1. WESTMONT BANK (FORMERLY ASSOCIATED BANKING CORP.

),
PETITIONER, VS. EUGENE ONG, RESPONDENT.
[ G.R. No. 132560, January 30, 2002 ]

Facts: Eugene Ong maintained a current account with Associated Banking

Corporation, now known as Westmont Bank. He sold certain shares of stocks
through Island Securities Corporation. To pay Ong, Island Securities purchased
two (2) Pacific Banking Corporation manager’s checks issued in the name of
Eugene Ong as payee. Before Ong could get hold of the checks, his friend,
Paciano Tanlimco, got hold of the checks and deposited it in his own account in
Westmont Bank by forging Ong’s signature. Even though Ong’s specimen
signature was on file, petitioner accepted and credited both checks to the
account of Tanlimco, without verifying the ‘signature indorsements’ appearing at
the back thereof. Tanlimco then immediately withdrew the money and
absconded. Instead of going straight to the bank to stop or question the payment,
Ong first sought the help of Tanlimco’s family to recover the amount. Later, he
reported the incident to the Central Bank, which like the first effort, unfortunately
proved futile.
As a result, Ong filed a complaint against Westmont to collect the value of the
checks on the ground of the negligence of the bank. The bank argued that Ong
never received the checks and thus, he did not acquired ownership of these
checks. The RTC ruled in favor of Ong. The CA affirmed in toto the decision of
the RTC.

Issues:
a. WON Ong has a cause of action against Westmont Bank
b. WON Ong is barred to recover money from Westmont Bank due to laces

Ruling:
a. YES. Pursuant to Section 23 of the NIL, since the signature of the payee
(Ong) was forged, such signature should be deemed as inoperative and
ineffectual.
As a general rule, a bank or corporation who has obtained possession of a
check upon an unauthorized or forged indorsement of the payee’s signature
and who collects the amount of the check from the drawee, is liable for the
proceeds thereof to the payee or other owner, notwithstanding that the
amount has been paid to the person from whom the check was obtained. The
position of the bank taking the check on the forged or unauthorized
indorsement is the same as if it had taken the check and collected the money
without indorsement at all and the act of the bank amounts to conversion of
the check.
 Furthermore, even if the absence of delivery is considered, such
consideration is not material. The rationale for this view is that in previous
cases the plaintiff uses one action to reach, by a desirable short cut, the
person who ought in any event to be ultimately liable as among the innocent
persons involved in the transaction. In other words, the payee ought to be
allowed to recover directly from the collecting bank, regardless of whether the
check was delivered to the payee or not.
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. However, Westmont Bank apparently failed to a
verification or, what is worse did so but, chose to disregard the obvious
dissimilarity of the signatures. The first omission makes it guilty of gross
negligence; the second of bad faith. In either case, defendant is liable to
plaintiff for the proceeds of the checks in question.
b. NO. It cannot be said that respondent sat on his rights. He immediately
acted after knowing of the forgery by proceeding to seek help from the
Tanlimco family and later the Central Bank, to remedy the situation and
recover his money from the forger, Paciano Tanlimco. Only after he had
exhausted possibilities of settling the matter amicably with the family of
Tanlimco and through the CB, about five months after the unlawful
transaction took place, did he resort to making the demand upon the
petitioner and eventually before the court for recovery of the money value
of the two checks. These acts cannot be construed as undue delay in or
abandonment of the assertion of his rights.
Analysis:

2. ASSOCIATED BANK and CONRADO CRUZ v. HON. COURT OF

APPEALS, and MERLE V. REYES, doing business under the name and style
"Melissa's RTW”
G.R. No. 89802 May 7, 1992
Facts: Merle Reyes is engaged in the business of ready-to-wear garments under
the firm name “Melissa’s RTW.” Some of her customers include Robinson's
Department Store, Payless Department Store, Rempson Department Store, and
the Corona Bazaar. These companies issued in payment of their respective
accounts 6 crossed checks payable to Melissa's RTW.
When she went to these companies to collect on what she thought were still
unpaid accounts, she was informed of the issuance of the 6 crossed checks.
Further inquiry revealed that the said checks had been deposited with the
Associated Bank and subsequently paid by it to one Rafael Sayson, one of its
"trusted depositors," in the words of its branch manager and co-petitioner,
Conrado Cruz, Sayson had not been authorized by the private respondent to
deposit and encash the said checks.
Thus, Reyes sued Associated Bank. The RTC ruled in favor of Reyes. The Bank
appealed the decision of the RTC on the ground that Reyes had no cause of
action. The CA affirmed the decision of the RTC.

Issue: WON Reyes has a cause of action against the bank

Ruling: YES. The effects of crossing a check are: (1) that the check may not be
encashed but only deposited in the bank; (2) that the check may be negotiated
only once –– to one who has an account with a bank; and (3) that the act of
crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose."
The effects therefore of crossing a check relate to the mode of its presentment
for payment. Under Sec. 72 of the Negotiable Instruments Law, presentment for
payment, to be sufficient, must be made by the holder or by some person
authorized to receive payment on his behalf. Who the holder or authorized
person is depends on the instruction stated on the face of the check.
The six checks in the case at bar had been crossed and issued "for payee's
account only." This could only signify that the drawers had intended the same for
deposit only by the person indicated, to wit, Melissa's RTW.
The subject checks were accepted for deposit by the Bank for the account of
Rafael Sayson although they were crossed checks and the payee was not
Sayson but Melissa's RTW. The Bank stamped thereon its guarantee that "all
prior endorsements and/or lack of endorsements (were) guaranteed." By such
deliberate and positive act, the Bank had for all legal intents and purposes
treated the said checks as negotiable instruments and, accordingly, assumed the
warranty of the endorser.
The bank was negligent when they permitted the encashment of the checks by
Sayson. The Bank should have first verified his right to endorse the crossed
checks, of which he was not the payee, and to deposit the proceeds of the
checks to his own account. The Bank was by reason of the nature of the checks
put upon notice that they were issued for deposit only to the private respondent's
account. Its failure to inquire into Sayson's authority was a breach of a duty it
owed to the private respondent. . The failure of the Bank to make this inquiry was
a breach of duty that made it liable to the private respondent for the amount of
the checks

Analysis:

3. BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. CASA

MONTESSORI INTERNATIONALE AND LEONARDO T. YABUT,
RESPONDENTS.
[ G.R. No. 149454 and G.R. No. 149507, May 28, 2004 ]
Facts: Casa Montessori opened a current account with the petitioner, BPI with
Ms. Lebron, Casa’s president as one of its authorized signatories. After
conducting an investigation, the Casa discovered Sonny D. Santos encashed 9
of its checks. It turned out that Sonny D. Santos was a fictitious name of
Leonardo T. Yabut who worked as an external editor of the Casa. He admitted
that he forged the signature of Ms. Lebron and encashed the checks. The PNP
Crime Laboratory conducted an examination of the nine (9) checks and
concluded that the handwritings thereon compared to the standard signature of
Ms. Lebron were not written by the latter. As a result, the Casa filed a complaint
for the collection of the amount of the checks with interest and damages against
BPI.
The RTC ruled in favor of the Casa. On one hand, the CA apportioned the loss
between BPI and CASA. The appellate court took into account CASA’s
contributory negligence that resulted in the undetected forgery. It then ordered
Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA,
the other half. It also disallowed attorney’s fees and moral and exemplary
damages.
Issues:
a. WON there is forgery
b. WON BPI is liable to the CASA
c. WON the Casa is entitled of moral damages, exemplary damages,
attorney’s fees, and interest
Ruling:
a. YES.
Forgery “cannot be presumed. It must be established by clear, positive and
convincing evidence. Under the best evidence rule as applied to documentary
evidence like the checks in question, no secondary or substitutionary
evidence may inceptively be introduced, as the original writing itself must be
produced in court. But when, without bad faith on the part of the offeror, the
original checks have already been destroyed or cannot be produced in court,
secondary evidence may be produced. Without bad faith on its part, CASA
proved the loss or destruction of the original checks through the Affidavit of
the one person who knew of that fact -- Yabut. He clearly admitted to
discarding the paid checks to cover up his misdeed. In such a situation,
secondary evidence like microfilm copies may be introduced in court.
The drawer’s signatures on the microfilm copies were compared with the
standard signature. PNP Document Examiner II Josefina de la Cruz testified
on cross-examination that two different persons had written them. The Court
affirmed the RTC’s reliance on the PNP Examiner’s report because RTC
explained that although the Report was inconclusive, no conclusive report
could have been given by the PNP, anyway, in the absence of the original
checks. This explanation is valid; otherwise, no such report can ever be relied
upon in court.
Furthermore, the testimony of Lebron is also admissible. She testified many
times that she had never signed those checks. Her testimonial evidence is
admissible; the checks have not been actually executed. The genuineness of
her handwriting is proved, not only through the court’s comparison of the
questioned handwritings and admittedly genuine specimens thereof, but
above all by her.
b. YES.
Having established the forgery of the drawer’s signature, BPI -- the drawee
--erred in making payments by virtue thereof. The forged signatures are
wholly inoperative, and CASA -- the drawer whose authorized signatures do
not appear on the negotiable instruments --cannot be held liable thereon.
Neither is the latter precluded from setting up forgery as a real defense.

BPI failed to detect the eight instances of forgery. Its negligence consisted in
the omission of that degree of diligence required of a bank. It cannot now
feign ignorance, for very early on we have already ruled that a bank is “bound
to know the signatures of its customers; and if it pays a forged check, it must
be considered as making the payment out of its own funds, and cannot
ordinarily charge the amount so paid to the account of the depositor whose
name was forged.

The monthly statements issued by BPI to its clients contain a notice worded
as follows: “If no error is reported in ten (10) days, account will be correct.”
Such notice cannot be considered a waiver, even if CASA failed to report the
error. Neither is it estopped from questioning the mistake after the lapse of
the ten-day period.

For allowing payment on the checks to a wrongful and fictitious payee, BPI --
the drawee bank --becomes liable to its depositor-drawer. Since the
encashing bank is one of its branches, [101] BPI can easily go after it and hold it
liable for reimbursement. It “may not debit the drawer’s account and is not
entitled to indemnification from the drawer.” In both law and equity, when one
of two innocent persons “must suffer by the wrongful act of a third person, the
loss must be borne by the one whose negligence was the proximate cause of
the loss or who put it into the power of the third person to perpetrate the
wrong.

BPI is negligence on the following grounds:

First, Yabut was able to open a bank account in one of its branches without
privity; that is, without the proper verification of his corresponding identification
papers (note of the fictitious name: Sonny Santos). Second, BPI was unable
to discover early on not only this irregularity, but also the marked differences
in the signatures on the checks and those on the signature card. Third,
despite the examination procedures it conducted, the Central Verification Unit
of the bank even passed off these evidently different signatures as genuine.

On the other hand, the Casa was not negligent. Being Casa’s independent
auditor Yabut had access to all relevant documents and checkbooks. It was
Yabut’s task to make the bank reconciliations. CASA had every right to rely
solely upon his output -- based on the terms of the audit engagement -- and
could thus be unwittingly duped into believing that everything was in order.
Besides, “[g]ood faith is always presumed and it is the burden of the party
claiming otherwise to adduce clear and convincing evidence to the contrary.”

Clearly then, Yabut was able to perpetrate the wrongful act through no fault of
CASA. If auditors may be held liable for breach of contract and negligence
with all the more reason may they be charged with the perpetration of fraud
upon an unsuspecting client. CASA had the discretion to pursue BPI alone
under the NIL, by reason of expediency or munificence or both. Money paid
under a mistake may rightfully be recovered and under such terms as the
injured party may choose.
c. Moral damages – NO
CASA was unable to identify the particular instance -- enumerated in the Civil
Code -- upon which its claim for moral damages is predicated. As a general
rule, a corporation -- being an artificial person without feelings, emotions and
senses, and having existence only in legal contemplation -- is not entitled to
moral damages, because it cannot experience physical suffering and mental
anguish.
Exemplary damages – NO
Imposed by way of correction for the public good exemplary damages cannot
be recovered as a matter of right. There is no bad faith on the part of BPI for
paying the checks of CASA upon forged signatures.
Attorney’s fees – NO
BPI persistently denied the claim of CASA under the NIL to recredit the
latter’s account for the value of the forged checks. This denial constrained
CASA to incur expenses and exert effort for more than ten years in order to
protect its corporate interest in its bank account.

Interests – YES
 For the failure of BPI to pay CASA upon demand and for compelling the latter
to resort to the courts to obtain payment, legal interest may be adjudicated at
the discretion of the Court.

Analysis:

4. RAMON K. ILUSORIO, PETITIONER, VS. HON. COURT OF APPEALS, AND

THE MANILA BANKING CORPORATION, RESPONDENTS.
[ G.R. No. 139130, November 27, 2002 ]
Facts: Ilusorio was a prominent businessman who is running several
corporations and was depositor in good standing of respondent bank, Manila
Banking Corporation. 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 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.
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. Ilusorio did not bother to check his statement
of account until a business partner apprised him that he saw Eugenio use his
credit cards. Ilusorio fired Eugenio immediately, and instituted a criminal action
against her for estafa thru falsification. On the other hand, the bank, through an
affidavit executed by its employee, Razaon, also lodged a complaint for estafa
through falsification of commercial documents against Eugenio on the basis that
Ilusorio’s signatures were forged.
Ilusorio 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.
Manila Bank sought the expertise of the National Bureau of Investigation (NBI) in
determining the genuineness of the signatures appearing on the checks.
However, 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. Ilusorio, however, failed to comply with this request.
The RTC ruled in favor of the bank. The CA affirmed the decision of the RTC.

Issues:
a. WON Ilusorio has a cause of action against the bank
b. WON the filing of Manila Bank of a case for estafa against Eugenio would
estop it from asserting the fact that forgery has not been establihed

Ruling:
a. NO. 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.
 Furthermore, consistently, the CA and the RTC found that Manila Bank
employees exercised due diligence in cashing the checks. The bank’s
employees in the present case did not have a hint as to Eugenio’s modus
operandi because she was a regular customer of the bank, having been
designated by petitioner himself to transact in his behalf.

It was Ilusorio and not the bank who was negligent. He accorded is 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 especially, reconciliation of his accounts.

Petitioner’s failure to examine his bank statements appears as the proximate

cause of his own damage. Proximate cause is that cause, which, in natural
and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have occurred. [21]
In the instant case, the bank was not shown to be remiss in its duty of
sending monthly bank statements to petitioner so that any error or
discrepancy in the entries therein could be brought to the bank’s attention at
the earliest opportunity. But, petitioner failed to examine these bank
statements not because he was prevented by some cause in not doing so,
but because he did not pay sufficient attention to the matter. In view of Article
2179 of the New Civil Code when the plaintiff’s own negligence was the
immediate and proximate cause of his injury, no recovery could be had for
damages.

b. NO. Ilusorio cannot hold the bank in estoppel for the bank is not the
actual party in the criminal action. In a criminal action, the State is the
plaintiff, for the commission of a felony is an offense against the State.
Analysis:

5. SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC.,

PETITIONER, VS. FAR EAST BANK AND TRUST COMPANY AND
COURT OF APPEALS, RESPONDENTS.
[ G.R. No. 129015, August 13, 2004 ]
Facts: Samsung Construction maintained a current account with Far East Bank
and Trust Company (FEBTC). The sole signatory to Samsung Construction’s
account was Jong Kyu Lee, its Project Manager while the checks remained in the
custody of the company’s accountant, Kyu Yong Lee.
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC
Check No. 432100 to the bank’s branch in Bel-Air, Makati. The check, payable to
cash and drawn against Samsung Construction’s current account, was in the
amount of P999,500. The bank teller, Cleofe Justiani, first checked the balance
of Samsung Construction’s account. After ascertaining there were enough funds
to cover the check, she compared the signature appearing on the check with the
specimen signature of Jong as contained in the specimen signature card with the
bank. After comparing the two signatures, Justiani was satisfied as to the
authenticity of the signature appearing on the check. She then asked Gonzaga to
submit proof of his identity, and the latter presented three (3) identification cards.
At the same time, Justiani forwarded the check to the branch Senior Assistant
Cashier Gemma Velez, as it was bank policy that two bank branch officers
approve checks exceeding P100,000, for payment or encashment. Velez likewise
counterchecked the signature on the check as against that on the signature card.
He too concluded that the check was indeed signed by Jong. Velez then
forwarded the check and signature card to Shirley Syfu, another bank officer, for
approval. Syfu then noticed that Jose Sempio III, the assistant accountant of
Samsung Construction, was also in the bank. Sempio was well-known to Syfu
and the other bank officers, he being the assistant accountant of Samsung
Construction. Syfu showed the check to Sempio, who vouched for the
genuineness of Jong’s signature. Confirming the identity of Gonzaga, Sempio
said that the check was for the purchase of equipment for Samsung
Construction. Satisfied with the genuineness of the signature of Jong, Syfu
authorized the bank’s encashment of the check to Gonzaga.
The following day, Kyu examined the balance of Samsung’s bank account and
found out that a check with an amount of P999,500 has been encashed. He
learned that the last blank check was missing in the checkbook and reported the
matter to Jong. Jong went to the bank and the bank’s manager promised to
return the amount to Samsung Construction.
Later, Samsung Construction demanded FEBTC for the amount but FEBTC
responded that the matter was still under investigation. As a result, Samsung
Construction filed a complaint against FEBTC for the violation of Sec. 23 of the
NIL.
During trial, Samsung presented Senior NBI Document Examiner Roda B.
Flores. She testified that based on her examination, she concluded that Jong’s
signature had been forged on the check. . On the other hand, FEBTC, which had
sought the assistance of the Philippine National Police (PNP), [14] presented
Rosario C. Perez, a document examiner from the PNP Crime Laboratory. She
testified that her findings showed that Jong’s signature on the check was
genuine.
Confronted with conflicting expert testimony, the RTC chose to believe the
findings of the NBI expert and ruled in favor of Samsung. The CA reversed the
RTC and chose to believe the findings of the PNP expert.
Issues: WON FEBTC is liable to Samsung Construction under Section 23 of the
NIL
Ruling: YES. A document formally presented is presumed to be genuine until it
is proved to be fraudulent. In a forgery trial, this presumption must be overcome
but this can only be done by convincing testimony and effective illustrations.
The PNP examiner downplayed the uniqueness of the final stroke in the
questioned signature as a mere variation the same excuse she proffered for the
other marked differences noted by the Court and the counsel for petitioner. There
is no reason to doubt why the RTC gave credence to the testimony of the NBI
examiner, and not the PNP expert’s. The NBI expert, Rhoda Flores, clearly
qualifies as an expert witness. A document examiner for fifteen years, she had
been promoted to the rank of Senior Document Examiner with the NBI, and had
held that rank for twelve years prior to her testimony. In analyzing the signatures,
NBI Examiner Flores utilized the scientific comparative examination method
consisting of analysis, recognition, comparison and evaluation of the writing
habits with the use of instruments such as a magnifying lense, a stereoscopic
microscope, and varied lighting substances. She also prepared enlarged
photographs of the signatures in order to facilitate the necessary comparisons.

The RTC was sufficiently convinced by the NBI examiner’s testimony, and
explained her reasons in its Decisions. While the Court of Appeals disagreed and
upheld the findings of the PNP, it failed to convincingly demonstrate why such
findings were more credible than those of the NBI expert. Now, that there is a
finding of forgery, the next question to be resolved is whether Samsung
Construction was precluded from setting up the defense of forgery under Section
23.
Samsung Construction is not precluded from setting up the defense of forgery.
Section 23 of the Negotiable Instruments Law bars a party from setting up the
defense of forgery if it is guilty of negligence.
In the case at bar, the forgery appears to have been made possible through the
acts of one Jose Sempio III, an assistant accountant employed by the plaintiff
Samsung. The bare fact that the forgery was committed by an employee of the
party whose signature was forged cannot necessarily imply that such party’s
negligence was the cause for the forgery.
Admittedly, the record does not clearly establish what measures Samsung
Construction employed to safeguard its blank checks. In the absence of evidence
to the contrary, we can conclude that there was no negligence on Samsung
Construction’s part. The presumption remains that every person takes ordinary
care of his concerns and that the ordinary course of business has been followed.
Negligence is not presumed, but must be proven by him who alleges it.
Furthermore, the general rule remains that the drawee who has paid upon the
forged signature bears the loss. The exception to this rule arises only when
negligence can be traced on the part of the drawer whose signature was forged,
and the need arises to weigh the comparative negligence between the drawer
and the drawee to determine who should bear the burden of loss.
In this case, FEBTC failed to exercise the level of diligence that is expected of a
bank. The fact that the check was made out in the amount of nearly one million
pesos is unusual enough to require a higher degree of caution on the part of the
bank. Indeed, FEBTC confirms this through its own internal procedures. Checks
below twenty-five thousand pesos require only the approval of the teller; those
between twenty-five thousand to one hundred thousand pesos necessitate the
approval of one bank officer; and should the amount exceed one hundred
thousand pesos, the concurrence of two bank officers is required. In this case,
not only did the amount in the check nearly total one million pesos, it was also
payable to cash. That latter circumstance should have aroused the suspicion of
the bank, as it is not ordinary business practice for a check for such large amount
to be made payable to cash or to bearer, instead of to the order of a specified
person. Moreover, the check was presented for payment by one Roberto
Gonzaga, who was not designated as the payee of the check, and who did not
carry with him any written proof that he was authorized by Samsung Construction
to encash the check. Gonzaga, a stranger to FEBTC, was not even an employee
of Samsung Construction. Given the shadiness attending Gonzaga’s
presentment of the check, it was not sufficient for FEBTC to have merely
complied with its internal procedures, but mandatory that all earnest efforts be
undertaken to ensure the validity of the check, and of the authority of Gonzaga to
collect payment therefor.
Still, even if the bank performed with utmost diligence, the drawer whose
signature was forged may still recover from the bank as long as he or she is not
precluded from setting up the defense of forgery. After all, Section 23 of the
Negotiable Instruments Law plainly states that no right to enforce the payment of
a check can arise out of a forged signature. Since the drawer, Samsung
Construction, is not precluded by negligence from setting up the forgery, the
general rule should apply. Consequently, if a bank pays a forged check, it must
be considered as paying out of its funds and cannot charge the amount so paid
to the account of the depositor. A bank is liable, irrespective of its good faith, in
paying a forged check.

Analysis:
6. PHILIPPINE NATIONAL BANK vs. F.F. CRUZ and CO., INC.
G.R. No. 173259 July 25, 2011
DEL CASTILLO, J.

FACTS: F.F. Cruz & Co., Inc. (FFCCI) opened savings/current or so-called
combo account No. 0219-830-146 and dollar savings account No. 0219-0502-
458-6 with Philippine National Bank (PNB) at its Timog Avenue Branch. Its
President Felipe Cruz and Secretary-Treasurer Angelita A. Cruz were the named
signatories for the said accounts.
The said signatories left for and returned from the Unites States of America.
While they were thus out of the country, applications for cashier’s and manager’s
bearing Felipe’s signature were presented to and both approved by the PNB. The
first was for ₱9,950,000.00 payable to a certain Gene B. Sangalang and the
other one was for ₱3,260,500.31 payable to one Paul Bautista. The amounts of
these checks were then debited by the PNB against the combo account of
FFCCI.
When Angelita returned to the country, she examineD the PNB statements of
account of FFCCI she noticed the deductions. Claiming that these were
unauthorized and fraudulently made, FFCCI requested PNB to credit back and
restore to its account the value of the checks. PNB refused, and thus FFCCI filed
the instant suit for damages against the PNB and its own accountant Aurea
Caparas. PNB alleged that it exercised due diligence in handling the account of
FFCCI. The applications for manager’s check have passed through the standard
bank procedures and it was only after finding no infirmity that these were given
due course. In fact, it was no less than Caparas, the accountant of FFCCI, who
confirmed the regularity of the transaction.

ISSUE: Whether or not PNB is guilty of negligence.

HELD: Yes. PNB is guilty of negligence. PNB contends that it was not negligent
in verifying the genuineness of the signatures appearing on the subject
applications for manager’s check. However, the Court find no reversible error in
the findings of the appellate court that PNB was negligent in the handling of
FFCCI’s combo account, specifically, with respect to PNB’s failure to detect the
forgeries in the subject applications for manager’s check which could have
prevented the loss. The banking business is impressed with public trust. A higher
degree of diligence is imposed on banks relative to the handling of their affairs
than that of an ordinary business enterprise. Thus, the degree of responsibility,
care and trustworthiness expected of their officials and employees is far greater
than those of ordinary officers and employees in other enterprises. In the case at
bar, PNB failed to meet the high standard of diligence required by the
circumstances to prevent the fraud. Where the bank’s negligence is the
proximate cause of the loss and the depositor is guilty of contributory negligence,
the allocated damages between the bank and the depositor is on a 60-40 ratio.
This is applied in the present case. As shown, PNB’s negligence is the proximate
cause of the loss while the issue as to FFCCI’s contributory negligence has been
settled with finality in G.R. No. 173278. Thus, the appellate court properly
adjudged PNB to bear the greater part of the loss consistent with these rulings.

Analysis:
7. PHILIPPINE COMMERCIAL INTERNATIONAL BANK vs.
ANTONIO B. BALMACEDA and ROLANDO N. RAMOS
G.R. No. 158143 September 21, 2011
BRION, J.
FACTS: PCIB alleged that between 1991 and 1993, Balmaceda, by taking
advantage of his position as branch manager, fraudulently obtained and
encashed 31 Manager’s checks in the total amount of ₱10,782,150.00. PCIB
moved to be allowed to file an amended complaint to implead Rolando Ramos as
one of the recipients of a portion of the proceeds from Balmaceda’s alleged
fraud. PCIB also increased the number of fraudulently obtained and encashed
Manager’s checks to 34, in the total amount of ₱11,937,150.00. Ramos filed an
Answer denying any knowledge of Balmaceda’s scheme. According to Ramos,
he is a reputable businessman engaged in the business of buying and selling
fighting cocks, and Balmaceda was one of his clients. Ramos admitted receiving
money from Balmaceda as payment for the fighting cocks that he sold to
Balmaceda, but maintained that he had no knowledge of the source of
Balmaceda’s money. PCIB maintains that it had the right to freeze and debit the
amount of ₱251,910.96 from Ramos’ bank account, even without his consent,
since legal compensation had taken place between them by operation of law.
PCIB debited Ramos’ bank account, believing in good faith that Ramos was not
entitled to the proceeds of the Manager’s checks and was actually privy to the
fraud perpetrated by Balmaceda.
ISSUES:
a. Whether or not Ramos can be held liable for the fraudulent scheme.
b. Whether or not PCIB is at fault.
c. Whether or not PCIB can recover form Ramos based on unjust
enrichment.
d. Whether or not PCIB can unilaterally freeze the account of Ramos.
HELD:
a. No. The mere fact that Balmaceda made Ramos the payee on some of
the Manager’s checks is not enough basis to conclude that Ramos was
complicit in Balmaceda’s fraud; a number of other people were made
payees on the other Manager’s checks yet PCIB never alleged them to
be liable, nor did the Bank adduce any other evidence pointing to
Ramos’ participation that would justify his separate treatment from the
others. Also, while Ramos is Balmaceda’s brother-in-law, their
relationship is not sufficient, by itself, to render Ramos liable, absent
concrete proof of his actual participation in the fraudulent scheme.
Moreover, the evidence on record clearly shows that Balmaceda acted on
his own when he applied for the Manager’s checks against the bank
account of one of PCIB’s clients, as well as when he encashed the
fraudulently acquired Manager’s checks. The Court found no reason to
doubt Ramos’ claim that Balmaceda deposited these large sums of money
into his bank account as payment for the fighting cocks that Balmaceda
purchased from him. Given that PCIB failed to establish Ramos’
participation in Balmaceda’s scheme, it was not even necessary for
Ramos to provide an explanation for the money he received from
Balmaceda. Even if the evidence adduced by the plaintiff appears stronger
than that presented by the defendant, a judgment cannot be entered in the
plaintiff’s favor if his evidence still does not suffice to sustain his cause of
action; a preponderance of evidence must be established to achieve this
result.
b. Yes. PCIB itself at fault as employer. The banking business is
impressed with public interest. Of paramount importance is the trust
and confidence of the public in general in the banking industry.
Consequently, the diligence required of banks is more than that of a
Roman pater familias or a good father of a family. The highest degree
of diligence is expected. It cannot be ignored that Balmaceda managed
to carry out his fraudulent scheme primarily because other PCIB
employees failed to carry out their assigned tasks – flaws imputable to
PCIB itself as the employer. PCIB’s own employees were unwitting
accomplices in Balmaceda’s fraud. Another telling indicator of PCIB’s
negligence is the fact that it allowed Balmaceda to encash the
Manager’s checks that were plainly crossed checks. The crossing of a
check has the following effects: (a) the check may not be encashed but
only deposited in the bank; (b) the check may be negotiated only once
— to the one who has an account with the bank; and (c) the act of
crossing the check serves as a warning to the holder that the check
has been issued for a definite purpose and he must inquire if he
received the check pursuant to this purpose; otherwise, he is not a
holder in due course. In complete disregard of this duty, PCIB’s
systems allowed Balmaceda to encash 26 Manager’s checks which
were all crossed checks, or checks payable to the "payee’s account
only."

c. No. Unjust enrichment claims do not lie simply because one party
benefits from the efforts or obligations of others, but instead it must be
shown that a party was unjustly enriched in the sense that the term
unjustly could mean illegally or unlawfully. Ramos cannot be held liable
to PCIB on account of unjust enrichment simply because he received
payments out of money secured by fraud from PCIB. To hold Ramos
 accountable, it is necessary to prove that he received the money from
Balmaceda, knowing that he (Ramos) was not entitled to it. PCIB must
also prove that Ramos, at the time that he received the money from
Balmaceda, knew that the money was acquired through fraud.
Knowledge of the fraud is the link between Ramos and PCIB that
would obligate Ramos to return the money based on the principle of
unjust enrichment. However, as the evidence on record indicates,
Ramos accepted the deposits that Balmaceda made directly into his
bank account, believing that these deposits were payments for the
fighting cocks that Balmaceda had purchased. Significantly, PCIB has
not presented any evidence proving that Ramos participated in, or that
he even knew of, the fraudulent sources of Balmaceda’s funds.

d. No. PCIB acted illegally in freezing and debiting Ramos’ bank account.
The court cautioned against the unilateral freezing of bank accounts by
banks. They do not have a unilateral right to freeze the accounts of
depositors based on its mere suspicion. It would open the floodgates of
public distrust in the banking industry.

Analysis:
8. METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM vs.
COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE
PHILIPPINE NATIONAL BANK
G.R. No. L-62943 July 14, 1986
GUTIERREZ, JR., J.

FACTS: The Philippine National Bank (PNB) is the depository bank of

Metropolitan Waterworks and Sewerage System (MWSS) and its predecessor-in-
interest NWSA. Among the several accounts of NWSA with PNB is NWSA
Account No. 6. The authorized signature for said Account No. 6 were those of
MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General
Manager Victor L. Recio. Their respective specimen signatures were submitted
by the MWSS to and on file with the PNB. By special arrangement with the PNB,
the MWSS used personalized checks in drawing from this account.
During the months of March, April and May 1969, twenty-three (23) checks were
prepared, processed, issued and released by NWSA, all of which were paid and
cleared by PNB and debited by PNB against NWSA Account No. 6. During the
same months of March, April and May 1969, twenty-three (23) checks bearing
the same numbers as the former NWSA checks were likewise paid and cleared
by PNB and debited against NWSA Account No. 6. 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 same months. These
checks were presented for payment by PBC and PCIB to the defendant PNB,
and paid, also in the same months. 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. 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.
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.

ISSUE: Whether or not there was forgery.

HELD: No. The findings of the National Bureau of Investigation in its Report
show that the MWSS fraud was an "inside job" and that the petitioner's delay in
the reconciliation of bank statements and the laxity and loose records control in
the printing of its personalized checks facilitated the fraud. The National Bureau
of Investigation likewise does not declare or prove that the signatures appearing
on the questioned checks are forgeries. The report merely mentions the alleged
differences in the type face, checkwriting, and printing characteristics appearing
in the standard or submitted models and the questioned typewritings. The NBI
Chemistry Report No. C-74-891 merely describes the inks and pens used in
writing the alleged forged signatures. It is clear that these NBI Reports relied
upon by the petitioner are inadequate to sustain its allegations of forgery. These
reports did not touch on the inherent qualities of the signatures which are
indispensable in the determination of the existence of forgery. There must be
conclusive findings that there is a variance in the inherent characteristics of the
signatures and that they were written by two or more different persons. Forgery
cannot be presumed. It must be established by clear, positive, and convincing
evidence. This was not done in the present case.
Moreover, the petitioner is barred from setting up the defense of forgery because
it was guilty of negligence not only before the questioned checks were negotiated
but even after the same had already been negotiated. The records show that at
the time the twenty-three (23) checks were prepared, negotiated, and encashed,
the petitioner was using its own personalized checks, instead of the official PNB
Commercial blank checks. In the exercise of this special privilege, however, the
petitioner failed to provide the needed security measures. Furthermore, drawee
bank cannot be faulted as 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. 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.

Analysis:
9. ASSOCIATED BANK vs. HON. COURT OF APPEALS, PROVINCE OF
TARLAC and PHILIPPINE NATIONAL BANK
G.R. No. 107382/G.R. No. 107612 January 31, 1996
ROMERO, J.
FACTS: The Province of Tarlac maintains a current account with the Philippine
National Bank (PNB) Tarlac Branch where the provincial funds are deposited.
Checks issued by the Province are signed by the Provincial Treasurer and
countersigned by the Provincial Auditor or the Secretary of the Sangguniang
Bayan.
A portion of the funds of the province is allocated to the Concepcion Emergency
Hospital. The checks are released by the Office of the Provincial Treasurer and
received for the hospital by its administrative officer and cashier. In January
1981, the books of account were post-audited. It was then discovered that the
hospital did not receive several allotment checks drawn by the Province. The
Provincial Treasurer requested the manager of the PNB to return all of its cleared
checks which were issued from 1977 to 1980 in order to verify the regularity of
their encashment. After the checks were examined, the Provincial Treasurer
learned that 30 checks amounting to P203,300.00 were encashed by one Fausto
Pangilinan, with the Associated Bank acting as collecting bank.
It turned out that Fausto Pangilinan, who was the administrative officer and
cashier of payee hospital until his retirement, collected the questioned checks
from the office of the Provincial Treasurer.
After forging the signature of Dr. Adena Canlas who was chief of the payee
hospital, Pangilinan was able to withdraw the money when the check was
cleared and paid by the drawee bank, PNB. All the checks bore the stamp of
Associated Bank which reads "All prior endorsements guaranteed ASSOCIATED
BANK." The Provincial Treasurer wrote the manager of the PNB seeking the
restoration of the various amounts debited from the current account of the
Province. In turn, the PNB manager demanded reimbursement from the
Associated Bank on May 15, 1981.
As both banks resisted payment, the Province of Tarlac brought suit against PNB
which, in turn, impleaded Associated Bank as third-party defendant. The latter
then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan.

ISSUE: Whether or not Associated Bank is liable to PNB.

HELD: Yes. The checks involved in this case are order instruments. Where the
instrument is payable to order at the time of the forgery, such as the checks in
this case, the signature of its rightful holder is essential to transfer title to the
same instrument. When the holder's indorsement is forged, all parties prior to the
forgery may raise the real defense of forgery against all parties subsequent
thereto. In cases involving checks with forged indorsements, such as the present
petition, the chain of liability does not end with the drawee bank. The drawee
bank may not debit the account of the drawer but may generally pass liability
back through the collection chain to the party who took from the forger and, of
course, to the forger himself, if available. In other words, the drawee bank can
seek reimbursement or a return of the amount it paid from the presentor bank or
person. Theoretically, the latter can demand reimbursement from the person who
indorsed the check to it and so on. The loss falls on the party who took the check
from the forger, or on the forger himself.
In this case, the checks were indorsed by the collecting bank (Associated Bank)
to the drawee bank (PNB). The former will necessarily be liable to the latter for
the checks bearing forged indorsements. If the forgery is that of the payee's or
holder's indorsement, the collecting bank is held liable, without prejudice to the
latter proceeding against the forger. Since a forged indorsement is inoperative,
the collecting bank had no right to be paid by the drawee bank. The former must
necessarily return the money paid by the latter because it was paid wrongfully.
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.
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.

Analysis:
10. PNB vs Quimpo
G.R. No. L-53194|March 1988

Facts: Francisco Gozon was a depositor of the Philippine National Bank (PNB
Caloocan City branch). Ernesto Santos, Gozon’s friend, took a check from the
latter’s checkbook which was left in the car, filled it up for the amount of P5,000,
forged Gozon’s signature, and encashed it. Gozon learned about the transaction
upon receipt of the bank’s statement of account, and requested the bank to
recredit the amount to his account. The bank refused. Hence, the present action.

Issue: Whether or not the bank shall bear the loss resulting from the forged
check.

Held: Yes. The prime duty of a bank is to ascertain the genuineness of the
signature of the drawer or the depositor on the check being encashed. It is
expected to use reasonable business prudence in accepting and cashing a check
being encashed or presented to it. Payment in neglect of duty places upon him
the result of such negligence. Still, Gozon’s act in leaving his checkbook in the
car, where his trusted friend remained in, cannot be considered negligence
sufficient to excuse the bank from its own negligence. The bank bears the loss.

Analysis:
11. San Carlos Milling vs BPI
G.R. No. 37467|December 11, 1933

FACTS:
San Carlos Milling Co. Ltd. (San Carlos) was in the hands of Alfred D. Cooper, its
agent under general power of attorney with authority of substitution. The principal
employee in the Manila office was Joseph L. Wilson, to whom had been given a
general power of attorney but without power of substitution. 1926, Cooper is
desiring to go on vacation, gave a general power of attorney to Newland Baldwin
and at the same time revoked the power of Wilson relative to the dealings with
BPI

Wilson, conspiring together with Alfredo Dolores, a messenger-clerk in San

Carlos' Manila office, sent a cable gram in code to the company in Honolulu
requesting a telegraphic transfer to the China Banking Corporation (China Bank)
of Manila of $100,00. 

The money was transferred by cable, and upon its receipt China Bank sent an
exchange contract to San Carlos offering the sum of P201K, which was then the
current rate of exchange. 

On September 28, 1927, A manager's check on the China Banking Corporation

for P201K payable to San Carlos Milling Company or order was receipted for by
Dolores. Deposited with the BPI having a fake endorsement (Baldwin forged as
drawer).

San Carlos had frequently withdrawn currency for shipment to its mill but never in
so large an amount, and never under the sole supervision of Dolores. Before
delivering the money, the bank asked Dolores for P1 to cover the cost of packing
the money, and he left the bank and shortly afterwards returned with another
check for P1, purporting to be signed by Newland Baldwin

The crime was discovered and San Carlos filed against the BPI and China Bank
(after ammendment complaint. China Bank is as the prior endorsement had in
law been guaranteed by the BPI, they are absolved even if the endorsement of
Newland Baldwin on the check was a forgery. BPI is guilty of no negligence, loss
was due to the dishonesty of San Carlos employees and the negligence of San
Carlos general agent. RTC: BPI in GF and San Carlos could not recover

ISSUE: W/N BPI was bound to inspect the checks and shall therefore be liable in
case of forgery

HELD: YES.  judgment absolving the Bank of the Philippine Islands must
therefore be reversed
Duty was upon the BPI, and the China Banking Corporation was not bound to
inspect and verify all endorsements of the check, even if some of them were also
those of depositors in that bank

A bank is bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor
whose name was forged. Under section 23 of the Negotiable Instruments Law
they are not a charge against San Carlos nor are the checks of any value to the
BPI. Proximate cause of loss was due to the negligence of the Bank of the
Philippine Islands in honoring and cashing the two forged checks

Analysis:
12. Bank of America vs Phil Racing Club
G.R. No. 150228|July 30, 2009

FACTS: Respondent PRCI is a domestic corporation which maintains several

accounts with different banks in the Metro Manila area; among the accounts
maintained was with Bank of America- The authorize signatories are the
president and the vice-president of the corporation, respectively.

Sometime in Dec 1988. The president and the vice-president of the corporation
went abroad. So, in order to insure continuity of business operation, the president
and the vice- president of the corporation left a pre-signed check and entrusted
to the accountant;

It turned out that on December 16, 1988, a John Doe presented two (2) checks to
Bank of America for encashment; the two (2) checks had similar entries with
similar infirmities and irregularities.

Under the line for the payee, the upper line has a typewritten word “CASH” and
the lower line has a type written word “ONE HUNDRED TEN THOUSAND
PESOS ONLY.”

Despite the highly irregular entries on the face of the checks bank of America
encashed said checks.

The RTC ordered Bank of America to pay respondent PRCI the value of the two
(2) checks, plus damages and attorney’s fees.

Petitioner bank of America contended that since the instrument is incomplete but
delivered or complete but undelivered, 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.
And the proximate cause of the encashment was the respondent’s negligent
practice of delivering pre-signed check to its accountant.

ISSUE: WON petitioner bank is obligated to verify said checks to respondent.

RULING: Anent Petitioner’s contention that it could validly presume that the
check was filled up with authority and intentionally delivered:

It 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 irregularities on the check would have prompted the Bank of America’s
employee to verify it with respondent. 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.

PROXIMATE CAUSE

On the contention that it was respondent’ act of issuing pre- signed check, the
Supreme Court held that, although the respondent was also negligent, but under
the doctrine of Last clear chance, the law provides that “who had a last clear
opportunity to avoid the impending harm but failed to do so is chargeable with the
consequences thereof. At the most, the respondents liability is meely contributory

In the interest of fairness, however, we believe it is proper to consider

respondent’s own negligence to mitigate petitioner’s liability. Article 2179 of the
Civil Code provides:

Art. 2179. 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.

Following established jurisprudential precedents, we believe the allocation of

sixty percent (60%) of the actual damages involved in this case (represented by
the amount of 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.

Analysis: