I.

What are bank statements?

According to the law and some reliable references, a bank statement is a
summary of financial transactions which have occurred over a given period on a
bank account held by a person or business with financial institution. It is usually
sent to the account holder regularly or at least once per month, summarizing all
transactions in an account during the time from the previous statement to the
current statement. The opening balance from the prior month combined with the
net of all transactions during the period should result in the closing balance for the
current statement.
These statements give rise to the duty of the consumers to carefully review
the same and retain them for their own records. In reconciling their own record of
transactions with the banks records, account holders should be on the lookout for
incorrect or transported numbers as well as unauthorized transactions.
Discrepancies should be reported by the account holders as soon as possible and in
writing if it is possible.
Defense of negligence of its customers in their failure to examine and
reconcile their bank statements and its legal basis:
According to 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 enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless the party
against whom it is sought to enforce such right is precluded from setting up the
forgery or want of authority
. Under this provision, a forged signature is a real
or absolute defense, and a person whose signature on a negotiable instrument is
forged is deemed to have never become a party thereto and to have never
consented to the contract that allegedly gave rise to it. In relation to forgery, when
an instrument is forged and it was accepted by the bank and later encashed without
exercising proper diligence required from it, the defense of negligence of the
customers in their failure to examine and reconcile their bank statements may not
be upheld. However, such defense may be upheld depending on the facts and
circumstances such as when the customers were proven that it acted without due
diligence in examining and reconciling their bank statements that were sent by the
bank institution diligently and regularly, the party claiming it may be relieved from
any or all liabilities arising from the same action.
The court upheld the defense in the case of BPI vs. Casa Montessori Internationale,
wherein one of the BPIs branches allowed the encashment of nine checks by a
certain Sonny D. Santos who was later declared as a fictitious name. The negligence
is attributable to BPI alone having established the forgery of the drawers signature,
BPI as the drawee, erred in making payments by virtue thereof. The forged

signatures are wholly inoperative, and CASA as the drawer whose authorized
signatures do not appear on the negotiable instruments, cannot be held liable
thereon. The court emphasized that the banking business is impressed with public
interest, of paramount importance thereto is the trust and confidence of the public
in general. Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are even required, of it. By the nature of its
functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.
BPI contends that it has a signature verification procedure, in which checks are
honored only when the signatures therein are verified to be the same with or similar
to the specimen signatures on the signature cards. Nonetheless, it still failed to
detect the eight instances of forgery. Its negligence consisted in the omission of
that degree of diligence required of a bank. It cannot now feign ignorance, for very
early on we have already ruled that a bank is bound to know the signatures of its
customers; and if it pays a forged check, it must be considered as making the
payment out of its own funds, and cannot ordinarily charge the amount so paid to
the account of the depositor whose name was forged. In fact, BPI was the same
bank involved when the court issued this ruling seventy years ago.
In addition, it is the prime duty of the bank to ascertain well the genuineness of the
signatures of its client-depositors on checks being encashed, BPI is expected to use
reasonable business prudence. In the performance of that obligation, it is bound by
its internal banking rules and regulations that form part of the contract it enters into
with its depositors despite the examination procedures it conducted, the Central
Verification Unit of the bank even passed off these evidently different signatures as
genuine.