100% Liability: Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor

1. MWSS vs. CA L. Recio. Their respective specimen signatures were submitted by the MWSS
2. Illusorio vs. CA to and on file with the PNB. By special arrangement with the PNB, the MWSS
3. Security Bank vs. CA used personalized checks in drawing from this account. These checks were
printed for MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal
Extension, Caloocan City.
Republic of the Philippines
SUPREME COURT During the months of March, April and May 1969, twenty-three (23) checks
Manila were prepared, processed, issued and released by NWSA, all of which were
paid and cleared by PNB and debited by PNB against NWSA Account No. 6, to
wit:
SECOND DIVISION

Check No. Date Payee Amount Date Paid

G.R. No. L-62943 July 14, 1986

By PNB
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,
vs.
COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE PHILIPPINE NATIONAL 1. 59546 8-21-69 Deogracias P 3,187.79 4-2-69
BANK, respondents.
Estrella
Juan J. Diaz and Cesar T. Basa for respondent PNB.
2. 59548 3-31-69 Natividad 2,848.86 4-23 69
San Juan, Africa, Gonzales & San Agustin Law Offices for respondent PCIB.
Rosario

3. 59547 3-31-69 Pangilinan 195.00 Unreleased

GUTIERREZ, JR., J.:
Enterprises
This petition for review asks us to set aside the October 29, 1982 decision of the respondent Court
of Appeals, now Intermediate Appellate Court which reversed the decision of the Court of First
4. 59549 3-31-69 Natividad 3,239.88 4-23-69
Instance of Manila, Branch XL, and dismissed the plaintiff's complaint, the third party complaint, as
well as the defendant's counterclaim.
Rosario
The background facts which led to the filing of the instant petition are summarized in the decision of
the respondent Court of Appeals: 5. 59552 4-1-69 Villarama 987.59 5-6-69

Metropolitan Waterworks and Sewerage System (hereinafter referred to as & Sons

MWSS) is a government owned and controlled corporation created under
Republic Act No. 6234 as the successor-in- interest of the defunct NWSA. The 6. 59554 4-1-69 Gascom 6,057.60 4-16 69
Philippine National Bank (PNB for short), on the other hand, is the depository
bank of MWSS and its predecessor-in-interest NWSA. Among the several
accounts of NWSA with PNB is NWSA Account No. 6, otherwise known as Engineering
Account No. 381-777 and which is presently allocated No. 010-500281. The
authorized signature for said Account No. 6 were those of MWSS treasurer
7. 59558 4-2-69 The Evening 112.00 Unreleased
News
8. 59544 3-27-69 Progressive 18,391.20 4-18 69
Const.
9. 59564 4-2-69 Ind. Insp. 594.06 4-18 69
Int. Inc.
10. 59568 4-7-69 Roberto 800.00 4-22-69
Marsan
11. 59570 4-7-69 Paz Andres 200.00 4-22-69
12. 59574 4-8-69 Florentino 100,000.00 4-11-69
Santos
13. 59578 4-8-69 Mla. Daily 95.00 Unreleased
Bulletin
14. 59580 4-8-69 Phil. Herald 100.00 5-9-69
15. 59582 4-8-69 Galauran 7,729.09 5-6-69
& Pilar
16. 59581 4-8-69 Manila 110.00 5-12 69
Chronicle
17. 59588 4-8-69 Treago 21,583.00 4-11 69
Tunnel
18. 59587 4-8-69 Delfin 120,000.00 4-11-69
Santiago
19. 59589 4-10-69 Deogracias 1,257.49 4-16 69
Estrella
20. 59594 4-14-69 Philam Ac- 33.03 4-29 69
cident Inc.
21. 59577 4-8-69 Esla 9,429.78 4-29 69
22. 59601 4-16-69 Justino 20,000.00 4-18-69
Torres
23. 59595 4-14-69 Neris Phil. 4,274.00 5-20-69
Inc. --------------------
P 320,636.26
During the same months of March, April and May 1969, twenty-three (23)
checks bearing the same numbers as the aforementioned NWSA checks were
likewise paid and cleared by PNB and debited against NWSA Account No. 6, to
wit:
Check Date Payee Amount Date Paid
No. Issued By PNB
1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69
2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69
3. 59547 3-14-69 Arturo Sison 56,903.00 4-11-69
4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69
5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69
6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69
7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69
8. 59544 3-16-69 Antonio 38,490.00 4-22-69 Mendoza
9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69
10.59568 4-2-69 Arturo Sison 134,940.00 4- 5-69
11.59570 4-1-69 Arturo Sison 64,550.00 4-28-69
12.59574 4-2-69 Arturo Sison 148,610.00 4-29-69
13.59578 4-10-69 Antonio 93,950.00 4-29-69
Mendoza
14.59580 4-8-69 Arturo Sison 160,000.00 5-2-69
15.59582 4-10-69 Arturo Sison 155,400.00 5-5-69
16.59581 4-8-69 Antonio 176,580.00 5-6-69
Mendoza
17.59588 4-16-69 Arturo Sison 176,000.00 5-8-69
18.59587 4-16-69 Arturo Sison 300,000.00 5-12-69
19.59589 4-18-69 Arturo Sison 122,000.00 5-14-69
20.59594 4-18-69 Arturo Sison 280,000.00 5-15-69
21.59577 4-14-69 Antonio 260,000.00 5-16-69
Mendoza
22.59601 4-18-69 Arturo Sison 400,000.00 5-19-69
23.59595 4-28-69 Arturo Sison 190,800.00 5-21-69
---------------
P3,457,903.00
The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison
and Antonio Mendoza in their respective current accounts with the Philippine
Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce
(PBC) in the months of March, April and May 1969. Thru the Central Bank
Clearing, these checks were presented for payment by PBC and PCIB to the
defendant PNB, and paid, also in the months of March, April and May 1969. At
the time of their presentation to PNB these checks bear the standard
indorsement which reads 'all prior indorsement and/or lack of endorsement
guaranteed.'
Subsequent investigation however, conducted by the NBI showed that Raul
Dizon, Arturo Sison and Antonio Mendoza were all fictitious persons. The
respective balances in their current account with the PBC and/or PCIB stood
as follows: Raul Dizon P3,455.00 as of April 30, 1969; Antonio Mendoza
P18,182.00 as of May 23, 1969; and Arturo Sison Pl,398.92 as of June 30,
1969.
On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate
restoration to its Account No. 6, of the total sum of P3,457,903.00
corresponding to the total amount of these twenty-three (23) checks claimed
by NWSA to be forged and/or spurious checks. "In view of the refusal of PNB
to credit back to Account No. 6 the said total sum of P3,457,903.00 MWSS
filed the instant complaint on November 10, 1972 before the Court of First
Instance of Manila and docketed thereat as Civil Case No. 88950.
In its answer, PNB contended among others, that the checks in question were
regular on its face in all respects, including the genuineness of the signatures
of authorized NWSA signing officers and there was nothing on its face that
could have aroused any suspicion as to its genuineness and due execution
and; that NWSA was guilty of negligence which was the proximate cause of
the loss.
PNB also filed a third party complaint against the negotiating banks PBC and
PCIB on the ground that they failed to ascertain the Identity of the payees and
their title to the checks which were deposited in the respective new accounts
of the payees with them.
 xxx xxx xxx
On February 6, 1976, the Court of First Instance of Manila rendered judgment in favor of the MWSS.
The dispositive portion of the decision reads:
WHEREFORE, on the COMPLAINT by a clear preponderance of evidence and in
accordance with Section 23 of the Negotiable Instruments Law, the Court
hereby renders judgment in favor of the plaintiff Metropolitan Waterworks
and Sewerage System (MWSS) by ordering the defendant Philippine National
Bank (PNB) to restore the total sum of THREE MILLION FOUR HUNDRED FIFTY
SEVEN THOUSAND NINE HUNDRED THREE PESOS (P3,457,903.00) to plaintiff's
Account No. 6, otherwise known as Account No. 010-50030-3, with legal
interest thereon computed from the date of the filing of the complaint and
until as restored in the said Account No. 6.
On the THIRD PARTY COMPLAINT, the Court, for lack of evidence, hereby
renders judgment in favor of the third party defendants Philippine Bank of
Commerce (PBC) and Philippine Commercial and Industrial Bank (PCIB) by
dismissing the Third Party Complaint.
The counterclaims of the third party defendants are likewise dismissed for
lack of evidence.
No pronouncement as to costs.
As earlier stated, the respondent court reversed the decision of the Court of First Instance of Manila
and rendered judgment in favor of the respondent Philippine National Bank.
A motion for reconsideration filed by the petitioner MWSS was denied by the respondent court in a
resolution dated January 3, 1983.
The petitioner now raises the following assignments of errors for the grant of this petition:
I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS WERE
FORGED, THE DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23
OF THE NEGOTIABLE INSTRUMENTS LAW.
II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB IN
ACCEPTING THE SPURIOUS CHECKS DESPITE THE OBVIOUS IRREGULARITY OF
TWO SETS OF CHECKS BEARING IdENTICAL NUMBER BEING ENCASHED
WITHIN DAYS OF EACH OTHER.
III. IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE MWSS BEING
CLEARLY FORGED, AND THE CHECKS SPURIOUS, SAME ARE INOPERATIVE AS
AGAINST THE ALLEGED DRAWEE.
The appellate court applied Section 24 of the Negotiable Instruments Law which provides:
Every negotiable instrument is deemed prima facie to have been issued for
valuable consideration and every person whose signature appears thereon to
have become a party thereto for value.
The petitioner submits that the above provision does not apply to the facts of the instant case
because the questioned checks were not those of the MWSS and neither were they drawn by its
authorized signatories. The petitioner states that granting that Section 24 of the Negotiable
Instruments Law is applicable, the same creates only a prima facie presumption which was
overcome by the following documents, to wit: (1) the NBI Report of November 2, 1970; (2) the NBI
Report of November 21, 1974; (3) the NBI Chemistry Report No. C-74891; (4) the Memorandum of
Mr. Juan Dino, 3rd Assistant Auditor of the respondent drawee bank addressed to the Chief Auditor
of the petitioner; (5) the admission of the respondent bank's counsel in open court that the National
Bureau of Investigation found the signature on the twenty-three (23) checks in question to be
forgeries; and (6) the admission of the respondent bank's witness, Mr. Faustino Mesina, Jr. that the
checks in question were not printed by his printing press. The petitioner contends that since the
signatures of the checks were forgeries, the respondent drawee bank must bear the loss under the
rulings of this Court.
A bank is bound to know the signatures of its customers; and if it pays a
forged check it must be considered as making the payment out of its
obligation funds, and cannot ordinarily charge the amount so paid to the
account of the depositor whose name was forged.
xxx xxx xxx
The signatures to the checks being forged, under Section 23 of the Negotiable
Instruments Law they are not a charge against plaintiff nor are the checks of
any value to the defendant.
It must therefore be held that the proximate cause of loss was due to the
negligence of the Bank of the Philippine Islands in honoring and cashing the
two forged checks. (San Carlos Milling Co. v. Bank of the P. I., 59 Phil. 59)
It is admitted that the Philippine National Bank cashed the check upon a
forged signature, and placed the money to the credit of Maasim, who was the
forger. That the Philippine National Bank then endorsed the chock and
forwarded it to the Shanghai Bank by whom it was paid. The Philippine
National Bank had no license or authority to pay the money to Maasim or
 anyone else upon a forged signature. It was its legal duty to know that an instance where even the concerned NWSA officials could not ten the differences between the
Malicor's endorsement was genuine before cashing the check. Its remedy is genuine checks and the alleged forged checks.
against Maasim to whom it paid the money. (Great Eastern Life Ins. Co. v.
Hongkong & Shanghai Bank, 43 Phil. 678).
At about 12:00 o'clock on June 6, 1969, VP Maramag requested me to see him
in his office at the Cashier's Dept. where Messrs. Jose M. Sanchez, treasurer of
We have carefully reviewed the documents cited by the petitioner. There is no express and NAWASA and Romeo Oliva of the same office were present. Upon my arrival I
categorical finding in these documents that the twenty-three (23) questioned checks were indeed observed the NAWASA officials questioning the issue of the NAWASA checks
signed by persons other than the authorized MWSS signatories. On the contrary, the findings of the appearing in their own list, xerox copy attached.
National Bureau of Investigation in its Report dated November 2, 1970 show that the MWSS fraud
was an "inside job" and that the petitioner's delay in the reconciliation of bank statements and the
For verification purposes, therefore, the checks were taken from our file. To
laxity and loose records control in the printing of its personalized checks facilitated the fraud.
everybody there present namely VIP Maramag, the two abovementioned
Likewise, the questioned Documents Report No. 159-1074 dated November 21, 1974 of the National
NAWASA officials, AVP, Buhain, Asst. Cashier Castelo, Asst. Cashier Tejada and
Bureau of Investigation does not declare or prove that the signatures appearing on the questioned
Messrs. A. Lopez and L. Lechuga, both C/A bookkeepers, no one was able to
checks are forgeries. The report merely mentions the alleged differences in the type face,
point out any difference on the signatures of the NAWASA officials appearing
checkwriting, and printing characteristics appearing in the standard or submitted models and the
on the checks compared to their official signatures on file. In fact 3 checks,
questioned typewritings. The NBI Chemistry Report No. C-74-891 merely describes the inks and pens
one of those under question, were presented to the NAWASA treasurer for
used in writing the alleged forged signatures.
verification but he could not point out which was his genuine signature. After
intent comparison, he pointed on the questioned check as bearing his correct
It is clear that these three (3) NBI Reports relied upon by the petitioner are inadequate to sustain its signature.
allegations of forgery. These reports did not touch on the inherent qualities of the signatures which
are indispensable in the determination of the existence of forgery. There must be conclusive findings
xxx xxx xxx
that there is a variance in the inherent characteristics of the signatures and that they were written
by two or more different persons.
Moreover, the petitioner is barred from setting up the defense of forgery under Section 23 of the
Negotiable Instruments Law which provides that:
Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139 SCRA 238). It
must be established by clear, positive, and convincing evidence. This was not done in the present
case. SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or
made without authority of the person whose signature it purports to be, it is
wholly inoperative, and no right to retain the instrument, or to give a
The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59 Phil. 59) and Great
discharge therefor, or to enforce payment thereof against any party thereto
Eastern Life Ins., Co. v. Hongkong and Shanghai Bank (43 Phil. 678) relied upon by the petitioner are
can be acquired through or under such signature unless the party against
inapplicable in this case because the forgeries in those cases were either clearly established or
whom it is sought to enforce such right is precluded from setting up the
admitted while in the instant case, the allegations of forgery were not clearly established during
forgery or want of authority.
trial.

because it was guilty of negligence not only before the questioned checks were negotiated but even
Considering the absence of sufficient security in the printing of the checks coupled with the very
after the same had already been negotiated. (See Republic v. Equitable Banking Corporation, 10
close similarities between the genuine signatures and the alleged forgeries, the twenty-three (23)
SCRA 8) The records show that at the time the twenty-three (23) checks were prepared, negotiated,
checks in question could have been presented to the petitioner's signatories without their knowing
and encashed, the petitioner was using its own personalized checks, instead of the official PNB
that they were bogus checks. Indeed, the cashier of the petitioner whose signatures were allegedly
Commercial blank checks. In the exercise of this special privilege, however, the petitioner failed to
forged was unable to ten the difference between the allegedly forged signature and his own genuine
provide the needed security measures. That there was gross negligence in the printing of its
signature. On the other hand, the MWSS officials admitted that these checks could easily be passed
personalized checks is shown by the following uncontroverted facts, to wit:
on as genuine.

(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions relative to the
The memorandum of Mr. A. T. Tolentino, no, Assistant Chief Accountant of the drawee Philippine
safekeeping and disposition of excess forms, check vouchers, and safety papers;
National Bank to Mr. E. Villatuya, Executive Vice-President of the petitioner dated June 9, 1969 cites
(2) The petitioner failed to retrieve from its printer all spoiled check forms;
(3) The petitioner failed to provide any control regarding the paper used in the printing of said
checks;
(4) The petitioner failed to furnish the respondent drawee bank with samples of typewriting, cheek
writing, and print used by its printer in the printing of its checks and of the inks and pens used in
signing the same; and
(5) The petitioner failed to send a representative to the printing office during the printing of said
checks.
This gross negligence of the petitioner is very evident from the sworn statement dated June 19, 1969
of Faustino Mesina, Jr., the owner of the printing press which printed the petitioner's personalized
checks:
xxx xxx xxx
7. Q: Do you have any business transaction with the
National Waterworks and Sewerage Authority
(NAWASA)?
A: Yes, sir. I have a contract with the NAWASA in
printing NAWASA Forms such as NAWASA Check
xxx xxx xxx
15. Q: Were you given any ingtruction by the NAWASA
in connection with the printing of these check
vouchers?
A: There is none, sir. No instruction whatsoever was
given to me.
16. Q: Were you not advised as to what kind of paper
would be used in the check vouchers?
A: Only as per sample, sir.
xxx xxx xxx
20. Q: Where did you buy this Hammermill Safety check
paper?
A: From Tan Chiong, a paper dealer with store located
at Juan Luna, Binondo, Manila. (In front of the
Metropolitan Bank).
xxx xxx xxx
24. Q: Were all these check vouchers printed by you
submitted to NAWASA?
A: Not all, sir. Because we have to make reservations or
allowances for spoilage.
25. Q: Out of these vouchers printed by you, how many
were spoiled and how many were the excess printed
check vouchers?
A: Approximately four hundred (400) sheets, sir. I
cannot determine the proportion of the excess and
spoiled because the final act of perforating these check
vouchers has not yet been done and spoilage can only
be determined after this final act of printing.
26. Q: What did you do with these excess check
vouchers?
A: I keep it under lock and key in my firing cabinet.
xxx xxx xxx
28. Q: Were you not instructed by the NAWASA
authorities to bum these excess check vouchers?
A: No, sir. I was not instructed.
29. Q: What do you intend to do with these excess
printed check vouchers?
A: I intend to use them for future orders from the
 xxx xxx xxx
32. Q: In the process of printing the check vouchers
ordered by the NAWASA, how many sheets were
actually spoiled?
A: I cannot approximate, sir. But there are spoilage in
the process of printing and perforating.
33. Q: What did you do with these spoilages?
A: Spoiled printed materials are usually thrown out, in
the garbage can.
34. Q: Was there any representative of the NAWASA to
supervise the printing or watch the printing of these
check vouchers?
A: None, sir.
xxx xxx xxx
39. Q: During the period of printing after the days work,
what measures do you undertake to safeguard the
mold and other paraphernalia used in the printing of
these particular orders of NAWASA?
A: Inasmuch as I have an employee who sleeps in the
printing shop and at the same time do the guarding, we
just leave the mold attached to the machine and the
other finished or unfinished work check vouchers are
left in the rack so that the work could be continued the
following day.
The National Bureau of Investigation Report dated November 2, 1970 is even more explicit. Thus—
xxx xxx xxx
60. We observed also that there is some laxity and
loose control in the printing of NAWASA cheeks. We
gathered from MESINA ENTERPRISES, the printing firm
that undertook the printing of the check vouchers of
NAWASA that NAWASA had no representative at the
printing press during the process of the printing and no
particular security measure instructions adopted to
safeguard the interest of the government in connection
with printing of this accountable form.
Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks in
question was the failure of the petitioner to reconcile the bank statements with its own records.
It is accepted banking procedure for the depository bank to furnish its depositors bank statements
and debt and credit memos through the mail. The records show that the petitioner requested the
respondent drawee bank to discontinue the practice of mailing the bank statements, but instead to
deliver the same to a certain Mr. Emiliano Zaporteza. For reasons known only to Mr. Zaporteza
however, he was unreasonably delayed in taking prompt deliveries of the said bank statements and
credit and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the bank statements
with the petitioner's records. If Mr. Zaporteza had not been remiss in his duty of taking the bank
statements and reconciling them with the petitioner's records, the fraudulent encashments of the
first checks should have been discovered, and further frauds prevented. This negligence was,
therefore, the proximate cause of the failure to discover the fraud. Thus,
When a person opens a checking account with a bank, he is given blank checks
which he may fill out and use whenever he wishes. Each time he issues a
check, he should also fill out the check stub to which the check is usually
attached. This stub, if properly kept, will contain the number of the check, the
date of its issue, the name of the payee and the amount thereof. The drawer
would therefore have a complete record of the checks he issues. It is the
custom of banks to send to its depositors a monthly statement of the status of
their accounts, together with all the cancelled checks which have been cashed
by their respective holders. If the depositor has filled out his check stubs
properly, a comparison between them and the cancelled checks will reveal
any forged check not taken from his checkbook. It is the duty of a depositor to
carefully examine the bank's statement, his cancelled checks, his check stubs
and other pertinent records within a reasonable time, and to report any errors
without unreasonable delay. If his negligence should cause the bank to honor
a forged check or prevent it from recovering the amount it may have already
paid on such check, he cannot later complain should the bank refuse to
recredit his account with the amount of such check. (First Nat. Bank of
Richmond v. Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA, NS 744
[1907]. See also Leather Manufacturers' Bank v. Morgan, 117 US 96, 6 S. Ct.
657 [1886]; Deer Island Fish and Oyster Co. v. First Nat. Bank of Biloxi, 166
Miss. 162, 146 So. 116 [1933]). Campos and Campos, Notes and Selected
Cases on Negotiable Instruments Law, 1971, pp. 267-268).
This failure of the petitioner to reconcile the bank statements with its cancelled checks was noted by
the National Bureau of Investigation in its report dated November 2, 1970:
 58. One factor which facilitate this fraud was the delay in the reconciliation of other persons to encash their checks carry with it their
bank (PNB) statements with the NAWASA bank accounts. x x x. Had the authority to enter your office?
NAWASA representative come to the PNB early for the statements and had
the bank been advised promptly of the reported bogus check, the negotiation
A. No, sir.
of practically all of the remaining checks on May, 1969, totalling
P2,224,736.00 could have been prevented.
xxx xxx xxx
The records likewise show that the petitioner failed to provide appropriate security measures over
its own records thereby laying confidential records open to unauthorized persons. The petitioner's Q. From the answers that you have given to us we
own Fact Finding Committee, in its report submitted to their General manager underscored this observed that actually there is laxity and poor control
laxity of records control. It observed that the "office of Mr. Ongtengco (Cashier No. VI of the on your part with regards to the preparations of check
Treasury Department at the NAWASA) is quite open to any person known to him or his staff payments inasmuch as you allow unauthorized persons
members and that the check writer is merely on top of his table." to follow up their vouchers inside your office which may
leakout confidential informations or your books of
account. After being apprised of all the shortcomings in
When confronted with this report at the Anti-Fraud Action Section of the National Bureau of
your office, as head of the Cashiers' Office of the
Investigation. Mr. Ongtengco could only state that:
Treasury Department what remedial measures do you
intend to undertake?
A. Generally my order is not to allow anybody to enter
my office. Only authorized persons are allowed to enter
A. Time and again the Treasurer has been calling our
my office. There are some cases, however, where some
attention not to allow interested persons to hand carry
persons enter my office because they are following up
their voucher checks and we are trying our best and if I
their checks. Maybe, these persons may have been
can do it to follow the instructions to the letter, I will do
authorized by Mr. Pantig. Most of the people entering
it but unfortunately the persons who are allowed to
my office are changing checks as allowed by the
enter my office are my co-employees and persons who
Resolution of the Board of Directors of the NAWASA
have connections with our higher ups and I can not
and the Treasurer. The check writer was never placed
possibly antagonize them. Rest assured that even
on my table. There is a place for the check write which
though that everybody will get hurt, I win do my best
is also under lock and key.
not to allow unauthorized persons to enter my office.

Q. Is Mr. Pantig authorized to allow unauthorized

xxx xxx xxx
persons to enter your office?

Q. Is it not possible inasmuch as your office is in charge

A. No, sir.
Q. Why are you tolerating Mr. Pantig admitting
unauthorized persons in your office?
A. I do not want to embarrass Mr. Pantig. Most of the
people following up checks are employees of the
NAWASA.
Q. Was the authority given by the Board of Directors
and the approval by the Treasurer for employees, and
of the posting of check payments in your books that
leakage of payments to the banks came from your
office?
A. I am not aware of it but it only takes us a couple of
minutes to process the checks. And there are cases
wherein every information about the checks may be
obtained from the Accounting Department, Auditing
Department, or the Office of the General Manager.
Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of Investigation
concluded in its Report dated November 2, 1970 that the fraudulent encashment of the twenty-
three (23)cheeks in question was an "inside job". Thus-
We have all the reasons to believe that this fraudulent act was an inside job or
one pulled with inside connivance at NAWASA. As pointed earlier in this
report, the serial numbers of these checks in question conform with the
numbers in current use of NAWASA, aside from the fact that these fraudulent
checks were found to be of the same kind and design as that of NAWASA's
own checks. While knowledge as to such facts may be obtained through the
possession of a NAWASA check of current issue, an outsider without
information from the inside can not possibly pinpoint which of NAWASA's
various accounts has sufficient balance to cover all these fraudulent checks.
None of these checks, it should be noted, was dishonored for insufficiency of
funds. . .
Even if the twenty-three (23) checks in question are considered forgeries, considering the
petitioner's gross negligence, it is barred from setting up the defense of forgery under Section 23 of
the Negotiable Instruments Law.
Nonetheless, the petitioner claims that it was the negligence of the respondent Philippine National
Bank that was the proximate cause of the loss. The petitioner relies on our ruling in Philippine
National Bank v. Court of Appeals (25 SCRA 693) that.
Thus, by not returning the cheek to the PCIB, by thereby indicating that the
PNB had found nothing wrong with the check and would honor the same, and
by actually paying its amount to the PCIB, the PNB induced the latter, not only
to believe that the check was genuine and good in every respect, but, also, to
pay its amount to Augusto Lim. In other words, the PNB was the primary or
proximate cause of the loss, and, hence, may not recover from the PCIB.
The argument has no merit. The records show that the respondent drawee bank, had taken the
necessary measures in the detection of forged checks and the prevention of their fraudulent
encashment. In fact, long before the encashment of the twenty-three (23) checks in question, the
respondent Bank had issued constant reminders to all Current Account Bookkeepers informing them
of the activities of forgery syndicates. The Memorandum of the Assistant Vice-President and Chief
Accountant of the Philippine National Bank dated February 17, 1966 reads in part:
SUBJECT: ACTIVITIES OF FORGERY SYNDICATE
From reliable information we have gathered that personalized checks of
current account depositors are now the target of the forgery syndicate. To
protect the interest of the bank, you are hereby enjoined to be more careful
in examining said checks especially those coming from the clearing, mails and
window transactions. As a reminder please be guided with the following:
1. Signatures of drawers should be properly scrutinized and compared with
those we have on file.
2. The serial numbers of the checks should be compared with the serial
numbers registered with the Cashier's Dept.
3. The texture of the paper used and the printing of the checks should be
compared with the sample we have on file with the Cashier's Dept.
4. Checks bearing several indorsements should be given a special attention.
5. Alteration in amount both in figures and words should be carefully
examined even if signed by the drawer.
6. Checks issued in substantial amounts particularly by depositors who do not
usually issue checks in big amounts should be brought to the attention of the
drawer by telephone or any fastest means of communication for purposes of
confirmation.
and your attention is also invited to keep abreast of previous circulars and
memo instructions issued to bookkeepers.
We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of
the checks because the printing of the petitioner's personalized checks was not done under the
supervision and control of the Bank. There is no evidence on record indicating that because of this
private printing the petitioner furnished the respondent Bank with samples of checks, pens, and inks
or took other precautionary measures with the PNB to safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better position to detect and prevent
the fraudulent encashment of its checks.
WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of merit. The decision
of the respondent Court of Appeals dated October 29, 1982 is AFFIRMED. No pronouncement as to
costs.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.
Paras * , J., took no part.

Footnotes

* Justice Paras took no part. Justice Cruz was designated to sit in the Second
Division.
 SECOND DIVISION
[G.R. No. 139130. November 27, 2002]
RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and THE MANILA
BANKING CORPORATION, respondents.
DECISION
QUISUMBING, J.:
This petition for review seeks to reverse the decision[1] promulgated on January 28, 1999 by the
Court of Appeals in CA-G.R. CV No. 47942, affirming the decision of the then Court of First Instance of
Rizal, Branch XV (now the Regional Trial Court of Makati, Branch 138) dismissing Civil Case No. 43907,
for damages.
The facts as summarized by the Court of Appeals are as follows:
Petitioner is a prominent businessman who, at the time material to this case, was the Managing
Director of Multinational Investment Bancorporation and the Chairman and/or President of several
other corporations. He was a depositor in good standing of respondent bank, the Manila Banking
Corporation, under current Checking Account No. 06-09037-0. As he was then running about 20
corporations, and was going out of the country a number of times, petitioner entrusted to his
secretary, Katherine[2] E. Eugenio, his credit cards and his checkbook with blank checks. It was also
Eugenio who verified and reconciled the statements of said checking account.[3]
Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to encash and
deposit to her personal account about seventeen (17) checks drawn against the account of the
petitioner at the respondent bank, with an aggregate amount of P119,634.34. Petitioner did not
bother to check his statement of account until a business partner apprised him that he saw Eugenio
use his credit cards. Petitioner fired Eugenio immediately, and instituted a criminal action against her
for estafa thru falsification before the Office of the Provincial Fiscal of Rizal. Private respondent,
through an affidavit executed by its employee, Mr. Dante Razon, also lodged a complaint
for estafa thru falsification of commercial documents against Eugenio on the basis of petitioners
statement that his signatures in the checks were forged.[4] Mr. Razons affidavit states:
That I have examined and scrutinized the following checks in accordance with prescribed verification
procedures with utmost care and diligence by comparing the signatures affixed thereat against the
specimen signatures of Mr. Ramon K. Ilusorio which we have on file at our said office on such dates,
xxx
That the aforementioned checks were among those issued by Manilabank in favor of its client MR.
RAMON K. ILUSORIO,
That the same were personally encashed by KATHERINE E. ESTEBAN, an executive secretary of MR.
RAMON K. ILUSORIO in said Investment Corporation;
That I have met and known her as KATHERINE E. ESTEBAN the attending verifier when she personally
encashed the above-mentioned checks at our said office;
That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning his signature appearing on
the checks further alleged to have not authorized the issuance and encashment of the same.[5]
Petitioner then requested the respondent bank to credit back and restore to its account the
value of the checks which were wrongfully encashed but respondent bank refused. Hence, petitioner
filed the instant case.[6]
At the trial, petitioner testified on his own behalf, attesting to the truth of the circumstances as
narrated above, and how he discovered the alleged forgeries. Several employees of Manila Bank were
also called to the witness stand as hostile witnesses. They testified that it is the banks standard
operating procedure that whenever a check is presented for encashment or clearing, the signature on
the check is first verified against the specimen signature cards on file with the bank.
Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in
determining the genuineness of the signatures appearing on the checks. However, in a letter dated
March 25, 1987, the NBI informed the trial court that they could not conduct the desired examination
for the reason that the standard specimens submitted were not sufficient for purposes of rendering a
definitive opinion. The NBI then suggested that petitioner be asked to submit seven (7) or more
additional standard signatures executed before or about, and immediately after the dates of the
questioned checks. Petitioner, however, failed to comply with this request.
After evaluating the evidence on both sides, the court a quo rendered judgment on May 12,
1994 with the following dispositive portion:
WHEREFORE, finding no sufficient basis for plaintiff's cause herein against defendant bank, in the
light of the foregoing considerations and established facts, this case would have to be, as it is hereby
DISMISSED.
Defendants counterclaim is likewise DISMISSED for lack of sufficient basis.
SO ORDERED.[7]
Aggrieved, petitioner elevated the case to the Court of Appeals by way of a petition for review
but without success. The appellate court held that petitioners own negligence was the proximate
cause of his loss. The appellate court disposed as follows:
WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the appellant.
SO ORDERED.[8]
Before us, petitioner ascribes the following errors to the Court of Appeals:
A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT BANK IS
ESTOPPED FROM RAISING THE DEFENSE THAT THERE WAS NO FORGERY OF THE
SIGNATURES OF THE PETITIONER IN THE CHECK BECAUSE THE RESPONDENT FILED
A CRIMINAL COMPLAINT FOR ESTAFA THRU FALSIFICATION OF COMMERCIAL
DOCUMENTS AGAINST KATHERINE EUGENIO USING THE AFFIDAVIT OF PETITIONER
STATING THAT HIS SIGNATURES WERE FORGED AS PART OF THE AFFIDAVIT-
COMPLAINT.[9]
B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23, NEGOTIABLE
INSTRUMENTS LAW.[10]
C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN OF PROOF IS WITH
THE RESPONDENT BANK TO PROVE THE DUE DILIGENCE TO PREVENT DAMAGE, TO
 THE PETITIONER, AND THAT IT WAS NOT NEGLIGENT IN THE SELECTION AND
SUPERVISION OF ITS EMPLOYEES.[11]
D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT BANK SHOULD
BEAR THE LOSS, AND SHOULD BE MADE TO PAY PETITIONER, WITH RECOURSE
AGAINST KATHERINE EUGENIO ESTEBAN.[12]
Essentially the issues in this case are: (1) whether or not petitioner has a cause of action against
private respondent; and (2) whether or not private respondent, in filing an estafa case against
petitioners secretary, is barred from raising the defense that the fact of forgery was not established.
Petitioner contends that Manila Bank is liable for damages for its negligence in failing to detect
the discrepant checks. He adds that as a general rule a bank which has obtained possession of a check
upon an unauthorized or forged endorsement of the payees signature and which collects the amount
of the check from the drawee is liable for the proceeds thereof to the payee. Petitioner invokes the
doctrine of estoppel, saying that having itself instituted a forgery case against Eugenio, Manila Bank is
now estopped from asserting that the fact of forgery was never proven.
For its part, Manila Bank contends that respondent appellate court did not depart from the
accepted and usual course of judicial proceedings, hence there is no reason for the reversal of its
ruling. Manila Bank additionally points out that Section 23[13] of the Negotiable Instruments Law is
inapplicable, considering that the fact of forgery was never proven. Lastly, the bank negates
petitioners claim of estoppel.[14]
On the first issue, we find that petitioner has no cause of action against Manila Bank. To be
entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure
to detect the discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish
the fact of forgery, i.e., by submitting his specimen signatures and comparing them with those on the
questioned checks. Curiously though, petitioner failed to submit additional specimen signatures as
requested by the National Bureau of Investigation from which to draw a conclusive finding regarding
forgery. The Court of Appeals found that petitioner, by his own inaction, was precluded from setting
up forgery. Said the appellate court:
We cannot fault the court a quo for such declaration, considering that the plaintiffs evidence on the
alleged forgery is not convincing enough. The burden to prove forgery was upon the plaintiff, which
burden he failed to discharge. Aside from his own testimony, the appellant presented no other
evidence to prove the fact of forgery. He did not even submit his own specimen signatures, taken on
or about the date of the questioned checks, for examination and comparison with those of the
subject checks. On the other hand, the appellee presented specimen signature cards of the
appellant, taken at various years, namely, in 1976, 1979 and 1981 (Exhibits 1, 2, 3 and 7), showing
variances in the appellants unquestioned signatures. The evidence further shows that the appellee,
as soon as it was informed by the appellant about his questioned signatures, sought to borrow the
questioned checks from the appellant for purposes of analysis and examination (Exhibit 9), but the
same was denied by the appellant. It was also the former which sought the assistance of the NBI for
an expert analysis of the signatures on the questioned checks, but the same was unsuccessful for
lack of sufficient specimen signatures.[15]
Moreover, petitioners contention that Manila Bank was remiss in the exercise of its duty as
drawee lacks factual basis. Consistently, the CA and the RTC found that Manila Bank employees
exercised due diligence in cashing the checks. The banks employees in the present case did not have
a hint as to Eugenios modus operandibecause she was a regular customer of the bank, having been
designated by petitioner himself to transact in his behalf. According to the appellate court, the
employees of the bank exercised due diligence in the performance of their duties. Thus, it found that:
The evidence on both sides indicates that TMBCs employees exercised due diligence before
encashing the checks. Its verifiers first verified the drawers signatures thereon as against his
specimen signature cards, and when in doubt, the verifier went further, such as by referring to a
more experienced verifier for further verification. In some instances the verifier made a confirmation
by calling the depositor by phone. It is only after taking such precautionary measures that the
subject checks were given to the teller for payment.
Of course it is possible that the verifiers of TMBC might have made a mistake in failing to detect any
forgery -- if indeed there was. However, a mistake is not equivalent to negligence if they were
honest mistakes. In the instant case, we believe and so hold that if there were mistakes, the same
were not deliberate, since the bank took all the precautions.[16]
As borne by the records, it was petitioner, not the bank, who was negligent. Negligence is the
omission to do something which a reasonable man, guided by those considerations which ordinarily
regulate the conduct of human affairs, would do, or the doing of something which a prudent and
reasonable man would do.[17] In the present case, it appears that petitioner accorded his secretary
unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank
statements, including custody and possession of cancelled checks and reconciliation of accounts. Said
the Court of Appeals on this matter:
Moreover, the appellant had introduced his secretary to the bank for purposes of reconciliation of
his account, through a letter dated July 14, 1980 (Exhibit 8). Thus, the said secretary became a
familiar figure in the bank. What is worse, whenever the bank verifiers call the office of the
appellant, it is the same secretary who answers and confirms the checks.
The trouble is, the appellant had put so much trust and confidence in the said secretary, by
entrusting not only his credit cards with her but also his checkbook with blank checks. He also
entrusted to her the verification and reconciliation of his account. Further adding to his injury was
the fact that while the bank was sending him the monthly Statements of Accounts, he was not
personally checking the same. His testimony did not indicate that he was out of the country during
the period covered by the checks.Thus, he had all the opportunities to verify his account as well as
the cancelled checks issued thereunder -- month after month. But he did not, until his partner asked
him whether he had entrusted his credit card to his secretary because the said partner had seen her
use the same. It was only then that he was minded to verify the records of his account. [18]
The abovecited findings are binding upon the reviewing court. We stress the rule that the
factual findings of a trial court, especially when affirmed by the appellate court, are binding upon
us[19] and entitled to utmost respect[20] and even finality. We find no palpable error that would warrant
a reversal of the appellate courts assessment of facts anchored upon the evidence on record.
Petitioners failure to examine his bank statements appears as the proximate cause of his own
damage. Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, and without which the result would not have
occurred.[21] In the instant case, the bank was not shown to be remiss in its duty of sending monthly
bank statements to petitioner so that any error or discrepancy in the entries therein could be brought
to the banks attention at the earliest opportunity. But, petitioner failed to examine these bank SO ORDERED.
statements not because he was prevented by some cause in not doing so, but because he did not pay
sufficient attention to the matter. Had he done so, he could have been alerted to any anomaly Bellosillo, Acting C.J., (Chairman), Mendoza, Austria-Martinez, and Callejo, Sr., JJ., concur.
committed against him. In other words, petitioner had sufficient opportunity to prevent or detect any
misappropriation by his secretary had he only reviewed the status of his accounts based on the bank
statements sent to him regularly. In view of Article 2179 of the New Civil Code,[22] when the plaintiffs
[1] Rollo, pp. 26-30.
own negligence was the immediate and proximate cause of his injury, no recovery could be had for
[2] Also spelled as Catherine in some parts of the record.
damages.
[3]
Rollo, p. 26.
Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged [4] TSN, October 6, 1983, p. 58.

check is inoperative, and that Manila Bank had no authority to pay the forged checks. True, it is a rule [5] Rollo, pp. 108-109.

that when a signature is forged or made without the authority of the person whose signature it [6] Id. at 27.
[7]
purports to be, the check is wholly inoperative.No right to retain the instrument, or to give a discharge Ibid.
therefor, or to enforce payment thereof against any party, can be acquired through or under such [8] Id. at 30.
[9]
signature. However, the rule does provide for an exception, namely: unless the party against whom it Id. at 10.
is sought to enforce such right is precluded from setting up the forgery or want of authority. In the [10] Id. at 14.

instant case, it is the exception that applies. In our view, petitioner is precluded from setting up the [11] Id. at 15.

forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit [12] Id. at 17.
[13]
cards and checkbook including the verification of his statements of account. Sec. 23. Forged signature, effect of. When a signature is forged or made without the authority of
the person whose signature it purports to be, it is wholly inoperative, and no right to retain
Petitioners reliance on Associated Bank vs. Court of Appeals[23] and Philippine Bank of the instrument, or to give a discharge therefor, or to enforce payment thereof against any
Commerce vs. CA[24] to buttress his contention that respondent Manila Bank as the collecting or last party thereto, can be acquired through or under such signature, unless the party against
endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior whom it is sought to enforce such right is precluded from setting up the forgery or want of
endorsements is misplaced. In the cited cases, the fact of forgery was not in issue. In the present case, authority.
the fact of forgery was not established with certainty. In those cited cases, the collecting banks were [14] Rollo, p. 49.
held to be negligent for failing to observe precautionary measures to detect the forgery. In the case [15]
Id. at 28.
before us, both courts below uniformly found that Manila Banks personnel diligently performed their [16] Id. at 29.
duties, having compared the signature in the checks from the specimen signatures on record and [17] Bank of the Philippine Islands vs. Court of Appeals, 326 SCRA 641, 657 (2000).
satisfied themselves that it was petitioners. [18]
Supra, note 16.
[19] Lorenzana vs. People, 353 SCRA 396, 403 (2001).
On the second issue, the fact that Manila Bank had filed a case for estafa against Eugenio would [20] Ong vs. CA, 272 SCRA 725, 730 (1997).
not estop it from asserting the fact that forgery has not been clearly established. Petitioner cannot [21] Supra, note 17 at 659.
hold private respondent in estoppel for the latter is not the actual party to the criminal action. In a [22]
Art. 2179. When the plaintiff's own negligence was the immediate and proximate cause of his
criminal action, the State is the plaintiff, for the commission of a felony is an offense against the
injury, he cannot recover damages.
State.[25] Thus, under Section 2, Rule 110 of the Rules of Court the complaint or information filed in [23] 252 SCRA 620, 633 (1996).
court is required to be brought in the name of the People of the Philippines. [26] [24] 269 SCRA 695, 703-710 (1997).
[25]
Further, as petitioner himself stated in his petition, respondent bank filed the estafa case Binay vs. Sandiganbayan, 316 SCRA 65, 100 (1999).
[26]
against Eugenio on the basis of petitioners own affidavit,[27] but without admitting that he had any SEC. 2. The complaint or information. The complaint or information shall be in writing, in the name
personal knowledge of the alleged forgery. It is, therefore, easy to understand that the filing of of the People of the Philippines and against all persons who appear to be responsible for
the estafa case by respondent bank was a last ditch effort to salvage its ties with the petitioner as a the offense involved.
[27] Rollo, p. 9.
valuable client, by bolstering the estafa case which he filed against his secretary.

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

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

Costs against petitioner.

 FIRST DIVISION
[G.R. No. 126696. January 21, 1999]
SECURITY BANK & TRUST COMPANY, petitioner, vs. TRIUMPH LUMBER AND CONSTRUCTION
CORPORATION, respondent.
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court the petitioner asks
this Court to reverse the decision[1] of 28 December 1995 and the resolution[2] of 17 September 1996
of the Court of Appeals in CA-G.R. CV No. 33513. The former set aside the decision[3] of 14 November
1990 of the Regional Trial Court (RTC) of Makati in Civil Case No. 16882 and ordered the petitioner to
reimburse the private respondent the value of the alleged forged checks drawn against private
respondents account, plus interest and attorneys fees. The latter denied petitioners motion for
reconsideration.
Petitioner and private respondent were the defendant and plaintiff, respectively, in Civil Case
No. 16882.
The factual antecedents of this case were summarized by the trial court in its decision in Civil
Case No. 16882; thus:
Based on plaintiffs evidence, it appears that plaintiff is a depositor in good standing of defendant
banks branch at Sucat, Paraaque, under current checking account no. 210-0053-60. Plaintiff claims
that on March 23 and 24, 1987, three (3) checks all payable to cash and all drawn against plaintiffs
aforementioned current account were presented for encashment at defendants Sucat Paraaque
branch, to wit: Security Bank check nos. 466779 and 466777, both dated March 23, 1987 in the
amount of P150,000.00 and P130,000.00, respectively; and Security Bank Check no. 466780 dated
March 24, 1987 in the amount of P20,000.00. (Exhs. A, A-1 to A-3, B, B-1 to B-3, C, C-1 to C-3)
Plaintiff also claims that due to defendant banks gross negligence and inexcusable negligence in
exercising ordinary diligence in verifying from plaintiff the encashment of plaintiffs checks whose
amount exceed P10,000.00 and in determining the forgery of drawers signatures, the aforesaid
three (3) checks were encashed by unauthorized persons to the damage and prejudice of the
plaintiff corporation. (Exhs. D, D-1, D-2) Plaintiff then requested the defendant to credit back and
restore to its account the value of the checks which were wrongfully encashed in the amount
of P300,000.00 but despite due demand the defendant failed to pay its liability. (Exhs. F, F-1, F-2)
Finally, plaintiff claims that per findings of the PC Crime Laboratory, the signatures of Co Yok Teng
and Yu Chun Kit, the authorized [signatories] of plaintiff were forged. (Exhs. E, E-1 to E-4, G, G-1, G-2,
H, I, I-1, I-2)
Upon the other hand, the defendant bank claims that on June 19, 1985 the plaintiff corporation
opened savings account no. 3220-0529-79 and current account no. 3210-0053-60 with defendant
banks branch in Sucat, Paraaque, Metro Manila. In order to make the said current and savings
account operational, the plaintiff herein provided the defendant with the requisite specimen
signature cards which in efect authorized defendant bank to honor withdrawals on the basis of any
two of three signatures affixed thereon, specifically those of Mr. Dee Kong, Mr. Co Yok Teng and Mr.
Chun Yun Kit, the president, treasurer and general manager, respectively, of plaintiff corporation.
(Exhs. 3, 4) Subsequently, plaintiff executed an automatic transfer agreement authorizing defendant
bank to transfer cleared funds from plaintiffs savings account to its current account at any time
whenever funds in the current account are insufficient to meet withdrawals therefrom or are below
the stipulated minimum balance. (Exhs. 5, 6, 6-A) Defendant also claims that the savings account
pass book and the check booklets were kept by the plaintiff in its filing cabinet but on March 23,
1987 the plaintiff herein discovered that the door of his office was forced open including that of the
filing cabinet where the check booklets and other bank documents were being kept by the plaintiff.
(pp. 32-33, TSN of August 15, 1988) Defendant further claims that the incident was not reported to
the police authorities by the plaintiff nor was there any advise given to defendant bank and that on
the same day of the discovery by plaintiff of the burglary, said plaintiff nevertheless made three
separate deposits in a total amount of P374,554.10. (Exhs. 1, 1-A, 1-B, 2-A, 2-B) Defendant also
claims that immediately after the said deposit of P374,554.10 has been made by the plaintiff, three
checks namely: check no. 466779 dated March 23, 1987 in the amount of P130,000.00; check no.
466779 dated March 23, 1987 of P150,000.00 and check no. 466780 dated March 24, 1987 in the
amount of P20,000.00 which [were] all payable to cash were successively presented to defendant
bank for encashment which was given due course by the latter after said checks have passed
through the standard bank procedure for verification of the check signatures and the regularity of
the material particulars of said checks. (pp. 6, 19, 20, 39, TSN of February 1, 1989, p. 21, TSN of
August 15, 1988)[4]
On the basis of such factual environment, the trial court found no preponderance of evidence
to support private respondents complaint. The private respondent failed to show that the signatures
on the subject checks were forged. It did not even present in court the originals of the checks. Neither
did it bother to explain its failure to do so. Thus, it could be presumed that the original checks were
wilfully suppressed and would be adverse to private respondents case if produced. Moreover, the
signatures on the checks were not compared with the specimen signature appearing on the specimen
signatures cards provided by the private respondent upon opening its current account with petitioner.
Thus, the opinion of the expert witness is not worthy of credit. Besides, the private respondent failed
to present Mr. Co Yok Teng, one of the signatories of the checks in question, to deny the genuineness
of the signatures.
The trial court was convinced that the petitioner bank had exercised due care and diligence in
determining the authenticity of the checks in question before they were encashed. It was rather the
private respondent that had been negligent in the care and custody of the corporate checks. After the
incident in question occurred, the private respondent should have reported the matter to the police
authorities or to the bank in order that the latter could undertake stringent measure to counteract
any attempt to forge the corporate checks. But private respondent did not. Hence, private respondent
should be the one to bear the loss.
In view of such findings, the trial court dismissed the complaint for lack of merit.
On appeal, the Court of Appeals reversed the decision of the trial court and ordered the
petitioner to reimburse the private respondent the sum of P300,000, plus interest at the rate of 2 %
per month from 24 March 1987 until full payment thereof, as well as attorneys fees equivalent to 25
% of the principal obligation.
 The Court of Appeals held that it was not necessary for the private respondent to prove that
the signatures on the three checks in question were forged because of the following admissions set
forth in petitioners answer:
14. Plaintiff was guilty of negligence substantially contributing to the unauthorized
signatures or forgery of the signatures on the checks mentioned in the complaint.
15. The alleged forged signatures on the checks were sufficiently adroit as to escape
detection even under the officers scrutiny.
20.3 Anna P. Naval and Roberto N. Gabutao verbally admitted that the checks were
forged.
21. Anna Naval and Roberto Gabutao are now facing charges for estafa thru Falsification
of Commercial Documents under Criminal Case No. 30004 pending with the
Regional Trial Court, National Capital Judicial Region, sitting at Makati, Metro
Manila.
According to the Court of Appeals, the expert witness, contrary to the trial courts finding, was
able to examine the signatures on the original checks and compared them with the standard
signatures of the signatories. The photographic enlargements of the questioned checks, which she
identified in court, were in fact taken from the original checks. With the banks admission in its answer,
as well as the unrebutted testimony of the expert witness and of Chun Yun Kit, there could be no
doubt that the signatures on the questioned checks were forged.
The Court of Appeals likewise held that the petitioner must be the one to bear the
consequences of its failure to detect the forgery. Besides, petitioner was less than prudent in the
treatment of private respondents account. It did not observe its arrangement with the private
respondent that it would inform the latter whenever a check of more than P10,000 would be
presented for encashment. Neither did it ask the payee to present an identification card or to bring
someone who could attest to identity of the payee.
After its motion for reconsideration was denied[5] by the Court of Appeals, petitioner filed this
petition contending that the Court of Appeals erred in holding that
I bank practices and procedures the genuineness of the signatures and endorsements. Upon the other
THE SIGNATURES ON THE CHECKS IN QUESTION WERE FORGED
II
WHETHER THE SIGNATURES WERE FORGED IS NO LONGER AN ISSUE IN THE CASE
CONSIDERING THE AFFIRMATIVE DEFENSES SET FORTH IN PETITIONERS ANSWER
III
THE PETITIONER ITSELF WAS NEGLIGENT AND THAT THE RESPONDENT EXERCISED
DUE CARE IN THE CUSTODY OF ITS CHECKS AND OTHER RELATED DOCUMENTS
IV
RESPONDENT IS ENTITLED TO REIMBURSEMENT OF P300,000.00 PLUS INTEREST
THEREOF AS WELL AS ATTORNEYS FEES.
In the first assigned error, the petitioner alleges that the best evidence of the forgery were the
original checks bearing the alleged forged signatures of private respondents officers. In spite of the
timely objection made by the petitioner, the private respondent introduced in evidence mere
photocopies of the questioned checks. The failure to produce the originals of the checks was a fatal
omission inasmuch as there would be no evidentiary basis for the court to declare that the instruments
were forgeries. Likewise such failure amounted to a willful suppression of evidence, which created a
presumption that its production would be unfavorable to respondents case.[6] It could also be
presumed that the checks in question [were] genuine checks regularly issued by the respondent in the
course of its business, bearing the genuine signatures of the officers whom it authorized to sign in its
behalf.[7] Also, an unfavorable inference could be drawn from the unexplained failure of private
respondent to call as its witness Mr. Co Yok Teng, whose signature was among those allegedly forged.
Petitioner, further contends that the opinion of private respondents expert witness, Crispina V.
Tabo, Senior Document Examiner of the PC Crime Laboratory, has no weight and deserves no
consideration. Tabo did not use as basis of her analytical study the standard signatures of Chun Yun
Kit and Co Yok Teng on the specimen signature cards provided by the respondent upon opening
Current Account No. 3210-0523-60 with the petitioner. It was to be against these standard signatures
appearing on the specimen cards that petitioner was to honor checks drawn against private
respondents account. What Tabo utilized for comparisons were signatures that were not even
authenticated by Chun Yun Kit and Co Yok Teng. Neither was it proved that the supposed standard
signatures had been written closely proximate to the date of the questioned checks. Moreover, the
requested signatures on the long bond paper written post litem motamcould not be accepted as
standards of comparison because of the ease with which they[could] be disguised to intentionally
differentiate them from those being challenged.[8]
As to the second assigned error, petitioner maintains that its Answer contained a specific denial
of private respondents allegation of forgery. It could set in its answer affirmative and negative
defenses alternatively even if they were inconsistent with each other.[9]
With respect to its third assigned error, petitioner asserts that it exercised due care and
diligence in the payment of private respondents checks by first verifying in accordance with standard
hand, the private respondent, in the management of its business affairs, fell short of the diligence and
the ordinary prudence required under the circumstances. It should have advised petitioner of the
alleged burglary so that petitioner could have applied stricter rules in the processing of checks drawn
against private respondents account, but it did not bother to do so. Neither did it reconcile its account,
balances with the petitioner in order to forestall the happening of the forgery.
In the last assigned error, the petitioner alleges that in view of the reasons it stated in the first
and third assigned errors the petitioner cannot be obliged to pay the amount of P300,000 plus
interest. On the contrary, petitioner is entitled to an award of attorneys fees because private
respondents complaint was insincere, baseless, and intended to harass, annoy and defame [it].[10]
Upon the other hand, the respondent claims that petitioner should have filed a petition for
review by certiorari and not merely a petition for review. The determination of negligence by the Court
of Appeals is a question of fact that cannot be disturbed on appeal. Even asuming that the instant case
is an exception to the rule limiting the appellate jurisdiction of the Supreme Court to reviewing errors
of law nonetheless, the issue of forgery was adequately proved by preponderance of evidence.
This appeal is meritorious.
Well settled is the rule that in the exercise of our power of review the findings of facts of the
Court of Appeals are conclusive and binding on this Court. However, there are recognized exceptions,
among which is when the factual findings of the trial court and the appellate court are
conflicting.[11] The disagreement between the trial court and the Court of Appeals in the factual
conclusion, especially with regard to the alleged forgery of the signatures on the questioned checks
and the negligence of the parties, has constrained us to examine the evidence submitted by the
parties.
On the issue of forgery, we are unable to agree with the finding of the Court of Appeals that
the petitioner admitted in its Answer[12] to the complaint the forgery of the signatures. Far from
admitting the forgery, petitioner categorically denied that the signatures on the questioned checks
were forgeries. However, by way of an alternative affirmative defense, petitioner contended that it
had exercised reasonable degree of diligence in detecting whether there was forgery. Even assuming
that the signatures on the checks were forged, still petitioner could not be held liable for the value of
the checks because all the checks were complete and regular on their face. The alleged forged
signatures were sufficiently adroit as to escape detection even under the officers scrutiny.
The Court of Appeals also erred in holding that forgery was duly established. First, Section 3,
Rule 130 of the Rules of Court was not complied with by private respondent. The Section explicitly
provides that when the subject of inquiry is the contents of a document, no evidence shall be
admissible other than the original document itself. This is what is known as the best evidence rule.
The exceptions are as follows:
1. When the original has been lost or destroyed, or cannot be produced in court, without bad
faith on the part of the offeror;
2. When the original is in the custody or under the control of the party against whom the
evidence is offered, and the latter fails to produce it after reasonable notice;
3. When the original consists of numerous accounts or other documents which cannot be
examined in court without great loss of time, and the fact sought to be established from
them is only the general result of the whole; and
4. When the original is a public record in the custody of a public officer or is recorded in a public
office.
In this case, the originals of the alleged forged checks had to be produced, since it was never
shown that any of these exceptions was present. What the private respondent offered were mere
photocopies of the checks in question marked as Exhibits A, B, and C.[13] It never explained the reason
why it could not produce the originals of the checks. Its expert witness Crispina Tabo admitted though
that the original checks were taken back by the investigating policeman, Glenn Ticson; thus:
ATTY. NARAG:
Q Do you have a copy, Madam Witness of the checks which were submitted to you under
question?
A It was only a xerox copy, because the original was withdrawn by the investigating policeman,
which is in (sic) the name of Glenn Ticzon, sir.
Q Do you want to impress the court that the originals of these checks were submitted to you?
A Yes, sir.
Q Do you have a copy of the originals of the checks under (sic) standards?
A Xerox copies only, because it was also withdrawn by the investigating policeman, who is Mr.
Glenn Ticzon.[14]
Yet, the said policeman was not presented to produce the original checks.
It is true that the photocopies of the questioned checks were all identified by private
respondents witness Yu Chun Kit during his direct testimony[15] without objection on the part of
petitioners counsel. The latter even cross-examined Yu Chun Kit,[16] and, at the formal offer of said
exhibits, he objected to their admission solely on the grounds that they were irrelevant, immaterial
and self-serving.[17] The photocopies of the checks may therefore be admitted for failure of petitioner
to tender an appropriate objection[18] to their admission. Nevertheless, their probative value is nil.[19]
Then, too, the proper procedure in the investigation of a disputed handwriting was not
observed. The initial step in such investigation is the introduction of the genuine handwriting of the
party sought to be charged with the disputed writing, which is to serve as a standard of
comparison.[20] The standard or the exemplar must therefore be proved to be genuine.[21] For the
purpose of proving the genuineness of a handwriting Section 22, Rule 132 of the Rules of Court
provides:
SEC. 22. How genuineness of handwriting proved. The handwriting of a person may be proved by any
witness who believes it to be the handwriting of such person because he has seen the person write,
or has seen writing purporting to be his upon which the witness has acted or been charged, and has
thus acquired knowledge of the handwriting of such person. Evidence respecting the handwriting
may also be given by a comparison, made by the witness or the court, with writings admitted or
treated as genuine by the party against whom the evidence is offered, or proved to be genuine to
the satisfaction of the judge.
In BA Finance v. Court of Appeals,[22] we had the occasion to the rule that the genuineness of a
standard writing may be established by any of the following: (1) by the admission of the person sought
to be charged with the disputed writing made at or for the purposes of the trial, or by his testimony;
(2) by witnesses who saw the standards written or to whom or in whose hearing the person sought to
be charged acknowledged the writing thereof; (3) by evidence showing that the reputed writer of the
standard has acquiesced in or recognized the same, or that it has been adopted and acted upon by
him in his business transactions or other concerns.
We find in the records only photocopies, not the originals, of the long bond papers containing
the alleged specimen signatures.[23] Nobody was presented to prove that the specimen signatures
were in fact signatures affixed by Yu Chun Kit and Co Yok Teng. Although the former took the witness
stand, he was never called to identify or authenticate his signatures on the said photocopy. Clearly
then, Section 22 of Rule 132 of the Rules of Court and the guidelines set forth in BA Finance v. Court
of Appeals[24] were not complied with.
Moreover, the so-called specimen signatures on the bond paper were not directly turned over
to Tabo by those who purportedly wrote them. They, together with the questioned checks, were first
submitted to the Administration Branch of the PC Crime Laboratory, then endorsed to the Questioned
Document Branch. The chief of the latter branch thereafter referred them to Tabo. Tabo never saw
the parties write the specimen signatures. She just presumed the specimen signatures to be genuine
signatures of the parties concerned. These facts were disclosed by Tabo during her cross-examination;
thus:
Q These question [sic] signatures and the specimen signatures or standard were just given to you
by the police of Paraaque?
A It was submitted to the Administrative Branch and the Administrative Branch endorsed that to
the Question Document Branch and the Chief of the Document branch assigned that case
to me, sir. That is why I received it and examined it.
COURT:
Q How do you know that, that is the genuine signature?
ATTY. REVILLA
Yes, how do you know that, that is the genuine signatures when you were not able to see him
personally write his signature?
A Because I examined the genuine signatures of Co Yok Teng which was submitted to the office
by the investigator and it is said to be genuine, and I compared the signatures whether it
is genuine or not. And upon comparing, all the specimen signatures were written by one,
and also comparing all question [sic] signatures, this one (pointing to the chart) are written
by one so, they were written, the question [sic] and specimen were written by two different
persons.
Q You did not ask the person to personally give his signature in order that there will be basis of
comparison between standard signature and the question [sic] signature?
A Your Honor, if the specimen signature is not sufficient enough to arrive at a conclusion, we will
tell the investigator to let the person involved to come to our office to write and sign his
signature, if it is not sufficient to arrive at a conclusion we let him sign.
Q So, you do not normally demand his income tax for example, the residence certificate or other
documents which contained this undisputed signature?
A We did not ask anymore additional specimen because the submitted document is sufficient
enough to arrive at the conclusion.
ATTY. REVILLA:
Q So, you just relied on what were given to you by the investigator as they informed you that
these were genuine and standard signatures?
A Yes, sir.
Q And who was that person who gave you this document?
A It was the Administrative Branch who [sic] endorsed this document to the Documentation
Branch. I do not know the person who brought that.
Q You do not know the person who brought this document to the Administrative branch?
A Yes, sir I do not know.
Q When you started making comparison and analysis of this question [SIC] signatures and
standard signatures, you did not anymore require the person, Mr. Co Yok Teng to appear
personally to you?
A I did not, sir.[25]
ATTY. REVILLA
Q Mrs. Tabo, like the question [sic] signature of Mr. Co Yok Teng, you also did not personally see
or observe how Mr. Co Yok Teng write this standard signature?
A Yes, sir.
Q And this [sic] standard signatures were just submitted to you?
A Yes, it was submitted to the office, sir.
Q And when you made the examination and analysis of these documents the standard and the
question [sic] signature you did not require any other signature from these two
personalities except those which were delivered to you?
A Yes, sir.
COURT
Q When this standard signature were submitted to you, you were just told that this is the genuine
signature of the person involved, you were just told?
A Yes, your Honor. As stated in the request it is the genuine signature.
Q So that was your basis in claiming that this is the genuine signature of the persons involved?
A I examined first the specimen, all the specimen whether it was written by.
Q What are those specimen submitted to you?
A The same checks, your Honor, and the written standard.
Q Did you confront Co Yok Teng?
 ATTY. REVILLA
A She said no, your Honor.
COURT
Q Did you confront Yu Chun Kit whether those were actually his genuine signature?
A No, your Honor.
Q So you just relied on the claim of the person who submitted to you that these are the genuine
signatures?
A Yes, your Honor.
Q And on the basis of that you compare the characteristic handwriting between the alleged
genuine and question [sic] signature?
A Yes, your Honor.[26] (underscoring ours for emphasis).
Our review of the testimony of private respondents expert witness, Crispina V. Tabo, fails to
convince us that she was a credible document examiner, despite petitioners admission that she was.
She was candid enough to admit to the court that although she had testified more or less three
hundred times as an expert, her findings were sustained by the courts in more or less ten cases only.
Thus:
Court:
Q How many times have you testified in Court?
A More or less three hundred (300) times, your Honor.
Q How many were sustained by the Court?
A More or less ten (10), sir.
Q Out of 300?
A Yes, your Honor.[27]
Besides, under the circumstances obtaining in this case, Tabo could by no yardstick be considered to
have adequate knowledge of the genuine signatures of the parties whose signatures on the
questioned checks were claimed to be forged. That knowledge could be obtained either by (a) seeing
the person write some other documents or signatures (ex visu scriptionis); (b) seeing documents
otherwise known to him to have been written by the person in question (ex scriptis olim visis); or (c)
examining, in or out of court, for the express purpose of obtaining such knowledge, the documents
said to have been written by the person in question (ex comparatione scriptorum).[28] Tabo could not
be a witness under the first and the second. She tried to be under the third. But under the third, it is
essential that (a) certain specimens of handwriting were seen and considered by her and (b) they were
genuinely written by the person in question.[29]Now, as stated above, Tabo had no adequate basis for
concluding that the alleged specimen signatures in the long bond paper were indeed the signatures
of the parties whose signatures in the checks were claimed to have been forged. Moreover, we do not
think that the alleged specimens before were sufficient in number.[30]
Given the fact that Mrs. Tabos testimony cannot inspire a conclusion that she was an expert, it
was error to rely on her representation. It is settled that the relative weight of the opinions of experts
by and large depends on the value of assistance and guidance they furnish the court in the
determination of the issue involved.[31]
On the issue of negligence, the Court of Appeals held:
[T]here is overwhelming evidence to show that appellee (petitioner herein) was less than prudent in
the treatment of appellants (private respondents) account.
According to Chun Yun Kit, they had an agreement with Appellees Assistant branch manager,
Felicidad Dimaano, that appellant should be informed whenever a check for than P10,000.00 is
presented for encashment. Dimaano did not controvert Chun Kits testimony on this point. Such an
arrangement was not observed by appellee with respect to the payment of the checks in question.
(Emphasis supplied).
We do not agree. During the hearing on 1 February 1989, Felicidad Dimaano denied having
such agreement with the private respondent. Rather, the agreement was that all encashments over
the counter of P10,000.00 and above should be accompanied by one of the signatories of private
respondent. But this agreement was made only on 31 March 1987, or a few days after the encashment
of the checks in question.[32]
At any rate, since the questioned checks, which were payable to cash, appeared regular on their
face and the bank found nothing unusual in the transaction, as the respondent usually issued checks
in big amounts[33] made payable to cash or to a particular person or to a company,[34] the petitioner
cannot be faulted in paying the value of the disputed checks.
Contrary to the finding of the Court of Appeals, the private respondent is the one which stands
to be blamed for its predicament. Chun Yun Kit testified that in the morning of 23 March 1987, he and
some employees found the doors of their office and the filing cabinets containing the companys check
booklet to have been forcibly opened. They also found the documents in disarray. Under these
circumstances, a prudent and reasonable man would simply have to go over the check booklet to find
out whether a check was missing. But, apparently, private respondents officers and employees did not
bother to do so. If they did examine the booklet they could have readily discovered whether a check
was taken. The following testimony of Chun Yun Kit is apropos:
Q You said also during the last hearing that on the morning of March 23, 1987 you found out in
the morning that the doors of the office were forced opened?
A Yes, sir.
Q And you also testified during the last hearing that the locked [sic] of the filing cabinet were also
forced opened?
A Yes, sir.
 Q And you found out on that same time and date on March 23, 1987 that the documents in the [10] Citing Heirs of Justiva v. Court of Appeals, 7 SCRA 72 [1963]; Tanjangco v. Jovellanos, 108 Phil. 713
filing cabinet were not in their proper position? [1960]; Enervida v. De la Torre, 55 SCRA 339.
[11]
Borillo v. Court of Appeals, 209 SCRA 130, 140 [1992]; Salvador v. Court of Appeals, 243 SCRA 239,
A Yes, sir. 253 [1995].
[12] OR, 25-32.
Q What did you do when you found out this [sic] circumstances on March 23, 1987? [13]
OR, 140.
[14] TSN, 4 November 1988, 8-9.
A We did not do anything because nothing was lost.
[15]
TSN, 10 August 1988, 8, 11-12; 14-15.
Q Did it not occur to you Mr. Witness, that considering that burglary was committed in your office, [16] TSN, 15 August 1988, 24-35; TSN, 9 September 1988, 3-19.

the doors of your office were forced opened, the locks of the filing cabinet were forced [17]
TSN, 1 February 1989, 2-3.
opened, the documents placed in the filing cabinet were not in their proper position, it did [18] See RICARDO J. FRANCISCO, EVIDENCE 60-61 (1993).

not occur to you to check the checks of the company as being placed in the filing cabinet?
A When we examined the check booklet, we did not discover anything lost.
Q You did not at all bother Mr. Witness or your treasurer to check something might have lost in
the check [sic], considering that the burglery [sic] and the filing cabinet were forced
opened?
A No, sir.
[19]
See Borje v. Sandiganbayan, 125 SCRA 763, 780 [1983], citing U.S. v. Gregorio, 17 Phil. 522 [1910];
People v. Sto. Tomas, 138 SCRA 206, 218-219 [1985]; Claverias v. Quingco, 207 SCRA 66, 76-77 [1992];
People v. Dismuke, 234 SCRA 51, 60 [1994]; Gobonseng v. Court of Appeals, 246 SCRA 472, 495 [1995];
Republic v. Court of Appeals, 258 SCRA 223, 242 [1996].
[20] 7 VICENTE J, FRANCISCO, EVIDENCE Part I, 604 (1973).
[21] 2 H.C. UNDERHILL, UNDERHILL'S CRIMINAL EVIDENCE Sec. 318, at 806 (5th ed. 1956). See also J.
NEWTON BAKER, LAW OF DISPUTED AND FORGED DOCUMENTS Sec. 52, at 77-78 (1955).
[22]
161 SCRA 608, 618 [1988].
[23] Exhibits J and H; OR, 144 and 146.

Q Did you notice anything lost? [24]

Supra note 22.
[25] TSN, 7 December 1988, 28-34.
A No, sir.[35] [26]
TSN, 8 December 1988, 10-14.
[27] TSN, 6 December 1988, 14.
Neither did any of private respondents officers or employees report the incident to the police [28]
authorities,[36] nor did anyone advise the petitioner of such incident so that the latter could adopt 3 JOHN HENRY WIGMORE, WIGMORE ON EVIDENCE Sec. 693, at 21 (3rd ed. 1940).
[29] Ibid.
necessary measures to prevent unauthorized encashments of private respondents checks. Hence, as [30] 3 JOHN HENRY WIGMORE, WIGMORE ON EVIDENCE Sec. 709, at 41.
correctly held by the trial court, it is the private respondent, not the petitioner, which must bear the [31]
loss. Geromo v. Comelec, 118 SCRA 165, 175 [1982]; People v. Aldana, 175 SCRA 635, 650 [1989];
Espiritu v. Court of Appeals, 242 SCRA 362, 371 [1995]; Eduarte v. Court of Appeals, 253 SCRA 391,
WHEREFORE, the instant petition is GRANTED the challenged decision of the Court of Appeals 399 [1996].
[32] TSN, 1 February 1989, 33-34; Exhibit 6, OR, 160.
in CA-G.R. CV No. 33513 is hereby REVERSED, and the decision of the Regional Trial Court of Makati in
[33] TSN, 1 February 1989, 41.
Civil Case No. 16882 is hereby REINSTATED.
[34]34 TSN, 1 February 1989, 55.

SO ORDERED. [35] TSN, 9 September 1989, 11-13.

[36] TSN, 15 August 1989, 4.
Melo, Kapunan, Martinez, and Pardo JJ., concur.

[1]
Annex A of Petition; Rollo, 54-62. Per Jacinto, G., J., with Montoya, S. and Agcaoili, O., JJ.,concurring.
[2] Annex B of Petition; Id., 64-65.
[3] Original Record (OR), Civil Case No. 16882, 219-222. Per Judge Zosimo Z. Angeles.
[4] OR, 220-221.
[5] Rollo, CA-G.R. CV No. 33513, 96-110.
[6]
Per Section 3[e], Rule 131, Rules of Court.
[7] Citing Section 5b and 5q, Rule 131, Rules of Court, [Now Section 3 (b and q)].
[8] Rollo, 36.
[9] Citing Section 2, Rule 8, Rules of Court.
50% Liability:
1. Jempesaw vs. CA
2. Associated Bank vs. CA
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 92244 February 9, 1993
NATIVIDAD GEMPESAW, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.
L.B. Camins for petitioner.
Angara, Abello, Concepcion, Regals & Cruz for private respondent
CAMPOS, JR., J.:
From the adverse decision * of the Court of Appeals (CA-G.R. CV No. 16447), petitioner, Natividad
Gempesaw, appealed to this Court in a Petition for Review, on the issue of the right of the drawer to
recover from the drawee bank who pays a check with a forged indorsement of the payee, debiting
the same against the drawer's account.
The records show that on January 23, 1985, petitioner filed a Complaint against the private
respondent Philippine Bank of Communications (respondent drawee Bank) for recovery of the
money value of eighty-two (82) checks charged against the petitioner's account with the respondent
drawee Bank on the ground that the payees' indorsements were forgeries. The Regional Trial Court,
Branch CXXVIII of Caloocan City, which tried the case, rendered a decision on November 17, 1987
dismissing the complaint as well as the respondent drawee Bank's counterclaim. On appeal, the
Court of Appeals in a decision rendered on February 22, 1990, affirmed the decision of the RTC on
two grounds, namely (1) that the plaintiff's (petitioner herein) gross negligence in issuing the checks
was the proximate cause of the loss and (2) assuming that the bank was also negligent, the loss must
nevertheless be borne by the party whose negligence was the proximate cause of the loss. On March
5, 1990, the petitioner filed this petition under Rule 45 of the Rules of Court setting forth the
following as the alleged errors of the respondent Court:1
I
THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE
NEGLIGENCE OF THE DRAWER IS THE PROXIMATE CAUSE OF THE RESULTING
INJURY TO THE DRAWEE BANK, AND THE DRAWER IS PRECLUDED FROM
SETTING UP THE FORGERY OR WANT OF AUTHORITY.
II
THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT FINDING AND
RULING THAT IT IS THE GROSS AND INEXCUSABLE NEGLIGENCE AND
FRAUDULENT ACTS OF THE OFFICIALS AND EMPLOYEES OF THE RESPONDENT
BANK IN FORGING THE SIGNATURE OF THE PAYEES AND THE WRONG AND/OR
ILLEGAL PAYMENTS MADE TO PERSONS, OTHER THAN TO THE INTENDED
PAYEES SPECIFIED IN THE CHECKS, IS THE DIRECT AND PROXIMATE CAUSE OF
THE DAMAGE TO PETITIONER WHOSE SAVING (SIC) ACCOUNT WAS DEBITED.
III
THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT ORDERING THE
RESPONDENT BANK TO RESTORE OR RE-CREDIT THE CHECKING ACCOUNT OF
THE PETITIONER IN THE CALOOCAN CITY BRANCH BY THE VALUE OF THE
EIGHTY-TWO (82) CHECKS WHICH IS IN THE AMOUNT OF P1,208,606.89 WITH
LEGAL INTEREST.
From the records, the relevant facts are as follows:
Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery stores located at
Rizal Avenue Extension and at Second Avenue, Caloocan City. Among these groceries are D.G.
Shopper's Mart and D.G. Whole Sale Mart. Petitioner maintains a checking account numbered 13-
00038-1 with the Caloocan City Branch of the respondent drawee Bank. To facilitate payment of
debts to her suppliers, petitioner draws checks against her checking account with the respondent
bank as drawee. Her customary practice of issuing checks in payment of her suppliers was as follows:
the checks were prepared and filled up as to all material particulars by her trusted bookkeeper, Alicia
Galang, an employee for more than eight (8) years. After the bookkeeper prepared the checks, the
completed checks were submitted to the petitioner for her signature, together with the
corresponding invoice receipts which indicate the correct obligations due and payable to her
suppliers. Petitioner signed each and every check without bothering to verify the accuracy of the
checks against the corresponding invoices because she reposed full and implicit trust and confidence
on her bookkeeper. The issuance and delivery of the checks to the payees named therein were left
to the bookkeeper. Petitioner admitted that she did not make any verification as to whether or not
the checks were delivered to their respective payees. Although the respondent drawee Bank notified
her of all checks presented to and paid by the bank, petitioner did not verify he correctness of the
returned checks, much less check if the payees actually received the checks in payment for the
supplies she received. In the course of her business operations covering a period of two years,
petitioner issued, following her usual practice stated above, a total of eighty-two (82) checks in favor
of several suppliers. These checks were all presented by the indorsees as holders thereof to, and
honored by, the respondent drawee Bank. Respondent drawee Bank correspondingly debited the
amounts thereof against petitioner's checking account numbered 30-00038-1. Most of the
aforementioned checks were for amounts in excess of her actual obligations to the various payees as
shown in their corresponding invoices. To mention a few:
 . . . 1) in Check No. 621127, dated June 27, 1984 in the amount of P11,895.23
in favor of Kawsek Inc. (Exh. A-60), appellant's actual obligation to said payee
was only P895.33 (Exh. A-83); (2) in Check No. 652282 issued on September
18, 1984 in favor of Senson Enterprises in the amount of P11,041.20 (Exh. A-
67) appellant's actual obligation to said payee was only P1,041.20 (Exh. 7); (3)
in Check No. 589092 dated April 7, 1984 for the amount of P11,672.47 in
favor of Marchem (Exh. A-61) appellant's obligation was only P1,672.47 (Exh.
B); (4) in Check No. 620450 dated May 10, 1984 in favor of Knotberry for
P11,677.10 (Exh. A-31) her actual obligation was only P677.10 (Exhs. C and C-
1); (5) in Check No. 651862 dated August 9, 1984 in favor of Malinta Exchange
Mart for P11,107.16 (Exh. A-62), her obligation was only P1,107.16 (Exh. D-2);
(6) in Check No. 651863 dated August 11, 1984 in favor of Grocer's
International Food Corp. in the amount of P11,335.60 (Exh. A-66), her
obligation was only P1,335.60 (Exh. E and E-1); (7) in Check No. 589019 dated
March 17, 1984 in favor of Sophy Products in the amount of P11,648.00 (Exh.
A-78), her obligation was only P648.00 (Exh. G); (8) in Check No. 589028 dated
March 10, 1984 for the amount of P11,520.00 in favor of the Yakult
Philippines (Exh. A-73), the latter's invoice was only P520.00 (Exh. H-2); (9) in
Check No. 62033 dated May 23, 1984 in the amount of P11,504.00 in favor of
Monde Denmark Biscuit (Exh. A-34), her obligation was only P504.00 (Exhs. I-1
and I-2).2
Practically, all the checks issued and honored by the respondent drawee bank were crossed
checks.3 Aside from the daily notice given to the petitioner by the respondent drawee Bank, the
latter also furnished her with a monthly statement of her transactions, attaching thereto all the
cancelled checks she had issued and which were debited against her current account. It was only
after the lapse of more two (2) years that petitioner found out about the fraudulent manipulations
of her bookkeeper.
All the eighty-two (82) checks with forged signatures of the payees were brought to Ernest L. Boon,
Chief Accountant of respondent drawee Bank at the Buendia branch, who, without authority
therefor, accepted them all for deposit at the Buendia branch to the credit and/or in the accounts of
Alfredo Y. Romero and Benito Lam. Ernest L. Boon was a very close friend of Alfredo Y. Romero.
Sixty-three (63) out of the eighty-two (82) checks were deposited in Savings Account No. 00844-5 of
Alfredo Y. Romero at the respondent drawee Bank's Buendia branch, and four (4) checks in his
Savings Account No. 32-81-9 at its Ongpin branch. The rest of the checks were deposited in Account
No. 0443-4, under the name of Benito Lam at the Elcaño branch of the respondent drawee Bank.
About thirty (30) of the payees whose names were specifically written on the checks testified that
they did not receive nor even see the subject checks and that the indorsements appearing at the
back of the checks were not theirs.
The team of auditors from the main office of the respondent drawee Bank which conducted periodic
inspection of the branches' operations failed to discover, check or stop the unauthorized acts of
Ernest L. Boon. Under the rules of the respondent drawee Bank, only a Branch Manager and no
other official of the respondent drawee bank, may accept a second indorsement on a check for
deposit. In the case at bar, all the deposit slips of the eighty-two (82) checks in question were
initialed and/or approved for deposit by Ernest L. Boon. The Branch Managers of the Ongpin and
Elcaño branches accepted the deposits made in the Buendia branch and credited the accounts of
Alfredo Y. Romero and Benito Lam in their respective branches.
On November 7, 1984, petitioner made a written demand on respondent drawee Bank to credit her
account with the money value of the eighty-two (82) checks totalling P1,208.606.89 for having been
wrongfully charged against her account. Respondent drawee Bank refused to grant petitioner's
demand. On January 23, 1985, petitioner filed the complaint with the Regional Trial Court.
This is not a suit by the party whose signature was forged on a check drawn against the drawee
bank. The payees are not parties to the case. Rather, it is the drawer, whose signature is genuine,
who instituted this action to recover from the drawee bank the money value of eighty-two (82)
checks paid out by the drawee bank to holders of those checks where the indorsements of the
payees were forged. How and by whom the forgeries were committed are not established on the
record, but the respective payees admitted that they did not receive those checks and therefore
never indorsed the same. The applicable law is the Negotiable Instruments Law4 (heretofore
referred to as the NIL). Section 23 of the NIL provides:
When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.
Under the aforecited provision, forgery is a real or absolute defense by the party whose
signature is forged. A party whose signature to an instrument was forged was never a
party and never gave his consent to the contract which gave rise to the instrument. Since
his signature does not appear in the instrument, he cannot be held liable thereon by
anyone, not even by a holder in due course. Thus, if a person's signature is forged as a
maker of a promissory note, he cannot be made to pay because he never made the
promise to pay. Or where a person's signature as a drawer of a check is forged, the
drawee bank cannot charge the amount thereof against the drawer's account because he
never gave the bank the order to pay. And said section does not refer only to the forged
signature of the maker of a promissory note and of the drawer of a check. It covers also a
forged indorsement, i.e., the forged signature of the payee or indorsee of a note or
check. Since under said provision a forged signature is "wholly inoperative", no one can
gain title to the instrument through such forged indorsement. Such an indorsement
prevents any subsequent party from acquiring any right as against any party whose name
appears prior to the forgery. Although rights may exist between and among parties
subsequent to the forged indorsement, not one of them can acquire rights against parties
prior to the forgery. Such forged indorsement cuts off the rights of all subsequent parties
as against parties prior to the forgery. However, the law makes an exception to these
rules where a party is precluded from setting up forgery as a defense.
As a matter of practical significance, problems arising from forged indorsements of checks may
generally be broken into two types of cases: (1) where forgery was accomplished by a person not
associated with the drawer — for example a mail robbery; and (2) where the indorsement was
forged by an agent of the drawer. This difference in situations would determine the effect of the
drawer's negligence with respect to forged indorsements. While there is no duty resting on the
depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed
upon him to look for forgeries of his own name, a depositor is under a duty to set up an accounting
system and a business procedure as are reasonably calculated to prevent or render difficult the
forgery of indorsements, particularly by the depositor's own employees. And if the drawer
(depositor) learns that a check drawn by him has been paid under a forged indorsement, the drawer
is under duty promptly to report such fact to the drawee bank.5For his negligence or failure either to
discover or to report promptly the fact of such forgery to the drawee, the drawer loses his right
against the drawee who has debited his account under a forged indorsement.6 In other words, he is
precluded from using forgery as a basis for his claim for re-crediting of his account.
In the case at bar, petitioner admitted that the checks were filled up and completed by her trusted
employee, Alicia Galang, and were given to her for her signature. Her signing the checks made the
negotiable instrument complete. Prior to signing the checks, there was no valid contract yet.
Every contract on a negotiable instrument is incomplete and revocable until delivery of the
instrument to the payee for the purpose of giving effect thereto.7 The first delivery of the
instrument, complete in form, to the payee who takes it as a holder, is called issuance of the
instrument.8 Without the initial delivery of the instrument from the drawer of the check to the
payee, there can be no valid and binding contract and no liability on the instrument.
Petitioner completed the checks by signing them as drawer and thereafter authorized her employee
Alicia Galang to deliver the eighty-two (82) checks to their respective payees. Instead of issuing the
checks to the payees as named in the checks, Alicia Galang delivered them to the Chief Accountant
of the Buendia branch of the respondent drawee Bank, a certain Ernest L. Boon. It was established
that the signatures of the payees as first indorsers were forged. The record fails to show the identity
of the party who made the forged signatures. The checks were then indorsed for the second time
with the names of Alfredo Y. Romero and Benito Lam, and were deposited in the latter's accounts as
earlier noted. The second indorsements were all genuine signatures of the alleged holders. All the
eighty-two (82) checks bearing the forged indorsements of the payees and the genuine second
indorsements of Alfredo Y. Romero and Benito Lam were accepted for deposit at the Buendia branch
of respondent drawee Bank to the credit of their respective savings accounts in the Buendia, Ongpin
and Elcaño branches of the same bank. The total amount of P1,208,606.89, represented by eighty-
two (82) checks, were credited and paid out by respondent drawee Bank to Alfredo Y. Romero and
Benito Lam, and debited against petitioner's checking account No. 13-00038-1, Caloocan branch.
As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot
charge the drawer's account for the amount of said check. An exception to this rule is where the
drawer is guilty of such negligence which causes the bank to honor such a check or checks. If a check
is stolen from the payee, it is quite obvious that the drawer cannot possibly discover the forged
indorsement by mere examination of his cancelled check. This accounts for the rule that although a
depositor owes a duty to his drawee bank to examine his cancelled checks for forgery of his own
signature, he has no similar duty as to forged indorsements. A different situation arises where the
indorsement was forged by an employee or agent of the drawer, or done with the active
participation of the latter. Most of the cases involving forgery by an agent or employee deal with the
payee's indorsement. The drawer and the payee often time shave business relations of long
standing. The continued occurrence of business transactions of the same nature provides the
opportunity for the agent/employee to commit the fraud after having developed familiarity with the
signatures of the parties. However, sooner or later, some leak will show on the drawer's books. It will
then be just a question of time until the fraud is discovered. This is specially true when the agent
perpetrates a series of forgeries as in the case at bar.
The negligence of a depositor which will prevent recovery of an unauthorized payment is based on
failure of the depositor to act as a prudent businessman would under the circumstances. In the case
at bar, the petitioner relied implicitly upon the honesty and loyalty of her bookkeeper, and did not
even verify the accuracy of amounts of the checks she signed against the invoices attached thereto.
Furthermore, although she regularly received her bank statements, she apparently did not carefully
examine the same nor the check stubs and the returned checks, and did not compare them with the
same invoices. Otherwise, she could have easily discovered the discrepancies between the checks
and the documents serving as bases for the checks. With such discovery, the subsequent forgeries
would not have been accomplished. It was not until two years after the bookkeeper commenced her
fraudulent scheme that petitioner discovered that eighty-two (82) checks were wrongfully charged
to her account, at which she notified the respondent drawee bank.
It is highly improbable that in a period of two years, not one of Petitioner's suppliers complained of
non-payment. Assuming that even one single complaint had been made, petitioner would have been
duty-bound, as far as the respondent drawee Bank was concerned, to make an adequate
investigation on the matter. Had this been done, the discrepancies would have been discovered,
sooner or later. Petitioner's failure to make such adequate inquiry constituted negligence which
resulted in the bank's honoring of the subsequent checks with forged indorsements. On the other
hand, since the record mentions nothing about such a complaint, the possibility exists that the
checks in question covered inexistent sales. But even in such a case, considering the length of a
period of two (2) years, it is hard to believe that petitioner did not know or realize that she was
paying more than she should for the supplies she was actually getting. A depositor may not sit idly
by, after knowledge has come to her that her funds seem to be disappearing or that there may be a
leak in her business, and refrain from taking the steps that a careful and prudent businessman would
take in such circumstances and if taken, would result in stopping the continuance of the fraudulent
scheme. If she fails to take steps, the facts may establish her negligence, and in that event, she
would be estopped from recovering from the bank.9
One thing is clear from the records — that the petitioner failed to examine her records with
reasonable diligence whether before she signed the checks or after receiving her bank statements.
Had the petitioner examined her records more carefully, particularly the invoice receipts, cancelled
checks, check book stubs, and had she compared the sums written as amounts payable in the eighty-
two (82) checks with the pertinent sales invoices, she would have easily discovered that in some
checks, the amounts did not tally with those appearing in the sales invoices. Had she noticed these
discrepancies, she should not have signed those checks, and should have conducted an inquiry as to
the reason for the irregular entries. Likewise had petitioner been more vigilant in going over her
current account by taking careful note of the daily reports made by respondent drawee Bank in her
issued checks, or at least made random scrutiny of cancelled checks returned by respondent drawee
Bank at the close of each month, she could have easily discovered the fraud being perpetrated by
Alicia Galang, and could have reported the matter to the respondent drawee Bank. The respondent
drawee Bank then could have taken immediate steps to prevent further commission of such fraud.
Thus, petitioner's negligence was the proximate cause of her loss. And since it was her negligence
which caused the respondent drawee Bank to honor the forged checks or prevented it from
recovering the amount it had already paid on the checks, petitioner cannot now complain should the
bank refuse to recredit her account with the amount of such checks. 10 Under Section 23 of the NIL,
she is now precluded from using the forgery to prevent the bank's debiting of her account.
The doctrine in the case of Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Bank 11 is not
applicable to the case at bar because in said case, the check was fraudulently taken and the
signature of the payee was forged not by an agent or employee of the drawer. The drawer was not
found to be negligent in the handling of its business affairs and the theft of the check by a total
stranger was not attributable to negligence of the drawer; neither was the forging of the payee's
indorsement due to the drawer's negligence. Since the drawer was not negligent, the drawee was
duty-bound to restore to the drawer's account the amount theretofore paid under the check with a
forged payee's indorsement because the drawee did not pay as ordered by the drawer.
Petitioner argues that respondent drawee Bank should not have honored the checks because they
were crossed checks. Issuing a crossed check imposes no legal obligation on the drawee not to
honor such a check. It is more of a warning to the holder that the check cannot be presented to the
drawee bank for payment in cash. Instead, the check can only be deposited with the payee's bank
which in turn must present it for payment against the drawee bank in the course of normal banking
transactions between banks. The crossed check cannot be presented for payment but it can only be
deposited and the drawee bank may only pay to another bank in the payee's or indorser's account.
Petitioner likewise contends that banking rules prohibit the drawee bank from having checks with
more than one indorsement. The banking rule banning acceptance of checks for deposit or cash
payment with more than one indorsement unless cleared by some bank officials does not invalidate
the instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this
rule destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the
payee. Under the NIL, the only kind of indorsement which stops the further negotiation of an
instrument is a restrictive indorsement which prohibits the further negotiation thereof.
Sec. 36. When indorsement restrictive. — An indorsement is restrictive which
either
(a) Prohibits further negotiation of the instrument; or
xxx xxx xxx
In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in
express words at the back of the instrument, so that any subsequent party may be forewarned that
ceases to be negotiable. However, the restrictive indorsee acquires the right to receive payment and
bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee
where the form of the indorsement does not authorize him to do so. 12
Although the holder of a check cannot compel a drawee bank to honor it because there is no privity
between them, as far as the drawer-depositor is concerned, such bank may not legally refuse to
honor a negotiable bill of exchange or a check drawn against it with more than one indorsement if
there is nothing irregular with the bill or check and the drawer has sufficient funds. The drawee
cannot be compelled to accept or pay the check by the drawer or any holder because as a drawee,
he incurs no liability on the check unless he accepts it. But the drawee will make itself liable to a suit
for damages at the instance of the drawer for wrongful dishonor of the bill or check.
Thus, it is clear that under the NIL, petitioner is precluded from raising the defense of forgery by
reason of her gross negligence. But under Section 196 of the NIL, any case not provided for in the
Act shall be governed by the provisions of existing legislation. Under the laws of quasi-delict, she
cannot point to the negligence of the respondent drawee Bank in the selection and supervision of its
employees as being the cause of the loss because negligence is the proximate cause thereof and
under Article 2179 of the Civil Code, she may not be awarded damages. However, under Article 1170
of the same Code the respondent drawee Bank may be held liable for damages. The article provides
—
Those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the tenor
thereof, are liable for damages.
There is no question that there is a contractual relation between petitioner as depositor (obligee)
and the respondent drawee bank as the obligor. In the performance of its obligation, the drawee
bank is bound by its internal banking rules and regulations which form part of any contract it enters
into with any of its depositors. When it violated its internal rules that second endorsements are not
to be accepted without the approval of its branch managers and it did accept the same upon the
mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very
least, if it were not actually guilty of fraud or negligence.
Furthermore, the fact that the respondent drawee Bank did not discover the irregularity with
respect to the acceptance of checks with second indorsement for deposit even without the approval
of the branch manager despite periodic inspection conducted by a team of auditors from the main
office constitutes negligence on the part of the bank in carrying out its obligations to its depositors.
Article 1173 provides —
The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the
circumstance of the persons, of the time and of the place. . . .
We hold that banking business is so impressed with public interest where the trust and confidence
of the public in general is of paramount importance such that the appropriate standard of diligence
must be a high degree of diligence, if not the utmost diligence. Surely, respondent drawee Bank
cannot claim it exercised such a degree of diligence that is required of it. There is no way We can
allow it now to escape liability for such negligence. Its liability as obligor is not merely vicarious but
primary wherein the defense of exercise of due diligence in the selection and supervision of its
employees is of no moment.
Premises considered, respondent drawee Bank is adjudged liable to share the loss with the
petitioner on a fifty-fifty ratio in accordance with Article 172 which provides:
Responsibility arising from negligence in the performance of every kind of
obligation is also demandable, but such liability may be regulated by the
courts according to the circumstances.
With the foregoing provisions of the Civil Code being relied upon, it is being made clear that the
decision to hold the drawee bank liable is based on law and substantial justice and not on mere
equity. And although the case was brought before the court not on breach of contractual
obligations, the courts are not precluded from applying to the circumstances of the case the laws
pertinent thereto. Thus, the fact that petitioner's negligence was found to be the proximate cause of
her loss does not preclude her from recovering damages. The reason why the decision dealt on a
discussion on proximate cause is due to the error pointed out by petitioner as allegedly committed
by the respondent court. And in breaches of contract under Article 1173, due diligence on the part
of the defendant is not a defense.
PREMISES CONSIDERED, the case is hereby ordered REMANDED to the trial court for the reception
of evidence to determine the exact amount of loss suffered by the petitioner, considering that she
partly benefited from the issuance of the questioned checks since the obligation for which she
issued them were apparently extinguished, such that only the excess amount over and above the
total of these actual obligations must be considered as loss of which one half must be paid by
respondent drawee bank to herein petitioner.
SO ORDERED.
Narvasa, C.J., Feliciano, Regalado and Nocon, JJ., concur.
# Footnotes
* Penned by Associate Justice Celso L. Magsino, Associate Justices Nathanael
P. De Pano, Jr. and Cezar D. Francisco, concurring.
1 Rollo, p.11.
2 Rollo, pp. 20-21; CA Decision, pp. 2-3. See Notes 2-6 thereof.
3 A crossed check is defined as a check crossed with two (2) lines, between
which are either the name of a bank or the words "and company," in full or
abbreviated. In the former case, the banker on whom it is drawn must not pay
the money for the check to any other than the banker named; in the latter
case, he must not pay it to any other than a banker. Black's Law Dictionary 301
(4th Ed.), citing 2 Steph. Comm. 118, note C; 7 Exch. 389; [1903] A.C. 240;
Farmers' Bank v. Johnson, King & Co., 134 Ga. 486, 68 S.E. 65, 30 L.R.A., N.S.
697.
4 Act No. 2031, enacted on February 3, 1911.
5 Britton, Bills and Notes, Sec. 143, pp. 663-664.
6 City of New York vs. Bronx County Trust Co., 261 N.Y. 64, 184 N.E. 495
(1933); Detroit Piston Ring Co. vs. Wayne County & Home Savings Bank, 252
Mich. 163, 233 N.W. 185 (1930); C.E. Erickson Co. vs. Iowa Nat. Bank 211 Iowa
495, 230 N.W. 342 (1930).
7 NIL, Sec. 16.
8 Ibid., Sec. 191, par. 10.
9 Detroit Piston Ring Co. vs. Wayne County & Home Savings Bank, supra, note
3.
10 Defiance Lumber Co. vs. Bank of California, N.A., 180 Wash. 533, 41 P. 2d
135 (1935); National Surety Co. vs. President and Directors of Manhattan Co.,
et al., 252 N.Y. 247, 169 N.E. 372 (1929); Erickson Co. vs. Iowa National
Bank, supra, note 3.
11 43 Phil. 678 (1922).
12 NIL, Sec. 37.
 Republic of the Philippines encashment. After the checks were examined, the Provincial Treasurer learned that 30 checks
SUPREME COURT amounting to P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank acting
Manila as collecting bank.
SECOND DIVISION
G.R. No. 107382/G.R. No. 107612 January 31, 1996
It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee
ASSOCIATED BANK, petitioner,
hospital until his retirement on February 28, 1978, collected the questioned checks from the office
vs.
of the Provincial Treasurer. He claimed to be assisting or helping the hospital follow up the release of
HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK, respondents.
the checks and had official receipts. 3 Pangilinan sought to encash the first check 4 with Associated
xxxxxxxxxxxxxxxxxxxxx
Bank. However, the manager of Associated Bank refused and suggested that Pangilinan deposit the
G.R. No. 107612 January 31, 1996
check in his personal savings account with the same bank. Pangilinan was able to withdraw the
PHILIPPINE NATIONAL BANK, petitioner,
money when the check was cleared and paid by the drawee bank, PNB.
vs.
HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and ASSOCIATED BANK, respondents.
After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan
followed the same procedure for the second check, in the amount of P5,000.00 and dated April 20,
DECISION
1978, 5 as well as for twenty-eight other checks of various amounts and on various dates. The last
check negotiated by Pangilinan was for f8,000.00 and dated February 10, 1981. 6 All the checks bore
ROMERO, J.: the stamp of Associated Bank which reads "All prior endorsements guaranteed ASSOCIATED BANK."

Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the
drawee bank or the collecting bank?
This is the main issue in these consolidated petitions for review assailing the decision of the Court of
Appeals in "Province of Tarlac v. Philippine National Bank v. Associated Bank v. Fausto Pangilinan, et.
al." (CA-G.R. No. CV No. 17962). 1
The facts of the case are as follows:
Jesus David, the manager of Associated Bank testified that Pangilinan made it appear that the checks
were paid to him for certain projects with the hospital. 7 He did not find as irregular the fact that the
checks were not payable to Pangilinan but to the Concepcion Emergency Hospital. While he
admitted that his wife and Pangilinan's wife are first cousins, the manager denied having given
Pangilinan preferential treatment on this account. 8
On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB seeking the
restoration of the various amounts debited from the current account of the Province. 9

In turn, the PNB manager demanded reimbursement from the Associated Bank on May 15, 1981. 10
The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac
Branch where the provincial funds are deposited. Checks issued by the Province are signed by the
Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang As both banks resisted payment, the Province of Tarlac brought suit against PNB which, in turn,
Bayan. impleaded Associated Bank as third-party defendant. The latter then filed a fourth-party complaint
against Adena Canlas and Fausto Pangilinan. 11
A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. 2 The
allotment checks for said government hospital are drawn to the order of "Concepcion Emergency After trial on the merits, the lower court rendered its decision on March 21, 1988, disposing as
Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac." follows:
The checks are released by the Office of the Provincial Treasurer and received for the hospital by its
administrative officer and cashier.
WHEREFORE, in view of the foregoing, judgment is hereby rendered:

In January 1981, the books of account of the Provincial Treasurer were post-audited by the
1. On the basic complaint, in favor of plaintiff Province of Tarlac and against defendant
Provincial Auditor. It was then discovered that the hospital did not receive several allotment checks
Philippine National Bank (PNB), ordering the latter to pay to the former, the sum of Two
drawn by the Province.
Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interest thereon
from March 20, 1981 until fully paid;
On February 19, 1981, the Provincial Treasurer requested the manager of the PNB to return all of its
cleared checks which were issued from 1977 to 1980 in order to verify the regularity of their
 2. On the third-party complaint, in favor of defendant/third-party plaintiff Philippine
National Bank (PNB) and against third-party defendant/fourth-party plaintiff Associated
Bank ordering the latter to reimburse to the former the amount of Two Hundred Three
Thousand Three Hundred (P203,300.00) Pesos with legal interests thereon from March
20, 1981 until fully paid;.
3. On the fourth-party complaint, the same is hereby ordered dismissed for lack of cause
of action as against fourth-party defendant Adena Canlas and lack of jurisdiction over the
person of fourth-party defendant Fausto Pangilinan as against the latter.
4. On the counterclaims on the complaint, third-party complaint and fourth-party
complaint, the same are hereby ordered dismissed for lack of merit.
SO ORDERED. 12
PNB and Associated Bank appealed to the Court of Appeals. 13 Respondent court affirmed the trial
court's decision in toto on September 30, 1992.
Hence these consolidated petitions which seek a reversal of respondent appellate court's decision.
PNB assigned two errors. First, the bank contends that respondent court erred in exempting the
Province of Tarlac from liability when, in fact, the latter was negligent because it delivered and
released the questioned checks to Fausto Pangilinan who was then already retired as the hospital's
cashier and administrative officer. PNB also maintains its innocence and alleges that as between two
innocent persons, the one whose act was the cause of the loss, in this case the Province of Tarlac,
bears the loss.
Next, PNB asserts that it was error for the court to order it to pay the province and then seek
reimbursement from Associated Bank. According to petitioner bank, respondent appellate Court
should have directed Associated Bank to pay the adjudged liability directly to the Province of Tarlac
to avoid circuity. 14
Associated Bank, on the other hand, argues that the order of liability should be totally reversed, with
the drawee bank (PNB) solely and ultimately bearing the loss.
Respondent court allegedly erred in applying Section 23 of the Philippine Clearing House Rules
instead of Central Bank Circular No. 580, which, being an administrative regulation issued pursuant
to law, has the force and effect of law. 15 The PCHC Rules are merely contractual stipulations among
and between member-banks. As such, they cannot prevail over the aforesaid CB Circular.
It likewise contends that PNB, the drawee bank, is estopped from asserting the defense of guarantee
of prior indorsements against Associated Bank, the collecting bank. In stamping the guarantee (for
all prior indorsements), it merely followed a mandatory requirement for clearing and had no choice
but to place the stamp of guarantee; otherwise, there would be no clearing. The bank will be in a
"no-win" situation and will always bear the loss as against the drawee bank. 16
Associated Bank also claims that since PNB already cleared and paid the value of the forged checks in
question, it is now estopped from asserting the defense that Associated Bank guaranteed prior
indorsements. The drawee bank allegedly has the primary duty to verify the genuineness of payee's
indorsement before paying the check. 17
While both banks are innocent of the forgery, Associated Bank claims that PNB was at fault and
should solely bear the loss because it cleared and paid the forged checks.
xxx xxx xxx
The case at bench concerns checks payable to the order of Concepcion Emergency Hospital or its
Chief. They were properly issued and bear the genuine signatures of the drawer, the Province of
Tarlac. The infirmity in the questioned checks lies in the payee's (Concepcion Emergency Hospital)
indorsements which are forgeries. At the time of their indorsement, the checks were order
instruments.
Checks having forged indorsements should be differentiated from forged checks or checks bearing
the forged signature of the drawer.
Section 23 of the Negotiable Instruments Law (NIL) provides:
Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a signature is forged or made without
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such signature
unless the party against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority.
A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one
can gain title to the instrument through it. A person whose signature to an instrument was forged
was never a party and never consented to the contract which allegedly gave rise to such
instrument. 18 Section 23 does not avoid the instrument but only the forged signature. 19 Thus, a
forged indorsement does not operate as the payee's indorsement.
The exception to the general rule in Section 23 is where "a party against whom it is sought to
enforce a right is precluded from setting up the forgery or want of authority." Parties who warrant or
admit the genuineness of the signature in question and those who, by their acts, silence or
negligence are estopped from setting up the defense of forgery, are precluded from using this
defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness
of the signatures on the instrument. 20
In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the drawee bank whose responsibility it is to know the drawer's signature since the latter is its
instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged customer. 27
can raise the defense of forgery against a holder in due course. 21
In cases involving checks with forged indorsements, such as the present petition, the chain of liability
The checks involved in this case are order instruments, hence, the following discussion is made with does not end with the drawee bank. The drawee bank may not debit the account of the drawer but
reference to the effects of a forged indorsement on an instrument payable to order. may generally pass liability back through the collection chain to the party who took from the forger
and, of course, to the forger himself, if available. 28 In other words, the drawee bank canseek
reimbursement or a return of the amount it paid from the presentor bank or person. 29 Theoretically,
Where the instrument is payable to order at the time of the forgery, such as the checks in this case,
the latter can demand reimbursement from the person who indorsed the check to it and so on. The
the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same
loss falls on the party who took the check from the forger, or on the forger himself.
instrument. When the holder's indorsement is forged, all parties prior to the forgery may raise the
real defense of forgery against all parties subsequent thereto. 22
In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank
(PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements.
An indorser of an order instrument warrants "that the instrument is genuine and in all respects what
If the forgery is that of the payee's or holder's indorsement, the collecting bank is held liable,
it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that
without prejudice to the latter proceeding against the forger.
the instrument is at the time of his indorsement valid and subsisting." 23 He cannot interpose the
defense that signatures prior to him are forged.
Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee
bank. The former must necessarily return the money paid by the latter because it was paid
A collecting bank where a check is deposited and which indorses the check upon presentment with
wrongfully. 30
the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the
banks's client is forged, the collecting bank is bound by his warranties as an indorser and cannot set
up the defense of forgery as against the drawee bank. More importantly, by reason of the statutory warranty of a general indorser in section 66 of the
Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees all prior indorsements, including the forged
The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the
indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time
check to the order of the payee. The drawer's instructions are reflected on the face and by the terms
of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of
of the check. Payment under a forged indorsement is not to the drawer's order. When the drawee
this warranty and will be accountable to the drawee bank. This liability scheme operates without
bank pays a person other than the payee, it does not comply with the terms of the check and
regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not
violates its duty to charge its customer's (the drawer) account only for properly payable items. Since
negligent, it would still be liable to the drawee bank because of its indorsement.
the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to
reimbursement from the drawer. 24 The general rule then is that the drawee bank may not debit the
drawer's account and is not entitled to indemnification from the drawer. 25 The risk of loss must The Court has consistently ruled that "the collecting bank or last endorser generally suffers the loss
perforce fall on the drawee bank. because it has the duty to ascertain the genuineness of all prior endorsements considering that the
act of presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the endorsements." 31
However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care
that substantially contributed to the making of the forged signature, the drawer is precluded from
asserting the forgery. The drawee bank is not similarly situated as the collecting bank because the former makes no
warranty as to the genuineness. of any indorsement. 32 The drawee bank's duty is but to verify the
genuineness of the drawer's signature and not of the indorsement because the drawer is its client.
If at the same time the drawee bank was also negligent to the point of substantially contributing to
the loss, then such loss from the forgery can be apportioned between the negligent drawer and the
negligent bank. 26 Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the
check. The bank knows him, his address and history because he is a client. It has taken a risk on his
deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the
In cases involving a forged check, where the drawer's signature is forged, the drawer can recover
indorsement.
from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to
recredit the amount of the check to the account of the drawer. The liability chain ends with the
Hence, the drawee bank can recover the amount paid on the check bearing a forged indorsement
from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of
the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery,
thereby depriving said presentor of the right to recover from the forger, the former is deemed
negligent and can no longer recover from the presentor. 33
Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account
of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the
Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then
the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of
Tarlac were negligent, the loss should be properly apportioned between them.
The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank
which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto
Pangilinan, liable.
If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of
the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to
bear the loss.
After careful examination of the records, the Court finds that the Province of Tarlac was equally
negligent and should, therefore, share the burden of loss from the checks bearing a forged
indorsement.
The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having
already retired from government service, was no longer connected with the hospital. With the
exception of the first check (dated January 17, 1978), all the checks were issued and released after
Pangilinan's retirement on February 28, 1978. After nearly three years, the Treasurer's office was still
releasing the checks to the retired cashier. In addition, some of the aid allotment checks were
released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were
now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity
which should have alerted employees in the Treasurer's office of the fraud being committed. There
is also evidence indicating that the provincial employees were aware of Pangilinan's retirement and
consequent dissociation from the hospital. Jose Meru, the Provincial Treasurer, testified:.
ATTY. MORGA:
Q Now, is it true that for a given month there were two releases of checks, one went to
Mr. Pangilinan and one went to Miss Juco?
JOSE MERU:
A Yes, sir.
Q Will you please tell us how at the time (sic) when the authorized representative of
Concepcion Emergency Hospital is and was supposed to be Miss Juco?
A Well, as far as my investigation show (sic) the assistant cashier told me that Pangilinan
represented himself as also authorized to help in the release of these checks and we
were apparently misled because they accepted the representation of Pangilinan that he
was helping them in the release of the checks and besides according to them they were,
Pangilinan, like the rest, was able to present an official receipt to acknowledge these
receipts and according to them since this is a government check and believed that it will
eventually go to the hospital following the standard procedure of negotiating
government checks, they released the checks to Pangilinan aside from Miss Juco.34
The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the
loss tantamount to negligence. Hence, the Province of Tarlac should be liable for part of the total
amount paid on the questioned checks.
The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence,
it cannot escape liability and should also bear part of the loss.
As earlier stated, PNB can recover from the collecting bank.
In the case of Associated Bank v. CA, 35 six crossed checks with forged indorsements were deposited
in the forger's account with the collecting bank and were later paid by four different drawee banks.
The Court found the collecting bank (Associated) to be negligent and held:
The Bank should have first verified his right to endorse the crossed checks, of which he
was not the payee, and to deposit the proceeds of the checks to his own account. The
Bank was by reason of the nature of the checks put upon notice that they were issued for
deposit only to the private respondent's account. . . .
The situation in the case at bench is analogous to the above case, for it was not the payee who
deposited the checks with the collecting bank. Here, the checks were all payable to Concepcion
Emergency Hospital but it was Fausto Pangilinan who deposited the checks in his personal savings
account.
Although Associated Bank claims that the guarantee stamped on the checks (All prior and/or lack of
endorsements guaranteed) is merely a requirement forced upon it by clearing house rules, it cannot
but remain liable. The stamp guaranteeing prior indorsements is not an empty rubric which a bank
must fulfill for the sake of convenience. A bank is not required to accept all the checks negotiated to
it. It is within the bank's discretion to receive a check for no banking institution would consciously or
deliberately accept a check bearing a forged indorsement. When a check is deposited with the
collecting bank, it takes a risk on its depositor. It is only logical that this bank be held accountable for
checks deposited by its customers.
A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the
opportunity to go after the forger, signifies negligence on the part of the drawee bank (PNB) and will
preclude it from claiming reimbursement.
It is here that Associated Bank's assignment of error concerning C.B. Circular No. 580 and Section 23
of the Philippine Clearing House Corporation Rules comes to fore. Under Section 4(c) of CB Circular
No. 580, items bearing a forged endorsement shall be returned within twenty-Sour (24) hours after
discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a
legal action by the returning bank. Section 23 of the PCHC Rules deleted the requirement that items
bearing a forged endorsement should be returned within twenty-four hours. Associated Bank now
argues that the aforementioned Central Bank Circular is applicable. Since PNB did not return the
questioned checks within twenty-four hours, but several days later, Associated Bank alleges that PNB
should be considered negligent and not entitled to reimbursement of the amount it paid on the
checks.
The Court deems it unnecessary to discuss Associated Bank's assertions that CB Circular No. 580 is
an administrative regulation issued pursuant to law and as such, must prevail over the PCHC rule.
The Central Bank circular was in force for all banks until June 1980 when the Philippine Clearing
House Corporation (PCHC) was set up and commenced operations. Banks in Metro Manila were
covered by the PCHC while banks located elsewhere still had to go through Central Bank Clearing. In
any event, the twenty-four-hour return rule was adopted by the PCHC until it was changed in 1982.
The contending banks herein, which are both branches in Tarlac province, are therefore not covered
by PCHC Rules but by CB Circular No. 580. Clearly then, the CB circular was applicable when the
forgery of the checks was discovered in 1981.
The rule mandates that the checks be returned within twenty-four hours after discovery of the
forgery but in no event beyond the period fixed by law for filing a legal action. The rationale of the
rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed
against the forger. If prompt notice is not given, the collecting bank maybe prejudiced and lose the
opportunity to go after its depositor.
The Court finds that even if PNB did not return the questioned checks to Associated Bank within
twenty-four hours, as mandated by the rule, PNB did not commit negligent delay. Under the
circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced
in going after Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB
necessarily had to inspect the checks and conduct its own investigation. Thereafter, it requested the
Provincial Treasurer's office on March 31, 1981 to return the checks for verification. The Province of
Tarlac returned the checks only on April 22, 1981. Two days later, Associated Bank received the
checks from PNB. 36
Associated Bank was also furnished a copy of the Province's letter of demand to PNB dated March
20, 1981, thus giving it notice of the forgeries. At this time, however, Pangilinan's account with
Associated had only P24.63 in it. 37 Had Associated Bank decided to debit Pangilinan's account, it
could not have recovered the amounts paid on the questioned checks. In addition, while Associated
Bank filed a fourth-party complaint against Fausto Pangilinan, it did not present evidence against
Pangilinan and even presented him as its rebuttal witness. 38 Hence, Associated Bank was not
prejudiced by PNB's failure to comply with the twenty-four-hour return rule.
Next, Associated Bank contends that PNB is estopped from requiring reimbursement because the
latter paid and cleared the checks. The Court finds this contention unmeritorious. Even if PNB
cleared and paid the checks, it can still recover from Associated Bank. This is true even if the payee's
Chief Officer who was supposed to have indorsed the checks is also a customer of the drawee
bank. 39 PNB's duty was to verify the genuineness of the drawer's signature and not the genuineness
of payee's indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify
the genuineness of the payee's indorsement.
PNB also avers that respondent court erred in adjudging circuitous liability by directing PNB to return
to the Province of Tarlac the amount of the checks and then directing Associated Bank to reimburse
PNB. The Court finds nothing wrong with the mode of the award. The drawer, Province of Tarlac, is a
clientor customer of the PNB, not of Associated Bank. There is no privity of contract between the
drawer and the collecting bank.
The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981, the
date of extrajudicial demand made by the Province of Tarlac on PNB. The payments to be made in
this case stem from the deposits of the Province of Tarlac in its current account with the PNB. Bank
deposits are considered under the law as loans. 40 Central Bank Circular No. 416 prescribes a twelve
percent (12%) interest per annum for loans, forebearance of money, goods or credits in the absence
of express stipulation. Normally, current accounts are likewise interest-bearing, by express contract,
thus excluding them from the coverage of CB Circular No. 416. In this case, however, the actual
interest rate, if any, for the current account opened by the Province of Tarlac with PNB was not
given in evidence. Hence, the Court deems it wise to affirm the trial court's use of the legal interest
rate, or six percent (6%) per annum. The interest rate shall be computed from the date of default, or
the date of judicial or extrajudicial demand. 41 The trial court did not err in granting legal interest
from March 20, 1981, the date of extrajudicial demand.
The Court finds as reasonable, the proportionate sharing of fifty percent - fifty percent (50%-50%).
Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person
(Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee
hospital for a period close to three years and in not properly ascertaining why the retired hospital
cashier was collecting checks for the payee hospital in addition to the hospital's real cashier,
respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the
PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent
(50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It
is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan,
having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee
hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness
of the payee's indorsement.
IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine National Bank (G.R. No. 13 CA-G.R. CV No. 17962.
107612) is hereby PARTIALLY GRANTED. The petition for review filed by the Associated Bank (G.R. 14 Petition, pp. 6-7; Rollo, pp. 13-14, G.R. No. 107612.
15
No. 107382) is hereby DENIED. The decision of the trial court is MODIFIED. The Philippine National Citing Antique Sawmills, Inc. v. Zayco, 17 SCRA 316, et al., Petition, p. 9, Rollo, p. 10.
Bank shall pay fifty percent (50%) of P203,300.00 to the Province of Tarlac, with legal interest from 16 Associated Bank's Petition, p. 13.

March 20, 1981 until the payment thereof. Associated Bank shall pay fifty percent (50%) of 17 Id., at 12.
18
P203,300.00 to the Philippine National Bank, likewise, with legal interest from March 20, 1981 until J. CAMPOS & M. LOPEZ-CAMPOS, NEGOTIABLE INSTRUMENTS LAW, 227-230 (4th ed.,
payment is made. 1990).
19
I A. AGBAYANI, COMMENTARIES AND JURISPRUDENCE ON THE COMMERCIAL LAWS OF
THE PHILIPPINES 198 (1989 ed.).
SO ORDERED. 20
Id., at 199.
21 J. VITUG, PANDECT OF COMMERCIAL LAW AND JURISPRUDENCE 51-53 (Rev. ed., 1990).

Regalado, Puno and Mendoza, JJ., concur. 22

Footnotes
1 Penned by Justice Asaali S. Isnani, with Associate Justices Arturo S. Buena and Ricardo P.
Galvez, concurring, dated September 30, 1992. Rollo, p. 22.
2 Provincial aid was given irregularly. Hospital staff would often call the provincial
treasurer's office to inquire whether there was an allotment check for the hospital. The
hospital's administrative officer and cashier would then go to the provincial treasurer's
office to pick up the check.
Checks received by the hospital are deposited in the account of the National Treasury
with the PNB. All income of the hospital in excess of the amount which the National
Government has directed it to raise, is excess income. The latter is given back to the
hospital after a supplemental budget is prepared. When the latter is approved, an advice
of allotment is made. Then the hospital requests a cash disbursement ceiling. When
approved, this is brought to the Ministry of Health. The regional office of said Ministry
then prepares a check for the hospital. The check will be deposited in the hospital's
current account at the PNB. (Culled from the testimony of Dr. Adena Canlas, TSN,
October 17, 1983, pp. 8-11; December 6, 1983, pp. 43-44.)
3
TSN, March 13, 1984, pp. 51-60.
4 Check No. 530863 K, dated January 17, 1978 for P10,000.00.
5 Check No. 526788 K.
6 Check No. 391351 L.
7
TSN, July 10, 1985, pp. 14-15.
8 TSN, July 10, 1985, p. 20-21, 34-35; September 24, 1985.
9 Exhibit FF for Province of Tarlac. On March 20, 1981, the Province of Tarlac reiterated its
Id.
23 Section 66, Negotiable Instruments Law.
24
S. NICKLES, NEGOTIABLE INSTRUMENTS AND OTHER RELATED COMMERCIAL PAPER 416
(2nd ed., 1993).
25 Great Eastern Life Insurance Co. v. Hongkong and Shanghai Banking Corp., 43 Phil. 678;
Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation G.R. No. L-
74917, January 20, 1988, 157 SCRA 188; CAMPOS & LOPEZ-CAMPOS, op. cit. note 18 at
283, citing La Fayette v. Merchants Bank, 73 Ark 561; Wills v. Barney, 22 Cal 240;
Wellington National Bank v. Robbins, 71 Kan 748.
26
R. JORDAN & W. WARREN, NEGOTIABLE INSTRUMENTS AND LETTERS OF CREDIT 216
(1992).
27
Id.
28 Id., at 216-235; VITUG, op. cit. note 21 at 53.
29
Banco de Oro v. Equitable Banking Corp., supra; Great Eastern Life Insurance Co. v.
HSBC, supra.
30 Article 2154 of the Civil Code provides: "If something is received when there is no right
to demand it, and it was unduly delivered through mistake, the obligation to return it
arises." Banco de Oro v. Equitable Banking Corp., supra.
31
Bank of the Phil. Islands v. CA, G.R. No. 102383, November 26, 1992, 216 SCRA 51,
63 citing Banco de Oro v. Equitable Banking Corp., supra; Great Eastern Life Insurance Co.
v. HSBC, supra.
32 CAMPOS & LOPEZ-CAMPOS, op. cit. note 18 at 283 citing Inter-state Trust Co. v. U.S.
National Bank, 185 Pac. 260; Hongkong and Shanghai Banking Corp. v. People's Bank and
Trust Co., supra.
33 JORDAN & WARREN, op. cit. note 26 at 217; CAMPOS & LOPEZ-CAMPOS, op. cit. note

request in another letter to PNB. Associated Bank was allegedly furnished with a copy of 18 at 283.
34 TSN, June 19, 1984, pp. 10-11.
this letter. (Records, pp. 246-247) PNB requested the Province to return the checks in a
35
letter dated March 31, 1981. The checks were returned to PNB on April 22, 1981. (Exhibit G.R. No. 89802, May 7, 1992, 208 SCRA 465.
36 See footnote 9.
GG) On April 24, 1981, PNB gave the checks to Associated Bank. (Exhibit 5) Associated
37 Exhibit "3-G" for Associated Bank.
Bank returned the checks to PNB on April 28, 1981, along with a letter stating its refusal
38
to return the money paid by PNB. (Exhibit 6) TSN, January 8, 1987.
39 San Carlos Milling Co. Ltd. v. BPI, 59 Phil. 59.
10 Exhibit "MM" for Province of Tarlac.
40 Article 1980 of the Civil Code reads: Fixed, savings, and current deposits of money in
11 Civil Case No. 6227, "Province of Tarlac v. Philippine National Bank; Philippine National

Bank v. Associated Bank; Associated Bank v. Fausto Pangilinan and Adena G. Canlas," banks and similar institutions shall be governed by the provisions concerning simple loan.
41 Eastern Shipping Lines, Inc. v. CA, G.R. No. 97412, July 12, 1994, 234 SCRA 78.
Regional Trial Court Branch 64, Tarlac, Tarlac.
12 Penned by Judge Arturo U. Barias, Jr., Rollo, pp. 391-392.
40% Liability: country in connection with the corporations business. In order not to disrupt
1. Bank of America vs. Philippine Racing Commission operations in their absence, they pre-signed several checks relating to Current
2. Consolidated Bank vs. CA Account No. 58891-012. The intention was to insure continuity of plaintiff-
3. Bank of Commerce vs. CA 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
FIRST DIVISION checks, the accountant would prepare the corresponding voucher and
thereafter complete the entries on the pre-signed checks.

BANK OF AMERICA NT & SA, G.R. No. 150228 It turned out that on December 16, 1988, a John Doe presented to
Petitioner, Present: defendant-appellant bank for encashment a couple of plaintiff-appellee
-versus- corporations checks (Nos. 401116 and 401117) with the indicated value of
PHILIPPINE RACING CLUB, PUNO, C.J., Chairperson, P110,000.00 each. It is admitted that these 2 checks were among those
Respondent. CARPIO, presigned by plaintiff-appellee corporations authorized signatories.
CORONA,
LEONARDO-DE CASTRO, and The two (2) checks had similar entries with similar infirmities and
BERSAMIN, JJ. 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
Promulgated: the upper line was the word CASH while the lower line had the following
typewritten words, viz: ONE HUNDRED TEN THOUSAND PESOS ONLY. Despite
July 30, 2009 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
DECISION 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
LEONARDO-DE CASTRO, J.:
PRCI that call for the payment of P220,000.00 to anyone. The checks appeared
This is a petition for review on certiorari under Rule 45 of the Rules of Court from the
to have come into the hands of an employee of PRCI (one Clarita Mesina who
Decision[1] promulgated on July 16, 2001 by the former Second Division of the Court of Appeals (CA),
was subsequently criminally charged for qualified theft) who eventually
in CA-G.R. CV No. 45371 entitled Philippine Racing Club, Inc. v. Bank of America NT & SA, affirming the
completed without authority the entries on the pre-signed checks. PRCIs
Decision[2] dated March 17, 1994 of the Regional Trial Court (RTC) of Makati, Branch 135 in Civil Case
demand for defendant-appellant to pay fell on deaf ears. Hence, the
No. 89-5650, in favor of the respondent. Likewise, the present petition assails the
complaint.[4]
Resolution[3] promulgated on September 28, 2001, denying the Motion for Reconsideration of the CA
Decision.

The facts of this case as narrated in the assailed CA Decision are as follows: After due proceedings, the trial court rendered a Decision in favor of respondent, the

dispositive portion of which reads:

Plaintiff-appellee PRCI is a domestic corporation which maintains
several accounts with different banks in the Metro Manila area. Among the
accounts maintained was Current Account No. 58891-012 with defendant-
appellant BA (Paseo de Roxas Branch). The authorized joint signatories with
respect to said Current Account were plaintiff-appellees President (Antonia
Reyes) and Vice President for Finance (Gregorio Reyes).
On or about the 2nd week of December 1988, the President and Vice
President of plaintiff-appellee corporation were scheduled to go out of the
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 by the trial court itself.[11]
There is no dispute that the signatures appearing on the subject checks were genuine
signatures of the respondents authorized joint signatories; namely, Antonia Reyes and Gregorio Reyes
who were respondents President and Vice-President for Finance, respectively. Both pre-signed the
said checks since they were both scheduled to go abroad and it was apparently their practice to leave
with the company accountant checks signed in black to answer for company obligations that might
fall due during the signatories absence. It is likewise admitted that neither of the subject checks
contains any material alteration or erasure.
However, on the blank space of each check reserved for the payee, the following
typewritten words appear: ONE HUNDRED TEN THOUSAND PESOS ONLY. Above the same is the
typewritten word, CASH. On the blank reserved for the amount, the same amount of One Hundred
Ten Thousand Pesos was indicated with the use of a check writer. The presence of these irregularities
in each check should have alerted the petitioner to be cautious before proceeding to encash them
which it did not do.
It is well-settled that banks are engaged in a business impressed with public interest, and
it is their duty to protect in return their many clients and depositors who transact business with
them. They have the obligation to treat their clients account meticulously and with the highest degree
of care, considering the fiduciary nature of their relationship. The diligence required of banks,
therefore, is more than that of a good father of a family.[12]
Petitioner asserts that it was not duty-bound to verify with the respondent since the
amount below the typewritten word CASH, expressed in words, is the very same amount indicated in
figures by means of a check writer on the amount portion of the check. The amount stated in words
is, therefore, a mere reiteration of the amount stated in figures. Petitioner emphasizes that a
reiteration of the amount in words is merely a repetition and that a repetition is not an alteration
which if present and material would have enjoined it to commence verification with respondent.[13]
We do not agree with petitioners myopic view and carefully crafted defense. Although not
in the strict sense material alterations, the misplacement of the typewritten entries for the payee and
the amount on the same blank and the repetition of the amount using a check writer were glaringly
obvious irregularities on the face of the check. Clearly, someone made a mistake in filling up the checks
and the repetition of the entries was possibly an attempt to rectify the mistake.Also, if the check had
been filled up by the person who customarily accomplishes the checks of respondent, it should have
occurred to petitioners employees that it would be unlikely such mistakes would be made. All these
circumstances should have alerted the bank to the possibility that the holder or the person who is
attempting to encash the checks did not have proper title to the checks or did not have authority to
fill up and encash the same. As noted by the CA, petitioner could have made a simple phone call to its
client to clarify the irregularities and the loss to respondent due to the encashment of the stolen
checks would have been prevented.
In the case at bar, extraordinary diligence demands that petitioner should have ascertained
from respondent the authenticity of the subject checks or the accuracy of the entries therein not only
because of the presence of highly irregular entries on the face of the checks but also of the decidedly
unusual circumstances surrounding their encashment. Respondents witness testified that for checks
in amounts greater than Twenty Thousand Pesos (P20,000.00) it is the companys practice to ensure
that the payee is indicated by name in the check.[14] This was not rebutted by petitioner. Indeed, it is
highly uncommon for a corporation to make out checks payable to CASH for substantial amounts such
as in this case. If each irregular circumstance in this case were taken singly or isolated, the banks
employees might have been justified in ignoring them. However, the confluence of the irregularities
on the face of the checks and circumstances that depart from the usual banking practice of respondent
should have put petitioners employees on guard that the checks were possibly not issued by the
respondent in due course of its business. Petitioners subtle sophistry cannot exculpate it from
behavior that fell extremely short of the highest degree of care and diligence required of it as a banking
institution.
Indeed, taking this with the testimony of petitioners operations manager that in case of an
irregularity on the face of the check (such as when blanks were not properly filled out) the bank may
or may not call the client depending on how busy the bank is on a particular day,[15] we are even more
convinced that petitioners safeguards to protect clients from check fraud are arbitrary and
subjective. Every client should be treated equally by a banking institution regardless of the amount of
his deposits and each client has the right to expect that every centavo he entrusts to a bank would be
handled with the same degree of care as the accounts of other clients. Perforce, we find that
petitioner plainly failed to adhere to the high standard of diligence expected of it as a banking
institution.
In defense of its cashier/tellers questionable action, petitioner insists that pursuant to
Sections 14[16] and 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 part of respondent because, even if we concur that the latter was indeed negligent
in pre-signing blank checks, the former had the last clear chance to avoid the loss. To reiterate,
petitioners own operations manager admitted that they could have called up the client for verification
or confirmation before honoring the dubious checks. Verily, petitioner had the final opportunity to
avert the injury that befell the respondent. Failing to make the necessary verification due to the
volume of banking transactions on that particular day is a flimsy and unacceptable excuse, considering
that the banking business is so impressed with public interest where the trust and confidence of the
public in general is of paramount importance such that the appropriate standard of diligence must be
a high degree of diligence, if not the utmost diligence.[23] Petitioners negligence has been undoubtedly
established and, thus, pursuant to Art. 1170 of the NCC,[24] it must suffer the consequence of said
negligence.
In the interest of fairness, however, we believe it is proper to consider respondents own negligence
to mitigate petitioners liability. Article 2179 of the Civil Code provides:
Art. 2179. When the plaintiffs own negligence was the immediate and
proximate cause of his injury, he cannot recover damages. But if his negligence
was only contributory, the immediate and proximate cause of the injury being
the defendants lack of due care, the plaintiff may recover damages, but the
courts shall mitigate the damages to be awarded.
Explaining this provision in Lambert v. Heirs of Ray Castillon,[25] the Court held:
The underlying precept on contributory negligence is that a plaintiff who is
partly responsible for his own injury should not be entitled to recover damages
in full but must bear the consequences of his own negligence. The defendant
must thus be held liable only for the damages actually caused by his negligence.
xxx xxx xxx
An adverse decision does not ipso facto justify an award of attorneys fees to the winning
party.[29] Even when a claimant is compelled to litigate with third persons or to incur expenses to
protect his rights, still attorneys fees may not be awarded where no sufficient showing of bad faith
could be reflected in a partys persistence in a case other than an erroneous conviction of the
righteousness of his cause.[30]
WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its Resolution
dated September 28, 2001 are AFFIRMED with the following MODIFICATIONS: (a) petitioner Bank of
America NT & SA shall pay to respondent Philippine Racing Club sixty percent (60%) of the sum of Two
Hundred Twenty Thousand Pesos (P220,000.00) with legal interest as awarded by the trial court and
(b) the awards of attorneys fees and litigation expenses in favor of respondent are deleted.
Proportionate costs.
SO ORDERED.

As we previously stated, respondents practice of signing checks in blank whenever its

authorized bank signatories would travel abroad was a dangerous policy, especially considering the TERESITA J. LEONARDO-DE CASTRO
lack of evidence on record that respondent had appropriate safeguards or internal controls to prevent Associate Justice
the pre-signed blank checks from falling into the hands of unscrupulous individuals and being used to
commit a fraud against the company. We cannot believe that there was no other secure and
reasonable way to guarantee the non-disruption of respondents business. As testified to by
petitioners expert witness, other corporations would ordinarily have another set of authorized bank WE CONCUR:
signatories who would be able to sign checks in the absence of the preferred signatories.[26] Indeed, if
not for the fortunate happenstance that the thief failed to properly fill up the subject checks,
respondent would expectedly take the blame for the entire loss since the defense of forgery of a
drawers signature(s) would be unavailable to it. Considering that respondent knowingly took the risk
that the pre-signed blank checks might fall into the hands of wrongdoers, it is but just that respondent REYNATO S. PUNO
shares in the responsibility for the loss. Chief Justice
Chairperson
We also cannot ignore the fact that the person who stole the pre-signed checks subject of
this case from respondents accountant turned out to be another employee, purportedly a clerk in
respondents accounting department. As the employer of the thief, respondent supposedly had
control and supervision over its own employee. This gives the Court more reason to allocate part of
the loss to respondent. ANTONIO T. CARPIO RENATO C. CORONA
Associate Justice Associate Justice
Following established jurisprudential precedents,[27] we believe the allocation of sixty
percent (60%) of the actual damages involved in this case (represented by the amount of the checks
with legal interest) to petitioner is proper under the premises. Respondent should, in light of its
contributory negligence, bear forty percent (40%) of its own loss.
LUCAS P. BERSAMIN
Finally, we find that the awards of attorneys fees and litigation expenses in favor of Associate Justice
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.
 CERTIFICATION delivery in order to be effectual, must be made either by or under the authority of the party making,
drawing, accepting, or indorsing as the case may be; and in such case the delivery may be shown to
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the have been conditional, or for a special purpose only, and not for the purpose of transferring the
conclusions in the above Decision were reached in consultation before the case was assigned to the property in the instrument. But where the instrument is in the hands of a holder of a due course, a
writer of the opinion of the Courts Division. valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively
presumed. And where the instrument is no longer in the possession of a party whose signature
appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved.
[18]
Rollo, p. 304.
REYNATO S. PUNO [19] Id. at 306.
[20]
Chief Justice Sec. 15. Incomplete instrument not delivered. Where an incomplete instrument has not been
delivered it will not, if completed and negotiated, without authority, be a valid contract in the hands
of any holder, as against any person whose signature was placed thereon before delivery.
[21] G.R. No. 132560, January 30, 2002, 375 SCRA 212.
[1] [22]
Rollo, pp. 80-87. Id. at 223, citing Philippine Bank of Commerce v. CA, G.R. No. 97626, 269 SCRA 695, 707-708.
[2] Id. at 122-126. [23] Gempesaw v. CA, G.R. No. 92244, February 9, 1993, 218 SCRA 682, 697.
[3] Id. at 89. [24] Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
[4] Id. at 81-82. delay, and those who in any manner contravene the tenor thereof, are liable for damages.
[5] [25]
Id. at 126. G.R. No. 160709, February 23, 2005, 452 SCRA 285, 293.
[6] [26]
Id. at 55-56. TSN, testimony of Gerardo Martin, a certified public accountant/auditor from Sycip Gorres &
[7] Sec. 126. Bill of exchange defined. A bill of exchange is an unconditional order in writing addressed Velayo, February 25, 1992, p. 6.
[27]
by one person to another, signed by the person giving it, requiring the person to whom it is addressed Philippine Bank of Commerce v. Court of Appeals, G.R. No. 97626, March 14, 1997, 269 SCRA
to pay on demand or at a fixed or determinable future time a sum certain in money to order or to 695; Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, September 11,
bearer. 2003, 410 SCRA 562.
[8] Sec. 185. Check defined. A check is a bill of exchange drawn on a bank payable on demand. Except [28] Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than

as herein otherwise provided, the provisions of this act applicable to a bill of exchange payable on judicial costs, cannot be recovered, except:
demand apply to a check. (1) When exemplary damages are awarded;
[9] Rollo, pp. 296-297. (2) When the defendants act or omission has compelled the plaintiff to litigate
[10]
Id. at 298. with third persons or to incur expenses to protect his interest;
[11] Id. at 125. (3) In criminal cases of malicious prosecution against the plaintiff;
[12]
Samsung Construction Company Philippines, Inc. v. Far East Bank and Trust Company, Inc., G.R. (4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
No. 129015, August 13, 2004, 436 SCRA 402, 421. (5) Where the defendant acted in gross and evident bad faith in refusing to
[13] Id. at 299. satisfy the plaintiffs plainly valid, just and demandable claim;
[14] TSN, testimony of Carlos H. Reyes, October 1, 1991, p. 3. (6) In actions for legal support;
[15] TSN, testimony of Rose Acuban, August 20, 1991, pp. 8-9. (7) In actions for the recovery of wages of household helpers, laborers and
[16] Sec. 14. Blanks, when may be filled. Where the instrument is wanting in any material particular, the skilled workers;
person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. (8) In actions for indemnity under workmens compensation and employers
And a signature on a blank paper delivered by the person making the signature in order that the paper liability laws;
may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such (9) In a separate civil action to recover civil liability arising from a crime;
for any amount. In order, however, that any such instrument when completed may be enforced (10) When at least double judicial costs are awarded;
against any person who became a party thereto prior to its completion, it must be filled up strictly in (11) In any other case where the court deems it just and equitable that attorneys
accordance with the authority given and within a reasonable time. But if any such instrument, after fees and expenses of litigation should be recovered.
completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his In all cases, the attorneys fees and expenses of litigation must be reasonable.
hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given [29] J Marketing Corp. v. Sia, Jr., G.R. No. 127823, January 29, 1998, 285 SCRA 580, 584.

and within a reasonable time. [30] Felsan Realty & Development Corporation v. Commonwealth of Australia, G.R. No. 169656,
[17] Sec. 16, Delivery; when effectual; when presumed. Every contract on a negotiable instrument is October 11, 2007, 535 SCRA 618, 632.
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As
between immediate parties, and as regards a remote party other than a holder in due course, the
 FIRST DIVISION
[G.R. No. 138569. September 11, 2003]
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and L.C. DIAZ
and COMPANY, CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision[1] of the Court of Appeals dated 27 October
1998 and its Resolution dated 11 May 1999. The assailed decision reversed the Decision[2] of the
Regional Trial Court of Manila, Branch 8, absolving petitioner Consolidated Bank and Trust
Corporation, now known as Solidbank Corporation (Solidbank), of any liability. The questioned
resolution of the appellate court denied the motion for reconsideration of Solidbank but modified the
decision by deleting the award of exemplary damages, attorneys fees, expenses of litigation and cost
of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under Philippine
laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional partnership
engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as
Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a
savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed
the messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the money with Solidbank. Macaraya
also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the
passbook. The teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies
of the two deposit slips. Teller No. 6 stamped the deposit slips with the words DUPLICATE and SAVING
TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre had to make another
deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied
Bank.When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that
somebody got the passbook.[3] Calapre went back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check
of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to Teller No. 6 the
deposit slip and check. The teller stamped the words DUPLICATE and SAVING TELLER 6 SOLIDBANK
HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller
No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave
the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered
that someone shorter than Calapre got the passbook. Calapre was then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check
for P90,000 drawn on Philippine Banking Corporation (PBC). This PBC check of L.C. Diaz was a check
that it had long closed.[4] PBC subsequently dishonored the check because of insufficient funds and
because the signature in the check differed from PBCs specimen signature. Failing to get back the
passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of
L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz
(Diaz), called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open
a new account.[5] On the same day, Diaz formally wrote Solidbank to make the same request. It was
also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August
1991, of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures
of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however,
denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan
(Ilagan) and one Roscon Verdazola with Estafa through Falsification of Commercial Document. The
Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor filed a Motion to
Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its
money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money against
Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28
December 1994 a decision absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals
issued its Decision reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for
reconsideration of Solidbank. The appellate court, however, modified its decision by deleting the
award of exemplary damages and attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings account written on the
passbook. The rules state that possession of this book shall raise the presumption of ownership and
any payment or payments made by the bank upon the production of the said book and entry therein
of the withdrawal shall have the same effect as if made to the depositor personally.[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the
passbook, he also presented a withdrawal slip with the signatures of the authorized signatories of L.C.
Diaz. The specimen signatures of these persons were in the signature cards. The teller stamped the
withdrawal slip with the words Saving Teller No. 5. The teller then passed on the withdrawal slip to
Genere Manuel (Manuel) for authentication. Manuel verified the signatures on the withdrawal slip.
The withdrawal slip was then given to another officer who compared the signatures on the withdrawal
slip with the specimen on the signature cards. The trial court concluded that Solidbank acted with care
and observed the rules on savings account when it allowed the withdrawal of P300,000 from the
savings account of L.C. Diaz.
 The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the
signatures on the withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in
evidence the National Bureau of Investigation (NBI) report on the authenticity of the signatures on the
withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence because
it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must keep the
passbook under lock and key.[10] When another person presents the passbook for withdrawal prior to
Solidbanks receipt of the notice of loss of the passbook, that person is considered as the owner of the
passbook. The trial court ruled that the passbook presented during the questioned transaction was
now out of the lock and key and presumptively ready for a business transaction.[11]
Solidbank did not have any participation in the custody and care of the passbook. The trial court
believed that Solidbanks act of allowing the withdrawal of P300,000 was not the direct and proximate
cause of the loss. The trial court held that L.C. Diazs negligence caused the unauthorized
withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession of the passbook by a person
other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an
unauthorized person; and (3) the possession by an unauthorized person of a PBC check long closed by
L.C. Diaz, which check was deposited on the day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary
procedures observed by the two parties whenever L.C. Diaz withdrew significant amounts from its
account. L.C. Diaz claimed that a letter must accompany withdrawals of more than P20,000. The letter
must request Solidbank to allow the withdrawal and convert the amount to a managers check. The
bearer must also have a letter authorizing him to withdraw the same amount. Another person driving
a car must accompany the bearer so that he would not walk from Solidbank to the office in making
the withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its past
withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of authorization
or any communication with Solidbank that the money be converted into a managers check.
The trial court further justified the dismissal of the complaint by holding that the case was a
last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.
The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the
amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees.
With costs against plaintiff.
SO ORDERED.[12]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the
unauthorized withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court
reached this conclusion after applying the provision of the Civil Code on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the provisions of
this chapter.
The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a)
damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for
whose acts he must respond; and (c) the connection of cause and effect between the fault or
negligence of the defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip
for P300,000 allowed the withdrawal without making the necessary inquiry.The appellate court stated
that the teller, who was not presented by Solidbank during trial, should have called up the depositor
because the money to be withdrawn was a significant amount. Had the teller called up L.C. Diaz,
Solidbank would have known that the withdrawal was unauthorized. The teller did not even verify the
identity of the impostor who made the withdrawal. Thus, the appellate court found Solidbank liable
for its negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its
messenger and its messenger in leaving the passbook with the teller,Solidbank could not escape
liability because of the doctrine of last clear chance. Solidbank could have averted the injury suffered
by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more than
that of a good father of a family. The business and functions of banks are affected with public interest.
Banks are obligated to treat the accounts of their depositors with meticulous care, always having in
mind the fiduciary nature of their relationship with their clients. The Court of Appeals found Solidbank
remiss in its duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one
entered.
1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay
plaintiff-appellant the sum of Three Hundred Thousand Pesos (P300,000.00),
with interest thereon at the rate of 12% per annum from the date of filing of
the complaint until paid, the sum of P20,000.00 as exemplary damages,
and P20,000.00 as attorneys fees and expenses of litigation as well as the cost
of suit; and
 2. Ordering the dismissal of defendant-appellees counterclaim in the amount
of P30,000.00 as attorneys fees.
SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but
modified the award of damages. The appellate court deleted the award of exemplary damages and
attorneys fees. Invoking Article 2231[14] of the Civil Code, the appellate court ruled that exemplary
damages could be granted if the defendant acted with gross negligence. Since Solidbank was guilty of
simple negligence only, the award of exemplary damages was not justified. Consequently, the award
of attorneys fees was also disallowed pursuant to Article 2208 of the Civil Code. The expenses of
litigation and cost of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with
modification by deleting the award of exemplary damages and attorneys fees, expenses of litigation
and cost of suit.
SO ORDERED.[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of Appeals on these
grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD
SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE
RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL
OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO ILAGAN, SINCE
THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE
SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH MANDATES
THAT A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR BEFORE
ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE
AND IN HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST
OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED
THAT THE TWO SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP
ARE GENUINE AND PRIVATE RESPONDENTS PASSBOOK WAS DULY
PRESENTED, AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE
SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO ILAGAN, AND IN
THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL DOCUMENTS.
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST
DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER
FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE
EMERANO ILAGAN.
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED
AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE,
NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS NEGLIGENCE WAS
ONLY CONTRIBUTORY.[16]
The Ruling of the Court
The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application of the law. The
trial court pinned the liability on L.C. Diaz based on the provisions of the rules on savings account, a
recognition of the contractual relationship between Solidbank and L.C. Diaz, the latter being a
depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to
determine who between the two parties was ultimately negligent. The law on quasi-delict or culpa
aquiliana is generally applicable when there is no pre-existing contractual relationship between the
parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil Code
on simple loan.[17] Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of
money in banks and similar institutions shall be governed by the provisions concerning simple
loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is the
debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to
pay the depositor on demand. The savings deposit agreement between the bank and the depositor is
the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2
of Republic Act No. 8791 (RA 8791),[18] which took effect on 13 June 2000, declares that the State
recognizes the fiduciary nature of banking that requires high standards of integrity and
performance.[19] This new provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of
Appeals,[20] holding that 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.[21]
This fiduciary relationship means that the banks obligation to observe high standards of
integrity and performance is deemed written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than
that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence
required of an obligor is that prescribed by law or contract, and absent such stipulation then the
diligence of a good father of a family.[22] Section 2 of RA 8791 prescribes the statutory diligence
required from banks that banks must observe high standards of integrity and performance in servicing
their depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal
of the P300,000 from L.C. Diazs savings account, jurisprudence[23] at the time of the withdrawal
already imposed on banks the same high standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract
between the bank and its depositors from a simple loan to a trust agreement, whether express or
implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of
trust.[24] The law simply imposes on the bank a higher standard of integrity and performance in
complying with its obligations under the contract of simple loan, beyond those required of non-bank
debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because
banks do not accept deposits to enrich depositors but to earn money for themselves. The law allows
banks to offer the lowest possible interest rate to depositors while charging the highest possible
interest rate on their own borrowers. The interest spread or differential belongs to the bank and not
to the depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks,
then the interest spread or income belongs to the depositors, a situation that Congress certainly did
not intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence in the
performance of every kind of obligation is demandable. For breach of the savings deposit agreement
due to negligence, or culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and he had to go
to Allied Bank for another transaction. The passbook was still in the hands of the employees of
Solidbank for the processing of the deposit when Calapre left Solidbank. Solidbanks rules on savings
account require that the deposit book should be carefully guarded by the depositor and kept under
lock and key, if possible. When the passbook is in the possession of Solidbanks tellers during
withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in
safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return
the passbook only to the depositor or his authorized representative. The tellers know, or should know,
that the rules on savings account provide that any person in possession of the passbook is
presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing
that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that
person. For failing to return the passbook to Calapre, the authorized representative of L.C. Diaz,
Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in
safeguarding the passbook, and in insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that
the defendant was at fault or negligent. The burden is on the defendant to prove that he was not at
fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the
defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached its
contractual obligation to return the passbook only to the authorized representative of L.C. Diaz. There
is thus a presumption that Solidbank was at fault and its teller was negligent in not returning the
passbook to Calapre. The burden was on Solidbank to prove that there was no negligence on its part
or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No.
6, the teller with whom Calapre left the passbook and who was supposed to return the passbook to
him. The record does not indicate that Teller No. 6 verified the identity of the person who retrieved
the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the
identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6
implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle of respondeat
superior or command responsibility. The defense of exercising the required diligence in the selection
and supervision of employees is not a complete defense in culpa contractual, unlike in culpa
aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it must also
insure that its employees do likewise because this is the only way to insure that the bank will comply
with its fiduciary duty. Solidbank failed to present the teller who had the duty to return to Calapre the
passbook, and thus failed to prove that this teller exercised the high standards of integrity and
performance required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the proximate cause
of the unauthorized withdrawal. The trial court believed that L.C. Diazs negligence in not securing its
passbook under lock and key was the proximate cause that allowed the impostor to withdraw
the P300,000. For the appellate court, the proximate cause was the tellers negligence in processing
the withdrawal without first verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury and without which the result would not have
occurred.[26] Proximate cause is determined by the facts of each case upon mixed considerations of
logic, common sense, policy and precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was
in possession of the passbook while it was processing the deposit. After completion of the transaction,
Solidbank had the contractual obligation to return the passbook only to Calapre, the authorized
representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the
passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the withdrawal of
the P300,000 by the impostor who took possession of the passbook. Under Solidbanks rules on savings
account, mere possession of the passbook raises the presumption of ownership. It was the negligent
act of Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the
passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened.
Thus, the proximate cause of the unauthorized withdrawal was Solidbanks negligence in not returning
the passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of the
unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the withdrawal. Solidbank
did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is no arrangement between
Solidbank and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining
to measures that the parties must observe whenever withdrawals of large amounts are made does
not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their representatives
withdraw significant amounts from their accounts. L.C. Diaz therefore had the burden to prove that it
is the usual practice of Solidbank to call up its clients to verify a withdrawal of a large amount of
money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to verify the
withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000
PBC check, which later bounced. The impostor apparently deposited a large amount of money to
deflect suspicion from the withdrawal of a much bigger amount of money. The appellate court thus
erred when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no
law requires this from banks and when the teller had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that
since Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more
need for the teller to verify the withdrawal. Solidbank relies on the following statements in the Booking
and Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the
amount of P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully
withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel Tamayo) his share of the
loot. Ilagan then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home
province at Bauan, Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his
loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly admitted his
guilt.[28] (Emphasis supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew
the P300,000 was a certain Noel Tamayo. Both the trial and appellate courts stated that this Noel
Tamayo presented the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew
the P300,000. The Court is not a trier of facts. We find no justifiable reason to reverse the factual
finding of the trial court and the Court of Appeals. The tellers who processed the deposit of
the P90,000 check and the withdrawal of the P300,000 were not presented during trial to substantiate
Solidbanks claim that Ilagan deposited the check and made the questioned withdrawal. Moreover, the
entry quoted by Solidbank does not categorically state that Ilagan presented the withdrawal slip and
the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but the negligent
act of one is appreciably later than that of the other, or where it is impossible to determine whose
fault or negligence caused the loss, the one who had the last clear opportunity to avoid the loss but
failed to do so, is chargeable with the loss.[29] Stated differently, the antecedent negligence of the
plaintiff does not preclude him from recovering damages caused by the supervening negligence of the
defendant, who had the last fair chance to prevent the impending harm by the exercise of due
diligence.[30]
We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for
breach of contract due to negligence in the performance of its contractual obligation to L.C. Diaz. This
is a case of culpa contractual, where neither the contributory negligence of the plaintiff nor his last
clear chance to avoid the loss, would exonerate the defendant from liability.[31] Such contributory
negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by
the plaintiff but does not exculpate the defendant from his breach of contract.[32]
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according
to the circumstances. This means that if the defendant exercised the proper diligence in the selection
and supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the courts
may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in
allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an
impostor. Thus, the liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor guilty
of contributory negligence, we allocated the damages between the depositor and the bank on a 40-
60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual
damages awarded by the appellate court. Solidbank must pay the other 60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner
Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPAs only 60% of the
actual damages awarded by the Court of Appeals. The remaining 40% of the actual damages shall be
borne by private respondent L.C. Diaz and Company, CPAs. Proportionate costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur.
Azcuna, J., on official leave.
[1] Penned by Associate Justice Eugenio S. Labitoria with Associate Justices Jesus M. Elbinias, Marina L.
Buzon, Godardo A. Jacinto and Candido V. Rivera, concurring, Fourth Division (Special
Division of Five Justices).
[2] Penned by Judge Felixberto T. Olalia, Jr.
[3]
Rollo, p. 119.
[4] Ibid., p. 229. The account must have been long dormant.
[5] Records, p. 9.
[6] Ibid., p. 34.
[7]
Docketed as Civil Case No. 92-62384.
[8] Docketed as CA-G.R. CV No. 49243.
[9] Rollo, p. 231.
[10] Ibid., p. 233.
[11] Ibid., p. 60.
[12] Ibid., p. 66.
[13]
Rollo, pp. 49-50.
[14] Art. 2231. In quasi-delicts, exemplary damages may be granted if the defendant acted with gross

negligence.
[15]
Rollo, p. 43.
[16] Ibid., pp. 33-34.
[17]
Article 1953 of the Civil Code provides: A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay the creditor an equal amount of
the same kind and quality.
[18] The General Banking Law of 2000.
[19]
In the United States, the prevailing rule, as enunciated by the U.S. Supreme Court in Bank of Marin
v. England, 385 U.S. 99 (1966), is that the bank-depositor relationship is governed by
contract, and the bankruptcy of the depositor does not alter the relationship unless the
bank receives notice of the bankruptcy. However, the Supreme Court of some states, like
Arizona, have held that banks have more than a contractual duty to depositors, and that a
special relationship may create a fiduciary obligation on banks outside of their contract
with depositors. See Stewart v. Phoenix National Bank, 49 Ariz. 34, 64 P. 2d 101 (1937);
Klein v. First Edina National Bank, 293 Minn. 418, 196 N.W. 2d 619 (1972).
[20] G.R. No. 88013, 19 March 1990, 183 SCRA 360.
[21]
The ruling in Simex International was followed in the following cases: Bank of the Philippine Islands
v. Intermediate Appellate Court, G.R. No. 69162, 21 February 1992, 206 SCRA 408; Citytrust
Banking Corporation v. Intermediate Appellate Court, G.R. No. 84281, 27 May 1994, 232
SCRA 559; Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA 310;
Metropolitan Bank & Trust Co. v. Court of Appeals, G.R. No. 112576, 26 October 1994, 237
SCRA 761; Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667 (1997); Firestone
v. Court of Appeals, G.R. No. 113236, 5 March 2001, 353 SCRA 601.
[22]
The second paragraph of Article 1172 of the Civil Code provides: If the law or contract does not
state the diligence which is to be observed in the performance, that which is expected of
a good father of a family shall be required.
[23] See notes 20 and 21.
[24] Serrano v. Central Bank, G.R. L-30511, 14 February 1980, 96 SCRA 96.
[25] Cangco v. Manila Railroad Co., 38 Phil. 769 (1918); De Guia v. Meralco, 40 Phil. 706 (1920).
[26] Philippine Bank of Commerce v. Court of Appeals, supra note 21, citing Vda. de Bataclan v. Medina,

102 Phil. 181 (1957).

[27] Ibid.
[28] Rollo, p. 35.
[29] Philippine Bank of Commerce v. Court of Appeals, supra note 21.
[30]
Ibid.
[31] See note 23.
[32] Del Prado v. Manila Electric Co., 52 Phil. 900 (1928-1929).
[33]
See note 21.
 FIRST DIVISION
[G.R. No. 97626. March 14, 1997]
PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE COMMERCIAL INTERNATIONAL BANK,
ROGELIO LACSON, DIGNA DE LEON, MARIA ANGELITA PASCUAL, et al., petitioners, vs. THE
COURT OF APPEALS, ROMMEL'S MARKETING CORP., represented by ROMEO LIPANA, its
President & General Manager, respondents.
DECISION
HERMOSISIMA, JR., J.:
Challenged in this petition for review is the Decision dated February 28, 1991[1] rendered by
public respondent Court of Appeals which affirmed the Decision dated November 15, 1985 of the
Regional Trial Court, National Capital Judicial Region, Branch CLX (160), Pasig City, in Civil Case No.
27288 entitled Rommel's Marketing Corporation, etc. v. Philippine Bank of Commerce, now absorbed
by Philippine Commercial and Industrial Bank.
The case stemmed from a complaint filed by the private respondent Rommel's Marketing
Corporation (RMC for brevity), represented by its President and General Manager Romeo Lipana, to
recover from the former Philippine Bank of Commerce (PBC for brevity), now absorbed by the
Philippine Commercial International Bank, the sum of P304,979.74 representing various deposits it
had made in its current account with said bank but which were not credited to its account, and were
instead deposited to the account of one Bienvenido Cotas, allegedly due to the gross and inexcusable
negligence of the petitioner bank.
RMC maintained two (2) separate current accounts, Current Account Nos. 53-01980-3 and 53-
01748-7, with the Pasig Branch of PBC in connection with its business of selling appliances.
In the ordinary and usual course of banking operations, current account deposits are accepted
by the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's agent or
representative, who indicates therein the current account number to which the deposit is to be
credited, the name of the depositor or current account holder, the date of the deposit, and the
amount of the deposit either in cash or checks. The deposit slip has an upper portion or stub, which is
detached and given to the depositor or his agent; the lower portion is retained by the bank. In some
instances, however, the deposit slips are prepared in duplicate by the depositor. The original of the
deposit slip is retained by the bank, while the duplicate copy is returned or given to the depositor.
From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have entrusted RMC
funds in the form of cash totalling P304,979.74 to his secretary, Irene Yabut, for the purpose of
depositing said funds in the current accounts of RMC with PBC. It turned out, however, that these
deposits, on all occasions, were not credited to RMC's account but were instead deposited to Account
No. 53-01734-7 of Yabut's husband, Bienvenido Cotas who likewise maintains an account with the
same bank. During this period, petitioner bank had, however, been regularly furnishing private
respondent with monthly statements showing its current accounts balances. Unfortunately, it had
never been the practice of Romeo Lipana to check these monthly statements of account reposing
complete trust and confidence on petitioner bank.
Irene Yabut's modus operandi is far from complicated. She would accomplish two (2) copies of
the deposit slip, an original and a duplicate. The original showed the name of her husband as depositor
and his current account number. On the duplicate copy was written the account number of her
husband but the name of the account holder was left blank. PBC's teller, Azucena Mabayad, would,
however, validate and stamp both the original and the duplicate of these deposit slips retaining only
the original copy despite the lack of information on the duplicate slip. The second copy was kept by
Irene Yabut allegedly for record purposes. After validation, Yabut would then fill up the name of RMC
in the space left blank in the duplicate copy and change the account number written thereon, which
is that of her husband's, and make it appear to be RMC's account number, i.e., C.A. No. 53-01980-3.
With the daily remittance records also prepared by Ms. Yabut and submitted to private respondent
RMC together with the validated duplicate slips with the latter's name and account number, she made
her company believe that all the while the amounts she deposited were being credited to its account
when, in truth and in fact, they were being deposited by her and credited by the petitioner bank in
the account of Cotas. This went on in a span of more than one (1) year without private respondent's
knowledge.
Upon discovery of the loss of its funds, RMC demanded from petitioner bank the return of its
money, but as its demand went unheeded, it filed a collection suit before the Regional Trial Court of
Pasig, Branch 160. The trial court found petitioner bank negligent and ruled as follows:
"WHEREFORE, judgment is hereby rendered sentencing defendant Philippine Bank of Commerce,
now absorbed by defendant Philippine Commercial & Industrial Bank, and defendant Azucena
Mabayad to pay the plaintiff, jointly and severally, and without prejudice to any criminal action
which may be instituted if found warranted:
1. The sum of P304,979.72, representing plaintiff's lost deposit, plus interest thereon at
the legal rate from the filing of the complaint;
2. A sum equivalent to 14% thereof, as exemplary damages;
3. A sum equivalent to 25% of the total amount due, as and for attorney's fees; and
4. Costs.
Defendants' counterclaim is hereby dismissed for lack of merit."[2]
On appeal, the appellate court affirmed the foregoing decision with modifications, viz:
"WHEREFORE, the decision appealed from herein is MODIFIED in the sense that the awards of
exemplary damages and attorney's fees specified therein are eliminated and instead, appellants are
ordered to pay plaintiff, in addition to the principal sum of P304,979.74 representing plaintiff's lost
deposit plus legal interest thereon from the filing of the complaint, P25,000.00 attorney's fees and
costs in the lower court as well as in this Court."[3]
 Hence, this petition anchored on the following grounds:
1) The proximate cause of the loss is the negligence of respondent Rommel Marketing
Corporation and Romeo Lipana in entrusting cash to a dishonest employee.
2) The failure of respondent Rommel Marketing Corporation to cross-check the bank's
statements of account with its own records during the entire period of more than
one (1) year is the proximate cause of the commission of subsequent frauds and
misappropriation committed by Ms. Irene Yabut.
3) The duplicate copies of the deposit slips presented by respondent Rommel Marketing
Corporation are falsified and are not proof that the amounts appearing thereon
were deposited to respondent Rommel Marketing Corporation's account with the
bank.
4) The duplicate copies of the deposit slips were used by Ms. Irene Yabut to cover up her
fraudulent acts against respondent Rommel Marketing Corporation, and not as
records of deposits she made with the bank.[4]
The petition has no merit.
Simply put, the main issue posited before us is: What is the proximate cause of the loss, to the
tune of P304,979.74, suffered by the private respondent RMC -- petitioner bank's negligence or that
of private respondent's?
Petitioners submit that the proximate cause of the loss is the negligence of respondent RMC
and Romeo Lipana in entrusting cash to a dishonest employee in the person of Ms. Irene
Yabut.[5] According to them, it was impossible for the bank to know that the money deposited by Ms.
Irene Yabut belong to RMC; neither was the bank forewarned by RMC that Yabut will be depositing
cash to its account. Thus, it was impossible for the bank to know the fraudulent design of Yabut
considering that her husband, Bienvenido Cotas, also maintained an account with the bank For the
bank to inquire into the ownership of the cash deposited by Ms. Irene Yabut would be irregular.
Otherwise stated, it was RMC's negligence in entrusting cash to a dishonest employee which provided
Ms. Irene Yabut the opportunity to defraud RMC.[6]
Private respondent, on the other hand, maintains that the proximate cause of the loss was the
negligent act of the bank, thru its teller Ms. Azucena Mabayad, in validating the deposit slips, both
original and duplicate, presented by Ms. Yabut to Ms. Mabayad, notwithstanding the fact that one of
the deposit slips was not completely accomplished.
We sustain the private respondent.
Our law on quasi-delicts states:
"Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done. Such fault or negligence if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter."
There are three elements of a quasi-delict: (a) damages suffered by the plaintiff; (b) fault or
negligence of the defendant, or some other person for whose acts he must respond; and (c) the
connection of cause and effect between the fault or negligence of the defendant and the damages
incurred by the plaintiff.[7]
In the case at bench, there is no dispute as to the damage suffered by the private respondent
(plaintiff in the trial court) RMC in the amount of P304, 979.74. It is in ascribing fault or negligence
which caused the damage where the parties point to each other as the culprit.
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do. The seventy-eight (78)-year-old, yet still
relevant, case of Picart v. Smith,[8] provides the test by which to determine the existence of negligence
in a particular case which may be stated as follows: Did the defendant in doing the alleged negligent
act use that reasonable care and caution which an ordinarily prudent person would have used in the
same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard
supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the Roman law. The
existence of negligence in a given case is not determined by reference to the personal judgment of
the actor in the situation before him. The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and determines liability by that.
Applying the above test, it appears that the bank's teller, Ms. Azucena Mabayad, was negligent
in validating, officially stamping and signing all the deposit slips prepared and presented by Ms. Yabut,
despite the glaring fact that the duplicate copy was not completely accomplished contrary to the self-
imposed procedure of the bank with respect to the proper validation of deposit slips, original or
duplicate, as testified to by Ms. Mabayad herself, thus:
"Q: Now, as teller of PCIB, Pasig Branch, will you please tell us Mrs. Mabayad your
important duties and functions?
A: I accept current and savings deposits from depositors and encashments.
Q: Now in the handling of current account deposits of bank clients, could you tell us the
procedure you follow?
A: The client or depositor or the authorized representative prepares a deposit slip by
filling up the deposit slip with the name, the account number, the date, the
cash breakdown, if it is deposited for cash, and the check number, the amount
and then he signs the deposit slip.
Q: Now, how many deposit slips do you normally require in accomplishing current
account deposit, Mrs. Mabayad?
A: The bank requires only one copy of the deposit although some of our clients prepare
the deposit slip in duplicate.
Q: Now in accomplishing current account deposits from your clients, what do you issue
to the depositor to evidence the deposit made?
A: We issue or we give to the clients the depositor's stub as a receipt of the deposit.
 Q: And who prepares the deposit slip?
A: The depositor or the authorized representative sir.
Q: Where does the depositor's stub comes (sic) from Mrs. Mabayad, is it with the deposit
slip?
A: The depositor's stub is connected with the deposit slip or the bank's copy. In a deposit
slip, the upper portion is the depositor's stub and the lower portion is the bank's
copy, and you can detach the bank's copy from the depositor's stub by tearing it
sir.
Q: Now what do you do upon presentment of the deposit slip by the depositor or the
depositor's authorized representative?
[9]
A: We see to it that the deposit slip is properly accomplished and then we count the
money and then we tally it with the deposit slip sir.
Q: Now is the depositor's stub which you issued to your clients validated?
A: Yes, sir. "[10] [Emphasis ours.]
Clearly, Ms. Mabayad failed to observe this very important procedure. The fact that the duplicate slip
was not compulsorily required by the bank in accepting deposits should not relieve the petitioner bank
of responsibility. The odd circumstance alone that such duplicate copy lacked one vital information --
that of the name of the account holder -- should have already put Ms. Mabayad on guard. Rather than
readily validating the incomplete duplicate copy, she should have proceeded more cautiously by being
more probing as to the true reason why the name of the account holder in the duplicate slip was left
blank while that in the original was filled up. She should not have been so naive in accepting hook, line
and sinker the too shallow excuse of Ms. Irene Yabut to the effect that since the duplicate copy was
only for her personal record, she would simply fill up the blank space later on.[11] A "reasonable man
of ordinary prudence"[12] would not have given credence to such explanation and would have insisted
that the space left blank be filled up as a condition for validation. Unfortunately, this was not how
bank teller Mabayad proceeded thus resulting in huge losses to the private respondent.
Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank itself
in its lackadaisical selection and supervision of Ms. Mabayad. This was exemplified in the testimony of
Mr. Romeo Bonifacio, then Manager of the Pasig Branch of the petitioner bank and now its Vice-
President, to the effect that, while he ordered the investigation of the incident, he never came to
know that blank deposit slips were validated in total disregard of the bank's validation procedures, viz:
"Q: Did he ever tell you that one of your cashiers affixed the stamp mark of the bank on
the deposit slips and they validated the same with the machine, the fact that
those deposit slips were unfilled up, is there any report similar to that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit slip?
A: No it was not reported.
Q: You did not know that any one in the bank tellers or cashiers validated the blank
deposit slip?
A: I am not aware of that.
Q: It is only now that you are aware of that?
A: Yes, sir."[13]
Prescinding from the above, public respondent Court of Appeals aptly observed:
xxx xxx xxx
It was in fact only when he testified in this case in February, 1983, or after the lapse of more than
seven (7) years counted from the period when the funds in question were deposited in plaintiffs
accounts (May, 1975 to July, 1976) that bank manager Bonifacio admittedly became aware of the
practice of his teller Mabayad of validating blank deposit slips. Undoubtedly, this is gross, wanton,
and inexcusable negligence in the appellant bank's supervision of its employees."[14]
It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the petitioner
bank in the selection and supervision of its bank teller, which was the proximate cause of the loss
suffered by the private respondent, and not the latter's act of entrusting cash to a dishonest employee,
as insisted by the petitioners.
Proximate cause is determined on the facts of each case upon mixed considerations of logic,
common sense, policy and precedent.[15] Vda. de Bataclan v. Medina,[16]reiterated in the case of Bank
of the Phil. Islands v. Court of Appeals,[17] defines proximate cause as "that cause, which, in natural
and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and
without which the result would not have occurred. x x x." In this case, absent the act of Ms. Mabayad
in negligently validating the incomplete duplicate copy of the deposit slip, Ms. Irene Yabut would not
have the facility with which to perpetrate her fraudulent scheme with impunity. Apropos, once again,
is the pronouncement made by the respondent appellate court, to wit:
" x x x. Even if Yabut had the fraudulent intention to misappropriate the funds entrusted to her by
plaintiff, she would not have been able to deposit those funds in her husband's current account, and
then make plaintiff believe that it was in the latter's accounts wherein she had deposited them, had
it not been for bank teller Mabayad's aforesaid gross and reckless negligence. The latter's negligence
was thus the proximate, immediate and efficient cause that brought about the loss claimed by
plaintiff in this case, and the failure of plaintiff to discover the same soon enough by failing to
scrutinize the monthly statements of account being sent to it by appellant bank could not have
prevented the fraud and misappropriation which Irene Yabut had already completed when she
deposited plaintiff's money to the account of her husband instead of to the latter's accounts."[18]
Furthermore, under the doctrine of "last clear chance" (also referred to, at times as
"supervening negligence" or as "discovered peril"), petitioner bank was indeed the culpable party. This
doctrine, in essence, states that where both parties are negligent, but the negligent act of one is
appreciably later in time than that of the other, or when it is impossible to determine whose fault or
negligence should be attributed to the incident, the one who had the last clear opportunity to avoid
the impending harm and failed to do so is chargeable with the consequences thereof.[19] Stated
differently, the rule would also mean that an antecedent negligence of a person does not preclude
the recovery of damages for the supervening negligence of, or bar a defense against liability sought
by another, if the latter, who had the last fair chance, could have avoided the impending harm by the
exercise of due diligence.[20] Here, assuming that private respondent RMC was negligent in entrusting
cash to a dishonest employee, thus providing the latter with the opportunity to defraud the company,
as advanced by the petitioner, yet it cannot be denied that the petitioner bank, thru its teller, had the
last clear opportunity to avert the injury incurred by its client, simply by faithfully observing their self-
imposed validation procedure.
At this juncture, it is worth to discuss the degree of diligence ought to be exercised by banks in
dealing with their clients.
The New Civil Code provides:
"ART. 1173. 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. When negligence shows bad faith, the provisions of articles 1171 and
2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required. (1104a)"
In the case of banks, however, the degree of diligence required is more than that of a good
father of a family. Considering the fiduciary nature of their relationship with their depositors, banks
are duty bound to treat the accounts of their clients with the highest degree of care.[21]
As elucidated in Simex International (Manila), Inc. v. Court of Appeals,[22] 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 as he sees fit, confident that the
bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the
failure to duly credit him his deposits as soon as they are made, can cause the depositor not a little
embarrassment if not financial loss and perhaps even civil and criminal litigation.
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. In the case before us, it is apparent
that the petitioner bank was remiss in that duty and violated that relationship.
Petitioners nevertheless aver that the failure of respondent RMC to cross-check the bank's
statements of account with its own records during the entire period of more than one (1) year is the
proximate cause of the commission of subsequent frauds and misappropriation committed by Ms.
Irene Yabut.
We do not agree.
While it is true that had private respondent checked the monthly statements of account sent
by the petitioner bank to RMC, the latter would have discovered the loss early on, such cannot be
used by the petitioners to escape liability. This omission on the part of the private respondent does
not change the fact that were it not for the wanton and reckless negligence of the petitioners'
employee in validating the incomplete duplicate deposit slips presented by Ms. Irene Yabut, the loss
would not have occurred. Considering, however, that the fraud was committed in a span of more than
one (1) year covering various deposits, common human experience dictates that the same would not
have been possible without any form of collusion between Ms. Yabut and bank teller Mabayad. Ms.
Mabayad was negligent in the performance of her duties as bank teller nonetheless. Thus, the
petitioners are entitled to claim reimbursement from her for whatever they shall be ordered to pay in
this case.
The foregoing notwithstanding, it cannot be denied that, indeed, private respondent was
likewise negligent in not checking its monthly statements of account. Had it done so, the company
would have been alerted to the series of frauds being committed against RMC by its secretary. The
damage would definitely not have ballooned to such an amount if only RMC, particularly Romeo
Lipana, had exercised even a little vigilance in their financial affairs. This omission by RMC amounts to
contributory negligence which shall mitigate the damages that may be awarded to the private
respondent[23] under Article 2179 of the New Civil Code, to wit:
"x x x. When the plaintiff's own negligence was the immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was only contributory, the immediate and proximate
cause of the injury being the defendant's lack of due care, the plaintiff may recover damages, but the
courts shall mitigate the damages to be awarded."
In view of this, we believe that the demands of substantial justice are satisfied by allocating the
damage on a 60-40 ratio. Thus, 40% of the damage awarded by the respondent appellate court, except
the award of P25,000.00 attorney's fees, shall be borne by private respondent RMC; only the balance
of 60% needs to be paid by the petitioners. The award of attorney's fees shall be borne exclusively by
the petitioners.
WHEREFORE, the decision of the respondent Court of Appeals is modified by reducing the
amount of actual damages private respondent is entitled to by 40%. Petitioners may recover from Ms.
Azucena Mabayad the amount they would pay the private respondent. Private respondent shall have
recourse against Ms. Irene Yabut. In all other respects, the appellate court's decision is AFFIRMED.
Proportionate costs.
SO ORDERED.
Bellosillo, Vitug, and Kapunan, JJ., concur.
Padilla, J., (Chairman), dissents.
[1] Rollo, pp. 37-46.
[2] Rollo, pp. 40-41.
[3] Decision, pp.9-10; Rollo, pp. 45-46.
[4] Petition, pp. 13-14; Rollo, pp. 20-21.
[5] Petition, p. 14; Rollo, p. 21.
[6]
Reply, p. 13; Rollo, p. 82.
[7] Andamo vs. Intermediate Appellate Court, 191 SCRA 195, 201 [1990], citing Taylor vs. Manila

Electric Company, 16 Phil. 8 [1910]; Vergara vs. Court of Appeals, 154 SCRA 564 [1987].
[8]
37 Phil. 809, 813 [1918], reiterated in Bank of the Phil. Islands vs. Court of Appeals, 216 SCRA 51,72-
73 [1992]; Layugan vs. Intermediate Appellate Court, 167 SCRA 363, 373 [1988]; Gan vs.
Court of Appeals, 165 SCRA. 378, 382 [1988]; see also Leano v. Domingo, 198 SCRA 800,
804 [1991].
[9]
Original or duplicate.
[10] Rollo, pp. 104-105, citing TSN, 14 August 1981, pp. 6-12.
[11]
Rollo, p. 56, citing TSN; 14 August 1981, pp. 42-47.
[12] Sangco, Torts and Damages, Vol. I, 1993 ed., p 8, citing Prosser, Law on Torts. 3rd Edition, 1964,

pp. 153-154.
[13] Rollo, p. 43, citing TSN, 9 February 1983, pp. 10-12.
[14] Decision, p.8; Rollo, p. 44.
[15] Supra., note 12 at 90.
[16]
102 Phil. 181, 186 [1957].
[17]
216 SCRA 51, 75 [1992].
[18] Decision, pp. 6-7; Rollo, pp. 42-43.
[19]
LBC Air Cargo, Inc. vs. Court of Appeals, 241 SCRA 619, 624 [1995], citing Picart vs. Smith, supra
[20] Ibid., citing Pantranco North Express. Inc. vs. Baesa, 179 SCRA 384; Glan People's Lumber and

Hardware vs. Intermediate Appellate Court, 173 SCRA 464

[21] Metropolitan Bank and Trust Company vs. Court of Appeals, 237 SCRA 761, 767 [1994]; Bank of the

Phil. Islands vs. Court of Appeals, supra., note 16 at 71.

[22] 183 SCRA 360, 367 [1990], cited in Bank of the Phil. Islands vs. Intermediate Appellate Court, 206

SCRA 408, 412-413 [1992]; City Trust Banking Corp. vs. Intermediate Appellate Court, 232
SCRA. 559, 564 [1994]; Metropolitan Bank and Trust Company v. CA, supra.
[23] Phoenix Construction, Inc. v. Intermediate Appellate Court, 148 SCRA 353, 368 [1987]; Del Prado v.

Manila Electric Co., 52 Phil. 900, 906 [1929]; Rakes v. Atlantic, Gulf and Pacific Co., 7 Phil.
359, 375 [1907].