FIRST DIVISION SMC required him to issue postdated checks equivalent to the

SAN MIGUEL CORPORATION, G.R. No. 167567 value of the products purchased on credit before the same were
Petitioner, released to him. Said checks were returned to Puzon when the
transactions covered by these checks were paid or settled in full.
Present:
On December 31, 2000, Puzon purchased products on credit
CORONA, C. J., Chairperson,
amounting to P11,820,327 for which he issued, and gave to SMC,
- versus - CARPIO MORALES,⃰
Bank of the Philippine Islands (BPI) Check Nos. 27904
VELASCO, JR.,
DEL CASTILLO, and (for P309,500.00) and 27903 (for P11,510,827.00) to cover the
PEREZ, JJ. said transaction.

BARTOLOME PUZON, JR., Promulgated: On January 23, 2001, Puzon, together with his accountant, visited
Respondent. September 22, 2010 the SMC Sales Office in Paraaque City to reconcile his account
x-------------------------------------------------- with SMC. During that visit Puzon allegedly requested to see BPI
-----------------x
Check No. 17657. However, when he got hold of BPI Check No.
DECISION 27903 which was attached to a bond paper together with BPI
Check No. 17657 he allegedly immediately left the office with his
DEL CASTILLO, J.:
accountant, bringing the checks with them.

This petition for review assails the December 21, 2004

SMC sent a letter to Puzon on March 6, 2001 demanding the
Decision[1]and March 28, 2005 Resolution[2]of the Court of Appeals
return of the said checks. Puzon ignored the demand hence SMC
(CA) in CA-G.R. SP No. 83905, which dismissed the petition before
filed a complaint against him for theft with the City Prosecutors
it and denied reconsideration, respectively.
Office of Paraaque City.

Factual Antecedents
Rulings of the Prosecutor and the Secretary of
Department of Justice (DOJ)
Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk
Enterprises, was a dealer of beer products of petitioner San
The investigating prosecutor, Elizabeth Yu Guray found that
Miguel Corporation (SMC) for Paraaque City.Puzon purchased SMC
the relationship between [SMC] and [Puzon] appears to be one of
products on credit. To ensure payment and as a business practice,
credit or creditor-debtor relationship.The problem lies in the
reconciliation of accounts and the non-payment of beer empties
which cannot give rise to a criminal prosecution for theft.[3] Thus,
The motion for reconsideration of SMC was denied. Hence, the
in her July 31, 2001 Resolution,[4] she recommended the dismissal
present petition.
of

Issues
the case for lack of evidence. SMC appealed.

Petitioner now raises the following issues:

On June 4, 2003, the DOJ issued its resolution[5]affirming
the prosecutors Resolution dismissing the case. Its motion for I
reconsideration having been denied in the April 23, 2004 DOJ WHETHER X X X PUZON HAD STOLEN FROM SMC
ON JANUARY 23, 2001, AMONG OTHERS BPI CHECK
Resolution,[6]SMC filed a petition for certiorari with the CA. NO. 27903 DATED MARCH 30, 2001 IN THE
AMOUNT OF PESOS: ELEVEN MILLION FIVE
HUNDRED TEN THOUSAND EIGHT HUNDRED
Ruling of the Court of Appeals
TWENTY SEVEN (Php11,510,827.00)

The CA found that the postdated checks were issued by Puzon

II
merely as a security for the payment of his purchases and that WHETHER X X X THE POSTDATED CHECKS ISSUED
these were not intended to be encashed. It thus concluded that BY PUZON, PARTICULARLY BPI CHECK NO. 27903
DATED MARCH 30, 2001 IN THE AMOUNT
SMC did not acquire ownership of the checks as it was duty bound
OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN
to return the same checks to Puzon after the transactions THOUSAND EIGHT HUNDRED TWENTY SEVEN
covering them were settled. The CA agreed with the prosecutor (Php11,510,827.00), WERE ISSUED IN PAYMENT OF
HIS BEER PURCHASES OR WERE USED MERELY AS
that there was no theft, considering that a person cannot be SECURITY TO ENSURE PAYMENT OF PUZONS
charged with theft for taking personal property that belongs to OBLIGATION.
himself. It disposed of the appeal as follows:
III
WHETHER X X X THE PRACTICE OF SMC IN
WHEREFORE, finding no grave abuse of discretion RETURNING THE POSTDATED CHECKS ISSUED IN
committed by public respondent, the instant PAYMENT OF BEER PRODUCTS PURCHASED ON
petition is hereby DISMISSED. The assailed CREDIT SHOULD THE TRANSACTIONS COVERED BY
Resolutions of public respondent, dated 04 June THESE CHECKS [BE] SETTLED ON [THE] MATURITY
2003 and 23 April 2004, are AFFIRMED. No costs DATES THEREOF COULD BE LIKENED TO A
at this instance. CONTRACT OF PLEDGE.

SO ORDERED.[7] IV
 WHETHER X X X SMC HAD ESTABLISHED PROBABLE
CAUSE TO JUSTIFY THE INDICTMENT OF PUZON FOR
THE CRIME OF THEFT PURSUANT TO ART. 308 OF
THE REVISED PENAL CODE.[8]
Petitioner's Arguments
SMC contends that Puzon was positively identified by its
employees to have taken the subject postdated checks. It also
contends that ownership of the checks was transferred to it
because these were issued, not merely as security but were, in
payment of Puzons purchases. SMC points out that it has
established more than sufficient probable cause to justify the
indictment of Puzon for the crime of Theft.
Respondents Arguments
On the other hand, Puzon contends that SMC raises questions of
fact that are beyond the province of an appeal on certiorari. He
also insists that there is no probable cause to charge him with
theft because the subject checks were issued only as security and
he therefore retained ownership of the same.
Our Ruling
The petition has no merit.
Preliminary Matters
At the outset we find that as pointed out by Puzon, SMC raises
questions of fact. The resolution of the first issue raised by SMC of
whether respondent stole the subject check, which calls for the
Court to determine whether respondent is guilty of a felony, first
requires that the facts be duly established in the proper forum
and in accord with the proper procedure. This issue cannot be
resolved based on mere allegations of facts and affidavits. The
same is true with the second issue raised by petitioner, to wit:
whether the checks issued by Puzon were payments for his
purchases or were intended merely as security to ensure
payment. These issues cannot be properly resolved in the present
petition for review on certiorari which is rooted merely on the
resolution of the prosecutor finding no probable cause for the
filing of an information for theft.
The third issue raised by petitioner, on the other hand, would
entail venturing into constitutional matters for a complete
resolution. This route is unnecessary in the present case
considering that the main matter for resolution here only concerns
grave abuse of discretion and the existence of probable cause for
theft, which at this point is more properly resolved through
another more clear cut route.
Probable Cause for Theft
Probable cause is defined as such facts and circumstances that
will engender a well-founded belief that a crime has been
committed and that the respondent is probably guilty thereof and
should be held for trial.[9] On the fine points of the determination
of probable cause, Reyes v. Pearlbank Securities,
[10]
comprehensively elaborated that:
The determination of [the existence or absence of
probable cause] lies within the discretion of the
prosecuting officers after conducting a preliminary
investigation upon complaint of an offended party.
Thus, the decision whether to dismiss a complaint
or not is dependent upon the sound discretion of
the prosecuting fiscal. He may dismiss the
complaint forthwith, if he finds the charge
insufficient in form or substance or without any
ground. Or he may proceed with the investigation if
the complaint in his view is sufficient and in proper
form. To emphasize, the determination of probable
cause for the filing of information in court is an
executive function, one that properly pertains at the
first instance to the public prosecutor and,
ultimately, to the Secretary of Justice, who may
direct the filing of the corresponding information or
move for the dismissal of the case. Ultimately,
whether or not a complaint will be dismissed is
dependent on the sound discretion of the Secretary
of Justice. And unless made with grave abuse of
discretion, findings of the Secretary of Justice are
not subject to review.
For this reason, the Court considers it sound judicial
policy to refrain from interfering in the conduct of
preliminary investigations and to leave the
Department of Justice ample latitude of discretion in
the determination of what constitutes sufficient
evidence to establish probable cause for the
prosecution of supposed offenders. Consistent with
this policy, courts do not reverse the Secretary of
Justice's findings and conclusions on the matter of
probable cause except in clear cases of grave abuse
of discretion.
Inc. In the present case, we are also not sufficiently convinced to
deviate from the general rule of non-interference. Indeed the CA
did not err in dismissing the petition for certiorari before it, absent
grave abuse of discretion on the part of the DOJ Secretary in not
finding probable cause against Puzon for theft.
The Revised Penal Code provides:
Art. 308. Who are liable for theft. - Theft is
committed by any person who, with intent to gain
but without violence against, or intimidation of
persons nor force upon things, shall take personal
property of another without the latters consent.
xxxx
[T]he essential elements of the crime of theft are the following: (1)
that there be a taking of personal property; (2) that said property
belongs to another; (3) that the taking be done with intent to gain;
(4) that the taking be done without the consent of the owner; and
(5) that the taking be accomplished without the use of violence or
intimidation against persons or force upon things.[11]
Considering that the second element is that the thing
taken belongs to another, it is relevant to determine whether
ownership of the subject check was transferred to petitioner.On
this point the Negotiable Instruments Law provides:
Sec. 12. Antedated and postdated The instrument
is not invalid for the reason only that it is antedated
or postdated, provided this is not done for an illegal
or fraudulent purpose. The person to whom an
instrument so dated is delivered acquires the title
 thereto as of the date of delivery. (Underscoring
supplied.)
Note however that delivery as the term is used in the
aforementioned provision means that the party delivering did so
[12]
for the purpose of giving effect thereto. Otherwise, it cannot be
said that there has been delivery of the negotiable
instrument. Once there is delivery, the person to whom the
instrument is delivered gets the title to the instrument completely
and irrevocably.
If the subject check was given by Puzon to SMC in payment of the
obligation, the purpose of giving effect to the instrument is
evident thus title to or ownership of the check was transferred
upon delivery. However, if the check was not given as payment,
there being no intent to give effect to the instrument, then
ownership of the check was not transferred to SMC.
The evidence of SMC failed to establish that the check was given
in payment of the obligation of Puzon. There was no provisional
receipt or official receipt issued for the amount of the check. What
was issued was a receipt for the document, a POSTDATED CHECK
[13]
SLIP.
Furthermore, the petitioner's demand letter sent to respondent
states As per company policies on receivables, all issuances are to
be covered by post-dated checks. However, you have deviated
from this policy by forcibly taking away the check you have issued
[14]
to us to cover the December issuance. Notably, the term
payment was not used instead the terms covered and cover were
used.
Although the petitioner's witness, Gregorio L. Joven III, states in
paragraph 6 of his affidavit that the check was given in payment
of the obligation of Puzon, the same is contradicted by his
statements in paragraph 4, where he states that As a standard
company operating procedure, all beer purchases by dealers on
credit shall be covered by postdated checks equivalent to the
value of the beer products purchased; in paragraph 9 where he
states that the transaction covered by the said check had not yet
been paid for, and in paragraph 8 which clearly shows that partial
payment is expected to be made by the return of beer empties,
and not by the deposit or encashment of the check.Clearly the
term cover was not meant to be used interchangeably with
payment.
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 with whatever was the unpaid balance.[15] it
becomes clear that both parties did not intend for the check
to 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 postdated
checks to cover its receivables. The check was only meant
to cover the transaction and in the meantime Puzon was to pay
for the transaction by some other means other than the
check. This being so, title to the check did not transfer to SMC; it
remained with Puzon. The second element of the felony of theft
was therefore not established. Petitioner was not able to show
that Puzon took a check that belonged to another. Hence, the
prosecutor and the DOJ were correct in finding no probable cause
for theft.

Consequently, the CA did not err in finding no grave abuse of

discretion committed by the DOJ in sustaining the dismissal of the
case for theft for lack of probable cause.

WHEREFORE, the petition is DENIED. The December 21, 2004

Decision and March 28, 2005 Resolution of the Court of Appeals in
CA-G.R. SP. No. 83905 are AFFIRMED.

SO ORDERED.
 FIRST DIVISION (later PHILIPPINE
COMMERCIAL
HI-CEMENT CORPORATION, G.R. No. INTERNATIONAL BANK
132403 and now, EQUITABLE-
Petitioner, PCI
BANK),Respondent.

-versus- Promulgated:

September 28,
INSULAR BANK OF 2007
ASIA AND AMERICA
(later PHILIPPINE
COMMERCIAL x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INTERNATIONAL BANK -----------x
and now, EQUITABLE-
PCI
BANK) DECISION
Respondent.
CORONA, J.:
x----------------------x

E.T. HENRY & CO. and G.R. At bar are consolidated petitions assailing the decision of the
No. 132419
SPOUSES ENRIQUE Court of Appeals (CA) dated January 21, 1998 in CA-G.R. CV
TAN
and LILIA TAN, No. 31600 entitled Insular Bank of Asia and America [now
Petitioners, Present:
Philippine Commercial International Bank/(PCIB)] v. E.T.
PUNO, C.J., Chairperso
n, Henry & Co., et al.[1]
SANDOVAL-
GUTIERREZ,
- v e r s u s - The antecedent facts follow.
CORONA,
AZCUNA
and Petitioners Enrique Tan and Lilia Tan (spouses Tan)
GARCIA, J
J. were the controlling stockholders of E.T. Henry & Co., Inc.

INSULAR BANK OF (E.T. Henry), a company engaged in the business of

ASIA AND AMERICA
processing and distributing bunker fuel. [2] Among E.T. Henry's deposit to payees account only) were dishonored. So were

customers were petitioner Hi-Cement Corporation (Hi- the checks of Riverside and Kanebo.[6]

Cement),[3] Riverside Mills Corporation (Riverside) and

Respondent filed a complaint for sum of money [7] in the then
Kanebo Cosmetics Philippines, Inc. (Kanebo). For their
Court of First Instance of Rizal[8] against E.T. Henry, the
purchases, these corporations issued postdated checks to
spouses Tan, Hi-Cement (including its general manager [9] and
E.T. Henry.
[10]
its treasurer as signatories of the postdated crossed

Sometime in 1979, respondent Insular Bank of Asia checks), Riverside and Kanebo.[11]

and America (later PCIB and now Equitable PCI-Bank) granted

In its complaint, respondent claimed that, due to the dishonor
E.T. Henry a credit facility known as Purchase of Short Term
of the checks, it suffered actual damages equivalent to their
Receivables. Through this arrangement, E.T. Henry was able
value, exclusive of accrued and accruing interests, charges
to encash, with pre-deducted interest, the postdated checks
and penalties such as attorneys fees and expenses of
of its clients. In other words, E.T. Henry and respondent were
litigation, as follows:
into re-discounting of checks.
1. Riverside Mills Corporation P 115,312.50
For every transaction, respondent required E.T. Henry 2. Kanebo Cosmetics Philippines,
Inc. 5,811,750.00
to execute a promissory note and a deed of assignment 3. Hi-Cement Corporation 10,000,000.00
bearing the conformity of the client to the re-discounting. [4]
Respondent also sought to collect from E.T. Henry and the
From 1979 to 1981, E.T. Henry was able to re-discount spouses Tan other loan obligations (amounting
its clients' checks (with deeds of assignment) with to P1,661,266.51 and P4,900,805, respectively) as
respondent. However, in February 1981, 20 checks [5] of Hi- deficiencies resulting from the foreclosure of the real estate
Cement (which were crossed and which bore the restriction mortgage on E.T. Henry's property in Sucat, Paraaque.[12]
Hi-Cement filed its answer alleging, among others, that: (1) On June 30, 1989, the trial court rendered a decision

its general manager and treasurer were not authorized to which read:

issue the postdated crossed checks in E.T. Henry's favor; (2)
the deed of assignment purportedly executed by Hi-Cement
assigning them to respondent only bore the conformity of its
treasurer and (3) respondent was not a holder in due course
WHEREFORE, in view of the foregoing,
and as a consequence of the preponderance of
evidence, this Court hereby renders judgment in
favor of [respondent] and against [E.T. Henry,
spouses Tan, Hi-Cement, Riverside and Kanebo],
to wit:

as it should not have discounted them for being crossed 1. Ordering [E.T. Henry, spouses Tan, Hi-
Cement, Riverside and Kanebo], jointly and
checks.[13] severally, to pay [respondent] damages
represented by the face value of the
In their answer (with counterclaim against respondent and postdated checks as follows:

cross-claims against Hi-Cement, Riverside and Kanebo), (a) Riverside Mills

Corporation P 115,312.50
[14]
E.T. Henry and the spouses Tan claimed that: (1) the (b) Kanebo Cosmetics Philippines,
Inc. 5,811,750.00
drawers of the postdated checks failed to honor them due to (c) Hi-Cement Corporation 10,000,000.00
the adverse economic conditions prevailing at the time plus interests, services, charges and penalties
until fully paid;
respondent presented them for payment; (2) the extra-

judicial sale of the mortgaged Sucat property was void due to 2. Ordering [E.T. Henry] and/or [spouses Tan]
to pay to [respondent] the sum
gross inadequacy of the bid price [15] and (3) their loans were of P4,900,805.00 plus accrued interests,
charges, penalties until fully paid;
subjected to a usurious interest rate of 21% p.a.
3. Ordering [E.T. Henry and spouses Tan] to
pay [respondent] the sum of P1,661,266.51
For their part, Riverside and Kanebo sought the plus interests, charges, and penalties until
fully paid;
dismissal of the case against them, arguing that they were
4. Ordering [E.T. Henry, spouses Tan, Hi-
not privy to the re-discounting arrangement between Cement, Riverside and Kanebo] to pay
[respondent] [a]ttorneys fees and expenses
respondent and E.T. Henry. of litigation in the amount of P200,000.00
and pay the cost of this suit.[16]
 SO ORDERED.[17] factual findings of the trial court, specially when affirmed by

the appellate court, are generally binding on us unless there

Only petitioners appealed the decision to the CA which was a misapprehension of facts or when the inference drawn

affirmed it in toto. Hence, these petitions. from the facts was manifestly mistaken.[21] This case falls

within the exception.

In G.R. No. 132403, petitioner Hi-Cement disclaims liability

for the postdated crossed checks because (1) it did not AUTHORITY
OF HI-
authorize their issuance; (2) respondent was not a holder in CEMENTS
GENERAL
due course and (3) there was no basis for the lower courts MANAGER AN
D TREASURER
holding that it was solidarily liable for the face value of TO ISSUE
THE POSTDAT
Riversides and Kanebos checks. [18] ED CROSSEDC
HECKS
In G.R. No. 132419, on the other hand, E.T. Henry and the

spouses Tan essentially contend that the lower courts erred Both the trial court and the CA concluded that Hi-
in: (1) applying the doctrine of piercing the veil of the Cement authorized its general manager and treasurer to
corporate entity to make the spouses Tan solidarily liable with issue the subject postdated crossed checks. They both held
E.T. Henry; (2) not ruling on their cross-claims and that Hi-Cement was already estopped from denying such
counterclaims, and (3) not declaring the foreclosure of E.T. authority since it never objected to the signatories' issuance
Henry's Sucat property as void.[19] of all previous checks to E.T. Henry which the latter, in turn,
(A) G.R. 132403 was able to re-discount with respondent.

We agree with the lower courts that both the general

As a rule, an appeal by certiorari under Rule 45 of the
manager and treasurer of Hi-Cement were authorized to
Rules of Court is limited to review of errors of law. [20] The
issue the subjects checks. However, notwithstanding such
fact, respondent could not be considered a holder in due
course.
RESPONDE
NT BANK
NOT A
HOLDER IN
DUE COURS
E
The Negotiable Instruments Law (NIL), specifically Section
191,[22] provides:
Holder means the payee or indorsee of a
bill or a note, or the person who is in possession
of it, or the bearer thereof.
On the other hand, Section 52[23] states:
A holder in due course is a holder who
has taken the instrument under the following
conditions: (a) it is complete and regular on its
face; (b) he became the holder of it before it
was overdue, and without notice that it has
previously been dishonored, if such was the fact;
(c) he took it in good faith and for value and (d)
at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
Absent any of the elements set forth in Section 52, the holder
is not a holder in due course. In the case at bar, the last two
requirements were not met.
In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v.
CA,[24] we held that the holder of crossed checks was not a
holder in due course. There, the drawer (BCCF) issued
postdated crossed checks in favor of one of its suppliers
(George King) who promised to deliver bales of tobacco leaf
but failed. George King, however, sold the checks on discount
to State Investment House, Inc. (SIHI) and upon the latters
presentment to the drawee bank, BCCF ordered a stop
payment. Thereafter, SIHI filed a collection case against it. In
ruling that SIHI was not a holder in due course, we explained:
In order to preserve the credit worthiness
of checks, jurisprudence has pronounced that
crossing of a check should have the following
effects: (a) the check may not be encashed but
only deposited in the bank; (b) the check may
be negotiated only once to one who has an
account with a bank [and]; (c) the act of
crossing the checks serves as 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, otherwise, he is not a holder in due
course.
Likewise, in Atrium Management Corporation v. CA, [25] where
E.T. Henry, Hi-Cement and its treasurer[26] again engaged in a
legal scuffle over four postdated crossed checks, we held that
Atrium (with which the checks were re-discounted) was not a
holder in due course. In that case, E.T. Henry was the payee
of four Hi-Cement postdated checks
which it endorsed to Atrium. When the latter presented the
crossed checks to the drawee bank, Hi-Cement
stopped payment.[27] We held that Atrium was not a holder in
due course:
In the instant case, the checks were
crossed and specifically indorsed for deposit to
payees account only. From the beginning, Atrium
was aware of the fact that the checks were all
for deposit only to payees account, meaning E.T.
Henry. Clearly, then, Atrium could not be
considered a holder in due course.
In the case at bar, respondent's claim that it acted in good
faith when it accepted and discounted Hi-Cements postdated
crossed checks from E.T. Henry (as payee therein) fails to
convince us. Good faith becomes inconsequential amidst
proof of respondent's grossly negligent conduct in dealing
with the subject checks.
Respondent was all too aware that subject checks were
crossed and bore restrictions that they were for deposit to
payee's account only; hence, they could not be further
negotiated to it. The records likewise reveal that respondent
completely disregarded a telling sign of irregularity in the re-
discounting of the checks when the general manager did not
acquiesce to it as only the treasurer's signature appeared on
the deed of assignment. As a banking institution, it behooved
respondent to act with extraordinary diligence
in every transaction.[28] Its business is impressed with public
interest, thus, it was not expected to be careless and
negligent, specially so where the checks it dealt with were
crossed. In Bataan Cigar and Cigarette Factory, Inc.,[29] we
ruled:
It is then settled that crossing of checks
should put the holder on inquiry and upon
him devolves the duty to ascertain the
indorsers title to the check or the nature of
his possession. Failing in this respect, the
holder is declared guilty of gross
negligence amounting to legal absence of
good faithand as such[,] the consensus of
authority is to the effect that the holder of the
check is not a holder in due course. (emphasis
supplied)
 The next query is whether Hi-Cement can still be made We note, however, that in the two aforementioned cases, we

liable for the checks. We answer in the negative. made it clear that the NIL does not absolutely bar a holder

who is not a holder in due course from recovering on the

In State Investment House, Inc. (SIHI) v. Intermediate
checks. In both, we ruled that it may recover from the party
Appellate Court,[30] SIHI re-discounted crossed checks and
who indorsed/encashed the checks if the latter has no valid
was declared not a holder in due course. As a result, when it
excuse for refusing payment. Here, there was no doubt that it
presented the checks for deposit, we deemed that its
was E.T. Henry that re-discounted Hi-Cement's checks and
presentment to the drawee bank was not proper, hence, the
received their value from respondent. Since E.T. Henry had
liability did not attach to the drawer of the checks. We ruled
no justification to refuse payment, it should pay respondent.
that:

The three subject checks in the case at SOLIDARY

bar had been crossedwhich could only mean LIABILITY OF
that the drawer had intended the same for HI-CEMENT
deposit only by the rightful person, i.e., the FOR THE FACE
payee named therein. Apparently, it was not the VALUE OF
payee who presented the same for payment and RIVERSIDE'S
therefore, there was no proper presentment, AND
and the liability did not attach to the drawer. KANEBO'S
Thus, in the absence of due presentment, the CHECKS
drawer did not become liable. [31]

Hi-Cement could not also be made solidarily liable with

Our resolution in the foregoing case was reiterated
Riverside and Kanebo for the face value of their checks. Hi-
[32]
in Atrium Management Corporation v. CA, where we
Cement had nothing to do with the checks of these two
affirmed the CA ruling that the drawer of the postdated
corporations. However, although the language of the trial
crossed checks was not liable to the holder who was deemed
court decision's dispositive portion seemed confusing, a
not a holder in due course.
reading of the decision in its entirety reveals that
the fallo was for each corporation to be liable solidarily with

E.T. Henry and/or the spouses Tan for the respective values of DOCTRINE OF PIERCING THE
VEIL OF CORPORATE ENTITY
their checks.

Furthermore, solidary liability cannot be presumed but In their petition, E.T. Henry and the spouses Tan argue that
must be established by law or contract. Neither is present the lower courts erred in applying the piercing the veil of
here. Articles 1207 and 1208 of the Civil Code provide: corporate entity doctrine to their case. They claim that both
Art. 1207. The concurrence of two or the trial and appellate courts failed to cite the reasons why
more debtors in one and the same obligation
does not imply that each one of the former has the doctrine was relevant to them.
a right to demand, or that each one of the latter
is bound to render, entire compliance with the
presentation. There is solidary liability only We agree with petitioners E.T. Henry and the spouses Tan in
when the obligation expressly so states, or
when the obligation requires this respect.
solidarity. (emphasis supplied)

If any general rule can be laid down, it is that the corporation

Art. 1208. If from the law, or the nature of
the wording of the obligations to which the will be looked upon as a legal entity until sufficient reasons to
preceding article refers to the contrary does not
appear, the credit or debt shall be presumed to the contrary appear. [33] It is only when the fiction or notion of
be divided into as many equal shares as there
legal entity is used to defeat public convenience, justify
are creditors or debtors, the credits or debts
being considered distinct from one another, wrong, perpetuate fraud or defend crime that the law will
subject to the Rules governing the multiplicity of
suits. shred the corporate legal veil and regard it as a mere

association of persons.[34] This is referred to as the doctrine of

At any rate, the issue has become moot in view of our ruling piercing the veil of corporate entity.

that Hi-Cement is not liable for the checks.

After a careful study of the records, we hold that E.T. Henry's

(B) G.R. No. 132419 corporate veil should not have been pierced at all.
 Second, the mere ownership by a single stockholder or
First, the trial court failed to provide a clear ground
by another corporation of all or nearly all of the capital stock
why the doctrine was used. It merely stated that it agreed
of a corporation is not of itself sufficient ground for
with respondents arguments but did not explain why the
disregarding the separate corporate personality. [38] For this
doctrine was relevant to petitioner E.T. Henry's and the
ground to stand in this case, there must be proof that the
spouses Tans case. On the other hand, the CA held:
spouses Tan: (1) had control or complete domination of E.T.
It appears that spouses Tan are
controlling stockholders of E.T. Henry & Co., Inc. Henrys finances and that the latter had no separate
as well as its authorized signatories. The
business of the corporation was conducted existence with respect to the act complained of; (2) used
solely for the benefit of the spouses Tan who
such control to commit fraud or wrong and (3) the control
colluded with [Hi-Cement] in defrauding
[respondent]. As the lower court cited[I]t is a was the proximate cause of the loss or injury complained of
settled law in this and other jurisdictions that
when the corporation is a mere alter ego of a by respondent.[39] The records of this case do not show that
person, same being true when the corporation is
controlled, and its affairs are so conducted to these elements were present.
make it merely an instrumentality, agency or
conduit of another.[35]
INADEQUACY OF
THE BID PRICE
TO ANNUL
Similarly, the CA left a gaping hole by failing to provide FORECLOSURE
PROCEEDING
the basis for its ruling that E.T. Henry and the spouses Tan

defrauded respondent. It did not also state what act

With respect to the allegation that foreclosure was void
constituted the fraud. Fraud is an allegation of fact that
due to the inadequacy of the bid price, we agree with the CA
demands clear and convincing evidence. [36] It is never
that the mere inadequacy of the price obtained at the
presumed.[37]
[s]heriffs sale, unless shocking to the conscience, (was) not

sufficient to set aside the sale if there (was) no

showing that, in the event of a regular sale, a better price (co First, E.T. Henry and the spouses Tan failed to implead

uld) be Hi-Cement, Riverside and Kanebo as parties in the case at

bar. Under Rule 3 of the Rules of Court, every action,

obtained.[40] including a counterclaim (or a cross-claim), must be

prosecuted or defended in the name of the real party in

Furthermore, in the absence of any irregularity in the
interest.[41] The term defendant may refer to the original
foreclosure proceeding or proof that it was carried out
defending party, the defendant in a counterclaim, the cross-
without strict observance of the procedure, we will continue
defendant or the third (fourth, etc.) party defendant.
to assume its regularity and strike down any attempt to
[42]
Hence, for this technical lapse, we are constrained not to
vitiate it. In this case, E.T. Henry and the spouses Tan made
pass on E.T. Henry's and the spouses Tan's cross-claims.
no mention of any anomaly to support the nullification of the

foreclosure sale but merely alleged a disparity in the bid Second, E.T. Henry and the spouses Tan filed the

price and the propertys fair market value. counterclaim against respondent on the basis of an alleged

void foreclosure proceeding on E.T. Henry's Sucat property

COUNTERCLAIMS
AND CROSS- due to an inadequate bid price. It is no longer necessary to
CLAIMS
delve into this matter in view of our finding that the mere

inadequacy of the bid price on the property did not

Lastly, E.T. Henry and the spouses Tan call this Court's
automatically render the foreclosure sale irregular or void.
attention to the alleged failure of the lower court to pass

upon their counterclaim against respondent or cross-claims Incidentally, the petition in G.R. No. 132419 posed no contest

against Hi-Cement, Riverside and Kanebo. They ask us now on the lower courts ruling on E.T. Henrys and the spouses

to hold these parties liable on the basis of said claims. We Tans solidary liability with Riverside and Kanebo vis-a-vis

decline to do so. their checks.[43] To be consistent, however, with our dictum on

the separate personality of E.T. Henry and the spouses Tan, Kanebo's liabilities for the checks, attorney's fees and costs

the solidarity liability arising from the checks of Riverside and of litigation.

Kanebo shall only be enforced against E.T. Henry.

Costs against petitioners E.T. Henry and the spouses Enrique

WHEREFORE, the assailed decision of the Court of Appeals and Lilia Tan.

in CA-G.R. CV No. 31600 is

SO ORDERED.
hereby AFFIRMED with MODIFICATION. Accordingly,

petitioner Hi-Cement Corporation is discharged from any

liability. Only petitioner E.T. Henry & Co. is ORDERED to pay

respondent Insular Bank of Asia and America (later Philippine

Commercial International Bank and now Equitable PCI-Bank)

the following:

1. P10,000,000 representing the value of Hi-

Cement's checks it received from respondent

plus accrued interests, charges and penalties

until fully paid, and

2. the loans for P1,661,266.51

and P4,900,805 plus accrued interests, charges

and penalties until fully paid.

Let the records of this case be remanded to the trial court for

the proper computation of E.T. Henry's, Riverside's and

 FIRST DIVISION
SANDOVAL-GUTIERREZ, J.:

BANK OF THE G.R. No. 157833

PHILIPPINE ISLANDS,
Petitioner,
For our resolution is the instant Petition for Review
Present: on Certiorari assailing the Decision[1] of the Court of Appeals
(Fourth Division) dated February 13, 2003 in CA-G.R. CV No.
67980.
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
-versus-
CORONA, The facts of the case, as found by the trial court and
affirmed by the Court of Appeals, are:
AZCUNA, and
GARCIA, JJ.
Gregorio C. Roxas, respondent, is a trader. Sometime
in March 1993, he delivered stocks of vegetable oil to
spouses Rodrigo and Marissa Cawili. As payment therefor,
Promulgated:
GREGORIO C. ROXAS, spouses Cawili issued a personal check in the amount
of P348,805.50. However, when respondent tried to encash
Respondent.
October 15, 2007 the check, it was dishonored by the drawee bank. Spouses
Cawili then assured him that they would replace the bounced
x------------------------------------------------------------------------------------ check with a cashiers check from the Bank of the Philippine
-----x
Islands (BPI), petitioner.

On March 31, 1993, respondent and Rodrigo Cawili

DECISION
went to petitioners branch at Shaw
Boulevard, Mandaluyong City where Elma Capistrano, the
branch manager, personally attended to them. Upon Elmas by mistake in good faith; that its dishonor was due to lack of
instructions, Lita Sagun, the bank teller, prepared BPI consideration; and that respondents remedy was to sue
Cashiers Check No. 14428 in the amount of P348,805.50, Rodrigo Cawili who purchased the check. As a
drawn against the account of Marissa Cawili, payable to counterclaim, petitioner prayed that respondent be ordered
respondent. Rodrigo then handed the check to respondent in to pay attorneys fees and expenses of litigation.
the presence of Elma.

Petitioner filed a third-party complaint against spouses

The following day, April 1, 1993, respondent returned Cawili. They were later declared in default for their failure to
to petitioners branch at Shaw Boulevard to encash the file their answer.
cashiers check but it was dishonored. Elma informed him that
Marissas account was closed on that date.
After trial, the RTC rendered a Decision, the dispositive
portion of which reads:
Despite respondents insistence, the bank officers
refused to encash the check and tried to retrieve it from
WHEREFORE, in view of the foregoing premises,
respondent. He then called his lawyer who advised him to this Court hereby renders judgment in favor of
deposit the check in his (respondents) account at herein plaintiff and orders the defendant, Bank
of the Philippine Islands, to pay Gerardo C.
Citytrust, Ortigas Avenue. However, the check was
Roxas:
dishonored on the ground Account Closed.

1) The sum of P348,805.50, the face

On September 23, 1993, respondent filed with the value of the cashiers check, with legal
Regional Trial Court, Branch 263, Pasig City a complaint for interest thereon computed from April 1,
1993 until the amount is fully paid;
sum of money against petitioner, docketed as Civil Case No.
63663. Respondent prayed that petitioner be ordered to pay 2) The sum of P50,000.00 for moral
the amount of the check, damages and cost of the suit. damages;

3) The sum of P50,000.00 as exemplary

damages to serve as an example for the
In its answer, petitioner specifically denied the public good;
allegations in the complaint, claiming that it issued the check
 4) The sum of P25,000.00 for and as SEC. 52. What constitutes a holder in due
attorneys fees; and the course. A holder in due course is a holder who
has taken the instrument under the following
5) Costs of suit. conditions:

As to the third-party complaint, third- (a)
party defendants Spouses Rodrigo and Marissa
Cawili are hereby ordered to indemnify
defendant Bank of the Philippine Islands such (b)
amount(s) adjudged and actually paid by it to
herein plaintiff Gregorio C. Roxas, including the
costs of suit.
That it is complete and regular upon its
face;
That he became the holder of it before it
was overdue and without notice that it had
been previously dishonored, if such was
the fact;

(c) That he took it in good faith and for

SO ORDERED. value;

(d) That at the time it was negotiated to

On appeal, the Court of Appeals, in its Decision,
affirmed the trial courts judgment.
Hence, this petition.
him, he had no notice of any infirmity in
the instrument or defect in the title of
person negotiating it.
As a general rule, under the above provision, every holder is
presumed prima facie to be a holder in due course. One who
claims otherwise has the onus probandito prove that one or
more of the conditions required to constitute a holder in due
course are lacking. In this case, petitioner contends that the

Petitioner ascribes to the Court of Appeals the element of value is not present, therefore, respondent could

following errors: (1) in finding that respondent is a holder in not be a holder in due course.

due course; and (2) in holding that it (petitioner) is liable to

respondent for the amount of the cashiers check.
Petitioners contention lacks merit. Section 25 of the same
law states:

Section 52 of the Negotiable Instruments Law

provides: SEC. 25. Value, what constitutes. Value is any
consideration sufficient to support a simple
 contract. An antecedent or pre-existing debt is because the mere issuance of a cashiers check is
constitutes value; and is deemed as such
whether the instrument is payable on demand considered acceptance thereof.
or at a future time.

In Walker Rubber Corp. v. Nederlandsch Indische In view of the above pronouncements, petitioner bank
& Handelsbank, N.V. and South Sea Surety & Insurance Co., became liable to respondent from the moment it issued the
[2]
Inc., this Court ruled that value in general terms may be cashiers check. Having been accepted by respondent, subject
some right, interest, profit or benefit to the party who makes to no condition whatsoever, petitioner should have paid the
the contract or some forbearance, detriment, loan, same upon presentment by the former.
responsibility, etc. on the other side. Here, there is no dispute
that respondent received Rodrigo Cawilis cashiers check as
payment for the formers vegetable oil. The fact that it was WHEREFORE, the petition is DENIED. The assailed Decision
Rodrigo who purchased the cashiers check of the Court of Appeals (Fourth Division) in CA-G.R. CV No.
from petitioner will not affect respondents status as a holder 67980 is AFFIRMED. Costs against petitioner.
for value since the check was delivered to him as payment
for the vegetable oil he sold to spouses Cawili. Verily, the
SO ORDERED.
Court of Appeals did not err in concluding that respondent is
a holder in due course of the cashiers check.

Furthermore, it bears emphasis that the disputed check is a

cashiers check. In International Corporate Bank v. Spouses
Gueco,[3] this Court held that a cashiers check is really the
banks own check and may be treated as a promissory note
with the bank as the maker. The check becomes the primary
obligation of the bank which issues it and constitutes
a written promise to pay upon demand. In New Pacific
Timber & Supply Co. Inc. v. Seeris,[4] this Court took judicial
notice of the well-known and accepted practice in the
business sector that a cashiers check is deemed as cash. This
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 106011 June 17, 1993
TOWN SAVINGS AND LOAN BANK, INC., petitioner,
vs.
THE COURT OF APPEALS, SPOUSES MIGUELITO
HIPOLITO AND ALICIA N. HIPOLITO, respondents.
Maximo H. Simbulan for petitioner.
Ma. Soledad Deriquito-Mawis for private respondents.
GRIÑO-AQUINO, J.:
This is a petition for review on certiorari to set aside the
decision dated March 12, 1992, of the Court of Appeals in CA-
G.R. CV No. 29475 entitled, "Town Savings and Loan Bank,
Inc. vs. Spouses Miguel Hipolito and Alicia N. Hipolito"
reversing the decision dated September 14, 1990 of the
Regional Trial Court of Bulacan which declared that the
Hipolitos were accommodation parties on the promissory
note and holding them liable to pay Town Savings And Loan
Bank the sum of P1,392, 600.00.
On or about May 4, 1983, the Hipolitos applied for, and were
granted, a loan in the amount of P700,000.00 with interest of
24% per annum for which they executed and delivered to
Town Savings and Loan Bank (or TSLB) a promissory note
with a maturity period of three (3) years and an acceleration
clause upon default in the payment of any amortization, plus
a penalty of 36% and 10% attorney's fees, if the note were
referred to an attorney for collection. For failure to keep
current their monthly payments on the account, the obligors
were deemed to have defaulted on May 24, 1984. Notices of
past due account and demands for payment were sent but
ignored. At the time of the institution of the action on March
12, 1986, the unpaid obligation amounted to P1,114,983.40.
The Hipolitos denied being personally liable on the
P700,000.00 promissory note which they executed. The loan
was allegedly for the account of Pilarita H. Reyes, the sister of
Miguel Hipolito. She was the real party-in-interest. The
Hipolitos, not having received any part of the loan, were
mere guarantors for Pilarita. They allegedly signed the
promissory note because they were persuaded to do so by
Joey Santos, President of TSLB. When they received the
demand letters, they confronted him but they were told that
the Bank had to observe the formality of sending notices and
demand letters. The real purpose was only to pressure
Pilarita to comply with her undertaking.
Insisting that they were mere guarantors, the Hipolitos
vehemently protested against being dragged into the
litigation as principal parties. As a result of the unfounded
suit, they allegedly incurred actual damages estimated at
P200,000.00 and attorney's fees of P30,000.00.
In a decision dated September 14, 1990, Judge Zotico A.
Toleto of the RTC of Malolos, Branch 18, held the respondents
(then defendants) spouses Miguel and Alicia Hipolito, liable
as accommodation parties on the promissory note.
The spouses appealed to the Court of Appeals. In a decision
dated March 12, 1992, the Court of Appeals found that the
Hipolitos did not accommodate Pilarita but the TSLB, whose
lending authority was restricted by the size of its loan
portfolio. The Hipolitos were relieved from any liability to
TSLB.
Hence, this petition for review by TSLB.
The lone issue in this case is whether the Hipolitos are liable
on the promissory note which they executed in favor of the
petitioner.
We hold for the petitioner.
An accommodation party is one who has signed
the instrument as marker, drawer, indorser,
without receiving value therefor and for the
purpose of lending his name to some other
person. Such person is liable on the instrument
to a holder for value, notwithstanding such
holder, at the time of the taking of the
instrument knew him to be only an
accommodation party. In lending his name to
the accommodated party, the accommodation
party is in effect a surety for the latter. He lends
his name to enable the accommodated party to
obtain credit or to raise money. He receives no
part of the consideration for the instrument but
assumes liability to the other parties thereto
because he wants to accommodate another.
(The Phil. Bank of Commerce vs. Aruego, 102
SCRA 530, 539, 540.)
In this case, there is no question that the private respondents
signed the promissory note in order to enable Pilarita H.
Reyes, who is Miguel Hipolito's sister, to borrow the total sum
of P1.4 million from TSLB. As observed by both the trial court
and the appellate court, the actual beneficiary of the loan
was Pilarita H. Reyes and no other. The Hipolitos
accommodated her by signing a promissory note for half of
the loan that she applied for because TSLB may not lend any
single borrower more than the authorized limit of its loan
portfilio. Under Section 29 of the Negotiable Instruments Law,
the Hipolitos are liable to the bank on the promissory note
that they signed to accommodate Pilarita.
Respondent appellate court erred in giving credence to
Hipolito's allegation that it was the bank's president who
induced him to sign the promissory note so that the bank
would not violate the Central Bank's regulation limiting the
amount that TSLB could lend out. Besides being self-serving,
Hipolito's testimony was uncorroborated by any other
evidence on record, therefore, it should have been received
with extreme caution. The Court is convinced that the
intention of respondents Hipolitos in signing the promissory
note was not so much to enable the Bank to grant a loan to
Pilarita but for the latter to be able to obtain the full amount
of the loan that she needed at the time.
It is not credible that a Bank would want so much to lend
money to a borrower that it would go out of its way to
convince another person (respondent Miguel Hipolito) to
accommodate the borrower (Pilarita H. Reyes). In the
ordinary course of things, the borrower, Pilarita, not the Bank,
would have requested her brother Miguel to accommodate
her so she could have the P1.4 million that she wanted to
borrow from the Bank.
The case of Maulini vs. Serrano (28 Phil. 640), relied upon by
the appellate court in reversing the decision of the trial court,
is not applicable to this case. In that case, the evidence
showed that the indorser (the loan broker Serrano) in making
the indorsement to the lender, Maulini, was acting as agent
for the latter or, as a mere vehicle for the transference of the
naked title from the borrower or maker of the note (Moreno).
Furthermore, his indorsement was wholly without
consideration. We ruled that Serrano was not an
accommodation indorser; he was not liable on the note.
. . . Where, however, an indorsement is made as
a favor to the indorsee, who requests it, not the
better to secure payment, but to relieve himself
from a distasteful situation, and where the only
consideration for such indorsement passes from
the indorser to the indorsee, the situation does
not present one creating an accommodation
indorsement, nor one where there is a
consideration sufficient to sustain an action on
the indorsement. (p. 644.)
Unlike the Maulini case, there was no agreement here,
written or verbal, that in signing the promissory note, Miguel
and Alicia Hipolito were acting as agents for the money
lender the Bank. The consideration of the note signed by the
Hipolitos was received by them through Pilarita. They acted
as agents of Pilarita, not of the bank. They signed the
promissory note as favor to Pilarita, to help her raise the
funds that she needed. It was Pilarita whom they
accommodated, not the bank, contrary to the erroneous
finding of the appellate court.

WHEREFORE, the petition for review is GRANTED. The

appealed decision of the Court of Appeals is hereby
REVERSED and that of the trial court is REINSTATED. Costs
against the private respondents.

SO ORDERED.

Cruz, Bellosillo and Quiason, JJ., concur.

 THIRD DIVISION reimburse petitioner US $20,085; and exonerating the
guarantors from liability; and (b) the January 17, 1997
ALLIED BANKING CORPORATION, G.R. No. 125851 Resolution[2] denying the motion for reconsideration.

Petitioner,
Present:
The facts are undisputed.

QUISUMBING, J., Chairperson,

On January 6, 1981, petitioner Allied
- versus - CARPIO,
Bank, Manila (ALLIED) purchased Export Bill No. BDO-81-002
CARPIO MORALES,
in the amount of US $20,085.00 from respondent G.G.
TINGA, and Sportswear Mfg. Corporation (GGS). The bill, drawn under a
VELASCO, JR., JJ. letter of credit No. BB640549 covered Mens Valvoline Training
Suit that was in transit to West Germany (Uniger
via Rotterdam) under Cont. #73/S0299. The export bill was
COURT OF APPEALS, G.G.
SPORTSWEAR MANUFACTURING issued by Chekiang First Bank Ltd., Hongkong. With the
CORPORATION, NARI GIDWANI, purchase of the bill, ALLIED credited GGS the peso equivalent
SPOUSES LETICIA AND LEON DE Promulgated: of the aforementioned bill amounting to P151,474.52 and the
VILLA AND ALCRON
INTERNATIONAL LTD., receipt of which was acknowledged by the latter in its letter

July 11, 2006 dated June 22, 1981.

Respondents.
x---------------------------------------
- - - - - - - - - - - -x
On the same date, respondents Nari Gidwani and
Alcron International Ltd. (Alcron) executed their respective
DECISION Letters of Guaranty, holding themselves liable on the export
bill if it should be dishonored or retired by the drawee for any
QUISUMBING, J.:
reason.

This petition for review on certiorari assails (a) the July

31, 1996 Decision[1] of the Court of Appeals, ordering
respondent G.G. Sportswear Manufacturing Corp. to
 Subsequently, the spouses Leon and Leticia de Villa Respondent Alcron, for its part, alleged that as a
and Nari Gidwani also executed a Continuing foreign corporation doing business in the Philippines, its
Guaranty/Comprehensive Surety (surety, for brevity), branch in the Philippines is merely a liaison office confined to
guaranteeing payment of any and all such credit the following duties and responsibilities, to wit: acting as a
accommodations which ALLIED may extend to GGS. When message center between its office in Hongkong and its
ALLIED negotiated the export bill to Chekiang, payment was clients in the Philippines; conducting credit investigations on
refused due to some material discrepancies in the documents Filipino clients; and providing its office in Hongkong with
submitted by GGS relative to the exportation covered by the shipping arrangements and other details in connection with
letter of credit.Consequently, ALLIED demanded payment its office in Hongkong. Respondent Alcron further alleged that
from all the respondents based on the Letters of Guaranty neither its liaison office in the Philippines nor its then
and Surety executed in favor of ALLIED. However, representative, Hans-Joachim Schloer, had the authority to
respondents refused to pay, prompting ALLIED to file an issue Letters of Guaranty for and in behalf of local entities
action for a sum of money. and persons. It also invoked laches against petitioner ALLIED.

GGS and Nari Gidwani filed a Motion for Summary Judgment

on the ground that since the plaintiff admitted not having
In their joint answer, respondents GGS and Nari
protested the dishonor of the export bill, it thereby
Gidwani admitted the due execution of the export bill and the
discharged GGS from liability. But the trial court denied the
Letters of Guaranty in favor of ALLIED, but claimed that they
motion. After the presentation of evidence by the petitioner,
signed blank forms of the Letters of Guaranty and the Surety,
only the spouses de Villa presented their evidence. The other
and the blanks were only filled up by ALLIED after they had
respondents did not. The trial court dismissed the complaint.
affixed their signatures. They also added that the documents
did not cover the transaction involving the subject export bill. On appeal, the Court of Appeals modified the ruling of the
trial court holding respondent GGS liable to reimburse
On the other hand, the respondents, spouses de Villa,
petitioner ALLIED the peso equivalent of the export bill, but it
claimed that they were not aware of the existence of the
exonerated the guarantors from their liabilities under the
export bill; they signed blank forms of the surety; and
Letters of Guaranty. The CA decision reads as follows:
averred that the guaranty was not meant to secure the
export bill. For the foregoing considerations, appellee GGS
is obliged to reimburse appellant Allied Bank the
amount of P151,474.52 which was the
 equivalent of GGSs contracted obligation of on the bill in accordance with Section 152 of the Negotiable
US$20,085.00.
Instruments Law?[5]
The lower court however correctly exonerated
the guarantors from their liability under their The petitioner contends that part of the Court of Appeals
Letters of Guaranty. A guaranty is an accessory decision exonerating respondents Nari Gidwani, Alcron
contract. What the guarantors guaranteed in the International Ltd., and spouses Leon and Leticia de Villa as
instant case was the bill which had been
discharged. Consequently, the guarantors guarantors and/or sureties. Respondents rely on Section 152
should be correspondingly released. of the Negotiable Instruments Law to support their
contention.
WHEREFORE, judgment is hereby rendered
ordering defendant-appellee G.G. Sportswear Our review of the records shows that what transpired in this
Mfg. Corporation to pay appellant the sum
case is a discounting arrangement of the subject export bill,
of P151,474.52 with interest thereon at the legal
rate from the filing of the complaint, and the between petitioner ALLIED and respondent GGS. Previously,
costs. we ruled that in a letter of credit transaction, once the credit
is established, the seller ships the goods to the buyer and in
SO ORDERED.[3]
the process secures the required shipping documents of
title. To get paid, the seller executes a draft and presents it
The petitioner filed a Motion for Reconsideration, but to together with the required documents to the issuing
no avail. Hence, this appeal, raising a single issue: bank.The issuing bank redeems the draft and pays cash to
WHETHER OR NOT the seller if it finds that the documents submitted by the
RESPONDENTS NARI, DE VILLA AND ALCRON seller conform with what the letter of credit requires.The
ARE LIABLE UNDER THE LETTERS OF GUARANTY
bank then obtains possession of the documents upon paying
AND THE CONTINUING GUARANTY/
COMPREHENSIVE SURETY NOTWITHSTANDING the seller. The transaction is completed when the buyer
THE FACT THAT NO PROTEST WAS MADE AFTER reimburses the issuing bank and acquires the documents
THE BILL, A FOREIGN BILL OF EXCHANGE, WAS
entitling him to the goods. [6] However, in most cases, instead
DISHONORED.[4]
of going to the issuing bank to claim payment, the buyer (or
the beneficiary of the draft) may approach another bank,
The main issue raised before us is: Can respondents, in termed the negotiating bank, to have the draft discounted.
their capacity as guarantors and surety, be held jointly and [7]
While the negotiating bank owes no contractual duty
severally liable under the Letters of Guaranty and Continuing toward the beneficiary of the draft to discount or purchase it,
Guaranty/Comprehensive Surety, in the absence of protest it may still do so. Nothing can prevent the negotiating bank
from requiring additional requirements, like contracts of the parties from establishing stipulations, clauses, terms and
guaranty and surety, in consideration of the discounting conditions as they may deem convenient, provided they are
arrangement. not contrary to law, morals, good customs, public order, or
public policy.[12]

In this case, respondent GGS, as the beneficiary of the export

bill, instead of going to Chekiang First Bank Ltd. (issuing Here, Art. 2047 of the New Civil Code is pertinent. Art. 2047
bank), went to petitioner ALLIED, to have the export bill states,
purchased or discounted. Before ALLIED agreed to purchase
Art. 2047. By guaranty a person, called
the subject export bill, it required respondents Nari Gidwani the guarantor, binds himself to the creditor to
and Alcron to execute Letters of Guaranty, holding them fulfill the obligation of the principal debtor in
case the latter should fail to do so.
liable on demand, in case the subject export bill was
dishonored or retired for any reason. [8] If a person binds himself solidarily with
the principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be
Likewise, respondents Nari Gidwani and spouses Leon
observed. In such case the contract is called a
and Leticia de Villa executed Continuing suretyship.
Guaranty/Comprehensive Surety, holding themselves jointly
and severally liable on any and all credit accommodations,
In this case, the Letters of Guaranty and Surety clearly show
instruments, loans, advances, credits and/or other obligation
that respondents undertook and bound themselves as
that may be granted by the petitioner ALLIED to respondent
guarantors and surety to pay the full amount of the export
GGS.[9] The surety also contained a clause whereby said
bill.
sureties waive protest and notice of dishonor of any and all
such instruments, loans, advances, credits and/or obligations.
[10]
These letters of guaranty and surety are now the basis of
Respondents claim that the petitioner did not
the petitioners action.
protest[13] upon dishonor of the export bill by Chekiang First
Bank, Ltd. According to respondents, since there was no
protest made upon dishonor of the export bill, all of them, as
At this juncture, we must stress that obligations arising
indorsers were discharged under Section 152 of the
from contracts have the force of law between the parties and
Negotiable Instruments Law.
should be complied with in good faith. [11] Nothing can stop
 Section 152 of the Negotiable Instruments
pertaining to indorsers, relied on by respondents, is not
pertinent to this case. There are well-defined distinctions
between the contract of an indorser and that
guarantor/surety of a commercial paper, which is what is
involved in this case. The contract of indorsement is primarily
that of transfer, while the contract of guaranty is that of
personal security.[14] The liability of a guarantor/surety is
broader than that of an indorser. Unless the bill is promptly
presented for payment at maturity and due notice of
dishonor given to the indorser within a reasonable time, he
will be discharged from liability thereon. [15] On the other
hand, except where required by the provisions of the contract
of suretyship, a demand or notice of default is not required to
fix the suretys liability.[16] He cannot complain that the
creditor has not notified him in the absence of a special
agreement to that effect in the contract of suretyship.
[17]
Therefore, no protest on the export bill is necessary to
charge all the respondents jointly and severally liable with
G.G. Sportswear since the respondents held themselves
liable upon demand in case the instrument was dishonored
and on the surety, they even waived notice of dishonor as
stipulated in their Letters of Guarantee.
As to respondent Alcron, it is bound by the Letter of Guaranty
executed by its representative Hans-Joachim Schloer. As to
the other respondents, not to be overlooked is the fact that,
the Suretyship Agreement they executed, expressly
contemplated a solidary obligation, providing as it did that
the sureties hereby guarantee jointly and severally the
Law punctual payment of any and all such credit
accommodations, instruments, loans, which is/are now or
may hereafter become due or owing by the borrower. [18] It is
of a a cardinal rule that if the terms of a contract are clear and
leave no doubt as to the intention of the contracting parties,
the literal meaning of its stipulation shall control. [19] In the
present case, there can be no mistaking about respondents
intent, as sureties, to be jointly and severally obligated with
respondent G.G. Sportswear.
Respondents also aver that, (1) they only signed said
documents in blank; (2) they were never made aware that
said documents will cover the payment of the export bill; and
(3) laches have set in.
Respondents stance lacks merit. Under Section 3 (d),
Rule 131 of the Rules of Court, it is presumed that a person
takes ordinary care of his concerns.Hence, the natural
presumption is that one does not sign a document without
first informing himself of its contents and consequences. Said
presumption acquires greater force in the case at bar where
not only one document but several documents were
executed at different times and at different places by the
herein respondent guarantors and sureties. [20]
In this case, having affixed their consenting signatures
in several documents executed at different times, it is safe to
presume that they had full knowledge of its terms and SO ORDERED.
conditions, hence, they are precluded from asserting
ignorance of the legal effects of the undertaking they
assumed thereunder. It is also presumed that private
[21]
transactions have been fair and regular and that he who
alleges has the burden of proving his allegation with the
requisite quantum of evidence.[22] But here the records of this
case do not support their claims.
Last, we find the defense of laches unavailing. The question
of laches is addressed to the sound discretion of the court
and since laches is an equitable doctrine, its application is
controlled by equitable considerations.[23] Respondents,
however, failed to show that the collection suit against them
as sureties was inequitable. Remedies in equity address only
situations tainted with inequity, not those expressly governed
by statutes.[24]

After considering the facts of this case vis--vis the

pertinent laws, we are constrained to rule for the petitioner.

WHEREFORE, the instant petition is GRANTED. The assailed

Decision of the Court of Appeals is hereby MODIFIED, and
we hold that respondent AlcronInternational Ltd.
is subsidiarily liable, while respondents Nari Gidwani, and
Spouses Leon and Leticia de Villa are jointly and severally
liable together with G.G. Sportswear, to pay petitioner Bank
the sum of P151,474.52 with interest at the legal rate from
the filing of the complaint, and the costs.
 FIRST DIVISION 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
BANK OF AMERICA NT & G.R. No. 150228
SA, (CA), in CA-G.R. CV No. 45371 entitled Philippine Racing
Club, Inc. v. Bank of America NT & SA, affirming the
Petitioner,
Decision[2] dated March 17, 1994 of the Regional Trial Court
Present: (RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in
favor of the respondent. Likewise, the present petition assails
the Resolution[3] promulgated on September 28, 2001,
PUNO, C.J., Chairperson,
denying the Motion for Reconsideration of the CA Decision.
CARPIO,
-versus-
CORONA,
LEONARDO-DE CASTRO, and The facts of this case as narrated in the assailed CA
Decision are as follows:
BERSAMIN, JJ.

Plaintiff-appellee PRCI is a domestic

Promulgated: corporation which maintains several accounts
PHILIPPINE RACING with different banks in the Metro Manila
CLUB, area. Among the accounts maintained was
Respondent. July 30, 2009 Current Account No. 58891-012 with defendant-
appellant BA (Paseo de Roxas Branch). The
authorized joint signatories with respect to said
x------------------------------------------------------------------------------------ Current Account were plaintiff-appellees
-----x 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
DECISION
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
LEONARDO-DE CASTRO, J.:
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 126[7] and 185[8]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
[11]
by the trial court itself.
There is no dispute that the signatures appearing on
the subject checks were genuine signatures of
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
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
the
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
the
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
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
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
the 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
their 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 16[17] 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 15[20] 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
Explaining this provision in Lambert v. Heirs of Ray
part of respondent because, even if we concur that the latter
Castillon,[25] the Court held:
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 The underlying precept on contributory
negligence is that a plaintiff who is partly
have called up the client for verification or confirmation
responsible for his own injury should not be
before honoring the dubious checks. Verily, petitioner had the entitled to recover damages in full but must
final opportunity to avert the injury that befell the bear the consequences of his own negligence.
The defendant must thus be held liable only for
respondent. Failing to make the necessary verification due to
the damages actually caused by his negligence.
the volume of banking transactions on that particular day is a xxx xxx xxx
flimsy and unacceptable excuse, considering that the
As we previously stated, respondents practice of
banking business is so impressed with public interest where
signing checks in blank whenever its authorized bank
the trust and confidence of the public in general is of
signatories would travel abroad was a dangerous policy,
paramount importance such that the appropriate standard of
especially considering the lack of evidence on record that
diligence must be a high degree of diligence, if not the
respondent had appropriate safeguards or internal controls to
utmost diligence.[23] Petitioners negligence has been
prevent the pre-signed blank checks from falling into the
undoubtedly established and, thus, pursuant to Art. 1170 of
hands of unscrupulous individuals and being used to commit
the NCC,[24] it must suffer the consequence of said
a fraud against the company. We cannot believe that there
negligence.
was no other secure and reasonable way to guarantee the
In the interest of fairness, however, we believe it is proper to non-disruption of respondents business. As testified to by
consider respondents own negligence to mitigate petitioners petitioners expert witness, other corporations would
liability. Article 2179 of the Civil Code provides: ordinarily have another set of authorized bank signatories
Art. 2179. When the plaintiffs own negligence who would be able to sign checks in the absence of the
was the immediate and proximate cause of his
preferred signatories.[26] Indeed, if not for the fortunate
injury, he cannot recover damages. But if his
negligence was only contributory, the happenstance that the thief failed to properly fill up the
immediate and proximate cause of the injury subject checks, respondent would expectedly take the blame
being the defendants lack of due care, the for the entire loss since the defense of forgery of a drawers
plaintiff may recover damages, but the courts
shall mitigate the damages to be awarded. signature(s) would be unavailable to it. Considering that
respondent knowingly took the risk that the pre-signed blank expenses to protect his rights, still attorneys fees may not be
checks might fall into the hands of wrongdoers, it is but just awarded where no sufficient showing of bad faith could be
that respondent shares in the responsibility for the loss. 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

We also cannot ignore the fact that the person who
dated July 16, 2001 and its Resolution dated September 28,
stole the pre-signed checks subject of this case from
2001 are AFFIRMED with the following MODIFICATIONS: (a)
respondents accountant turned out to be another employee,
petitioner Bank of America NT & SA shall pay to respondent
purportedly a clerk in respondents accounting
Philippine Racing Club sixty percent (60%) of the sum of Two
department. As the employer of the thief, respondent
Hundred Twenty Thousand Pesos (P220,000.00) with legal
supposedly had control and supervision over its own
interest as awarded by the trial court and (b) the awards of
employee. This gives the Court more reason to allocate part
attorneys fees and litigation expenses in favor of respondent
of the loss to respondent.
are deleted.
[27]
Following established jurisprudential precedents, we
believe the allocation of sixty percent (60%) of the actual
damages involved in this case (represented by the amount of Proportionate costs.
the checks with legal interest) to petitioner is proper under
the premises. Respondent should, in light of its contributory
SO ORDERED.
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 NCC [28] 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
THIRD DIVISION
7-3694621-4 7-20-81 Trade Factors, Inc. P 97,500.00
G.R. No. 129910 September 5, 2006
Romero D.
THE INTERNATIONAL CORPORATE BANK, 7-3694609-6 7-27-81 98,500.50
Palmares
INC., petitioner,
vs. 7-3666224-4 8-03-81 Trade Factors, Inc. 99,800.00
COURT OF APPEALS and PHILIPPINE NATIONAL
BANK, respondents. 7-3528348-4 8-07-81 Trade Factors, Inc. 98,600.00

DECISION 7-3666225-5 8-10-81 Antonio Lisan 98,900.00

CARPIO, J.: 7-3688945-6 8-10-81 Antonio Lisan 97,700.00
The Case
Golden City
7-4535674-1 8-21-81 95,300.00
1
Trading
Before the Court is a petition for review assailing the 9
August 1994 Amended Decision2 and the 16 July 1997
7-4535675-2 8-21-81 Red Arrow Trading 96,400.00
Resolution3 of the Court of Appeals in CA-G.R. CV No. 25209.
7-4535699-5 8-24-81 Antonio Lisan 94,200.00
The Antecedent Facts

The case originated from an action for collection of sum of 7-4535700-6 8-24-81 Antonio Lisan 95,100.00
money filed on 16 March 1982 by the International Corporate
Bank, Inc.4 ("petitioner") against the Philippine National Bank Ace Enterprises,
7-4697902-2 9-18-81 96,000.00
("respondent"). The case was raffled to the then Court of First Inc.
Instance (CFI) of Manila, Branch 6. The complaint was
amended on 19 March 1982. The case was eventually re- Golden City
7-4697925-6 9-18-81 93,030.00
raffled to the Regional Trial Court of Manila, Branch 52 ("trial Trading
court").
10-02- Wintrade
7-4697011-6 90,960.00
The Ministry of Education and Culture issued 15 81 Marketing
checks5 drawn against respondent which petitioner accepted
for deposit on various dates. The checks are as follows: 10-02-
7-4697909-4 ABC Trading, Inc. 99,300.00
81

Check 10-05- Golden

Date Payee Amount 7-4697922-3 96,630.00
Number 81 Enterprises
The checks were deposited on the following dates for the petitioner without clearing them on the ground that they
following accounts: were materially altered. Thus, petitioner instituted an action
for collection of sums of money against respondent to
recover the value of the checks.
Check Date Account Deposited
Number Deposited The Ruling of the Trial Court

7-3694621-4 7-23-81 CA 0060 02360 3 The trial court ruled that respondent is expected to use
reasonable business practices in accepting and paying the
7-3694609-6 7-28-81 CA 0060 02360 3 checks presented to it. Thus, respondent cannot be faulted
for the delay in clearing the checks considering the ingenuity
in which the alterations were effected. The trial court
7-3666224-4 8-4-81 CA 0060 02360 3
observed that there was no attempt from petitioner to verify
the status of the checks before petitioner paid the value of
7-3528348-4 8-11-81 CA 0060 02360 3 the checks or allowed withdrawal of the deposits. According
to the trial court, petitioner, as collecting bank, could have
7-3666225-5 8-11-81 SA 0061 32331 7 inquired by telephone from respondent, as drawee bank,
about the status of the checks before paying their value.
7-3688945-6 8-17-81 CA 0060 30982 5 Since the immediate cause of petitioner’s loss was the lack of
caution of its personnel, the trial court held that petitioner is
7-4535674-1 8-26-81 CA 0060 02360 3 not entitled to recover the value of the checks from
respondent.
7-4535675-2 8-27-81 CA 0060 02360 3
The dispositive portion of the trial court’s Decision reads:
7-4535699-5 8-31-81 CA 0060 30982 5
WHEREFORE, judgment is hereby rendered dismissing
7-4535700-6 8-24-81 SA 0061 32331 7 both the complaint and the counterclaim. Costs shall,
however be assessed against the plaintiff.
7-4697902-2 9-23-81 CA 0060 02360 3
SO ORDERED.7
7-4697925-6 9-23-81 CA 0060 30982 5
Petitioner appealed the trial court’s Decision before the Court
7-4697011-6 10-7-81 CA 0060 02360 3 of Appeals.

The Ruling of the Court of Appeals

7-4697909-4 10-7-81 CA 0060 30982 56
In its 10 October 1991 Decision,8 the Court of Appeals
After 24 hours from submission of the checks to respondent
reversed the trial court’s Decision. Applying Section 4(c) of
for clearing, petitioner paid the value of the checks and
Central Bank Circular No. 580, series of 1977, 9 the Court of
allowed the withdrawals of the deposits. However, on 14
Appeals held that checks that have been materially altered
October 1981, respondent returned all the checks to
shall be returned within 24 hours after discovery of the
alteration. However, the Court of Appeals ruled that even if
the drawee bank returns a check with material alterations
after discovery of the alteration, the return would not relieve
the drawee bank from any liability for its failure to return the
checks within the 24-hour clearing period. The Court of
Appeals explained:
Does this mean that, as long as the drawee bank
returns a check with material alteration within 24
hour[s] after discovery of such alteration, such return
would have the effect of relieving the bank of any
liability whatsoever despite its failure to return the
check within the 24- hour clearing house rule?
We do not think so.
Obviously, such bank cannot be held liable for its
failure to return the check in question not later than
the next regular clearing. However, this Court is of the
opinion and so holds that it could still be held liable if it
fails to exercise due diligence in verifying the
alterations made. In other words, such bank would still
be expected, nay required, to make the proper
verification before the 24-hour regular clearing period
lapses, or in cases where such lapses may be deemed
inevitable, that the required verification should be
made within a reasonable time.
The implication of the rule that a check shall be
returned within the 24-hour clearing period is that if
the collecting bank paid the check before the end of
the aforesaid 24-hour clearing period, it would be
responsible therefor such that if the said check is
dishonored and returned within the 24-hour clearing
period, the drawee bank cannot be held liable. Would
such an implication apply in the case of materially
altered checks returned within 24 hours after
discovery? This Court finds nothing in the letter of the
above-cited C.B. Circular that would justify a negative
answer. Nonetheless, the drawee bank could still be
held liable in certain instances. Even if the return of
the check/s in question is done within 24 hours after
discovery, if it can be shown that the drawee bank had
been patently negligent in the performance of its
verification function, this Court finds no reason why
the said bank should be relieved of liability.
Although banking practice has it that the presumption
of clearance is conclusive when it comes to the
application of the 24-hour clearing period, the same
principle may not be applied to the 24-hour period vis-
a-vis material alterations in the sense that the drawee
bank which returns materially altered checks within 24
hours after discovery would be conclusively relieved of
any liability thereon. This is because there could well
be various intervening events or factors that could
affect the rights and obligations of the parties in cases
such as the instant one including patent negligence on
the part of the drawee bank resulting in an
unreasonable delay in detecting the alterations. While
it is true that the pertinent proviso in C.B. Circular No.
580 allows the drawee bank to return the altered
check within the period "provided by law for filing a
legal action", this does not mean that this would
entitle or allow the drawee bank to be grossly
negligent and, inspite thereof, avail itself of the
maximum period allowed by the above-cited Circular.
The discovery must be made within a reasonable time
taking into consideration the facts and circumstances
of the case. In other words, the aforementioned C.B.
Circular does not provide the drawee bank the license
to be grossly negligent on the one hand nor does it
preclude the collecting bank from raising available
defenses even if the check is properly returned within
the 24-hour period after discovery of the material
alteration.10
The Court of Appeals rejected the trial court’s opinion that
petitioner could have verified the status of the checks by
telephone call since such imposition is not required under
Central Bank rules. The dispositive portion of the 10 October
1991 Decision reads:
 PREMISES CONSIDERED, the decision appealed from is
hereby REVERSED and the defendant-appellee
Philippine National Bank is declared liable for the value
of the fifteen checks specified and enumerated in the
decision of the trial court (page 3) in the amount
of P1,447,920.00
SO ORDERED.11
Respondent filed a motion for reconsideration of the 10
October 1991 Decision. In its 9 August 1994 Amended
Decision, the Court of Appeals reversed itself and affirmed
the Decision of the trial court dismissing the complaint.
In reversing itself, the Court of Appeals held that its 10
October 1991 Decision failed to appreciate that the rule on
the return of altered checks within 24 hours from the
discovery of the alteration had been duly passed by the
Central Bank and accepted by the members of the banking
system. Until the rule is repealed or amended, the rule has to
be applied.
Petitioner moved for the reconsideration of the Amended
Decision. In its 16 July 1997 Resolution, the Court of Appeals
denied the motion for lack of merit.
Hence, the recourse to this Court.
The Issues
Petitioner raises the following issues in its Memorandum:
1. Whether the checks were materially altered;
2. Whether respondent was negligent in failing to
recognize within a reasonable period the altered
checks and in not returning the checks within the
period; and
3. Whether the motion for reconsideration filed by
respondent was out of time thus making the 10
October 1991 Decision final and executory.12
The Ruling of This Court
Filing of the Petition under both Rules 45 and 65
Respondent asserts that the petition should be dismissed
outright since petitioner availed of a wrong mode of appeal.
Respondent cites Ybañez v. Court of Appeals13 where the
Court ruled that "a petition cannot be subsumed
simultaneously under Rule 45 and Rule 65 of the Rules of
Court, and neither may petitioners delegate upon the court
the task of determining under which rule the petition should
fall."
The remedies of appeal and certiorari are mutually exclusive
and not alternative or successive.14 However, this Court may
set aside technicality for justifiable reasons. The petition
before the Court is clearly meritorious. Further, the petition
was filed on time both under Rules 45 and 65. 15 Hence, in
accordance with the liberal spirit which pervades the Rules of
Court and in the interest of justice,16 we will treat the petition
as having been filed under Rule 45.
Alteration of Serial Number Not Material
The alterations in the checks were made on their serial
numbers.
Sections 124 and 125 of Act No. 2031, otherwise known as
the Negotiable Instruments Law, provide:
SEC. 124. Alteration of instrument; effect of. ― Where
a negotiable instrument is materially altered without
the assent of all parties liable thereon, it is avoided,
except as against a party who has himself made,
authorized, or assented to the alteration and
subsequent indorsers.
 But when an instrument has been materially altered
and is in the hands of a holder in due course, not a
party to the alteration, he may enforce payment
thereof according to its original tenor.
SEC. 125. What constitutes a material alteration. ―
Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or
interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is
to be made;
or 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, is a material alteration.
The question on whether an alteration of the serial number of
a check is a material alteration under the Negotiable
Instruments Law is already a settled matter. In Philippine
National Bank v. Court of Appeals, this Court ruled that the
alteration on the serial number of a check is not a material
alteration. Thus:
An alteration is said to be material if it alters the effect
of the instrument. It means an unauthorized change in
an 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 a party. In other
words, a material alteration is one which changes the
items which are required to be stated under Section 1
of the Negotiable Instrument[s] Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. ― Form of negotiable instruments. An
instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the
maker or drawer;
(b) Must contain an unconditional promise or
order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable certainty.
In his book entitled "Pandect of Commercial Law and
Jurisprudence," Justice Jose C. Vitug opines that "an
innocent alteration (generally, changes on items other
than those required to be stated under Sec. 1, N.I.L.)
and spoliation (alterations done by a stranger) will not
avoid the instrument, but the holder may enforce it
only according to its original tenor.
xxxx
The case at the bench is unique in the sense that what
was altered is the serial number of the check in
question, an item which, it can readily be observed, is
not an essential requisite for negotiability under
Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations
between the parties. The name of the drawer and the
drawee were not altered. The intended payee was the
same. The sum of money due to the payee remained
the same. x x x
 xxxx
The check’s serial number is not the sole indication of
its origin. As succinctly found by the Court of Appeals,
the name of the government agency which issued the
subject check was prominently printed therein. The
check’s issuer was therefore sufficiently identified,
rendering the referral to the serial number redundant
and inconsequential. x x x
xxxx
Petitioner, thus cannot refuse to accept the check in
question on the ground that the serial number was
altered, the same being an immaterial or innocent
one.17
Likewise, in the present case the alterations of the serial
numbers do not constitute material alterations on the checks.
Incidentally, we agree with the petitioner’s observation that
the check in the PNB case appears to belong to the same
batch of checks as in the present case. The check in
the PNB case was also issued by the Ministry of Education
and Culture. It was also drawn against PNB, respondent in
this case. The serial number of the check in the PNB case is
7-3666-223-3 and it was issued on 7 August 1981.
Timeliness of Filing of Respondent’s Motion for
Reconsideration
Respondent filed its motion for reconsideration of the 10
October 1991 Decision on 6 November 1991. Respondent’s
motion for reconsideration states that it received a copy of
the 10 October 1991 Decision on 22 October 1991. 18 Thus, it
appears that the motion for reconsideration was filed on
time. However, the Registry Return Receipt shows that
counsel for respondent or his agent received a copy of the 10
October 1991 Decision on 16 October 1991,19 not on 22
October 1991 as respondent claimed. Hence, the Court of
Appeals is correct when it noted that the motion for
reconsideration was filed late. Despite its late filing, the Court
of Appeals resolved to admit the motion for reconsideration
"in the interest of substantial justice." 20
There are instances when rules of procedure are relaxed in
the interest of justice. However, in this case, respondent did
not proffer any explanation for the late filing of the motion for
reconsideration. Instead, there was a deliberate attempt to
deceive the Court of Appeals by claiming that the copy of the
10 October 1991 Decision was received on 22 October 1991
instead of on 16 October 1991. We find no justification for the
posture taken by the Court of Appeals in admitting the
motion for reconsideration. Thus, the late filing of the motion
for reconsideration rendered the 10 October 1991 Decision
final and executory.
The 24-Hour Clearing Time
The Court will not rule on the proper application of Central
Bank Circular No. 580 in this case. Since there were no
material alterations on the checks, respondent as drawee
bank has no right to dishonor them and return them to
petitioner, the collecting bank.21 Thus, respondent is liable to
petitioner for the value of the checks, with legal interest from
the time of filing of the complaint on 16 March 1982 until full
payment.22 Further, considering that respondent’s motion for
reconsideration was filed late, the 10 October 1991 Decision,
which held respondent liable for the value of the checks
amounting to P1,447,920, had become final and executory.
WHEREFORE, we SET ASIDE the 9 August 1994 Amended
Decision and the 16 July 1997 Resolution of the Court of
Appeals. We rule that respondent Philippine National Bank is
liable to petitioner International Corporate Bank, Inc. for the
value of the checks amounting to P1,447,920, with legal
interest from 16 March 1982 until full payment. Costs against
respondent.
SO ORDERED.
Quisumbing, Chairperson, Carpio-Morales, Tinga, Velasco, Jr.,
J.J., concur.

FIRST DIVISION
G.R. No. 154469 December 6, 2006
METROPOLITAN BANK AND TRUST
COMPANY, petitioners,
vs.
RENATO D. CABILZO, respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari, filed
by petitioner Metropolitan Bank and Trust Company
(Metrobank) seeking to reverse and set aside the Decision 1 of
the Court of Appeals dated 8 March 2002 and its Resolution
dated 26 July 2002 affirming the Decision of the Regional Trial
Court (RTC) of Manila, Branch 13 dated 4 September 1998.
The dispositive portion of the Court of Appeals Decision
reads:
WHEREFORE, the assailed decision dated September 4,
1998 is AFFIRMED with modifications (sic) that the
awards for exemplary damages and attorney’s fees are
hereby deleted.
Petitioner Metrobank is a banking institution duly organized
and existing as such under Philippine laws. 2
Respondent Renato D. Cabilzo (Cabilzo) was one of
Metrobank’s clients who maintained a current account with
Metrobank Pasong Tamo Branch.3
On 12 November 1994, Cabilzo issued a Metrobank Check
No. 985988, payable to "CASH" and postdated on 24
November 1994 in the amount of One Thousand Pesos
(P1,000.00). The check was drawn against Cabilzo’s Account
with Metrobank Pasong Tamo Branch under Current Account
No. 618044873-3 and was paid by Cabilzo to a certain Mr.
Marquez, as his sales commission.4
Subsequently, the check was presented to Westmont Bank
for payment. Westmont Bank, in turn, indorsed the check to
Metrobank for appropriate clearing. After the entries thereon
were examined, including the availability of funds and the
authenticity of the signature of the drawer, Metrobank
cleared the check for encashment in accordance with the
Philippine Clearing House Corporation (PCHC) Rules.
On 16 November 1994, Cabilzo’s representative was at
Metrobank Pasong Tamo Branch to make some transaction
when he was asked by a bank personnel if Cabilzo had issued
a check in the amount of P91,000.00 to which the former
replied in the negative. On the afternoon of the same date,
Cabilzo himself called Metrobank to reiterate that he did not
issue a check in the amount of P91,000.00 and requested
that the questioned check be returned to him for verification,
to which Metrobank complied.5
Upon receipt of the check, Cabilzo discovered that Metrobank
Check No. 985988 which he issued on 12 November 1994 in
the amount of P1,000.00 was altered to P91,000.00 and the
date 24 November 1994 was changed to 14 November 1994. 6
Hence, Cabilzo demanded that Metrobank re-credit the
amount of P91,000.00 to his account. Metrobank, however,
refused reasoning that it has to refer the matter first to its
Legal Division for appropriate action. Repeated verbal
demands followed but Metrobank still failed to re-credit the
amount of P91,000.00 to Cabilzo’s account.7
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-
demand8 to Metrobank for the payment of P90,000.00, after
deducting the original value of the check in the amount
of P1,000.00. Such written demand notwithstanding,
Metrobank still failed or refused to comply with its obligation.
Consequently, Cabilzo instituted a civil action for damages
against Metrobank before the RTC of Manila, Branch 13. In his
Complaint docketed as Civil Case No. 95-75651, Renato D.
Cabilzo v. Metropolitan Bank and Trust Company,Cabilzo
prayed that in addition to his claim for reimbursement, actual
and moral damages plus costs of the suit be awarded in his
favor.9
For its part, Metrobank countered that upon the receipt of the
said check through the PCHC on 14 November 1994, it
examined the genuineness and the authenticity of the
drawer’s signature appearing thereon and the technical
entries on the check including the amount in figures and in
words to determine if there were alterations, erasures,
superimpositions or intercalations thereon, but none was
noted. After verifying the authenticity and propriety of the
aforesaid entries, including the indorsement of the collecting
bank located at the dorsal side of the check which stated
that, "all prior indorsements and lack of indorsement
guaranteed," Metrobank cleared the check. 10
Anent thereto, Metrobank claimed that as a collecting bank
and the last indorser, Westmont Bank should be held liable
for the value of the check. Westmont Bank indorsed the
check as the an unqualified indorser, by virtue of which it
assumed the liability of a general indorser, and thus, among
others, warranted that the instrument is genuine and in all
respect what it purports to be.
In addition, Metrobank, in turn, claimed that Cabilzo was
partly responsible in leaving spaces on the check, which,
made the fraudulent insertion of the amount and figures
thereon, possible. On account of his negligence in the
preparation and issuance of the check, which according to
Metrobank, was the proximate cause of the loss, Cabilzo
cannot thereafter claim indemnity by virtue of the doctrine of
equitable estoppel.
Thus, Metrobank demanded from Cabilzo, for payment in the
amount of P100,000.00 which represents the cost of litigation
and attorney’s fees, for allegedly bringing a frivolous and
baseless suit. 11
On 19 April 1996, Metrobank filed a Third-Party
Complaint12 against Westmont Bank on account of its
unqualified indorsement stamped at the dorsal side of the
check which the former relied upon in clearing what turned
out to be a materially altered check.
Subsequently, a Motion to Dismiss13 the Third-Party
Complaint was then filed by Westmont bank because another
case involving the same cause of action was pending before
a different court. The said case arose from an action for
reimbursement filed by Metrobank before the Arbitration
Committee of the PCHC against Westmont Bank, and now the
subject of a Petition for Review before the RTC of Manila,
Branch 19.
In an Order14 dated 4 February 1997, the trial court granted
the Motion to Dismiss the Third-Party Complaint on the
ground of litis pendentia.
On 4 September 1998, the RTC rendered a Decision 15 in favor
of Cabilzo and thereby ordered Metrobank to pay the sum
of P90,000.00, the amount of the check. In stressing the
fiduciary nature of the relationship between the bank and its
clients and the negligence of the drawee bank in failing to
detect an apparent alteration on the check, the trial court
ordered for the payment of exemplary damages, attorney’s
fees and cost of litigation. The dispositive portion of the
Decision reads:
 WHEREFORE, judgment is rendered ordering defendant
Metropolitan Bank and Trust Company to pay plaintiff
Renato Cabilzo the sum of P90,000 with legal interest
of 6 percent per annum from November 16, 1994 until
payment is made plus P20,000 attorney’s fees,
exemplary damages of P50,000, and costs of the suit.16
Aggrieved, Metrobank appealed the adverse decision to the
Court of Appeals reiterating its previous argument that as the
last indorser, Westmont Bank shall bear the loss occasioned
by the fraudulent alteration of the check. Elaborating,
Metrobank maintained that by reason of its unqualified
indorsement, Westmont Bank warranted that the check in
question is genuine, valid and subsisting and that upon
presentment the check shall be accepted according to its
tenor.
Even more, Metrobank argued that in clearing the check, it
was not remiss in the performance of its duty as the drawee
bank, but rather, it exercised the highest degree of diligence
in accordance with the generally accepted banking practice.
It further insisted that the entries in the check were regular
and authentic and alteration could not be determined even
upon close examination.
In a Decision17 dated 8 March 2002, the Court of Appeals
affirmed with modification the Decision of the court a
quo, similarly finding Metrobank liable for the amount of the
check, without prejudice, however, to the outcome of the
case between Metrobank and Westmont Bank which was
pending before another tribunal. The decretal portion of the
Decision reads:
WHEREFORE, the assailed decision dated September 4,
1998 is AFFIRMED with the modifications (sic) that the
awards for exemplary damages and attorney’s fees are
hereby deleted.18
Similarly ill-fated was Metrobank’s Motion for Reconsideration
which was also denied by the appellate court in its
Resolution19 issued on 26 July 2002, for lack of merit.
Metrobank now poses before this Court this sole issue:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN HOLDING METROBANK, AS DRAWEE BANK, LIABLE
FOR THE ALTERATIONS ON THE SUBJECT CHECK
BEARING THE AUTHENTIC SIGNATURE OF THE DRAWER
THEREOF.
We resolve to deny the petition.
An alteration is said to be material if it changes the effect of
the instrument. It means that an unauthorized change in an
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 a party.20 In other words, a
material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable
Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. Form of negotiable instruments. - An
instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the maker or
drawer;
(b) Must contain an unconditional promise or order to
pay a sum certain in money;
(c) Must be payable on demand or at a fixed
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
Also pertinent is the following provision in the Negotiable
Instrument Law which states:
Section 125. What constitutes material alteration. –
Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or
interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is
to be made;
Or 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
is a material alteration.
In the case at bar, the check was altered so that the amount
was increased from P1,000.00 to P91,000.00 and the date
was changed from 24 November 1994 to 14 November 1994.
Apparently, since the entries altered were among those
enumerated under Section 1 and 125, namely, the sum of
money payable and the date of the check, the instant
controversy therefore squarely falls within the purview of
material alteration.
Now, having laid the premise that the present petition is a
case of material alteration, it is now necessary for us to
determine the effect of a materially altered instrument, as
well as the rights and obligations of the parties thereunder.
The following provision of the Negotiable Instrument Law will
shed us some light in threshing out this issue:
Section 124. Alteration of instrument; effect of. –
Where a negotiable instrument is materially altered
without the assent of all parties liable thereon, it is
avoided, except as against a party who has
himself made,authorized, and assented to the
alteration and subsequent indorsers.
But when the instrument has been materially altered
and is in the hands of a holder in due course not a
party to the alteration, he may enforce the payment
thereof according to its original tenor. (Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor
authorized the alteration. Neither did he assent to the
alteration by his express or implied acts. There is no showing
that he failed to exercise such reasonable degree of diligence
required of a prudent man which could have otherwise
prevented the loss. As correctly ruled by the appellate court,
Cabilzo was never remiss in the preparation and issuance of
the check, and there were no indicia of evidence that would
prove otherwise. Indeed, Cabilzo placed asterisks before and
after the amount in words and figures in order to forewarn
the subsequent holders that nothing follows before and after
the amount indicated other than the one specified between
the asterisks.
The degree of diligence required of a reasonable man in the
exercise of his tasks and the performance of his duties has
been faithfully complied with by Cabilzo. In fact, he was wary
enough that he filled with asterisks the spaces between and
after the amounts, not only those stated in words, but also
those in numerical figures, in order to prevent any fraudulent
insertion, but unfortunately, the check was still successfully
altered, indorsed by the collecting bank, and cleared by the
drawee bank, and encashed by the perpetrator of the fraud,
to the damage and prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was
negligent and is therefore prevented from asserting his rights
under the doctrine of equitable estoppel when the facts on
record are bare of evidence to support such conclusion. The
doctrine of equitable estoppel states that when one of the
two innocent persons, each guiltless of any 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 injury.21 Metrobank’s reliance on this dictum,
is misplaced. For one, Metrobank’s representation that it is an
innocent party is flimsy and evidently, misleading. At the
same time, Metrobank cannot asseverate that Cabilzo was
negligent and this negligence was the proximate cause 22 of
the loss in the absence of even a scintilla proof to buttress
such claim. Negligence is not presumed but must be proven
by the one who alleges it.23
Undoubtedly, Cabilzo was an innocent party in this instant
controversy. He was just an ordinary businessman who, in
order to facilitate his business transactions, entrusted his
money with a bank, not knowing that the latter would yield a
substantial amount of his deposit to fraud, for which Cabilzo
can never be faulted.
We never fail to stress the remarkable significance of a
banking institution to commercial transactions, in particular,
and to the country’s economy in general. The banking
system is an indispensable institution in the modern world
and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping
and saving of money or as active instruments of business
and commerce, banks have become an ubiquitous presence
among the people, who have come to regard them with
respect and even gratitude and, most of all, confidence. 24
Thus, even the humble wage-earner does not hesitate to
entrust his life's savings to the bank of his choice, knowing
that they will be safe in its custody and will even earn some
interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and
convenience in the settling of his monthly bills and the
payment of ordinary expenses. As for a businessman like the
respondent, the bank is a trusted and active associate that
can help in the running of his affairs, not only in the form of
loans when needed but more often in the conduct of their
day-to-day transactions like the issuance or encashment of
checks.25
In every case, the depositor expects the bank to treat his
account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. The bank
must record every single transaction accurately, down to the
last centavo, and as promptly as possible. This has to be
done if the account is to reflect at any given time the amount
of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever he
directs.26
The point is that as a business affected with public interest
and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature
of their relationship. The appropriate degree of diligence
required of a bank must be a high degree of diligence, if not
the utmost diligence.27
In the present case, it is obvious that Metrobank was remiss
in that duty and violated that relationship. As observed by
the Court of Appeals, there are material alterations on the
check that are visible to the naked eye. Thus:
x x x The number "1" in the date is clearly imposed on
a white figure in the shape of the number "2". The
appellant’s employees who examined the said check
should have likewise been put on guard as to why at
the end of the amount in words, i.e., after the word
"ONLY", there are 4 asterisks, while at the beginning of
the line or before said phrase, there is none, even as 4
asterisks have been placed before and after the word
"CASH" in the space for payee. In addition, the 4
asterisks before the words "ONE THOUSAND PESOS
ONLY" have noticeably been erased with typing
correction paper, leaving white marks, over which the
word "NINETY" was superimposed. The same can be
said of the numeral "9" in the amount "91,000", which
is superimposed over a whitish mark, obviously an
erasure, in lieu of the asterisk which was deleted to
insert the said figure. The appellant’s employees
should have again noticed why only 2 asterisks were
 placed before the amount in figures, while 3 asterisks
were placed after such amount. The word "NINETY" is
also typed differently and with a lighter ink, when
compared with the words "ONE THOUSAND PESOS
ONLY." The letters of the word "NINETY" are likewise a
little bigger when compared with the letters of the
words "ONE THOUSAND PESOS ONLY".28
Surprisingly, however, Metrobank failed to detect the above
alterations which could not escape the attention of even an
ordinary person. This negligence was exacerbated by the fact
that, as found by the trial court, the check in question was
examined by the cash custodian whose functions do not
include the examinations of checks indorsed for payment
against drawer’s accounts.29 Obviously, the employee
allowed by Metrobank to examine the check was not verse
and competent to handle such duty. These factual findings of
the trial court is conclusive upon this court especially when
such findings was affirmed the appellate court. 30
Apropos thereto, we need to reiterate that by the very nature
of their work the degree of responsibility, care and
trustworthiness expected of their employees and officials is
far better than those of ordinary clerks and employees.
Banks are expected to exercise the highest degree of
diligence in the selection and supervision of their
employees.31
In addition, the bank on which the check is drawn, known as
the drawee bank, is under strict liability to pay to the order of
the payee in accordance with the drawer’s instructions as
reflected on the face and by the terms of the check. Payment
made under materially altered instrument is not payment
done in accordance with the instruction of the drawer.
When the drawee bank pays a materially altered check, it
violates the terms of the check, as well as its duty to charge
its client’s account only for bona fide disbursements he had
made. Since the drawee bank, in the instant case, did not
pay according to the original tenor of the instrument, as
directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to
deduct the erroneous payment it made from the drawer’s
account which it was expected to treat with utmost fidelity.
Metrobank vigorously asserts that the entries in the check
were carefully examined: The date of the instrument, the
amount in words and figures, as well as the drawer’s
signature, which after verification, were found to be proper
and authentic and was thus cleared. We are not persuaded.
Metrobank’s negligence consisted in the omission of that
degree of diligence required of a bank owing to the fiduciary
nature of its relationship with its client. Article 1173 of the
Civil Code 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 corresponds with the
circumstances of the persons, of the time and of the
place. x x x.
Beyond question, Metrobank failed to comply with the degree
required by the nature of its business as provided by law and
jurisprudence. If indeed it was not remiss in its obligation,
then it would be inconceivable for it not to detect an evident
alteration considering its vast knowledge and technical
expertise in the intricacies of the banking business. This
Court is not completely unaware of banks’ practices of
employing devices and techniques in order to detect
forgeries, insertions, intercalations, superimpositions and
alterations in checks and other negotiable instruments so as
to safeguard their authenticity and negotiability. Metrobank
cannot now feign ignorance nor claim diligence; neither can it
point its finger at the collecting bank, in order to evade
liability.
Metrobank argues that Westmont Bank, as the collecting
bank and the last indorser, shall bear the loss. Without ruling
on the matter between the drawee bank and the collecting
bank, which is already under the jurisdiction of another
tribunal, we find that Metrobank cannot rely on such
indorsement, in clearing the questioned check. The corollary
liability of such indorsement, if any, is separate and
independent from the liability of Metrobank to Cabilzo.
The reliance made by Metrobank on Westmont Bank’s
indorsement is clearly inconsistent, if not totally offensive to
the dictum that being impressed with public interest, banks
should exercise the highest degree of diligence, if not utmost
diligence in dealing with the accounts of its own clients. It
owes the highest degree fidelity to its clients and should not
therefore lightly rely on the judgment of other banks on
occasions where its clients money were involve, no matter
how small or substantial the amount at stake.
WHEREFORE, premises considered, the instant Petition
is DENIED. The Decision dated 8 March 2002 and the
Resolution dated 26 July 2002 of the Court of Appeals
are AFFIRMED with modification that exemplary damages in
the amount of P50,000.00 be awarded. Costs against the
petitioner.
SO ORDERED.
Panganiban, C.J. (Chairperson), Ynares-Santiago, Austria-
Martinez, and Callejo, Sr., JJ., concur.

Metrobank’s contention that it relied on the strength of

collecting bank’s indorsement may be merely a lame excuse
to evade liability, or may be indeed an actual banking
practice. In either case, such act constitutes a deplorable
banking practice and could not be allowed by this Court
bearing in mind that the confidence of public in general is of
paramount importance in banking business.

What is even more deplorable is that, having been informed

of the alteration, Metrobank did not immediately re-credit the
amount that was erroneously debited from Cabilzo’s account
but permitted a full blown litigation to push through, to the
prejudice of its client. Anyway, Metrobank is not left with no
recourse for it can still run after the one who made the
alteration or with the collecting bank, which it had already
done. It bears repeating that the records are bare of evidence
to prove that Cabilzo was negligent. We find no justifiable
reason therefore why Metrobank did not immediately
reimburse his account. Such ineptness comes within the
concept of wanton manner contemplated under the Civil
Code which warrants the imposition of exemplary damages,
"by way of example or correction for the public good," in the
words of the law. It is expected that this ruling will serve as a
stern warning in order to deter the repetition of similar acts
of negligence, lest the confidence of the public in the banking
system be further eroded. 32
 SECOND DIVISION
[G.R. No. 132560. January 30, 2002]
WESTMONT BANK (formerly ASSOCIATED BANKING
CORP.), petitioner, vs. EUGENE ONG, respondent.
DECISION
QUISUMBING, J.:
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%) 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 managers 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
Paciano Tanlimco got hold of them, forged Ongs signature
and deposited these with petitioner, where Tanlimco was also
a depositor. Even though Ongs 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 Tanlimcos 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]
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. Attorneys fees of P50,000.00 and costs of suit.
Defendants 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 COURTS CONCLUSION THAT
RESPONDENT HAS A CAUSE OF ACTION AGAINST THE
PETITIONER.
II
... IN AFFIRMING THE TRIAL COURTS 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 latters
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 managers check, is not
legal tender. Hence, the creditor cannot be compelled to
accept payment thru this means. [10] It is petitioners 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 Ongs 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 drawee-bank, 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 payees 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 banks 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.
Petitioners 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 respondents right as payee of the managers checks
to receive the amount involved, petitioners
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 respondents 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 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
payees 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 payees 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]
Petitioners claim that since there was no delivery yet and
respondent has never acquired possession of the checks,
respondents 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 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.[26] In the present case, petitioner was
held to be grossly negligent in performing its duties. As found
by the trial court:
xxx (A)t the time the questioned checks were accepted for
deposit to Paciano Tanlimcos 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 plaintiffs 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.
Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr.,
JJ., concur.
 SECOND DIVISION account. After ascertaining there were enough funds to cover
the check,[5] she compared the signature appearing on the
check with the specimen signature of Jong as contained in
the specimen signature card with the bank. After comparing
[G.R. No. 129015. August 13, 2004] the two signatures, Justiani was satisfied as to the
authenticity of the signature appearing on the check. She
then asked Gonzaga to submit proof of his identity, and the
latter presented three (3) identification cards. [6]
SAMSUNG CONSTRUCTION COMPANY PHILIPPINES,
INC., petitioner, vs. FAR EAST BANK AND TRUST At the same time, Justiani forwarded the check to the
COMPANY AND COURT OF branch Senior Assistant Cashier Gemma Velez, as it was bank
APPEALS, respondents. policy that two bank branch officers approve checks
exceeding One Hundred Thousand Pesos, for payment or
DECISION encashment. Velez likewise counterchecked the signature on
the check as against that on the signature card. He too
TINGA, J.: concluded that the check was indeed signed by Jong. Velez
then forwarded the check and signature card to Shirley Syfu,
Called to fore in the present petition is a classic textbook another bank officer, for approval.Syfu then noticed that Jose
question if a bank pays out on a forged check, is it liable to Sempio III (Sempio), the assistant accountant of Samsung
reimburse the drawer from whose account the funds were Construction, was also in the bank. Sempio was well-known
paid out? The Court of Appeals, in reversing a trial court to Syfu and the other bank officers, he being the assistant
decision adverse to the bank, invoked tenuous reasoning to accountant of Samsung Construction. Syfu showed the check
acquit the bank of liability. We reverse, applying time- to Sempio, who vouched for the genuineness of Jongs
honored principles of law. signature.Confirming the identity of Gonzaga, Sempio said
that the check was for the purchase of equipment for
The salient facts follow.
Samsung Construction. Satisfied with the genuineness of the
Plaintiff Samsung Construction Company Philippines, Inc. signature of Jong, Syfu authorized the banks encashment of
(Samsung Construction), while based in Bian, Laguna, the check to Gonzaga.
maintained a current account with defendant Far East Bank
The following day, the accountant of Samsung
and Trust Company[1] (FEBTC) at the latters Bel-
Construction, Kyu, examined the balance of the bank account
Air, Makati branch.[2] The sole signatory to Samsung
and discovered that a check in the amount of Nine Hundred
Constructions account was Jong Kyu Lee (Jong), its Project
Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had
Manager,[3] while the checks remained in the custody of the
been encashed. Aware that he had not prepared such a check
companys accountant, Kyu Yong Lee (Kyu).[4]
for Jongs signature, Kyu perused the checkbook and found
On 19 March 1992, a certain Roberto Gonzaga presented that the last blank check was missing. [7] He reported the
for payment FEBTC Check No. 432100 to the banks branch in matter to Jong, who then proceeded to the bank. Jong learned
Bel-Air, Makati. The check, payable to cash and drawn of the encashment of the check, and realized that his
against Samsung Constructions current account, was in the signature had been forged. The Bank Manager reputedly told
amount of Nine Hundred Ninety Nine Thousand Five Hundred Jong that he would be reimbursed for the amount of the
Pesos (P999,500.00). The bank teller, Cleofe Justiani, first check.[8] Jong proceeded to the police station and consulted
checked the balance of Samsung Constructions
with his lawyers.[9] Subsequently, a criminal case for qualified
theft was filed against Sempio before the Laguna court. [10]
In a letter dated 6 May 1992, Samsung Construction,
through counsel, demanded that FEBTC credit to it the
amount of Nine Hundred Ninety Nine Thousand Five Hundred
Pesos (P999,500.00), with interest.[11] In response, FEBTC said
that it was still conducting an investigation on the matter.
Unsatisfied, Samsung Construction filed a Complaint on 10
June 1992 for violation of Section 23 of the Negotiable
Instruments Law, and prayed for the payment of the amount
debited as a result of the questioned check plus interest, and
attorneys fees.[12] The case was docketed as Civil Case No.
92-61506 before the Regional Trial Court (RTC) of Manila,
Branch 9.[13]
During the trial, both sides presented their respective
expert witnesses to testify on the claim that Jongs signature
was forged. Samsung Corporation, which had referred the
check for investigation to the NBI, presented Senior NBI
Document Examiner Roda B. Flores. She testified that based
on her examination, she concluded that Jongs signature had
been forged on the check. On the other hand, FEBTC, which
had sought the assistance of the Philippine National Police
(PNP),[14] presented Rosario C. Perez, a document examiner
from the PNP Crime Laboratory. She testified that her findings
showed that Jongs signature on the check was genuine. [15]
Confronted with conflicting expert testimony, the RTC
chose to believe the findings of the NBI expert. In
a Decision dated 25 April 1994, the RTC held that Jongs
signature on the check was forged and accordingly directed
the bank to pay or credit back to Samsung Constructions
account the amount of Nine Hundred Ninety Nine Thousand
Five Hundred Pesos (P999,500.00), together with interest
tolled from the time the complaint was filed, and attorneys
fees in the amount of Fifteen Thousand Pesos (P15,000.00).
FEBTC timely appealed to the Court of Appeals. On 28
November 1996, the Special Fourteenth Division of the Court
of Appeals rendered a Decision,[16] reversing the
RTC Decision and absolving FEBTC from any liability. The
Court of Appeals held that the contradictory findings of the
NBI and the PNP created doubt as to whether there was
forgery.[17] Moreover, the appellate court also held that
assuming there was forgery, it occurred due to the
negligence of Samsung Construction, imputing blame on the
accountant Kyu for lack of care and prudence in keeping the
checks, which if observed would have prevented Sempio
from gaining access thereto.[18] The Court of Appeals invoked
the ruling in PNB v. National City Bank of New York [19] that, if a
loss, which must be borne by one or two innocent persons,
can be traced to the neglect or fault of either, such loss
would be borne by the negligent party, even if innocent of
intentional fraud.[20]
Samsung Construction now argues that the Court of
Appeals had seriously misapprehended the facts when it
overturned the RTCs finding of forgery. It also contends that
the appellate court erred in finding that it had been negligent
in safekeeping the check, and in applying the equity principle
enunciated in PNB v. National City Bank of New York.
Since the trial court and the Court of Appeals arrived at
contrary findings on questions of fact, the Court is obliged to
examine the record to draw out the correct conclusions. Upon
examination of the record, and based on the applicable laws
and jurisprudence, we reverse the Court of Appeals.
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 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. (Emphasis supplied)
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.[21] If payment is made, the drawee cannot charge
it to the drawers account. The traditional justification for the
result is that the drawee is in a superior position to detect a
forgery because he has the makers signature and is expected
to know and compare it.[22] The rule has a healthy cautionary
effect on banks by encouraging care in the comparison of the
signatures against those on the signature cards they have on
file. Moreover, the very opportunity of the drawee to insure
and to distribute the cost among its customers who use
checks makes the drawee an ideal party to spread the risk to
insurance.[23]
Brady, in his treatise The Law of Forged and Altered
Checks, elucidates:
When a person deposits money in a general account in a
bank, against which he has the privilege of drawing checks in
the ordinary course of business, the relationship between the
bank and the depositor is that of debtor and creditor. So far
as the legal relationship between the two is concerned, the
situation is the same as though the bank had borrowed
money from the depositor, agreeing to repay it on demand,
or had bought goods from the depositor, agreeing to pay for
them on demand. The bank owes the depositor money in the
same sense that any debtor owes money to his
creditor. Added to this, in the case of bank and depositor,
there is, of course, the banks obligation to pay checks drawn
by the depositor in proper form and presented in due
course. When the bank receives the deposit, it impliedly
agrees to pay only upon the depositors order. When the bank
pays a check, on which the depositors signature is a forgery,
it has failed to comply with its contract in this
respect. Therefore, the bank is held liable.
The fact that the forgery is a clever one is immaterial. The
forged signature may so closely resemble the genuine as to
defy detection by the depositor himself. And yet, if a bank
pays the check, it is paying out its own money and not the
depositors.
The forgery may be committed by a trusted employee or
confidential agent. The bank still must bear the loss. Even in
a case where the forged check was drawn by the depositors
partner, the loss was placed upon the bank. The case
referred to is Robinson v. Security Bank, Ark., 216 S. W. Rep.
717. In this case, the plaintiff brought suit against the
defendant bank for money which had been deposited to the
plaintiffs credit and which the bank had paid out on checks
bearing forgeries of the plaintiffs signature.
xxx
It was held that the bank was liable. It was further held that
the fact that the plaintiff waited eight or nine months after
discovering the forgery, before notifying the bank, did not, as
a matter of law, constitute a ratification of the payment, so
as to preclude the plaintiff from holding the bank liable. xxx
This rule of liability can be stated briefly in these words: A
bank is bound to know its depositors signature. The rule is
variously expressed in the many decisions in which the
question has been considered. But they all sum up to the
proposition that a bank must know the signatures of those
whose general deposits it carries.[24]
By no means is the principle rendered obsolete with the
advent of modern commercial transactions. Contemporary
texts still affirm this well-entrenched standard.Nickles, in his
book Negotiable Instruments and Other Related Commercial
Paper wrote, thus:
The deposit contract between a payor bank and its customer
determines who can draw against the customers account by
specifying whose signature is necessary on checks that are
chargeable against the customers account. Therefore, a
check drawn against the account of an individual customer
that is signed by someone other than the customer, and
without authority from her, is not properly payable and is not
chargeable to the customers account, inasmuch as any
unauthorized signature on an instrument is ineffective as the
signature of the person whose name is signed. [25]
Under Section 23 of the Negotiable Instruments Law,
forgery is a real or absolute defense by the party whose
signature is forged.[26] On the premise that Jongs signature
was indeed forged, FEBTC is liable for the loss since it
authorized the discharge of the forged check. Such liability
attaches even if the bank exerts due diligence and care in
preventing such faulty discharge. Forgeries often deceive the
eye of the most cautious 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. [27] The
forgery may be so near like the genuine as to defy detection
by the depositor himself, and yet the bank is liable to the
depositor if it pays the check.[28]
Thus, the first matter of inquiry is into whether the check
was indeed forged. A document formally presented is
presumed to be genuine until it is proved to be fraudulent. In
a forgery trial, this presumption must be overcome but this
can only be done by convincing testimony and effective
illustrations.[29]
In ruling that forgery was not duly proven, the Court of
Appeals held:
[There] is ground to doubt the findings of the trial court
sustaining the alleged forgery in view of the conflicting
conclusions made by handwriting experts from the NBI and
the PNP, both agencies of the government.
xxx
These contradictory findings create doubt on whether there
was indeed a forgery. In the case of Tenio-Obsequio v. Court
of Appeals, 230 SCRA 550, the Supreme Court held that
forgery cannot be presumed; it must be proved by clear,
positive and convincing evidence.
This reasoning is pure sophistry. Any litigator worth his or
her salt would never allow an opponents expert witness to
stand uncontradicted, thus the spectacle of competing expert
witnesses is not unusual. The trier of fact will have to decide
which version to believe, and explain why or why not such
version is more credible than the other. Reliance therefore
cannot be placed merely on the fact that there are colliding
opinions of two experts, both clothed with the presumption of
official duty, in order to draw a conclusion, especially one
which is extremely crucial. Doing so is tantamount to a
jurisprudential cop-out.
Much is expected from the Court of Appeals as it
occupies the penultimate tier in the judicial hierarchy. This
Court has long deferred to the appellate court as to its
findings of fact in the understanding that it has the
appropriate skill and competence to plough through
the minutiae that scatters the factual field. In failing to
thoroughly evaluate the evidence before it, and relying
instead on presumptions haphazardly drawn, the Court of
Appeals was sadly remiss. Of course, courts, like humans, are
fallible, and not every error deserves a stern rebuke. Yet, the
appellate courts error in this case warrants special attention,
as it is absurd and even dangerous as a precedent. If this
rationale were adopted as a governing standard by every
court in the land, barely any actionable claim would prosper,
defeated as it would be by the mere invocation of the
existence of a contrary expert opinion.
On the other hand, the RTC did adjudge the testimony of
the NBI expert as more credible than that of the PNP, and
explained its reason behind the conclusion:
After subjecting the evidence of both parties to a crucible of
analysis, the court arrived at the conclusion that the
testimony of the NBI document examiner
is more credible because thetestimony of the PNP Crime
Laboratory Services document examiner reveals that there
are a lot of differences in the questioned signature as
compared to the standard specimen signature. Furthermore,
as testified to by Ms. Rhoda Flores, NBI expert, the manner of
execution of the standard signatures used reveals that it is a
free rapid continuous execution or stroke as shown by the
tampering terminal stroke of the signatures whereas the
questioned signature is a hesitating slow drawn execution
stroke. Clearly, the person who executed the questioned
signature was hesitant when the signature was made. [30]
During the testimony of PNP expert Rosario Perez, the
RTC bluntly noted that apparently, there [are] differences on
that questioned signature and the standard signatures.
[31]
This Court, in examining the signatures, makes a similar
finding. The PNP expert excused the noted differences by
asserting that they were mere variations, which are normal
deviations found in writing. [32] Yet the RTC, which had the
opportunity to examine the relevant documents and to
personally observe the expert witness, clearly disbelieved the
PNP expert. The Court similarly finds the testimony of the
PNP expert as unconvincing. During the trial, she was
confronted several times with apparent differences between
strokes in the questioned signature and the genuine
samples. Each time, she would just blandly assert that these
differences were just variations,[33] as if the mere conjuration
of the word would sufficiently disquiet whatever doubts about
the deviations. Such conclusion, standing alone, would be of
little or no value unless supported by sufficiently cogent
reasons which might amount almost to a demonstration. [34]
The most telling difference between the questioned and
genuine signatures examined by the PNP is in the final
upward stroke in the signature, or the point to the short
stroke of the terminal in the capital letter L, as referred to by
the PNP examiner who had marked it in her comparison chart
as point no. 6. To the plain eye, such upward final stroke
consists of a vertical line which forms a ninety degree (90)
angle with the previous stroke. Of the twenty one (21) other
genuine samples examined by the PNP, at least nine (9)
ended with an upward stroke.[35] However, unlike the
questioned signature, the upward strokes of eight (8) of
these signatures are looped, while the upward stroke of the
seventh[36] forms a severe forty-five degree (45) with the
previous stroke. The difference is glaring, and indeed, the
PNP examiner was confronted with the inconsistency in point
no. 6.
Q: Now, in this questioned document point no. 6, the
s stroke is directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature
(sic) were (sic) point 6 is repeated or the last
stroke s is pointing directly upwards?
A: There is none in the standard signature, sir. [37]
Again, the PNP examiner downplayed the uniqueness of
the final stroke in the questioned signature as a mere
variation,[38] the same excuse she proffered for the other
marked differences noted by the Court and the counsel for
petitioner.[39]
There is no reason to doubt why the RTC gave credence
to the testimony of the NBI examiner, and not the PNP
experts. The NBI expert, Rhoda Flores, clearly qualifies as an
expert witness. A document examiner for fifteen years, she
had been promoted to the rank of Senior Document Examiner
with the NBI, and had held that rank for twelve years prior to
her testimony. She had placed among the top five examinees
in the Competitive Seminar in Question Document
Examination, conducted by the NBI Academy, which qualified
her as a document examiner. [40] She had trained with the
Royal Hongkong Police Laboratory and is a member of the
International Association for Identification. [41] As of the time
she testified, she had examined more than fifty to fifty-five
thousand questioned documents, on an average of fifteen to
twenty documents a day.[42] In comparison, PNP document
examiner Perez admitted to having examined only around
five hundred documents as of her testimony. [43]
In analyzing the signatures, NBI Examiner Flores utilized
the scientific comparative examination method consisting of
analysis, recognition, comparison and evaluation of the
writing habits with the use of instruments such as a
magnifying lense, a stereoscopic microscope, and varied
lighting substances. She also prepared enlarged photographs
of the signatures in order to facilitate the necessary
comparisons.[44] She compared the questioned signature as
against ten (10) other sample signatures of Jong. Five of
these signatures were executed on checks previously issued
by Jong, while the other five contained in business letters
Jong had signed.[45] The NBI found that there were significant
differences in the handwriting characteristics existing
between the questioned and the sample signatures, as to
manner of execution, link/connecting strokes, proportion
characteristics, and other identifying details. [46]
The RTC was sufficiently convinced by the NBI examiners
testimony, and explained her reasons in its Decisions. While
the Court of Appeals disagreed and upheld the findings of the
PNP, it failed to convincingly demonstrate why such findings
were more credible than those of the NBI expert. As a
throwaway, the assailed Decision noted that the PNP, not the
NBI, had the opportunity to examine the specimen signature
card signed by Jong, which was relied upon by the employees
of FEBTC in authenticating Jongs signature. The distinction is
irrelevant in establishing forgery. Forgery can be established
comparing the contested signatures as against those of any
sample signature duly established as that of the persons
whose signature was forged.
FEBTC lays undue emphasis on the fact that the PNP
examiner did compare the questioned signature against the
bank signature cards. The crucial fact in question is
whether or not the check was forged, not whether the
bank could have detected the forgery. The latter issue
becomes relevant only if there is need to weigh the
comparative negligence between the bank and the
party whose signature was forged.
At the same time, the Court of Appeals failed to assess
the effect of Jongs testimony that the signature on the check
was not his.[47] The assertion may seem self-serving at first
blush, yet it cannot be ignored that Jong was in the best
position to know whether or not the signature on the check
was his. While his claim should not be taken at face value,
any averments he would have on the matter, if adjudged as
truthful, deserve primacy in consideration. Jongs testimony is
supported by the findings of the NBI examiner. They are also
backed by factual circumstances that support the conclusion
that the assailed check was indeed forged. Judicial notice can
be taken that is highly unusual in practice for a business
establishment to draw a check for close to a million pesos
and make it payable to cash or bearer, and not to order. Jong
immediately reported the forgery upon its discovery. He filed
the appropriate criminal charges against Sempio, the
putative forger.[48]
Now for determination is whether Samsung Construction
was precluded from setting up the defense of forgery under
Section 23 of the Negotiable Instruments Law.The Court of
Appeals concluded that Samsung Construction was negligent,
and invoked the doctrines that where a loss must be borne by
one of two innocent person, 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[49]or who put into the power of the
third person to perpetuate the wrong. [50] Applying these rules,
the Court of Appeals determined that it was the negligence of
Samsung Construction that allowed the encashment of the
forged check.
In the case at bar, the forgery appears to have been made
possible through the acts of one Jose Sempio III, an assistant
accountant employed by the plaintiff Samsung [Construction]
Co. Philippines, Inc. who supposedly stole the blank check
and who presumably is responsible for its encashment
through a forged signature of Jong Kyu Lee. Sempio was
assistant to the Korean accountant who was in possession of
the blank checks and who through negligence, enabled
Sempio to have access to the same. Had the Korean
accountant been more careful and prudent in keeping the
blank checks Sempio would not have had the chance to steal
a page thereof and to effect the forgery. Besides, Sempio was
an employee who appears to have had dealings with the
defendant Bank in behalf of the plaintiff corporation and on
the date the check was encashed, he was there to certify that
it was a genuine check issued to purchase equipment for the
company.[51]
We recognize that Section 23 of the Negotiable
Instruments Law bars a party from setting up the defense of
forgery if it is guilty of negligence. [52] Yet, we are unable to
conclude that Samsung Construction was guilty of negligence
in this case. The appellate court failed to explain precisely
how the Korean accountant was negligent or how more care
and prudence on his part would have prevented the
forgery. We cannot sustain this tar and feathering resorted to
without any basis.
The bare fact that the forgery was committed by an
employee of the party whose signature was forged cannot
necessarily imply that such partys negligence was the cause
for the forgery. Employers do not possess the preternatural
gift of cognition as to the evil that may lurk within the hearts
and minds of their employees. The Courts pronouncement
in PCI Bank v. Court of Appeals[53] applies in this case, to wit:
[T]he mere fact that the forgery was committed by a drawer-
payors confidential employee or agent, who by virtue of his
position had unusual facilities for perpetrating the fraud and
imposing the forged paper upon the bank, does not entitle
the bank to shift the loss to the drawer-payor, in the absence
of some circumstance raising estoppel against the drawer. [54]
Admittedly, the record does not clearly establish what
measures Samsung Construction employed to safeguard its
blank checks. Jong did testify that his accountant, Kyu, kept
the checks inside a safety box, [55] and no contrary version
was presented by FEBTC. However, such testimony cannot
prove that the checks were indeed kept in a safety box, as
Jongs testimony on that point is hearsay, since Kyu, and not
Jong, would have the personal knowledge as to how the
checks were kept.
Still, in the absence of evidence to the contrary, we can
conclude that there was no negligence on Samsung
Constructions part. The presumption remains that every
person takes ordinary care of his concerns, [56] and that the
ordinary course of business has been followed. [57] Negligence
is not presumed, but must be proven by him who alleges it.
[58]
While the complaint was lodged at the instance of
Samsung Construction, the matter it had to prove was the
claim it had alleged - whether the check was forged. It cannot
be required as well to prove that it was not negligent,
because the legal presumption remains that ordinary care
was employed.
Thus, it was incumbent upon FEBTC, in defense, to prove
the negative fact that Samsung Construction was
negligent. While the payee, as in this case, may not have the
personal knowledge as to the standard procedures observed
by the drawer, it well has the means of disputing the
presumption of regularity. Proving a negative fact may be a
difficult office,[59] but necessarily so, as it seeks to overcome
a presumption in law. FEBTC was unable to dispute the
presumption of ordinary care exercised by Samsung
Construction, hence we cannot agree with the Court of
Appeals finding of negligence.
The assailed Decision replicated the extensive efforts
which FEBTC devoted to establish that there was no
negligence on the part of the bank in its acceptance and
payment of the forged check. However, the degree of
diligence exercised by the bank would be irrelevant if the
drawer is not precluded from setting up the defense of
forgery under Section 23 by his own negligence. The rule of
equity enunciated in PNB v. National City Bank of New
York, [60] as relied upon by the Court of Appeals, deserves
careful examination.
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 lose his right to cast the loss upon
the banker.[61] (Emphasis supplied)
Quite palpably, the general rule remains that the drawee
who has paid upon the forged signature bears the loss. The
exception to this rule arises only when negligence can be
traced on the part of the drawer whose signature was forged,
and the need arises to weigh the comparative negligence
between the drawer and the drawee to determine who should
bear the burden of loss. The Court finds no basis to conclude
that Samsung Construction was negligent in the safekeeping
of its checks. For one, the settled rule is that the mere fact
that the depositor leaves his check book lying around does
not constitute such negligence as will free the bank from
liability to him, where a clerk of the depositor or other
persons, taking advantage of the opportunity, abstract some
of the check blanks, forges the depositors signature and
collect on the checks from the bank. [62] And for another, in
point of fact Samsung Construction was not negligent at all
since it reported the forgery almost immediately upon
discovery.[63]
It is also worth noting that the forged signatures in PNB v.
National City Bank of New York were not of the drawer, but of
indorsers. The same circumstance attends PNB v. Court of
Appeals,[64] which was also cited by the Court of Appeals. It is
accepted that a forged signature of the drawer differs in
treatment than a forged signature of the indorser.
The justification for the distinction between forgery of the
signature of the drawer and forgery of an indorsement is that
the drawee is in a position to verify the drawers signature by
comparison with one in his hands, but has ordinarily no
opportunity to verify an indorsement.[65]
Thus, a drawee bank is generally liable to its depositor in
paying a check which bears either a forgery of the drawers
signature or a forged indorsement. But the bank may, as a
general rule, recover back the money which it has paid on a
check bearing a forged indorsement, whereas it has not this
right to the same extent with reference to a check bearing a
forgery of the drawers signature.[66]
The general rule imputing liability on the drawee who
paid out on the forgery holds in this case.
Since FEBTC puts into issue the degree of care it
exercised before paying out on the forged check, we might as
well comment on the banks performance of its duty. It might
be so that the bank complied with its own internal rules prior
to paying out on the questionable check. Yet, there are
several troubling circumstances that lead us to believe that
the bank itself was remiss in its duty.
The fact that the check was made out in the amount of
nearly one million pesos is unusual enough to require a
higher degree of caution on the part of the bank. Indeed,
FEBTC confirms this through its own internal
procedures. Checks below twenty-five thousand pesos
require only the approval of the teller; those between twenty-
five thousand to one hundred thousand pesos necessitate the
approval of one bank officer; and should the amount exceed
one hundred thousand pesos, the concurrence of two bank
officers is required.[67]
In this case, not only did the amount in the check nearly
total one million pesos, it was also payable to cash. That
latter circumstance should have aroused the suspicion of the
bank, as it is not ordinary business practice for a check for
such large amount to be made payable to cash or to bearer,
instead of to the order of a specified person. [68] Moreover, the
check was presented for payment by one Roberto Gonzaga,
who was not designated as the payee of the check, and who
did not carry with him any written proof that he was
authorized by Samsung Construction to encash the
check. Gonzaga, a stranger to FEBTC, was not even an
employee of Samsung Construction.[69] These circumstances
are already suspicious if taken independently, much more so
if they are evaluated in concurrence. Given the shadiness
attending Gonzagas presentment of the check, it was not
sufficient for FEBTC to have merely complied with its internal
procedures, but mandatory that all earnest efforts be
undertaken to ensure the validity of the check, and of the
authority of Gonzaga to collect payment therefor.
According to FEBTC Senior Assistant Cashier Gemma
Velez, the bank tried, but failed, to contact Jong over the
phone to verify the check.[70] She added that calling the
issuer or drawer of the check to verify the same was not part
of the standard procedure of the bank, but an extra effort.
[71]
Even assuming that such personal verification is
tantamount to extraordinary diligence, it cannot be denied
that FEBTC still paid out the check despite the absence of any
proof of verification from the drawer. Instead, the bank seems
to have relied heavily on the say-so of Sempio, who was
present at the bank at the time the check was presented.
FEBTC alleges that Sempio was well-known to the bank
officers, as he had regularly transacted with the bank in
behalf of Samsung Construction. It was even claimed that
everytime FEBTC would contact Jong about problems with his
account, Jong would hand the phone over to Sempio.
[72]
However, the only proof of such allegations is the
testimony of Gemma Velez, who also testified
that she did not know Sempio personally,[73] and had met forged check, it must be considered as paying out of its funds
Sempio for the first time only on the day the check was and cannot charge the amount so paid to the account of the
encashed.[74] In fact, Velez had to inquire with the other depositor.[77] A bank is liable, irrespective of its good faith, in
officers of the bank as to whether Sempio was actually known paying a forged check.[78]
to the employees of the bank. [75] Obviously, Velez had no
WHEREFORE, the Petition is GRANTED. The Decision of
personal knowledge as to the past relationship between
the Court of Appeals dated 28 November 1996 is REVERSED,
FEBTC and Sempio, and any averments of her to that effect
and the Decision of the Regional Trial Court of Manila, Branch
should be deemed hearsay evidence.Interestingly, FEBTC did
9, dated 25 April 1994 is REINSTATED. Costs against
not present as a witness any other employee of their Bel-Air
respondent.
branch, including those who supposedly had transacted with
Sempio before. SO ORDERED.
Even assuming that FEBTC had a standing habit of Puno, (Chairman), Austria-Martinez, Callejo,
dealing with Sempio, acting in behalf of Samsung Sr., and Chico-Nazario, JJ., concur.
Construction, the irregular circumstances attending the
presentment of the forged check should have put the bank
on the highest degree of alert. The Court recently
emphasized that the highest degree of care and diligence is
required of banks.

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.[76]

Given the circumstances, extraordinary diligence dictates

that FEBTC should have ascertained from Jong personally that
the signature in the questionable check was his.
Still, even if the bank performed with utmost diligence,
the drawer whose signature was forged may still recover
from the bank as long as he or she is not precluded from
setting up the defense of forgery. After all, Section 23 of the
Negotiable Instruments Law plainly states that no right to
enforce the payment of a check can arise out of a forged
signature. Since the drawer, Samsung Construction, is not
precluded by negligence from setting up the forgery, the
general rule should apply. Consequently, if a bank pays a