged check, which was drawn
from the account of Samsung

Held: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a forged
signature makes theinstrument wholly inoperative. If payment is made the drawee (Far East) cannot charge it to the
drawers account (Samsung). The fact that the forgery is clever is immaterial. The forged signature may so closely
resemble the genuine as to defy detection by the depositor himself. And yet, if the bank pays the check, it is paying out
with its own money and not of the depositors. This rule of liability can be stated briefly in these words: A bank is
bound to know its depositors signature. The accusation of negligence on the part of Samsung was not clearly proven.
Absence of proof to the contrary, the presumption is that the ordinary course of business was followed.
MWSS V. CA

143 SCRA 20

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

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

Forgery cannot be presumed. It should be proven by clear, convincing and positive evidence. This wasnt done in the
present case.
The petitioner cannot invoke Section 23 because it was guilty of negligence not only before the questioned checks but
even after the same had already been negotiated.

paragraph 8 clearly shows that partial payment is expected to be made by the return of beer empties, andnot by the
deposit or encashment of the check.When taken in conjunction with the counter-affidavit of Puzon

where he states that "As the [liquid beer]contents are paid for, SMC return[s] to me the corresponding PDCs or
request[s] me to replace them withwhatever was the unpaid balance."

Negotiable Instruments Case Digest: Gempesaw V. CA (1993)

G.R. No. 92244 February 9, 1993

Lessons Applicable: Promissory Notes and Checks (Negotiable Instruments Law)

FACTS:
 Gempesaw owns and operates four grocery stores
to pay their debts of her supplies, she draws checks against her account
she signed each and every crossed 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.
although the Bank notified her of all checks presented to and paid by the bank, petitioner did not verify
he correctness of the returned checks, much less check if the payees actually received the checks in payment for
the supplies she received
It was only after the lapse of more 2 years that petitioner found out about the fraudulent manipulations
of her bookkeeper
November 7, 1984: Gempesaw made a written demand on respondent drawee Bank to credit her account with
the money value of the 82 checks totalling P1,208.606.89 for having been wrongfully charged against her account
January 23, 1985: Gempesaw filed against Philippine Bank of Communications (drawee Bank) for recovery of
the money value of 82 checks charged against the Gempesaw's account on the ground that the payees'
indorsements were forgeries
RTC: dismissed the complaint
CA: affirmed
Gempesaw gross negligence = promixate cause of the loss
ISSUE: W/N Gempesaw has a right to recover the amount attributable to the forgeries

HELD: NO. 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.
Petitioner completed the checks by signing them as drawer and thereafter authorized her employee Alicia
Galang to deliver to payees
GR: 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
EX: where the drawer is guilty of such negligence which causes the bank to honor such a check or checks.
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 chanrobles virtual law library
(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 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.
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
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
BPI vs. Casa Montessori Internationale, G. R. No. 149454 & 149507, May 28, 2004
Post under case digests, Civil Law at Tuesday, January 31, 2012 Posted by Schizophrenic Mind
Facts: CASA Montessori International opened an account with BPI, with CASAs President as one of its authorized
signatories. It discovered that 9 of its checks had been encashed by a certain Sonny D. Santos whose name turned out
to be fictitious, and was used by a certain Yabut, CASAs external auditor. He voluntarily admitted that he forged the
signature and encashed the checks.

RTC granted the Complaint for Collection with Damages against BPI ordering to reinstate the amount in the account,
with interest. CA took account of CASAs contributory negligence and apportioned the loss between CASA and BPI,
and ordred Yabut to reimburse both.

BPI contends that the monthly statements it issues to its clients contain a notice worded as follows: If no error is
reported in 10 days, account will be correct and as such, it should be considered a waiver.

Issue:Whether or not waiver or estoppel results from failure to report the error in the bank statement

Held: 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 or "circularization" -- in accounting parlance -- that requests client-depositors to
affirm the accuracy of items recorded by the banks. Its purpose is to obtain from the depositors a direct corroboration
of the correctness of theiraccount balances with their respective banks.

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. 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. 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. Our rules on evidence even make a juris et de jure presumption that
whenever one has, by ones 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.

In the instant case, CASA never made any deed or representationthat misled BPI. The formers 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. A person who has no knowledge
of or consent to a transaction may not be estopped by it. "Estoppel cannot be sustained by mere argument or doubtful
inference x x x." CASA is not barred from questioning BPIs error even after the lapse of the period given in the
notice.
[G.R. No. 139130. November 27, 2002]

RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and THE MANILA
BANKING CORPORATION, respondents.

DECISION

QUISUMBING, J.:

This petition for review seeks to reverse the 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]

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 petitioners statement that his signatures in the
checks were forged.[4] Mr. Razons affidavit states:

That I have examined and scrutinized the following checks in accordance with prescribed verification procedures with
utmost care and diligence by comparing the signatures affixed thereat against the specimen signatures of Mr. Ramon K.
Ilusorio which we have on file at our said office on such dates,

xxx

That the aforementioned checks were among those issued by Manilabank in favor of its client MR. RAMON K.
ILUSORIO,

That the same were personally encashed by KATHERINE E. ESTEBAN, an executive secretary of MR. RAMON K.
ILUSORIO in said Investment Corporation;

That I have met and known her as KATHERINE E. ESTEBAN the attending verifier when she personally encashed the
above-mentioned checks at our said office;

That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning his signature appearing on the checks
further alleged to have not authorized the issuance and encashment of the same. [5]
 Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks
which were wrongfully encashed but respondent bank refused. Hence, petitioner filed the instant case.[6]

At the trial, petitioner testified on his own behalf, attesting to the truth of the circumstances as narrated above, and
how he discovered the alleged forgeries. Several employees of Manila Bank were also called to the witness stand as
hostile witnesses. They testified that it is the banks standard operating procedure that whenever a check is presented for
encashment or clearing, the signature on the check is first verified against the specimen signature cards on file with the
bank.

Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in determining the
genuineness of the signatures appearing on the checks. However, in a letter dated March 25, 1987, the NBI informed
the trial court that they could not conduct the desired examination for the reason that the standard specimens submitted
were not sufficient for purposes of rendering a definitive opinion. The NBI then suggested that petitioner be asked to
submit seven (7) or more additional standard signatures executed before or about, and immediately after the dates of
the questioned checks. Petitioner, however, failed to comply with this request.

After evaluating the evidence on both sides, the court a quo rendered judgment on May 12, 1994 with the
following dispositive portion:

WHEREFORE, finding no sufficient basis for plaintiff's cause herein against defendant bank, in the light of the
foregoing considerations and established facts, this case would have to be, as it is hereby DISMISSED.

Defendants 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 petitioners own negligence was the proximate cause of his loss. The appellate
court disposed as follows:

WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the appellant.

SO ORDERED.[8]

Before us, petitioner ascribes the following errors to the Court of Appeals:

A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT BANK IS
ESTOPPED FROM RAISING THE DEFENSE THAT THERE WAS NO FORGERY OF THE
SIGNATURES OF THE PETITIONER IN THE CHECK BECAUSE THE RESPONDENT FILED A
CRIMINAL COMPLAINT FOR ESTAFA THRU FALSIFICATION OF COMMERCIAL DOCUMENTS
AGAINST KATHERINE EUGENIO USING THE AFFIDAVIT OF PETITIONER STATING THAT HIS
SIGNATURES WERE FORGED AS PART OF THE AFFIDAVIT-COMPLAINT.[9]

B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23, NEGOTIABLE INSTRUMENTS
LAW.[10]

C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN OF PROOF IS WITH THE
RESPONDENT BANK TO PROVE THE DUE DILIGENCE TO PREVENT DAMAGE, TO THE
PETITIONER, AND THAT IT WAS NOT NEGLIGENT IN THE SELECTION AND SUPERVISION OF
ITS EMPLOYEES.[11]
 D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT BANK SHOULD
BEAR THE LOSS, AND SHOULD BE MADE TO PAY PETITIONER, WITH RECOURSE AGAINST
KATHERINE EUGENIO ESTEBAN.[12]

Essentially the issues in this case are: (1) whether or not petitioner has a cause of action against private
respondent; and (2) whether or not private respondent, in filing an estafa case against petitioners secretary, is barred
from raising the defense that the fact of forgery was not established.

Petitioner contends that Manila Bank is liable for damages for its negligence in failing to detect the discrepant
checks. He adds that as a general rule a bank which has obtained possession of a check upon an unauthorized or forged
endorsement of the payees 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 petitioners 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 plaintiffs 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 appellants
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, petitioners 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 banks employees in the present case did not have a hint as to Eugenios 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 TMBCs employees exercised due diligence before encashing the checks. Its
verifiers first verified the drawers 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 courts assessment of facts anchored
upon the evidence on record.

Petitioners 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 banks 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 plaintiffs own negligence was the immediate and proximate cause of his injury, no recovery could be
had for damages.

Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged check is inoperative,
and that Manila Bank had no authority to pay the forged checks.True, it is a rule that when a signature is forged or
made without the authority of the person whose signature it purports to be, the check is wholly inoperative. No right to
retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired
through or under such signature. However, the rule does provide for an exception, namely: unless the party against
whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. In the
instant case, it is the exception that applies. In our view, petitioner is precluded from setting up the forgery, assuming
there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the
verification of his statements of account.
 Petitioners 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 Banks personnel diligently performed their duties,
having compared the signature in the checks from the specimen signatures on record and satisfied themselves that it
was petitioners.

On the second issue, the fact that Manila Bank had filed a case for estafa against Eugenio would not estop it from
asserting the fact that forgery has not been clearly established.Petitioner cannot hold private respondent in estoppel for
the latter is not the actual party to the criminal action. In a criminal action, the State is the plaintiff, for the commission
of a felony is an offense against the State. [25] Thus, under Section 2, Rule 110 of the Rules of Court the complaint or
information filed in court is required to be brought in the name of the People of the Philippines. [26]

Further, as petitioner himself stated in his petition, respondent bank filed the estafa case against Eugenio on the
basis of petitioners own affidavit,[27] but without admitting that he had any personal knowledge of the alleged forgery. It
is, therefore, easy to understand that the filing of the estafa case by respondent bank was a last ditch effort to salvage its
ties with the petitioner as a valuable client, by bolstering the estafa case which he filed against his secretary.

All told, we find no reversible error that can be ascribed to the Court of Appeals.

WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals
dated January 28, 1999 in CA-G.R. CV No. 47942, is AFFIRMED.

Costs against petitioner.

SO ORDERED.
METROBANK V. CABLIZO

510 SCRA 259

FACTS:

Cablizo maintained an account with petitioner. It drew a check payable to cash payable to a certain Marquez, for the
latters sales commission. The check was subsequently deposited in Westmont bank and the latter submitted it
with Metrobank for clearing. The check was cleared.

Thereafter, the banks representative asked Cablizo if he issued a check for P91,000. The answer was in the negative.
This prompted Cablizo to call Metrobank and ask for the recrediting of P90,000 but petitioner failed to recredit
the amount prompting Cablizo to file an action against it.

HELD:

An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in the
instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words
or numbers or other change to an incomplete instrument relating to the obligation of the party. In other words, a
material alteration is one which changes the items which are required to be stated under Section 1 of the NIL.

The check in issue was materially altered when its amount was increased from P1000 to P91000. Cablizo was not the
one who authorized or made such increase. There is no showing that he was negligent in exercising what was
due in a prudent man which could have otherwise prevented the
loss. Cablizo was never remiss in the preparation and issuance of the check.

The doctrine of equitable estoppel is inapplicable against Cablizo. This doctrine states that when one of the two
innocent person, each guiltiness of an intentional or moral wrong, must suffer a loss, it must be borne by the one whose
erroneous conduct, either by omission or commission, was the cause of the injury. Negligence is never presumed.

Metrobank was actually the one remiss in its duties. The CA took into consideration that the alterations were
actually visible in the eye and yet the bank allowed someone not acquainted with the examination of checks to do the
same. Furthermore, it cannot rely on the indorsement of
Westmont Bank of the check. It should have exercised meticulous care in handling the affairs of its clients especially if
the clients money is involved.

G.R. No. 171998 October 20, 2010

ANAMER SALAZAR, Petitioner,

vs.
J.Y. BROTHERS MARKETING CORPORATION, Respondent.

DECISION

PERALTA, J.:

Before us is a petition for review seeking to annul and set aside the Decision 1 dated September 29, 2005 and the
Resolution2 dated March 2, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83104.
The facts, as found by the Court of Appeals, are not disputed, thus:

J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of selling sugar, rice and other
commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja and
Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros. As a
consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000.00. As
payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, 1996
issued by Nena Jaucian Timario in the amount of P214,000.00 with the assurance that the check is good as cash. On
that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon presentment, the check was
dishonored due to "closed account."

Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacement cross Solid
Bank Check No. PA365704 dated October 29, 1996 again issued by Nena Jaucian Timario in the amount
of P214,000.00 but which, just the same, bounced due to insufficient funds. When despite the demand letter dated
February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario with the
crime of estafa before the Regional Trial Court of Legaspi City, docketed as Criminal Case No. 7474.

After the prosecution rested its case and with prior leave of court, Salazar submitted a demurrer to evidence. On
November 19, 2001, the court a quo rendered an Order, the dispositive portion of which reads:

WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby ACQUITTED of the crime charged but
is hereby held liable for the value of the 300 bags of rice. Accused Anamer D. Salazar is therefore ordered to pay J.Y.
Brothers Marketing Corporation the sum of P214,000.00. Costs against the accused.

SO ORDERED.

Aggrieved, accused attempted a reconsideration on the civil aspect of the order and to allow her to present evidence
thereon. The motion was denied. Accused went up to the Supreme Court on a petition for review on certiorari under
Rule 45 of the Rules of Court. Docketed as G.R. 151931, in its Decision dated September 23, 2003, the High Court
ruled:

IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated November 19, 2001 and January
14, 2002 are SET ASIDE and NULLIFIED. The Regional Trial Court of Legaspi City, Branch 5, is hereby DIRECTED
to set Criminal Case No. 7474 for the continuation of trial for the reception of the evidence-in-chief of the petitioner on
the civil aspect of the case and for the rebuttal evidence of the private complainant and the sur-rebuttal evidence of the
parties if they opt to adduce any.

SO ORDERED.3

The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the trial on the civil aspect of the
criminal case.

On April 1, 2004, the RTC rendered its Decision,4 the dispositive portion of which reads:

WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against Anamer D. Salazar the civil
aspect of the above-entitled case. No pronouncement as to costs.

Place into the files (archive) the record of the above-entitled case as against the other accused Nena Jaucian Timario.
Let an alias (bench) warrant of arrest without expiry dated issue for her apprehension, and fix the amount of the bail
bond for her provisional liberty at 59,000.00 pesos.

SO ORDERED.5
The RTC found that the Prudential Bank check drawn by Timario for the amount of P214,000.00 was payable to the
order of respondent, and such check was a negotiable order instrument; that petitioner was not the payee appearing in
the check, but respondent who had not endorsed the check, much less delivered it to petitioner. It then found that
petitioners liability should be limited to the allegation in the amended information that "she endorsed and negotiated
said check," and since she had never been the holder of the check, petitioner's signing of her name on the face of the
dorsal side of the check did not produce the technical effect of an indorsement arising from negotiation. The RTC ruled
that after the Prudential Bank check was dishonored, it was replaced by a Solid Bank check which, however, was also
subsequently dishonored; that since the Solid Bank check was a crossed check, which meant that such check was only
for deposit in payees account, a condition that rendered such check non-negotiable, the substitution of a non-
negotiable Solid Bank check for a negotiable Prudential Bank check was an essential change which had the effect of
discharging from the obligation whoever may be the endorser of the negotiable check. The RTC concluded that the
absence of negotiability rendered nugatory the obligation arising from the technical act of indorsing a check and, thus,
had the effect of novation; and that the ultimate effect of such substitution was to extinguish the obligation arising from
the issuance of the Prudential Bank check.

Respondent filed an appeal with the CA on the sole assignment of error that:

IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER SALAZAR BY INDORSING
THE CHECK (A) DID NOT BECOME A HOLDER OF THE CHECK, (B) DID NOT PRODUCE THE TECHNICAL
EFFECT OF AN INDORSEMENT ARISING FROM NEGOTIATION; AND (C) DID NOT INCUR CIVIL
LIABILITY.6

After petitioner filed her appellees' brief, the case was submitted for decision. On September 29, 2005, the CA rendered
its assailed Decision, the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged Decision is REVERSED and
SET ASIDE, and a new one entered ordering the appellee to pay the appellant the amount of P214,000.00, plus interest
at the legal rate from the written demand until full payment. Costs against the appellee. 7

In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which was later replaced by a Solid Bank
check issued by Timario, also indorsed by petitioner as payment for the 300 cavans of rice bought from respondent.
The CA, applying Sections 63,8 669 and 2910 of the Negotiable Instruments Law, found that petitioner was considered
an indorser of the checks paid to respondent and considered her as an accommodation indorser, who was liable on the
instrument to a holder for value, notwithstanding that such holder at the time of the taking of the instrument knew her
only to be an accommodation party.

Respondent filed a motion for reconsideration, which the CA denied in a Resolution dated March 2, 2006.

Hence this petition, wherein petitioner raises the following assignment of errors:

1. THE COURT OF APPEALS ERRED IN IGNORING THE RAMIFICATIONS OF THE ISSUANCE OF

THE SOLIDBANK CHECK IN REPLACEMENT OF THE PRUDENTIAL BANK CHECK WHICH
WOULD HAVE RESULTED TO THE NOVATION OF THE OBLIGATION ARISING FROM THE
ISSUANCE OF THE LATTER CHECK.

2. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL
COURT OF LEGASPI CITY, BRANCH 5, DISMISSING AS AGAINST THE PETITIONER THE CIVIL
ASPECT OF THE CRIMINAL ACTION ON THE GROUND OF NOVATION OF OBLIGATION ARISING
FROM THE ISSUANCE OF THE PRUDENTIAL BANK CHECK.

3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNT TO

LACK OR EXCESS OF JURISDICTION WHEN IT DENIED THE MOTION FOR RECONSIDERATION
 OF THE PETITIONER ON THE GROUND THAT THE ISSUE RAISED THEREIN HAD ALREADY BEEN
PASSED UPON AND CONSIDERED IN THE DECISION SOUGHT TO BE RECONSIDERED WHEN IN
TRUTH AND IN FACT SUCH ISSUE HAD NOT BEEN RESOLVED AS YET.11

Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof by the respondent, in
replacement of the dishonored Prudential Bank check, amounted to novation that discharged the latter check; that
respondent's acceptance of the Solid Bank check, notwithstanding its eventual dishonor by the drawee bank, had the
effect of erasing whatever criminal responsibility, under Article 315 of the Revised Penal Code, the drawer or indorser
of the Prudential Bank check would have incurred in the issuance thereof in the amount of P214,000.00; and that a
check is a contract which is susceptible to a novation just like any other contract.

Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her Reply thereto.

We find no merit in this petition.

Section 119 of the Negotiable Instrument Law provides, thus:

SECTION 119. Instrument; how discharged. A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the party accommodated, where the instrument is made or accepted for his
accommodation;

(c) By the intentional cancellation thereof by the holder;

(d) By any other act which will discharge a simple contract for the payment of money;

(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.
(Emphasis ours)

And, under Article 1231 of the Civil Code, obligations are extinguished:

xxxx

(6) By novation.

Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the dishonored Prudential bank
check resulted to novation which discharged the latter check is unmeritorious.

In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold Insurance Co., Inc.,12 we stated the
concept of novation, thus:

x x x Novation is done by the substitution or change of the obligation by a subsequent one which extinguishes the first,
either by changing the object or principal conditions, or by substituting the person of the debtor, or by subrogating a
third person in the rights of the creditor. Novation may:

[E]ither be extinctive or modificatory, much being dependent on the nature of the change and the intention of the
parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is
implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving
consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old
and new obligation be total on every point such that the old obligation is completely superceded by the new one. The
test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and
are irreconcilable, the subsequent obligation would also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second,
creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a
previous valid obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of the old
obligation, and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought
about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an
extension of time to pay; in this instance, the new agreement will not have the effect of extinguishing the first but
would merely supplement it or supplant some but not all of its provisions.)

The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes only
the terms of payment, adds other obligations not incompatible with the old ones or the new contract merely
supplements the old one.13

In Nyco Sales Corporation v. BA Finance Corporation,14 we found untenable petitioner Nyco's claim that novation took
place when the dishonored BPI check it endorsed to BA Finance Corporation was subsequently replaced by a Security
Bank check,15 and said:

There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. First, novation must be explicitly stated and declared in unequivocal
terms as novation is never presumed. Secondly, the old and the new obligations must be incompatible on every
point.1avvphi1 The test of incompatibility is whether or not the two obligations can stand together, each one having its
independent existence. If they cannot, they are incompatible and the latter obligation novates the first. In the instant
case, there was no express agreement that BA Finance's acceptance of the SBTC check will discharge Nyco from
liability. Neither is there incompatibility because both checks were given precisely to terminate a single obligation
arising from Nyco's sale of credit to BA Finance. As novation speaks of two distinct obligations, such is inapplicable to
this case.16

In this case, respondents acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check,
did not result to novation as there was no express agreement to establish that petitioner was already discharged from his
liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of rice. As we said, novation is
never presumed, there must be an express intention to novate. In fact, when the Solid Bank check was delivered to
respondent, the same was also indorsed by petitioner which shows petitioners recognition of the existing obligation to
respondent to pay P214,000.00 subject of the replaced Prudential Bank check.

Moreover, respondents acceptance of the Solid Bank check did not result to any incompatibility, since the two checks
Prudential and Solid Bank checks were precisely for the purpose of paying the amount of P214,000.00, i.e., the
credit obtained from the purchase of the 300 bags of rice from respondent. Indeed, there was no substantial change in
the object or principal condition of the obligation of petitioner as the indorser of the check to pay the amount
of P214,000.00. It would appear that respondent accepted the Solid Bank check to give petitioner the chance to pay her
obligation.

Petitioner also contends that the acceptance of the Solid Bank check, a non-negotiable check being a crossed check,
which replaced the dishonored Prudential Bank check, a negotiable check, is a new obligation in lieu of the old
obligation arising from the issuance of the Prudential Bank check, since there was an essential change in the
circumstance of each check.

Such argument deserves scant consideration.

Among the different types of checks issued by a drawer is the crossed check. 17 The Negotiable Instruments Law is
silent with respect to crossed checks, 18 although the Code of Commerce makes reference to such instruments.19We have
taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it
could only be deposited and could not be converted into cash. 20 Thus, the effect of crossing a check relates to the mode
of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee
named therein.21 The change in the mode of paying the obligation was not a change in any of the objects or principal
condition of the contract for novation to take place. 22

Considering that when the Solid Bank check, which replaced the Prudential Bank check, was presented for payment,
the same was again dishonored; thus, the obligation which was secured by the Prudential Bank check was not
extinguished and the Prudential Bank check was not discharged. Thus, we found no reversible error committed by the
CA in holding petitioner liable as an accommodation indorser for the payment of the dishonored Prudential Bank
check.

WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and the Resolution dated March 2,
2006, of the Court of Appeals in CA-G.R. CV No. 83104, are AFFIRMED.

SO ORDERED.
G.R. No. 150228 July 30, 2009

BANK OF AMERICA NT & SA, Petitioner,

vs.
PHILIPPINE RACING CLUB, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision 1 promulgated on July
16, 2001 by the former Second Division of the Court of Appeals (CA), in CA-G.R. CV No. 45371 entitled "Philippine
Racing Club, Inc. v. Bank of America NT & SA," affirming the Decision 2 dated March 17, 1994 of the Regional Trial
Court (RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in favor of the respondent. Likewise, the present
petition assails the Resolution3 promulgated on September 28, 2001, denying the Motion for Reconsideration of the CA
Decision.

The facts of this case as narrated in the assailed CA Decision are as follows:

Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with different banks in the Metro
Manila area. Among the accounts maintained was Current Account No. 58891-012 with defendant-appellant BA (Paseo
de Roxas Branch). The authorized joint signatories with respect to said Current Account were plaintiff-appellees
President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes).

On or about the 2nd week of December 1988, the President and Vice President of plaintiff-appellee corporation were
scheduled to go out of the country in connection with the corporations business. In order not to disrupt operations in
their absence, they pre-signed several checks relating to Current Account No. 58891-012. The intention was to insure
continuity of plaintiff-appellees operations by making available cash/money especially to settle obligations that might
become due. These checks were entrusted to the accountant with instruction to make use of the same as the need arose.
The internal arrangement was, in the event there was need to make use of the checks, the accountant would prepare the
corresponding voucher and thereafter complete the entries on the pre-signed checks.

It turned out that on December 16, 1988, a John Doe presented to defendant-appellant bank for encashment a couple of
plaintiff-appellee corporations checks (Nos. 401116 and 401117) with the indicated value of P110,000.00 each. It is
admitted that these 2 checks were among those presigned by plaintiff-appellee corporations authorized signatories.

The two (2) checks had similar entries with similar infirmities and irregularities. On the space where the name of the
payee should be indicated (Pay To The Order Of) the following 2-line entries were instead typewritten: on the upper
line was the word "CASH" while the lower line had the following typewritten words, viz: "ONE HUNDRED TEN
THOUSAND PESOS ONLY." Despite the highly irregular entries on the face of the checks, defendant-appellant bank,
without as much as verifying and/or confirming the legitimacy of the checks considering the substantial amount
involved and the obvious infirmity/defect of the checks on their faces, encashed said checks. A verification process,
even by was of a telephone call to PRCI office, would have taken less than ten (10) minutes. But this was not done by
BA. Investigation conducted by plaintiff-appellee corporation yielded the fact that there was no transaction involving
PRCI that call for the payment of P220,000.00 to anyone. The checks appeared to have come into the hands of an
employee of PRCI (one Clarita Mesina who was subsequently criminally charged for qualified theft) who eventually
completed without authority the entries on the pre-signed checks. PRCIs demand for defendant-appellant to pay fell on
deaf ears. Hence, the complaint.4

After due proceedings, the trial court rendered a Decision in favor of respondent, the dispositive portion of which
reads:
PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against the defendant, and the latter
is ordered to pay plaintiff:

(1) The sum of Two Hundred Twenty Thousand (P220,000.00) Pesos, with legal interest to be computed from
date of the filing of the herein complaint;

(2) The sum of Twenty Thousand (P20,000.00) Pesos by way of attorneys fees;

(3) The sum of Ten Thousand (P10,000.00) Pesos for litigation expenses, and

(4) To pay the costs of suit.

SO ORDERED.5

Petitioner appealed the aforesaid trial court Decision to the CA which, however, affirmed said decision in toto in its
July 16, 2001 Decision. Petitioners Motion for Reconsideration of the CA Decision was subsequently denied on
September 28, 2001.

Petitioner now comes before this Court arguing that:

I. The Court of Appeals gravely erred in holding that the proximate cause of respondents loss was petitioners
encashment of the checks.

A. The Court of Appeals gravely erred in holding that petitioner was liable for the amount of the
checks despite the fact that petitioner was merely fulfilling its obligation under law and contract.

B. The Court of Appeals gravely erred in holding that petitioner had a duty to verify the encashment,
despite the absence of any obligation to do so.

C. The Court of Appeals gravely erred in not applying Section 14 of the Negotiable Instruments Law,
despite its clear applicability to this case;

II. The Court of Appeals gravely erred in not holding that the proximate cause of respondents loss was its own grossly
negligent practice of pre-signing checks without payees and amounts and delivering these pre-signed checks to its
employees (other than their signatories).

III. The Court of Appeals gravely erred in affirming the trial courts award of attorneys fees despite the absence of any
applicable ground under Article 2208 of the Civil Code.

IV. The Court of Appeals gravely erred in not awarding attorneys fees, moral and exemplary damages, and costs of
suit in favor of petitioner, who clearly deserves them. 6

From the discussions of both parties in their pleadings, the key issue to be resolved in the present case is whether the
proximate cause of the wrongful encashment of the checks in question was due to (a) petitioners failure to make a
verification regarding the said checks with the respondent in view of the misplacement of entries on the face of the
checks or (b) the practice of the respondent of pre-signing blank checks and leaving the same with its employees.

Petitioner insists that it merely fulfilled its obligation under law and contract when it encashed the aforesaid checks.
Invoking Sections 1267 and 1858 of the Negotiable Instruments Law (NIL), petitioner claims that its duty as a drawee
bank to a drawer-client maintaining a checking account with it is to pay orders for checks bearing the drawer-clients
genuine signatures. The genuine signatures of the clients duly authorized signatories affixed on the checks signify the
order for payment. Thus, pursuant to the said obligation, the drawee bank has the duty to determine whether the
signatures appearing on the check are the drawer-clients or its duly authorized signatories. If the signatures are
genuine, the bank has the unavoidable legal and contractual duty to pay. If the signatures are forged and falsified, the
drawee bank has the corollary, but equally unavoidable legal and contractual, duty not to pay.9

Furthermore, petitioner maintains that there exists a duty on the drawee bank to inquire from the drawer before
encashing a check only when the check bears a material alteration. A material alteration is defined in Section 125 of the
NIL to be one which changes the date, the sum payable, the time or place of payment, the number or relations of the
parties, the currency in which payment is to be made or one which adds a place of payment where no place of payment
is specified, or any other change or addition which alters the effect of the instrument in any respect. With respect to the
checks at issue, petitioner points out that they do not contain any material alteration. 10 This is a fact which was affirmed
by the trial court itself.11

There is no dispute that the signatures appearing on the subject checks were genuine signatures of the respondents
authorized joint signatories; namely, Antonia Reyes and Gregorio Reyes who were respondents President and Vice-
President for Finance, respectively. Both pre-signed the said checks since they were both scheduled to go abroad and it
was apparently their practice to leave with the company accountant checks signed in black to answer for company
obligations that might fall due during the signatories absence. It is likewise admitted that neither of the subject checks
contains any material alteration or erasure.

However, on the blank space of each check reserved for the payee, the following typewritten words appear: "ONE
HUNDRED TEN THOUSAND PESOS ONLY." Above the same is the typewritten word, "CASH." On the blank
reserved for the amount, the same amount of One Hundred Ten Thousand Pesos was indicated with the use of a check
writer. The presence of these irregularities in each check should have alerted the petitioner to be cautious before
proceeding to encash them which it did not do.

It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to protect in
return their many clients and depositors who transact business with them. They have the obligation to treat their clients
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.12

Petitioner asserts that it was not duty-bound to verify with the respondent since the amount below the typewritten word
"CASH," expressed in words, is the very same amount indicated in figures by means of a check writer on the amount
portion of the check. The amount stated in words is, therefore, a mere reiteration of the amount stated in figures.
Petitioner emphasizes that a reiteration of the amount in words is merely a repetition and that a repetition is not an
alteration which if present and material would have enjoined it to commence verification with respondent. 13

We do not agree with petitioners myopic view and carefully crafted defense. Although not in the strict sense "material
alterations," the misplacement of the typewritten entries for the payee and the amount on the same blank and the
repetition of the amount using a check writer were glaringly obvious irregularities on the face of the check. Clearly,
someone made a mistake in filling up the checks and the repetition of the entries was possibly an attempt to rectify the
mistake. Also, if the check had been filled up by the person who customarily accomplishes the checks of respondent, it
should have occurred to petitioners employees that it would be unlikely such mistakes would be made. All these
circumstances should have alerted the bank to the possibility that the holder or the person who is attempting to encash
the checks did not have proper title to the checks or did not have authority to fill up and encash the same. As noted by
the CA, petitioner could have made a simple phone call to its client to clarify the irregularities and the loss to
respondent due to the encashment of the stolen checks would have been prevented.

In the case at bar, extraordinary diligence demands that petitioner should have ascertained from respondent the
authenticity of the subject checks or the accuracy of the entries therein not only because of the presence of highly
irregular entries on the face of the checks but also of the decidedly unusual circumstances surrounding their
encashment. Respondents witness testified that for checks in amounts greater than Twenty Thousand Pesos
(P20,000.00) it is the companys practice to ensure that the payee is indicated by name in the check. 14 This was not
rebutted by petitioner. Indeed, it is highly uncommon for a corporation to make out checks payable to "CASH" for
substantial amounts such as in this case. If each irregular circumstance in this case were taken singly or isolated, the
banks employees might have been justified in ignoring them. However, the confluence of the irregularities on the face
of the checks and circumstances that depart from the usual banking practice of respondent should have put petitioners
employees on guard that the checks were possibly not issued by the respondent in due course of its business.
Petitioners subtle sophistry cannot exculpate it from behavior that fell extremely short of the highest degree of care
and diligence required of it as a banking institution.

Indeed, taking this with the testimony of petitioners operations manager that in case of an irregularity on the face of
the check (such as when blanks were not properly filled out) the bank may or may not call the client depending on how
busy the bank is on a particular day,15 we are even more convinced that petitioners safeguards to protect clients from
check fraud are arbitrary and subjective. Every client should be treated equally by a banking institution regardless of
the amount of his deposits and each client has the right to expect that every centavo he entrusts to a bank would be
handled with the same degree of care as the accounts of other clients. Perforce, we find that petitioner plainly failed to
adhere to the high standard of diligence expected of it as a banking institution.

In defense of its cashier/tellers questionable action, petitioner insists that pursuant to Sections 14 16 and 1617 of the NIL,
it could validly presume, upon presentation of the checks, that the party who filled up the blanks had authority and that
a valid and intentional delivery to the party presenting the checks had taken place. Thus, in petitioners view, the sole
blame for this debacle should be shifted to respondent for having its signatories pre-sign and deliver the subject
checks.18 Petitioner argues that there was indeed delivery in this case because, following American jurisprudence, the
gross negligence of respondents accountant in safekeeping the subject checks which resulted in their theft should be
treated as a voluntary delivery by the maker who is estopped from claiming non-delivery of the instrument. 19

Petitioners contention would have been correct if the subject checks were correctly and properly filled out by the thief
and presented to the bank in good order. In that instance, there would be nothing to give notice to the bank of any
infirmity in the title of the holder of the checks and it could validly presume that there was proper delivery to the
holder. The bank could not be faulted if it encashed the checks under those circumstances. However, the undisputed
facts plainly show that there were circumstances that should have alerted the bank to the likelihood that the checks
were not properly delivered to the person who encashed the same. In all, we see no reason to depart from the finding in
the assailed CA Decision that the subject checks are properly characterized as incomplete and undelivered instruments
thus making Section 1520 of the NIL applicable in this case.

However, we do agree with petitioner that respondents officers practice of pre-signing of blank checks should be
deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation of
businesses. It should have occurred to respondents officers and managers that the pre-signed blank checks could fall
into the wrong hands as they did in this case where the said checks were stolen from the company accountant to whom
the checks were entrusted.

Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, petitioner will still
emerge as the party foremost liable in this case. In instances where both parties are at fault, this Court has consistently
applied the doctrine of last clear chance in order to assign liability.

In Westmont Bank v. Ong,21 we ruled:

[I]t is petitioner [bank] 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 a last clear opportunity to avoid the impending harm but failed to do so is chargeable with the
consequences thereof.22 (emphasis ours)
In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part of respondent
because, even if we concur that the latter was indeed negligent in pre-signing blank checks, the former had the last
clear chance to avoid the loss. To reiterate, petitioners own operations manager admitted that they could have called up
the client for verification or confirmation before honoring the dubious checks. Verily, petitioner had the final
opportunity to avert the injury that befell the respondent. Failing to make the necessary verification due to the volume
of banking transactions on that particular day is a flimsy and unacceptable excuse, considering that the "banking
business is so impressed with public interest where the trust and confidence of the public in general is of paramount
importance such that the appropriate standard of diligence must be a high degree of diligence, if not the utmost
diligence."23 Petitioners negligence has been undoubtedly established and, thus, pursuant to Art. 1170 of the NCC, 24 it
must suffer the consequence of said negligence.

In the interest of fairness, however, we believe it is proper to consider respondents own negligence to mitigate
petitioners liability. Article 2179 of the Civil Code provides:

Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of his injury, he cannot recover
damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the
defendants lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be
awarded.1avvph!1

Explaining this provision in Lambert v. Heirs of Ray Castillon,25 the Court held:

The underlying precept on contributory negligence is that a plaintiff who is partly responsible for his own injury should
not be entitled to recover damages in full but must bear the consequences of his own negligence. The defendant must
thus be held liable only for the damages actually caused by his negligence. xxx xxx xxx

As we previously stated, respondents practice of signing checks in blank whenever its authorized bank signatories
would travel abroad was a dangerous policy, especially considering the lack of evidence on record that respondent had
appropriate safeguards or internal controls to prevent the pre-signed blank checks from falling into the hands of
unscrupulous individuals and being used to commit a fraud against the company. We cannot believe that there was no
other secure and reasonable way to guarantee the non-disruption of respondents business. As testified to by petitioners
expert witness, other corporations would ordinarily have another set of authorized bank signatories who would be able
to sign checks in the absence of the preferred signatories. 26 Indeed, if not for the fortunate happenstance that the thief
failed to properly fill up the subject checks, respondent would expectedly take the blame for the entire loss since the
defense of forgery of a drawers signature(s) would be unavailable to it. Considering that respondent knowingly took
the risk that the pre-signed blank checks might fall into the hands of wrongdoers, it is but just that respondent shares in
the responsibility for the loss.

We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from respondents
accountant turned out to be another employee, purportedly a clerk in respondents accounting department. As the
employer of the "thief," respondent supposedly had control and supervision over its own employee. This gives the
Court more reason to allocate part of the loss to respondent.

Following established jurisprudential precedents, 27 we believe the allocation of sixty percent (60%) of the actual
damages involved in this case (represented by the amount of the checks with legal interest) to petitioner is proper under
the premises. Respondent should, in light of its contributory negligence, bear forty percent (40%) of its own loss.

Finally, we find that the awards of attorneys fees and litigation expenses in favor of respondent are not justified under
the circumstances and, thus, must be deleted. The power of the court to award attorneys fees and litigation expenses
under Article 2208 of the NCC28 demands factual, legal, and equitable justification.

An adverse decision does not ipso facto justify an award of attorneys fees to the winning party. 29 Even when a
claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorneys fees may
not be awarded where no sufficient showing of bad faith could be reflected in a partys persistence in a case other than
an erroneous conviction of the righteousness of his cause. 30

WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its Resolution dated September 28, 2001
are AFFIRMED with the following MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to
respondent Philippine Racing Club sixty percent (60%) of the sum of Two Hundred Twenty Thousand Pesos
(P220,000.00) with legal interest as awarded by the trial court and (b) the awards of attorneys fees and litigation
expenses in favor of respondent are deleted.

Proportionate costs.

SO ORDERED.