EIFBT DIVIBI0N

!"#$# &'# ()*+),# -./01 2+3 (4456

789:9779&; &-<9=&-: >-&?3 .@A0A0'B@/3
CD# E=F$< =G -77;-:H3 E-79<=: E9<I
J;K;:=7L;&< >-&?3 789:9779&;
>-&? =G E=LLF&9E-<9=&H3 MBN G#
->-&<; L-$?;<9&"3 /@D.'BN@BAD#
HI::->FH
1. E=LL;$E9-: :-OP &;"=<9->:;
9&H<$FL;&<HP L-<;$9-:
-:<;$-<9=&3 J;G9&;J3 Q An alLeraLIon Is
saId Lo be maLerIal II IL alLers LLe eIIecL oI LLe
InsLrumenL. IL means an unauLLorIzed
cLane In an InsLrumenL LLaL purporLs Lo
modIIy In any respecL LLe oblIaLIon oI a
parLy or an unauLLorIzed addILIon oI words or
numbers or oLLer cLane Lo an IncompleLe
InsLrumenL relaLIn Lo LLe oblIaLIon oI a
parLy. In oLLer words, a maLerIal alLeraLIon Is
one wLIcL cLanes LLe ILems wLIcL are
requIred Lo be sLaLed under BecLIon 1 oI LLe
NeoLIable InsLrumenLs Law.
2. 9J#P 9J#P 9LL-<;$9-: -:<;$-<9=&P
;GG;E< =& <8; 9&H<$FL;&<# Q In LIs
book enLILled "FandecL oI CommercIal Law
and JurIsprudence," JusLIce Jose C. VILu
opInes LLaL "an InnocenL alLeraLIon
(enerally, cLanes on ILems oLLer LLan LLose
requIred Lo be sLaLed under Bec. 1, N. I. L.)
and spolIaLIon (alLeraLIons done by a
sLraner) wIll noL avoId LLe InsLrumenL, buL
LLe Lolder may enIorce IL only accordIn Lo ILs
orIInal Lenor.
8. 9J#P 9J#P 9J#P 7$;H;&< 9& E-H; -< >-$#
R TLe case aL bencL Is unIque In LLe sense LLaL
wLaL was alLered Is LLe serIal number oI LLe
cLeck In quesLIon, an ILem wLIcL, IL can
readIly be observed, Is noL an essenLIal
requIsILe Ior neoLIabIlILy under BecLIon 1 oI
LLe NeoLIable InsLrumenL Law. TLe
aIoremenLIoned alLeraLIon dId noL cLane LLe
relaLIons beLween LLe parLIes. TLe name oI
LLe drawer and LLe drawee were noL
alLered. TLe InLended payee was LLe
same. TLe sum oI money due Lo LLe payee
remaIned LLe same. TLe cLeck's serIal
number Is noL LLe sole IndIcaLIon oI ILs
orIIn. As succIncLly Iound by LLe CourL oI
Appeals, LLe name oI LLe overnmenL aency
wLIcL Issued LLe subjecL cLeck was
promInenLly prInLed LLereIn. TLe cLeck's
Issuer was LLereIore suIBcIenLly IdenLIBed,
renderIn LLe reIerral Lo LLe serIal number
redundanL and InconsequenLIal. FeLILIoner,
LLus cannoL reIuse Lo accepL LLe cLeck In
quesLIon on LLe round LLaL LLe serIal
number was alLered, LLe same beIn an
ImmaLerIal or InnocenL one.
4. E9K9: :-OP J-L-";HP -<<=$&;ISH
G;;HP -O-$J <8;$;=G J;L-&JH
G-E<F-:3 :;"-: -&J ;TF9<->:;
UFH<9G9E-<9=&# R TLe award oI aLLorney's
Iees lIes wILLIn LLe dIscreLIon oI LLe courL
and depends upon LLe cIrcumsLances oI eacL
case. However, LLe dIscreLIon oI LLe courL Lo
award aLLorney's Iees under ArLIcle 2208 oI
LLe CIvIl Code oI LLe FLIlIppInes demands
IacLual, leal and equILable jusLIBcaLIon,
wILLouL wLIcL LLe award Is a conclusIon
wILLouL a premIse and Improperly leIL Lo
speculaLIon and conjecLure. IL becomes a
vIolaLIon oI LLe proscrIpLIon aaInsL LLe
ImposILIon oI a penalLy on LLe rILL Lo
lILIaLe (UnIversal BLIppIn LInes, Inc. v.
InLermedIaLe AppellaLe CourL, 188 BCFA 170
[1990]). TLe reason Ior LLe award musL be
sLaLed In LLe LexL oI LLe courL's decIsIon. II IL
Is sLaLed only In LLe dIsposILIve porLIon oI LLe
decIsIon, LLe same sLall be dIsallowed. As Lo
LLe award oI aLLorney's Iees beIn an
excepLIon raLLer LLan LLe rule, IL Is
necessary Ior LLe courL Lo make BndIns oI
IacL and law LLaL would brIn LLe case wILLIn
LLe excepLIon and jusLIIy LLe ranL oI LLe
award (FeIracLorIes CorporaLIon oI LLe
FLIlIppInes v. InLermedIaLe AppellaLe
CourL, 176 BCFA S89).
-77;-$-&E;H =G E=F&H;:
Monsod Tamaro ValencIa & AssocIaLes Ior
prIvaLe respondenL CapILol CILy DevelopmenL
Eank.
BIuIon Feyna MonLecIllo & 0nsIako Ior
prIvaLe respondenL FLIlIppIne Eank oI
CommunIcaLIons.
J ; E 9 H 9 = &
?-7F&-&3 U#V
TLIs Is a peLILIon Ior revIew on cerLIorarI
under Fule 4S oI LLe Fules oI CourL assaIlIn LLe
decIsIon daLed AprIl 29, 1992 oI respondenL CourL
oI Appeals In CA-0.F. CV No. 24776 and ILs
resoluLIon daLed BepLember 16, 1992, denyIn
peLILIoner FLIlIppIne NaLIonal Eank's moLIon Ior
reconsIderaLIon oI saId decIsIon.
TLe IacLs oI LLe case are as Iollows:
A cLeck wILL serIal number 7-8666-228-8,
daLed AuusL 7, 1981 In LLe amounL oI F97,6S0.00
was Issued by LLe MInIsLry oI EducaLIon and
CulLure (now DeparLmenL oI EducaLIon, CulLure
and BporLs [DECB]) payable Lo E. AbanLe
MarkeLIn. TLIs cLeck was drawn aaInsL
FLIlIppIne NaLIonal Eank (LereIn peLILIoner).
0n AuusL 11, 1981, E. AbanLe MarkeLIn, a
clIenL oI CapILol CILy DevelopmenL Eank (CapILol),
deposILed LLe quesLIoned cLeck In ILs savIns
accounL wILL saId bank. In Lurn, CapILol deposILed
LLe same In ILs accounL wILL LLe FLIlIppIne Eank
oI CommunIcaLIons (FECom) wLIcL, In Lurn, senL
LLe cLeck Lo peLILIoner Ior clearIn.
FeLILIoner cleared LLe cLeck as ood and,
LLereaILer, FECom credILed CapILol's accounL Ior
LLe amounL sLaLed In LLe cLeck. However, on
0cLober 19, 1981, peLILIoner reLurned LLe cLeck Lo
FECom and debILed FECom's accounL Ior LLe
amounL covered by LLe cLeck, LLe reason beIn
LLaL LLere was a "maLerIal alLeraLIon" oI LLe cLeck
number.
FECom, as collecLIn aenL oI CapILol, LLen
proceeded Lo debIL LLe laLLer's accounL Ior LLe
same amounL, and subsequenLly, senL LLe cLeck
back Lo peLILIoner. FeLILIoner, Lowever, reLurned
LLe cLeck Lo FECom.
0n LLe oLLer Land, CapILol could noL, In Lurn,
debIL E. AbanLe MarkeLIn's accounL sInce LLe
laLLer Lad already wILLdrawn LLe amounL oI LLe
cLeck as oI 0cLober 1S, 1981. CapILol souLL
clarIBcaLIon Irom FECom and demanded LLe re-
credILIn oI LLe amounL. FECom Iollowed suIL by
requesLIn an explanaLIon and re-credILIn Irom
peLILIoner.
BInce LLe demands oI CapILol were noL
Leeded, IL Bled a cIvIl suIL wILL LLe FeIonal TrIal
CourL oI ManIla aaInsL FECom wLIcL, In Lurn,
Bled a LLIrd-parLy complaInL aaInsL peLILIoner Ior
reImbursemenL/IndemnILy wILL respecL Lo LLe
claIms oI CapILol. FeLILIoner, on ILs parL, Bled a
IourLL-parLy complaInL aaInsL E. AbanLe
MarkeLIn.
0n 0cLober 8, 1989, LLe FeIonal TrIal CourL
rendered ILs decIsIon LLe dIsposILIve porLIon oI
wLIcL reads:
WHEFEE0FE, judmenL Is Lereby rendered as
Iollows:
1.) 0n plaInLIII's complaInL, deIendanL FLIlIppIne
Eank oI CommunIcaLIons Is ordered Lo re-credIL
or reImburse plaInLIII CapILol CILy DevelopmenL
Eank LLe amounL oI F97,6S0.00, plus InLeresL oI
12 percenL LLereLo Irom 0cLober 19, 1981 unLIl
LLe amounL Is Iully paId,
2.) 0n FLIlIppIne Eank oI CommunIcaLIons LLIrd-
parLy complaInL, LLIrd-parLy deIendanL FNE Is
ordered Lo reImburse and IndemnIIy FLIlIppIne
Eank oI CommunIcaLIons Ior wLaLever amounL
FECom pays Lo plaInLIII,
8.) 0n FLIlIppIne NaLIonal Eank's IourLL-parLy
complaInL, E. AbanLe MarkeLIn Is ordered Lo
reImburse and IndemnIIy FNE Ior wLaLever
amounL FNE pays Lo FECom,
4.) 0n aLLorney's Iees, FLIlIppIne Eank oI
CommunIcaLIons Is ordered Lo pay CapILol CILy
DevelopmenL Eank aLLorney's Iees In LLe amounL
oI Ten TLousand (F 10,000.00) Fesos, buL FECom
Is enLILled Lo reImbursemenL/IndemnILy Irom
FNE, and FLIlIppIne NaLIonal Eank Lo be, In Lurn,
reImbursed or IndemnIBed by E. AbanLe
MarkeLIn Ior LLe same amounL,
S.) TLe CounLerclaIms oI FECom and FNE are
Lereby dIsmIssed,
6.) No pronouncemenL as Lo cosLs.
B0 0FDEFED.[1]
An appeal was InLerposed beIore LLe
respondenL CourL oI Appeals wLIcL rendered ILs
decIsIon on AprIl 29, 1992, LLe decreLal porLIon
oI wLIcL reads:
WHEFEE0FE, LLe judmenL appealed Irom Is
modIBed by exempLIn FECom Irom lIabIlILy Lo
plaInLIII-appellee Ior aLLorney's Iees and orderIn
FNE Lo Lonor LLe cLeck Ior F97,6S0.00, wILL
InLeresL as declared by LLe LrIal courL, and pay
plaInLIII-appellee aLLorney's Iees oI F10,000.00.
AILer LLe cLeck sLall Lave been Lonored by FNE,
FECom sLall re-credIL plaInLIII-appellee's accounL
wILL IL wILL LLe amounL. No pronouncemenL as Lo
cosLs.
B0 0FDEFED.[2]
A moLIon Ior reconsIderaLIon oI LLe decIsIon
was denIed by LLe respondenL CourL In ILs
resoluLIon daLed BepLember 16, 1992 Ior lack oI
merIL.[8]
Hence, peLILIoner Bled LLe InsLanL peLILIon
wLIcL raIses LLe IollowIn Issues:
9
WHETHEF 0F N0T AN ALTEFATI0N 0E THE
BEFIAL NUMEEF 0E A CHECK IB A MATEFIAL
ALTEFATI0N UNDEF THE NE00TIAELE
INBTFUMENTB LAW.
99
WHETHEF 0F N0T A CEFTIEICATI0N HEFEIN
IBBUED EY THE MINIBTFY 0E EDUCATI0N CAN
EE 0IVEN WEI0HT IN EVIDENCE.
999
WHETHEF 0F N0T A DFAWEE EANK WH0
EAILED T0 FETUFN A CHECK WITHIN THE
TWENTY E0UF (24) H0UF CLEAFIN0 FEFI0D
MAY FEC0VEF THE VALUE 0E THE CHECK
EF0M THE C0LLECTIN0 EANK.
9K
WHETHEF 0F N0T IN THE AEBENCE 0E MALICE
0F ILL WILL FETITI0NEF FNE MAY EE HELD
LIAELE E0F ATT0FNEY'B EEEB.[4]
We Bnd no merIL In LLe peLILIon.
We sLall BrsL deal wILL LLe eIIecL oI LLe
alLeraLIon oI LLe serIal number on LLe
neoLIabIlILy oI LLe cLeck In quesLIon.
FeLILIoner ancLors ILs posILIon on BecLIon 12S
oI LLe NeoLIable InsLrumenL Law (ACT No. 2081)
[S] wLIcL provIdes:
BecLIon 12S. WLaL consLILuLes a maLerIal
alLeraLIon. - Any alLeraLIon wLIcL cLanes:
(a) TLe daLe,
(b) TLe sum payable, eILLer Ior prIncIpal or
InLeresL,
(c) TLe LIme or place oI paymenL,
(d) TLe number or LLe relaLIons oI LLe parLIes,
(e) TLe medIum or currency In wLIcL paymenL
Is Lo be made,
(I) 0r wLIcL adds a place oI paymenL wLere no
place oI paymenL Is specIBed, or any oLLer cLane
or addILIon wLIcL alLers LLe eIIecL oI LLe
InsLrumenL In any respecL, Is a maLerIal
alLeraLIon.
FeLILIoner allees LLaL LLere Is no Lard and
IasL rule In LLe InLerpreLaLIon oI LLe aIorequoLed
provIsIon oI LLe NeoLIable InsLrumenLs Law. IL
maInLaIns LLaL under BecLIon 12S(I), any cLane
LLaL alLers LLe eIIecL oI LLe InsLrumenL Is a
maLerIal alLeraLIon.[6]
We do noL aree.
An alLeraLIon Is saId Lo be maLerIal II IL alLers
LLe eIIecL oI LLe InsLrumenL.[7] IL means an
unauLLorIzed cLane In an InsLrumenL LLaL
purporLs Lo modIIy In any respecL LLe oblIaLIon
oI a parLy or an unauLLorIzed addILIon oI words
or numbers or oLLer cLane Lo an IncompleLe
InsLrumenL relaLIn Lo LLe oblIaLIon oI a parLy.
[8] In oLLer words, a maLerIal alLeraLIon Is one
wLIcL cLanes LLe ILems wLIcL are requIred Lo be
sLaLed under BecLIon 1 oI LLe NeoLIable
InsLrumenL Law.
BecLIon 1 oI LLe NeoLIable InsLrumenLs Law
provIdes:
BecLIon 1. - Eorm oI neoLIable InsLrumenLs. An
InsLrumenL Lo be neoLIable musL conIorm Lo LLe
IollowIn requIremenLs:
(a) IL musL be In wrILIn and sIned by LLe maker
or drawer,
(b) MusL conLaIn an uncondILIonal promIse or
order Lo pay a sum cerLaIn In money,
(c) MusL be payable on demand, or aL a Bxed or
deLermInable IuLure LIme,
(d) MusL be payable Lo order or Lo bearer, and
(e) WLere LLe InsLrumenL Is addressed Lo a
drawee, Le musL be named or oLLerwIse IndIcaLed
LLereIn wILL reasonable cerLaInLy.
In LIs book enLILled "FandecL oI CommercIal
Law and JurIsprudence," JusLIce Jose C. VILu
opInes LLaL "an InnocenL alLeraLIon (enerally,
cLanes on ILems oLLer LLan LLose requIred Lo be
sLaLed under Bec. 1, N.I.L.) and spolIaLIon
(alLeraLIons done by a sLraner) wIll noL avoId
LLe InsLrumenL, buL LLe Lolder may enIorce IL
only accordIn Lo ILs orIInal Lenor."[9]
Feproduced Lereunder are some examples
oI maLerIal and ImmaLerIal alLeraLIons:
A. MaLerIal AlLeraLIons:
(1) BubsLILuLIn LLe words "or bearer" Ior "order."
(2) WrILIn "proLesL waIved" above blank
IndorsemenLs.
(8) A cLane In LLe daLe Irom wLIcL InLeresL Is Lo
run.
(4) A cLeck was orIInally drawn as Iollows: "Iron
CounLy Eank, CrysLal Ealls, MIcL. Au. S, 1901.
Fay Lo 0.L. or order $9 BILy cenLs CTF." TLe
InserLIon oI LLe Bure S beIore LLe Bure 9, LLe
InsLrumenL beIn oLLerwIse uncLaned.
(S) AddIn LLe words "wILL InLeresL" wILL or
wILLouL a Bxed raLe.
(6) An alLeraLIon In LLe maLurILy oI a noLe,
wLeLLer LLe LIme Ior paymenL Is LLereby curLaIled
or exLended.
(7) An InsLrumenL was payable "EIrsL NaL'l Eank,"
LLe plaInLIII added LLe word "MarIon."
(8) FlaInLIII, wILLouL consenL oI LLe deIendanL,
sLruck ouL LLe name oI LLe deIendanL as payee and
InserLed LLe name oI LLe maker oI LLe orIInal
noLe.
(9) BLrIkIn ouL LLe name oI LLe payee and
subsLILuLIn LLaL oI LLe person wLo acLually
dIscounLed LLe noLe.
(10) BubsLILuLIn LLe address oI LLe maker Ior
LLe name oI a co-maker.[10]
E. ImmaLerIal AlLeraLIons:
(1) CLanIn "I promIse Lo pay" Lo "We promIse
Lo pay," wLere LLere are Lwo makers.
(2) AddIn LLe word "annual" aILer LLe InLeresL
clause.
(8) AddIn LLe daLe oI maLurILy as a marInal
noLaLIon.
(4) EIllIn In LLe daLe oI LLe acLual delIvery
wLere LLe makers oI a noLe ave IL wILL LLe daLe In
blank, "July . . ."
(S) An alLeraLIon oI LLe marInal Bures oI a
noLe wLere LLe sum sLaLed In words In LLe body
remaIned uncLaned.
(6) TLe InserLIon oI LLe leal raLe oI InLeresL
wLere LLe noLe Lad a provIsIon Ior "InLeresL aL . . .
per cenL."
(7) A prInLed Iorm oI promIssory noLe Lad on
LLe marIn LLe prInLed words, "ExLended Lo . . ."
TLe Lolder on or aILer maLurILy wroLe In LLe blank
space LLe words "May 1, 1918," as a reIerence
memorandum oI a promIse made by LIm Lo LLe
prIncIpal maker aL LLe LIme LLe words were
wrILLen Lo exLend LLe LIme oI paymenL.
(8) WLere LLere was a blank Ior LLe place oI
paymenL, BllIn In LLe blank wILL LLe place
desIred.
(9) AddIn Lo an Indorsee's name LLe
abbrevIaLIon "CasL" wLen IL Lad been areed LLaL
LLe draIL sLould be dIscounLed by LLe LrusL
company oI wLIcL LLe Indorsee was casLIer.
(10) TLe IndorsemenL oI a noLe by a sLraner
aILer ILs delIvery Lo LLe payee aL LLe LIme LLe noLe
was neoLIaLed Lo LLe plaInLIII.
(11) An exLensIon oI LIme Iven by LLe Lolder oI a
noLe Lo LLe prIncIpal maker, wILLouL LLe consenL
oI LLe a sureLy co-maker.[11]
TLe case aL LLe bencL Is unIque In LLe sense
LLaL wLaL was alLered Is LLe serIal number oI LLe
cLeck In quesLIon, an ILem wLIcL, IL can readIly be
observed, Is noL an essenLIal requIsILe Ior
neoLIabIlILy under BecLIon 1 oI LLe NeoLIable
InsLrumenLs Law. TLe aIoremenLIoned alLeraLIon
dId noL cLane LLe relaLIons beLween LLe
parLIes. TLe name oI LLe drawer and LLe drawee
were noL alLered. TLe InLended payee was LLe
same. TLe sum oI money due Lo LLe payee
remaIned LLe same. DespILe LLeseBndIns,
Lowever, peLILIoner InsIsLs, LLaL:
xxx xxx
xxx.
IL Is an accepLed concepL, besIdes beIn a
neoLIable InsLrumenL ILselI, LLaL a TCAA cLeck
by ILs very naLure Is LLe medIum oI excLane oI
overnmenLs (sIc) InsLrumenLalILIes or aencIes.
And as (a) saIeLy measure, every overnmenL
oIBce o(r) aency (Is) assIned TCAA cLecks
bearIn dIIIerenL number serIes.
A concreLe example Is LLaL oI LLe dIsbursemenLs
oI LLe MInIsLry oI EducaLIon and CulLure. IL Is
Issued by LLe Eureau oI Treasury sIzeable
bundles oI cLecks In bookleL Iorm wILL serIal
numbers dIIIerenL Irom oLLer overnmenL oIBce
or aency. Now, Ior BcLILIous payee Lo succeed In
ILs malIcIous InLenLIons Lo deIraud LLe
overnmenL, all IL need do Is Lo eL Lold oI a TCAA
CLeck and Lave LLe serIal numbers oI porLIon
(sIc) LLereoI cLaned or alLered Lo make IL
appear LLaL LLe same was Issued by LLe MEC.
0LLerwIse, sLaLed, IL Is LLrouL LLe serIal
numbers LLaL (a) TCAA CLeck Is deLermIned Lo
Lave been Issued by a parLIcular oIBce or aency
oI LLe overnmenL.[12]
xxx xxx
xxx
FeLILIoner's arumenLs IaIl Lo convInce. TLe
cLeck's serIal number Is noL LLe sole IndIcaLIon oI
ILs orIIn. As succIncLly Iound by LLe CourL oI
Appeals, LLe name oI LLe overnmenL aency
wLIcL Issued LLe subjecL cLeck was promInenLly
prInLed LLereIn. TLe cLeck's Issuer was LLereIore
suIBcIenLly IdenLIBed, renderIn LLe reIerral Lo
LLe serIal number redundanL and
InconsequenLIal. TLus, we quoLe wILL Iavor LLe
BndIns oI LLe respondenL courL:
xxx xxx
xxx
II LLe purpose oI LLe serIal number Is merely Lo
IdenLIIy LLe IssuIn overnmenL oIBce or aency,
ILs alLeraLIon In LLIs case Lad no maLerIal eIIecL
wLaLsoever on LLe InLerILy oI LLe cLeck. TLe
IdenLILy oI LLe IssuIn overnmenL oIBce or
aency was noL cLaned LLereby and LLe amounL
oI LLe cLeck was noL cLared aaInsL LLe accounL
oI anoLLer overnmenL oIBce or aency wLIcL Lad
no lIabIlILy under LLe cLeck. TLe owner and
Issuer oI LLe cLeck Is boldly and clearly prInLed on
ILs Iace, second lIne Irom LLe Lop: "MINIBTFY 0E
EDUCATI0N AND CULTUFE," and below LLe name
oI LLe payee are LLe rubber-sLamped words:
"MInIsLry oI Educ. & CulLure." TLese words are
noL alleed Lo Lave been Ialsely or IraudulenLly
InLercalaLed InLo LLe cLeck. TLe ownersLIp oI LLe
cLeck Is esLablIsLed wILLouL LLe necessILy oI
recourse Lo LLe serIal number. NeILLer Is LLere
any prooI LLaL LLe amounL oI LLe cLeck was
erroneously cLared aaInsL LLe accounL oI a
overnmenL oIBce or aency oLLer LLan LLe
MInIsLry oI EducaLIon and CulLure. Hence, LLe
alLeraLIon In LLe number oI LLe cLeck dId noL
aIIecL or cLane LLe lIabIlILy oI LLe MInIsLry oI
EducaLIon and CulLure under LLe cLeck and,
LLereIore, Is ImmaLerIal. TLe enuIneness oI LLe
amounL and LLe sInaLures LLereIn oI LLen DepuLy
MInIsLer oI EducaLIon HermeneIldo C. Dumlao
and oI LLe resIdenL AudILor, FenomIo C. Alvarez
are noL cLallened. NeILLer Is LLe auLLenLIcILy oI
LLe dIIIerenL codes appearIn LLereIn quesLIoned x
x x.[18] (ILalIcs ours.)
FeLILIoner, LLus cannoL reIuse Lo accepL LLe
cLeck In quesLIon on LLe round LLaL LLe serIal
number was alLered, LLe same beIn an
ImmaLerIal or InnocenL one.
We now o Lo LLe second Issue. IL Is
peLILIoner's submIssIon LLaL LLe cerLIBcaLIon
Issued by MInrado C. EaLonLIno, CasLIer III oI
LLe MEC clearly sLows LLaL LLe cLeck was alLered.
BaId cerLIBcaLIon reads:
July 22, 198S
T0 WH0M IT MAY C0NCEFN:
TLIs Is Lo cerLIIy LLaL accordIn Lo LLe records oI
LLIs 0IBce, TCAA FNE CLeck No. BN7-8666228-8
daLed AuusL 7, 1981 drawn In Iavor oI E. AbanLe
MarkeLIn In LLe amounL oI NINETY (B)EVEN
TH0UBAND BIZ HUNDFED EIETY FEB0B 0NLY
(F97,6S0.00) was noL Issued by LLIs 0IBce nor
released Lo LLe payee concerned. TLe serIes
number oI saId cLeck was noL Included amon
LLose requIsILIon by LLIs 0IBce Irom LLe Eureau oI
Treasury.
Ver
y
Lru
ly
yo
urs
,
(B0D.)
MIN
FA
D0
C.
EAT
0N0
HIN
00
Cas
LIer
III.
[14]
FeLILIoner claIms LLaL even II LLe auLLor oI
LLe cerLIBcaLIon Issued by LLe MInIsLry oI
EducaLIon and CulLure (MEC) was noL presenLed,
sLIll LLe besL evIdence oI LLe maLerIal alLeraLIon
would be LLe dIspuLed cLeck ILselI and LLe serIal
number LLereon. FeLILIoner LLus assaIls LLe
reIusal oI respondenL courL Lo Ive weILL Lo LLe
cerLIBcaLIon because LLe auLLor LLereoI was noL
presenLed Lo IdenLIIy IL and Lo be cross-examIned
LLereon.[1S]
We aree wILL LLe respondenL courL.
TLe one wLo sIned LLe cerLIBcaLIon was noL
presenLed beIore LLe LrIal courL Lo prove LLaL LLe
saId documenL was really LLe documenL Le
prepared and LLaL LLe sInaLure below LLe saId
documenL Is LIs own sInaLure. NeILLer dId
peLILIoner presenL an eyewILness Lo LLe execuLIon
oI LLe quesLIoned documenL wLo could possIbly
IdenLIIy IL.[16] AbsenL LLIs prooI, we cannoL rule
on LLe auLLenLIcILy oI LLe conLenLs oI LLe
cerLIBcaLIon. Moreover, as we prevIously
empLasIzed, LLere was no maLerIal alLeraLIon on
LLe cLeck, LLe cLane oI ILs serIal number noL
beIn subsLanLIal Lo ILs neoLIabIlILy.
AnenL LLe LLIrd Issue - wLeLLer or noL LLe
drawee bank may sLIll recover LLe value oI LLe
cLeck Irom LLe collecLIn bank even II IL IaIled Lo
reLurn LLe cLeck wILLIn LLe LwenLy-Iour (24) Lour
clearIn perIod because LLe cLeck was Lampered -
suIBce IL Lo sLaLe LLaL sInce LLere Is no maLerIal
alLeraLIon In LLe cLeck, peLILIoner Las no rILL Lo
dIsLonor IL and reLurn IL Lo FECom, LLe same
beIn In all respecLs neoLIable.
However, LLe amounL oI F10,000.00 as
aLLorney's Iees Is Lereby deleLed. In LLeIr
respecLIve decIsIons, LLe LrIal courL and LLe CourL
oI Appeals IaIled Lo explIcILly sLaLe LLe raLIonale
Ior LLe saId award. TLe LrIal courL merely ruled as
Iollows:
WILL respecL Lo CapILol's claIm Ior damaes
consIsLIn oI alleed loss oI opporLunILy, LLIs CourL
Bnds LLaL CapILol IaIled Lo adequaLely subsLanLIaLe
ILs claIm. WLaL CapILol Lad presenLed was a selI-
servIn, unsubsLanLIaLed and speculaLIve
compuLaLIon oI wLaL IL alleedly could Lave
earned or realIzed were IL noL Ior LLe debIL made
by FECom wLIcL was LrIered by LLe reLurn and
debIL made by FNE. However, LLIs CourL Bnds LLaL
IL would be IaIr and reasonable Lo Impose InLeresL
aL 12% per annum on LLe prIncIpal amounL oI LLe
cLeck compuLed Irom 0cLober 19, 1981 (LLe daLe
FECom debILed CapILol's accounL) unLIl LLe
amounL Is Iully paId and reasonable aLLorney's
Iees.[17] (ILalIcs ours.)
And conLrary Lo LLe CourL oI Appeal's
resoluLIon, peLILIoner unambIuously quesLIoned
beIore IL LLe award oI aLLorney's Iees, assInIn
LLe laLLer as one oI LLe errors commILLed by LLe
LrIal courL.[18]
TLe IoreoIn Is In conIormILy wILL LLe
uIdIn prIncIples laId down In a lon lIne oI
cases and reILeraLed recenLly In ConsolIdaLed
Eank & TrusL CorporaLIon (BolIdbank) v. CourL oI
Appeals:[19]
TLe award oI aLLorney's Iees lIes wILLIn LLe
dIscreLIon oI LLe courL and depends upon LLe
cIrcumsLances oI eacL case. However, LLe
dIscreLIon oI LLe courL Lo award aLLorney's Iees
under ArLIcle 2208 oI LLe CIvIl Code oI LLe
FLIlIppInes demands IacLual, leal and equILable
jusLIBcaLIon, wILLouL wLIcL LLe award Is a
conclusIon wILLouL a premIse and Improperly leIL
Lo speculaLIon and conjecLure. IL becomes a
vIolaLIon oI LLe proscrIpLIon aaInsL LLe
ImposILIon oI a penalLy on LLe rILL Lo lILIaLe
(UnIversal BLIppIn LInes Inc. v. InLermedIaLe
AppellaLe CourL, 188 BCFA 170 [1990]). TLe
reason Ior LLe award musL be sLaLed In LLe LexL oI
LLe courL's decIsIon. II IL Is sLaLed only In LLe
dIsposILIve porLIon oI LLe decIsIon, LLe same sLall
be dIsallowed. As Lo LLe award oI aLLorney's Iees
beIn an excepLIon raLLer LLan LLe rule, IL Is
necessary Ior LLe courL Lo make BndIns oI IacL
and law LLaL would brIn LLe case wILLIn LLe
excepLIon and jusLIIy LLe ranL oI LLe award
(FeIracLorIes CorporaLIon oI LLe
FLIlIppInes v. InLermedIaLe AppellaLe CourL, 176
BCFA S89).
O8;$;G=$;, premIses consIdered, excepL
Ior LLe deleLIon oI LLe award oI aLLorney's Iees,
LLe decIsIon oI LLe CourL oI Appeals Is Lereby
AEEIFMED.
H= =$J;$;J#
FadIlla (CLaIrman), EellosIllo,
VILu, and HermosIsIma, Jr., JJ., concur.
[1] CA Follo, p. 28.
[2] Follo, pp. 21-28.
[8] Id., aL 80-81.
[4] Id., aL 10-11.
[S] TLe NeoLIable InsLrumenLs Law oI LLe FLIlIppInes was paLLerned aILer LLe draIL approved by LLe
CommIssIoner on UnIIorm BLaLe Laws In LLe UnILed BLaLes. (AbayanI CommenLarIes and JurIsprudence
on LLe C0MMEFCIAL LAWB 0E THE FHILIFFINEB, Vol. 1, p. 99-100).
[6] Follo, p. 11.
[7] AbayanI, CommenLarIes and JurIsprudence on LLe C0MMEFCIAL LAWB 0E THE FHILIFFINEB, Vol.
1, 1992 ed., p. 408.
[8] NIckles, NeoLIable InsLrumenLs and oLLer relaLed CommercIal Faper, 1998 2nd ed., p. 168.
[9] VILu, FandecL oI CommercIal Law and JurIsprudence, 1990 ed., p. SS.
[10] AbayanI, CommenLarIes & JurIsprudence on LLe C0MMEFCIAL LAWB 0E THE FHILIFFINEB, Vol.
1, 1992 ed., pp. 408-404.
[11] Id., aL 404-40S.
[12] Follo, p. 78.
[18] Follo, pp. 21-28.
[14] Follo, p. 26.
[1S] IbId.
[16] F.J. ErancIsco, EvIdence, 1998 ed., p. S0S.
TLe due execuLIon oI a documenL could be proved LLrouL LLe LesLImony oI (1) LLe person wLo execuLed
IL, (2) LLe person beIore wLom ILs execuLIon was acknowleded, or (8) any person wLo was presenL and
saw IL execuLed and delIvered, or wLo, aILer ILs execuLIon and delIvery, saw IL and reconIzed LLe
sInaLures, or by a person Lo wLom LLe parLIes Lo LLe InsLrumenL Lad prevIously conIessed LLe
execuLIon LLereoI. . .
[17] CA Follo, DecIsIon oI FTC, p. S.
[18] CA Follo, ErIeI oI AppellanL FNE, pp. 1S-16.
[19] 246 BCFA 198 (199S), Bee also, ToyoLa BLaw, Inc. v. CA, 244 BCFA 820(199S).
BEC0ND DIVIBI0N
!"#$# &'# ()*W,2# UMBXM/Y W(3 (4456
-HH=E9-<;J >-&?3 .@A0A0'B@/3 CD# 8=&#
E=F$< =G -77;-:H3 7$=K9&E; =G
<-$:-E MBN 780:9779&; &-<9=&-:
>-&?3/@D.'BN@BAD#
!"#$# &'# ()*5(2# UMBXM/Y W(3 (4456
789:9779&; &-<9=&-: >-&?3 .@A0A0'B@/3
CD# 8=&=$->:; E=F$< =G -77;-:H3
7$=K9&E; =G <-$:-E3 MBN
-HH=E9-<;J >-&?3 /@D.'BN@BAD#
HI::->FH
(# E=LL;$E9-: :-OP &;"=<9->:;
9&H<$FL;&<HP - G=$";J H9"&-<F$;
9H O8=::I 9&=7;$-<9K; -&J &= =&;
E-& "-9& <9<:; <= <8; 9&H<$FL;&<
<8$=F"8 9<# - A Iored sInaLure, wLeLLer
IL be LLaL oI LLe drawer or LLe payee, Is
wLolly InoperaLIve and no one can aIn LILle
Lo LLe InsLrumenL LLrouL IL. A person
wLose sInaLure Lo an InsLrumenL was Iored
was never aparLy and never consenLed Lo LLe
conLracL wLIcL alleedly ave rIse Lo sucL
InsLrumenL. BecLIon 28 does noL avoId LLe
InsLrumenL buL only LLe Iored sInaLure.
TLus, a Iored IndorsemenL does noL operaLe
as LLe payee's IndorsemenL.
2# 9J#P 9J#P 9J#P ;ZE;7<9=&# Q TLe excepLIon Lo
LLe eneral rule In BecLIon 28 Is wLere "a
parLy aaInsL wLom IL Is souLL Lo enIorce a
rILL Is precluded Irom seLLIn up LLe Iorery
or wanL oI auLLorILy." FarLIes wLo warranL or
admIL LLe enuIneness oI LLe sInaLure In
quesLIon and LLose wLo, by LLeIr acLs, sIlence
or nelIence are esLopped Irom seLLIn up
LLe deIense oI Iorery, are precluded Irom
usIn LLIs deIense. Indorsers, persons
neoLIaLIn by delIvery and accepLors are
warranLors oI LLe enuIneness oI LLe
sInaLures on LLe InsLrumenL.
W# 9J#P 9J#P >;-$;$ 9&H<$FL;&<P
H9"&-<F$; =G 7-I;; =$ 8=:J;$3 &=<
&;E;HH-$I <= 7-HH <9<:; <= <8;
9&H<$FL;&<# - In bearer InsLrumenLs, LLe
sInaLure oI LLe payee or Lolder Is
unnecessary Lo pass LILle Lo LLe InsLrumenL.
Hence, wLen LLe IndorsemenL Is a Iorery,
only LLe person wLose sInaLure Is Iored can
raIse LLe deIense oI Iorery aaInsL a Lolder
In due course.
[# 9J#P 9J#P =$J;$ 9&H<$FL;&<P
H9"&-<F$; =G 8=:J;$3 ;HH;&<9-: <=
<$-&HG;$ <9<:; <= <8; 9&H<$FL;&<P
;GG;E< =G G=$";J 9&J=$H;L;&< =G
8=:J;$# Q WLere LLe InsLrumenL Is payable
Lo order aL LLe LIme oI LLe Iorery, sucL as LLe
cLecks In LLIs case, LLe sInaLure oI ILs
rILLIul Lolder (Lere, LLe payee LospILal) Is
essenLIal Lo LransIer LILle Lo LLe same
InsLrumenL. WLen LLe Lolder's IndorsemenL
Is Iored, all parLIes prIor Lo LLe Iorery may
raIse LLe real deIense oI Iorery aaInsL all
parLIes subsequenL LLereLo.
+# 9J#P 9J#P 9J#P :9->9:9<I =G ";&;$-:
;&J=$H;$# Q An Indorser oI an order
InsLrumenL warranLs "LLaL LLe InsLrumenL Is
enuIne and In all respecLs wLaL IL purporLs
Lo be, LLaL Le Las a ood LILle Lo IL, LLaL all
prIor parLIes Lad capacILy Lo conLracL, and
LLaL LLe InsLrumenL Is aL LLe LIme oI LIs
IndorsemenL valId and subsIsLIn." He cannoL
InLerpose LLe deIense LLaL sInaLures prIor Lo
LIm are Iored.
5# 9J#P 9J#P 9J#P 9J#P E=::;E<9&" >-&?
O8;$; E8;E? 9H J;7=H9<;J -&J
9&J=$H;H E8;E?3 -& 9&J=$H;$# Q A
collecLIn bank wLere a cLeck Is deposILed
and wLIcL Indorses LLe cLeck upon
presenLmenL wILL LLe drawee bank, Is sucL
an Indorser. Bo even II LLe IndorsemenL on
LLe cLeck deposILed by LLe banks's clIenL Is
Iored, LLe collecLIn bank Is bound by LIs
warranLIes as an Indorser and cannoL seL up
LLe deIense oI Iorery as aaInsL LLe drawee
bank.
*# 9J#P 9J#P 9J#P 7-IL;&< F&J;$ - G=$";J
9&J=$H;L;&< 9H &=< <= <8;
J$-O;$HS =$J;$P $;-H=&# Q TLe bank
on wLIcL a cLeck Is drawn, known as LLe
drawee bank, Is under sLrIcL lIabIlILy Lo pay
LLe cLeck Lo LLe order oI LLe payee. TLe
drawer's InsLrucLIons are reBecLed on LLe
Iace and by LLe Lerms oI LLe cLeck. FaymenL
under a Iored IndorsemenL Is noL Lo LLe
drawer's order. WLen LLe drawee bank pays
a person oLLer LLan LLe payee, IL does noL
comply wILL LLe Lerms oI LLe cLeck and
vIolaLes ILs duLy Lo cLare ILs cusLomer's (LLe
drawer) accounL only Ior properly payable
ILems. BInce LLe drawee bank dId noL pay a
Lolder or oLLer person enLILled Lo receIve
paymenL, IL Las no rILL Lo reImbursemenL
Irom LLe drawer. TLe eneral rule LLen Is
LLaL LLe drawee bank may noL debIL LLe
drawer's accounL and Is noL enLILled Lo
IndemnIBcaLIon Irom LLe drawer. TLe rIsk oI
loss musL perIorce Iall on LLe drawee bank.
,# 9J#P 9J#P 9J#P 9J#P ;ZE;7<9=&H# Q II LLe
drawee bank can prove a IaIlure by LLe
cusLomer/drawer Lo exercIse ordInary care
LLaL subsLanLIally conLrIbuLed Lo LLe makIn
oI LLe Iored sInaLure, LLe drawer Is
precluded Irom asserLIn LLe Iorery. II aL
LLe same LIme LLe drawee bank was also
nelIenL Lo LLe poInL oI subsLanLIally
conLrIbuLIn Lo LLe loss, LLen sucL loss Irom
LLe Iorery can be apporLIoned beLween LLe
nelIenL drawer and LLe nelIenL bank.
4# 9J#P 9J#P 9J#P O8;$; <8; J$-O;$HS
H9"&-<F$; 9H G=$";J3 <8; J$-O;$
E-& $;E=K;$ G$=L <8; J$-O;;
>-&?# Q In cases InvolvIn a Iored cLeck,
wLere LLe drawer's sInaLure Is Iored, LLe
drawer can recover Irom LLe drawee bank.
No drawee bank Las a rILL Lo pay a Iored
cLeck. II IL does, IL sLall Lave Lo recredIL LLe
amounL oI LLe cLeck Lo LLe accounL oI LLe
drawer. TLe lIabIlILy cLaIn ends wILL LLe
drawee bank wLose responsIbIlILy IL Is Lo
know LLe drawer's sInaLure sInce LLe laLLer
Is ILs cusLomer.
()# 9J#P 9J#P 9J#P 9& E-H;H =G G=$";J
9&J=$H;L;&<H3 <8; :=HH G-::H =&
<8; 7-$<I O8= <==? <8; E8;E?
G$=L <8; G=$";$ =$ <8; G=$";$
89LH;:G# R In cases InvolvIn cLecks wILL
Iored IndorsemenLs, sucL as LLe presenL
peLILIon, LLe cLaIn oI lIabIlILy does noL end
wILL LLe drawee bank. TLe drawee bank may
noL debIL LLe accounL oI LLe drawer buL may
enerally pass lIabIlILy back LLrouL LLe
collecLIon cLaIn Lo LLe parLy wLo Look Irom
LLe Iorer and, oI course, Lo LLe Iorer
LImselI, II avaIlable. In oLLer words, LLe
drawee bank can seek reImbursemenL or a
reLurn oI LLe amounL IL paId Irom LLe
presenLor bank or person. TLeoreLIcally, LLe
laLLer can demand reImbursemenL Irom LLe
person wLo Indorsed LLe cLeck Lo IL and so
on. TLe loss Ialls on LLe parLy wLo Look LLe
cLeck Irom LLe Iorer, or on LLe Iorer
LImselI. BInce a Iored IndorsemenL Is
InoperaLIve, LLe collecLIn bank Lad no rILL
Lo be paId by LLe drawee bank. TLe Iormer
musL necessarIly reLurn LLe money paId by
LLe laLLer because IL was paId wronIully.
((# 9J#P 9J#P 9J#P 9J#P E-H; -< >-$# Q In LLIs
case, LLe cLecks were Indorsed by LLe
collecLIn bank (AssocIaLed Eank) Lo LLe
drawee bank (FNE). TLe Iormer wIll
necessarIly be lIable Lo LLe laLLer Ior LLe
cLecks bearIn Iored IndorsemenLs. II LLe
Iorery Is LLaL oI LLe payee's or Lolder's
IndorsemenL, LLe collecLIn bank Is Leld
lIable, wILLouL prejudIce Lo LLe laLLer
proceedIn aaInsL LLe Iorer.
(2# 9J#P 9J#P 9J#P ";&;$-: 9&J=$H;$P
E=::;E<9&" >-&? =$ :-H< ;&J=$H;$
HFGG;$H :=HH =& G=$";J 9&Q
J=$H;L;&<P $;-H=&# Q More ImporLanLly,
by reason oI LLe sLaLuLory warranLy oI a
eneral Indorser In BecLIon 66 oI LLe
NeoLIable InsLrumenLs Law, a collecLIn
bank wLIcL Indorses a cLeck bearIn a Iored
IndorsemenL and presenLs IL Lo .LLe drawee
bank uaranLees all prIor IndorsemenLs,
IncludIn LLe Iored IndorsemenL. IL warranLs
LLaL LLe InsLrumenL Is enuIne, and LLaL IL Is
valId and subsIsLIn aL LLe LIme oI LIs
IndorsemenL. Eecause LLe IndorsemenL Is a
Iorery, LLe collecLIn bank commILs a breacL
oI LLIs warranLy and wIll be accounLable Lo
LLe drawee bank. TLIs lIabIlILy scLeme
operaLes wILLouL reard Lo IaulL on LLe parL
oI LLe collecLIn/presenLIn bank. Even II LLe
laLLer bank was noL nelIenL, IL would sLIll
be lIable Lo LLe drawee bank because oI ILs
IndorsemenL. TLe CourL Las consIsLenLly
ruled LLaL "LLe collecLIn bank or lasL
endorser enerally suIIers LLe loss because IL
Las LLe duLy Lo ascerLaIn LLe enuIneness oI
all prIor endorsemenLs consIderIn LLaL LLe
acL oI presenLIn LLe cLeck Ior paymenL Lo
LLe drawee Is an asserLIon LLaL LLe parLy
makIn LLe presenLmenL Las done ILs duLy Lo
ascerLaIn LLe enuIneness oI LLe
endorsemenLs." Moreover, LLe collecLIn
bank Is made lIable because IL Is prIvy Lo LLe
deposILor wLo neoLIaLed LLe cLeck. TLe
bank knows LIm, LIs address and LIsLory
because Le Is a clIenL. IL Las Laken a rIsk on
LIs deposIL. TLe bank Is also In a beLLer
posILIon Lo deLecL Iorery, Iraud or
IrreularILy In LLe IndorsemenL.
(W# 9J#P 9J#P 9J#P J$-O;; >-&? &=< :9->:;
G=$ :=HH =& G=$";J 9&J=$H;L;&<P
$;-H=&# Q TLe drawee bank Is noL sImIlarly
sILuaLed as LLe collecLIn bank because LLe
Iormer makes no warranLy as Lo LLe
enuIneness oI any IndorsemenL. TLe drawee
bank's duLy Is buL Lo verIIy LLe enuIneness
oI LLe drawer's sInaLure and noL oI LLe
IndorsemenL because LLe drawer Is ILs clIenL.
([# 9J#P 9J#P 9J#P 9J#P JF<I =G J$-O;;
>-&? <= 7$=L7<:I 9&G=$L
7$;H;&<=$ =G <8; G=$";$I F7=&
J9HE=K;$IP ;GG;E< =G G-9:F$; <=
7$=L7<:I 9&G=$L# R TLe drawee bank
can recover LLe amounL paId on LLe cLeck
bearIn a Iored IndorsemenL Irom LLe
collecLIn bank. However, a drawee bank Las
LLe duLy Lo prompLly InIorm LLe presenLor oI
LLe Iorery upon dIscovery. II LLe drawee
bank delays In InIormIn LLe presenLor oI
LLe Iorery, LLereby deprIvIn saId presenLor
oI LLe rILL Lo recover Irom LLe Iorer, LLe
Iormer Is deemed nelIenL and can no
loner recover Irom LLe presenLor.
(+# 9J#P 9J#P 9J#P 9J#P 9J#P 9J#P ;GG;E< =G E=&Q
<$9>F<=$I &;":9";&E; 9& E-H; -<
>-$# Q ApplyIn LLese rules Lo LLe case aL
bencL, FNE, LLe drawee bank, cannoL debIL
LLe currenL accounL oI LLe FrovInce oI Tarlac
because IL paId cLecks wLIcL bore Iored
IndorsemenLs. However, II LLe FrovInce oI
Tarlac as drawer was nelIenL Lo LLe poInL
oI subsLanLIally conLrIbuLIn Lo LLe loss, LLen
LLe drawee bank FNE can cLare ILs accounL.
II boLL drawee bank-FNE and drawer-
FrovInce oI TarJac were nelIenL, LLe loss
sLould be properly apporLIoned beLween
LLem. TLe loss Incurred by drawee bank-FNE
can be passed on Lo LLe collecLIn bank-
AssocIaLed Eank wLIcL presenLed and
Indorsed LLe cLecks Lo IL. AssocIaLed Eank
can, In Lurn, Lold LLe Iorer, EausLo
FanIlInan, lIable. II FNE nelIenLly delayed
In InIormIn AssocIaLed Eank oI LLe Iorery,
LLus deprIvIn LLe laLLer oI LLe opporLunILy Lo
recover Irom LLe Iorer, IL IorIeILs ILs rILL Lo
reImbursemenL and wIll be made Lo bear LLe
loss. AILer careIul examInaLIon oI LLe records,
LLe CourL Bnds LLaL LLe FrovInce oI Tarlac
was equally nelIenL and sLould, LLereIore,
sLare LLe burden oI loss Irom LLe cLecks
bearIn a Iored IndorsemenL. TLe FrovInce
oI Tarlac permILLed EausLo FanIlInan Lo
collecL LLe cLecks wLen LLe laLLer, LavIn
already reLIred Irom overnmenL servIce, was
no loner connecLed wILL LLe LospILal. WILL
LLe excepLIon oI LLe BrsL cLeck (daLed
January 17, 1978), all LLe cLecks were Issued
and released aILer FanIlInan's reLIremenL on
Eebruary 28, 1978. AILer nearly LLree years,
LLe Treasurer's oIBce was sLIll releasIn LLe
cLecks Lo LLe reLIred casLIer. In addILIon,
some oI LLe aId alloLmenL cLecks were
released Lo FanIlInan and LLe oLLers Lo
ElIzabeLL Juco, LLe new casLIer. TLe IacL LLaL
LLere were now Lwo persons collecLIn LLe
cLecks Ior LLe LospILal Is an unmIsLakable
sIn oI an IrreularILy wLIcL sLould Lave
alerLed employees In LLe Treasurer's oIBce oI
LLe Iraud beIn commILLed. TLere Is also
evIdence IndIcaLIn LLaL LLe provIncIal
employees were aware oI FanIlInan's
reLIremenL and consequenL dIssocIaLIon Irom
LLe LospILal. TLe IaIlure oI LLe FrovInce oI
Tarlac Lo exercIse due care conLrIbuLed Lo a
sInIBcanL deree Lo LLe loss LanLamounL Lo
nelIence. Hence, LLe FrovInce oI Tarlac
sLould be lIable Ior parL oI LLe LoLal amounL
paId on LLe quesLIoned cLecks. TLe drawee
bank FNE also breacLed ILs duLy Lo pay only
accordIn Lo LLe Lerms oI LLe cLeck. Hence, IL
cannoL escape lIabIlILy and sLould also bear
parL oI LLe loss. TLe CourL Bnds as
reasonable, LLe proporLIonaLe sLarIn oI BILy
percenL - BILy percenL(S0%-S0%). Due Lo LLe
nelIence oI LLe FrovInce oI Tarlac In
releasIn LLe cLecks Lo an unauLLorIzed
person (EausLo FanIlInan), In allowIn LLe
reLIred LospILal casLIer Lo receIve LLe cLecks
Ior LLe payee LospILal Ior a perIod close Lo
LLree years and In noL properly ascerLaInIn
wLy LLe reLIred LospILal casLIer was
collecLIn cLecks Ior LLe payee LospILal In
addILIon Lo LLe LospILal's real casLIer,
respondenL FrovInce conLrIbuLed Lo LLe loss
amounLIn Lo F208,800.00 and sLall be
lIable Lo LLe FNE Ior BILy (S0%) percenL
LLereoI. In eIIecL, LLe FrovInce oI Tarlac can
only recover B ILy percenL (S0%) oI
F208,800.00 Irom FNE. TLe collecLIn bank,
AssocIaLed Eank, sLall be lIable Lo FNE Ior
BILy (S0%) percenL oI F208,800.00. IL Is
lIable on ILs warranLIes as Indorser oI LLe
cLecks wLIcL were deposILed by EausLo
FanIlInan, LavIn uaranLeed LLe
enuIneness oI all prIor IndorsemenLs,
IncludIn LLaL oI LLe cLIeI oI LLe payee
LospILal, Dr. Adena Canlas. AssocIaLed Eank
was also remIss In ILs duLy Lo ascerLaIn LLe
enuIneness oI LLe payee's IndorsemenL.
(5# 9J#P 9J#P 9J#P G=$";$IP J;:-I 9&
9&G=$L9&" E=::;E<9&" >-&? =G
G=$";$I >I <8; J$-O;; >-&?
H9"&9G9;H &;":9";&E;# Q A delay In
InIormIn LLe collecLIn bank (AssocIaLed
Eank) oI LLe Iorery, wLIcL deprIves IL oI LLe
opporLunILy Lo o aILer LLe Iorer, sInIBes
nelIence on LLe parL oI LLe drawee bank
(FNE) and wIll preclude IL Irom claImIn
reImbursemenL.
(*# 9J#P 9J#P 9J#P $;<F$& =G G=$";J
9&J=$H;L;&<P 2[Q8=F$ 7;$9=J >F<
&=< >;I=&J 7;$9=J G=$ G9:9&"
:;"-: -E<9=& G=$ >-&?H =F<H9J;
L;<$= L-&9:-P E-H; -< >-$# Q Under
BecLIon 4(c) oI CE CIrcular No. S80, ILems
bearIn a Iored endorsemenL sLall be
reLurned wILLIn LwenLy-Iour (24) Lours
aILer dIscovery oI LLe Iorery buL In no evenL
beyond LLe perIod Bxed or provIded by law
Ior BlIn oI a leal acLIon by LLe reLurnIn
bank. BecLIon 28 oI LLe FCHC Fules deleLed
LLe requIremenL LLaL ILems bearIn a Iored
endorsemenL sLould be reLurned wILLIn
LwenLy-Iour Lours. AssocIaLed Eank now
arues LLaL LLe aIoremenLIoned CenLral
Eank CIrcular Is applIcable. BInce FNE dId
noL reLurn LLe quesLIoned cLecks wILLIn
LwenLy-Iour Lours, buL several days laLer,
AssocIaLed Eank allees LLaL FNE sLould be
consIdered nelIenL and noL enLILled Lo
reImbursemenL oI LLe amounL IL paId on LLe
cLecks. TLe CenLral Eank cIrcular was In
Iorce Ior all banks unLIl June 1980 wLen LLe
FLIlIppIne ClearIn House CorporaLIon
(FCHC) was seL up and commenced
operaLIons. Eanks In MeLro ManIla were
covered by LLe FCHC wLIle banks locaLed
elsewLere sLIll Lad Lo o LLrouL CenLral
Eank ClearIn. In any evenL, LLe LwenLy-Iour-
Lour reLurn rule was adopLed by LLe FCHC
unLIl IL was cLaned In 1982. TLe conLendIn
banks LereIn, wLIcL are boLL brancLes In
Tarlac provInce, are LLereIore noL covered by
FCHC Fules buL by CE CIrcular No. S80.
Clearly LLen, LLe CE cIrcular was applIcable
wLen LLe Iorery oI LLe cLecks was
dIscovered In 1981.
(,# 9J#P 9J#P 9J#P 9J#P $-<9=&-:;# Q TLe rule
mandaLes LLaL LLe cLecks be reLurned wILLIn
LwenLy-Iour Lours aILer dIscovery oI LLe
Iorery buL In no evenL beyond LLe perIod
Bxed by law Ior BlIn a leal acLIon. TLe
raLIonale oI LLe rule Is Lo Ive LLe collecLIn
bank (wLIcL Indorsed LLe cLeck) adequaLe
opporLunILy Lo proceed aaInsL LLe Iorer. II
prompL noLIce Is noL Iven, LLe collecLIn
bank maybe prejudIced and lose LLe
opporLunILy Lo o aILer ILs deposILor.
(4# 9J#P 9J#P 9J#P 9J#P G-9:F$; <= $;<F$&
G=$";J 9&J=$H;L;&< O9<89& 2[
8=F$H G$=L J9HE=K;$I J=;H &=<
7$;UFJ9E; E=::;E<9&" >-&? O89E8
7$;H;&<;J G=$";$ -H 9<H $;>F<<-:
O9<&;HH# R TLe CourL Bnds LLaL even II FNE
dId noL reLurn LLe quesLIoned cLecks Lo
AssocIaLed Eank wILLIn LwenLy-Iour Lours, as
mandaLed by LLe rule, FNE dId noL commIL
nelIenL delay. Under LLe cIrcumsLances,
FNE ave prompL noLIce Lo AssocIaLed Eank
and LLe laLLer bank was noL prejudIced In
oIn aILer EausLo FanIlInan. AILer LLe
FrovInce oI Tarlac InIormed FNE oI LLe
IorerIes, FNE necessarIly Lad Lo InspecL LLe
cLecks and conducL ILs own InvesLIaLIon.
TLereaILer, IL requesLed LLe FrovIncIal
Treasurer's oIBce on MarcL 81, 1981 Lo
reLurn LLe cLecks Ior verIBcaLIon. TLe
FrovInce oI Tarlac reLurned LLe cLecks only
on AprIl 22, 1981. Two days laLer, AssocIaLed
Eank receIved LLe cLecks Irom FNE.
AssocIaLed Eank was also IurnIsLed a copy oI
LLe FrovInce's leLLer oI demand Lo FNE daLed
MarcL 20, 1981, LLus IvIn IL noLIce oI LLe
IorerIes. AL LLIs LIme, Lowever, FanIlInan's
accounL wILL AssocIaLed Lad only F24.68 In
IL. Had AssocIaLed Eank decIded Lo debIL
FanIlInan's accounL, IL could noL Lave
recovered LLe amounLs paId on LLe
quesLIoned cLecks. In addILIon, wLIle
AssocIaLed Eank Bled a IourLL-parLy
complaInL aaInsL EausLo FanIlInan, IL dId
noL presenL evIdence aaInsL FanIlInan and
even presenLed LIm as ILs rebuLLal wILness.
Hence, AssocIaLed Eank was noL prejudIced
by FNE's IaIlure Lo comply wILL LLe LwenLy-
Iour-Lour reLurn rule.
2)# $;L;J9-: :-OP -E<9=&HP ;H<=77;:P
O9:: &=< -77:I <= J$-O;; >-&?
O8= G-9J -&J E:;-$;J E8;E?H O9<8
G=$";J 9&J=$H;L;&<# QAssocIaLed
Eank conLends LLaL FNE Is esLopped Irom
requIrIn reImbursemenL because LLe laLLer
paId and cleared LLe cLecks. TLe CourL Bnds
LLIs conLenLIon unmerILorIous. Even II FNE
cleared and paId LLe cLecks, IL can sLIll
recover Irom AssocIaLed Eank. TLIs Is Lrue
even II LLe payee's CLIeI 0IBcer wLo was
supposed Lo Lave Indorsed LLe cLecks Is also
a cusLomer oI LLe drawee bank. FNE's duLy
was Lo verIIy LLe enuIneness oI LLe drawer's
sInaLure and noL LLe enuIneness oI payee's
IndorsemenL. AssocIaLed Eank, as LLe
collecLIn bank, Is LLe enLILy wILL LLe duLy Lo
verIIy LLe enuIneness oI LLe payee's
IndorsemenL.
2(# E9K9: :-OP =>:9"-<9=&H -&J E=&Q
<$-E<HP <8;$; 9H &= 7$9K9<I =G
E=&<$-E< >;<O;;& <8; J$-O;$
-&J E=::;E<9&" >-&?P J$-O;$ E-&
$;E=K;$ G$=L J$-O;; >-&? -&J
J$-O;; >-&? E-& H;;?
$;9L>F$H;L;&< G$=L E=::;E<9&"
>-&?# Q FNE also avers LLaL respondenL
courL erred In adjudIn cIrcuILous lIabIlILy
by dIrecLIn FNE Lo reLurn Lo LLe FrovInce oI
Tarlac LLe amounL oI LLe cLecks and LLen
dIrecLIn AssocIaLed Eank Lo reImburse FNE.
TLe CourL Bnds noLLIn wron wILL LLe
mode oI LLe award. TLe drawer, FrovInce oI
Tarlac, Is a clIenL or cusLomer oI LLe FNE,
noL oI AssocIaLed Eank. TLere Is no prIvILy oI
conLracL beLween LLe drawer and LLe
collecLIn bank.
22# E=LL;$E9-: :-OP >-&?HP >-&?
J;7=H9<H -$; :=-&HP $;E=K;$I =G
-L=F&< J;7=H9<;J 9& EF$$;&<
-EE=F&< "9K;& 5\ 9&<;$;H< 7;$
-&&FL# Q TLe LrIal courL made FNE and
AssocIaLed Eank lIable wILL leal InLeresL
Irom MarcL 20, 1981, LLe daLe oI
exLrajudIcIal demand made by LLe FrovInce
oI Tarlac on FNE. TLe paymenLs Lo be made
In LLIs case sLem Irom LLe deposILs oI LLe
FrovInce oI Tarlac In ILs currenL accounL wILL
LLe FNE. Eank deposILs are consIdered under
LLe law as loans. CenLral Eank CIrcular No.
416 prescrIbes a Lwelve percenL (12%)
InLeresL per annum Ior loans, Iorebearance oI
money, oods or credILs In LLe absence oI
express sLIpulaLIon. Normally, currenL
accounLs are lIkewIse InLeresL-bearIn, by
express conLracL, LLus excludIn LLem Irom
LLe coverae oI CE CIrcular No. 416. In LLIs
case, Lowever, LLe acLual InLeresL raLe, II any,
Ior LLe currenL accounL opened by LLe
FrovInce oI Tarlac wILL FNE was noL Iven In
evIdence. Hence, LLe CourL deems IL wIse Lo
aIBrm LLe LrIal courL's use oI LLe leal
InLeresL raLe, or sIx percenL (6%) per annum.
TLe InLeresL raLe sLall be compuLed Irom LLe
daLe oI deIaulL, or LLe daLe oI judIcIal or
exLrajudIcIal demand. TLe LrIal courL dId noL
err In ranLIn leal InLeresL Irom MarcL 20,
1981, LLe daLe oI exLrajudIcIal demand.
-77;-$-&E;H =G E=F&H;:
Jose A. BoluLa, Jr. & AssocIaLes Ior
AssocIaLed Eank.
BanLIao, Jr., VIdad, Corpus & AssocIaLes Ior
FNE.
TLe BolIcILor 0eneral Ior publIc respondenL.
J ; E 9 H 9 = &
$=L;$=3 U#V
WLere LLIrLy cLecks bearIn Iored
endorsemenLs are paId, wLo bears LLe loss, LLe
drawer, LLe drawee bank or LLe collecLIn bank?
TLIs Is LLe maIn Issue In LLese consolIdaLed
peLILIons Ior revIew assaIlIn LLe decIsIon oI LLe
CourL oI Appeals In "FrovInce oI Tarlac v.
FLIlIppIne NaLIonal Eank v. AssocIaLed Eank v.
EausLo FanIlInan, eL. al." (CA-0.F. No. CV No.
17962).1
TLe IacLs oI LLe case are as Iollows:
TLe FrovInce oI Tarlac maInLaIns a currenL
accounL wILL LLe FLIlIppIne NaLIonal Eank (FNE)
Tarlac ErancL wLere LLe provIncIal Iunds are
deposILed. CLecks Issued by LLe FrovInce are
sIned by LLe FrovIncIal Treasurer and
counLersIned by LLe FrovIncIal AudILor or LLe
BecreLary oI LLe BanunIan Eayan.
A porLIon oI LLe Iunds oI LLe provInce Is
allocaLed Lo LLe ConcepcIon Emerency
HospILal.2 TLe alloLmenL cLecks Ior saId
overnmenL LospILal are drawn Lo LLe order oI
"ConcepcIon. Emerency HospILal, ConcepcIon,
Tarlac" or "TLe CLIeI, ConcepcIon Emerency
HospILal, ConcepcIon, Tarlac." TLe cLecks are
released by LLe 0IBce oI LLe FrovIncIal Treasurer
and receIved Ior LLe LospILal by ILs
admInIsLraLIve oIBcer and casLIer.
In January 1981, LLe books oI accounL oI LLe
FrovIncIal Treasurer were posL-audILed by LLe
FrovIncIal AudILor. IL was LLen dIscovered LLaL
LLe LospILal dId noL receIve several alloLmenL
cLecks drawn by LLe FrovInce.
0n Eebruary 19, 1981, LLe FrovIncIal
Treasurer requesLed LLe manaer oI LLe FNE Lo
reLurn all oI ILs cleared cLecks wLIcL were Issued
Irom 1977 Lo 1980 In order Lo verIIy LLe
reularILy oI LLeIr encasLmenL. AILer LLe cLecks
were examIned, LLe FrovIncIal Treasurer learned
LLaL 80 cLecks amounLIn Lo F208,800.00 were
encasLed by one EausLo FanIlInan, wILL LLe
AssocIaLed Eank acLIn as collecLIn bank.
IL Lurned ouL LLaL EausLo FanIlInan, wLo
was LLe admInIsLraLIve oIBcer and casLIer oI
payee LospILal unLIl LIs reLIremenL on Eebruary
28, 1978, collecLed LLe quesLIoned cLecks Irom
LLe oIBce oI LLe FrovIncIal Treasurer. He claImed
Lo be assIsLIn or LelpIn LLe LospILal Iollow up
LLe release oI LLe cLecks and Lad oIBcIal
receIpLs.8 FanIlInan souLL Lo encasL LLe BrsL
cLeck4 wILL AssocIaLed Eank. However, LLe
manaer oI AssocIaLed Eank reIused and
suesLed LLaL FanIlInan deposIL LLe cLeck In
LIs personal savIns accounL wILL LLe same bank.
FanIlInan was able Lo wILLdraw LLe money wLen
LLe cLeck was cleared and paId by LLe drawee
bank, FNE.
AILer IorIn LLe sInaLure oI Dr. Adena
Canlas wLo was cLIeI oI LLe payee LospILal,
FanIlInan Iollowed LLe same procedure Ior LLe
second cLeck, In LLe amounL oI FS,000.00 and
daLed AprIl 20, 1978,S as well as Ior LwenLy-eILL
oLLer cLecks, oI varIous amounLs and on varIous
daLes. TLe lasL cLeck neoLIaLed by FanIlInan
was Ior F8,000.00 and daLed Eebruary 10,
1981.6 All LLe cLecks bore LLe sLamp oI
AssocIaLed Eank wLIcL reads "All prIor
endorsemenLs uaranLeed ABB0CIATED EANK."
Jesus DavId, LLe manaer oI AssocIaLed
Eank LesLIBed LLaL FanIlInan made IL appear
LLaL LLe cLecks were paId Lo LIm Ior cerLaIn
projecLs wILL LLe LospILal.7 He dId noL Bnd as
Irreular LLe IacL LLaL LLe cLecks were noL
payable Lo FanIlInan buL Lo LLe ConcepcIon
Emerency HospILal. WLIle Le admILLed LLaL LIs
wIIe and FanIlInan's wIIe are BrsL cousIns, LLe
manaer denIed LavIn Iven FanIlInan
preIerenLIal LreaLmenL on LLIs accounL.8
0n Eebruary 26, 1981, LLe FrovIncIal
Treasurer wroLe LLe manaer oI LLe FNE seekIn
LLe resLoraLIon oI LLe varIous amounLs debILed
Irom LLe currenL accounL oI LLe FrovInce.9
In Lurn, LLe FNE manaer demanded
reImbursemenL Irom LLe AssocIaLed Eank on May
1S, 1981.10
As boLL banks resIsLed paymenL, LLe FrovInce
oI Tarlac brouLL suIL aaInsL FNE wLIcL, In Lurn,
Impleaded AssocIaLed Eank as LLIrd-parLy
deIendanL. TLe laLLer LLen Bled a IourLL-parLy
complaInL aaInsL Adena Canlas and EausLo
FanIlInan.11
AILer LrIal on LLe merILs, LLe lower courL
rendered ILs decIsIon on MarcL 21, 1988,
dIsposIn as Iollows:
"WHEFEE0FE, In vIew oI LLe IoreoIn, judmenL
Is Lereby rendered:
1. 0n LLe basIc complaInL, In Iavor oI plaInLIII
FrovInce oI Tarlac and aaInsL deIendanL
FLIlIppIne NaLIonal Eank (FNE), orderIn LLe
laLLer Lo pay Lo LLe Iormer, LLe sum oI Two
Hundred TLree TLousand TLree Hundred
(F208,800.00) Fesos wILL leal InLeresL LLereon
Irom MarcL 20, 1981 unLIl Iully paId,
2. 0n LLe LLIrd-parLy complaInL, In Iavor oI
deIendanL/LLIrd-parLy plaInLIII FLIlIppIne NaLIonal
Eank (FNE) and aaInsL LLIrd-parLy
deIendanL/IourLL-parLy plaInLIII AssocIaLed Eank
orderIn LLe laLLer Lo reImburse Lo LLe Iormer LLe
amounL oI Two Hundred TLree TLousand TLree
Hundred (F208,800.00) Fesos wILL leal InLeresLs
LLereon Irom MarcL 20, 1981 unLIl Iully paId,.
8. 0n LLe IourLL-parLy complaInL, LLe same Is
Lereby ordered dIsmIssed Ior lack oI cause oI
acLIon as aaInsL IourLL-parLy deIendanL Adena
Canlas and lack oI jurIsdIcLIon over LLe person oI
IourLL-parLy deIendanL EausLo FanIlInan as
aaInsL LLe laLLer.
4. 0n LLe counLerclaIms on LLe complaInL, LLIrd-
parLy complaInL and IourLL-parLy complaInL, LLe
same are Lereby ordered dIsmIssed Ior lack oI
merIL.
B0 0FDEFED."12
FNE and AssocIaLed Eank appealed Lo LLe
CourL oI AppealB.18 FespondenL courL aIBrmed
LLe LrIal courL's decIsIon In LoLo on BepLember 80,
1992.
Hence LLese consolIdaLed peLILIons wLIcL
seek a reversal oI respondenL appellaLe courL's
decIsIon.
FNE assIned Lwo errors. EIrsL, LLe bank
conLends LLaL respondenL courL erred In
exempLIn LLe FrovInce oI Tarlac Irom lIabIlILy
wLen, In IacL, LLe laLLer was nelIenL because IL
delIvered and released LLe quesLIoned cLecks Lo
EausLo FanIlInan wLo was LLen already reLIred
as LLe LospILal's casLIer and admInIsLraLIve
oIBcer. FNE also maInLaIns ILs Innocence and
allees LLaL as beLween Lwo InnocenL persons, LLe
one wLose acL was LLe cause oI LLe loss, In LLIs
case LLe FrovInce oI Tarlac, bears LLe loss.
NexL, FNE asserLs LLaL IL was error Ior LLe
courL Lo order IL Lo pay LLe provInce and LLen
seek reImbursemenL Irom AssocIaLed Eank.
AccordIn Lo peLILIoner bank, respondenL
appellaLe CourL sLould Lave dIrecLed AssocIaLed
Eank Lo pay LLe adjuded lIabIlILy dIrecLly Lo LLe
FrovInce oI Tarlac Lo avoId cIrcuILy.14
AssocIaLed Eank, on LLe oLLer Land, arues
LLaL LLe order oI lIabIlILy sLould be LoLally
reversed, wILL LLe drawee bank (FNE) solely and
ulLImaLely bearIn LLe loss.
FespondenL courL alleedly erred In applyIn
BecLIon 28 oI LLe FLIlIppIne ClearIn House Fules
InsLead oI CenLral Eank CIrcular No. S80, wLIcL,
beIn an admInIsLraLIve reulaLIon Issued
pursuanL Lo law, Las LLe Iorce and eIIecL oI
law.1S TLe FCHC Fules are merely conLracLual
sLIpulaLIons amon and beLween member-banks.
As sucL, LLey cannoL prevaIl over LLe aIoresaId
CE CIrcular.
IL lIkewIse conLends LLaL FNE, LLe drawee
bank, Is esLopped Irom asserLIn LLe deIense oI
uaranLee oI prIor IndorsemenLs aaInsL
AssocIaLed Eank, LLe collecLIn bank. In
sLampIn LLe uaranLee (Ior all prIor
IndorsemenLs), IL merely Iollowed a mandaLory
requIremenL Ior clearIn and Lad no cLoIce buL Lo
place LLe sLamp oI uaranLee, oLLerwIse, LLere
would be no clearIn. TLe bank wIll be In a "no-
wIn" sILuaLIon and wIll always bear LLe loss as
aaInsL LLe drawee bank.16
AssocIaLed Eank also claIms LLaL sInce FNE
already cleared and paId LLe value oI LLe Iored
cLecks In quesLIon, IL Is now esLopped Irom
asserLIn LLe deIense LLaL AssocIaLed Eank
uaranLeed prIor IndorsemenLs. TLe drawee bank
alleedly Las LLe prImary duLy Lo verIIy LLe
enuIneness oI payee's IndorsemenL beIore payIn
LLe cLeck.17
WLIle boLL banks are InnocenL oI LLe Iorery,
AssocIaLed Eank claIms LLaL FNE was aL IaulL and
sLould solely bear LLe loss because IL cleared and
paId LLe Iored cLecks.
xxx xxx
xxx
TLe case aL bencL concerns cLecks payable Lo
LLe order oI ConcepcIon Emerency HospILal or ILs
CLIeI. TLey were properly Issued and bear LLe
enuIne sInaLures oI LLe drawer, LLe FrovInce oI
Tarlac. TLe InBrmILy In LLe quesLIoned cLecks lIes
In LLe payee's (ConcepcIon Emerency HospILal)
IndorsemenLs wLIcL are IorerIes. AL LLe LIme oI
LLeIr IndorsemenL, LLe cLecks were order
InsLrumenLs.
CLecks LavIn Iored IndorsemenLs sLould be
dIIIerenLIaLed Irom Iored cLecks or cLecks
bearIn LLe Iored sInaLure oI LLe drawer.
BecLIon 28 oI LLe NeoLIable InsLrumenLs Law
(NIL) provIdes:
Bec. 28. E0F0ED BI0NATUFE, EEEECT 0E. - WLen
a sInaLure Is Iored or made wILLouL auLLorILy oI
LLe person wLose sInaLure IL purporLs Lo be, IL Is
wLolly InoperaLIve, and no rILL Lo reLaIn LLe
InsLrumenL, or Lo Ive a dIscLare LLereIor, or Lo
enIorce paymenL LLereoI aaInsL any parLy
LLereLo, can be acquIred LLrouL or under sucL
sInaLure unless LLe parLy aaInsL wLom IL Is
souLL Lo enIorce sucL rILL Is precluded Irom
seLLIn up LLe Iorery or wanL oI auLLorILy.
A Iored sInaLure, wLeLLer IL be LLaL oI LLe
drawer or LLe payee, Is wLolly InoperaLIve and no
one can aIn LILle Lo LLe InsLrumenL LLrouL IL. A
person wLose sInaLure Lo an InsLrumenL was
Iored was never a parLy and never consenLed Lo
LLe conLracL wLIcL alleedly ave rIse Lo sucL
InsLrumenL.18 BecLIon 28 does noL avoId LLe
InsLrumenL buL only LLe Iored sInaLure.19 TLus,
a Iored IndorsemenL does noL operaLe as LLe
payee's IndorsemenL.
TLe excepLIon Lo LLe eneral rule In BecLIon
28 Is wLere "a parLy aaInsL wLom IL Is souLL Lo
enIorce a rILL Is precluded Irom seLLIn up LLe
Iorery or wanL oI auLLorILy. "FarLIes wLo
warranL or admIL LLe enuIneness oI LLe
sInaLure In quesLIon and LLose wLo, by LLeIr
acLs, sIlence or nelIence are esLopped Irom
seLLIn up LLe deIense oI Iorery, are precluded
Irom usIn LLIs deIense. Indorsers, persons
neoLIaLIn by delIvery and accepLors are
warranLors oI LLe enuIneness oI LLe sInaLures
on LLe InsLIumenL.20
In bearer InsLrumenLs, LLe sInaLure oI LLe
payee or Lolder Is unnecessary Lo pass LILle Lo LLe
InsLrumenL. Hence, wLen LLe IndorsemenL Is a
Iorery, only LLe person wLose sInaLure Is
Iored can raIse LLe deIense oI Iorery aaInsL a
Lolder In due course.21
TLe cLecks Involved In LLIs case are order
InsLrumenLs, Lence, LLe IollowIn dIscussIon Is
made wILL reIerence Lo LLe eIIecLs oI a Iored
IndorsemenL on an InsLrumenL payable Lo order.
WLere LLe InsLrumenL Is payable Lo order aL
LLe LIme oI LLe Iorery, sucL as LLe cLecks In LLIs
case, LLe sInaLure oI ILs rILLIul Lolder (Lere,
LLe payee LospILal) Is essenLIal Lo LransIer LILle Lo
LLe same InsLrumenL. WLen LLe Lolder's
IndorsemenL Is Iored, all parLIes prIor Lo LLe
Iorery may raIse LLe real deIense oI Iorery
aaInsL all parLIes subsequenL LLereLo.22
An Indorser oI an order InsLrumenL
warranLs "LLaL LLe InsLrumenL Is enuIne and In
all respecLs wLaL IL purporLs Lo be, LLaL Le Las a
ood LILle Lo IL, LLaL all prIor parLIes Lad capacILy
Lo conLracL, and LLaL LLe InsLrumenL Is aL LLe
LIme oI LIs IndorsemenL valId and
subsIsLIn."28 He cannoL InLerpose LLe deIense
LLaL sInaLures prIor Lo LIm are Iored.
A collecLIn bank wLere a cLeck Is deposILed
and wLIcL Indorses LLe cLeck upon presenLmenL
wILL LLe drawee bank, Is sucL an Indorser. Bo
even II LLe IndorsemenL on LLe cLeck deposILed
by LLe banks's clIenL Is Iored, LLe collecLIn bank
Is bound by LIs warranLIes as an Indorser and
cannoL seL up LLe deIense oI Iorery as aaInsL
LLe drawee bank.
TLe bank on wLIcL a cLeck Is drawn, known
as LLe drawee bank, Is under sLrIcL lIabIlILy Lo pay
LLe cLeck Lo LLe order oI LLe payee. TLe drawer's
InsLrucLIons are reBecLed on LLe Iace and by LLe
Lerms oI LLe cLeck. FaymenL under a Iored
IndorsemenL Is noL Lo LLe drawer's order. WLen
LLe drawee bank pays a person oLLer LLan LLe
payee, IL does noL comply wILL LLe Lerms oI LLe
cLeck and vIolaLes ILs duLy Lo cLare ILs
cusLomer's (LLe drawer) accounL only Ior properly
payable ILems. BInce LLe drawee bank dId noL pay
a Lolder or oLLer person enLILled Lo receIve
paymenL, IL Las no rILL Lo reImbursemenL Irom
LLe drawer.24 TLe eneral rule LLen Is LLaL LLe
drawee bank may noL debIL LLe drawer's accounL
and Is noL enLILled Lo IndemnIBcaLIon Irom LLe
drawer.2S TLe rIsk oI loss musL perIorce Iall on
LLe drawee bank.
However, II LLe drawee bank can prove a
IaIlure by LLe cusLomer/drawer Lo exercIse
ordInary care LLaL subsLanLIally conLrIbuLed Lo
LLe makIn oI LLe Iored sInaLure, LLe drawer Is
precluded Irom asserLIn LLe Iorery.
II aL LLe same LIme LLe drawee bank was also
nelIenL Lo LLe poInL oI subsLanLIally conLrIbuLIn
Lo LLe loss, LLen sucL loss Irom LLe Iorery can be
apporLIoned beLween LLe nelIenL drawer and LLe
nelIenL bank.26
In cases InvolvIn a Iored cLeck, wLere LLe
drawer's sInaLure Is Iored, LLe drawer can
recover Irom LLe drawee bank. No drawee bank
Las a rILL Lo pay a Iored cLeck. II IL does, IL sLall
Lave Lo recredIL LLe amounL oI LLe cLeck Lo LLe
accounL oI LLe drawer. TLe lIabIlILy cLaIn ends
wILL LLe drawee bank wLose responsIbIlILy IL Is Lo
know LLe drawer's sInaLure sInce LLe laLLer Is ILs
cusLomer.27
In cases InvolvIn cLecks wILL Iored
IndorsemenLs, sucL as LLe presenL peLILIon, LLe
cLaIn oI lIabIlILy does noL end wILL LLe drawee
bank. TLe drawee bank may noL debIL LLe accounL
oI LLe drawer buL may enerally pass lIabIlILy back
LLrouL LLe collecLIon cLaIn Lo LLe parLy wLo Look
Irom LLe Iorer and, oI course, Lo LLe Iorer
LImselI, II avaIlable.28 In oLLer words, LLe drawee
bank can seek reImbursemenL or a reLurn oI LLe
amounL IL paId Irom LLe presenLor bank or
person.29 TLeoreLIcally, LLe laLLer can demand
reImbursemenL Irom LLe person wLo Indorsed LLe
cLeck Lo IL and so on. TLe loss Ialls on LLe parLy
wLo Look LLe cLeck Irom LLe Iorer, or on LLe
Iorer LImselI.
In LLIs case, LLe cLecks were Indorsed by LLe
collecLIn bank (AssocIaLed Eank) Lo LLe drawee
bank (FNE). TLe Iormer wIll necessarIly be lIable
Lo LLe laLLer Ior LLe cLecks bearIn Iored
IndorsemenLs. II LLe Iorery Is LLaL oI LLe payee's
or Lolder's IndorsemenL, LLe collecLIn bank Is
Leld lIable, wILLouL prejudIce Lo LLe laLLer
proceedIn aaInsL LLe Iorer.
BInce a Iored IndorsemenL Is InoperaLIve,
LLe collecLIn bank Lad no rILL Lo be paId by LLe
drawee bank. TLe Iormer musL necessarIly
reLurn LLe money paId by LLe laLLer because IL
was paId wronIully.80
More ImporLanLly, by reason oI LLe sLaLuLory
warranLy oI a eneral Indorser In BecLIon 66 oI
LLe NeoLIable InsLrumenLs Law, a collecLIn
bank wLIcL Indorses a cLeck bearIn a Iored
IndorsemenL and presenLs IL Lo LLe drawee bank
uaranLees all prIor IndorsemenLs, IncludIn LLe
Iored IndorsemenL. IL warranLs LLaL LLe
InsLrumenL Is enuIne, and LLaL IL Is valId and
subsIsLIn aL LLe LIme oI LIs IndorsemenL.
Eecause LLe IndorsemenL Is a Iorery, LLe
collecLIn bank commILs a breacL oI LLIs
warranLy and wIll be accounLable Lo LLe drawee
bank. TLIs lIabIlILy scLeme operaLes wILLouL
reard Lo IaulL on LLe parL oI LLe
collecLIn/presenLIn bank. Even II LLe laLLer
bank was noL nelIenL, IL would sLIll be lIable Lo
LLe drawee bank because oI ILs IndorsemenL.
TLe CourL Las consIsLenLly ruled LLaL "LLe
collecLIn bank or lasL endorser enerally suIIers
LLe loss because IL Las LLe duLy Lo ascerLaIn LLe
enuIneness oI all prIor endorsemenLs
consIderIn LLaL LLe acL oI presenLIn LLe cLeck
Ior paymenL Lo LLe drawee Is an asserLIon LLaL
LLe parLy makIn LLe presenLmenL Las done ILs
duLy Lo ascerLaIn LLe enuIneness oI LLe
endorsemenLs."81
TLe drawee bank Is noL sImIlarly sILuaLed as
LLe collecLIn bank because LLe Iormer makes no
warranLy as Lo LLe enuIneness oI any
IndorsemenL.82 TLe drawee bank's duLy Is buL Lo
verIIy LLe enuIneness oI LLe drawer's sInaLure
and noL oI LLe IndorsemenL because LLe drawer Is
ILs clIenL.
Moreover, LLe collecLIn bank Is made lIable
because IL Is prIvy Lo LLe deposILor wLo
neoLIaLed LLe cLeck. TLe bank knows LIm, LIs
address and LIsLory because Le Is a clIenL. IL Las
Laken a rIsk on LIs deposIL. TLe bank Is also In a
beLLer posILIon Lo deLecL Iorery, Iraud or
IrreularILy In LLe IndorsemenL.
Hence, LLe drawee bank can recover LLe
amounL paId on LLe cLeck bearIn a Iored
IndorsemenL Irom LLe collecLIn bank. However, a
drawee bank Las LLe duLy Lo prompLly InIorm LLe
presenLor oI LLe Iorery upon dIscovery. II LLe
drawee bank delays In InIormIn LLe presenLor oI
LLe Iorery, LLereby deprIvIn saId presenLor oI
LLe rILL Lo recover Irom LLe Iorer, LLe Iormer Is
deemed nelIenL and can no loner recover Irom
LLe presenLor.88
ApplyIn LLese rules Lo LLe case aL bencL,
FNE, LLe drawee bank, cannoL debIL LLe currenL
accounL oI LLe because IL paId cLecks wLIcL bore
Iored IndorsemenLs. However, II LLe as drawer
was nelIenL Lo LLe poInL oI subsLanLIally
conLrIbuLIn Lo LLe loss, LLen LLe drawee bank
FNE can cLare ILs accounL. II boLL drawee bank-
FNE and drawer-FrovInce oI Tarlac were
nelIenL, LLe loss sLould be properly apporLIoned
beLween LLem.
TLe loss Incurred by drawee bank-FNE can be
passed on Lo LLe collecLIn bank-AssocIaLed Eank
wLIcL presenLed and Indorsed LLe cLecks Lo IL.
AssocIaLed Eank can, In Lurn, Lold LLe Iorer,
EausLo FanIlInan, lIable.
II FNE nelIenLly delayed In InIormIn
AssocIaLed Eank oI LLe Iorery, LLus deprIvIn LLe
laLLer oI LLe opporLunILy Lo recover Irom LLe
Iorer, IL IorIeILs ILs rILL Lo reImbursemenL and
wIll be made Lo bear LLe loss.
AILer careIul examInaLIon oI LLe records, LLe
CourL Bnds LLaL LLe was equally nelIenL and
sLould, LLereIore, sLare LLe burden oI loss Irom
LLe cLecks bearIn a Iored IndorsemenL.
TLe permILLed EausLo FanIlInan Lo collecL
LLe cLecks wLen LLe laLLer, LavIn already reLIred
Irom overnmenL servIce, was no loner
connecLed wILL LLe LospILal. WILL LLe excepLIon oI
LLe BrsL cLeck (daLed ), all LLe cLecks were Issued
and released aILer FanIlInan's reLIremenL on .
AILer nearly LLree years, LLe Treasurer's oIBce
was sLIll releasIn LLe cLecks Lo LLe reLIred
casLIer. In addILIon, some oI LLe aId alloLmenL
cLecks were released Lo FanIlInan and LLe oLLers
Lo ElIzabeLL Juco, LLe new casLIer. TLe IacL LLaL
LLere were now Lwo persons collecLIn LLe cLecks
Ior LLe LospILal Is an unmIsLakable sIn oI an
IrreularILy wLIcL sLould Lave alerLed employees
In LLe Treasurer's oIBce oI LLe Iraud beIn
commILLed. TLere Is also evIdence IndIcaLIn LLaL
LLe provIncIal employees were aware oI
FanIlInan's reLIremenL and consequenL
dIssocIaLIon Irom LLe LospILal. Jose Meru, LLe
FrovIncIal Treasurer, LesLIBed:.
"ATTY. M0F0A:
Q : Now, Is IL Lrue LLaL Ior a Iven monLL
LLere were Lwo releases oI cLecks,
one wenL Lo Mr. FanIlInan and one
wenL Lo MIss Juco?
J0BE MEFU:
A : Yes, sIr.
Q : WIll you please Lell us Low aL LLe
LIme (sIc) wLen LLe auLLorIzed
represenLaLIve oI Is and was
supposed Lo be MIss Juco?
A : Well, as Iar as my InvesLIaLIon
sLow (sIc) LLe assIsLanL casLIer Lold
me LLaL FanIlInan represenLed
LImselI as also auLLorIzed Lo Lelp In
LLe release oI LLese cLecks and we
were apparenLly mIsled because
LLey accepLed LLe represenLaLIon oI
FanIlInan LLaL Le was LelpIn
LLem In LLe release oI LLe cLecks
and besIdes accordIn Lo LLem LLey
were, FanIlInan, lIke LLe resL, was
able Lo presenL an oIBcIal receIpL Lo
acknowlede LLese receIpLs and
accordIn Lo LLem sInce LLIs Is a
overnmenL cLeck and belIeved
LLaL IL wIll evenLually o Lo LLe
LospILal IollowIn LLe sLandard
procedure oI neoLIaLIn
overnmenL cLecks, LLey released
LLe cLecks Lo FanIlInan asIde Irom
MIss Juco."84
TLe IaIlure oI LLe Lo exercIse due care
conLrIbuLed Lo a sInIBcanL deree Lo LLe loss
LanLamounL Lo nelIence. Hence, LLe sLould be
lIable Ior parL oI LLe LoLal amounL paId on LLe
quesLIoned cLecks.
TLe drawee bank FNE also breacLed ILs duLy
Lo pay only accordIn Lo LLe Lerms oI LLe cLeck.
Hence, IL cannoL escape lIabIlILy and sLould also
bear parL oI LLe loss.
As earlIer sLaLed, FNE can recover Irom LLe
collecLIn bank.
In LLe case oI AssocIaLed Eank v. CA,8S sIx
crossed cLecks wILL Iored IndorsemenLs were
deposILed In LLe Iorer's accounL wILL LLe
collecLIn bank and were laLer paId by Iour
dIIIerenL drawee banks. TLe CourL Iound LLe
collecLIn bank (AssocIaLed) Lo be nelIenL and
Leld:
"TLe Eank sLould Lave BrsL verIBed LIs rILL Lo
endorse LLe crossed cLecks, oI wLIcL Le was noL
LLe payee, and Lo deposIL LLe proceeds oI LLe
cLecks Lo LIs own accounL. TLe Eank was by
reason oI LLe naLure oI LLe cLecks puL upon noLIce
LLaL LLey were Issued Ior deposIL only Lo LLe
prIvaLe respondenL's accounL. xxx"
TLe sILuaLIon In LLe case aL bencL Is
analoous Lo LLe above case, Ior IL was noL LLe
payee wLo deposILed LLe cLecks wILL LLe
collecLIn bank. Here, LLe cLecks were all payable
Lo buL IL was EausLo FanIlInan wLo deposILed LLe
cLecks In LIs personal savIns accounL.
AlLLouL AssocIaLed Eank claIms LLaL
LLe uaranLee sLamped on LLe cLecks (All prIor
and/or lack oI endorsemenLs uaranLeed) Is
merely a requIremenL Iorced upon IL by clearIn
Louse rules, IL cannoL buL remaIn lIable. TLe
sLamp uaranLeeIn prIor IndorsemenLs Is noL an
empLy rubrIc wLIcL a bank musL IulBll Ior LLe sake
oI convenIence. A bank Is noL requIred Lo accepL
all LLe cLecks neoLIaLed Lo IL. IL Is wILLIn LLe
baLk's dIscreLIon Lo receIve a cLeck Ior no bankIn
InsLILuLIon would conscIously or delIberaLely
accepL a cLeck bearIn a Iored IndorsemenL.
WLen a cLeck Is deposILed wILL LLe collecLIn
bank, IL Lakes a rIsk on ILs deposILor. IL Is only
loIcal LLaL LLIs bank be Leld accounLable Ior
cLecks deposILed by ILs cusLomers.
A delay In InIormIn LLe collecLIn bank
(AssocIaLed Eank) oI LLe Iorery, wLIcL deprIves
IL oI LLe opporLunILy Lo o aILer LLe Iorer, sInIBes
nelIence on LLe parL oI LLe drawee bank (FNE)
and wIll preclude IL Irom claImIn reImbursemenL.
IL Is Lere LLaL AssocIaLed Eank's assInmenL
oI error concernIn C.E. CIrcular No. S80 and
BecLIon 28 oI LLe FLIlIppIne ClearIn House
CorporaLIon Fules comes Lo Iore. Under BecLIon
4(c) oI CE CIrcular No. S80, ILems bearIn a Iored
endorsemenL sLall be reLurned wILLIn LwenLy-Iour
(24) Lours aILer dIscovery oI LLe Iorery buL In no
evenL beyond LLe perIod Bxed or provIded by law
Ior BlIn oI a leal acLIon by LLe reLurnIn bank.
BecLIon 28 oI LLe FCHC Fules deleLed LLe
requIremenL LLaL ILems bearIn a Iored
endorsemenL sLould be reLurned wILLIn LwenLy-
Iour Lours. AssocIaLed Eank now arues LLaL LLe
aIoremenLIoned CenLral Eank CIrcular Is
applIcable. BInce FNE dId noL reLurn LLe
quesLIoned cLecks wILLIn LwenLy-Iour Lours, buL
several days laLer, AssocIaLed Eank allees LLaL
FNE sLould be consIdered nelIenL and noL
enLILled Lo reImbursemenL oI LLe amounL IL paId
on LLe cLecks.
TLe CourL deems IL unnecessary Lo dIscuss
AssocIaLed Eank's asserLIons LLaL CE CIrcular No.
S80 Is an admInIsLraLIve reulaLIon Issued
pursuanL Lo law and as sucL, musL prevaIl over
LLe FCHC rule. TLe CenLral Eank cIrcular was In
Iorce Ior all banks unLIl June 1980 wLen LLe
FLIlIppIne ClearIn House CorporaLIon (FCHC)
was seL up and commenced operaLIons. Eanks In
MeLro ManIla were covered by LLe FCHC wLIle
banks locaLed elsewLere sLIll Lad Lo o LLrouL
CenLral Eank ClearIn. In any evenL, LLe LwenLy-
Iour-Lour reLurn rule was adopLed by LLe FCHC
unLIl IL was cLaned In 1982. TLe conLendIn
banks LereIn, wLIcL are boLL brancLes In Tarlac
provInce, are LLereIore noL covered by FCHC
Fules buL by CE CIrcular No. S80. Clearly LLen,
LLe CE cIrcular was applIcable wLen LLe Iorery
oI LLe cLecks was dIscovered In 1981.
TLe rule mandaLes LLaL LLe cLecks be
reLurned wILLIn LwenLy-Iour Lours aILer
dIscovery oI LLe Iorery buL In no evenL beyond
LLe perIod Bxed by law Ior BlIn a leal acLIon.
TLe raLIonale oI LLe rule Is Lo Ive LLe collecLIn
bank (wLIcL Indorsed LLe cLeck) adequaLe
opporLunILy Lo proceed aaInsL LLe Iorer. II
prompL noLIce Is noL Iven, LLe collecLIn bank
maybe prejudIced and lose LLe opporLunILy Lo o
aILer ILs deposILor.
TLe CourL Bnds LLaL even II FNE dId noL
reLurn LLe quesLIoned cLecks Lo AssocIaLed Eank
wILLIn LwenLy-Iour Lours, as mandaLed by LLe
rule, FNE dId noL commIL nelIenL delay. Under
LLe cIrcumsLances, FNE ave prompL noLIce Lo
AssocIaLed Eank and LLe laLLer bank was noL
prejudIced In oIn aILer EausLo FanIlInan. AILer
LLe InIormed FNE oI LLe IorerIes, FNE
necessarIly Lad Lo InspecL LLe cLecks and
conducL ILs own InvesLIaLIon. TLereaILer, IL
requesLed LLe FrovIncIal Treasurer's oIBce on Lo
reLurn LLe cLecks Ior verIBcaLIon. TLe reLurned
LLe cLecks only on . Two days laLer, AssocIaLed
Eank receIved LLe cLecks Irom FNE.86
AssocIaLed Eank was also IurnIsLed a copy
oI LLe FrovInce's leLLer oI demand Lo FNE daLed ,
LLus IvIn IL noLIce oI LLe IorerIes. AL LLIs LIme,
Lowever, FanIlInan's accounL wILL AssocIaLed
Lad only F24.68 In IL.87 Had AssocIaLed Eank
decIded Lo debIL FanIlInan's accounL, IL could noL
Lave recovered LLe amounLs paId on LLe
quesLIoned cLecks. In addILIon, wLIle AssocIaLed
Eank Bled a IourLL-parLy complaInL aaInsL
EausLo FanIlInan, IL dId noL presenL evIdence
aaInsL FanIlInan and even presenLed LIm as ILs
rebuLLal wILness.88 Hence, AssocIaLed Eank was
noL prejudIced by FNE's IaIlure Lo comply wILL LLe
LwenLy-Iour-Lour reLurn rule.
NexL, AssocIaLed Eank conLends LLaL FNE Is
esLopped Irom requIrIn reImbursemenL because
LLe laLLer paId and cleared LLe cLecks. TLe CourL
Bnds LLIs conLenLIon unmerILorIous. Even II FNE
cleared and paId LLe cLecks, IL can sLIll recover
Irom AssocIaLed Eank. TLIs Is Lrue even II LLe
payee's CLIeI 0IBcer wLo was supposed Lo Lave
Indorsed LLe cLecks Is also a cusLomer oI LLe
drawee bank.89 FNE's duLy was Lo verIIy LLe
enuIneness oI LLe drawer's sInaLure and noL LLe
enuIneness oI payee's IndorsemenL. AssocIaLed
Eank, as LLe collecLIn bank, Is LLe enLILy wILL LLe
duLy Lo verIIy LLe enuIneness oI LLe payee's
IndorsemenL.
FNE also avers LLaL respondenL courL erred
In adjudIn cIrcuILous lIabIlILy by dIrecLIn FNE
Lo reLurn Lo LLe LLe amounL oI LLe cLecks and
LLen dIrecLIn AssocIaLed Eank Lo reImburse FNE.
TLe CourL Bnds noLLIn wron wILL LLe mode oI
LLe award. TLe drawer, , Is a clIenL or cusLomer oI
LLe FNE, noL oI AssocIaLed Eank. TLere Is no
prIvILy oI conLracL beLween LLe drawer and LLe
collecLIn bank.
TLe LrIal courL made FNE and AssocIaLed
Eank lIable wILL leal InLeresL Irom , LLe daLe oI
exLrajudIcIal demand made by LLe on FNE. TLe
paymenLs Lo be made In LLIs case sLem Irom LLe
deposILs oI LLe In ILs currenL accounL wILL LLe
FNE. Eank deposILs are consIdered under LLe law
as loans.40 CenLral Eank CIrcular No. 416
prescrIbes a Lwelve percenL (12%) InLeresL per
annum Ior loans, Iorebearance oI money, oods or
credILs In LLe absence oI express sLIpulaLIon.
Normally, currenL accounLs are lIkewIse InLeresL-
bearIn, by express conLracL, LLus excludIn LLem
Irom LLe coverae oI CE CIrcular No. 416. In LLIs
case, Lowever, LLe acLual InLeresL raLe, II any, Ior
LLe currenL accounL opened by LLe wILL FNE was
noL Iven In evIdence. Hence, LLe CourL deems IL
wIse Lo aIBrm LLe LrIal courL's use oI LLe leal
InLeresL raLe, or sIx percenL (6%) per annum. TLe
InLeresL raLe sLall be compuLed Irom LLe daLe oI
deIaulL, or LLe daLe oI judIcIal or exLrajudIcIal
demand.41 TLe LrIal courL dId noL err In ranLIn
leal InLeresL Irom , LLe daLe oI exLrajudIcIal
demand.
TLe CourL Bnds as reasonable, LLe
proporLIonaLe sLarIn oI BILy percenL - BILy
percenL (S0%-S0%). Due Lo LLe nelIence oI LLe
FrovInce oI Tarlac In releasIn LLe cLecks Lo an
unauLLorIzed person (EausLo FanIlInan), In
allowIn LLe reLIred LospILal casLIer Lo receIve
LLe cLecks Ior LLe payee LospILal Ior a perIod
close Lo LLree years and In noL properly
ascerLaInIn wLy LLe reLIred LospILal casLIer was
collecLIn cLecks Ior LLe payee LospILal In
addILIon Lo LLe LospILal's real casLIer, respondenL
FrovInce conLrIbuLed Lo LLe loss amounLIn Lo.
F208,800.00 and sLall be lIable Lo LLe FNE Ior
BILy (S0%) percenL LLereoI. In eIIecL, LLe
FrovInce oI Tarlac can only recover BILy
percenL (S0%) oI F208,800.00 Irom FNE.
TLe collecLIn bank, AssocIaLed Eank, sLall
be lIable Lo FNE Ior BILy (S0%) percenL oI
F208,800.00. IL Is lIable on ILs warranLIes as
Indorser oI LLe cLecks wLIcL were deposILed by
EausLo FanIlInan, LavIn uaranLeed LLe
enuIneness oI all prIor IndorsemenLs, IncludIn
LLaL oI LLe cLIeI oI LLe payee LospILal, Dr. Adena
Canlas. AssocIaLed Eank was also remIss In ILs
duLy Lo ascerLaIn LLe enuIneness oI LLe payee's
IndorsemenL.
9& K9;O =G <8; G=$;"=9&", LLe peLILIon
Ior revIew Bled by LLe FLIlIppIne NaLIonal Eank
(0.F. No. 107612) Is Lereby FAFTIALLY
0FANTED. TLe peLILIon Ior revIew Bled by LLe
AssocIaLed Eank (0.F. No. 107882) Is
Lereby DENIED. TLe decIsIon oI LLe LrIal courL Is
M0DIEIED. TLe FLIlIppIne NaLIonal Eank sLall
pay BILy percenL (S0%) oI F208,800.00 Lo LLe
FrovInce oI Tarlac, wILL leal InLeresL Irom
MarcL 20, 1981 unLIl LLe paymenL LLereoI.
AssocIaLed Eank sLall pay BILy percenL (S0%)oI
F208,800.00 Lo LLe FLIlIppIne NaLIonal Eank,
lIkewIse, wILL leal InLeresL Irom MarcL 20, 1981
unLIl paymenL Is made.
H= =$J;$;J#
Fealado (CLaIrman), Funo and Mendoza,
JJ., concur.
1 Fenned by JusLIce AsaalI B. IsnanI, wILL AssocIaLe, JusLIces ArLuro E. Euena and FIcardo F. 0alvez,
concurrIn, daLed BepLember 80, 1992. Follo, p. 22.
2 FrovIncIal aId was Iven Irreularly. HospILal sLaII would oILen call LLe provIncIal Lreasurer's oIBce Lo
InquIre wLeLLer LLere was an alloLmenL cLeck Ior LLe LospILal. TLe LospILal's admInIsLraLIve oIBcer and
casLIer would LLen o Lo LLe provIncIal Lreasurer's oIBce Lo pIck up LLe cLeck.
CLecks receIved by LLe LospILal are deposILed In LLe accounL oI LLe NaLIonal Treasury wILL LLe FNE. All
Income oI LLe LospILal In excess oI LLe amounL wLIcL LLe NaLIonal 0overnmenL Las dIrecLed IL Lo raIse, Is
excess Income. TLe laLLer Is Iven back Lo LLe LospILal aILer a supplemenLal budeL Is prepared. WLen
LLe laLLer Is approved, an advIce oI alloLmenL Is made. TLen LLe LospILal requesLs a casL dIsbursemenL
ceIlIn. WLen approved, LLIs Is brouLL Lo LLe MInIsLry oI HealLL. TLe reIonal oIBce oI saId MInIsLry
LLen prepares a cLeck Ior LLe LospILal. TLe cLeck wIll be deposILed In LLe LospILal's currenL accounL aL
LLe FNE. (Culled Irom LLe LesLImony oI Dr. Adena Canlas, TBN, 0cLober 17, 1988, pp. 8-11, December 6,
1988, pp. 48-44).
8 TBN., MarcL 18, 1984, pp. S 1-60.
4 CLeck No. S80868 K, daLed January 17, 1978 Ior F10,000.00.
S CLeck No. S26788 K.
6 CLeck No. 8918S1 L.
7 TBN, July 10, 198S, pp. 14-1S.
8 TBN, July 10, 198S, pp. 20-21, 84-8S, BepLember 24, 198S.
9 ExLIbIL EE Ior FrovInce oI Tarlac. 0n MarcL 20, 1981, LLe FrovInce oI Tarlac reILeraLed ILs requesL In
anoLLer leLLer Lo FNE. AssocIaLed Eank was alleedly IurnIsLed wILL a copy oI LLIs leLLer. (Fecords, pp.
246-247) FNE requesLed LLe FrovInce Lo reLurn LLe cLecks In a leLLer daLed MarcL 81, 1981. TLe cLecks
were reLurned Lo FNE on AprIl 22, 1981. (ExLIbIL 00) 0n AprIl24, 1981, FNE ave LLe cLecks Lo
AssocIaLed Eank. (ExLIbIL S) AssocIaLed Eank reLurned LLe cLecks Lo FNE on AprIl 28, 1981, alon wILL
a leLLer sLaLIn ILs reIusal Lo reLurn LLe money paId by FNE. (ExLIbIL 6)
10 ExLIbIL "MM" Ior FrovInce oI Tarlac.
11 CIvIl Case No. 6227, "FrovInce oI Tarlac v. FLIlIppIne NaLIonal Eank, FLIlIppIne NaLIonal
Eank v. AssocIaLed Eank, AssocIaLed Eank v. EausLo FanIlInan and Adena 0. Canlas," FeIonal TrIal
CourL ErancL 64, Tarlac, Tarlac.
12 Fenned by Jude ArLuro U. EarIas, Jr., Follo, pp. 891-892.
18 CA-0.F. CV No. 17962.
14 FeLILIon, pp.6-7, Follo, pp. 18-14, 0.F. No. 107612.
1S CILIn AnLIque BawmIlls, Inc. v. Zayco, 17 BCFA 816, eL al., FeLILIon, p. 9, Follo, p. 10.
16 AssocIaLed Eank's FeLILIon, p. 18.
17 Id., aL 12.
18 J. CAMF0B & M. L0FEZ-CAMF0B, NE00TIAELE INBTFUMENTB LAW, 227-280(4LL ed., 1990).
19 I A. A0EAYANI, C0MMENTAFIEB AND JUFIBFFUDENCE 0N THE C0MMEFCIAL LAWB 0E THE
FHILIFFINEB 198(1989 ed.).
20 Id.,aL199.
21 J. VITU0, FANDECT 0E C0MMEFCIAL LAW AND JUFIBFFUDENCE S 1-S8 (FevIsed., 1990).
22
28 BecLIon 66, NeoLIable InsLrumenLs Law.
24 B. NICKLEB, NE00TIAELE INBTFUMENTB AND 0THEF FELATED C0MMEFCIAL FAFEF 416(2nd
ed., 1998).
2S 0reaL EasLern LIIe Insurance Co. v. Honkon and BLanLaI EankIn Corp., 48 FLIl. 678, Eanco de
0ro BavIns and MorLae Eank v. EquILable EankIn CorporaLIon, 0.F. No. L-749 17, January 20,
1988,1S7 BCFA 188, CAMF0B & L0FEZ-CAMF0B, op cIL. noLe 18 aL 288, cILIn La EayeLLe v. MercLanLs
Eank, 78 Ark S61, WIlls v. Earney, 22 Cal 240, WellInLon NaLIonal Eank v. FobbIns, 71 Kan 748.
26 F. J0FDAN & W. WAFFEN, NE00TIAELE INBTFUMENTB AND LETTEFB 0E CFEDIT 216 (1992).
27
28 Id., aL 216-28S, VITU0, op. cIL. noLe 21 aL S8.
29 Eanco de 0ro v. EquILable EankIn Corp., supra, 0reaL EasLern LIIe Insurance Co. v. HBEC, supra.
80 ArLIcle 21S4 oI LLe CIvIl Code provIdes: "II BomeLLIn Is receIved wLen LLere Is no rILL Lo demand IL,
and IL was unduly delIvered LLrouL mIsLake, LLe oblIaLIon Lo reLurn IL arIses." Eanco de
0ro v.EquILable EankIn Corp., supra.
81 Eank oI LLe FLIl. Islands v. CA, 0.F. No. 102888, November 26, 1992,216 BCFA S1, 68 cILIn Eanco de
0ro v. EquILable EankIn Corp., supra, 0reaL EasLern LIIe Insurance Co. v. HBEC, supra.
82 CAMF0B & L0FEZ-CAMF0B, op. cIL. noLe 18 aL 288 cILIn InLer-sLaLe TrusL Co. v. U.B. NaLIonal Eank,
18S Fac. 260, Honkon and BLanLaI EankIn Corp. v. Feople's Eank and TrusL Co., supra.
88 J0FDAN & WAFFEN, op. cIL. noLe 26 aL 217, CAMF0B & L0FEZ-CAMF0B, op. cIL. noLe 18 aL 288.
84 TBN., June 19, 1984, pp. 10-11.
8S 0.F. No. 89802, May 7, 1992, 208 BCFA 46S.
86 Bee IooLnoLe 9.
87 ExLIbIL "8-0" Ior AssocIaLed Eank.
88 TBN., January 8, 1987.
89 Ban Carlos MIllIn Co. LLd. v. EFI, S9 FLIl. S9.
40 ArLIcle 1980 oI LLe CIvIl Code reads: EIxed savIns, and currenL deposILs oI money In banks and
sImIlar InsLILuLIons sLall be overned by LLe provIsIons concernIn sImple loan.
41 EasLern BLIppIn LInes, Inc. v. CA, 0.F. No.97412, July 12, 1994,284 BCFA 78.
EIFBT DIVIBI0N
[0.F. No. L-29482. AuusL 6, 197S.]
JAI-ALAI C0FF0FATI0N 0E THE
FHILIFFINEB, FeLILIoner, v. EANK 0E THE
FHILIFFINE IBLAND, FespondenL.
Eausa, AmpIl & Buarez Ior FeLILIoner.
AvIado & Aranda Ior FespondenL.
BYN0FBIB
FeLILIoner deposILed In ILs currenL accounL wILL
respondenL bank several cLecks wILL a LoLal Iace
value oI F8,080.S8, all acquIred Irom AnLonIo J.
FamIrez, a reular beLLor aL LLe jaI-alaI ames and
a sale aenL oI LLe InLer-Island 0as BervIce, Inc.,
LLe payee oI LLe cLecks. TLe deposILs were all
LemporarIly credILed Lo peLILIoner's accounL In
accordance wILL LLe clause prInLed on LLe bank's
deposIL slIp. BubsequenLly, FamIrez resIned and
aILer LLe cLecks Lad been submILLed Lo InLer-bank
clearIn, LLe InLer-Island 0as dIscovered LLaL all
LLe IndorsemenL made on LLe cLeeks purporLedly
by ILs casLIers, as well as LLe rubber sLamp
ImpressIon LLereon readIn InLer-Island 0as
BervIce, Inc., were IorerIes. IL InIormed
peLILIoner, LLe respondenL, LLe drawers and LLe
drawee banks oI LLe saId cLecks and IorerIes and
Bled a crImInal complaInL aaInsL ILs Iormer
employee. In vIew oI LLese cIrcumsLances, LLe
respondenL Eank debILed LLe peLILIoner's currenL
accounL and Iorwarded Lo LLe laLLer LLe cLecks
conLaInIn LLe Iored IndorsemenLs, wLIcL
peLILIoner reIused Lo accepL. LaLer, peLILIoner drew
aaInsL ILs currenL accounL a cLeck Ior
F18S,000.00. TLIs cLeck was dIsLonored by
respondenL as ILs records sLowed LLaL peLILIoner's
balance aILer neLLIn ouL LLe value oI LLe cLecks
wILL LLe Iored IndorsemenL, was InsuIBcIenL Lo
cover LLe value oI LLe cLeck drawn. A complaInL
was Bled by peLILIoner wILL LLe CourL oI EIrsL
InsLance oI ManIla. TLe same was dIsmIssed by
LLe saId courL aILer due LrIal, as well as by LLe
CourL oI Appeals, on appeal. Hence, LLIs peLILIon
Ior revIew.
TLe Bupreme CourL ruled LLaL respondenL acLed
wILLIn leal bounds wLen IL debILed peLILIoner's
accounL, LLaL LLe paymenLs made by LLe drawee
banks Lo LLe respondenL on accounL oI LLe cLecks
wILL Iored IndorsemenLs were IneIIecLIve, LLaL on
accounL LLereoI, no credILor-debLor relaLIonsLIp
was creaLed beLween LLe parLIes, LLaL peLILIoner
was rossly recreanL In accepLIn LLe cLecks In
quesLIon Irom FamIrez wILLouL makIn any
InquIry as Lo auLLorILy Lo excLane cLecks
belonIn Lo LLe payee-corporaLIon, and LLaL
peLILIoner, In IndorsIn LLe saId cLecks wLen IL
deposILed LLem wILL respondenL, uaranLeed LLe
enuIneness oI all prIor IndorsemenL LLereon so
LLaL LLe respondenL, wLIcL relIed upon ILs
warranLy, cannoL be Leld lIable Ior LLe resulLIn
loss.
JudmenL aIBrmed
BYLLAEUB
1. NE00TIAELE INBTFUMENT, CHECKB,
E0F0ED IND0FBEMENTB EEEECT. - A Iored
sInaLure In a neoLIable InsLrumenL makes IL
wLolly InoperaLIve and no rILL Lo dIscLare IL or
enIorce ILs paymenL can be acquIred LLrouL or
under LLe Iored sInaLure excepL aaInsL a parLy
wLo cannoL Invoke LLe Iorery.
2. ID., ID., ID., N0 FELATI0N 0E CFEDIT0F-
DEET0F EETWEEN THE FAFTIEB CFEATED
EVEN IE DEF0BITAFY 0F C0LLECTIN0 EANK
HAD ALFEADY C0LLECTED THE FF0CEEDB 0E
THE CHECKB WHEN IT DEEITED FETITI0NEF'B
ACC0UNT, FEAB0N. - WLere LLe IndorsemenL
made on LLe cLecks were Iored prIor Lo LLeIr
delIvery Lo deposILor, LLe paymenLs made by LLe
drawee-banks Lo LLe collecLIn bank on accounL
oI LLe saId cLecks were IneIIecLIve. BucL beIn
LLe case, LLe relaLIonsLIp oI credILor and debLor
beLween LLe deposILor and LLe deposILory Lad noL
been valIdly eIIecLed, LLe cLecks noL LavIn
properly and leILImaLely converLed InLo casL.
8. ID., ID., ID., C0LLECTIN0 EANKB HAB DUTY
T0 FEIMEUFBE T0 DFAWEE-EANKB THE
VALUE 0E CHECKB C0NTAININ0 E0F0ED
IND0FBEMENT, FULIN0 IN THE CABE 0E
0FEAT EABTEFN LIEE INBUFANCE C0. v.
H0N0K0N0 & BHAN0HAI EANK. - In 0reaL
EasLern LIIe Ins. Co. v. Honkon & BLanLaI
Eank, 48 FLIl. 678 (1992), LLe CourL ruled LLaL IL
Is LLe oblIaLIon oI LLe collecLIn bank Lo
reImburse LLe drawee-bank LLe value oI LLe
cLecks subsequenLly Iound Lo conLaIn LLe Iored
IndorsemenL oI LLe payee. TLe reason Is LLaL LLe
bank wILL wLIcL LLe cLeck was deposILed Las no
rILL Lo pay LLe sum sLaLed LLereIn Lo LLe Iorer
or Lo anyone else upon a Iored sInaLure. IL
was ILs duLy Lo know, saId LLe CourL, LLaL (LLe
payee's) endorsemenL was enuIne beIore
casLIn LLe cLeck. TLe deposILor musL In Lurn
sLoulder LLe loss oI LLe amounLs wLIcL LLe
respondenL, as ILs collecLIn aenL, Lad no
reImburse Lo LLe drawee-banks.
4. ID., ID., ACCEFTANCE 0E CHECKB IND0FBED
EY AN A0ENT, FULIN0 IN THE CABE 0E
INBULAF DFU0 C0. v. NATI0NAL. - In Insular
Dru Co. v. NaLIonal, S8 FLIl. 68S (1988), LLe
CourL made LLe pronouncemenL LLaL. . .TLe rILL
oI an aenL Lo Indorse commercIal paper Is a very
responsIble power and wIll noL be lILLly InIerred.
A salesman wILL auLLorILy Lo collecL money
belonIn Lo LIs prIncIpal does noL Lave LLe
ImplIed auLLorILy Lo Indorse cLecks receIved In
paymenL. Any person LakIn cLecks made payable
Lo a corporaLIon wLIcL can acL by aenLs, does so
aL LIs perIl, and musL abIde by LLe consequences II
LLe aenL wLo endorses LLe same Is wILLouL
auLLorILy.cralaw vIrLua1aw lIbrary
S. ID., ID., LIAEILITY 0E AN IND0FBEF, N0 L0BB
T0 EE BUEEEFED EY A EANK WH0 FELIED 0N
IND0FBEF'B WAFFANTY. - Under BecLIon 67 oI
LLe NeoLIable InsLrumenLs Law, WLere a person
places LIs IndorsemenL on an InsLrumenL
neoLIable by delIvery Le Incurs all LLe lIabIlILy oI
an Indorser, and under BecLIon 66 oI LLe same
sLaLuLe a eneral Indorser warranLs LLaL LLe
InsLrumenL Is enuIne and In all respecLs wLaL IL
purporLs Lo be. WLere LLe deposILor Indorsed LLe
cLecks wILL Iored IndorsemenL wLen IL deposILed
LLem wILL LLe collecLIn bank, LLe Iormer as an
endorser uaranLeed LLe enuIneness oI all prIor
IndorsemenL LLereon. TLe collecLIn bank wLIcL
relIed upon LLIs warranLy cannoL be Leld lIable Ior
LLe resulLIn loss.
6. ID., ID., E0F0ED CHECKB, TFANBEEF 0E
EUNDB EF0M DFAWEE T0 C0LLECTIN0 EANK,
AFFLICATI0N 0E AFT. 21S4 0E THE CIVIL C0DE.
- TLe LransIer by LLe drawee-banks oI Iunds Lo
LLe collecLIn bank on accounL oI Iored cLecks
would be IneIIecLual wLen made under LLe
mIsLaken and valId assumpLIon LLaL LLe
IndorsemenL oI LLe payee LLereon were enuIne.
Under ArLIcle 21S4 oI LLe New CIvIl Code II
someLLIn Is receIved wLen LLere Is no rILL Lo
demand IL and IL was unduly delIvered LLrouL
mIsLake, LLe oblIaLIon Lo reLurn IL arIses, Ey
vIrLue LLereoI, LLere can be no valId paymenL oI
money by drawee-banks Lo LLe collecLIn bank on
accounL oI Iored cLecks.
D E C I B I 0 N
CABTF0, J.:
TLIs Is a peLILIon by LLe JaI-AlaI CorporaLIon oI LLe
FLIlIppInes (LereInaILer reIerred Lo as LLe
peLILIoner) Ior revIew oI LLe decIsIon oI LLe CourL
oI Appeals In C.A.-0.F. 84042-F daLed June 2S,
1968 In Iavor oI LLe Eank oI LLe FLIlIppIne
Islands (LereInaILer reIerred Lo as LLe
respondenL).
Erom AprIl 2, 19S9 Lo May 18, 19S9, Len cLecks
wILL a LoLal Iace value oI F8,080.S8 were
deposILed by LLe peLILIoner In ILs currenL accounL
wILL LLe respondenL bank. TLe parLIculars oI
LLese cLecks are as Iollows:cLanrob1es vIrLual
1aw lIbrary
1. Drawn by LLe DelLa EnIneerIn BervIce upon
LLe FacIBc EankIn CorporaLIon and payable Lo
LLe InLer-Island 0as BervIce Inc. or
order:cLanrob1es vIrLual 1aw lIbrary
DaLe CLeck ExLIbIL
DeposILed Number AmounL Number
4/2/S9 E-8S2680 FS00.00 18
4/20/S9 A-1S6907 872.82 19
4/24/S9 A-1S6924 897.82 20
S/4/S9 E-864764 2S0.00 28
S/6/S9 E-86477S 2S0.00 24
2. Drawn by LLe EnrIque CorLIz & Co. upon LLe
FacIBc EankIn CorporaLIon and payable Lo LLe
InLer-Island 0as BervIce, Inc. or
bearer:cLanrob1es vIrLual 1aw lIbrary
4/18/S9 E-88S068 F 2108.70 21
4/27/S9 E-88S072 F2210.94 22
8. Drawn by LLe Luzon TInsmILL & Company
upon LLe CLIna EankIn CorporaLIon and payable
Lo LLe InLer-Island 0as BervIce, Inc. or
bearer:cLanrob1es vIrLual 1aw lIbrary
S/18/S9 VN480188 F940.802Scralaw:red
4. Drawn by LLe Foxas ManuIacLurIn, Inc. upon
LLe FLIlIppIne NaLIonal Eank and payable Lo LLe
InLer-Island 0as BervIce, Inc. order:cLanrob1es
vIrLual 1aw lIbrary
S/14/S9 1860160 F S00.00 26
S/18/S9 1860660 F S00.00 27
All LLe IoreoIn cLecks, wLIcL were acquIred by
LLe peLILIoner Irom one AnLonIo J. FamIrez, a
sales aenL oI LLe InLer-Island 0as and a reular
beLLor aL jaI-alaI ames, were, upon deposIL,
LemporarIly credILed Lo LLe peLILIoner's accounL In
accordance wILL LLe clause prInLed on LLe deposIL
slIps Issued by LLe respondenL and wLIcL
reads:jc:cLanrobles.com.pL
Any credIL allowed LLe deposILor on LLe books oI
LLe Eank Ior cLecks or draILs Lereby receIved Ior
deposIL, Is provIsIonal only, unLIl sucL LIme as LLe
proceeds LLereoI, In currenL Iunds or solvenL
credILs, sLall Lave been acLually receIved by LLe
Eank and LLe laLLer reserves Lo ILselI LLe rILL Lo
cLare back LLe ILem Lo LLe accounL oI ILs
deposILor, aL any LIme beIore LLaL evenL,
reardless oI wLeLLer or noL LLe ILem ILselI can be
reLurned.cralaw vIrLua1aw lIbrary
AbouL LLe laLLer parL oI July 19S9, aILer FamIrez
Lad resIned Irom LLe InLer-Island 0as and aILer
LLe cLecks Lad been submILLed Lo InLer-bank
clearIn, LLe InLer-Island 0as dIscovered LLaL all
LLe IndorsemenLs made on LLe cLecks purporLedly
by ILs casLIers, BanLIao Amplayo and VIcenLa
Mucor (wLo were merely auLLorIzed Lo deposIL
cLecks Issued payable Lo LLe saId company) as
well as LLe rubber sLamp ImpressIon LLereon
readIn InLer-Island 0as BervIce, Inc., were
IorerIes. In due LIme, LLe InLer-Island 0as
advIsed LLe peLILIoner, LLe respondenL, LLe
drawers and LLe drawee-banks oI LLe saId cLecks
abouL LLe IorerIes, and Bled a crImInal complaInL
aaInsL FamIrez wILL LLe 0IBce oI LLe CILy EIscal
oI ManIla. 1
TLe respondenL's casLIer, Famon BarLLou, upon
receIpL oI LLe laLLer oI InLer-Island 0as daLed
AuusL 81, 19S9, called up LLe peLILIoner's casLIer,
Manuel 0arcIa, and advIsed LLe laLLer LLaL In vIew
oI LLe cIrcumsLances Le would debIL LLe value oI
LLe cLecks aaInsL LLe peLILIoner's accounL as
soon as LLey were reLurned by LLe respecLIve
drawee-banks.
MeanwLIle, LLe drawers oI LLe cLecks, LavIn
been noLIBed oI LLe IorerIes, demanded
reImbursemenL Lo LLeIr respecLIve accounLs Irom
LLe drawee-banks, wLIcL In Lurn demanded Irom
LLe respondenL, as collecLIn bank, LLe reLurn oI
LLe amounLs LLey Lad paId on accounL LLereoI.
WLen LLe drawee-banks reLurned LLe cLecks Lo
LLe respondenL, LLe laLLer paId LLeIr value wLIcL
LLe Iormer In Lurn paId Lo LLe InLer-Island 0as.
TLe respondenL, Ior ILs parL, debILed LLe
peLILIoner's currenL accounL and Iorwarded Lo LLe
laLLer LLe cLecks conLaInIn LLe Iored
IndorsemenLs, wLIcL LLe peLILIoner, Lowever,
reIused Lo accepL.
0n 0cLober 8, 19S9 LLe peLILIoner drew aaInsL
ILs currenL accounL wILL LLe respondenL a cLeck
Ior F18S,000 payable Lo LLe order oI LLe MarIano
0londrIz y CIa. In paymenL oI cerLaIn sLares oI
sLock. TLe cLeck was, Lowever, dIsLonored by LLe
respondenL as ILs records sLowed LLaL as oI
0cLober 8, 19S9 LLe currenL accounL oI LLe
peLILIoner, aILer neLLIn ouL LLe value oI LLe
cLecks F8,080.S8) wILL LLe Iored IndorsemenLs,
Lad a balance oI only F128,2S7.6S.
TLe peLILIoner LLen Bled a complaInL aaInsL LLe
respondenL wILL LLe CourL oI EIrsL InsLance oI
ManIla, wLIcL was Lowever dIsmIssed by LLe LrIal
courL aILer due LrIal, and as well by LLe CourL oI
Appeals, on appeal.
Hence, LLe presenL recourse.
TLe Issues posed by LLe peLILIoner In LLe InsLanL
peLILIon may be brIe By sLaLed as
Iollows:cLanrob1es vIrLual 1aw lIbrary
(a) WLeLLer LLe respondenL Lad LLe rILL Lo debIL
LLe peLILIoner's currenL accounL In LLe amounL
correspondIn Lo LLe LoLal value oI LLe cLecks In
quesLIon aILer more LLan LLree monLLs Lad
elapsed Irom LLe daLe LLeIr value was credILed Lo
LLe peLILIoner's accounL:(b) WLeLLer LLe
respondenL Is esLopped Irom claImIn LLaL LLe
amounL oI F8,080.S8, represenLIn LLe LoLal
value oI LLe cLecks wILL LLe Iored IndorsemenLs,
Lad noL been properly credILed Lo LLe peLILIoner's
accounL, sInce LLe same Lad already been paId by
LLe drawee-banks and receIved In due course by
LLe respondenL, and(c) 0n LLe assumpLIon LLaL
LLe respondenL Lad Improperly debILed LLe
peLILIoner's currenL accounL, wLeLLer LLe laLLer
Is enLILled Lo damaes.
TLese LLree Issues InLerlock and wIll be resolved
joInLly.
In our opInIon, LLe respondenL acLed wILLIn leal
bounds wLen IL debILed LLe peLILIoner's accounL.
WLen LLe peLILIoner deposILed LLe cLecks wILL
LLe respondenL, LLe naLure oI LLe relaLIonsLIp
creaLed aL LLaL sLae was one oI aency, LLaL Is,
LLe bank was Lo collecL Irom LLe drawees oI LLe
cLecks LLe correspondIn proceeds. IL Is Lrue LLaL
LLe respondenL Lad already collecLed LLe
proceeds oI LLe cLecks wLen IL debILed LLe
peLILIoner's accounL, so LLaL IollowIn LLe rule In
0ullas v. FLIlIppIne NaLIonal Eank 2 IL mILL be
arued LLaL LLe relaLIonsLIp beLween LLe parLIes
Lad become LLaL oI credILor and debLor as Lo
preclude LLe respondenL Irom usIn LLe
peLILIoner's Iunds Lo make paymenLs noL
auLLorIzed by LLe laLLer. IL Is our vIew noneLLeless
LLaL no credILor-debLor relaLIonsLIp was creaLed
beLween LLe parLIes.
BecLIon 28 oI LLe NeoLIable InsLrumenLs Law (AcL
2081) sLaLes LLaL 8 -
WLen a sInaLure Is Iored or made wILLouL LLe
auLLorILy oI LLe person wLose sInaLure IL
purporLs Lo be, IL Is wLolly InoperaLIve, and no
rILL Lo reLaIn LLe InsLrumenL, or Lo Ive a
dIscLare LLereIor, or Lo enIorce paymenL LLereoI
aaInsL any parLy LLereLo, can be acquIred
LLrouL or under sucL sInaLure, unless LLe parLy
aaInsL wLom IL Is souLL Lo enIorce sucL rILL Is
precluded Irom seLLIn up LLe Iorery or wanL oI
auLLorILy.cralaw vIrLua1aw lIbrary
BInce under LLe IoreoIn provIsIon, a Iored
sInaLure In a neoLIable InsLrumenL Is wLolly
InoperaLIve and no rILL Lo dIscLare IL or enIorce
ILs paymenL can be acquIred LLrouL or under LLe
Iored sInaLure excepL aaInsL a parLy wLo
cannoL Invoke LLe Iorery, IL sLands Lo reason,
upon LLe IacLs oI record, LLaL LLe respondenL, as a
collecLIn bank wLIcL Indorsed LLe cLecks Lo LLe
drawee-banks Ior clearIn, sLould be lIable Lo LLe
laLLer Ior reImbursemenL, Ior, as Iound by LLe
courL a quo and by LLe appellaLe courL, LLe
IndorsemenLs on LLe cLecks Lad been Iored prIor
Lo LLeIr delIvery Lo LLe peLILIoner. In leal
conLemplaLIon, LLereIore, LLe paymenLs made by
LLe drawee-banks Lo LLe respondenL on accounL oI
LLe saId cLecks were IneIIecLIve, and, sucL beIn
LLe case, LLe relaLIonsLIp oI credILor and debLor
beLween LLe peLILIoner and LLe respondenL Lad
noL been valIdly eIIecLed, LLe cLecks noL LavIn
been properly and leILImaLely converLed InLo
casL. 4
In 0reaL EasLern LIIe Ins. Co. v. Honkon &
BLanLaI Eank, S LLe CourL ruled LLaL IL Is LLe
oblIaLIon oI LLe collecLIn bank Lo reImburse LLe
drawee-bank LLe value oI LLe cLecks subsequenLly
Iound Lo conLaIn LLe Iored IndorsemenL oI LLe
payee. TLe reason Is LLaL LLe bank wILL wLIcL LLe
cLeck was deposILed Las no rILL Lo pay LLe sum
sLaLed LLereIn Lo LLe Iorer or anyone else upon a
Iored sInaLure. IL was ILs duLy Lo know, saId
LLe CourL, LLaL [LLe payee's] endorsemenL was
enuIne beIore casLIn LLe cLeck. TLe peLILIoner
musL In Lurn sLoulder LLe loss oI LLe amounLs
wLIcL LLe respondenL, as ILs collecLIn aenL, Lad
Lo reImburse Lo LLe drawee-banks.
We do noL consIder maLerIal Ior LLe purposes oI
LLe case aL bar LLaL more LLan LLree monLLs Lad
elapsed sInce LLe proceeds oI LLe cLecks In
quesLIon were collecLed by LLe FespondenL. TLe
record sLows LLaL LLe respondenL Lad acLed
prompLly aILer beIn InIormed LLaL LLe
IndorsemenLs on LLe cLecks were Iored.
Moreover, LavIn receIved LLe cLecks merely Ior
collecLIon and deposIL, LLe respondenL cannoL Le
expecLed Lo know or ascerLaIn LLe enuIneness oI
all prIor IndorsemenLs on LLe saId cLecks.
Indeed, LavIn ILselI Indorsed LLem Lo LLe
respondenL In accordance wILL LLe rules and
pracLIces oI commercIal banks, oI wLIcL LLe
CourL Lakes due conIzance, LLe peLILIoner Is
deemed Lo Lave Iven LLe warranLy prescrIbed In
BecLIon 66 oI LLe NeoLIable InsLrumenLs Law
LLaL every sInle one oI LLose cLecks Is enuIne
and In all respecLs wLaL IL purporLs Lo be..
TLe peLILIoner was, moreover, rossly recreanL In
accepLIn LLe cLecks In quesLIon Irom FamIrez. IL
could noL Lave escaped LLe aLLenLIon oI LLe
peLILIoner LLaL LLe payee oI all LLe cLecks was a
corporaLIon - LLe InLer-Island 0as BervIce, Inc.
YeL, LLe peLILIoner casLed LLese cLecks Lo a mere
IndIvIdual wLo was admILLedly a LabILue aL ILs jaI-
alaI ames wILLouL makIn any InquIry as Lo LIs
auLLorILy Lo excLane cLecks belonIn Lo LLe
payee-corporaLIon. In Insular Dru Co. v. NaLIonal
6 LLe CourL made LLe pronouncemenL LLaL.
. . . TLe rILL oI an aenL Lo Indorse commercIal
paper Is a very responsIble power and wIll noL be
lILLly InIerred. A salesman wILL auLLorILy Lo
collecL money belonIn Lo LIs prIncIpal does noL
Lave LLe ImplIed auLLorILy Lo Indorse cLecks
receIved In paymenL. Any person LakIn cLecks
made payable Lo a corporaLIon, wLIcL can acL
only by aenLs, does so aL LIs perIl, and musL
abIde by LLe consequences II LLe aenL wLo
Indorses LLe same Is wILLouL auLLorILy.
(underscorIn supplIed)
IL musL be noLed IurLLer LLaL LLree oI LLe cLecks
In quesLIon are crossed cLecks, namely, exLs. 21,
2S and 27, wLIcL may only be deposILed, buL noL
encasLed, yeL, LLe peLILIoner nelIenLly accepLed
LLem Ior casL. TLaL Lwo oI LLe crossed cLecks,
namely, exLs. 21 and 2S, are bearer InsLrumenLs
would noL, In our vIew, exculpaLe LLe peLILIoner
Irom lIabIlILy wILL respecL Lo LLem. TLe IacL LLaL
LLey are bearer cLecks and aL LLe same LIme
crossed cLecks sLould Lave aroused LLe
peLILIoner's suspIcIon as Lo LLe LILle oI FamIrez
over LLem and LIs auLLorILy Lo casL LLem
(apparenLly Lo purcLase jaI-alaI LIckeLs Irom LLe
peLILIoner), IL appearIn on LLeIr Iace LLaL a
corporaLe enLILy - LLe InLer Island 0as BervIce,
Inc. - was LLe payee LLereoI and FamIrez
delIvered LLe saId cLecks Lo LLe peLILIoner
osLensIbly on LLe sLrenLL oI LLe payee's casLIers'
IndorsemenLs.
AL all evenLs, under BecLIon 67 oI LLe NeoLIable
InsLrumenLs Law, WLere a person places LIs
IndorsemenL on an InsLrumenL neoLIable by
delIvery Le Incurs all LLe lIabIlILy oI an Indorser,
and under BecLIon 66 oI LLe same sLaLuLe a
eneral Indorser warranLs LLaL LLe InsLrumenL Is
enuIne and In all respecLs wLaL IL purporLs Lo be.
ConsIderIn LLaL LLe peLILIoner Indorsed LLe saId
cLecks wLen IL deposILed LLem wILL LLe
respondenL, LLe peLILIoner as an Indorser
uaranLeed LLe enuIneness oI all prIor
IndorsemenLs LLereon. TLe respondenL wLIcL
relIed upon LLe peLILIoner's warranLy sLould noL
be Leld lIable Ior LLe resulLIn loss. TLIs
conclusIon applIed sImIlarly Lo exL. 22 wLIcL Is an
uncrossed bearer InsLrumenL, Ior under BecLIon
6S oI LLe NeoLIable InsLrumenL Law. Every
person neoLIaLIn an InsLrumenL by delIvery . . .
warranLs (a) TLaL LLe InsLrumenL Is enuIne and
In all respecLs wLaL IL purporLs Lo be. Under LLaL
same secLIon LLIs warranLy exLends In Iavor oI no
Lolder oLLer LLan LLe ImmedIaLe LransIeree,
wLIcL, In LLe case aL bar, would be
LLe FespondenL.
TLe provIsIon In LLe deposIL slIp Issued by LLe
respondenL wLIcL sLIpulaLes LLaL IL reserves Lo
ILselI LLe rILL Lo cLare back LLe ILem Lo LLe
accounL oI ILs deposILor, aL any LIme beIore
currenL Iunds or solvenL credILs sLall Lave been
acLually receIved by LLe Eank, would noL
maLerIally aIIecL LLe conclusIon we Lave reacLed.
TLaL sLIpulaLIon prescrIbes LLaL LLere musL be an
acLual receIpL by LLe bank oI currenL Iunds or
solvenL credILs, buL as we Lave earlIer IndIcaLed
LLe LransIer by LLe drawee-banks oI Iunds Lo LLe
respondenL on accounL oI LLe cLecks In quesLIon
was IneIIecLual because made under LLe mIsLaken
and valId assumpLIon LLaL LLe IndorsemenLs oI LLe
payee LLereon were enuIne. Under arLIcle 21S4 oI
LLe New CIvIl Code II someLLIn Is receIved wLen
LLere Is no rILL Lo demand IL and IL was unduly
delIvered LLrouL mIsLake, LLe oblIaLIon Lo
reLurn IL arIses. TLere was, LLereIore, In
conLemplaLIon oI law, no valId paymenL oI money
made by LLe drawee-banks Lo LLe respondenL on
accounL oI LLe quesLIoned cLecks.
ACC0FDIN0LY, LLe judmenL oI LLe CourL oI
Appeals Is aIBrmed, aL peLILIoner's cosL.
MakasIar, Esuerra, Muoz Falma and
MarLIn, JJ., concur.
TeeLankee, J., Is on leave.
EndnoLes:
1. TLe CILy EIscal dropped LLe
cLares on LLe round LLaL LLe InLer-
Island 0as wLIcL was laLer
reImbursed by LLe drawee-banks, was
no loner qualIBed Lo be rearded as
an oIIended parLy wLIcL could
properly Ble a complaInL aaInsL
FamIrez because IL Lad noL suIIered
any damae aL all.
2. 62 FLIl. S19 (198S).
8. A bank cLeck Is a neoLIable
InsLrumenL and Is overned by LLe
NeoLIable InsLrumenLs Law (An
TIon v. TIn, 22 BCFA 718).
4. TLe collecLIn Lank may cerLaInly
seL up as deIense LLe so-called 24-
Lour clearIn Louse rule oI LLe
CenLral Eank. TLIs rule Is noL,
Lowever, Invoked Lere. Bee Honkon
& BLanLaI EankIn Corp. v. Feople's
Eank & TrusL Co., 8S BCFA 141.
S. 48 FLIl. 678 (1922).
6. S8 FLIl. 68S (1988).
FepublIc oI LLe FLIlIppInes
HF7$;L; E=F$<
ManIla
EIFBT DIVIBI0N

"#$# &'# :Q[)*45 UX1Y W(3 (4*+
$;7F>:9E >-&?3 plaInLIII-appellee,
vs.
L-F$9E9- <# ;>$-J-3 deIendanL-appellanL.
BabIno de Leon, Jr. Ior plaInLIII-appellee.
JulIo Ealdonado Ior deIendanL-appellanL.

L-$<9&3 U#V
Appeal on a quesLIon oI law oI LLe decIsIon oI LLe
CourL oI EIrsL InsLance oI ManIla, ErancL ZZIII In
CIvIl Case No. 69288, enLILled FepublIc Eank vs.
MaurIcIa T. Ebrada.
0n or abouL Eebruary 27, 1968 deIendanL
MaurIcIa T. Ebrada, encasLed Eack Fay CLeck No.
S08060 daLed January 1S, 1968 Ior F1,246.08 aL
LLe maIn oIBce oI LLe plaInLIII FepublIc Eank aL
EscolLa, ManIla. TLe cLeck was Issued by LLe
Eureau oI Treasury. ( FlaInLIII Eank was laLer
advIsed by LLe saId bureau LLaL LLe alleed
IndorsemenL on LLe reverse sIde oI LLe aIoresaId
cLeck by LLe payee, MarLIn Lorenzo was a
Iorery 2 sInce LLe laLLer Lad alleedly dIed as oI
July 14, 19S2. W FlaInLIII Eank was LLen requesLed
by LLe Eureau oI Treasury Lo reIund LLe amounL oI
F1,246.08. [ To recover wLaL IL Lad reIunded Lo
LLe Eureau oI Treasury, plaInLIII Eank made
verbal and Iormal demands upon deIendanL
Ebrada Lo accounL Ior LLe sum oI F1,246.08, buL
saId deIendanL reIused Lo do so. Bo plaInLIII Eank
sued deIendanL Ebrada beIore LLe CILy CourL oI
ManIla.
0n July 11, 1966, deIendanL Ebrada Bled Ler
answer denyIn LLe maLerIal alleaLIons oI LLe
complaInL and as aIBrmaLIve deIenses alleed LLaL
sLe was a Lolder In due course oI LLe cLeck In
quesLIon, or aL LLe very leasL, Las acquIred Ler
rILLs Irom a Lolder In due course and LLereIore
enLILled Lo LLe proceeds LLereoI. BLe also alleed
LLaL LLe plaInLIII Eank Las no cause oI acLIon
aaInsL Ler, LLaL IL Is In esLoppel, or so nelIenL
as noL Lo be enLILled Lo recover anyLLIn Irom
Ler. +
AbouL LLe same day, July 11, 1966 deIendanL
Ebrada Bled a TLIrd-FarLy complaInL aaInsL
AdelaIda DomInuez wLo, In Lurn, Bled on
BepLember 14, 1966 a EourLL-FarLy complaInL
aaInsL JusLIna TInIo.
0n MarcL 21, 1967, LLe CILy CourL oI ManIla
rendered judmenL Ior LLe plaInLIII Eank aaInsL
deIendanL Ebrada, Ior TLIrd-FarLy plaInLIII
aaInsL TLIrd-FarLy deIendanL, AdelaIda
DomInuez, and Ior EourLL-FarLy plaInLIII aaInsL
EourLL-FarLy deIendanL, JusLIna TInIo.
Erom LLe judmenL oI LLe CILy CourL, deIendanL
Ebrada Look an appeal Lo LLe CourL oI EIrsL
InsLance oI ManIla wLere LLe parLIes submILLed a
parLIal sLIpulaLIon oI IacLs as Iollows:
C0ME N0W LLe undersIned
counsel Ior LLe plaInLIII, deIendanL,
TLIrd-FarLy deIendanL and EourLL-
FarLy plaInLIII and unLo LLIs
Honorable CourL mosL respecLIully
submIL LLe IollowIn:
FAFTIAL BTIFULATI0N 0E EACTB
1. TLaL LLey admIL LLeIr respecLIve
capacILIes Lo sue and be sued,
2. TLaL on January 1S, 1968 LLe
Treasury oI LLe FLIlIppInes Issued
ILs CLeck No. EF-S08060, payable
Lo LLe order oI one MAFTIN
L0FENZ0, In LLe sum oI
F1,246.08, and drawn on LLe
FepublIc Eank, plaInLIII LereIn,
wLIcL cLeck wIll be marked as
ExLIbIL A Ior LLe plaInLIII,
8. TLaL LLe back sIde oI
aIoremenLIoned cLeck bears LLe
IollowIn sInaLures, In LLIs order:
1) MAFTIN L0FENZ0,
2) FAM0N F. L0FENZ0,
8) DELIA D0MIN0UEZ, and
4) MAUFICIA T. EEFADA,
4. TLaL LLe aIoremenLIoned cLeck was delIvered
Lo LLe deIendanL MAUFICIA T. EEFADA by LLe
TLIrd-FarLy deIendanL and EourLL-FarLy plaInLIII
ADELAIDA D0MIN0UEZ, Ior LLe purpose oI
encasLmenL,
S. TLaL LLe sInaLure oI deIendanL
MAUFICIA T. EEFADA was aIBxed
on saId cLeck on Eebruary 27,
1968 wLen sLe encasLed IL wILL
LLe plaInLIII Eank,
6. TLaL ImmedIaLely aILer
deIendanL MAUFICIA T. EEFADA
receIved LLe casL proceeds oI saId
cLeck In LLe sum oI F1,246.08
Irom LLe plaInLIII Eank, sLe
ImmedIaLely Lurned over LLe saId
amounL Lo LLe LLIrd-parLy
deIendanL and IourLL-parLy
plaInLIII ADELAIDA D0MIN0UEZ,
wLo In Lurn Landed LLe saId
amounL Lo LLe IourLL-parLy
deIendanL JUBTINA TINI0 on LLe
same daLe, as evIdenced by LLe
receIpL sIned by Ler wLIcL wIll be
marked as ExLIbIL 1-DomInuez,
and
7. TLaL LLe parLIes LereLo reserve
LLe rILL Lo presenL evIdence on
any oLLer IacL noL covered by LLe
IoreoIn sLIpulaLIons,
ManIla, FLIlIppInes, June 6, 1969.
Eased on LLe IoreoIn sLIpulaLIon oI IacLs and
LLe documenLary evIdence presenLed, LLe LrIal
courL rendered a decIsIon, LLe dIsposILIve porLIon
oI wLIcL reads as Iollows:
WHEFEE0FE, LLe CourL renders
judmenL orderIn LLe deIendanL
MaurIcIa T. Ebrada Lo pay LLe
plaInLIII LLe amounL oI 0NE
TH0UBAND TW0 E0FTY-BIZ
08/100 (F1,246.08), wILL InLeresL
aL LLe leal raLe Irom LLe BlIn oI
LLe complaInL on June 16, 1966,
unLIl Iully paId, plus LLe cosLs In
boLL InsLances aaInsL MaurIcIa T.
Ebrada.
TLe rILL oI MaurIcIa T. Ebrada Lo
Ble wLaLever claIm sLe may Lave
aaInsL AdelaIda DomInuez In
connecLIon wILL LLIs case Is Lereby
reserved. TLe rILL oI LLe esLaLe oI
DomInuez Lo Ble LLe IourLL-parLy
complaInL aaInsL JusLIna TInIo Is
also reserved.
B0 0FDEFED.
In Ler appeal, deIendanL-appellanL presses LLaL
LLe lower courL erred:
IN 0FDEFIN0 THE AFFELLANT T0
FAY THE AFFELLEE THE EACE
VALUE 0E THE BUEJECT CHECK
AETEF EINDIN0 THAT THE
DFAWEF IBBUED THE BUEJECT
CHECK T0 A FEFB0N ALFEADY
DECEABED E0F 11-7 YEAFB AND
THAT THE AFFELLANT DID N0T
EENEEIT EF0M ENCABHIN0 BAID
CHECK.
Erom LLe sLIpulaLIon oI IacLs IL Is admILLed LLaL
LLe cLeck In quesLIon was delIvered Lo deIendanL-
appellanL by AdelaIda DomInuez Ior LLe purpose
oI encasLmenL and LLaL Ler sInaLure was aIBxed
on saId cLeck wLen sLe casLed IL wILL LLe plaInLIII
Eank. LIkewIse IL Is admILLed LLaL deIendanL-
appellanL was LLe lasL Indorser oI LLe saId cLeck.
As sucL Indorser, sLe was supposed Lo Lave
warranLed LLaL sLe Las ood LILle Lo saId cLeck,
Ior under BecLIon 6S oI LLe NeoLIable
InsLrumenLs Law: 5
Every person neoLIaLIn an
InsLrumenL by delIvery or by
qualIBed IndorsemenL, warranLs:
(a) TLaL LLe InsLrumenL Is enuIne
and In all respecLs wLaL IL purporLs
Lo be.
(b) TLaL sLe Las ood LILle Lo IL.
xxx xxx xxx
and under BecLIon 6S oI LLe same AcL:
Every Indorser wLo Indorses
wILLouL qualIBcaLIon warranLs Lo
all subsequenL Lolders In due
course:
(a) TLe maLLers and LLIns
menLIoned In subdIvIsIons (a), (b),
and (c) oI LLe nexL precedIn
secLIons,
(b) TLaL LLe InsLrumenL Is aL LLe
LIme oI LIs IndorsemenL valId and
subsIsLIn.
IL Lurned ouL, Lowever, LLaL LLe sInaLure oI LLe
orIInal payee oI LLe cLeck, MarLIn Lorenzo was a
Iorery because Le was already dead 7 almosL 11
years beIore LLe cLeck In quesLIon was Issued by
LLe Eureau oI Treasury. Under acLIon 28 oI LLe
NeoLIable InsLrumenLs Law (AcL 2081):
WLen a sInaLure Is Iored or
made wILLouL LLe auLLorILy oI LLe
person wLose sInaLure IL
purporLs Lo be, IL Is wLolly
InoperaLIve, and no rILL Lo reLaIn
LLe InsLrumenLs, or Lo Ive a
dIscLare LLereoI aaInsL any
parLy LLereLo, can be acquIred
LLrouL or under sucL sInaLure
unless LLe parLy aaInsL wLom IL
Is souLL Lo enIorce sucL rILL Is
precluded Irom seLLIn up LLe
Iorery or wanL oI auLLorILy.
IL Is clear Irom LLe provIsIon LLaL wLere LLe
sInaLure on a neoLIable InsLrumenL II Iored,
LLe neoLIaLIon oI LLe cLeck Is wILLouL Iorce or
eIIecL. EuL does LLIs mean LLaL LLe exIsLence oI
one Iored sInaLure LLereIn wIll render voId all
LLe oLLer neoLIaLIons oI LLe cLeck wILL respecL
Lo LLe oLLer parLIes wLose sInaLure are
enuIne?
In LLe case oI Eeam vs. Earrel, 18S Iowa 670, 118
N.W. S90, wLere a cLeck Las several
IndorsemenLs on IL, IL was Leld LLaL IL Is only LLe
neoLIaLIon based on LLe Iored or unauLLorIzed
sInaLure wLIcL Is InoperaLIve. ApplyIn LLIs
prIncIple Lo LLe case beIore Us, IL can be saIely
concluded LLaL IL Is only LLe neoLIaLIon
predIcaLed on LLe Iored IndorsemenL LLaL sLould
be declared InoperaLIve. TLIs means LLaL LLe
neoLIaLIon oI LLe cLeck In quesLIon Irom MarLIn
Lorenzo, LLe orIInal payee, Lo Famon F.
Lorenzo, LLe second Indorser, sLould be declared
oI no aIIecL, buL LLe neoLIaLIon oI LLe aIoresaId
cLeck Irom Famon F. Lorenzo Lo AdelaIda
DomInuez, LLe LLIrd Indorser, and Irom AdelaIda
DomInuez Lo LLe deIendanL-appellanL wLo dId
noL know oI LLe Iorery, sLould be consIdered
valId and enIorceable, barrIn any claIm oI
Iorery.
WLaL Lappens LLen, II, aILer LLe drawee bank Las
paId LLe amounL oI LLe cLeck Lo LLe Lolder
LLereoI, IL was dIscovered LLaL LLe sInaLure oI LLe
payee was Iored? Can LLe drawee bank recover
Irom LLe one wLo encasLed LLe cLeck?
In LLe case oI BLaLe v. Eroadway MuL. Eank, 282
B.W. 196, 197, IL was Leld LLaL LLe drawee oI a
cLeck can recover Irom LLe Lolder LLe money paId
Lo LIm on a Iored InsLrumenL. IL Is noL supposed
Lo be ILs duLy Lo ascerLaIn wLeLLer LLe sInaLures
oI LLe payee or Indorsers are enuIne or noL. TLIs
Is because LLe Indorser Is supposed Lo warranL Lo
LLe drawee LLaL LLe sInaLures oI LLe payee and
prevIous Indorsers are enuIne, warranLy noL
exLendIn only Lo Lolders In due course. 0ne wLo
purcLases a cLeck or draIL Is bound Lo saLIsIy
LImselI LLaL LLe paper Is enuIne and LLaL by
IndorsIn IL or presenLIn IL Ior paymenL or
puLLIn IL InLo cIrculaLIon beIore presenLaLIon Le
ImplIedly asserLs LLaL Le Las perIormed LIs duLy
and LLe drawee wLo Las paId LLe Iored cLeck,
wILLouL acLual nelIence on LIs parL, may
recover LLe money paId Irom sucL nelIenL
purcLasers. In sucL cases LLe recovery Is
permILLed because alLLouL LLe drawee was In a
way nelIenL In IaIlIn Lo deLecL LLe Iorery, yeL II
LLe encasLer oI LLe cLeck Lad perIormed LIs duLy,
LLe Iorery would In all probabIlILy, Lave been
deLecLed and LLe Iraud deIeaLed. TLe reason Ior
allowIn LLe drawee bank Lo recover Irom LLe
encasLer Is:
Every one wILL even LLe leasL
experIence In busIness knows LLaL
no busIness man would accepL a
cLeck In excLane Ior money or
oods unless Le Is saLIsBed LLaL LLe
cLeck Is enuIne. He accepLs IL only
because Le Las prooI LLaL IL Is
enuIne, or because Le Las
suIBcIenL conBdence In LLe LonesLy
and BnancIal responsIbIlILy oI LLe
person wLo voucLes Ior IL. II Le Is
deceIved Le Las suIIered a loss oI
LIs casL or oods LLrouL LIs own
mIsLake. HIs own credulILy or
recklessness, or mIsplaced
conBdence was LLe sole cause oI LLe
loss. WLy sLould Le be permILLed Lo
sLIIL LLe loss due Lo LIs own IaulL In
assumIn LLe rIsk, upon LLe
drawee, sImply because oI LLe
accIdenLal cIrcumsLance LLaL LLe
drawee aILerwards IaIled Lo deLecL
LLe Iorery wLen LLe cLeck was
presenLed? ,
BImIlarly, In LLe case beIore Us, LLe deIendanL-
appellanL, upon receIvIn LLe cLeck In quesLIon
Irom AdelaIda DomInuez, was duLy-bound Lo
ascerLaIn wLeLLer LLe cLeck In quesLIon was
enuIne beIore presenLIn IL Lo plaInLIII Eank Ior
paymenL. Her IaIlure Lo do so makes Ler lIable Ior
LLe loss and LLe plaInLIII Eank may recover Irom
Ler LLe money sLe receIved Ior LLe cLeck. As
reasoned ouL above, Lad sLe perIormed LLe duLy
oI ascerLaInIn LLe enuIneness oI LLe cLeck, In
all probabIlILy LLe Iorery would Lave been
deLecLed and LLe Iraud deIeaLed.
In our jurIsdIcLIon We Lave a case oI sImIlar
ImporL. 4 TLe 0reaL EasLern LIIe Insurance
Company drew ILs cLeck Ior F2000.00 on LLe
Honkon and BLanLaI EankIn CorporaLIon
payable Lo LLe order oI Lazaro MelIcor. A cerLaIn
E. M. MaasIn IraudulenLly obLaIned LLe cLeck and
Iored LLe sInaLure oI MelIcor, as an Indorser,
and LLen personally Indorsed and presenLed LLe
cLeck Lo LLe FLIlIppIne NaLIonal Eank wLere LLe
amounL oI LLe cLeck was placed Lo LIs (MaasIn's)
credIL. 0n LLe nexL day, LLe FLIlIppIne NaLIonal
Eank Indorsed LLe cLeek Lo LLe Honkon and
BLanLaI EankIn CorporaLIon wLIcL paId IL and
cLared LLe amounL oI LLe cLeck Lo LLe Insurance
company. TLe CourL Leld LLaL LLe Honkon and
BLanLaI EankIn CorporaLIon was lIable Lo LLe
Insurance company Ior LLe amounL oI LLe cLeck
and LLaL LLe FLIlIppIne NaLIonal Eank was In
Lurn lIable Lo LLe Honkon and BLanLaI
EankIn CorporaLIon. BaId LLe CourL:
WLere a cLeck Is drawn payable Lo
LLe order oI one person and Is
presenLed Lo a bank by anoLLer
and purporLs upon ILs Iace Lo Lave
been duly Indorsed by LLe payee oI
LLe cLeck, IL Is LLe duLy oI LLe
bank Lo know LLaL LLe cLeck was
duly Indorsed by LLe orIInal
payee, and wLere LLe bank pays
LLe amounL oI LLe cLeck Lo a LLIrd
person, wLo Las Iored LLe
sInaLure oI LLe payee, LLe loss
Ialls upon LLe bank wLo casLed
LLe cLeck, and ILs only remedy Is
aaInsL LLe person Lo wLom IL paId
LLe money.
WILL LLe IoreoIn docLrIne We are Lo concede
LLaL LLe plaInLIII Eank sLould suIIer LLe loss
wLen IL paId LLe amounL oI LLe cLeck In quesLIon
Lo deIendanL-appellanL, buL IL Las LLe remedy Lo
recover Irom LLe laLLer LLe amounL IL paId Lo Ler.
AlLLouL LLe deIendanL-appellanL Lo wLom LLe
plaInLIII Eank paId LLe cLeck was noL proven Lo
be LLe auLLor oI LLe supposed Iorery, yeL as lasL
Indorser oI LLe cLeck, sLe Las warranLed LLaL sLe
Las ood LILle Lo IL () even II In IacL sLe dId noL
Lave IL because LLe payee oI LLe cLeck was already
dead 11 years beIore LLe cLeck was Issued. TLe
IacL LLaL ImmedIaLely aILer receIvIn LILle casL
proceeds oI LLe cLeck In quesLIon In LLe amounL oI
F1,246.08 Irom LLe plaInLIII Eank, deIendanL-
appellanL ImmedIaLely Lurned over saId amounL Lo
AdelaIda DomInuez (TLIrd-FarLy deIendanL and
LLe EourLL-FarLy plaInLIII) wLo In Lurn Landed LLe
amounL Lo JusLIna TInIo on LLe same daLe would
noL exempL Ler Irom lIabIlILy because by doIn so,
sLe acLed as an accommodaLIon parLy In LLe cLeck
Ior wLIcL sLe Is also lIable under BecLIon 29 oI LLe
NeoLIable InsLrumenLs Law (AcL 2081), LLus: .An
accommodaLIon parLy Is one wLo Las sIned LLe
InsLrumenL as maker, drawer, accepLor, or
Indorser, wILLouL receIvIn value LLereIor, and Ior
LLe purpose oI lendIn LIs name Lo some oLLer
person. BucL a person Is lIable on LLe InsLrumenL
Lo a Lolder Ior value, noLwILLsLandIn sucL Lolder
aL LLe LIme oI LakIn LLe InsLrumenL knew LIm Lo
be only an accommodaLIon parLy.
IN VIEW 0E THE E0FE00IN0, LLe judmenL
appealed Irom Is Lereby aIBrmed In LoLo wILL
cosLs aaInsL deIendanL-appellanL.
B0 0FDEFED.
MakalInLal, C.J, CasLro, MakasIar and Esuerra,
JJ., concur.

FepublIc oI LLe FLIlIppInes
HF7$;L; E=F$<
ManIla
BEC0ND DIVIBI0N
"#$# &'# (2([(W UMBXM/Y 243 2))(
789:9779&; E=LL;$E9-: 9&<;$&-<9=&-:
>-&? ]^'/_@/1Y 9&HF:-$ >-&? =G -H9-
-&J -L;$9E-`3peLILIoner,
vs.
E=F$< =G -77;-:H MBN G=$J 789:9779&;H3
9&E# MBN E9<9>-&?3 &#-#3 respondenLs.
"#$# &'# (2([*4 UMBXM/Y 243 2))(
G=$J 789:9779&;H3 9&E#3 peLILIoner-plaInLIII,
vs.
E=F$< =G -77;-:H MBN E9<9>-&?3 &#-# MBN
789:9779&; E=LL;$E9-: 9&<;$&-<9=&-:
>-&?3respondenLs.
"#$# &'# (2,5)[ UMBXM/Y 243 2))(
G=$J 789:9779&;H3 9&E#3 peLILIoner,
vs.
E9<9>-&?3 &#-#3 789:9779&; E=LL;$E9-:
9&<;$&-<9=&-: >-&? MBN E=F$< =G
-77;-:H3respondenLs.
TF9HFL>9&"3 U#V
TLese consolIdaLed peLILIons Involve several
IraudulenLly neoLIaLed cLecks.
TLe orIInal acLIons a quo were InsLILuLed by Eord
FLIlIppInes Lo recover Irom LLe drawee bank,
CITIEANK, N.A. (CILIbank) and collecLIn bank,
FLIlIppIne CommercIal InLernaLIonal Eank
(FCIEank) [Iormerly Insular Eank oI AsIa and
AmerIca], LLe value oI several cLecks payable Lo
LLe CommIssIoner oI InLernal Fevenue, wLIcL
were embezzled alleedly by an oranIzed
syndIcaLe.1wpLI1.nL
0.F. Nos. 121418 and 121479 are LwIn peLILIons
Ior revIew oI LLe MarcL 27, 199S DecIsIon1 oI LLe
CourL oI Appeals In CA-0.F. CV No. 2S017,
enLILled Eord FLIlIppInes, Inc. vs. CILIbank, N.A.
and Insular Eank oI AsIa and AmerIca (now
FLIlIpppIne CommercIal InLernaLIonal Eank), and
LLe AuusL 8, 199S FesoluLIon,2 orderIn LLe
collecLIn bank, FLIlIppIne CommercIal
InLernaLIonal Eank, Lo pay LLe amounL oI
CILIbank CLeck No. BN-04867.
In 0.F. No. 128604, peLILIoner Eord FLIlIppInes
assaIls LLe 0cLober 1S, 1996 DecIsIon8 oI LLe
CourL oI Appeals and ILs MarcL S, 1997
FesoluLIon4 In CA-0.F. No. 28480 enLILled Eord
FLIlIppInes, Inc. vs. CILIbank, N.A. and FLIlIppIne
CommercIal InLernaLIonal Eank, aIBrmIn In
LoLo LLe judmenL oI LLe LrIal courL LoldIn LLe
deIendanL drawee bank, CILIbank, N.A., solely
lIable Lo pay LLe amounL oI F12,168,298.10 as
damaes Ior LLe mIsapplIed proceeds oI LLe
plaInLIII's CILIbanl CLeck Numbers BN-10S97 and
16S08.
9# "#$# &'D# (2([(W MBN (2([*4
TLe sLIpulaLed IacLs submILLed by LLe parLIes as
accepLed by LLe CourL oI Appeals are as Iollows:
0n 0cLober 19, 1977, LLe plaInLIII Eord
drew and Issued ILs CILIbank CLeck No.
BN-04867 In LLe amounL oI
F4,746,114.41, In Iavor oI LLe
CommIssIoner oI InLernal Fevenue as
paymenL oI plaInLIII,s percenLae or
manuIacLurer's sales Laxes Ior LLe LLIrd
quarLer oI 1977.
TLe aIoresaId cLeck was deposILed wILL
LLe deendanL IEAA (now FCIEank) and
was subsequenLly cleared aL LLe CenLral
Eank. Upon presenLmenL wILL LLe
deIendanL CILIbank, LLe proceeds oI LLe
cLeck was paId Lo IEAA as collecLIn or
deposILory bank.
TLe proceeds oI LLe same CILIbank cLeck oI
LLe plaInLIII was never paId Lo or receIved
by LLe payee LLereoI, LLe CommIssIoner oI
InLernal Fevenue.
As a consequence, upon demand oI LLe
Eureau and/or CommIssIoner oI InLernal
Fevenue, LLe plaInLIII was compelled Lo
make a second paymenL Lo LLe Eureau oI
InLernal Fevenue oI ILs
percenLae/manuIacLurers' sales Laxes Ior
LLe LLIrd quarLer oI 1977 and LLaL saId
second paymenL oI plaInLIII In LLe amounL
oI F4,746,114.41 was duly receIved by LLe
Eureau oI InLernal Fevenue.
IL Is IurLLer admILLed by deIendanL
CILIbank LLaL durIn LLe LIme oI LLe
LransacLIons In quesLIon, plaInLIII Lad been
maInLaInIn a cLeckIn accounL wILL
deIendanL CILIbank, LLaL CILIbank CLeck
No. BN-04867 wLIcL was drawn and Issued
by LLe plaInLIII In Iavor oI LLe
CommIssIoner oI InLernal Fevenue was a
crossed cLeck In LLaL, on ILs Iace were Lwo
parallel lInes and wrILLen In beLween saId
lInes was LLe pLrase Fayee's AccounL
0nly, and LLaL deIendanL CILIbank paId LLe
Iull Iace value oI LLe cLeck In LLe amounL
oI F4,746,114.41 Lo LLe deIendanL IEAA.
IL Las been duly esLablIsLed LLaL Ior LLe
paymenL oI plaInLIII's percenLae Lax Ior
LLe lasL quarLer oI 1977, LLe Eureau oI
InLernal Fevenue Issued Fevenue Tax
FeceIpL No. 18747002, daLed 0cLober 20,
1977, desInaLIn LLereIn In MunLInlupa,
MeLro ManIla, as LLe auLLorIzed aenL
bank oI MeLrobanl, Alaban brancL Lo
receIve LLe Lax paymenL oI LLe plaInLIII.
0n December 19, 1977, plaInLIII's CILIbank
CLeck No. BN-04867, LoeLLer wILL LLe
Fevenue Tax FeceIpL No. 18747002, was
deposILed wILL deIendanL IEAA, LLrouL
ILs ErmILa ErancL. TLe laLLer accepLed LLe
cLeck and senL IL Lo LLe CenLral ClearIn
House Ior clearIn on LLe samd day, wILL
LLe IndorsemenL aL LLe back all prIor
IndorsemenLs and/or lack oI IndorsemenLs
uaranLeed. TLereaILer, deIendanL IEAA
presenLed LLe cLeck Ior paymenL Lo
deIendanL CILIbank on same daLe,
December 19, 1977, and LLe laLLer paId
LLe Iace value oI LLe cLeck In LLe amounL
oI F4,746,114.41. ConsequenLly, LLe
amounL oI F4,746,114.41 was debILed In
plaInLIII's accounL wILL LLe deIendanL
CILIbank and LLe cLeck was reLurned Lo
LLe plaInLIII.
Upon verIBcaLIon, plaInLIII dIscovered
LLaL ILs CILIbank CLeck No. BN-04867 In
LLe amounL oI F4,746,114.41 was noL paId
Lo LLe CommIssIoner oI InLernal Fevenue.
Hence, In separaLe leLLers daLed 0cLober
26, 1979, addressed Lo LLe deIendanLs,
LLe plaInLIII noLIBed LLe laLLer LLaL In case
IL wIll be re-assessed by LLe EIF Ior LLe
paymenL oI LLe Laxes covered by LLe saId
cLecks, LLen plaInLIII sLall Lold LLe
deIendanLs lIable Ior reImbursemenL oI
LLe Iace value oI LLe same. EoLL
deIendanLs denIed lIabIlILy and reIused Lo
pay.
In a leLLer daLed Eebruary 28, 1980 by LLe
AcLIn CommIssIoner oI InLernal Fevenue
addressed Lo LLe plaInLIII - supposed Lo be
ExLIbIL D, LLe laLLer was oIBcIally
InIormed, amon oLLers, LLaL ILs cLeck In
LLe amounL oI F4, 746,114.41 was noL
paId Lo LLe overnmenL or ILs auLLorIzed
aenL and InsLead encasLed by
unauLLorIzed persons, Lence, plaInLIII Las
Lo pay LLe saId amounL wILLIn BILeen days
Irom receIpL oI LLe leLLer. Upon advIce oI
LLe plaInLIII's lawyers, plaInLIII on MarcL
11, 1982, paId Lo LLe Eureau oI InLernal
Fevenue, LLe amounL oI F4,746,114.41,
represenLIn paymenL oI plaInLIII's
percenLae Lax Ior LLe LLIrd quarLer oI
1977.
As a consequence oI deIendanL's reIusal Lo
reImburse plaInLIII oI LLe paymenL IL Lad
made Ior LLe second LIme Lo LLe EIF oI ILs
percenLae Laxes, plaInLIII Bled on
January 20, 1988 ILs orIInal complaInL
beIore LLIs CourL.
0n December 24, 198S, deIendanL IEAA
was mered wILL LLe FLIlIppIne
CommercIal InLernaLIonal Eank (FCI
Eank) wILL LLe laLLer as LLe survIvIn
enLILy.
DeIendanL CILIbank maInLaIns LLaL, LLe
paymenL IL made oI plaInLIII's CILIbank
CLeck No. BN-04867 In LLe amounL oI
F4,746,114.41 was In due course, IL
merely relIed on LLe clearIn sLamp oI LLe
deposILory/collecLIn bank, LLe deIendanL
IEAA LLaL all prIor IndorsemenLs and/or
lack oI IndorsemenLs uaranLeed, and LLe
proxImaLe cause oI plaInLIII's Injury Is LLe
ross nelIence oI deIendanL IEAA In
IndorsIn LLe plaInLIII's CILIbank cLeck In
quesLIon.
IL Is admILLed LLaL on December 19, 1977
wLen LLe proceeds oI plaInLIII's CILIbank
CLeck No. BN-048867 was paId Lo
deIendanL IEAA as collecLIn bank,
plaInLIII was maInLaInIn a cLeckIn
accounL wILL deIendanL CILIbank.S
AlLLouL IL was noL amon LLe sLIpulaLed IacLs, an
InvesLIaLIon by LLe NaLIonal Eureau oI
InvesLIaLIon (NEI) revealed LLaL CILIbank CLeck
No. BN-04867 was recalled by 0odoIredo FIvera,
LLe 0eneral Leder AccounLanL oI Eord. He
purporLedly needed Lo Lold back LLe cLeck
because LLere was an error In LLe compuLaLIon oI
LLe Lax due Lo LLe Eureau oI InLernal Fevenue
(EIF). WILL FIvera's InsLrucLIon, FCIEank
replaced LLe cLeck wILL Lwo oI ILs own Manaer's
CLecks (MCs). Alleed members oI a syndIcaLe
laLer deposILed LLe Lwo MCs wILL LLe FacIBc
EankIn CorporaLIon.
Eord, wILL leave oI courL, Bled a LLIrd-parLy
complaInL beIore LLe LrIal courL ImpleadIn FacIBc
EankIn CorporaLIon (FEC) and 0odoIredo FIvera,
as LLIrd parLy deIendanLs. EuL LLe courL dIsmIssed
LLe complaInL aaInsL FEC Ior lack oI cause oI
acLIon. TLe course lIkewIse dIsmIssed LLe LLIrd-
parLy complaInL aaInsL 0odoIredo FIvera because
Le could noL be served wILL summons as LLe NEI
declared LIm as a IuILIve Irom jusLIce.
0n June 1S, 1989, LLe LrIal courL rendered ILs
decIsIon, as Iollows:
FremIses consIdered, judmenL Is Lereby
rendered as Iollows:
1. 0rderIn LLe deIendanLs
CILIbank and IEAA (now FCI Eank),
joInLly and severally, Lo pay LLe
plaInLIII LLe amounL oI
F4,746,114.41 represenLIn LLe
Iace value oI plaInLIII's CILIbank
CLeck No. BN-04867, wILL InLeresL
LLereon aL LLe leal raLe sLarLIn
January 20, 1988, LLe daLe wLen
LLe orIInal complaInL was Bled
unLIl LLe amounL Is Iully paId, plus
cosLs,
2. 0n deIendanL CILIbank's cross-
claIm: orderIn LLe cross-deIendanL
IEAA (now FCI Eank) Lo reImburse
deIendanL CILIbank Ior wLaLever
amounL LLe laLLer Las paId or may
pay Lo LLe plaInLIII In accordance
wILL nexL precedIn pararapL,
8. TLe counLerclaIms asserLed by
LLe deIendanLs aaInsL LLe
plaInLIII, as well as LLaL asserLed
by LLe cross-deIendanL aaInsL LLe
cross-claImanL are dIsmIssed, Ior
lack oI merILs, and
4. WILL cosLs aaInsL LLe
deIendanLs.
B0 0FDEFED.6
NoL saLIsBed wILL LLe saId decIsIon, boLL
deIendanLs, CILIbank and FCIEank, elevaLed LLeIr
respecLIve peLILIons Ior revIew on cerLIorarI Lo
LLe CourLs oI Appeals. 0n MarcL 27, 199S, LLe
appellaLe courL Issued ILs judmenL as Iollows:
WHEFEE0FE, In vIew oI LLe IoreoIn,
LLe courL AEEIFMB LLe appealed decIsIon
wILL modIBcaLIons.
TLe courL Lereby renderes judmenL:
1. J0D_0DD0Ba LLe complaInL In
CIvIl Case No. 49287 InsoIar as
deIendanL CILIbank N.A. Is
concerned,
2. =/N@/0Ba LLe deIendanL IEAA
now FCI Eank Lo pay LLe plaInLIII
LLe amounL oI F4,746,114.41
represenLIn LLe Iace value oI
plaInLIII's CILIbank CLeck No. BN-
04867, wILL InLeresL LLereon aL
LLe leal raLe sLarLIn January 20,
1988, LLe daLe wLen LLe orIInal
complaInL was Bled unLIl LLe
amounL Is Iully paId,
8. DIsmIssIn LLe counLerclaIms
asserLed by LLe deIendanLs aaInsL
LLe plaInLIII as well as LLaL
asserLed by LLe cross-deIendanL
aaInsL LLe cross-claImanL, Ior
lack oI merILs.
CosLs aaInsL LLe deIendanL IEAA
(now FCI Eank).
IT IB B0 0FDEFED.7
FCI Eank moved Lo reconsIder LLe above-quoLed
decIsIon oI LLe CourL oI Appeals, wLIle Eord Bled
a MoLIon Ior FarLIal FeconsIderaLIon. EoLL
moLIons were denIed Ior lack oI merIL.
BeparaLely, FCIEank and Eord Bled beIore LLIs
CourL, peLILIons Ior revIew by cerLIorarI under
Fule 4S.
In 0.F. No. 121418, FCIEank seeks LLe reversal oI
LLe decIsIon and resoluLIon oI LLe TwelILL
DIvIsIon oI LLe CourL oI Appeals conLendIn LLaL IL
merely acLed on LLe InsLrucLIon oI Eord and sucL
casue oI acLIon Lad already prescrIbed.
FCIEank seLs IorLL LLe IollowIn Issues Ior
consIderaLIon:
I. DId LLe respondenL courL err wLen, aILer
BndIn LLaL LLe peLILIoner acLed on LLe
cLeck drawn by respondenL Eord on LLe
saId respondenL's InsLrucLIons, IL
neverLLeless Iound LLe peLILIoner lIable Lo
LLe saId respondenL Ior LLe Iull amounL oI
LLe saId cLeck.
II. DId LLe respondenL courL err wLen IL dId
noL Bnd prescrIpLIon In Iavor oI LLe
peLILIoner.8
In a counLer move, Eord Bled ILs peLILIon dockeLed
as 0.F. No. 121479, quesLIonIn LLe same decIsIon
and resoluLIon oI LLe CourL oI Appeals, and
prayIn Ior LLe reInsLaLemenL In LoLo oI LLe
decIsIon oI LLe LrIal courL wLIcL Iound boLL
FCIEank and CILIbank joInLly and severally lIable
Ior LLe loss.
In 0.F. No. 121479, appellanL Eord presenLs LLe
IollowIn proposILIons Ior consIderaLIon:
I. FespondenL CILIbank Is lIable Lo
peLILIoner Eord consIderIn LLaL:
1. As drawee bank, respondenL
CILIbank owes Lo peLILIoner Eord, as
LLe drawer oI LLe subjecL cLeck and
a deposILor oI respondenL CILIbank,
an absoluLe and conLracLual duLy Lo
pay LLe proceeds oI LLe subjecL
cLeck only Lo LLe payee LLereoI, LLe
CommIssIoner oI InLernal Fevenue.
2. FespondenL CILIbank IaIled Lo
observe ILs duLy as banker wILL
respecL Lo LLe subjecL cLeck, wLIcL
was crossed and payable Lo Fayee's
AccounL 0nly.
8. FespondenL CILIbank raIses an
Issue Ior LLe BrsL LIme on appeal,
LLus LLe same sLould noL be
consIdered by LLe Honorable CourL.
4. As correcLly Leld by LLe LrIal
courL, LLere Is no evIdence oI ross
nelIence on LLe parL oI peLILIoner
Eord.9
II. FCI Eank Is lIable Lo peLILIoner Eord
consIderIn LLaL:
1. TLere were no InsLrucLIons Irom
peLILIoner Eord Lo delIver LLe
proceeds oI LLe subjecL cLeck Lo a
person oLLer LLan LLe payee
named LLereIn, LLe CommIssIoner
oI LLe Eureau oI InLernal Fevenue,
LLus, FCIEank's only oblIaLIon Is
Lo delIver LLe proceeds Lo LLe
CommIssIoner oI LLe Eureau oI
InLernal Fevenue.10
2. FCIEank wLIcL aIBxed ILs
IndorsemenL on LLe subjecL cLeck
(All prIor IndorsemenL and/or
lack oI IndorsemenL uaranLeed),
Is lIable as collecLIn bank.11
8. FCIEank Is barred Irom raIsIn
Issues oI IacL In LLe InsLanL
proceedIns.12
4. FeLILIoner Eord's cause oI acLIon
Lad noL prescrIbed.18
99# "#$# &'# (2,5)[
TLe same sysndIcaLe apparenLly embezzled LLe
proceeds oI cLecks InLended, LLIs LIme, Lo seLLle
Eord's percenLae Laxes apperLaInIn Lo LLe
second quarLer oI 1978 and LLe BrsL quarLer oI
1979.
TLe IacLs as narraLed by LLe CourL oI Appeals are
as Iollows:
Eord drew CILIbank CLeck No. BN-10S97 on July
19, 1978 In LLe amounL oI FS,8S1,706.87
represenLIn LLe percenLae Lax due Ior LLe
second quarLer oI 1978 payable Lo LLe
CommIssIoner oI InLernal Fevenue. A EIF
Fevenue Tax FeceIpL No. 2864S88S was Issued
Ior LLe saId purpose.
0n AprIl 20, 1979, Eord drew anoLLer CILIbank
CLeck No. BN-16S08 In LLe amounL oI
F6,811,S91.78, represenLIn LLe paymenL oI
percenLae Lax Ior LLe BrsL quarLer oI 1979 and
payable Lo LLe CommIssIoner oI InLernal
Fevenue. AaIn a EIF Fevenue Tax FeceIpL No.
A-1697160 was Issued Ior LLe saId purpose.
EoLL cLecks were crossed cLecks and conLaIn
Lwo dIaonal lInes on ILs upper corner beLween,
wLIcL were wrILLen LLe words payable Lo LLe
payee's accounL only.
TLe cLecks never reacLed LLe payee, CIF. TLus,
In a leLLer daLed Eebruary 28, 1980, LLe EIF,
FeIon 4-E, demanded Ior LLe saId Lax paymenLs
LLe correspondIn perIods above-menLIoned.
As Iar as LLe EIF Is concernced, LLe saId Lwo EIF
Fevenue Tax FeceIpLs were consIdered Iake and
spurIous. TLIs anomaly was conBrmed by LLe
NEI upon LLe InILIaLIve oI LLe EIF. TLe BndIns
Iorced Eord Lo pay LLe EIF a new, wLIle an acLIon
was Bled aaInsL CILIbank and FCIEank Ior LLe
recovery oI LLe amounL oI CILIbank CLeck
Numbers BN-10S97 and 16S08.
TLe FeIonal TrIal CourL oI MakaLI, ErancL S7,
wLIcL LrIed LLe case, made ILs BndIns on
LLe modus operandI oI LLe syndIcaLe, as Iollows:
A cerLaIn Mr. 0odoIredo FIvera was
employed by LLe plaInLIII E0FD as ILs
0eneral Leder AccounLanL. As sucL, Le
prepared LLe plaInLIII's cLeck marked Ex.
'A' [CILIbank CLeck No. Bn-10S97] Ior
paymenL Lo LLe EIF. InsLead, Lowever, Io
delIverIn LLe same oI LLe payee, Le passed
on LLe cLeck Lo a co-conspIraLor named
FemberLo CasLro wLo was a pro-manaer
oI LLe Ban Andres ErancL oI FCIE.* In
connIvance wILL one WInsLon Dulay,
CasLro LImselI subsequenLly opened a
CLeckIn AccounL In LLe name oI a
BcLILIous person denomInaLed as 'Feynaldo
reyes' In LLe Meralco ErancL oI FCIEank
wLere Dulay works as AssIsLanL Manaer.
AILer an InILIal deposIL oI F100.00 Lo
valIdaLe LLe accounL, CasLro deposILed a
worLLless Eank oI AmerIca CLeck In
exacLly LLe same amounL as LLe BrsL E0FD
cLeck (ExL. A, FS,8S1,706.87) wLIle LLIs
worLLless cLeck was coursed LLrouL
FCIE's maIn oIBce enrouLe Lo LLe CenLral
Eank Ior clearIn, replaced LLIs worLLless
cLeck wILL E0FD's ExLIbIL 'A' and
accordInly Lampered LLe accompanyIn
documenLs Lo cover LLe replacemenL. As a
resulL, ExLIbIL 'A' was cleared by deIendanL
CITIEANK, and LLe BcLILIous deposIL
accounL oI 'Feynaldo Feyes' was credILed
aL LLe FCIE Meralco ErancL wILL LLe LoLal
amounL oI LLe E0FD cLeck ExLIbIL 'A'. TLe
same meLLod was aaIn uLIlIzed by LLe
syndIcaLe In proBLIn Irom ExL. 'E'
[CILIbank CLeck No. BN-16S08] wLIcL was
subsequenLly pIlIered by AlexIs MarIndo,
FIvera's AssIsLanL aL E0FD.
Erom LLIs 'Feynaldo Feyes' accounL,
CasLro drew varIous cLecks dIsLrIbuLIn
LLe saLres oI LLe oLLer parLIcIpaLIn
conspIraLors namely (1) CFIBANT0
EEFNAEE, LLe masLermInd wLo
IormulaLed LLe meLLod Ior LLe
embezzlemenL, (2) F0D0LE0 F. DE LE0N
a cusLoms broker wLo neoLIaLed LLe
InILIal conLacL beLween Eernabe, E0FD's
0odoIredo FIvera and FCIE's FemberLo
CasLro, (8) JUAN VABTILL0 wLo assIsLed
de Leon In LLe InILIal arranemenLs, (4)
00D0EFED0 FIVEFA, E0FD's accounLanL
wLo passed on LLe BrsL cLeck (ExLIbIL
A) Lo CasLro, (S) FEMEFT0 CABTF0,
FCIE's pro-manaer aL Ban Andres wLo
perIormed LLe swILcLIn oI cLecks In LLe
clearIn process and opened LLe BcLILIous
Feynaldo Feyes accounL aL LLe FCIE
Meralco ErancL, (6) WINBT0N DULAY,
FCIE's AssIsLanL Manaer aL ILs Meralco
ErancL, wLo assIsLed CasLro In swILcLIn
LLe cLecks In LLe clearIn process and
IacIlILaLed LLe openIn oI LLe BcLILIous
Feynaldo Feyes' bank accounL, (7)
ALEZIB MAFIND0, FIvera's AssIsLanL aL
E0FD, wLo ave LLe second cLeck (ExL.
E) Lo CasLro, (8) ELEUTEFI0 JIMENEZ,
EIF CollecLIon AenL wLo provIded LLe
Iake and spurIous revenue Lax receIpLs Lo
make IL appear LLaL LLe EIF Lad receIved
E0FD's Lax paymenLs.
Beveral oLLer persons and enLILIes were
uLIlIzed by LLe syndIcaLe as conduILs In
LLe dIsbursemenLs oI LLe proceeds oI LLe
Lwo cLecks, buL lIke LLe aIoremenLIoned
parLIcIpanLs In LLe conspIracy, Lave noL
been Impleaded In LLe presenL case. TLe
manner by wLIcL LLe saId Iunds were
dIsLrIbuLed amon LLem are Lraceable
Irom LLe record oI cLecks drawn aaInsL
LLe orIInal Feynaldo Feyes accounL and
IndubILably IdenLIIy LLe parLIes wLo
Illeally beneBLed LLereIrom and readIly
IndIcaLe In wLaL amounLs LLey dId so.14
0n December 9, 1988, FeIonal TrIal CourL oI
MakaLI, ErancL S7, Leld drawee-bank, CILIbank,
lIable Ior LLe value oI LLe Lwo cLecks wLIle
adsolvIn FCIEank Irom any lIabIlILy, dIsposIn
as Iollows:
WHEFEE0FE, judmenL Is Lereby
rendered senLencIn deIendanL CITIEANK
Lo reImburse plaInLIII E0FD LLe LoLal
amounL oI F12,168,298.10 prayed Ior In
ILs complaInL, wILL 6% InLeresL LLereon
Irom daLe oI BrsL wrILLen demand unLIl
Iull paymenL, plus F800,000.00
aLLorney's Iees and expenses lILIaLIon,
and Lo pay LLe deIendanL, FCIE (on ILs
counLerclaIm Lo crossclaIm) LLe sum oI
F800,000.00 as aLLorney's Iees and cosLs
oI lILIaLIon, and pay LLe cosLs.
B0 0FDEFED.1S
EoLL Eord and CILIbank appealed Lo LLe CourL oI
Appeals wLIcL aIBrmed, In LoLo, LLe decIsIon oI
LLe LrIal courL. Hence, LLIs peLILIon.
FeLILIoner Eord prays LLaL judmenL be rendered
seLLIn asIde LLe porLIon oI LLe CourL oI Appeals
decIsIon and ILs resoluLIon daLed MarcL S, 1997,
wILL respecL Lo LLe dIsmIssal oI LLe complaInL
aaInsL FCIEank and LoldIn CILIbank solely
responsIble Ior LLe proceeds oI CILIbank CLeck
Numbers BN-10S97 and 16S08 Ior FS,8S1,706.78
and F6,811,S91.78 respecLIvely.
Eord avers LLaL LLe CourL oI Appeals erred In
dIsmIssIn LLe complaInL aaInsL deIendanL
FCIEank consIderIn LLaL:
I. DeIendanL FCIEank was clearly nelIenL
wLen IL IaIled Lo exercIse LLe dIlIence
requIred Lo be exercIsed by IL as a bankIn
InsILuLIon.
II. DeIendanL FCIEank clearly IaIled Lo
observe LLe dIlIence requIred In LLe
selecLIon and supervIsIon oI ILs oIBcers and
employees.
III. DeIendanL FCIEank was, due Lo ILs
nelIence, clearly lIable Ior LLe loss or
damae resulLIn Lo LLe plaInLIII Eord as a
consequence oI LLe subsLILuLIon oI LLe
cLeck consIsLenL wILL BecLIon S oI CenLral
Eank CIrcular No. S80 serIes oI 1977.
IV. AssumIn aruedo LLaL deIedanL
FCIEank dId noL accepL, endorse or
neoLIaLe In due course LLe subjecL cLecks,
IL Is lIable, under ArLIcle 21S4 oI LLe CIvIl
Code, Lo reLurn LLe money wLIcL IL admILs
LavIn receIved, and wLIcL was credILed Lo
IL ILs CenLral bank accounL.16
TLe maIn Issue presenLed Ior our consIderaLIon by
LLese peLILIons could be sImplIBed as Iollows: Has
peLILIoner Eord LLe rILL Lo recover Irom LLe
collecLIn bank (FCIEank) and LLe drawee bank
(CILIbank) LLe value oI LLe cLecks InLended as
paymenL Lo LLe CommIssIoner oI InLernal
Fevenue? 0r Las Eord's cause oI acLIon already
prescrIbed?
NoLe LLaL In LLese cases, LLe cLecks were drawn
aaInsL LLe drawee bank, buL LLe LILle oI LLe
person neoLIaLIn LLe same was alleedly
deIecLIve because LLe InsLrumenL was obLaIned by
Iraud and unlawIul means, and LLe proceeds oI LLe
cLecks were noL remILLed Lo LLe payee. IL was
esLablIsLed LLaL InsLead oI payIn LLe cLecks Lo
LLe CIF, Ior LLe seLLlemenL oI LLe approprILe
quarLerly percenLae Laxes oI Eord, LLe cLecks
were dIverLed and encasLed Ior LLe evenLual
dIsLrIbuLIon amon LLe mmbers oI LLe syndIcaLe.
As Lo LLe unlawIul neoLIaLIon oI LLe cLeck LLe
applIcable law Is BecLIon SS oI LLe NeoLIable
InsLrumenLs Law (NIL), wLIcL provIdes:
WLen LILle deIecLIve -- TLe LILle oI a person
wLo neoLIaLes an InsLrumenL Is deIecLIve
wILLIn LLe meanIn oI LLIs AcL wLen Le
obLaIned LLe InsLrumenL, or any sInaLure
LLereLo, by Iraud, duress, or Iore and Iear,
or oLLer unlawIul means, or Ior an Illeal
consIderaLIon, or wLen Le neoLIaLes IL In
breacL oI IaILL or under sucL
cIrcumsLances as amounL Lo a Iraud.
FursuanL Lo LLIs provIsIon, IL Is vILal Lo sLow LLaL
LLe neoLIaLIon Is made by LLe perpeLaLor In
breacL oI IaILL amounLIn Lo Iraud. TLe person
neoLIaLIn LLe cLecks musL Lave one beyond
LLe auLLorILy Iven by LIs prIncIpal. II LLe
prIncIpal could prove LLaL LLere was no
nelIence In LLe perIormance oI LIs duLIes, Le
may seL up LLe personal deIense Lo escape
lIabIlILy and recover Irom oLLer parLIes wLo.
TLouL LLeIr own nelIence, alowed LLe
commIssIon oI LLe crIme.
In LLIs case, we noLe LLaL LLe dIrecL perpeLraLors
oI LLe oIIense, namely LLe embezzlers belonIn
Lo a syndIcaLe, are now IuILIves Irom jusLIce.
TLey Lave, even II LemporarIly, escaped lIabIlILy
Ior LLe embezzlemenL oI mIllIons oI pesos. We are
LLus leIL only wILL LLe Lask oI deLermInIn wLo oI
LLe presenL parLIes beIore us musL bear LLe
burden oI loss oI LLese mIllIons. IL all boIls down
Lo LLequesLIon oI lIabIlILy based on LLe deree oI
nelIence amon LLe parLIes concerned.
EoremosL, we musL resolve wLeLLer LLe Injured
parLy, Eord, Is uIlLy oI LLe ImpuLed conLrIbuLory
nelIence LLaL would deIeaL ILs claIm Ior
reImbursemenL, bearIn In mInd LLaL ILs
employees, 0odoIredo FIvera and AlexIs
MarIndo, were amon LLe members oI LLe
syndIcaLe.
CILIbank poInLs ouL LLaL Eord allowed ILs very
own employee, 0odoIredo FIvera, Lo neoLIaLe LLe
cLecks Lo LIs co-conspIraLors, InsLead oI
delIverIn LLem Lo LLe desInaLed auLLorIzed
collecLIn bank (MeLrobank-Alaban) oI LLe
payee, CIF. CILIbank bewaIls LLe IacL LLaL Eord
was remIss In LLe supervIsIon and conLrol oI ILs
own employees, InasmucL as IL only dIscovered
LLe syndIcaLe's acLIvILIes LLrouL LLe InIormaLIon
Iven by LLe payee oI LLe cLecks aILer an
unreasonable perIod oI LIme.
FCIEank also blames Eord oI nelIence wLen IL
alleedly auLLorIzed 0odoIredo FIvera Lo dIverL
LLe proceeds oI CILIbank CLeck No. BN-04867,
InsLead oI usIn IL Lo pay LLe EIF. As Lo LLe
subsequenL run-around oI unds oI CILIbank CLeck
Nos. BN-10S97 and 16S08, FCIEank claIms LLaL
LLe proxImaLe cause oI LLe dame Lo Eord lIes In
ILs own oIBcers and employees wLo carrIed ouL
LLe IradulenL scLemes and LLe LransacLIons.
TLese cIrcumsLances were noL cLecked by oLLer
oIBcers oI LLe company IncludIn ILs compLroller
or InLernal audILor. FCIEank conLends LLaL LLe
InacLIon oI Eord despILe LLe enormILy oI LLe
amounL Involved was a sLeer nelIence and
sLaLed LLaL, as beLween Lwo InnocenL persons, one
oI wLom musL suIIer LLe consequences oI a breacL
oI LrusL, LLe one wLo made IL possIble, by LIs acL oI
nelIence, musL bear LLe loss.
Eor ILs parL, Eord denIes any nelIence In LLe
perIormance oI ILs duLIes. IL avers LLaL LLere was
no evIdence presenLed beIore LLe LrIal courL
sLowIn lack oI dIlIence on LLe parL oI Eord. And,
cILIn LLe case oI 0empesaw vs. CourL oI
Appeals,17 Eord arues LLaL even II LLere was a
BndIn LLereIn LLaL LLe drawer was nelIenL, LLe
drawee bank was sLIll ordered Lo pay damaes.
EurLLermore, Eord conLends LLe 0odoIredo rIvera
was noL auLLorIzed Lo make any represenLaLIon In
ILs beLalI, specIBcally, Lo dIverL LLe proceeds oI LLe
cLecks. IL adds LLaL CILIbank raIsed LLe Issue oI
ImpuLed nelIence aaInsL Eord Ior LLe BrsL LIme
on appeal. TLus, IL sLould noL be consIdered by
LLIs CourL.
0n LLIs poInL, jurIsprudence reardIn LLe
ImpuLed nelIence oI employer In a masLer-
servanL relaLIonsLIp Is InsLrucLIve. BInce a masLer
may be Leld Ior LIs servanL's wronIul acL, LLe law
ImpuLes Lo LLe masLer LLe acL oI LLe servanL, and
II LLaL acL Is nelIenL or wronIul and
proxImaLely resulLs In Injury Lo a LLIrd person,
LLe nelIence or wronIul conducL Is LLe
nelIence or wronIul conducL oI LLe masLer, Ior
wLIcL Le Is lIable.18 TLe eneral rule Is LLaL II LLe
masLer Is Injured by LLe nelIence oI a LLIrd
person and by LLe concurIn conLrIbuLory
nelIence oI LIs own servanL or aenL, LLe laLLer's
nelIence Is ImpuLed Lo LIs superIor and wIll
deIeaL LLe superIor's acLIon aaInsL LLe LLIrd
person, asumIn, oI course LLaL LLe conLrIbuLory
nelIence was LLe./'b0_MA@ cMXD@ oI LLe Injury
oI wLIcL complaInL Is made.19
AccordInly, we need Lo deLermIne wLeLLer or noL
LLe acLIon oI 0odoIredo FIvera, Eord's 0eneral
Leder AccounLanL, and/or AlexIs MarIndo, LIs
assIsLanL, was LLe proxImaLe cause oI LLe loss or
damae. AB deBned, proxImaLe cause Is LLaL
wLIcL, In LLe naLural and conLInuous sequence,
unbroken by any eIBcIenL, InLervenIn cause
produces LLe Injury and wILLouL LLe resulL would
noL Lave occurred.20
IL appears LLaL alLLouL LLe employees oI Eord
InILIaLed LLe LransacLIons aLLrIbuLable Lo an
oranIzed syndIcaLe, In our vIew, LLeIr acLIons
were noL LLe proxImaLe cause oI encasLIn LLe
cLecks payable Lo LLe CIF. TLe deree oI Eord's
nelIence, II any, could noL be cLaracLerIzed as
LLe proxImaLe cause oI LLe Injury Lo LLe parLIes.
TLe Eoard oI DIrecLors oI Eord, we noLe, dId noL
conBrm LLe requesL oI 0odoIredo FIvera Lo recall
CILIbank CLeck No. BN-04867. FIvera's
InsLrucLIon Lo replace LLe saId cLeck wILL
FCIEank's Manaer's CLeck was noL In
LLeordInary course oI busIness wLIcL could Lave
prompLed FCIEank Lo valIdaLe LLe same.
As Lo LLe preparaLIon oI CILIbank CLecks Nos. BN-
10S97 and 16S08, IL was esLablIsLed LLaL LLese
cLecks were made payable Lo LLe CIF. EoLL were
crossed cLecks. TLese cLecks were apparenLly
Lurned around by Eord's emploees, wLo were
acLIn on LLeIr own personal capacILy.
0Iven LLese cIrcumsLances, LLe mere IacL LLaL
LLe Iorery was commILLed by a drawer-payor's
conBdenLIal employee or aenL, wLo by vIrLue oI
LIs posILIon Lad unusual IacIlILIes Ior
perperLraLIn LLe Iraud and ImposIn LLe Iored
paper upon LLe bank, does noLenLILle LLe bank
LosLIIL LLe loss Lo LLe drawer-payor, In LLe
absence oI some cIrcumsLance raIsIn esLoppel
aaInsL LLe drawer.21 TLIs rule lIkewIse applIes
Lo LLe cLecks IraudulenLly neoLIaLed or dIverLed
by LLe conBdenLIal employees wLo Lold LLem In
LLeIr possessIon.
WILL respecL Lo LLe nelIence oI FCIEank In LLe
paymenL oI LLe LLree cLecks Involved, separaLely,
LLe LrIal courLs Iound varIaLIons beLween LLe
neoLIaLIon oI CILIbank CLeck No. BN-04867 and
LLe mIsapplIcaLIon oI LoLal proceeds oI CLecks
BN-10S97 and 16S08. TLereIore, we Lave Lo
scruLInIze, separaLely, FCIEank's sLare oI
nelIence wLen LLe syndIcaLe acLIeved ILs
ulLImaLe aenda oI sLealIn LLe proceeds oI LLese
cLecks.
"#$# &'D# (2([(W MBN (2([*4
CILIbank CLeck No. BN-04867 was deposILed aL
FCIEank LLrouL ILs ErmILa ErancL. IL was
coursed LLrouL LLe ordInary bankIn
LransacLIon, senL Lo CenLral ClearIn wILL LLe
IndorsemenL aL LLe back all prIor IndorsemenLs
and/or lack oI IndorsemenLs uaranLeed, and
was presenLed Lo CILIbank Ior paymenL.
TLereaILer FCIEank, InsLead oI remILLIn LLe
proceeds Lo LLe CIF, prepared Lwo oI ILs
Manaer's cLecks and enabled LLe syndIcaLe Lo
encasL LLe same.
0n record, FCIEank IaIled Lo verIIy LLe auLLorILy
oI Mr. FIvera Lo neoLIaLe LLe cLecks. TLe nelecL
oI FCIEank employees Lo verIIy wLeLLer LIs leLLer
requesLIn Ior LLe replacemenL oI LLe CILIbank
CLeck No. BN-04867 was duly auLLorIzed,
sLowed lack oI care and prudence requIred In LLe
cIrcumsLances.
EurLLermore, IL was admILLed LLaL FCIEank Is
auLLorIzed Lo collecL LLe paymenL oI Laxpayers In
beLalI oI LLe EIF. As an aenL oI EIF, FCIEank Is
duLy bound Lo consulL ILs prIncIpal reardIn LLe
unwarranLed InsLrucLIons Iven by LLe payor or
ILs aenL. As apLly sLaLed by LLe LrIal courL, Lo wIL:
xxx. BInce LLe quesLIoned crossed cLeck
was deposILed wILL IEAA [now FCIEank],
wLIcL claImed Lo be a deposILory/collecLIn
bank oI EIF, IL Las LLe responsIbIlILy Lo
make sure LLaL LLe cLeck In quesLIon Is
deposILed In Fayee's accounL only.
xxx xxx xxx
As aenL oI LLe EIF (LLe payee oI LLe
cLeck), deIendanL IEAA sLould receIve
InsLrucLIons only Irom ILs prIncIpal EIF
and noL Irom any oLLer person especIally
so wLen LLaL person Is noL known Lo LLe
deIendanL. IL Is very ImprudenL on LLe parL
oI LLe deIendanL IEAA Lo jusL rely on LLe
alleed LelepLone call oI LLe one 0odoIredo
FIvera and In LIs sInaLure consIderIn
LLaL LLe plaInLIII Is noL a clIenL oI LLe
deIendanL IEAA.
IL Is a well-seLLled rule LLaL LLe relaLIonsLIp
beLween LLe payee or Lolder oI commercIal paper
and LLe bank Lo wLIcL IL Is senL Ior collecLIon Is, In
LLe absence oI an arreemenL Lo LLe conLrary, LLaL
oI prIncIpal and aenL.22A bank wLIcL receIves
sucL paper Ior collecLIon Is LLe aenL oI LLe payee
or Lolder.28
Even consIderIn aruendo, LLaL LLe dIversIon oI
LLe amounL oI a cLeck payable Lo LLe collecLIn
bank In beLalI oI LLe desInaLed payee may be
allowed, sLIll sucL dIversIon musL be properly
auLLorIzed by LLe payor. 0LLerwIse sLaLed, LLe
dIversIon can be jusLIBed only by prooI oI
auLLorILy Irom LLe drawer, or LLaL LLe drawer Las
cloLLed LIs aenL wILL apparenL auLLorILy Lo
receIve LLe proceeds oI sucL cLeck.
CILIbank IurLLer arues LLaL FCI Eank's clearIn
sLamp appearIn aL LLe back oI LLe quesLIoned
cLecks sLaLIn LLaL ALL FFI0F IND0FBEMENTB
AND/0F LACK 0E IND0FBEMENTB 0UFANTEED
sLould render FCIEank lIable because IL made IL
pass LLrouL LLe clearIn Louse and LLereIore
CILIbank Lad no oLLer opLIon buL Lo pay IL. TLus,
CILIbank Lad no oLLer opLIon buL Lo pay IL. TLus,
CILIbank asseLs LLaL LLe proxImaLe cause oI Eord's
Injury Is LLe ross nelIence oI FCIEank. BInce
LLe quesLIone dcrossed cLeck was deposILed wILL
FCIEank, wLIcL claImed Lo be a
deposILory/collecLIn bank oI LLe EIF, IL Lad LLe
responsIbIlILy Lo make sure LLaL LLe cLeck In
quesLIons Is deposILed In Fayee's accounL only.
Indeed, LLe crossIn oI LLe cLeck wILL LLe pLrase
Fayee's AccounL 0nly, Is a warnIn LLaL LLe
cLeck sLould be deposILed only In LLe accounL oI
LLe CIF. TLus, IL Is LLe duLy oI LLe collecLIn bank
FCIEank Lo ascerLaIn LLaL LLe cLeck be deposILed
In payee's accounL only. TLereIore, IL Is LLe
collecLIn bank (FCIEank) wLIcL Is bound Lo
scrunInIze LLe cLeck and Lo know ILs deposILors
beIore IL could make LLe clearIn IndorsemenL all
prIor IndorsemenLs and/or lack oI IndorsemenL
uaranLeed.
In Eanco de 0ro BavIns and MorLae Eank vs.
EquILable EankIn CorporaLIon,24 we ruled:
AnenL peLILIoner's lIabIlILy on saId
InsLrumenLs, LLIs courL Is In Iull accord
wILL LLe rulIn oI LLe FCHC's Eoard oI
DIrecLors LLaL:
'In presenLIn LLe cLecks Ior clearIn and
Ior paymenL, LLe deIendanL made an
express uaranLee on LLe valIdILy oI all
prIor endorsemenLs. TLus, sLamped aL
LLe back oI LLe cLecks are LLe deIedanL's
clear warranLy: ALL FFI0F
END0FBEMENTB AND/0F LACK 0E
END0FBEMENTB 0UAFANTEED. WILLouL
sucL warranLy, plaInLIII would noL Lave
paId on LLe cLecks.'
No amounL oI leal jaron can reverse LLe
clear meanIn oI deIendanL's warranLy. As
LLe warranLy Las proven Lo be Ialse and
InaccuraLe, LLe deIendanL Is lIable Ior any
damae arIsIn ouL oI LLe IalsILy oI ILs
represenLaLIon.2S
LasLly, bankIn busIness requIres LLaL LLe one
wLo BrsL casLes and neoLIaLes LLe cLeck musL
Lake some percauLIons Lo learn wLeLLer or noL IL
Is enuIne. And II LLe one casLIn LLe cLeck
LLrouL IndIIIerence or oLLe cIrcumsLance
assIsLs LLe Iorer In commILLIn LLe Iraud, Le
sLould noL be permILLed Lo reLaIn LLe proceeds oI
LLe cLeck Irom LLe drawee wLose sole IaulL was
LLaL IL dId noL dIscover LLe Iorery or LLe deIecL
In LLe LILle oI LLe person neoLIaLIn LLe
InsLrumenL beIore payIn LLe cLeck. Eor LLIs
reason, a bank wLIcL casLes a cLeck drawn upon
anoLLer bank, wILLouL requIrIn prooI as Lo LLe
IdenLILy oI persons presenLIn IL, or makIn
InquIrIes wILL reard Lo LLem, cannoL Lold LLe
proceeds aaInsL LLe drawee wLen LLe proceeds
oI LLe cLecks were aILerwards dIverLed Lo LLe
Lands oI a LLIrd parLy. In sucL cases LLe drawee
bank Las a rILL Lo belIeve LLaL LLe casLIn bank
(or LLe collecLIn bank) Lad, by LLe usual proper
InvesLIaLIon, saLIsBed ILselI oI LLe auLLenLIcILy oI
LLe neoLIaLIon oI LLe cLecks. TLus, one wLo
encasLed a cLeck wLIcL Lad been Iored or
dIverLed and In Lurn receIved paymenL LLereon
Irom LLe drawee, Is uIlLy oI nelIence wLIcL
proxImaLely conLrIbuLed Lo LLe success oI LLe
Iraud pracLIced on LLe drawee bank. TLe laLLer
may recover Irom LLe Lolder LLe money paId on
LLe cLeck.26
HavIn esLablIsLed LLaL LLe collecLIn bank's
nelIence Is LLe proxImaLe cause oI LLe loss, we
conclude LLaL FCIEank Is lIable In LLe amounL
correspondIn Lo LLe proceeds oI CILIbank CLeck
No. BN-04867.
"#$# &'# (2,5)[
TLe LrIal courL and LLe CourL oI Appeals Iound
LLaL FCIEank Lad no oIBcIal acL In LLe ordInary
course oI busIness LLaL would aLLrIbuLe Lo IL LLe
case oI LLe embezzlemenL oI CILIbank CLeck
Numbers BN-10S97 and 16S08, because FCIEank
dId noL acLually receIve nor Lold LLe Lwo Eord
cLecks aL all. TLe LrIal courL Leld, LLus:
NeILLer Is LLere any prooI LLaL deIendanL
FCIEank conLrIbuLed any oIBcIal or
conscIous parLIcIpaLIon In LLe process oI
LLe embezzlemenL. TLIs CourL Is convInced
LLaL LLe swILcLIn operaLIon (InvolvIn LLe
cLecks wLIle In LransIL Ior clearIn) were
LLe clandesLIne or LIdden acLuaLIons
perIormed by LLe members oI LLe
syndIcaLe In LLeIr own personl, coverL and
prIvaLe capacILy and done wILLouL LLe
knowlede oI LLe deIendanL FCIEank.27
In LLIs case, LLere was no evIdence presenLed
conBrmIn LLe conscIous parLIcIapaLIon oI
FCIEank In LLe embezzlemenL. As a eneral rule,
Lowever, a bankIn corporaLIon Is lIable Ior LLe
wronIul or LorLuous acLs and declaraLIons oI ILs
oIBcers or aenLs wILLIn LLe course and scope oI
LLeIr employmenL.28 A bank wIll be Leld lIable Ior
LLe nelIence oI ILs oIBcers or aenLs wLen acLIn
wILLIn LLe course and scope oI LLeIr employmenL.
IL may be lIable Ior LLe LorLuous acLs oI ILs oIBcers
even as reards LLaL specIes oI LorL oI wLIcL
malIce Is an essenLIal elemenL. In LLIs case, we
Bnd a sILuaLIon wLere LLe FCIEank appears also Lo
be LLe vIcLIm oI LLe scLeme LaLcLed by a
syndIcaLe In wLIcL ILs own manaemenL
employees Lad parLIcIapLed.
TLe pro-manaer oI Ban Andres ErancL oI
FCIEank, FemberLo CasLro, receIved CILIbank
CLeck Numbers BN-10S97 and 16S08. He passed
LLe cLecks Lo a co-conspIraLor, an AssIsLanL
Manaer oI FCIEank's Meralco ErancL, wLo
Lelped CasLro open a CLeckIn accounL oI a
BcLILIous person named Feynaldo Feyes. CasLro
deposILed a worLLless Eank oI AmerIca CLeck In
exacLly LLe same amounL oI Eord cLecks. TLe
syndIcaLe Lampered wILL LLe cLecks and
succeeded In replacIn LLe worLLless cLecks and
LLe evenLual encasLmenL oI CILIbank CLeck Nos.
BN 10S97 and 16S08. TLe FCIEank FLro-
manaer, CasLro, and LIs co-conspIraLor
AssIsLanL Manaer apparenLly perIormed LLeIr
acLIvILIes usIn IacIlILIes In LLeIr oIBcIal capacILy
or auLLorILy buL Ior LLeIr personal and prIvaLe
aIn or beneBL.
A bank LoldIn ouL ILs oIBcers and aenLs as
worLLy oI conBdence wIll noL be permILLed Lo
proBL by LLe Irauds LLese oIBcers or aenLs were
enabled Lo perpeLraLe In LLe apparenL course oI
LLeIr employmenL, nor wIll L be permILLed Lo
sLIrk ILs responsIbIlILy Ior sucL Irauds, even
LLouL no beneBL may accrue Lo LLe bank
LLereIrom. Eor LLe eneral rule Is LLaL a bank Is
lIable Ior LLe IraudulenL acLs or represenLaLIons
oI an oIBcer or aenL acLIn wILLIn LLe course and
apparenL scope oI LIs employmenL or
auLLorILy.29 And II an oIBcer or employee oI a
bank, In LIs oIBcIal capacILy, receIves money Lo
saLIsIy an evIdence oI IndebeLedness loded wILL
LIs bank Ior collecLIon, LLe bank Is lIable Ior LIs
mIsapproprIaLIon oI sucL sum.80
Moreover, as correcLly poInLed ouL by Eord,
BecLIon S81 oI CenLral Eank CIrcular No. S80,
BerIes oI 1977 provIdes LLaL any LLeIL aIIecLIn
ILems In LransIL Ior clearIn, sLall be Ior LLe
accounL oI sendIn bank, wLIcL In LLIs case Is
FCIEank.
EuL In LLIs case, responsIbIlILy Ior nelIence
does noL lIe on FCIEank's sLoulders alone.
TLe evIdence on record sLows LLaL CILIbank as
drawee bank was lIkewIse nelIenL In LLe
perIormance oI ILs duLIes. CILIbank IaIled Lo
esLablIsL LLaL ILs paymenL oI Eord's cLecjs were
made In due course and leally In order. In ILs
deIense, CILIbank claIms LLe enuIneness and due
execuLIon oI saId cLecks, consIderIn LLaL
CILIbank (1) Las no knowlede oI any InIormILy In
LLe Issuance oI LLe cLecks In quesLIon (2) coupled
by LLe IacL LLaL saId cLecks were suIBcIenLly
Iunded and (8) LLe endorsemenL oI LLe Fayee or
lack LLereoI was uaranLeed by FCI Eank
(Iormerly IEAA), LLus, IL Las LLe oblIaLIon Lo
Lonor and pay LLe same.
Eor ILs parL, Eord conLends LLaL CILIbank as LLe
drawee bank owes Lo Eord an absoluLe and
conLracLual duLy Lo pay LLe proceeds oI LLe
subjecL cLeck only Lo LLe payee LLereoI, LLe CIF.
CILIn BecLIon 6282 oI LLe NeoLIable
InsLrumenLs Law, Eord arues LLaL by accepLIn
LLe InsLrumenL, LLe accepLro wLIcL Is CILIbank
enaes LLaL IL wIll pay accordIn Lo LLe Lenor oI
ILs accepLance, and LLaL IL wIll pay only Lo LLe
payee, (LLe CIF), consIderIn LLe IacL LLaL Lere
LLe cLeck was crossed wILL annoLaLIon Fayees
AccounL 0nly.
As ruled by LLe CourL oI Appeals, CILIbank musL
lIkewIse answer Ior LLe damaes Incurred by Eord
on CILIbank CLecks Numbers BN 10S97 and
16S08, because oI LLe conLracLual relaLIonsLIp
exIsLIn beLween LLe Lwo. CILIbank, as LLe drawee
bank breacLed ILs conLracLual oblIaLIon wILL Eord
and sucL deree oI culpabIlILy conLrIbuLed Lo LLe
damae caused Lo LLe laLLer. 0n LLIs score, we
aree wILL LLe respondenL courL's rulIn.
CILIbank sLould Lave scruLInIzed CILIbank CLeck
Numbers BN 10S97 and 16S08 beIore payIn LLe
amounL oI LLe proceeds LLereoI Lo LLe collecLIn
bank oI LLe EIF. 0ne LLIn Is clear Irom LLe
record: LLe clearIn sLamps aL LLe back oI CILIbank
CLeck Nos. BN 10S97 and 16S08 do noL bear any
InILIals. CILIbank IaIled Lo noLIce and verIIy LLe
absence oI LLe clearIn sLamps. Had LLIs been duly
examIned, LLe swILcLIn oI LLe worLLless cLecks
Lo CILIbank CLeck Nos. 10S97 and 16S08 would
Lave been dIscovered In LIme. Eor LLIs reason,
CILIbank Lad Indeed IaIled Lo perIorm wLaL was
IncumbenL upon IL, wLIcL Is Lo ensure LLaL LLe
amounL oI LLe cLecks sLould be paId only Lo ILs
desInaLed payee. TLe IacL LLaL LLe drawee bank
dId noL dIscover LLe IrreularILy seasonably, In
our vIew, consILuLes nelIence In carryIn ouL LLe
bank's duLy Lo ILs deposILors. TLe poInL Is LLaL as a
busIness aIIecLed wILL publIc InLeresL and because
oI LLe naLure oI ILs IuncLIons, LLe bank Is under
oblIaLIon Lo LreaL LLe accounLs oI ILs deposILors
wILL meLIculous care, always LavIn In mInd LLe
BducIary naLure oI LLeIr relaLIonsLIp.88
TLus, InvokIn LLe docLrIne oI comparaLIve
nelIence, we are oI LLe vIew LLaL boLL FCIEank
and CILIbank IaIled In LLeIr respecLIve oblIaLIons
and boLL were nelIenL In LLe selecLIon and
supervIsIon oI LLeIr employees resulLIn In LLe
encasLmenL oI CILIbank CLeck Nos. BN 10S97
AND 16S08. TLus, we are consLraIned Lo Lold
LLem equally lIable Ior LLe loss oI LLe proceeds oI
saId cLecks Issued by Eord In Iavor oI LLe CIF.
TIme and aaIn, we Lave sLressed LLaL bankIn
busIness Is so Impressed wILL publIc InLeresL
wLere LLe LrusL and conBdence oI LLe publIc In
eneral Is oI paramounL umporLance sucL LLaL LLe
approprIaLe sLandard oI dIlIence musL be very
LIL, II noL LLe LILesL, deree oI dIlIence.84 A
bank's lIabIlILy as oblIor Is noL merely vIcarIous
buL prImary, wLereIn LLe deIense oI exercIse oI
due dIlIence In LLe selecLIon and supervIsIon oI
ILs employees Is oI no momenL.8S
Eanks Landle daIly LransacLIons InvolvIn
mIllIons oI pesos.86 Ey LLe very naLure oI LLeIr
work LLe deree oI responsIbIlILy, care and
LrusLworLLIness expecLed oI LLeIr employees and
oIBcIals Is Iar reaLer LLan LLose oI ordInary
clerks and employees.87 Eanks are expecLed Lo
exercIse LLe LILesL deree oI dIlIence In LLe
selecLIon and supervIsIon oI LLeIr employees.88
0n LLe Issue oI prescrIpLIon, FCIEank claIms LLaL
LLe acLIon oI Eord Lad prescrIbed because oI ILs
InabIlILy Lo seek judIcIal relIeI seasonably,
consIderIn LLaL LLe alleed nelIenL acL Look
place prIor Lo December 19, 1977 buL LLe relIeI
was souLL only In 1988, or seven years
LLereaILer.
TLe sLaLuLe oI lImILaLIons beIns Lo run wLen LLe
bank Ives LLe deposILor noLIce oI LLe paymenL,
wLIcL Is ordInarIly wLen LLe cLeck Is reLurned Lo
LLe alleed drawer as a voucLer wILL a sLaLemenL
oI LIs accounL,89 and an acLIon upon a cLeck Is
ordInarIly overned by LLe sLaLuLory perIod
applIcable Lo InsLrumenLs In wrILIn.40
0ur laws on LLe maLLer provIde LLaL LLe acLIon
upon a wrILLen conLracL musL be brouLL wILLIn
Len year Irom LLe LIme LLe rILL oI acLIon
accrues.41 Lence, LLe reckonIn LIme Ior LLe
prescrIpLIve perIod beIns wLen LLe InsLrumenL
was Issued and LLe correspondIn cLeck was
reLurned by LLe bank Lo ILs deposILor (normally a
monLL LLereaILer). ApplyIn LLe same rule, LLe
cause oI acLIon Ior LLe recovery oI LLe proceeds oI
CILIbank CLeck No. BN 04867 would normally be
a monLL aILer December 19, 1977, wLen CILIbank
paId LLe Iace value oI LLe cLeck In LLe amounL oI
F4,746,114.41. BInce LLe orIInal complaInL Ior
LLe cause oI acLIon was Bled on January 20,
1984, barely sIx years Lad lapsed. TLus, we
conclude LLaL Eord's cause oI acLIon Lo recover
LLe amounL oI CILIbank CLeck No. BN 04867 was
seasonably Bled wILLIn LLe perIod provIded by
law.
EInally, we also Bnd LLeL Eord Is noL compleLely
blameless In ILs IaIlure Lo deLecL LLe Iraud.
EaIlure on LLe parL oI LLe deposILor Lo examIne ILs
passbook, sLaLemenLs oI accounL, and cancelled
cLecks and Lo Ive noLIce wILLIn a reasonable
LIme (or as requIred by sLaLuLe) oI any
dIscrepancy wLIcL IL may In LLe exercIse oI due
care and dIlIence Bnd LLereIn, serves Lo mILIaLe
LLe banks' lIabIlILy by reducIn LLe award oI
InLeresL Irom Lwelve percenL (12%) Lo sIx percenL
(6%) per annum. As provIded In ArLIcle 1172 oI
LLe CIvIl Code oI LLe FLIlIppInes, respondIbIlILy
arIsIn Irom nelIence In LLe perIormance oI
every kInd oI oblIaLIon Is also demandable, buL
sucL lIabIlILy may be reulaLed by LLe courLs,
accordIn Lo LLe cIrcumsLances. In quasI-delIcLs,
LLe conLrIbuLory nelIence oI LLe plaInLIII sLall
reduce LLe damaes LLaL Le may recover.42
O8;$;G=$;3 LLe assaIled DecIsIon and
FesoluLIon oI LLe CourL oI Appeals In CA-0.F. CV
No. 2S017 are-GG9$L;J# FCIEank, know
Iormerly as Insular Eank oI AsIa and AmerIca, Id
declared solely responsIble Ior LLe loss oI LLe
proceeds oI CILIbank CLeck No BN 04867 In LLe
amounL F4,746,114.41, wLIcL sLall be paId
LoeLLer wILL sIx percenL (6%) InLeresL LLereon Lo
Eord FLIlIppInes Inc. Irom LLe daLe wLen LLe
orIInal complaInL was Bled unLIl saId amounL Is
Iully paId.
However, LLe DecIsIon and FesoluLIon oI LLe CourL
oI Appeals In CA-0.F. No. 28480
are L=J9G9;J as Iollows: FCIEank and CILIbank
are adjuded lIable Ior and musL sLare LLe loss,
(concernIn LLe proceeds oI CILIbank CLeck
Numbers BN 10S97 and 16S08 LoLallIn
F12,168,298.10) on a BILy-BILy raLIo, and eacL
bank Is=$J;$;J Lo pay Eord FLIlIppInes Inc.
F6,081,649.0S, wILL sIx percenL (6%) InLeresL
LLereon, Irom LLe daLe LLe complaInL was Bled
unLIl Iull paymenL oI saId amounL.1wpLI1.nL
CosLs aaInsL FLIlIppIne CommercIal InLernaLIonal
Eank and CILIbank N.A.
H= =$J;$;J#
EellosIllo, Mendoza, Euena, De Leon, Jr.,
JJ, concur.
G''AB'A@D
1 Fenned by JusLIce E.A. AdeIuIn-de la
Cruz and concurred In by JusLIces Jesus
M. ElbInIas and Lourdes K. Tayao-Jauros,
rollo, 0.F. No. 121418, pp. 27-42.
2 Follo, 0.F. No. 121418, pp. 44-4S
8 Fenned by JusLIce Jose C. de la Fama
and concurred In by JusLIces EmeLerIo C.
CuI and Eduardo 0. MonLenero, rollo, 0.F.
No. 128604, pp. 4S-60
4 Follo, 0.F. No. 128604, pp. 42-48
S Bupra, see noLe 1, pp. 82-84 (All
cILaLIons omILLed).
6 Follo, 0.F. No. 121418, pp. 181-182.
7 Id. aL 41-42
8 Id. aL 18
9 Follo, 0.F. No. 121479, pp. 162-168
10 Id. aL 181.
11 Id. aL 186.
12 Id. aL 188
18 Id. aL 192
14 Bupra, see noLe 8, pp. 47-49
1S Id. aL 46
16 Id. aL 24-2S
17 218 BCFA 682 (1998)
18 Am Jur 2d, Volume S8, NelIence,
BecLIon 4S8
19 Am Jur 2d, Volume S8, NelIence
BecLIon 464.
20 Vda. De EaLaclan, eL al. vs. MedIna,
102 FLIl. 181, 186 (19S7)
21 Am Jur 2d, Volume 10, Eanks BecLIon
604 (1968 EdILIon)
22 Id. aL BecLIon 697.
28 IbId.
24 1S7 BCFA 188 (1988)
2S Id. aL 194.
26 Bupra noLe 20 aL BecLIon 611
27 Follo, 0.F. No. 128604, pp. S6-S7.
28 Bupra noLe 20 aL BecLIon 110
29 Id, aL Bec. 111
80 Id. aL Bec. 118
81 Bec. S Loss oI ClearIn ILems. - Any loss
or damae arIsIn Irom LLeIL, pIlIerae, or
oLLer causes aIIecLIn ILems InLransIL
sLall be Ior LLe accounL oI LLe sendIn
bank/brancL, InsLILuLIon or enLILy
concerned.
82 Bec. 62, NeoLIable InsLrumenLys Law.
88 BImex InLernaLIonal (ManIla) Inc. vs.
CourL oI Apeals, 188 BCFA 860, 867
(1990)
84 Bupra, see noLe 17, aL p. 697.
8S IbId.
86 EFI vs. CourL oI Appeals, 216 BCFA S1,
71 (1992)
87 IbId.
88 IbId.
89 Bupra noLe 20 aL BecLIon 60S
40 IbId.
41 CIVIL C0DE, ArL. 1144
42 CIVIL C0DE, ArL 2214.
TLe LawpLIl FrojecL - Arellano Law
EoundaLIon*****
FepublIc oI LLe FLIlIppInes
HF7$;L; E=F$<
ManIla
BEC0ND DIVIBI0N
"#$# &'# :Q524[W UX1Y ([3 (4,5
L;<$=7=:9<-& O-<;$O=$?H -&J
H;O;$-"; HIH<;L3 peLILIoner,
vs.
E=F$< =G -77;-:H ]&'d 9&<;$L;J9-<;
-77;::-<; E=F$<` MBN <8; 789:9779&;
&-<9=&-: >-&?3 respondenLs.
Juan J. DIaz and Cesar T. Easa Ior respondenL
FNE.
Ban Juan, AIrIca, 0onzales & Ban AusLIn Law
0IBces Ior respondenL FCIE.

"F<9;$$;e3 U$#3 U#V
TLIs peLILIon Ior revIew asks us Lo seL asIde LLe
0cLober 29, 1982 decIsIon oI LLe respondenL CourL
oI Appeals, now InLermedIaLe AppellaLe CourL
wLIcL reversed LLe decIsIon oI LLe CourL oI EIrsL
InsLance oI ManIla, ErancL ZL, and dIsmIssed LLe
plaInLIII's complaInL, LLe LLIrd parLy complaInL, as
well as LLe deIendanL's counLerclaIm.
TLe backround IacLs wLIcL led Lo LLe BlIn oI LLe
InsLanL peLILIon are summarIzed In LLe decIsIon oI
LLe respondenL CourL oI Appeals:
MeLropolILan WaLerworks and
Bewerae BysLem (LereInaILer
reIerred Lo as MWBB) Is a
overnmenL owned and conLrolled
corporaLIon creaLed under FepublIc
AcL No. 6284 as LLe successor-In-
InLeresL oI LLe deIuncL NWBA. TLe
FLIlIppIne NaLIonal Eank (FNE Ior
sLorL), on LLe oLLer Land, Is LLe
deposILory bank oI MWBB and ILs
predecessor-In-InLeresL NWBA.
Amon LLe several accounLs oI
NWBA wILL FNE Is NWBA AccounL
No. 6, oLLerwIse known as AccounL
No. 881-777 and wLIcL Is presenLly
allocaLed No. 010-S00281. TLe
auLLorIzed sInaLure Ior saId
AccounL No. 6 were LLose oI MWBB
Lreasurer Jose BancLez, ILs audILor
Fedro AuIlar, and ILs acLIn
0eneral Manaer VIcLor L. FecIo.
TLeIr respecLIve specImen
sInaLures were submILLed by LLe
MWBB Lo and on Ble wILL LLe FNE.
Ey specIal arranemenL wILL LLe
FNE, LLe MWBB used personalIzed
cLecks In drawIn Irom LLIs
accounL. TLese cLecks were
prInLed Ior MWBB by ILs prInLer, E.
MesIna EnLerprIses, locaLed aL
177S FIzal ExLensIon, Caloocan
CILy.
DurIn LLe monLLs oI MarcL, AprIl
and May 1969, LwenLy-LLree (28)
cLecks were prepared, processed,
Issued and released by NWBA, all
oI wLIcL were paId and cleared by
FNE and debILed by FNE aaInsL
NWBA AccounL No. 6, Lo wIL:
CLeck No. DaLe Fayee AmounL
DaLe FaId
Ey FNE
1. S9S46 8-21-69 DeoracIas F
8,187.79 4-2-69
EsLrella
2. S9S48 8-81-69 NaLIvIdad
2,848.86 4-28 69
FosarIo
8. S9S47 8-81-69 FanIlInan
19S.00 Unreleased
EnLerprIses
4. S9S49 8-81-69 NaLIvIdad
8,289.88 4-28-69
FosarIo
S. S9SS2 4-1-69 VIllarama 987.S9
S-6-69
& Bons
6. S9SS4 4-1-69 0ascom 6,0S7.60
4-16 69
EnIneerIn
7. S9SS8 4-2-69 TLe EvenIn
112.00 Unreleased
News
8. S9S44 8-27-69 FroressIve
18,891.20 4-18 69
ConsL.
9. S9S64 4-2-69 Ind. Insp. S94.06
4-18 69
InL. Inc.
10. S9S68 4-7-69 FoberLo 800.00
4-22-69
Marsan
11. S9S70 4-7-69 Faz Andres
200.00 4-22-69
12. S9S74 4-8-69 ElorenLIno
100,000.00 4-11-69
BanLos
18. S9S78 4-8-69 Mla. DaIly 9S.00
Unreleased
EulleLIn
14. S9S80 4-8-69 FLIl. Herald
100.00 S-9-69
1S. S9S82 4-8-69 0alauran
7,729.09 S-6-69
& FIlar
16. S9S81 4-8-69 ManIla 110.00 S-
12 69
CLronIcle
17. S9S88 4-8-69 Treao 21,S88.00
4-11 69
Tunnel
18. S9S87 4-8-69 Del Bn
120,000.00 4-11-69
BanLIao
19. S9S89 4-10-69 DeoracIas
1,2S7.49 4-16 69
EsLrella
20. S9S94 4-14-69 FLIlam Ac-
88.08 4-29 69
cIdenL Inc.
21. S9S77 4-8-69 Esla 9,429.78 4-
29 69
22. S9601 4-16-69 JusLIno
20,000.00 4-18-69
Torres
28. S9S9S 4-14-69 NerIs FLIl.
4,274.00 S-20-69
Inc. --------------------
F 820,686.26
DurIn LLe same monLLs oI MarcL,
AprIl and May 1969, LwenLy-LLree
(28) cLecks bearIn LLe same
numbers as LLe aIoremenLIoned
NWBA cLecks were lIkewIse paId
and cleared by FNE and debILed
aaInsL NWBA AccounL No. 6, Lo
wIL:
CLeck DaLe Fayee AmounL DaLe
FaId
No. Issued Ey FNE
1. S9S46 8-6-69 Faul DIzon F
84,401.00 8-16-69
2. S9S48 8-11-69 Faul DIzon
104,790.00 4-1-69
8. S9S47 8-14-69 ArLuro BIson
S6,908.00 4-11-69
4. S9S49 8-20-69 ArLuro BIson
48,908.00 4-1S-69
S. S9SS2 8-24-69 ArLuro BIson
68,84S.00 4-16-69
6. S9S44 8-26-69 ArLuro BIson
98,4S0.00 4-17-69
7. S9SS8 8-28-69 ArLuro BIson
114,840.00 4-21-69
8. S9S44 8-16-69 AnLonIo
88,490.00 4-22-69 Mendoza
9. S9S64 8-81-69 ArLuro BIson
180,900.00 4-28-69
10.S9S68 4-2-69 ArLuro BIson
184,940.00 4- S-69
11.S9S70 4-1-69 ArLuro BIson
64,SS0.00 4-28-69
12.S9S74 4-2-69 ArLuro BIson
148,610.00 4-29-69
18.S9S78 4-10-69 AnLonIo
98,9S0.00 4-29-69
Mendoza
14.S9S80 4-8-69 ArLuro BIson
160,000.00 S-2-69
1S.S9S82 4-10-69 ArLuro BIson
1SS,400.00 S-S-69
16.S9S81 4-8-69 AnLonIo
176,S80.00 S-6-69
Mendoza
17.S9S88 4-16-69 ArLuro BIson
176,000.00 S-8-69
18.S9S87 4-16-69 ArLuro BIson
800,000.00 S-12-69
19.S9S89 4-18-69 ArLuro BIson
122,000.00 S-14-69
20.S9S94 4-18-69 ArLuro BIson
280,000.00 S-1S-69
21.S9S77 4-14-69 AnLonIo
260,000.00 S-16-69
Mendoza
22.S9601 4-18-69 ArLuro BIson
400,000.00 S-19-69
28.S9S9S 4-28-69 ArLuro BIson
190,800.00 S-21-69
---------------
F8,4S7,908.00
TLe IoreoIn cLecks were
deposILed by LLe payees Faul
DIzon, ArLuro BIson and AnLonIo
Mendoza In LLeIr respecLIve
currenL accounLs wILL LLe
FLIlIppIne CommercIal and
IndusLrIal Eank (FCIE) and
FLIlIppIne Eank oI Commerce
(FEC) In LLe monLLs oI MarcL,
AprIl and May 1969. TLru LLe
CenLral Eank ClearIn, LLese
cLecks were presenLed Ior paymenL
by FEC and FCIE Lo LLe deIendanL
FNE, and paId, also In LLe monLLs
oI MarcL, AprIl and May 1969. AL
LLe LIme oI LLeIr presenLaLIon Lo
FNE LLese cLecks bear LLe
sLandard IndorsemenL wLIcL reads
'all prIor IndorsemenL and/or lack
oI endorsemenL uaranLeed.'
BubsequenL InvesLIaLIon Lowever,
conducLed by LLe NEI sLowed LLaL
Faul DIzon, ArLuro BIson and
AnLonIo Mendoza were all BcLILIous
persons. TLe respecLIve balances In
LLeIr currenL accounL wILL LLe FEC
and/or FCIE sLood as Iollows: Faul
DIzon F8,4SS.00 as oI AprIl 80,
1969, AnLonIo Mendoza
F18,182.00 as oI May 28, 1969, and
ArLuro BIson Fl,898.92 as oI June
80, 1969.
0n June 11, 1969, NWBA addressed
a leLLer Lo FNE requesLIn LLe
ImmedIaLe resLoraLIon Lo ILs
AccounL No. 6, oI LLe LoLal sum oI
F8,4S7,908.00 correspondIn Lo
LLe LoLal amounL oI LLese LwenLy-
LLree (28) cLecks claImed by
NWBA Lo be Iored and/or spurIous
cLecks. In vIew oI LLe reIusal oI
FNE Lo credIL back Lo AccounL No.
6 LLe saId LoLal sum oI
F8,4S7,908.00 MWBB Bled LLe
InsLanL complaInL on November
10, 1972 beIore LLe CourL oI EIrsL
InsLance oI ManIla and dockeLed
LLereaL as CIvIl Case No. 889S0.
In ILs answer, FNE conLended
amon oLLers, LLaL LLe cLecks In
quesLIon were reular on ILs Iace
In all respecLs, IncludIn LLe
enuIneness oI LLe sInaLures oI
auLLorIzed NWBA sInIn oIBcers
and LLere was noLLIn on ILs Iace
LLaL could Lave aroused any
suspIcIon as Lo ILs enuIneness
and due execuLIon and, LLaL NWBA
was uIlLy oI nelIence wLIcL was
LLe proxImaLe cause oI LLe loss.
FNE also Bled a LLIrd parLy
complaInL aaInsL LLe neoLIaLIn
banks FEC and FCIE on LLe
round LLaL LLey IaIled Lo
ascerLaIn LLe IdenLILy oI LLe
payees and LLeIr LILle Lo LLe cLecks
wLIcL were deposILed In LLe
respecLIve new accounLs oI LLe
payees wILL LLem.
xxx xxx xxx
0n Eebruary 6, 1976, LLe CourL oI EIrsL InsLance
oI ManIla rendered judmenL In Iavor oI LLe
MWBB. TLe dIsposILIve porLIon oI LLe decIsIon
reads:
WHEFEE0FE, on LLe C0MFLAINT
by a clear preponderance oI
evIdence and In accordance wILL
BecLIon 28 oI LLe NeoLIable
InsLrumenLs Law, LLe CourL
Lereby renders judmenL In Iavor
oI LLe plaInLIII MeLropolILan
WaLerworks and Bewerae BysLem
(MWBB) by orderIn LLe
deIendanL FLIlIppIne NaLIonal
Eank (FNE) Lo resLore LLe LoLal
sum oI THFEE MILLI0N E0UF
HUNDFED EIETY BEVEN
TH0UBAND NINE HUNDFED
THFEE FEB0B (F8,4S7,908.00) Lo
plaInLIII's AccounL No. 6, oLLerwIse
known as AccounL No. 010-S0080-
8, wILL leal InLeresL LLereon
compuLed Irom LLe daLe oI LLe
BlIn oI LLe complaInL and unLIl as
resLored In LLe saId AccounL No. 6.
0n LLe THIFD FAFTY
C0MFLAINT, LLe CourL, Ior lack oI
evIdence, Lereby renders judmenL
In Iavor oI LLe LLIrd parLy
deIendanLs FLIlIppIne Eank oI
Commerce (FEC) and FLIlIppIne
CommercIal and IndusLrIal Eank
(FCIE) by dIsmIssIn LLe TLIrd
FarLy ComplaInL.
TLe counLerclaIms oI LLe LLIrd
parLy deIendanLs are lIkewIse
dIsmIssed Ior lack oI evIdence.
No pronouncemenL as Lo cosLs.
As earlIer sLaLed, LLe respondenL courL reversed
LLe decIsIon oI LLe CourL oI EIrsL InsLance oI
ManIla and rendered judmenL In Iavor oI LLe
respondenL FLIlIppIne NaLIonal Eank.
A moLIon Ior reconsIderaLIon Bled by LLe
peLILIoner MWBB was denIed by LLe respondenL
courL In a resoluLIon daLed January 8, 1988.
TLe peLILIoner now raIses LLe IollowIn
assInmenLs oI errors Ior LLe ranL oI LLIs
peLILIon:
I. IN N0T H0LDIN0 THAT AB THE
BI0NATUFEB 0N THE CHECKB
WEFE E0F0ED, THE DFAWEE
EANK WAB LIAELE E0F THE L0BB
UNDEF BECTI0N 28 0E THE
NE00TIAELE INBTFUMENTB LAW.
II. IN EAILIN0 T0 C0NBIDEF THE
FF0ZIMATE NE0LI0ENCE 0E FNE
IN ACCEFTIN0 THE BFUFI0UB
CHECKB DEBFITE THE 0EVI0UB
IFFE0ULAFITY 0E TW0 BETB 0E
CHECKB EEAFIN0 IdENTICAL
NUMEEF EEIN0 ENCABHED
WITHIN DAYB 0E EACH 0THEF.
III. IN N0T H0LDIN0 THAT THE
BI0NATUFEB 0E THE DFAWEE
MWBB EEIN0 CLEAFLY E0F0ED,
AND THE CHECKB BFUFI0UB,
BAME AFE IN0FEFATIVE AB
A0AINBT THE ALLE0ED DFAWEE.
TLe appellaLe courL applIed BecLIon 24 oI LLe
NeoLIable InsLrumenLs Law wLIcL provIdes:
Every neoLIable InsLrumenL Is
deemed prIma IacIe Lo Lave been
Issued Ior valuable consIderaLIon
and every person wLose sInaLure
appears LLereon Lo Lave become a
parLy LLereLo Ior value.
TLe peLILIoner submILs LLaL LLe above provIsIon
does noL apply Lo LLe IacLs oI LLe InsLanL case
because LLe quesLIoned cLecks were noL LLose oI
LLe MWBB and neILLer were LLey drawn by ILs
auLLorIzed sInaLorIes. TLe peLILIoner sLaLes LLaL
ranLIn LLaL BecLIon 24 oI LLe NeoLIable
InsLrumenLs Law Is applIcable, LLe same creaLes
only a prIma IacIe presumpLIon wLIcL was
overcome by LLe IollowIn documenLs, Lo wIL: (1)
LLe NEI FeporL oI November 2, 1970, (2) LLe NEI
FeporL oI November 21, 1974, (8) LLe NEI
CLemIsLry FeporL No. C-74891, (4) LLe
Memorandum oI Mr. Juan DIno, 8rd AssIsLanL
AudILor oI LLe respondenL drawee bank
addressed Lo LLe CLIeI AudILor oI LLe peLILIoner,
(S) LLe admIssIon oI LLe respondenL bank's
counsel In open courL LLaL LLe NaLIonal Eureau oI
InvesLIaLIon Iound LLe sInaLure on LLe LwenLy-
LLree (28) cLecks In quesLIon Lo be IorerIes, and
(6) LLe admIssIon oI LLe respondenL bank's
wILness, Mr. EausLIno MesIna, Jr. LLaL LLe cLecks
In quesLIon were noL prInLed by LIs prInLIn
press. TLe peLILIoner conLends LLaL sInce LLe
sInaLures oI LLe cLecks were IorerIes, LLe
respondenL drawee bank musL bear LLe loss
under LLe rulIns oI LLIs CourL.
A bank Is bound Lo know LLe
sInaLures oI ILs cusLomers, and II
IL pays a Iored cLeck IL musL be
consIdered as makIn LLe
paymenL ouL oI ILs oblIaLIon
Iunds, and cannoL ordInarIly
cLare LLe amounL so paId Lo LLe
accounL oI LLe deposILor wLose
name was Iored.
xxx xxx xxx
TLe sInaLures Lo LLe cLecks beIn
Iored, under BecLIon 28 oI LLe
NeoLIable InsLrumenLs Law LLey
are noL a cLare aaInsL plaInLIII
nor are LLe cLecks oI any value Lo
LLe deIendanL.
IL musL LLereIore be Leld LLaL LLe
proxImaLe cause oI loss was due Lo
LLe nelIence oI LLe Eank oI LLe
FLIlIppIne Islands In LonorIn and
casLIn LLe Lwo Iored cLecks.
(Ban Carlos MIllIn Co. v. Eank oI
LLe F. I., S9 FLIl. S9)
IL Is admILLed LLaL LLe FLIlIppIne
NaLIonal Eank casLed LLe cLeck
upon a Iored sInaLure, and
placed LLe money Lo LLe credIL oI
MaasIm, wLo was LLe Iorer. TLaL
LLe FLIlIppIne NaLIonal Eank LLen
endorsed LLe cLock and Iorwarded
IL Lo LLe BLanLaI Eank by wLom
IL was paId. TLe FLIlIppIne
NaLIonal Eank Lad no lIcense or
auLLorILy Lo pay LLe money Lo
MaasIm or anyone else upon a
Iored sInaLure. IL was ILs leal
duLy Lo know LLaL MalIcor's
endorsemenL was enuIne beIore
casLIn LLe cLeck. ILs remedy Is
aaInsL MaasIm Lo wLom IL paId LLe
money. (0reaL EasLern LIIe Ins. Co.
v. Honkon & BLanLaI Eank, 48
FLIl. 678).
We Lave careIully revIewed LLe documenLs cILed
by LLe peLILIoner. TLere Is no express and
caLeorIcal BndIn In LLese documenLs LLaL LLe
LwenLy-LLree (28) quesLIoned cLecks were Indeed
sIned by persons oLLer LLan LLe auLLorIzed
MWBB sInaLorIes. 0n LLe conLrary, LLe BndIns oI
LLe NaLIonal Eureau oI InvesLIaLIon In ILs FeporL
daLed November 2, 1970 sLow LLaL LLe MWBB
Iraud was an InsIde job and LLaL LLe peLILIoner's
delay In LLe reconcIlIaLIon oI bank sLaLemenLs and
LLe laxILy and loose records conLrol In LLe prInLIn
oI ILs personalIzed cLecks IacIlILaLed LLe Iraud.
LIkewIse, LLe quesLIoned DocumenLs FeporL No.
1S9-1074 daLed November 21, 1974 oI LLe
NaLIonal Eureau oI InvesLIaLIon does noL declare
or prove LLaL LLe sInaLures appearIn on LLe
quesLIoned cLecks are IorerIes. TLe reporL
merely menLIons LLe alleed dIIIerences In LLe
Lype Iace, cLeckwrILIn, and prInLIn
cLaracLerIsLIcs appearIn In LLe sLandard or
submILLed models and LLe quesLIoned
LypewrILIns. TLe NEI CLemIsLry FeporL No. C-74-
891 merely descrIbes LLe Inks and pens used In
wrILIn LLe alleed Iored sInaLures.
IL Is clear LLaL LLese LLree (8) NEI FeporLs relIed
upon by LLe peLILIoner are InadequaLe Lo susLaIn
ILs alleaLIons oI Iorery. TLese reporLs dId noL
LoucL on LLe InLerenL qualILIes oI LLe sInaLures
wLIcL are IndIspensable In LLe deLermInaLIon oI
LLe exIsLence oI Iorery. TLere musL be conclusIve
BndIns LLaL LLere Is a varIance In LLe InLerenL
cLaracLerIsLIcs oI LLe sInaLures and LLaL LLey
were wrILLen by Lwo or more dIIIerenL persons.
Eorery cannoL be presumed (BIasaL, eL al. v.
InLermedIaLe AppellaLe CourL, eL al, 189 BCFA
288). IL musL be esLablIsLed by clear, posILIve, and
convIncIn evIdence. TLIs was noL done In LLe
presenL case.
TLe cases oI Ban Carlos MIllIn Co. LLd. v. Eank oI
LLe FLIlIppIne Islands, eL al. (S9 FLIl. S9)
and 0reaL EasLern LIIe Ins., Co. v. Honkon and
BLanLaI Eank (48 FLIl. 678) relIed upon by LLe
peLILIoner are InapplIcable In LLIs case because LLe
IorerIes In LLose cases were eILLer clearly
esLablIsLed or admILLed wLIle In LLe InsLanL case,
LLe alleaLIons oI Iorery were noL clearly
esLablIsLed durIn LrIal.
ConsIderIn LLe absence oI suIBcIenL securILy In
LLe prInLIn oI LLe cLecks coupled wILL LLe very
close sImIlarILIes beLween LLe enuIne sInaLures
and LLe alleed IorerIes, LLe LwenLy-LLree (28)
cLecks In quesLIon could Lave been presenLed Lo
LLe peLILIoner's sInaLorIes wILLouL LLeIr knowIn
LLaL LLey were bous cLecks. Indeed, LLe casLIer
oI LLe peLILIoner wLose sInaLures were alleedly
Iored was unable Lo Len LLe dIIIerence beLween
LLe alleedly Iored sInaLure and LIs own
enuIne sInaLure. 0n LLe oLLer Land, LLe MWBB
oIBcIals admILLed LLaL LLese cLecks could easIly
be passed on as enuIne.
TLe memorandum oI Mr. A. T. TolenLIno, no,
AssIsLanL CLIeI AccounLanL oI LLe drawee
FLIlIppIne NaLIonal Eank Lo Mr. E. VIllaLuya,
ExecuLIve VIce-FresIdenL oI LLe peLILIoner daLed
June 9, 1969 cILes an InsLance wLere even LLe
concerned NWBA oIBcIals could noL Len LLe
dIIIerences beLween LLe enuIne cLecks and LLe
alleed Iored cLecks.
AL abouL 12:00 o'clock on June 6,
1969, VF Marama requesLed me
Lo see LIm In LIs oIBce aL LLe
CasLIer's DepL. wLere Messrs.
Jose M. BancLez, Lreasurer oI
NAWABA and Fomeo 0lIva oI LLe
same oIBce were presenL. Upon my
arrIval I observed LLe NAWABA
oIBcIals quesLIonIn LLe Issue oI
LLe NAWABA cLecks appearIn In
LLeIr own lIsL, xerox copy
aLLacLed.
Eor verI BcaLIon purposes,
LLereIore, LLe cLecks were Laken
Irom our Ble. To everybody LLere
presenL namely VIF Marama, LLe
Lwo abovemenLIoned NAWABA
oIBcIals, AVF, EuLaIn, AssL.
CasLIer CasLelo, AssL. CasLIer
Tejada and Messrs. A. Lopez and
L. LecLua, boLL C/A bookkeepers,
no one was able Lo poInL ouL any
dIIIerence on LLe sInaLures oI LLe
NAWABA oIBcIals appearIn on LLe
cLecks compared Lo LLeIr oIBcIal
sInaLures on Ble. In IacL 8 cLecks,
one oI LLose under quesLIon, were
presenLed Lo LLe NAWABA
Lreasurer Ior verIBcaLIon buL Le
could noL poInL ouL wLIcL was LIs
enuIne sInaLure. AILer InLenL
comparIson, Le poInLed on LLe
quesLIoned cLeck as bearIn LIs
correcL sInaLure.
xxx xxx xxx
Moreover, LLe peLILIoner Is barred Irom seLLIn up
LLe deIense oI Iorery under BecLIon 28 oI LLe
NeoLIable InsLrumenLs Law wLIcL provIdes LLaL:
BEC. 28. E0F0ED BI0NATUFE,
EEEECT 0E.- WLen LLe sInaLure Is
Iored or made wILLouL auLLorILy oI
LLe person wLose sInaLure IL
purporLs Lo be, IL Is wLolly
InoperaLIve, and no rILL Lo reLaIn
LLe InsLrumenL, or Lo Ive a
dIscLare LLereIor, or Lo enIorce
paymenL LLereoI aaInsL any parLy
LLereLo can be acquIred LLrouL or
under sucL sInaLure unless LLe
parLy aaInsL wLom IL Is souLL Lo
enIorce sucL rILL Is precluded
Irom seLLIn up LLe Iorery or wanL
oI auLLorILy.
because IL was uIlLy oI nelIence noL only beIore
LLe quesLIoned cLecks were neoLIaLed buL even
aILer LLe same Lad already been neoLIaLed. (Bee
FepublIc v. EquILable EankIn CorporaLIon, 10
BCFA 8) TLe records sLow LLaL aL LLe LIme LLe
LwenLy-LLree (28) cLecks were prepared,
neoLIaLed, and encasLed, LLe peLILIoner was
usIn ILs own personalIzed cLecks, InsLead oI LLe
oIBcIal FNE CommercIal blank cLecks. In LLe
exercIse oI LLIs specIal prIvIlee, Lowever, LLe
peLILIoner IaIled Lo provIde LLe needed securILy
measures. TLaL LLere was ross nelIence In LLe
prInLIn oI ILs personalIzed cLecks Is sLown by LLe
IollowIn unconLroverLed IacLs, Lo wIL:
(1) TLe peLILIoner IaIled Lo Ive ILs prInLer, MesIna
EnLerprIses, specIBc InsLrucLIons relaLIve Lo LLe
saIekeepIn and dIsposILIon oI excess Iorms, cLeck
voucLers, and saIeLy papers,
(2) TLe peLILIoner IaIled Lo reLrIeve Irom ILs
prInLer all spoIled cLeck Iorms,
(8) TLe peLILIoner IaIled Lo provIde any conLrol
reardIn LLe paper used In LLe prInLIn oI saId
cLecks,
(4) TLe peLILIoner IaIled Lo IurnIsL LLe respondenL
drawee bank wILL samples oI LypewrILIn, cLeek
wrILIn, and prInL used by ILs prInLer In LLe
prInLIn oI ILs cLecks and oI LLe Inks and pens
used In sInIn LLe same, and
(S) TLe peLILIoner IaIled Lo send a represenLaLIve
Lo LLe prInLIn oIBce durIn LLe prInLIn oI saId
cLecks.
TLIs ross nelIence oI LLe peLILIoner Is very
evIdenL Irom LLe sworn sLaLemenL daLed June 19,
1969 oI EausLIno MesIna, Jr., LLe owner oI LLe
prInLIn press wLIcL prInLed LLe peLILIoner's
personalIzed cLecks:
xxx xxx xxx
7. Q: Do you Lave
any busIness
LransacLIon wILL
LLe NaLIonal
WaLerworks and
Bewerae AuLLorILy
(NAWABA)?
A: Yes, sIr. I Lave a
conLracL wILL LLe
NAWABA In
prInLIn NAWABA
Eorms sucL as
NAWABA CLeck
xxx xxx xxx
1S. Q: Were you
Iven any
InLrucLIon by LLe
NAWABA In
connecLIon wILL LLe
prInLIn oI LLese
cLeck voucLers?
A: TLere Is none,
sIr. No InsLrucLIon
wLaLsoever was
Iven Lo me.
16. Q: Were you noL
advIsed as Lo wLaL
kInd oI paper would
be used In LLe
cLeck voucLers?
A: 0nly as per
sample, sIr.
xxx xxx xxx
20. Q: WLere dId
you buy LLIs
HammermIll BaIeLy
cLeck paper?
A: Erom Tan
CLIon, a paper
dealer wILL sLore
locaLed aL Juan
Luna, EInondo,
ManIla. (In IronL oI
LLe MeLropolILan
Eank).
xxx xxx xxx
24. Q: Were all
LLese cLeck
voucLers prInLed
by you submILLed Lo
NAWABA?
A: NoL all, sIr.
Eecause we Lave Lo
make reservaLIons
or allowances Ior
spoIlae.
2S. Q: 0uL oI LLese
voucLers prInLed by
you, Low many were
spoIled and Low
many were LLe
excess prInLed cLeck
voucLers?
A: ApproxImaLely
Iour Lundred (400)
sLeeLs, sIr. I cannoL
deLermIne LLe
proporLIon oI LLe
excess and spoIled
because LLe Bnal acL
oI perIoraLIn LLese
cLeck voucLers Las
noL yeL been done
and spoIlae can
only be deLermIned
aILer LLIs Bnal acL oI
prInLIn.
26. Q: WLaL dId you
do wILL LLese excess
cLeck voucLers?
A: I keep IL under
lock and key In my
BrIn cabIneL.
xxx xxx xxx
28. Q: Were you noL
InsLrucLed by LLe
NAWABA auLLorILIes
Lo bum LLese excess
cLeck voucLers?
A: No, sIr. I was noL
InsLrucLed.
29. Q: WLaL do you
InLend Lo do wILL
LLese excess prInLed
cLeck voucLers?
A: I InLend Lo use
LLem Ior IuLure
orders Irom LLe
xxx xxx xxx
82. Q: In LLe process
oI prInLIn LLe cLeck
voucLers ordered by
LLe NAWABA, Low
many sLeeLs were
acLually spoIled?
A: I cannoL
approxImaLe, sIr.
EuL LLere are
spoIlae In LLe
process oI prInLIn
and perIoraLIn.
88. Q: WLaL dId you
do wILL LLese
spoIlaes?
A: BpoIled prInLed
maLerIals are
usually LLrown ouL,
In LLe arbae can.
84. Q: Was LLere
any represenLaLIve
oI LLe NAWABA Lo
supervIse LLe
prInLIn or waLcL
LLe prInLIn oI
LLese cLeck
voucLers?
A: None, sIr.
xxx xxx xxx
89. Q: DurIn LLe
perIod oI prInLIn
aILer LLe days
work, wLaL
measures do you
underLake Lo
saIeuard LLe mold
and oLLer
parapLernalIa used
In LLe prInLIn oI
LLese parLIcular
orders oI NAWABA?
A: InasmucL as I
Lave an employee
wLo sleeps In LLe
prInLIn sLop and
aL LLe same LIme do
LLe uardIn, we
jusL leave LLe mold
aLLacLed Lo LLe
macLIne and LLe
oLLer BnIsLed or
unBnIsLed work
cLeck voucLers are
leIL In LLe rack so
LLaL LLe work could
be conLInued LLe
IollowIn day.
TLe NaLIonal Eureau oI InvesLIaLIon FeporL daLed
November 2, 1970 Is even more explIcIL. TLus-
xxx xxx xxx
60. We observed also
LLaL LLere Is some
laxILy and loose
conLrol In LLe
prInLIn oI NAWABA
cLeeks. We aLLered
Irom MEBINA
ENTEFFFIBEB, LLe
prInLIn Brm LLaL
underLook LLe
prInLIn oI LLe cLeck
voucLers oI
NAWABA LLaL
NAWABA Lad no
represenLaLIve aL
LLe prInLIn press
durIn LLe process
oI LLe prInLIn and
no parLIcular
securILy measure
InsLrucLIons adopLed
Lo saIeuard LLe
InLeresL oI LLe
overnmenL In
connecLIon wILL
prInLIn oI LLIs
accounLable Iorm.
AnoLLer IacLor wLIcL IacIlILaLed LLe IraudulenL
encasLmenL oI LLe LwenLy-LLree (28) cLecks In
quesLIon was LLe IaIlure oI LLe peLILIoner Lo
reconcIle LLe bank sLaLemenLs wILL ILs own
records.
IL Is accepLed bankIn procedure Ior LLe
deposILory bank Lo IurnIsL ILs deposILors bank
sLaLemenLs and debL and credIL memos LLrouL
LLe maIl. TLe records sLow LLaL LLe peLILIoner
requesLed LLe respondenL drawee bank Lo
dIsconLInue LLe pracLIce oI maIlIn LLe bank
sLaLemenLs, buL InsLead Lo delIver LLe same Lo a
cerLaIn Mr. EmIlIano ZaporLeza. Eor reasons
known only Lo Mr. ZaporLeza Lowever, Le was
unreasonably delayed In LakIn prompL delIverIes
oI LLe saId bank sLaLemenLs and credIL and debIL
memos. As a consequence, Mr. ZaporLeza IaIled Lo
reconcIle LLe bank sLaLemenLs wILL LLe
peLILIoner's records. II Mr. ZaporLeza Lad noL been
remIss In LIs duLy oI LakIn LLe bank sLaLemenLs
and reconcIlIn LLem wILL LLe peLILIoner's
records, LLe IraudulenL encasLmenLs oI LLe BrsL
cLecks sLould Lave been dIscovered, and IurLLer
Irauds prevenLed. TLIs nelIence was, LLereIore,
LLe proxImaLe cause oI LLe IaIlure Lo dIscover LLe
Iraud. TLus,
WLen a person opens a cLeckIn
accounL wILL a bank, Le Is Iven
blank cLecks wLIcL Le may Bll ouL
and use wLenever Le wIsLes. EacL
LIme Le Issues a cLeck, Le sLould
also Bll ouL LLe cLeck sLub Lo wLIcL
LLe cLeck Is usually aLLacLed. TLIs
sLub, II properly kepL, wIll conLaIn
LLe number oI LLe cLeck, LLe daLe
oI ILs Issue, LLe name oI LLe payee
and LLe amounL LLereoI. TLe
drawer would LLereIore Lave a
compleLe record oI LLe cLecks Le
Issues. IL Is LLe cusLom oI banks Lo
send Lo ILs deposILors a monLLly
sLaLemenL oI LLe sLaLus oI LLeIr
accounLs, LoeLLer wILL all LLe
cancelled cLecks wLIcL Lave been
casLed by LLeIr respecLIve
Lolders. II LLe deposILor Las Blled
ouL LIs cLeck sLubs properly, a
comparIson beLween LLem and LLe
cancelled cLecks wIll reveal any
Iored cLeck noL Laken Irom LIs
cLeckbook. IL Is LLe duLy oI a
deposILor Lo careIully examIne LLe
bank's sLaLemenL, LIs cancelled
cLecks, LIs cLeck sLubs and oLLer
perLInenL records wILLIn a
reasonable LIme, and Lo reporL any
errors wILLouL unreasonable
delay. II LIs nelIence sLould
cause LLe bank Lo Lonor a Iored
cLeck or prevenL IL Irom
recoverIn LLe amounL IL may
Lave already paId on sucL cLeck,
Le cannoL laLer complaIn sLould
LLe bank reIuse Lo recredIL LIs
accounL wILL LLe amounL oI sucL
cLeck. (EIrsL NaL. Eank oI
FIcLmond v. FIcLmond ElecLrIc
Co., 106 Va. 847, S6 BE 1S2, 7
LFA, NB 744 [1907]. Bee also
LeaLLer ManuIacLurers' Eank v.
Moran, 117 UB 96, 6 B. CL. 6S7
[1886], Deer Island EIsL and
0ysLer Co. v. EIrsL NaL. Eank oI
EIloxI, 166 MIss. 162, 146 Bo. 116
[1988]). Campos and Campos,
NoLes and BelecLed Cases on
NeoLIable InsLrumenLs Law, 1971,
pp. 267-268).
TLIs IaIlure oI LLe peLILIoner Lo reconcIle LLe bank
sLaLemenLs wILL ILs cancelled cLecks was noLed
by LLe NaLIonal Eureau oI InvesLIaLIon In ILs
reporL daLed November 2, 1970:
S8. 0ne IacLor wLIcL IacIlILaLe LLIs
Iraud was LLe delay In LLe
reconcIlIaLIon oI bank (FNE)
sLaLemenLs wILL LLe NAWABA bank
accounLs. x x x. Had LLe NAWABA
represenLaLIve come Lo LLe FNE
early Ior LLe sLaLemenLs and Lad
LLe bank been advIsed prompLly oI
LLe reporLed bous cLeck, LLe
neoLIaLIon oI pracLIcally all oI LLe
remaInIn cLecks on May, 1969,
LoLallIn F2,224,786.00 could Lave
been prevenLed.
TLe records lIkewIse sLow LLaL LLe peLILIoner
IaIled Lo provIde approprIaLe securILy measures
over ILs own records LLereby layIn conBdenLIal
records open Lo unauLLorIzed persons. TLe
peLILIoner's own EacL EIndIn CommILLee, In ILs
reporL submILLed Lo LLeIr 0eneral manaer
underscored LLIs laxILy oI records conLrol. IL
observed LLaL LLe oIBce oI Mr. 0nLenco (CasLIer
No. VI oI LLe Treasury DeparLmenL aL LLe
NAWABA) Is quILe open Lo any person known Lo
LIm or LIs sLaII members and LLaL LLe cLeck
wrILer Is merely on Lop oI LIs Lable.
WLen conIronLed wILL LLIs reporL aL LLe AnLI-
Eraud AcLIon BecLIon oI LLe NaLIonal Eureau oI
InvesLIaLIon. Mr. 0nLenco could only sLaLe LLaL:
A. 0enerally my
order Is noL Lo allow
anybody Lo enLer my
oI Bce. 0nly
auLLorIzed persons
are allowed Lo enLer
my oIBce. TLere are
some cases,
Lowever, wLere
some persons enLer
my oIBce because
LLey are IollowIn
up LLeIr cLecks.
Maybe, LLese
persons may Lave
been auLLorIzed by
Mr. FanLI. MosL oI
LLe people enLerIn
my oI Bce are
cLanIn cLecks as
allowed by LLe
FesoluLIon oI LLe
Eoard oI DIrecLors oI
LLe NAWABA and
LLe Treasurer. TLe
cLeck wrILer was
never placed on my
Lable. TLere Is a
place Ior LLe cLeck
wrILe wLIcL Is also
under lock and key.
Q. Is Mr. FanLI
auLLorIzed Lo allow
unauLLorIzed
persons Lo enLer
your oIBce?
A. No, sIr.
Q. WLy are you
LoleraLIn Mr.
FanLI admILLIn
unauLLorIzed
persons In your
oIBce?
A. I do noL wanL Lo
embarrass Mr.
FanLI. MosL oI LLe
people IollowIn up
cLecks are
employees oI LLe
NAWABA.
Q. Was LLe
auLLorILy Iven by
LLe Eoard oI
DIrecLors and LLe
approval by LLe
Treasurer Ior
employees, and
oLLer persons Lo
encasL LLeIr cLecks
carry wILL IL LLeIr
auLLorILy Lo enLer
your oIBce?
A. No, sIr.
xxx xxx xxx
Q. Erom LLe
answers LLaL you
Lave Iven Lo us we
observed LLaL
acLually LLere Is
laxILy and poor
conLrol on your
parL wILL reards Lo
LLe preparaLIons oI
cLeck paymenLs
InasmucL as you
allow unauLLorIzed
persons Lo Iollow up
LLeIr voucLers
InsIde your oIBce
wLIcL may leakouL
conBdenLIal
InIormaLIons or
your books oI
accounL. AILer
beIn apprIsed oI all
LLe sLorLcomIns In
your oIBce, as Lead
oI LLe CasLIers'
0I Bce oI LLe
Treasury
DeparLmenL wLaL
remedIal measures
do you InLend Lo
underLake?
A. TIme and aaIn
LLe Treasurer Las
been callIn our
aLLenLIon noL Lo
allow InLeresLed
persons Lo Land
carry LLeIr voucLer
cLecks and we are
LryIn our besL and
II I can do IL Lo Iollow
LLe InsLrucLIons Lo
LLe leLLer, I wIll do IL
buL unIorLunaLely
LLe persons wLo are
allowed Lo enLer my
oIBce are my co-
employees and
persons wLo Lave
connecLIons wILL
our LILer ups and I
can noL possIbly
anLaonIze LLem.
FesL assured LLaL
even LLouL LLaL
everybody wIll eL
LurL, I wIn do my
besL noL Lo allow
unauLLorIzed
persons Lo enLer my
oIBce.
xxx xxx xxx
Q. Is IL noL possIble
InasmucL as your
oIBce Is In cLare oI
LLe posLIn oI cLeck
paymenLs In your
books LLaL leakae
oI paymenLs Lo LLe
banks came Irom
your oIBce?
A. I am noL aware oI
IL buL IL only Lakes us
a couple oI mInuLes
Lo process LLe
cLecks. And LLere
are cases wLereIn
every InIormaLIon
abouL LLe cLecks
may be obLaIned
Irom LLe
AccounLIn
DeparLmenL,
AudILIn
DeparLmenL, or LLe
0IBce oI LLe 0eneral
Manaer.
FelyIn on LLe IoreoIn sLaLemenL oI Mr.
0nLenco, LLe NaLIonal Eureau oI InvesLIaLIon
concluded In ILs FeporL daLed November 2, 1970
LLaL LLe IraudulenL encasLmenL oI LLe LwenLy-
LLree (28)cLeeks In quesLIon was an InsIde job.
TLus-
We Lave all LLe reasons Lo belIeve
LLaL LLIs IraudulenL acL was an
InsIde job or one pulled wILL InsIde
connIvance aL NAWABA. As
poInLed earlIer In LLIs reporL, LLe
serIal numbers oI LLese cLecks In
quesLIon conIorm wILL LLe
numbers In currenL use oI
NAWABA, asIde Irom LLe IacL LLaL
LLese IraudulenL cLecks were
Iound Lo be oI LLe same kInd and
desIn as LLaL oI NAWABA's own
cLecks. WLIle knowlede as Lo
sucL IacLs may be obLaIned
LLrouL LLe possessIon oI a
NAWABA cLeck oI currenL Issue,
an ouLsIder wILLouL InIormaLIon
Irom LLe InsIde can noL possIbly
pInpoInL wLIcL oI NAWABA's
varIous accounLs Las suIBcIenL
balance Lo cover all LLese
IraudulenL cLecks. None oI LLese
cLecks, IL sLould be noLed, was
dIsLonored Ior InsuIBcIency oI
Iunds. . .
Even II LLe LwenLy-LLree (28) cLecks In quesLIon
are consIdered IorerIes, consIderIn LLe
peLILIoner's ross nelIence, IL Is barred Irom
seLLIn up LLe deIense oI Iorery under BecLIon
28 oI LLe NeoLIable InsLrumenLs Law.
NoneLLeless, LLe peLILIoner claIms LLaL IL was LLe
nelIence oI LLe respondenL FLIlIppIne NaLIonal
Eank LLaL was LLe proxImaLe cause oI LLe loss.
TLe peLILIoner relIes on our rulIn In FLIlIppIne
NaLIonal Eank v. CourL oI Appeals (2S BCFA 698)
LLaL.
TLus, by noL reLurnIn LLe cLeek
Lo LLe FCIE, by LLereby IndIcaLIn
LLaL LLe FNE Lad Iound noLLIn
wron wILL LLe cLeck and would
Lonor LLe same, and by acLually
payIn ILs amounL Lo LLe FCIE, LLe
FNE Induced LLe laLLer, noL only Lo
belIeve LLaL LLe cLeck was enuIne
and ood In every respecL, buL,
also, Lo pay ILs amounL Lo AuusLo
LIm. In oLLer words, LLe FNE was
LLe prImary or proxImaLe cause oI
LLe loss, and, Lence, may noL
recover Irom LLe FCIE.
TLe arumenL Las no merIL. TLe records sLow
LLaL LLe respondenL drawee bank, Lad Laken LLe
necessary measures In LLe deLecLIon oI Iored
cLecks and LLe prevenLIon oI LLeIr IraudulenL
encasLmenL. In IacL, lon beIore LLe encasLmenL
oI LLe LwenLy-LLree (28) cLecks In quesLIon, LLe
respondenL Eank Lad Issued consLanL remInders
Lo all CurrenL AccounL Eookkeepers InIormIn
LLem oI LLe acLIvILIes oI Iorery syndIcaLes. TLe
Memorandum oI LLe AssIsLanL VIce-FresIdenL and
CLIeI AccounLanL oI LLe FLIlIppIne NaLIonal Eank
daLed Eebruary 17, 1966 reads In parL:
BUEJECT: ACTIVITIEB 0E
E0F0EFY BYNDICATE
Erom relIable InIormaLIon we Lave
aLLered LLaL personalIzed cLecks
oI currenL accounL deposILors are
now LLe LareL oI LLe Iorery
syndIcaLe. To proLecL LLe InLeresL oI
LLe bank, you are Lereby enjoIned
Lo be more careIul In examInIn
saId cLecks especIally LLose comIn
Irom LLe clearIn, maIls and
wIndow LransacLIons. As a
remInder please be uIded wILL LLe
IollowIn:
1. BInaLures oI drawers sLould be
properly scruLInIzed and compared
wILL LLose we Lave on Ble.
2. TLe serIal numbers oI LLe cLecks
sLould be compared wILL LLe serIal
numbers reIsLered wILL LLe
CasLIer's DepL.
8. TLe LexLure oI LLe paper used
and LLe prInLIn oI LLe cLecks
sLould be compared wILL LLe
sample we Lave on Ble wILL LLe
CasLIer's DepL.
4. CLecks bearIn several
IndorsemenLs sLould be Iven a
specIal aLLenLIon.
S. AlLeraLIon In amounL boLL In
Bures and words sLould be
careIully examIned even II sIned
by LLe drawer.
6. CLecks Issued In subsLanLIal
amounLs parLIcularly by
deposILors wLo do noL usually
Issue cLecks In bI amounLs
sLould be brouLL Lo LLe aLLenLIon
oI LLe drawer by LelepLone or any
IasLesL means oI communIcaLIon
Ior purposes oI conBrmaLIon.
and your aLLenLIon Is also InvILed
Lo keep abreasL oI prevIous
cIrculars and memo InsLrucLIons
Issued Lo bookkeepers.
We cannoL IaulL LLe respondenL drawee Eank Ior
noL LavIn deLecLed LLe IraudulenL encasLmenL
oI LLe cLecks because LLe prInLIn oI LLe
peLILIoner's personalIzed cLecks was noL done
under LLe supervIsIon and conLrol oI LLe Eank.
TLere Is no evIdence on record IndIcaLIn LLaL
because oI LLIs prIvaLe prInLIn LLe peLILIoner
IurnIsLed LLe respondenL Eank wILL samples oI
cLecks, pens, and Inks or Look oLLer
precauLIonary measures wILL LLe FNE Lo
saIeuard ILs InLeresLs.
Under LLe cIrcumsLances, LLereIore, LLe
peLILIoner was In a beLLer posILIon Lo deLecL and
prevenL LLe IraudulenL encasLmenL oI ILs cLecks.
WHEFEE0FE, LLe peLILIon Ior revIew on
cerLIorarI Is Lereby DIBMIBBED Ior lack oI merIL.
TLe decIsIon oI LLe respondenL CourL oI Appeals
daLed 0cLober 29, 1982 Is AEEIFMED. No
pronouncemenL as Lo cosLs.
B0 0FDEFED.
EerIa (CLaIrman), Eernan, Alampay and Cruz,
JJ., concur.
Faras * , J., Look no parL.

G''AB'A@D