Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-21168

February 29, 1924

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.
TRINIDAD DE LARA Y REYES (alias TRINIDAD DE LARA Y
REYES), defendant-appellant.
J. E. Blanco and R. Nepomuceno for appellant.
Attorney-General Villa-Real for appellee.
STATEMENT
The following information was filed against the defendant in the Court of First
Instance of Manila:
The undersigned accusses Trinidad G. de Lara y Reyes (alias Trinidad de
Lara y Reyes) of the crime of estafa thru falsification of a commercial
document, committed as follows:
That on or about the sixth day of April, 1923, in the City of Manila,
Philippine Islands, the said accussed did then and there willfully, unlawfully,
and feloniously and with the intent to defraud, forge and falsify a
commercial document, to wit check no 91009-C, by filing, writing and
inserting on said check the words and figures underlined in the following
copy of the same, to wit:
(Face)

(Back)

thus causing it to appear that one Amos G. Bellis, treasurer of the "J.P. Heilbronn
Co.' of said city, drew and issued said check No. 91009-C, dated April 6, 1923,
against the Philippine National Bank, an institution duly authorized to transact
banking business in the City of Manila, payable to one J. U. Lim or order in the
sum of five thousand six hundred pesos (P5,600), when in truth and in fact, as
the said accused well knew, the said Amos G. Bellis had never participated in the
preparation and issuing of said commercial document; that on or about the 9th
day of April, 1923, in said city and once the said check was falsified and forged
the said accused, with intent to profit, willfully, unlawfully, feloniously and
knowingly indorsed, uttered, negotiated and passed the said check to the said
Philippine National Bank which, believing, as it did, the said check to be a
genuine and true one, then and there cashed the same for the said amount of
five thousand six hundred pesos which the said accused then and there
received, misapplied and misappropriated for his own use and benefit to the
damage and prejudice of the said Philippine National Bank in the said sum
equivalent to and of the value of P28,000 pesetas, Philippine currency.

That upon the commission of the said act, the accused has already been
one convicted of the crime of estafa by final judgment of a competent
court.
Contrary to law.
Like information was filed as to another check dated April 5, 1923, for P8,750,
which was likewise endorsed and cashed by the defendant. The same thing is
true as to another check, of date April 12, 1923, for P9,800.
After arraignment and a plea of not guilty, by agreement of the parties, the three
cases were consolidated and tried together. In each defendant was found guilty
and sentenced to eight years and one day of presidio mayor, and to pay a fine of
P3,000 pesetas, with the accessories of the law, to indemnify the Philippine
National Bank in the amounts of the respective checks, and to pay the costs,
from which judgment the defendant appeals, contending that:
I. The trial court erred in finding that the defendant forged the checks,
Exhibits A, B, and C.
II. The trial court erred in finding that J. U. Lim was a fictitious and nonexisting person as well as in finding that the letter Exhibit 6 had been
prepared by the defendant and by him sent to Shanghai to be mailed there
to him at Manila.
III. The trial court erred in not finding that the defendant acted in good faith
and in not acquitting him.
JOHNS, J.:
There is no dispute as to any one of the material facts.
April 3, 1923, an application for a book of checks Nos. 91001-C to 91150-C was
received by the Philippine National Bank, with the purported signature of the firm
of "J. P. Heilbronn Co., By Amos G. Bellis, Treasurer." Apparently the bank issued
the check book as requested. April 5th, 6th, and 12th, the defendant presented
the checks, known in the record as Exhibits A, B, and C, Nos. 91007, 91009,
91011, respectively, to the Philippine National Bank for payment. They were
drawn payable to the order of J. U. Lim, and upon their face purported to have
been drawn and signed by Amos G. Bellis, Treasurer of J. P. Heilbronn Co. They
were all cashed by, and the money paid to, the defendant by one of the paying
tellers of the bank. The signature, appearing upon each of the checks of the

drawer, was a forgery, although it purported to be, upon its face, the genuine
signature of Amos G. Bellis, the treasurer of the company.
During the trial it appeared that prior to the filing of the information, the defendant
had been previously convicted of the crime of estafa. The total amount of the
three forged checks was P24,150, all of which was paid to the defendant.
The important question presented is whether or not the defendant is guilty of the
crime of forgery. There is no evidence that any one saw the defendant forge
either of the checks. Neither is there any evidence of a confession or that the
defendant was the person who applied for, and obtained, the check book from
the bank. But the evidence is conclusive that all three of the checks were
forgeries.
It will be noted that the first check, April 5th, is for P8,750, the second, April 6th,
is for P5,600 and the last check, dated April 12th, is for P9,800. That is to say, on
and between April 5 and April 12, 1923, the bank paid to the defendant P24,150
on forged checks.
The defendant admits the receipt of all of the money evidenced by the forged
checks, and, as a defense, claims that he was in the employ of J. U. Lim, who
indorsed and gave the checks to him personally, with instructions to cash them at
the bank, and that he either delivered the money to Lim personally or to Suaco
upon the written order of Lim.
Quoting from appellant's brief, it is
The theory of the defense is, in general terms, that it was J. U. Lim, his
employer, who ordered him to present said checks and collect their value,
that he presented and collected them in the fulfillment of his duties without
any knowledge or suspicion that they were forged and that he delivered all
the sums collected by him to said J. U. Lim.
According to the testimony of the defendant, J. U. Lim was stopping at the Hotel
de France in the City of Manila, and the three checks in question were drawn by
Lim and delivered to the defendant, with instructions to cash them and bring back
the money. Except as to the transactions in question, there is no evidence of any
confidential relations existing between the defendant and Lim, or that there had
ever been any previous business dealings between them. The evidence shows
that the defendant was formerly an employee in the N. & B. Stables, and it was
as an employee there that he first met Lim in a casual way and in the ordinary
course of business. A short time before the transactions in question, the
defendant was out of employment, and incidentally met Lim on the street and told

him of his situation. It was finally agreed that defendant should enter the employ
of Lim for which he would be paid P150 per month for his services. Within a few
days the checks were drawn and the money paid to the defendant. After it was
ascertained that the checks were forgeries, the defendant undertook to show that
he did not know that they were forgeries; that he was an innocent victim of
circumstances; and that he had accounted in good faith to Lim for all the money
which he received. His explanation does not carry conviction. In fact his account
of the transactions is so unusual and unreasonable as to carry conviction, that he
either was a party to the forgery or knew the checks were forgeries.
Exclusive of the testimony of the defendant himself, there is no evidence that
such a person as J. U. Lim ever existed. Yet, according to his testimony, Lim was
stopping at the Hotel de France in the City of Manila where he had some kind of
a room or office in which the checks were drawn and delivered to him. The
attempt of the defendant to prove his innocence is the very strongest evidence of
his guilt. It conclusively shows that he either personally forged the checks or that
he knew they were forged at the time he cashed them at the bank. The drawing
of three checks amounting to P24,150 within such a short period of time by one
firm and each payable to J. U. Lim, all of which were forgeries, and the cashing
of them by the defendant, under the circumstances shown in the record, was not
an usual or ordinary transaction. Business is not done that way among persons
who are comparative strangers. No prudent businessman would ever deliver or
endorse checks for that amount of money to a comparative stranger with
authority to cash them and return with the money.
According to the defendant's theory, the check of April 6th was delivered to him
by Lim, who "told him to collect it at the Philippine National Bank and to deliver
the money to his cousin Suaco if the defendant could not find him (J. U. Lim)."
The defendant cashed the check, and upon his return to the Hotel de France "he
met Suaco who delivered to him a note of J. U. Lim in which it is stated that the
money should be delivered to Suaco," to whom he delivered the money.
To say the least, the court does not believe that evidence is true. It has all of the
earmarks of a fictitious and manufactured defense.
People who have checks for that amount of money do not do business that way.
We agree with the trial court that J. U. Lim was a fictitious person, and that the
attempt of the defendant to throw the responsibility for the forged checks upon
Lim is a manufactured defense.
The appellant's counsel have filed a very able and adroit brief, but in the final
analysis the stubborn fact remains that the checks were forged, and that the

defendant either forged them or knew that they were forged at the time he
cashed them.
The facts bring the case square within the law laid down by this court in United
States vs. Castillo (6 Phil., 453), where the following statement in Wharton's
Criminal Law (vol. 1, par. 726) is quoted with approval:
"Does the uttering of a forged instrument by a particular person justify a
jury in convicting such a person of forgery? This question, if nakedly put,
must, like the kindred one as to the proof of larceny by evidence of
possession of stolen goods, be answered in the negative. The defendant is
presumed to be innocent until otherwise proved. In larceny this
presumption is overcome by proof that the possession is so recent that it
becomes difficult to conceive how the defendant could have got the
property without being in some way concerned in the stealing. So it is with
the uttering. The uttering may be so closely connected in time with the
forging, the utterer may be proved to have such capacity for forging, or
such close connection with the forgers that it becomes, when so
accomplished, probable proof of complicity in the forgery."
In numerous decisions, this court has held that the unexplained possession of
recently stolen property is sufficient to sustain a conviction for the crime of
larceny. Here the facts are much stronger. There were three forgeries of checks
within a period of seven days, each of which was for a considerable amount of
money, and all of which were paid to the defendant, and his attempt to prove his
innocence not only fails to carry conviction, but is strong evidence of his guilt.
From the nature of the transactions, it is very apparent that the defendant had
confederates, and that one of them was an employee of the bank.
A detailed analysis of all of the evidence would not serve any useful purpose.
Suffice it to say that upon each charge, it is sufficient to prove the guilt of the
defendant beyond a reasonable doubt.
The Attorney-General points out that the penalty for the forgery or falsification of
checks as provided by article 301 of the Penal Code, as amended by Act No.
2712, is prision correccional in its maximum degree, which is from four years, two
months and one day to six years. Because of the fact that there was present the
aggravating circumstance of the defendant's being a recidivist without any
mitigating circumstance, that the maximum period for the penalty should be
imposed under article 81, paragraph 3, in connection with article 82 of the Penal
Code, which is from five years, nine months and seventeen days to six years.

Following the recommendation of the Attorney-General, the judgment of the

lower court will be modified and reduced, and the defendant sentenced to six
years of prision correccional in each case, or eighteen years in the three cases,
with subsidiary imprisonment in case of insolvency, and in all other respects, the
judgment of the lower court is affirmed, with costs. So ordered.
Araullo, C.J., Johnson, Malcolm, Avancea, Ostrand and Romualdez, JJ.,
concur.

Separate Opinions
STREET, J., dissenting:
A careful perusal of the evidence submitted in this case leads me to believe that
this appellant is not the person who forged the checks upon which money was
taken from the Philippine National Bank upon the three occasions set forth in the
information, and it does not appear by any positive proof that he cooperated as a
principal in the commission of the forgery. It is highly probable that the chief
criminal, or criminals, whoever he or they may have been, would have used, as
they probably did in this case, as a tool to get the money out of the bank, a
person who did not have complete knowledge of all the facts and who did not in
fact participate in the commission of the forgery.
On the other hand I consider it certain that this appellant was not innocent of the
knowledge of the falsity of the three checks which he cashed; and for this reason
he is justly amenable to punishment for the crime of estafa in each of these three
cases, with the aggravating circumstance that he is a recidivist in the commission
of this offense. Upon this estimate of the crime, he should be sentenced to
imprisonment for a period ranging in each case from two years, eleven months
and eleven days to four years and two months.

Facts: Samsung Construction held an account with Far

East Bank. One day a check worth 900,000, payable to
cash, was presented by one Roberto Gonzaga in the
Makati Branch of Far East Bank. The check was certified
to be true by Jose Sempio, the assistant accountant of
Samsung, who was also present during the time the check
was cashed. Later however it was discovered that no such
check was ever approved by the Samsungs head
accountant, the president of the company also never
signed any such check.
Issue: Whether or not Far East Bank is liable to reimburse
Samsung for cashing out the forged check, which was
drawn from the account of Samsung
Held: Far East Bank is liable for reimbursement. Sec. 23
of the Negotiable Instrument Law states that a forged
signature makes the instrument wholly inoperative. If
payment is made the drawee (Far East) cannot charge it
to the drawers account (Samsung). The fact that the
forgery is clever is immaterial. The forged signature may
so closely resemble the genuine as to defy detection by
the depositor himself. And yet, if the bank pays the check,
it is paying out with its own money and not of the
depositors. This rule of liability can be stated briefly in
these words: A bank is bound to know its depositors
signature. The accusation of negligence on the part of

Samsung was not clearly proven. Absence of proof to the

contrary, the presumption is that the ordinary course of
business was followed.

SECOND DIVISION
[G.R. No. 129015. August 13, 2004]

SAMSUNG
CONSTRUCTION
COMPANY
PHILIPPINES,
INC., petitioner, vs. FAR EAST BANK AND TRUST COMPANY
AND COURT OF APPEALS, respondents.
DECISION
TINGA, J.:

Called to fore in the present petition is a classic textbook question if a

bank pays out on a forged check, is it liable to reimburse the drawer from
whose account the funds were paid out? The Court of Appeals, in reversing a
trial court decision adverse to the bank, invoked tenuous reasoning to acquit
the bank of liability. We reverse, applying time-honored principles of law.
The salient facts follow.
Plaintiff Samsung Construction Company Philippines, Inc. (Samsung
Construction), while based in Bian, Laguna, maintained a current account with
defendant Far East Bank and Trust Company (FEBTC) at the latters BelAir, Makati branch. The sole signatory to Samsung Constructions account
was Jong Kyu Lee (Jong), its Project Manager, while the checks remained in
the custody of the companys accountant, Kyu Yong Lee (Kyu).
[1]

[2]

[3]

[4]

On 19 March 1992, a certain Roberto Gonzaga presented for payment

FEBTC Check No. 432100 to the banks branch in Bel-Air, Makati. The check,

payable to cash and drawn against Samsung Constructions current account,

was in the amount of Nine Hundred Ninety Nine Thousand Five Hundred
Pesos (P999,500.00). The bank teller, Cleofe Justiani, first checked the
balance of Samsung Constructions account. After ascertaining there were
enough funds to cover the check, she compared the signature appearing on
the check with the specimen signature of Jong as contained in the specimen
signature card with the bank. After comparing the two signatures, Justiani was
satisfied as to the authenticity of the signature appearing on the check. She
then asked Gonzaga to submit proof of his identity, and the latter presented
three (3) identification cards.
[5]

[6]

At the same time, Justiani forwarded the check to the branch Senior
Assistant Cashier Gemma Velez, as it was bank policy that two bank branch
officers approve checks exceeding One Hundred Thousand Pesos, for
payment or encashment. Velez likewise counterchecked the signature on the
check as against that on the signature card. He too concluded that the check
was indeed signed by Jong. Velez then forwarded the check and signature
card to Shirley Syfu, another bank officer, for approval. Syfu then noticed that
Jose Sempio III (Sempio), the assistant accountant of Samsung Construction,
was also in the bank. Sempio was well-known to Syfu and the other bank
officers, he being the assistant accountant of Samsung Construction. Syfu
showed the check to Sempio, who vouched for the genuineness of Jongs
signature. Confirming the identity of Gonzaga, Sempio said that the check
was for the purchase of equipment for Samsung Construction. Satisfied with
the genuineness of the signature of Jong, Syfu authorized the banks
encashment of the check to Gonzaga.
The following day, the accountant of Samsung Construction, Kyu,
examined the balance of the bank account and discovered that a check in the
amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos
(P999,500.00) had been encashed. Aware that he had not prepared such a
check for Jongs signature, Kyu perused the checkbook and found that the last
blank check was missing. He reported the matter to Jong, who then
proceeded to the bank. Jong learned of the encashment of the check, and
realized that his signature had been forged.The Bank Manager reputedly told
Jong that he would be reimbursed for the amount of the check. Jong
[7]

[8]

proceeded to the police station and consulted with his lawyers. Subsequently,
a criminal case for qualified theft was filed against Sempio before the Laguna
court.
[9]

[10]

In a letter dated 6 May 1992, Samsung Construction, through counsel,

demanded that FEBTC credit to it the amount of Nine Hundred Ninety Nine
Thousand Five Hundred Pesos (P999,500.00), with interest. In response,
FEBTC said that it was still conducting an investigation on the matter.
Unsatisfied, Samsung Construction filed a Complaint on 10 June 1992 for
violation of Section 23 of the Negotiable Instruments Law, and prayed for the
payment of the amount debited as a result of the questioned check plus
interest, and attorneys fees. The case was docketed as Civil Case No. 9261506 before the Regional Trial Court (RTC) of Manila, Branch 9.
[11]

[12]

[13]

During the trial, both sides presented their respective expert witnesses to
testify on the claim that Jongs signature was forged. Samsung Corporation,
which had referred the check for investigation to the NBI, presented Senior
NBI Document Examiner Roda B. Flores. She testified that based on her
examination, she concluded that Jongs signature had been forged on the
check. On the other hand, FEBTC, which had sought the assistance of the
Philippine National Police (PNP), presented Rosario C. Perez, a document
examiner from the PNP Crime Laboratory. She testified that her findings
showed that Jongs signature on the check was genuine.
[14]

[15]

Confronted with conflicting expert testimony, the RTC chose to believe the
findings of the NBI expert. In a Decision dated 25 April 1994, the RTC held
that Jongs signature on the check was forged and accordingly directed the
bank to pay or credit back to Samsung Constructions account the amount of
Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00),
together with interest tolled from the time the complaint was filed, and
attorneys fees in the amount of Fifteen Thousand Pesos (P15,000.00).
FEBTC timely appealed to the Court of Appeals. On 28 November 1996,
the Special Fourteenth Division of the Court of Appeals rendered a Decision,
reversing the RTC Decisionand absolving FEBTC from any liability. The
Court of Appeals held that the contradictory findings of the NBI and the PNP
created doubt as to whether there was forgery. Moreover, the appellate court
[16]

[17]

also held that assuming there was forgery, it occurred due to the negligence of
Samsung Construction, imputing blame on the accountant Kyu for lack of care
and prudence in keeping the checks, which if observed would have prevented
Sempio from gaining access thereto. The Court of Appeals invoked the ruling
in PNB v. National City Bank of New York that, if a loss, which must be borne
by one or two innocent persons, can be traced to the neglect or fault of either,
such loss would be borne by the negligent party, even if innocent of intentional
fraud.
[18]

[19]

[20]

Samsung Construction now argues that the Court of Appeals had seriously
misapprehended the facts when it overturned the RTCs finding of forgery. It
also contends that the appellate court erred in finding that it had been
negligent in safekeeping the check, and in applying the equity principle
enunciated in PNB v. National City Bank of New York.
Since the trial court and the Court of Appeals arrived at contrary findings
on questions of fact, the Court is obliged to examine the record to draw out
the correct conclusions. Upon examination of the record, and based on the
applicable laws and jurisprudence, we reverse the Court of Appeals.
Section 23 of the Negotiable Instruments Law states:
When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless the party
against whom it is sought to enforce such right is precluded from setting up the
forgery or want of authority. (Emphasis supplied)
The general rule is to the effect that a forged signature is wholly
inoperative, and payment made through or under such signature is ineffectual
or does not discharge the instrument. If payment is made, the drawee cannot
charge it to the drawers account. The traditional justification for the result is
that the drawee is in a superior position to detect a forgery because he has
the makers signature and is expected to know and compare it. The rule has
a healthy cautionary effect on banks by encouraging care in the comparison of
the signatures against those on the signature cards they have on file.
[21]

[22]

Moreover, the very opportunity of the drawee to insure and to distribute the
cost among its customers who use checks makes the drawee an ideal party to
spread the risk to insurance.
[23]

Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
When a person deposits money in a general account in a bank, against which he has
the privilege of drawing checks in the ordinary course of business, the relationship
between the bank and the depositor is that of debtor and creditor. So far as the legal
relationship between the two is concerned, the situation is the same as though the
bank had borrowed money from the depositor, agreeing to repay it on demand, or had
bought goods from the depositor, agreeing to pay for them on demand. The bank owes
the depositor money in the same sense that any debtor owes money to his
creditor. Added to this, in the case of bank and depositor, there is, of course, the banks
obligation to pay checks drawn by the depositor in proper form and presented in due
course. When the bank receives the deposit, it impliedly agrees to pay only upon the
depositors order. When the bank pays a check, on which the depositors signature is a
forgery, it has failed to comply with its contract in this respect. Therefore, the bank is
held liable.
The fact that the forgery is a clever one is immaterial. The forged signature may so
closely resemble the genuine as to defy detection by the depositor himself. And yet, if
a bank pays the check, it is paying out its own money and not the depositors.
The forgery may be committed by a trusted employee or confidential agent. The bank
still must bear the loss. Even in a case where the forged check was drawn by the
depositors partner, the loss was placed upon the bank. The case referred to is
Robinson v. Security Bank, Ark., 216 S. W. Rep. 717. In this case, the plaintiff
brought suit against the defendant bank for money which had been deposited to the
plaintiffs credit and which the bank had paid out on checks bearing forgeries of the
plaintiffs signature.
xxx
It was held that the bank was liable. It was further held that the fact that the plaintiff
waited eight or nine months after discovering the forgery, before notifying the bank,

did not, as a matter of law, constitute a ratification of the payment, so as to preclude

the plaintiff from holding the bank liable. xxx
This rule of liability can be stated briefly in these words: A bank is bound to know its
depositors signature. The rule is variously expressed in the many decisions in which
the question has been considered. But they all sum up to the proposition that a bank
must know the signatures of those whose general deposits it carries.
[24]

By no means is the principle rendered obsolete with the advent of modern

commercial transactions. Contemporary texts still affirm this well-entrenched
standard. Nickles, in his book Negotiable Instruments and Other Related
Commercial Paper wrote, thus:
The deposit contract between a payor bank and its customer determines who can draw
against the customers account by specifying whose signature is necessary on checks
that are chargeable against the customers account. Therefore, a check drawn against
the account of an individual customer that is signed by someone other than the
customer, and without authority from her, is not properly payable and is not
chargeable to the customers account, inasmuch as any unauthorized signature on an
instrument is ineffective as the signature of the person whose name is signed.
[25]

Under Section 23 of the Negotiable Instruments Law, forgery is a real or

absolute defense by the party whose signature is forged. On the premise
that Jongs signature was indeed forged, FEBTC is liable for the loss since it
authorized the discharge of the forged check. Such liability attaches even if
the bank exerts due diligence and care in preventing such faulty
discharge. Forgeries often deceive the eye of the most cautious experts; and
when a bank has been so deceived, it is a harsh rule which compels it to
suffer although no one has suffered by its being deceived. The forgery may
be so near like the genuine as to defy detection by the depositor himself, and
yet the bank is liable to the depositor if it pays the check.
[26]

[27]

[28]

Thus, the first matter of inquiry is into whether the check was indeed
forged. A document formally presented is presumed to be genuine until it is
proved to be fraudulent. In a forgery trial, this presumption must be overcome
but this can only be done by convincing testimony and effective illustrations.
[29]

In ruling that forgery was not duly proven, the Court of Appeals held:
[There] is ground to doubt the findings of the trial court sustaining the alleged forgery
in view of the conflicting conclusions made by handwriting experts from the NBI and
the PNP, both agencies of the government.
xxx
These contradictory findings create doubt on whether there was indeed a forgery. In
the case of Tenio-Obsequio v. Court of Appeals, 230 SCRA 550, the Supreme Court
held that forgery cannot be presumed; it must be proved by clear, positive and
convincing evidence.
This reasoning is pure sophistry. Any litigator worth his or her salt would
never allow an opponents expert witness to stand uncontradicted, thus the
spectacle of competing expert witnesses is not unusual. The trier of fact will
have to decide which version to believe, and explain why or why not such
version is more credible than the other. Reliance therefore cannot be placed
merely on the fact that there are colliding opinions of two experts, both clothed
with the presumption of official duty, in order to draw a conclusion, especially
one which is extremely crucial. Doing so is tantamount to a jurisprudential
cop-out.
Much is expected from the Court of Appeals as it occupies the penultimate
tier in the judicial hierarchy. This Court has long deferred to the appellate court
as to its findings of fact in the understanding that it has the appropriate skill
and competence to plough through the minutiae that scatters the factual
field. In failing to thoroughly evaluate the evidence before it, and relying
instead on presumptions haphazardly drawn, the Court of Appeals was sadly
remiss. Of course, courts, like humans, are fallible, and not every error
deserves a stern rebuke. Yet, the appellate courts error in this case warrants
special attention, as it is absurd and even dangerous as a precedent. If this
rationale were adopted as a governing standard by every court in the land,
barely any actionable claim would prosper, defeated as it would be by the
mere invocation of the existence of a contrary expert opinion.

On the other hand, the RTC did adjudge the testimony of the NBI expert
as more credible than that of the PNP, and explained its reason behind the
conclusion:
After subjecting the evidence of both parties to a crucible of analysis, the court arrived
at the conclusion that the testimony of the NBI document examiner
is more credible because the testimony of the PNPCrime
Laboratory Services document examiner reveals that there are a lot of differences in
the questioned signature as compared to the standard specimen signature.
Furthermore, as testified to by Ms. Rhoda Flores, NBI expert, the manner of execution
of the standard signatures used reveals that it is a free rapid continuous execution or
stroke as shown by the tampering terminal stroke of the signatures whereas the
questioned signature is a hesitating slow drawn execution stroke. Clearly, the person
who executed the questioned signature was hesitant when the signature was made.
[30]

During the testimony of PNP expert Rosario Perez, the RTC bluntly noted
that apparently, there [are] differences on that questioned signature and the
standard signatures. This Court, in examining the signatures, makes a
similar finding. The PNP expert excused the noted differences by asserting
that they were mere variations, which are normal deviations found in writing.
Yet the RTC, which had the opportunity to examine the relevant documents
and to personally observe the expert witness, clearly disbelieved the PNP
expert. The Court similarly finds the testimony of the PNP expert as
unconvincing. During the trial, she was confronted several times with apparent
differences between strokes in the questioned signature and the genuine
samples. Each time, she would just blandly assert that these differences were
just variations, as if the mere conjuration of the word would sufficiently
disquiet whatever doubts about the deviations. Such conclusion, standing
alone, would be of little or no value unless supported by sufficiently cogent
reasons which might amount almost to a demonstration.
[31]

[32]

[33]

[34]

The most telling difference between the questioned and genuine

signatures examined by the PNP is in the final upward stroke in the signature,
or the point to the short stroke of the terminal in the capital letter L, as referred
to by the PNP examiner who had marked it in her comparison chart as point
no. 6. To the plain eye, such upward final stroke consists of a vertical line
which forms a ninety degree (90) angle with the previous stroke. Of the twenty

one (21) other genuine samples examined by the PNP, at least nine (9) ended
with an upward stroke. However, unlike the questioned signature, the upward
strokes of eight (8) of these signatures are looped, while the upward stroke of
the seventh forms a severe forty-five degree (45) with the previous
stroke. The difference is glaring, and indeed, the PNP examiner was
confronted with the inconsistency in point no. 6.
[35]

[36]

Q: Now, in this questioned document point no. 6, the s stroke is directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is repeated
or the last stroke s is pointing directly upwards?
A: There is none in the standard signature, sir.[37]

Again, the PNP examiner downplayed the uniqueness of the final stroke in
the questioned signature as a mere variation, the same excuse she proffered
for the other marked differences noted by the Court and the counsel for
petitioner.
[38]

[39]

There is no reason to doubt why the RTC gave credence to the testimony
of the NBI examiner, and not the PNP experts. The NBI expert, Rhoda Flores,
clearly qualifies as an expert witness. A document examiner for fifteen years,
she had been promoted to the rank of Senior Document Examiner with the
NBI, and had held that rank for twelve years prior to her testimony. She had
placed among the top five examinees in the Competitive Seminar in Question
Document Examination, conducted by the NBI Academy, which qualified her
as a document examiner. She had trained with the Royal Hongkong Police
Laboratory and is a member of the International Association for Identification.
As of the time she testified, she had examined more than fifty to fifty-five
thousand questioned documents, on an average of fifteen to twenty
documents a day. In comparison, PNP document examiner Perez admitted
to having examined only around five hundred documents as of her testimony.
[40]

[41]

[42]

[43]

In analyzing the signatures, NBI Examiner Flores utilized the scientific

comparative examination method consisting of analysis, recognition,
comparison and evaluation of the writing habits with the use of instruments

such as a magnifying lense, a stereoscopic microscope, and varied lighting

substances. She also prepared enlarged photographs of the signatures in
order to facilitate the necessary comparisons. She compared the questioned
signature as against ten (10) other sample signatures of Jong. Five of these
signatures were executed on checks previously issued by Jong, while the
other five contained in business letters Jong had signed. The NBI found that
there were significant differences in the handwriting characteristics existing
between the questioned and the sample signatures, as to manner of
execution, link/connecting strokes, proportion characteristics, and other
identifying details.
[44]

[45]

[46]

The RTC was sufficiently convinced by the NBI examiners testimony, and
explained her reasons in its Decisions. While the Court of Appeals disagreed
and upheld the findings of the PNP, it failed to convincingly demonstrate why
such findings were more credible than those of the NBI expert. As a
throwaway, the assailed Decision noted that the PNP, not the NBI, had the
opportunity to examine the specimen signature card signed by Jong, which
was relied upon by the employees of FEBTC in authenticating Jongs
signature. The distinction is irrelevant in establishing forgery. Forgery can be
established comparing the contested signatures as against those of any
sample signature duly established as that of the persons whose signature was
forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did
compare the questioned signature against the bank signature cards. The
crucial fact in question is whether or not the check was forged, not
whether the bank could have detected the forgery. The latter issue
becomes relevant only if there is need to weigh the comparative
negligence between the bank and the party whose signature was forged.
At the same time, the Court of Appeals failed to assess the effect of Jongs
testimony that the signature on the check was not his. The assertion may
seem self-serving at first blush, yet it cannot be ignored that Jong was in the
best position to know whether or not the signature on the check was
his. While his claim should not be taken at face value, any averments he
would have on the matter, if adjudged as truthful, deserve primacy in
consideration. Jongs testimony is supported by the findings of the NBI
[47]

examiner. They are also backed by factual circumstances that support the
conclusion that the assailed check was indeed forged. Judicial notice can be
taken that is highly unusual in practice for a business establishment to draw a
check for close to a million pesos and make it payable to cash or bearer, and
not to order. Jong immediately reported the forgery upon its discovery. He filed
the appropriate criminal charges against Sempio, the putative forger.
[48]

Now for determination is whether Samsung Construction was precluded

from setting up the defense of forgery under Section 23 of the Negotiable
Instruments Law. The Court of Appeals concluded that Samsung Construction
was negligent, and invoked the doctrines that where a loss must be borne by
one of two innocent person, can be traced to the neglect or fault of either, it is
reasonable that it would be borne by him, even if innocent of any intentional
fraud, through whose means it has succeeded or who put into the power of
the third person to perpetuate the wrong. Applying these rules, the Court of
Appeals determined that it was the negligence of Samsung Construction that
allowed the encashment of the forged check.
[49]

[50]

In the case at bar, the forgery appears to have been made possible through the acts of
one Jose Sempio III, an assistant accountant employed by the plaintiff Samsung
[Construction] Co. Philippines, Inc. who supposedly stole the blank check and who
presumably is responsible for its encashment through a forged signature of Jong Kyu
Lee. Sempio was assistant to the Korean accountant who was in possession of the
blank checks and who through negligence, enabled Sempio to have access to the
same. Had the Korean accountant been more careful and prudent in keeping the blank
checks Sempio would not have had the chance to steal a page thereof and to effect the
forgery. Besides, Sempio was an employee who appears to have had dealings with the
defendant Bank in behalf of the plaintiff corporation and on the date the check was
encashed, he was there to certify that it was a genuine check issued to purchase
equipment for the company.
[51]

We recognize that Section 23 of the Negotiable Instruments Law bars a

party from setting up the defense of forgery if it is guilty of negligence. Yet,
we are unable to conclude that Samsung Construction was guilty of
negligence in this case. The appellate court failed to explain precisely how the
Korean accountant was negligent or how more care and prudence on his part
[52]

would have prevented the forgery. We cannot sustain this tar and feathering
resorted to without any basis.
The bare fact that the forgery was committed by an employee of the party
whose signature was forged cannot necessarily imply that such partys
negligence was the cause for the forgery. Employers do not possess the
preternatural gift of cognition as to the evil that may lurk within the hearts and
minds of their employees. The Courts pronouncement in PCI Bank v. Court of
Appeals applies in this case, to wit:
[53]

[T]he mere fact that the forgery was committed by a drawer-payors confidential
employee or agent, who by virtue of his position had unusual facilities for perpetrating
the fraud and imposing the forged paper upon the bank, does not entitle the bank to
shift the loss to the drawer-payor, in the absence of some circumstance raising
estoppel against the drawer.
[54]

Admittedly, the record does not clearly establish what measures Samsung
Construction employed to safeguard its blank checks. Jong did testify that his
accountant, Kyu, kept the checks inside a safety box, and no contrary
version was presented by FEBTC. However, such testimony cannot prove that
the checks were indeed kept in a safety box, as Jongs testimony on that point
is hearsay, since Kyu, and not Jong, would have the personal knowledge as to
how the checks were kept.
[55]

Still, in the absence of evidence to the contrary, we can conclude that

there was no negligence on Samsung Constructions part. The presumption
remains that every person takes ordinary care of his concerns, and that the
ordinary course of business has been followed. Negligence is not presumed,
but must be proven by him who alleges it. While the complaint was lodged at
the instance of Samsung Construction, the matter it had to prove was the
claim it had alleged - whether the check was forged. It cannot be required as
well to prove that it was not negligent, because the legal presumption remains
that ordinary care was employed.
[56]

[57]

[58]

Thus, it was incumbent upon FEBTC, in defense, to prove the negative

fact that Samsung Construction was negligent. While the payee, as in this
case, may not have the personal knowledge as to the standard procedures

observed by the drawer, it well has the means of disputing the presumption of
regularity. Proving a negative fact may be a difficult office, but necessarily so,
as it seeks to overcome a presumption in law. FEBTC was unable to dispute
the presumption of ordinary care exercised by Samsung Construction, hence
we cannot agree with the Court of Appeals finding of negligence.
[59]

The assailed Decision replicated the extensive efforts which FEBTC

devoted to establish that there was no negligence on the part of the bank in its
acceptance and payment of the forged check. However, the degree of
diligence exercised by the bank would be irrelevant if the drawer is not
precluded from setting up the defense of forgery under Section 23 by his own
negligence. The rule of equity enunciated in PNB v. National City Bank of New
York, as relied upon by the Court of Appeals, deserves careful examination.
[60]

The point in issue has sometimes been said to be that of negligence. The drawee who
has paid upon the forged signature is held to bear the loss, because he has been
negligent in failing to recognize that the handwriting is not that of his
customer. But it follows obviously that if the payee, holder, or presenter of the forged
paper has himself been in default, if he has himself been guilty of a negligence prior
to that of the banker, or if by any act of his own he has at all contributed to induce the
banker's negligence, then he may lose his right to cast the loss upon the banker.
(Emphasis supplied)
[61]

Quite palpably, the general rule remains that the drawee who has paid
upon the forged signature bears the loss. The exception to this rule arises
only when negligence can be traced on the part of the drawer whose
signature was forged, and the need arises to weigh the comparative
negligence between the drawer and the drawee to determine who should bear
the burden of loss. The Court finds no basis to conclude that Samsung
Construction was negligent in the safekeeping of its checks. For one, the
settled rule is that the mere fact that the depositor leaves his check book lying
around does not constitute such negligence as will free the bank from liability
to him, where a clerk of the depositor or other persons, taking advantage of
the opportunity, abstract some of the check blanks, forges the depositors
signature and collect on the checks from the bank. And for another, in point
of fact Samsung Construction was not negligent at all since it reported the
forgery almost immediately upon discovery.
[62]

[63]

It is also worth noting that the forged signatures in PNB v. National City
Bank of New York were not of the drawer, but of indorsers. The same
circumstance attends PNB v. Court of Appeals, which was also cited by the
Court of Appeals. It is accepted that a forged signature of the drawer differs in
treatment than a forged signature of the indorser.
[64]

The justification for the distinction between forgery of the signature of the drawer and
forgery of an indorsement is that the drawee is in a position to verify the drawers
signature by comparison with one in his hands, but has ordinarily no opportunity to
verify an indorsement.
[65]

Thus, a drawee bank is generally liable to its depositor in paying a check which bears
either a forgery of the drawers signature or a forged indorsement. But the bank may,
as a general rule, recover back the money which it has paid on a check bearing a
forged indorsement, whereas it has not this right to the same extent with reference to a
check bearing a forgery of the drawers signature.
[66]

The general rule imputing liability on the drawee who paid out on the
forgery holds in this case.
Since FEBTC puts into issue the degree of care it exercised before paying
out on the forged check, we might as well comment on the banks performance
of its duty. It might be so that the bank complied with its own internal rules
prior to paying out on the questionable check. Yet, there are several troubling
circumstances that lead us to believe that the bank itself was remiss in its
duty.
The fact that the check was made out in the amount of nearly one million
pesos is unusual enough to require a higher degree of caution on the part of
the bank. Indeed, FEBTC confirms this through its own internal
procedures. Checks below twenty-five thousand pesos require only the
approval of the teller; those between twenty-five thousand to one hundred
thousand pesos necessitate the approval of one bank officer; and should the
amount exceed one hundred thousand pesos, the concurrence of two bank
officers is required.
[67]

In this case, not only did the amount in the check nearly total one million
pesos, it was also payable to cash. That latter circumstance should have
aroused the suspicion of the bank, as it is not ordinary business practice for a
check for such large amount to be made payable to cash or to bearer, instead
of to the order of a specified person. Moreover, the check was presented for
payment by one Roberto Gonzaga, who was not designated as the payee of
the check, and who did not carry with him any written proof that he was
authorized by Samsung Construction to encash the check. Gonzaga, a
stranger to FEBTC, was not even an employee of Samsung Construction.
These circumstances are already suspicious if taken independently, much
more so if they are evaluated in concurrence. Given the shadiness attending
Gonzagas presentment of the check, it was not sufficient for FEBTC to have
merely complied with its internal procedures, but mandatory that all earnest
efforts be undertaken to ensure the validity of the check, and of the authority
of Gonzaga to collect payment therefor.
[68]

[69]

According to FEBTC Senior Assistant Cashier Gemma Velez, the bank

tried, but failed, to contact Jong over the phone to verify the check. She
added that calling the issuer or drawer of the check to verify the same was not
part of the standard procedure of the bank, but an extra effort. Even
assuming that such personal verification is tantamount to extraordinary
diligence, it cannot be denied that FEBTC still paid out the check despite the
absence of any proof of verification from the drawer. Instead, the bank seems
to have relied heavily on the say-so of Sempio, who was present at the bank
at the time the check was presented.
[70]

[71]

FEBTC alleges that Sempio was well-known to the bank officers, as he

had regularly transacted with the bank in behalf of Samsung Construction. It
was even claimed that everytime FEBTC would contact Jong about problems
with his account, Jong would hand the phone over to Sempio. However, the
only proof of such allegations is the testimony of Gemma Velez, who also
testified that she did not know Sempio personally, and had met Sempio for
the first time only on the day the check was encashed. In fact, Velez had to
inquire with the other officers of the bank as to whether Sempio was actually
known to the employees of the bank. Obviously, Velez had no personal
knowledge as to the past relationship between FEBTC and Sempio, and any
[72]

[73]

[74]

[75]

averments of her to that effect should be deemed hearsay

evidence. Interestingly, FEBTC did not present as a witness any other
employee of their Bel-Air branch, including those who supposedly had
transacted with Sempio before.
Even assuming that FEBTC had a standing habit of dealing with Sempio,
acting in behalf of Samsung Construction, the irregular circumstances
attending the presentment of the forged check should have put the bank on
the highest degree of alert. The Court recently emphasized that the highest
degree of care and diligence is required of banks.
Banks are engaged in a business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who transact business with
them. They have the obligation to treat their clients account meticulously and with the
highest degree of care, considering the fiduciary nature of their relationship. The
diligence required of banks, therefore, is more than that of a good father of a family.
[76]

Given the circumstances, extraordinary diligence dictates that FEBTC

should have ascertained from Jong personally that the signature in the
questionable check was his.
Still, even if the bank performed with utmost diligence, the drawer whose
signature was forged may still recover from the bank as long as he or she is
not precluded from setting up the defense of forgery. After all, Section 23 of
the Negotiable Instruments Law plainly states that no right to enforce the
payment of a check can arise out of a forged signature. Since the drawer,
Samsung Construction, is not precluded by negligence from setting up the
forgery, the general rule should apply. Consequently, if a bank pays a forged
check, it must be considered as paying out of its funds and cannot charge the
amount so paid to the account of the depositor. A bank is liable, irrespective
of its good faith, in paying a forged check.
[77]

[78]

WHEREFORE, the Petition is GRANTED. The Decision of the Court of

Appeals dated 28 November 1996 is REVERSED, and the Decision of the
Regional Trial Court of Manila, Branch 9, dated 25 April 1994 is REINSTATED.
Costs against respondent.

SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario,
JJ., concur.

SECOND DIVISION
[G.R. No. 139130. November 27, 2002]

RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and

THE MANILA BANKING CORPORATION, respondents.
DECISION
QUISUMBING, J.:

This petition for review seeks to reverse the decision promulgated on January 28,
1999 by the Court of Appeals in CA-G.R. CV No. 47942, affirming the decision of the
then Court of First Instance of Rizal, Branch XV (now the Regional Trial Court of Makati,
Branch 138) dismissing Civil Case No. 43907, for damages.
[1]

The facts as summarized by the Court of Appeals are as follows:

Petitioner is a prominent businessman who, at the time material to this case, was
the Managing Director of Multinational Investment Bancorporation and the Chairman
and/or President of several other corporations. He was a depositor in good standing of
respondent bank, the Manila Banking Corporation, under current Checking Account No.
06-09037-0. As he was then running about 20 corporations, and was going out of the
country a number of times, petitioner entrusted to his secretary, Katherine E. Eugenio,
his credit cards and his checkbook with blank checks. It was also Eugenio who verified
and reconciled the statements of said checking account.
[2]

[3]

Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to
encash and deposit to her personal account about seventeen (17) checks drawn
against the account of the petitioner at the respondent bank, with an aggregate amount
of P119,634.34. Petitioner did not bother to check his statement of account until a

business partner apprised him that he saw Eugenio use his credit cards. Petitioner fired
Eugenio immediately, and instituted a criminal action against her for estafa thru
falsification before the Office of the Provincial Fiscal of Rizal. Private respondent,
through an affidavit executed by its employee, Mr. Dante Razon, also lodged a
complaint for estafa thru falsification of commercial documents against Eugenio on the
basis of petitioners statement that his signatures in the checks were forged. Mr.
Razons affidavit states:
[4]

That I have examined and scrutinized the following checks in accordance with
prescribed verification procedures with utmost care and diligence by comparing the
signatures affixed thereat against the specimen signatures of Mr. Ramon K. Ilusorio
which we have on file at our said office on such dates,
xxx
That the aforementioned checks were among those issued by Manilabank in favor of its
client MR. RAMON K. ILUSORIO,
That the same were personally encashed by KATHERINE E. ESTEBAN, an executive
secretary of MR. RAMON K. ILUSORIO in said Investment Corporation;
That I have met and known her as KATHERINE E. ESTEBAN the attending verifier
when she personally encashed the above-mentioned checks at our said office;
That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning his signature
appearing on the checks further alleged to have not authorized the issuance and
encashment of the same.
[5]

Petitioner then requested the respondent bank to credit back and restore to its
account the value of the checks which were wrongfully encashed but respondent bank
refused. Hence, petitioner filed the instant case.
[6]

At the trial, petitioner testified on his own behalf, attesting to the truth of the
circumstances as narrated above, and how he discovered the alleged forgeries. Several
employees of Manila Bank were also called to the witness stand as hostile
witnesses. They testified that it is the banks standard operating procedure that
whenever a check is presented for encashment or clearing, the signature on the check
is first verified against the specimen signature cards on file with the bank.
Manila Bank also sought the expertise of the National Bureau of Investigation (NBI)
in determining the genuineness of the signatures appearing on the checks. However, in
a letter dated March 25, 1987, the NBI informed the trial court that they could not

conduct the desired examination for the reason that the standard specimens submitted
were not sufficient for purposes of rendering a definitive opinion. The NBI then
suggested that petitioner be asked to submit seven (7) or more additional standard
signatures executed before or about, and immediately after the dates of the questioned
checks. Petitioner, however, failed to comply with this request.
After evaluating the evidence on both sides, the court a quo rendered judgment on
May 12, 1994 with the following dispositive portion:
WHEREFORE, finding no sufficient basis for plaintiff's cause herein against defendant
bank, in the light of the foregoing considerations and established facts, this case would
have to be, as it is hereby DISMISSED.
Defendants counterclaim is likewise DISMISSED for lack of sufficient basis.
SO ORDERED.

[7]

Aggrieved, petitioner elevated the case to the Court of Appeals by way of a petition
for review but without success. The appellate court held that petitioners own negligence
was the proximate cause of his loss. The appellate court disposed as follows:
WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the appellant.
SO ORDERED.

[8]

Before us, petitioner ascribes the following errors to the Court of Appeals:
A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT
BANK IS ESTOPPED FROM RAISING THE DEFENSE THAT THERE WAS NO
FORGERY OF THE SIGNATURES OF THE PETITIONER IN THE CHECK
BECAUSE THE RESPONDENT FILED A CRIMINAL COMPLAINT FOR ESTAFA
THRU FALSIFICATION OF COMMERCIAL DOCUMENTS AGAINST KATHERINE
EUGENIO USING THE AFFIDAVIT OF PETITIONER STATING THAT HIS
SIGNATURES WERE FORGED AS PART OF THE AFFIDAVIT-COMPLAINT.[9]
B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23, NEGOTIABLE
INSTRUMENTS LAW.[10]
C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN OF PROOF
IS WITH THE RESPONDENT BANK TO PROVE THE DUE DILIGENCE TO
PREVENT DAMAGE, TO THE PETITIONER, AND THAT IT WAS NOT NEGLIGENT
IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES.[11]

D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT

BANK SHOULD BEAR THE LOSS, AND SHOULD BE MADE TO PAY
PETITIONER, WITH RECOURSE AGAINST KATHERINE EUGENIO ESTEBAN.[12]

Essentially the issues in this case are: (1) whether or not petitioner has a cause of
action against private respondent; and (2) whether or not private respondent, in filing
an estafa case against petitioners secretary, is barred from raising the defense that the
fact of forgery was not established.
Petitioner contends that Manila Bank is liable for damages for its negligence in
failing to detect the discrepant checks. He adds that as a general rule a bank which has
obtained possession of a check upon an unauthorized or forged endorsement of the
payees signature and which collects the amount of the check from the drawee is liable
for the proceeds thereof to the payee. Petitioner invokes the doctrine of estoppel, saying
that having itself instituted a forgery case against Eugenio, Manila Bank is now
estopped from asserting that the fact of forgery was never proven.
For its part, Manila Bank contends that respondent appellate court did not depart
from the accepted and usual course of judicial proceedings, hence there is no reason
for the reversal of its ruling. Manila Bank additionally points out that Section 23 of the
Negotiable Instruments Law is inapplicable, considering that the fact of forgery was
never proven. Lastly, the bank negates petitioners claim of estoppel.
[13]

[14]

On the first issue, we find that petitioner has no cause of action against Manila
Bank. To be entitled to damages, petitioner has the burden of proving negligence on the
part of the bank for failure to detect the discrepancy in the signatures on the checks. It is
incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his
specimen signatures and comparing them with those on the questioned
checks. Curiously though, petitioner failed to submit additional specimen signatures as
requested by the National Bureau of Investigation from which to draw a conclusive
finding regarding forgery. The Court of Appeals found that petitioner, by his own
inaction, was precluded from setting up forgery. Said the appellate court:
We cannot fault the court a quo for such declaration, considering that the plaintiffs
evidence on the alleged forgery is not convincing enough. The burden to prove forgery
was upon the plaintiff, which burden he failed to discharge. Aside from his own
testimony, the appellant presented no other evidence to prove the fact of forgery. He did
not even submit his own specimen signatures, taken on or about the date of the
questioned checks, for examination and comparison with those of the subject
checks. On the other hand, the appellee presented specimen signature cards of the
appellant, taken at various years, namely, in 1976, 1979 and 1981 (Exhibits 1, 2, 3 and

7), showing variances in the appellants unquestioned signatures. The evidence further
shows that the appellee, as soon as it was informed by the appellant about his
questioned signatures, sought to borrow the questioned checks from the appellant for
purposes of analysis and examination (Exhibit 9), but the same was denied by the
appellant. It was also the former which sought the assistance of the NBI for an expert
analysis of the signatures on the questioned checks, but the same was unsuccessful for
lack of sufficient specimen signatures.
[15]

Moreover, petitioners contention that Manila Bank was remiss in the exercise of its
duty as drawee lacks factual basis. Consistently, the CA and the RTC found that Manila
Bank employees exercised due diligence in cashing the checks. The banks employees
in the present case did not have a hint as to Eugenios modus operandi because she
was a regular customer of the bank, having been designated by petitioner himself to
transact in his behalf. According to the appellate court, the employees of the bank
exercised due diligence in the performance of their duties. Thus, it found that:
The evidence on both sides indicates that TMBCs employees exercised due diligence
before encashing the checks. Its verifiers first verified the drawers signatures thereon as
against his specimen signature cards, and when in doubt, the verifier went further, such
as by referring to a more experienced verifier for further verification. In some instances
the verifier made a confirmation by calling the depositor by phone. It is only after taking
such precautionary measures that the subject checks were given to the teller for
payment.
Of course it is possible that the verifiers of TMBC might have made a mistake in failing
to detect any forgery -- if indeed there was. However, a mistake is not equivalent to
negligence if they were honest mistakes. In the instant case, we believe and so hold
that if there were mistakes, the same were not deliberate, since the bank took all the
precautions.
[16]

As borne by the records, it was petitioner, not the bank, who was
negligent. Negligence is the omission to do something which a reasonable man, guided
by those considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would do. In the
present case, it appears that petitioner accorded his secretary unusual degree of trust
and unrestricted access to his credit cards, passbooks, check books, bank statements,
including custody and possession of cancelled checks and reconciliation of
accounts. Said the Court of Appeals on this matter:
[17]

Moreover, the appellant had introduced his secretary to the bank for purposes of
reconciliation of his account, through a letter dated July 14, 1980 (Exhibit 8). Thus, the

said secretary became a familiar figure in the bank. What is worse, whenever the bank
verifiers call the office of the appellant, it is the same secretary who answers and
confirms the checks.
The trouble is, the appellant had put so much trust and confidence in the said secretary,
by entrusting not only his credit cards with her but also his checkbook with blank
checks. He also entrusted to her the verification and reconciliation of his
account. Further adding to his injury was the fact that while the bank was sending him
the monthly Statements of Accounts, he was not personally checking the same. His
testimony did not indicate that he was out of the country during the period covered by
the checks. Thus, he had all the opportunities to verify his account as well as the
cancelled checks issued thereunder -- month after month. But he did not, until his
partner asked him whether he had entrusted his credit card to his secretary because the
said partner had seen her use the same. It was only then that he was minded to verify
the records of his account.
[18]

The abovecited findings are binding upon the reviewing court. We stress the rule
that the factual findings of a trial court, especially when affirmed by the appellate court,
are binding upon us and entitled to utmost respect and even finality. We find no
palpable error that would warrant a reversal of the appellate courts assessment of facts
anchored upon the evidence on record.
[19]

[20]

Petitioners failure to examine his bank statements appears as the proximate cause
of his own damage. Proximate cause is that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred. In the instant case, the bank was not shown
to be remiss in its duty of sending monthly bank statements to petitioner so that any
error or discrepancy in the entries therein could be brought to the banks attention at the
earliest opportunity. But, petitioner failed to examine these bank statements not
because he was prevented by some cause in not doing so, but because he did not pay
sufficient attention to the matter. Had he done so, he could have been alerted to any
anomaly committed against him. In other words, petitioner had sufficient opportunity to
prevent or detect any misappropriation by his secretary had he only reviewed the status
of his accounts based on the bank statements sent to him regularly. In view of Article
2179 of the New Civil Code, when the plaintiffs own negligence was the immediate
and proximate cause of his injury, no recovery could be had for damages.
[21]

[22]

Petitioner further contends that under Section 23 of the Negotiable Instruments Law
a forged check is inoperative, and that Manila Bank had no authority to pay the forged
checks. True, it is a rule that when a signature is forged or made without the authority of
the person whose signature it purports to be, the check is wholly inoperative. No right to

retain the instrument, or to give a discharge therefor, or to enforce payment thereof

against any party, can be acquired through or under such signature. However, the rule
does provide for an exception, namely: unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of authority. In
the instant case, it is the exception that applies. In our view, petitioner is precluded from
setting up the forgery, assuming there is forgery, due to his own negligence in entrusting
to his secretary his credit cards and checkbook including the verification of his
statements of account.
Petitioners reliance on Associated Bank vs. Court of Appeals and Philippine Bank
of Commerce vs. CA to buttress his contention that respondent Manila Bank as the
collecting or last endorser generally suffers the loss because it has the duty to ascertain
the genuineness of all prior endorsements is misplaced. In the cited cases, the fact of
forgery was not in issue. In the present case, the fact of forgery was not established
with certainty. In those cited cases, the collecting banks were held to be negligent for
failing to observe precautionary measures to detect the forgery. In the case before us,
both courts below uniformly found that Manila Banks personnel diligently performed
their duties, having compared the signature in the checks from the specimen signatures
on record and satisfied themselves that it was petitioners.
[23]

[24]

On the second issue, the fact that Manila Bank had filed a case for estafa against
Eugenio would not estop it from asserting the fact that forgery has not been clearly
established.Petitioner cannot hold private respondent in estoppel for the latter is not the
actual party to the criminal action. In a criminal action, the State is the plaintiff, for the
commission of a felony is an offense against the State. Thus, under Section 2, Rule
110 of the Rules of Court the complaint or information filed in court is required to be
brought in the name of the People of the Philippines.
[25]

[26]

Further, as petitioner himself stated in his petition, respondent bank filed

the estafa case against Eugenio on the basis of petitioners own affidavit, but without
admitting that he had any personal knowledge of the alleged forgery. It is, therefore,
easy to understand that the filing of the estafa case by respondent bank was a last ditch
effort to salvage its ties with the petitioner as a valuable client, by bolstering
the estafa case which he filed against his secretary.
[27]

All told, we find no reversible error that can be ascribed to the Court of Appeals.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed
decision of the Court of Appeals dated January 28, 1999 in CA-G.R. CV No. 47942, is
AFFIRMED.

Costs against petitioner.

SO ORDERED.
Bellosillo, Acting
Sr., JJ., concur.

C.J.,

(Chairman),

Mendoza,

Austria-Martinez, and Callejo,

FACTS:
Ilusorio was a businessman who was in charge of 20 or so corporations. He
was a depositor in good standing of Manila Banking Corporation. As he was
in charge of a big number of corporations, he was usually out of the country
for business. He then entrusted his credit cards, checkbook, blank checks,
passbooks, etc to his secretary, Katherine Eugenio. Eugenio was also in
charge of verifying and reconciling the statements of Ilusorios checking
account.

Eugenio was able to encash and deposit to her personal account checks drawn
against Ilusorios account with an aggregate amount of 119K. Ilusorio didnt
bother to check his statement of account until a business partner informed
him that he saw Eugenio using his credit cards. Ilusorio then fired her and
instituted criminal case of Estafa thru falsification against Eugenio. Manila
Banking Corp. also instituted a complaint of estafa against Eugenio based on
the affidavit of Dante Razon, an employee. Razon stated that he personally
examined and scrutinized the encashed checks in accordance with their
verification procedures.

Manila Bank sought the expertise of NBI in determining the genuineness of

the checks but Ilusorio failed to submit specimen signatures and thus, NBI
could not conduct the examination.

Issue: W/N Manila Bank is liable for damages for failing to detect a forged
check

Held:

No. To be entitled to damages, Ilusorio has the burden of poving that the bank
was negligent in failing to detect the discrepancy in the signatures on the
checks. Ilusorio had to establish the fact of forgery which he failed to do by
failing to submit his specimen signatures for NBI to conclusively establish
forgery.

Furthermore, the Bank was not negligent in verifying the checks as they
verified the drawers signatures against their specimen signatures and in
doubt, referred to more experienced verifier for further verification.

On the contrary, it was Ilusorio who was found to be negligent. He accorded

his secretary with an unusual degree of trust and unrestricted access to his
finances. Furthermore, despite the fact that the bank was regularly sending
statements of account, he failed to check them until he found out that his
secretary was using his credit cards.

Sec. 23 of the Negotiable Instruments law provides that a forged check is

inoperative, meaning there was no right to enforce payment against any party.
But it also provides an exception: unless the party against whom it is sought
enforce such right is precluded from setting up the forgery or want of
authority. This case falls under the exception since Ilusorio is precluded
from setting up forgery due to his own negligence considering that he
allowed his secretary access to his credit cards, checkbook, and allowed his
secretary to verify his statements of account.

ASSOCIATED BANK V.
CA
252 SCRA 620
FACTS:
The province of Tarlac maintains an account with PNB-Tarlac. Part of its
funds is appropriated for the benefit of Concepcion Emergency Hospital.
During a post-audit done by the province, it was found out that 30 of its checks
werent received by the hospital. Upon further investigation, it was found out that
the checks were encashed by Pangilinan who was a former cashier and
administrative officer of the hospital through forged indorsements.

This prompted the provincial treasurer to ask for

reimbursement from PNB and thereafter, PNB from Associated Bank.
the two banks didn't want to reimburse, an action was filed against them.

As

HELD:
There is a distinction on forged indorsements with regard bearer
instruments and instruments payable to order.
With instruments payable to bearer, the signature of the payee or holder is
unnecessary to pass title to the instrument. Hence, when the indorsement is a
forgery, only the person whose signature is forged can raise the defense of
forgery against holder in due course.
In instruments payable to order, the signature of the rightful holder is
essential to transfer title to the same instrument.

When the holders

signature is forged, all parties prior to the forgery may raise the real
defense of forgery against all parties subsequent thereto. In connection to this,
an indorser warrants that the instrument is genuine.
such an indorser.

A collecting bank is

So even if the indorsement is forged, the collecting bank

is bound by his warranties as an indorser and cannot set up

the defense of forgery as against the drawee bank.
Furthermore, in cases involving checks with forged indorsements, such as the
case at bar, the chain of liability doesn't end with the drawee bank. The
drawee bank may not debit the account of the drawer but may generally
pass liability back through the collection chain to the party who took from the
forger and of course, the forger himself, if available.

In other words, the

drawee bank can seek reimbursement or a return of the amount it paid from
the collecting bank or person.

The collecting bank generally suffers the

loss because it has te duty to ascertain the genuineness of all prior

endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the
genuineness of the indorsements.
With regard the issue of delay, a delay in informing the bank of the
forgery, which deprives it of the opportunity to go after the forger, signifies
negligence on the part of the drawee bank and will preclude it from
claiming reimbursement. In this case, PNB wasn't guilty of any negligent delay.
Its delay hasn't prejudiced Associated Bank in any way because even if
there wasn't delay, the fact that there was nothing left of the account of
Pangilinan, there couldn't be anymore reimbursement.

Associated Bank vs. CA, January 31, 1996

Post under case digests, Commercial Law at Tuesday, January 31, 2012 Posted by Schizophrenic
Mind

Facts: Faustino Pangilinan, cashier of the Concepcion

Emergency Hospital, forged the signature of Dr. Adena
Canlas who was the Chief of the said hospital and
endorsed 30 checks amounting to P203,300 to himself.
The money was drawn from the account of the Province of
Tarlac with PNB. Pangilinan deposited the checks to his
personal savings account with Associated Bank which was
cleared and paid for by PNB. The checks have a stamp of
Associated Bank which reads All prior endorsements
guaranteed
by
Associated
Bank.

The Province of Tarlac, through the Provincial Treasurer,

wrote PNB to restore the various amounts debited from
the current account of the Province. PNB on its part
demanded reimbursement from Associated Bank. Both
banks resisted payment which led to the Province of Tarlac
suing PNB. PNB in turn impleaded Associated Bank in the
suit as a third-party defendant while Associated Bank
impleaded Canlas and Pangilinan as fourth-party
defendants.
The trial court ruled that 1) PNB should pay the Province
of Tarlac the P203,300 with legal interests, 2) Associated
Bank should be pay the same amount to PNB and 3)
dismissed the complaints against Canlas and Pangilinan.
On appeal, the CA affirmed the ruling of the trial court
Issue: Who should bear the loss arising from the forgery,
the Province of Tarlac, PNB, Associated Bank or
Pangilinan?
Held: The SC held that the Province and Associated Bank
should bear losses in the proportion of 50-50.
The Province can only recover 50% of the P203,300 from
PNB because of the negligence they exhibited in releasing
the checks to the then already retired Pangilinan who is an
unauthorized person to handle the said checks.
On the other hand, Associated Bank is liable to PNB only
to 50% of the same amount because of its liability as

indorser of the checks that were deposited by Pangilinan,

and guaranteed the genuineness of the said checks. They
failed to exercise due diligence in checking the veracity of
indorsements.
FIRST DIVISION

[G.R. No. 149454. May 28, 2004]

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA

MONTESSORI
INTERNATIONALE
and
LEONARDO
T.
YABUT, respondents.

[G.R. No. 149507. May 28, 2004]

CASA MONTESSORI INTERNATIONALE, petitioner, vs. BANK OF THE

PHILIPPINE ISLANDS, respondent.
DECISION
PANGANIBAN, J.:

By the nature of its functions, a bank is required to take meticulous care of the
deposits of its clients, who have the right to expect high standards of integrity
and performance from it.Among its obligations in furtherance thereof is knowing the
signatures of its clients. Depositors are not estopped from questioning wrongful
withdrawals, even if they have failed to question those errors in the statements sent by
the bank to them for verification.
The Case
Before us are two Petitions for Review under Rule 45 of the Rules of Court,
assailing the March 23, 2001 Decision and the August 17, 2001 Resolution of the
[1]

[2]

[3]

Court of Appeals (CA) in CA-GR CV No. 63561. The decretal portion of the assailed
Decision reads as follows:

WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with
the modification that defendant bank [Bank of the Philippine Islands (BPI)] is held
liable only for one-half of the value of the forged checks in the amount
of P547,115.00 after deductions subject to REIMBURSEMENT from third party
defendant Yabut who is likewise ORDERED to pay the other half to plaintiff
corporation [Casa Montessori Internationale (CASA)].
[4]

The assailed Resolution denied all the parties Motions for Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:

On November 8, 1982, plaintiff CASA Montessori International opened Current

Account No. 0291-0081-01 with defendant BPI[,] with CASAs President Ms. Ma.
Carina C. Lebron as one of its authorized signatories.
[5]

In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its
checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount
of P782,000.00, on the following dates and amounts:
Check No. Date Amount
1. 839700 April 24, 1990 P 43,400.00
2. 839459 Nov. 2, 1990 110,500.00
3. 839609 Oct. 17, 1990 47,723.00
4. 839549 April 7, 1990 90,700.00
5. 839569 Sept. 23, 1990 52,277.00
6. 729149 Mar. 22, 1990 148,000.00
7. 729129 Mar. 16, 1990 51,015.00
8. 839684 Dec. 1, 1990 140,000.00

9. 729034 Mar. 2, 1990 98,985.00

Total -- P 782,600.00

[6]

It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a
fictitious name used by third party defendant Leonardo T. Yabut who worked as external
auditor of CASA.Third party defendant voluntarily admitted that he forged the signature
of Ms. Lebron and encashed the checks.
The PNP Crime Laboratory conducted an examination of the nine (9) checks and
concluded that the handwritings thereon compared to the standard signature of Ms.
Lebron were not written by the latter.
On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages
against defendant bank praying that the latter be ordered to reinstate the amount
of P782,500.00 in the current and savings accounts of the plaintiff with interest at 6%
per annum.
[7]

On February 16, 1999, the RTC rendered the appealed decision in favor of the
plaintiff.
[8]

Ruling of the Court of Appeals

Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the
loss between BPI and CASA. The appellate court took into account CASAs contributory
negligence that resulted in the undetected forgery. It then ordered Leonardo T. Yabut to
reimburse BPI half the total amount claimed; and CASA, the other half. It also
disallowed attorneys fees and moral and exemplary damages.
Hence, these Petitions.

[9]

Issues
In GR No. 149454, Petitioner BPI submits the following issues for our consideration:

I. The Honorable Court of Appeals erred in deciding this case NOT in accord with
the applicable decisions of this Honorable Court to the effect that forgery cannot be
presumed; that it must be proved by clear, positive and convincing evidence; and that
the burden of proof lies on the party alleging the forgery.
II. The Honorable Court of Appeals erred in deciding this case not in accord with
applicable laws, in particular the Negotiable Instruments Law (NIL) which precludes
CASA, on account of its own negligence, from asserting its forgery claim against BPI,
specially taking into account the absence of any negligence on the part of BPI.
[10]

In GR No. 149507, Petitioner CASA submits the following issues:

1. The Honorable Court of Appeals erred when it ruled that there is no showing that
[BPI], although negligent, acted in bad faith x x x thus denying the prayer for the
award of attorneys fees, moral damages and exemplary damages to [CASA]. The
Honorable Court also erred when it did not order [BPI] to pay interest on the amounts
due to [CASA].
2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise
negligent in the case at bar, thus warranting its conclusion that the loss in the amount
of P547,115.00 be apportioned between [CASA] and [BPI] x x x.
[11]

These issues can be narrowed down to three. First, was there forgery under the
Negotiable Instruments Law (NIL)? Second, were any of the parties negligent and
therefore precluded from setting up forgery as a defense? Third, should moral and
exemplary damages, attorneys fees, and interest be awarded?
The Courts Ruling
The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly
meritorious.
First Issue:
Forged Signature Wholly Inoperative
Section 23 of the NIL provides:

Section 23. Forged signature; effect of. -- When a signature is forged or made without
the authority of the person whose signature it purports to be, it is wholly inoperative,
and no right x x x to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against whom it is sought
to enforce such right is precluded from setting up the forgery or want of authority.
[12]

Under this provision, a forged signature is a real or absolute defense, and a

person whose signature on a negotiable instrument is forged is deemed to have never
become a party thereto and to have never consented to the contract that allegedly gave
rise to it.
[13]

[14]

[15]

The counterfeiting of any writing, consisting in the signing of anothers name with
intent to defraud, is forgery.
[16]

In the present case, we hold that there was forgery of the drawers signature on the
check.
First, both the CA and the RTC found that Respondent Yabut himself had
voluntarily admitted, through an Affidavit, that he had forged the drawers signature and
encashed the checks. He never refuted these findings. That he had been coerced
into admission was not corroborated by any evidence on record.
[17]

[18]

[19]

[20]

[21]

Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory,
after its examination of the said checks, had concluded that the handwritings thereon
-- compared to the standard signature of the drawer -- were not hers. This conclusion
was the same as that in the Report that the PNP Crime Laboratory had earlier issued
to BPI -- the drawee bank -- upon the latters request.
[22]

[23]

[24]

Indeed, we respect and affirm the RTCs factual findings, especially when affirmed
by the CA, since these are supported by substantial evidence on record.
[25]

Voluntary Admission Not

Violative of Constitutional Rights
The voluntary admission of Yabut did not violate his constitutional rights (1) on
custodial investigation, and (2) against self-incrimination.
In the first place, he was not under custodial investigation. His Affidavit was
executed in private and before private individuals. The mantle of protection under
Section 12 of Article III of the 1987 Constitution covers only the period from the time a
person is taken into custody for investigation of his possible participation in the
commission of a crime or from the time he is singled out as a suspect in the commission
of a crime although not yet in custody.
[26]

[27]

[28]

[29]

Therefore, to fall within the ambit of Section 12, quoted above, there must be an
arrest or a deprivation of freedom, with questions propounded on him by the police
authorities for the purpose of eliciting admissions, confessions, or any information. The
said constitutional provision does not apply to spontaneous statements made in a
voluntary manner whereby an individual orally admits to authorship of a crime. What
the Constitution proscribes is the compulsory or coercive disclosure of incriminating
facts.
[30]

[31]

[32]

[33]

Moreover, the right against self-incrimination under Section 17 of Article III of the
Constitution, which is ordinarily available only in criminal prosecutions, extends to all
other government proceedings -- including civil actions, legislative investigations, and
administrative proceedings that possess a criminal or penal aspect -- but not to private
investigations done by private individuals. Even in such government proceedings, this
right may be waived, provided the waiver is certain; unequivocal; and intelligently,
understandingly and willingly made.
[34]

[35]

[36]

[37]

[38]

[39]

If in these government proceedings waiver is allowed, all the more is it so in private

investigations. It is of no moment that no criminal case has yet been filed against

Yabut. The filing thereof is entirely up to the appropriate authorities or to the private
individuals upon whom damage has been caused. As we shall also explain later, it is not
mandatory for CASA -- the plaintiff below -- to implead Yabut in the civil case before the
lower court.
Under these two constitutional provisions, [t]he Bill of Rights does not concern
itself with the relation between a private individual and another individual. It governs the
relationship between the individual and the State. Moreover, the Bill of Rights is a
charter of liberties for the individual and a limitation upon the power of the [S]tate.
These rights are guaranteed to preclude the slightest coercion by the State that may
lead the accused to admit something false, not prevent him from freely and voluntarily
telling the truth.
[40]

[41]

[42]

[43]

[44]

Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights
does not automatically entitle him to the constitutional protection. When he freely and
voluntarily executed his Affidavit, the State was not even involved. Such Affidavit may
therefore be admitted without violating his constitutional rights while under custodial
investigation and against self-incrimination.
[45]

[46]

Clear, Positive and Convincing

Examination and Evidence
The examination by the PNP, though inconclusive, was nevertheless clear, positive
and convincing.
Forgery cannot be presumed. It must be established by clear, positive and
convincing evidence. Under the best evidence rule as applied to documentary
evidence like the checks in question, no secondary or substitutionary evidence may
inceptively be introduced, as the original writing itself must be produced in court. But
when, without bad faith on the part of the offeror, the original checks have already been
destroyed or cannot be produced in court, secondary evidence may be produced.
Without bad faith on its part, CASA proved the loss or destruction of the original
checks through the Affidavit of the one person who knew of that fact -- Yabut. He
clearly admitted to discarding the paid checks to cover up his misdeed. In such a
situation, secondary evidence like microfilm copies may be introduced in court.
[47]

[48]

[49]

[50]

[51]

[52]

The drawers signatures on the microfilm copies were compared with the standard
signature. PNP Document Examiner II Josefina de la Cruz testified on crossexamination that two different persons had written them. Although no conclusive report
could be issued in the absence of the original checks, she affirmed that her findings
were 90 percent conclusive. According to her, even if the microfilm copies were the
only basis of comparison, the differences were evident. Besides, the RTC explained
that although the Report was inconclusive, no conclusive report could have been given
by the PNP, anyway, in the absence of the original checks. This explanation is valid;
otherwise, no such report can ever be relied upon in court.
[53]

[54]

[55]

[56]

[57]

Even with respect to documentary evidence, the best evidence rule applies only
when the contents of a document -- such as the drawers signature on a check -- is the
subject of inquiry. As to whether the document has been actually executed, this rule
does not apply; and testimonial as well as any other secondary evidence is admissible.
Carina Lebron herself, the drawers authorized signatory, testified many times that she
had never signed those checks. Her testimonial evidence is admissible; the checks
have not been actually executed.The genuineness of her handwriting is proved, not only
through the courts comparison of the questioned handwritings and admittedly genuine
specimens thereof, but above all by her.
[58]

[59]

[60]

The failure of CASA to produce the original checks neither gives rise to the
presumption of suppression of evidence nor creates an unfavorable inference against
it. Such failure merely authorizes the introduction of secondary evidence in the form
of microfilm copies. Of no consequence is the fact that CASA did not present the
signature card containing the signatures with which those on the checks were
compared. Specimens of standard signatures are not limited to such a
card. Considering that it was not produced in evidence, other documents that bear the
drawers authentic signature may be resorted to. Besides, that card was in the
possession of BPI -- the adverse party.
[61]

[62]

[63]

[64]

[65]

We have held that without the original document containing the allegedly forged
signature, one cannot make a definitive comparison that would establish forgery; and
that a comparison based on a mere reproduction of the document under controversy
cannot produce reliable results. We have also said, however, that a judge cannot
merely rely on a handwriting experts testimony, but should also exercise independent
judgment in evaluating the authenticity of a signature under scrutiny. In the present
case, both the RTC and the CA conducted independent examinations of the evidence
presented and arrived at reasonable and similar conclusions. Not only did they admit
secondary evidence; they also appositely considered testimonial and other
documentary evidence in the form of the Affidavit.
[66]

[67]

[68]

[69]

The best evidence rule admits of exceptions and, as we have discussed earlier, the
first of these has been met. The result of examining a questioned handwriting, even
with the aid of experts and scientific instruments, may be inconclusive; but it is a non
sequitur to say that such result is not clear, positive and convincing. The preponderance
of evidence required in this case has been satisfied.
[70]

[71]

[72]

Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawers signature, BPI -- the drawee -- erred in
making payments by virtue thereof. The forged signatures are wholly inoperative, and
CASA -- the drawer whose authorized signatures do not appear on the negotiable
instruments -- cannot be held liable thereon. Neither is the latter precluded from setting
up forgery as a real defense.

Clear Negligence
in Allowing Payment
Under a Forged Signature
We have repeatedly emphasized that, since the banking business is impressed with
public interest, of paramount importance thereto is the trust and confidence of the public
in general.Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are even required, of it. By the nature of its
functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.
[73]

[74]

[75]

[76]

[77]

BPI contends that it has a signature verification procedure, in which checks are
honored only when the signatures therein are verified to be the same with or similar to
the specimen signatures on the signature cards. Nonetheless, it still failed to detect the
eight instances of forgery. Its negligence consisted in the omission of that degree of
diligence required of a bank.It cannot now feign ignorance, for very early on we have
already ruled that a bank is bound to know the signatures of its customers; and if it pays
a forged check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose
name was forged. In fact, BPI was the same bank involved when we issued this ruling
seventy years ago.
[78]

[79]

Neither Waiver nor Estoppel

Results from Failure to
Report Error in Bank Statement
The monthly statements issued by BPI to its clients contain a notice worded as
follows: If no error is reported in ten (10) days, account will be correct. Such notice
cannot be considered a waiver, even if CASA failed to report the error. Neither is it
estopped from questioning the mistake after the lapse of the ten-day period.
[80]

This notice is a simple confirmation or circularization -- in accounting parlance -that requests client-depositors to affirm the accuracy of items recorded by the banks.
Its purpose is to obtain from the depositors a direct corroboration of the correctness of
their account balances with their respective banks. Internal or external auditors of a
bank use it as a basic audit procedure -- the results of which its client-depositors are
neither interested in nor privy to -- to test the details of transactions and balances in the
banks records. Evidential matter obtained from independent sources outside a bank
only serves to provide greater assurance of reliability than that obtained solely within it
for purposes of an audit of its own financial statements, not those of its clientdepositors.
[81]

[82]

[83]

[84]

[85]

[86]

Furthermore, there is always the audit risk that errors would not be detected for
various reasons. One, materiality is a consideration in audit planning; and two, the
information obtained from such a substantive test is merely presumptive and cannot be
the basis of a valid waiver. BPI has no right to impose a condition unilaterally and
[87]

[88]

[89]

thereafter consider failure to meet such condition a waiver. Neither may CASA renounce
a right it has never possessed.
[90]

[91]

Every right has subjects -- active and passive. While the active subject is entitled to
demand its enforcement, the passive one is duty-bound to suffer such enforcement.
[92]

On the one hand, BPI could not have been an active subject, because it could not
have demanded from CASA a response to its notice. Besides, the notice was a measly
request worded as follows: Please examine x x x and report x x x. CASA, on the other
hand, could not have been a passive subject, either, because it had no obligation to
respond. It could -- as it did -- choose not to respond.
[93]

Estoppel precludes individuals from denying or asserting, by their own deed or

representation, anything contrary to that established as the truth, in legal contemplation.
Our rules on evidence even make a juris et de jure presumption that whenever one
has, by ones own act or omission, intentionally and deliberately led another to believe a
particular thing to be true and to act upon that belief, one cannot -- in any litigation
arising from such act or omission -- be permitted to falsify that supposed truth.
[94]

[95]

[96]

In the instant case, CASA never made any deed or representation that misled
BPI. The formers omission, if any, may only be deemed an innocent mistake oblivious to
the procedures and consequences of periodic audits. Since its conduct was due to such
ignorance founded upon an innocent mistake, estoppel will not arise. A person who
has no knowledge of or consent to a transaction may not be estopped by it. Estoppel
cannot be sustained by mere argument or doubtful inference x x x. CASA is not barred
from questioning BPIs error even after the lapse of the period given in the notice.
[97]

[98]

[99]

Loss Borne by
Proximate Source
of Negligence
For allowing payment on the checks to a wrongful and fictitious payee, BPI -- the
drawee bank -- becomes liable to its depositor-drawer. Since the encashing bank is one
of its branches, BPI can easily go after it and hold it liable for reimbursement. It may
not debit the drawers account and is not entitled to indemnification from the drawer.
In both law and equity, when one of two innocent persons must suffer by the wrongful
act of a third person, the loss must be borne by the one whose negligence was the
proximate cause of the loss or who put it into the power of the third person to perpetrate
the wrong.
[100]

[101]

[102]

[103]

[104]

[105]

Proximate cause is determined by the facts of the case. It is that cause which, in
natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have occurred.
[106]

[107]

Pursuant to its prime duty to ascertain well the genuineness of the signatures of its
client-depositors on checks being encashed, BPI is expected to use reasonable
business prudence. In the performance of that obligation, it is bound by its internal
[108]

banking rules and regulations that form part of the contract it enters into with its
depositors.
[109]

Unfortunately, it failed in that regard. First, Yabut was able to open a bank account
in one of its branches without privity; that is, without the proper verification of his
corresponding identification papers. Second, BPI was unable to discover early on not
only this irregularity, but also the marked differences in the signatures on the checks
and those on the signature card.Third, despite the examination procedures it conducted,
the Central Verification Unit of the bank even passed off these evidently different
signatures as genuine. Without exercising the required prudence on its part, BPI
accepted and encashed the eight checks presented to it. As a result, it proximately
contributed to the fraud and should be held primarily liable for the negligence of its
officers or agents when acting within the course and scope of their employment. It
must bear the loss.
[110]

[111]

[112]

[113]

CASA Not Negligent

in Its Financial Affairs
In this jurisdiction, the negligence of the party invoking forgery is recognized as an
exception to the general rule that a forged signature is wholly inoperative. Contrary
to BPIs claim, however, we do not find CASA negligent in handling its financial
affairs. CASA, we stress, is not precluded from setting up forgery as a real defense.
[114]

[115]

Role of Independent Auditor

The major purpose of an independent audit is to investigate and determine
objectively if the financial statements submitted for audit by a corporation have been
prepared in accordance with the appropriate financial reporting practices of private
entities. The relationship that arises therefrom is both legal and moral. It begins with
the execution of the engagement letter that embodies the terms and conditions of the
audit and ends with the fulfilled expectation of the auditors ethical and competent
performance in all aspects of the audit.
[116]

[117]

[118]

[119]

[120]

The financial statements are representations of the client; but it is the auditor who
has the responsibility for the accuracy in the recording of data that underlies their
preparation, their form of presentation, and the opinion expressed therein. The
auditor does not assume the role of employee or of management in the clients conduct
of operations and is never under the control or supervision of the client.
[121]

[123]

[122]

[124]

Yabut was an independent auditor hired by CASA. He handled its monthly bank
reconciliations and had access to all relevant documents and checkbooks. In him was
reposed the clients trust and confidence that he would perform precisely those
functions and apply the appropriate procedures in accordance with generally accepted
auditing standards. Yet he did not meet these expectations. Nothing could be more
[125]

[126]

[127]

[129]

[128]

horrible to a client than to discover later on that the person tasked to detect fraud was
the same one who perpetrated it.
Cash Balances
Open to Manipulation
It is a non sequitur to say that the person who receives the monthly bank
statements, together with the cancelled checks and other debit/credit memoranda, shall
examine the contents and give notice of any discrepancies within a reasonable
time. Awareness is not equipollent with discernment.
Besides, in the internal accounting control system prudently installed by CASA, it
was Yabut who should examine those documents in order to prepare the bank
reconciliations. He owned his working papers, and his output consisted of his opinion
as well as the clients financial statements and accompanying notes thereto. CASA had
every right to rely solely upon his output -- based on the terms of the audit engagement
-- and could thus be unwittingly duped into believing that everything was in
order. Besides, [g]ood faith is always presumed and it is the burden of the party claiming
otherwise to adduce clear and convincing evidence to the contrary.
[130]

[131]

[132]

[133]

Moreover, there was a time gap between the period covered by the bank statement
and the date of its actual receipt. Lebron personally received the December 1990 bank
statement only in January 1991 -- when she was also informed of the forgery for the
first time, after which she immediately requested a stop payment order. She cannot be
faulted for the late detection of the forged December check. After all, the bank account
with BPI was not personal but corporate, and she could not be expected to monitor
closely all its finances. A preschool teacher charged with molding the minds of the youth
cannot be burdened with the intricacies or complexities of corporate existence.
[134]

There is also a cutoff period such that checks issued during a given month, but not
presented for payment within that period, will not be reflected therein. An experienced
auditor with intent to defraud can easily conceal any devious scheme from a client
unwary of the accounting processes involved by manipulating the cash balances on
record -- especially when bank transactions are numerous, large and frequent. CASA
could only be blamed, if at all, for its unintelligent choice in the selection and
appointment of an auditor -- a fault that is not tantamount to negligence.
[135]

Negligence is not presumed, but proven by whoever alleges it. Its mere existence
is not sufficient without proof that it, and no other cause, has given rise to damages.
In addition, this fault is common to, if not prevalent among, small and medium-sized
business entities, thus leading the Professional Regulation Commission (PRC), through
the Board of Accountancy (BOA), to require today not only accreditation for the practice
of public accountancy, but also the registration of firms in the practice thereof. In fact,
among the attachments now required upon registration are the code of good
governance and a sworn statement on adequate and effective training.
[136]

[137]

[138]

[139]

[140]

[141]

The missing checks were certainly reported by the bookkeeper to the

accountant -- her immediate supervisor -- and by the latter to the auditor. However,
both the accountant and the auditor, for reasons known only to them, assured the
bookkeeper that there were no irregularities.
[142]

[143]

The bookkeeper who had exclusive custody of the checkbooks did not have to
go directly to CASAs president or to BPI. Although she rightfully reported the matter,
neither an investigation was conducted nor a resolution of it was arrived at, precisely
because the person at the top of the helm was the culprit. The vouchers, invoices and
check stubs in support of all check disbursements could be concealed or fabricated -even in collusion -- and management would still have no way to verify its cash
accountabilities.
[144]

[145]

Clearly then, Yabut was able to perpetrate the wrongful act through no fault of
CASA. If auditors may be held liable for breach of contract and negligence, with all the
more reason may they be charged with the perpetration of fraud upon an unsuspecting
client. CASA had the discretion to pursue BPI alone under the NIL, by reason of
expediency or munificence or both. Money paid under a mistake may rightfully be
recovered, and under such terms as the injured party may choose.
[146]

[147]

Third Issue:
Award of Monetary Claims
Moral Damages Denied
We deny CASAs claim for moral damages.
In the absence of a wrongful act or omission, or of fraud or bad faith, moral
damages cannot be awarded. The adverse result of an action does not per se make
the action wrongful, or the party liable for it. One may err, but error alone is not a ground
for granting such damages. While no proof of pecuniary loss is necessary therefor -with the amount to be awarded left to the courts discretion -- the claimant must
nonetheless satisfactorily prove the existence of its factual basis and causal
relation to the claimants act or omission.
[148]

[149]

[150]

[151]

[152]

[153]

[154]

[155]

Regrettably, in this case CASA was unable to identify the particular instance -enumerated in the Civil Code -- upon which its claim for moral damages is predicated.
Neither bad faith nor negligence so gross that it amounts to malice can be imputed
to BPI. Bad faith, under the law, does not simply connote bad judgment or negligence;
it imports a dishonest purpose or some moral obliquity and conscious doing of a
wrong, a breach of a known duty through some motive or interest or ill will that partakes
of the nature of fraud.
[156]

[157]

[158]

[159]

As a general rule, a corporation -- being an artificial person without feelings,

emotions and senses, and having existence only in legal contemplation -- is not entitled
to moral damages, because it cannot experience physical suffering and mental
[160]

anguish. However, for breach of the fiduciary duty required of a bank, a corporate
client may claim such damages when its good reputation is besmirched by such breach,
and social humiliation results therefrom. CASA was unable to prove that BPI had
debased the good reputation of, and consequently caused incalculable
embarrassment to, the former. CASAs mere allegation or supposition thereof, without
any sufficient evidence on record, is not enough.
[161]

[162]

[163]

[164]

Exemplary Damages Also Denied

We also deny CASAs claim for exemplary damages.
Imposed by way of correction for the public good, exemplary damages cannot
be recovered as a matter of right. As we have said earlier, there is no bad faith on the
part of BPI for paying the checks of CASA upon forged signatures. Therefore, the
former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. The latter, having no right to moral damages, cannot demand
exemplary damages.
[165]

[166]

[167]

[168]

[169]

Attorneys Fees Granted

Although it is a sound policy not to set a premium on the right to litigate, we find
that CASA is entitled to reasonable attorneys fees based on factual, legal, and equitable
justification.
[170]

[171]

When the act or omission of the defendant has compelled the plaintiff to incur
expenses to protect the latters interest, or where the court deems it just and equitable,
attorneys fees may be recovered. In the present case, BPI persistently denied the
claim of CASA under the NIL to recredit the latters account for the value of the forged
checks. This denial constrained CASA to incur expenses and exert effort for more than
ten years in order to protect its corporate interest in its bank account. Besides, we have
already cautioned BPI on a similar act of negligence it had committed seventy years
ago, but it has remained unrelenting. Therefore, the Court deems it just and equitable to
grant ten percent (10%) of the total value adjudged to CASA as attorneys fees.
[172]

[173]

[174]

Interest Allowed
For the failure of BPI to pay CASA upon demand and for compelling the latter to
resort to the courts to obtain payment, legal interest may be adjudicated at the
discretion of the Court, the same to run from the filing of the Complaint. Since a
court judgment is not a loan or a forbearance of recovery, the legal interest shall be at
six percent (6%) per annum. If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there being no
[175]

[177]

[176]

stipulation to the contrary, shall be the payment of x x x legal interest, which is six
percent per annum. The actual base for its computation shall be on the amount finally
adjudged, compounded annually to make up for the cost of money already lost to
CASA.
[178]

[179]

[180]

[181]

Moreover, the failure of the CA to award interest does not prevent us from granting it
upon damages awarded for breach of contract. Because BPI evidently breached its
contract of deposit with CASA, we award interest in addition to the total amount
adjudged. Under Section 196 of the NIL, any case not provided for shall be governed by
the provisions of existing legislation or, in default thereof, by the rules of the law
merchant. Damages are not provided for in the NIL. Thus, we resort to the Code of
Commerce and the Civil Code. Under Article 2 of the Code of Commerce, acts of
commerce shall be governed by its provisions and, in their absence, by the usages of
commerce generally observed in each place; and in the absence of both rules, by those
of the civil law. This law being silent, we look at Article 18 of the Civil Code, which
states: In matters which are governed by the Code of Commerce and special laws, their
deficiency shall be supplied by its provisions. A perusal of these three statutes
unmistakably shows that the award of interest under our civil law is justified.
[182]

[183]

[184]

WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR

No. 149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals
is AFFIRMED with modification: BPI is held liable for P547,115, the total value of the
forged checks less the amount already recovered by CASA from Leonardo T. Yabut,
plus interest at the legal rate of six percent (6%) per annum -- compounded annually,
from the filing of the complaint until paid in full; and attorneys fees of ten percent (10%)
thereof, subject to reimbursement from Respondent Yabut for the entire amount,
excepting attorneys fees. Let a copy of this Decision be furnished the Board of
Accountancy of the Professional Regulation Commission for such action as it may deem
appropriate against Respondent Yabut. No costs.
SO ORDERED.
Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
Davide, Jr., C.J., (Chairman), on official leave.

BPI vs. Casa Montessori Internationale, G. R.

No. 149454 & 149507, May 28, 2004
Post under case digests, Civil Law at Tuesday, January 31, 2012 Posted by Schizophrenic Mind

Facts: CASA Montessori International opened an account

with BPI, with CASAs President as one of its authorized
signatories. It discovered that 9 of its checks had been
encashed by a certain Sonny D. Santos whose name
turned out to be fictitious, and was used by a certain
Yabut, CASAs external auditor. He voluntarily admitted

that he forged the signature and encashed the checks.

RTC granted the Complaint for Collection with Damages
against BPI ordering to reinstate the amount in the
account, with interest. CA took account of CASAs
contributory negligence and apportioned the loss between
CASA and BPI, and ordred Yabut to reimburse both.
BPI contends that the monthly statements it issues to its
clients contain a notice worded as follows: If no error is
reported in 10 days, account will be correct and as such,
it
should
be
considered
a
waiver.
Issue:Whether or not waiver or estoppel results from
failure to report the error in the bank statement
Held: Such notice cannot be considered a waiver, even if
CASA failed to report the error. Neither is it estopped from
questioning the mistake after the lapse of the ten-day
period.
This notice is a simple confirmation or "circularization" -- in
accounting parlance -- that requests client-depositors
to affirm the accuracy of items recorded by the banks. Its
purpose is to obtain from the depositors a direct
corroboration of the correctness of their account
balances with
their
respective
banks.
Every right has subjects -- active and passive. While the
active subject is entitled to demand its enforcement, the
passive one is duty-bound to suffer such enforcement. On

the one hand, BPI could not have been an active subject,
because it could not have demanded from CASA a
response to its notice. CASA, on the other hand, could not
have been a passive subject, either, because it had
no obligation to respond. It could -- as it did -- choose not
to
respond.
Estoppel precludes individuals from denying or asserting,
by their own deed or representation, anything contrary to
that established as the truth, in legal contemplation. Our
rules on evidence even make a juris et de jure
presumption that whenever one has, by ones own act or
omission, intentionally and deliberately led another to
believe a particular thing to be true and to act upon that
belief, one cannot -- in any litigation arising from such act
or omission -- be permitted to falsify that supposed truth.
In the instant case, CASA never made any deed or
representation that misled BPI. The formers omission, if
any, may only be deemed an innocent mistake oblivious to
the procedures and consequences of periodic audits.
Since its conduct was due to such ignorancefounded upon
an innocent mistake, estoppel will not arise. A person who
has no knowledge of or consent to a transaction may not
be estopped by it. "Estoppel cannot be sustained by mere
argument or doubtful inference x x x." CASA is not barred
from questioning BPIs error even after the lapse of the
period given in the notice.

BPI V. CASA
MONTESORRI
INTERNATIONALE
430 SCRA 261
FACTS:
CASA has a current account with BPI. It was discovered that for a material
period of time, several checks were encashed by a certain Sonny Santos, who
eventually was known to be a fictitious name used by the external auditor
of CASA.

The external auditor admitted forging the signature of CASAs

president to be able to encash the checks. The trial court held the bank liable but
this was modified. The modified decision apportioned the loss between BPI and
CASA.

HELD:

A forged signature is a real and absolute defense, and a person whose

signature appears on a negotiable instrument is forged is deemed to never have
become a party thereto and to have never consented to the contract that
allegedly gave rise to it.
The counterfeiting of any writing, consisting in the signing of anothers
name with intent to defraud, is forgery.
First, there was really a finding of forgery. The forger admitted even in his
affidavit of his forgery.
Second, there was a finding by the police laboratory that indeed the
signatures were forged.
Furthermore, the negligence is attributable to BPI alone. Its negligence
consisted in the omission of the degree of diligence required of a bank.
*Loss borne by proximate cause of negligence