Loreto De La Victoria vs Jose Burgos

245 SCRA 374 – Mercantile Law – Negotiable Instruments Law – Delivery of Negotiable
Instruments – Paychecks of Public Officers
Raul Sebreño filed a complaint for damages against Fiscal Bienvenido Mabanto Jr. of
Cebu City. Sebreño won and he was awarded the payment of damages. Judge Burgos
ordered De La Victoria, custodian of the paychecks of Mabanto, to hold the checks and
convey them to Sebreño instead. De La Victoria assailed the order as he said that the
paychecks and the amount thereon are not yet the property of Mabanto because they are
not yet delivered to him; that since there is no delivery of the checks to Mabanto, the
checks are still part of the public funds; and the checks due to the foregoing cannot be
the proper subject of garnishment.
ISSUE: Whether or not De La Victoria is correct.
HELD: Yes. Under Section 16 of the Negotiable Instruments Law, every contract on a
negotiable instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of
the possession of the instrument by the maker or drawer with intent to transfer title to the
payee and recognize him as the holder thereof.
[G.R. No. 136729. September 23 ,2003]
ASTRO ELECTRONICS CORP. and PETER ROXAS, petitioner, vs. PHILIPPINE EXPORT AND
FOREIGN LOAN GUARANTEE CORPORATION,respondent.

Facts: Astro was granted several loans by the Philippine Trust Company (Philtrust) with the total
amounting to P3,000,000.00 with interest and secured by three promissory notes. In each of these
promissory notes, it appears that petitioner Peter Roxas signed twice, as President of Astro and in his
personal capacity. Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as
President of Astro and as surety.

Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70%
of Astro’s loan,subject to the condition that upon payment by Philguanrantee of said amount, it shall be
proportionally subrogated to the rights of Philtrust against Astro.

As a result of Astro’s failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the
guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for
sum of money with the RTC of Makati.

Petitioner: Roxas claims that merely signed the PN in blank and the phrases “in his personal capacity” and
“in his official capacity” were fraudulently inserted without his knowledge.

Issue: Whether or not Roxas should be jointly and severally liable (solidary) with Astro.

Ruling: Yes. Astro’s loan with Philtrust Bank is secured by three promissory notes. These promissory notes
are valid and binding against Astro and Roxas. Under the Negotiable Instruments Law, persons who write
their names on the face of promissory notes are makers, promising that they will pay to the order of the
payee or any holder according to its tenor. Thus, even without the phrase “personal capacity,” Roxas will
still be primarily liable as a joint and several debtor under the notes considering that his intention to be
liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice
which necessarily would imply that he is undertaking the obligation in two different capacities, official and
personal.

Roxas’ claim that the phrases “in his personal capacity” and “in his official capacity” were inserted on the
notes without his knowledge was correctly disregarded by the RTC and the Court of Appeals. As aptly
found by both the trial and appellate court, Roxas did not offer any explanation why he did so. It devolves
upon him to overcome the presumptions that private transactions are presumed to be fair and regular[15]
and that a person takes ordinary care of his concerns
 DEVELOPMENT BANK OF RIZAL V. SIMA WEI 219 SCRA 736
FACTS: Sima Wei executed a promissory note in consideration of a loan secured from petitioner
bank. She was able to pay partially for the loan but failed to pay
for the balance. She then issued two checks to pay the unpaid balance but for some unexplainable
reason, the checks were not received by the bank but ended up in the hands of someone else. The bank
instituted actions against Sima Wei and other people. The trial court dismissed the case and the CA
affirmed this decision.

HELD:A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is
also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to
the grantee, so must a negotiable instrument be delivered to the payee in order to
evidence its existence as a binding contract. Section 16 provides that every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect
thereto. Thus, the payee of the negotiable instrument acquires no interest with respect thereto until
its delivery to him. Delivery of an instrument from the drawer to the payee, there can be no liability on the
instrument. Moreover, such delivery must be intended to give effect to the instrument.

FRANSISCO V. COURT OF APPEALS

319 SCRA 354
FACTS: Fransisco Realty and Development and Herby Commercial and
construction Corporation entered into a Land Development and
Construction Contract. Fransisco was the president of AFRDC while Ong
was the president of HCCC. It was agreed upon that HCCC would undertake the construction of
housing units and the development of a large parcel of land. The payment would be on a turnkey
basis. To facilitate the payment, AFDRC executed a Deed of Assignment to enable the HCCC to
collect payments from the GSIS. Further, they opened an account with a
bank from which checks would be issued by Fransisco and the GSIS president.

HCCC later on filed a complaint for the unpaid balance in pursuance to its agreement with
AFRDC. However, an amicable settlement ensued, which was embodied in a Memorandum of
Agreement. It was embodied in said agreement that GSIS recognizes its indebtedness to HCCC and that
HCCC would also pay its obligations to AFRDC.

A year later, it was found out that Diaz and Fransisco had drawn checks payable to Ong. Ong
denied accepting said checks and it was further found
out that Diaz entrusted the checks to Fransisco who later forged the signature of Ong, showing
that he indorsed the checks to her and then she
deposited the checks to her personal savings account. This incident prompted Ong to file a
complaint against Fransisco.

HELD: Ong’s signature was found to be forged by Fransisco.

Fransisco’s contention that he was authorized to sign Ong’s name in her favor giving her authority
to collect all the receivables of HCCC from
GSIS. This contention is bereft of any merit. The Negotiable Instruments
Law provides that when a person is under obligation to indorse in a representative capacity, he may
indorse in such terms as to negative personal liability. An agent, when so signing, should indicate that he
is merely signing as an agent in behalf of
the principal and must disclose the name of his principal. Otherwise, he
will be held liable personally. And assuming she was indeed authorized,
she didn't comply with the requirements of the law. Instead of signing Ong’s name, she should
have signed in her own name as agent of HCCC. Thus, her contentions cannot support or validate her
acts of forgery.
Republic Planters Bank vs. CA
GR 93073, 21 December 1992

Facts: Republic Planters Bank issued 9 promissory notes signed by Shozo Yamaguchi
(President) and Fermin Canlas (Treasurer) of Worldwide Garment Manufacturing Inc.
Yamaguchi and Canlas were authorized by the corporation to apply for credit facilities
with the bank in form of export advances and letters of credit or trust receipts
accommodations. Three years after, the bank filed an action to recover the sums of
money covered by the promissory notes. Worldwide Garment Manufacturing changed
its name to Pinch Manufacturing Corp. Canlas alleged he was not liable personally for
the corporate acts that he performed, and that the notes were still blank when he signed
them.

Issue: Whether the corporate treasurer is liable for the amounts in the promissory
notes.

Held: Canlas is a co-maker of the promissory notes, under the law, and cannot escape
liability arising therefrom. Inasmuch as the instrument contained the words “I promise to
pay” and is signed by two or more persons, said persons are deemed to be jointly and
severally liable thereon. As the promissory notes are stereotype ones issued by the
bank in printed form with blank spaces filled up as per agreed terms of the loan,
following customary procedures, leaving the debtors to do nothing but read the terms
and conditions therein and to sign as makers or co-makers. Section 14 of the
Negotiable Instruments Law, therefore, does not apply. Canlas is solidarily liable with
the corporation for the amount of the 9 promissory notes.

Samsung Construction Company Philippines, Inc. vs. Far East Bankand Trust and
CA

Facts: Samsung Construction maintained a current account with Far East Bank andTrust Bank (FETBC)
in its Bel-Air Makati Branch, with Jong Kyu Lee who isthe Project Manager as the sole signatory and Kyu
Yong Lee having the checks in his custody as the company’s accountant. A certain Roberto
Gonzaga presented an FETBC Check on the same branch. The check waspayable to cash and drawn
against the account of Samsung Constructionamounting to P995, 500.00. The teller and the bank officers
were satisfiedwith the genuineness of the signature in the check and confirmed the identityof Gonzaga with
the assistant accountant of Samsung Construction who wasalso familiar and known to them, the latter being
present at the bank premisesat that time. In the end, the check was authorized to be encashed. The
ProjectManager and the Accountant of the company found out the next day that thelast blank check was
missing and that the check was encashed with Jong’s signature being forged. Samsung Construction
demanded reimbursement ofthe amount encashed and when it was not heeded immediately, it filed
aComplaint against the bank for violation of Sec. 23 of Negotiable InstrumentsLaw. In the RTC, it held
that Jong’s signature on the check was forged and ordered the bank to pay company for the amount
plus interest. During appeal in CA,this decision was reversed by stating that even assuming there was
forgery,it occurred due to the negligence of Samsung Construction specifically theaccountant for lack of
care in keeping the checks. The decision was appealedto SC, based on the grounds that the CA
misapprehended the facts and erredwhen it said that the company has been negligent in safekeeping the
check.
Issue:Is bank liable to reimburse the amount encashed through forgery?

Ruling:Yes, the bank is liable to pay Samsung Construction. Therefore, the decisionof CA is set
aside.Under Sec. 23 of Negotiable Instruments Law, forgery is a real or absolutedefense by the party whose
signature is forged. The general rule remains thatthe drawee who has paid upon the forged signature bears
the loss. Theexception to this rule arises only when negligence can be traced on the partof the drawer
whose signature was forged, and the need arises to weigh thecomparative negligence between the drawer
and the drawee to determinewho should bear the burden of loss. The Court finds no basis to conclude
thatSamsung Construction was negligent in the safekeeping of its checksespecially that Samsung
Construction reported the forgery almostimmediately upon discovery. The general rule imputing liability
on the draweewho paid out on the forgery holds in this case.The circumstances should have
aroused the suspicion of the bank, as it is notordinary business practice for a check for such large
amount to be madepayable to cash or to bearer, instead of to the order of a specified
person.Extraordinary diligence dictates that FEBTC should have ascertained fromJong personally
that the signature in the questionable check was his. Still,even if the bank performed with utmost diligence,
the drawer whose signaturewas forged may still recover from the bank as long as he or she is notprecluded
from setting up the defense of forgery. After all, Section 23 of theNegotiable Instruments Law plainly states
that no right to enforce the paymentof a check can arise out of a forged signature. Since the drawer,
SamsungConstruction, is not precluded by negligence from setting up the forgery, thegeneral rule should
apply. Consequently, if a bank pays a forged check, itmust be considered as paying out of its funds and
cannot charge the amountso paid to the account of the depositor. A bank is liable, irrespective of itsgood
faith, in paying a forged check

Philippine Commercial Industrial Bank vs. CA

GR 121413, 29 January 2001
Second Division, Quisumbing (J)

Facts: Ford issued Citibank checks in favor of the Commissioner of Internal Revenue as
payments of its taxes, through the depository bank Insular Bank of Asia and America (later
PCIBank). Proceeds of the checks were never received by the Commissioner, but were
encashed and diverted to the accounts of members of a syndicate, to which Ford’s General
Ledger Accountant Godofredo Rivera belongs. Upon demand of the Commissioner anew, Ford
was forced to make second payment of its taxes. Thus, Ford instituted actions to recover the
amounts from the collecting (depository) and drawee banks.

Issue: Whether Ford has the right to recover from the collecting bank (PCI Bank) and/or the
drawee bank (Citibank) the value of the checks.

Held: The mere fact that forgery was committed by a drawer-payor’s confidential employee or
agent, who by virtue of his position had unusual facilities to perpetrate 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. The rule applies to
checks fraudulently negotiated or diverted by the confidential employees who hold them in their
possession.

In GRs 121413 and 121479, PCIBank failed to verify the authority of Mr. Rivera to negotiate the
checks. Furthermore, PCIBank’s clearing stamp which guarantees prior or lack of indorsements
render PCIBank liable as it allowed Citibank without any other option but to pay the checks.
PCIBank, being a depository /collecting bank of the BIR, had the responsibility to make sure that
the crossed checks were deposited in “Payee’s account only” as found in the instrument.
In GR 128604, on the other hand, the switching operation involving the checks, while in transit
for clearing,were the clandestine or hidden actuations performed by the members of the
syndicate in their own personal, covert and private capacity; without the knowledge nor official
or conscious participation of PCIBank in the process of embezzlement. Central Bank Circular
580 (1977), however, provide d that any theft affecting items in transit for clearing are for the
account of the sending bank (herein PCIBank). Still, Citibank was likewise negligent in the
performance of its duties as it failed to establish its payment of Ford’s checks were made in
due course and legally in order. The fact that drawee bank did not discover the irregularity
seasonably constitutes negligence in carrying out the bank’s duty to its depositors.

Associated Bank vs. CA

GR 107382, 31 January 1996
Second Division, Romero (J)

Facts: The Province of Tarlac maintains a current account with the Philippine National Bank
(PNB Tarlac Branch) where the provincial funds are deposited. Portions of the funds were
allocated to the Concepcion Emergency Hospital. Checks were issued to it and were received
by the hospital’s administrative officer and cashier (Fausto Pangilinan). Pangilinan, through the
help of Associated Bank but after forging the signature of the hospital’s chief (Adena Canlas),
was able to deposit the checks in his personal account. All the checks bore the stamp “All prior
endorsement guaranteed Associated Bank.” Through post-audit, the province discovered that
the hospital did not receive several allotted checks, and sought the restoration of the debited
amounts from PNB. In turn, PNB demanded reimbursement from Associated Bank. Both banks
resisted payment. Hence, the present action.

Issue: Who shall bear the loss resulting from the forged checks.

Held: PNB is not negligent as it is not required to return the check to the collecting bank within
24 hours as the banks involved are covered by Central Bank Circular 580 and not the rules of
the Philippine Clearing House. Associated Bank, and not PNB, is the one duty-bound to warrant
the instrument as genuine, valid and subsisting at the time of indorsement pursuant to Section
66 of the Negotiable Instruments Law. The stamp guaranteeing prior indorsement is not an
empty rubric; the collecting bank is held accountable for checks deposited by its customers.
However, due to the fact that the Province of Tarlac is equally negligent in permitting Pangilinan
to collect the checks when he was no longer connected with the hospital, it shares the burden of
loss from the checks bearing a forged indorsement. Therefore, the Province can only recover
50% of the amount from the drawee bank (PNB), and the collecting bank (Associated Bank) is
liable to PNB for 50% of the same amount.
 WESTMONT BANK V. ONG
373 SCRA 212

FACTS:Ong was supposed to be the payee of the checks issued by Island Securities. Ong has a
current account with petitioner bank. He opted to sell
his shares of stock through Island Securities. The company in turn issued checks in favor of Ong
but unfortunately, the latter wasn't able to receive any. His signatures were forged by Tamlinco and the
checks were deposited in his own account with petitioner. Ong then sought to collect the money
from the family of Tamlinco first before filing a complaint with the Central Bank. As his efforts were futile
to recover his money, he filed
an action against the petitioner. The trial and appellate court decided in favor of Ong.

HELD: Since the signature of the payee was forged, such signature should be
deemed inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making
payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed
to collect from the collecting bank.

It should be liable for the loss because it is its legal duty to ascertain that
the payee’s endorsement was genuine before cashing the check. As a general rule, a bank
or corporation who has obtained possession of a check with an unauthorized or forged indorsement
of the payee’s signature and who collects the amount of the check other from the drawee, is liable
for the proceeds thereof to the payee or the other owner, notwithstanding that
the amount has been paid to the person from whom the check was obtained.

DOCTRINE OF DESIRABLE SHORT CUT—plaintiff uses one action to reach,

by desirable short cut, the person who ought to be ultimately liable as among the innocent
persons involved in the transaction. In other words, the payee ought to be allowed to recover
directly from the collecting bank, regardless of whether the check was delivered to the payee or not.

On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of
Tamlinco’s family to collect the sum of money, and later
the Central Bank. Only after exhausting all the measures to settle the issue amicably did he
file the action.

Republic Bank vs. Ebrada

GR L-40796, 31 July 1975
First Division, Martin (J)

Facts: Mauricia Ebrada encashed a back pay check for P1246.08 at Republic Bank (Escolta
Branch). The Bureau of Treasury, which issued the check advised the bank that the alleged
indorsement of the check by one “Martin Lorenzo” was a forgery as the latter has been dead
since 14 July 1952; and requested that it be refunded he sum deducted from its account. The
bank refunded the amount to the Bureau and demanded upon Ebrada the sum in question, who
refused. Hence, the present action.

Issue: Whether the bank can recover from the last indorser.

Held: According to Section 23 of the Negotiable Instruments Law, where the signature on a
negotiable instrument is forged, the negotiation of the check is without force or effect. However,
following the ruling in Beam vs. Farrel (US case), where a check has several indorsements on it,
only the negotiation based on the forged or unauthorized signature which is inoperative. The
last indorser, Ebrada, was duty-bound to ascertain whether the check was genuine before
presenting it to the bank for payment. Her failure to do so makes her liable for the loss and the
Bank may recover from her the money she received for the check. Had she performed her duty,
the forgery would have been detected and fraud defeated. Even if she turned over the amount
to Dominguez immediately after receiving the cash proceeds of the check, she is liable as an
accommodation party under Section 29 of the Negotiable Instruments Law.

G.R. No. 148196 September 30, 2005

BPI FAMILY BANK, Petitioners,

vs.
EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA, Respondent.

x--------------------------x

G.R. No. 148259

EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA, Petitioners,

vs.
BPI FAMILY BANK, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court
assailing the Decision1 of the Court of Appeals (CA) dated November 27, 2000 in CA-G.R. CV No.
53962, which affirmed with modification the Decision dated August 11, 1995 of the Regional Trial
Court, Branch 25, Manila (Manila RTC); and the CA Resolution dated May 3, 2001, which denied the
parties’ separate motions for reconsideration.

The factual background of the case is as follows:

On May 23, 1990, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),
all officers of the International Baptist Church and International Baptist Academy in Malabon, Metro
Manila, filed a complaint for "Reinstatement of Current Account/Release of Money plus Damages"
against BPI Family Bank (BPI-FB) before the Manila RTC, docketed as Civil Case No. 90-53154.2

They alleged that: on August 30, 1989, they accepted from Amado Franco BPI-FB Check No.
129004 dated August 29, 1989 in the amount of ₱500,000.00, jointly issued by Eladio Teves and
Joseph Teves;3 they opened Current Account No. 807-065314-0 with the BPI-FB Branch at
Bonifacio Market, Edsa, Caloocan City and deposited the check as initial deposit; the check was
subsequently cleared and the amount was credited to their Current

Account; on September 3, 1989, they drew a check in the amount of ₱10,171.50 and pursuant to
normal banking procedure the check was honored and debited from their Current Account, leaving a
balance of ₱490,328.50; on September 4, 1989, they drew another check in the amount of
₱46,189.60; instead of debiting the said amount against their Current

Account, it was debited, without their knowledge and consent, against their Savings Account No. 08-
95332-5 with the same branch; on September 9, 1989, they drew a check for ₱91,270.00 which,
upon presentment for payment, was dishonored for the reason "account closed," in spite of the
balance in the Current Account of ₱490,328.50; they thereafter learned from BPI-FB that their
Current Account had been frozen upon instruction of Severino P. Coronacion, Vice-President of BPI-
FB on the ground that the source of fund was illegal or unauthorized; they demanded the
reinstatement of the account, but BPI-FB refused.

On June 20, 1990, BPI-FB filed a motion to dismiss on the ground of litis pendentia, alleging that
there is a pending case for recovery of sum of money arising from the BPI-FB Check No. 129004
dated August 29, 1989 before the Regional Trial Court (RTC), Branch 146, Makati4 and
Buenaventura is one of the defendants therein.5Buenaventura, et al. opposed the motion to dismiss
on the ground that there is no identity of parties, rights asserted and reliefs prayed between the two
cases.6

On October 10, 1990, the Manila RTC denied the motion to dismiss, ruling that there can be no res
judicata between the two cases since the parties are different and the causes of action are not the
same.7

On December 10, 1990, BPI-FB filed its answer alleging that: the check received by
Buenaventura, et al. from Amado Franco was drawn by Eladio Teves and Joseph Teves against the
Current Account of the Tevesteco Arrastre Stevedoring Co., Inc. (Tevesteco); the funds in the said
Tevesteco account allegedly consisted mainly of funds in the amount of ₱80,000,000.00 transferred
to it from another account belonging to the First Metro Investment Corporation (FMIC); such transfer
of funds was effected on the basis of an Authority to Debit bearing the signatures of certain officers
of FMIC; upon its investigation, BPI-FB found that the signatures in the Authority to Debit were
forged; before this, however, Tevesteco had already issued several checks against its Current
Account, one of which is the BPI-FB Check No. 129004 received by Buenaventura, et al. from
Amado Franco, after a series of indorsements; it has the right to consider the Current Account of
Buenaventura, et al., which is funded from BPI-FB Check No. 129004, as closed and to refuse any
further withdrawal from the same; assuming that the forgery claim of FMIC is untrue and incorrect, it
is the right of the BPI-FB, as a matter of protecting its interests, to freeze their account or to hold it in
suspense and not to allow any withdrawals therefrom in the meantime that the issue of forgery
remains unsettled; FMIC has instituted another civil action, presently pending appeal, against BPI-
FB and several other defendants for the recovery of the ₱80,000,000.00 transferred from the
former’s account to Tevesteco’s account.8

Following trial on the merits, on August 11, 1995, the Manila RTC rendered its decision, finding that:
BPI-FB had no right to unilaterally freeze the deposits of Buenaventura, et al. since the latter had no
participation in any fraud that may have attended the prior fund transfers from FMIC to Tevesteco;
as holders in good faith and for value of the BPI-FB Check No. 129004, their rights to the sum
embodied in the said check should have been respected; BPI-FB’s unilateral action of freezing the
Current Account amounted to an unlawful confiscation of their property without due process. The
dispositive portion of the RTC decision reads as follows:

WHEREFORE, in view of the foregoing judgment is rendered in favor of the plaintiff and against the
defendant bank and the latter is ordered as follows:
1. To pay the plaintiff the sum of ₱490,328.50 representing the balance of the plaintiff’s deposit
under Account No. 807-065-313-0 which was unlawfully frozen by the bank and finally debited
against said account with legal rate of interest from date of closure;

2. To pay the sum of ₱200,000.00 as moral damages;

3. To pay the amount of ₱200,000.00 as exemplary damages to serve as an example and lesson to
serve as a deterrent for similar action which the bank may take against its depositors in the future;

4. To pay the sum of ₱50,000.00 as attorney’s fees.

SO ORDERED.9

Dissatisfied, BPI-FB appealed to the CA. It alleged that: the case should have been dismissed for
lack of cause of action because it is the International Baptist Academy which is the owner of the
funds deposited with BPI-FB and therefore the real party-in-interest, although the account is in the
name of Buenaventura, et al.; the RTC should not have ordered the payment of the balance of the
Current Account of Buenaventura, et al. because the latter were interested only in the reinstatement
of their Current Account; the provisions of the Negotiable Instruments Law should not have been
applied by the RTC to support its position that Buenaventura, et al. are the owners of the funds in
their Current Account; BPI-FB is entitled to freeze the account of Buenaventura, et al. and to
disallow any withdrawals therefrom as a measure to protect its interest; BPI-FB, not
Buenaventura, et al., is entitled to damages.

On November 27, 2000, the CA affirmed the decision of the Manila RTC, holding that BPI-FB did not
act in accordance with law.10 It ruled that the relationship between the bank and the depositor is that
of debtor and creditor and, as such, BPI-FB could not lawfully refuse to make payments on the
checks drawn and issued by Buenaventura, et al., provided only that there are funds available in the
latter’s deposit. It further declared that BPI-FB is not justified in freezing the amounts deposited by
Buenaventura, et al. for suspicion of being "illegal" or "unauthorized" as a result of the claimed fraud
perpetuated against FMIC because: (a) it has not been sufficiently shown that the funds in the
account of Buenaventura, et al. were derived exclusively from the alleged ₱80,000,000.00 unlawfully
transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted
exclusively of the said ₱80,000,000.00 debited from FMIC’s account; and (b) there is no clear proof
of any involvement of Buenaventura, et al., the International Baptist Church or International Baptist
Academy in the alleged irregularities attending the fund transfer from FMIC to Tevesteco.

The CA also found unmeritorious BPI-FB’s claim that Buenaventura, et al. have no cause of action
since the International Baptist Academy is the real party-in-interest. It held that since it is undisputed
that it is the Current Account of Buenaventura, et al. which was frozen and closed by BPI-FB, then
the former are the parties-in-interest in the reopening of the said account. It found no error in the
Manila RTC’s order that BPI-FB pay the amount of ₱490,328.50 plus interest directly to
Buenaventura, et al. since the reinstatement of the Current Account would mean the same thing as
the payment of the balance; Buenaventura, et al. would necessarily have the right to withdraw their
deposit if and when they see it fit. Furthermore, the CA held that the RTC’s disposition falls under
the general prayer of Buenaventura, et al. for such other reliefs as may be just and equitable under
the attendant circumstances.

With regard to award of damages, the CA sustained the award of moral damages and attorney’s
fees, holding that BPI-FB’s actuations were established to have caused Buenaventura, et al. to incur
the distrust of their Baptist brethren, besides suffering mental anguish, serious anxiety, wounded
feelings, and moral shock but found no basis for the award of exemplary damages of ₱200,000.00
for lack of showing that BPI-FB was not animated by any wanton, fraudulent, reckless, oppressive or
malevolent intent.

Both parties filed separate motions for reconsideration. Buenaventura, et al. sought reconsideration
of the deletion of the award of exemplary damages.11 On the other hand, BPI-FB reiterated its
argument that the International Baptist Academy is the real party-in-interest. It also assailed the
findings and conclusions of the CA.12

On May 3, 2001, the CA denied both motions for reconsideration.13

Hence, the present two consolidated petitions for review on certiorari.

In G.R No. 148196, BPI-FB ascribes six errors upon the CA, to wit:

I. The Honorable Court of Appeals committed a reversible error in holding that the respondents are
the real parties-in-interest in this case contrary to the admissions of respondents themselves that it is
the International Baptist Academy who is the owner of the funds in question and hence it is and out
to be the real party in interest in this case.

II. The Honorable Court of Appeals committed a grave abuse of discretion in not dismissing
respondent’s complaint for lack of cause of action.

III. The Honorable Court of Appeals committed a reversible error in NOT holding, based on a
misapprehension of facts that BPI-FB is entitled to freeze respondents’ account and to disallow any
withdrawal therefrom as a measure to protect its interest.

IV. The Honorable Court of Appeals committed a reversible error in holding, based on a
misapprehension of facts, that it has not been sufficiently shown that the funds in deposit with BPI-
FB under the name of the respondents were derived exclusively from the alleged 80 million pesos
unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco
consisted exclusively of the said 80 million pesos debited from FMIC’s account.

V. The Honorable Court of Appeals committed a grave abuse of discretion in NOT upholding the
position of BPI-FB on the freezing of respondents’ current account when it held that there was no
clear proof of any involvement by the respondents with the alleged irregularities attending the fund
transfer from FMIC to Tevesteco.

VI. The Honorable Court of Appeals committed a grave abuse of discretion, in holding, in effect, that
there is nothing wrong with the Lower Court’s order directing BPI-FB to pay to respondents directly
the balance of their account plus interest although their prayer in their complaint was only to
reinstate their current account.14

Anent the first and second grounds, BPI-FB maintains that the complaint should have been
dismissed for lack of cause of action because Buenaventura et al. admit that the International Baptist
Academy is the owner of the funds in question and therefore the real party-in-interest to prosecute
the action.

On the third ground, BPI-FB asserts that it has the right to consider the account of Buenaventura, et
al. as frozen and to refuse any withdrawals
from the same because of the forgery claim of FMIC. Assuming the forgery claim of FMIC is true and
correct, the amount transferred from FMIC’s account to Tevesteco’s account is the money of BPI-FB
under the principle that a bank is deemed to have disbursed its own funds. It submits that as an
original owner who is restored in possession of stolen property, it has a better right over such
property than a mere transferee no matter how innocent the latter may be.

Concerning the fourth ground, BPI-FB submits that ample proof was presented by it that the deposit
under the name of Tevesteco consisted exclusively of the ₱80,000,000.00 debited from FMIC’s
account and the funds in deposit with BPI-FB under the name of Buenaventura, et al. were derived
exclusively from the ₱80,000,000.00 unlawfully transferred from the funds of FMIC.

With regard to the fifth ground, BPI-FB concedes that there is no clear proof of any involvement by
Buenaventura, et al. in the alleged irregularities attending the fund transfer from FMIC to Tevesteco.
It insists, however, that the freezing of the account was triggered by the forgery claim of FMIC and
the unauthorized fund transfer to Tevesteco based on the principle that a bank is deemed to have
disbursed its own funds, and not its depositors, where the authority for such disbursement is a
forgery and null and void. It had the right to set up its ownership of the money as against that of
Buenaventura, et al. and to refuse to return the same to them.

As to the sixth ground, BPI-FB points out that Buenaventura, et al. originally prayed in the alternative
for the reinstatement of their Current Account or for payment of the balance remaining in said
account but they subsequently chose to delete that portion praying for the payment of the balance of
their account. It submits that Buenaventura, et al. deliberately did this to sidestep the other pending
case filed against the suspected perpetrators of the fraud, including Amado Franco and
Buenaventura, before RTC, Branch 146, Makati.

In G.R. No. 148259, Buenaventura, et al. anchor their petition on a sole ground, to wit:

The Honorable Court of Appeals has decided the case in a way not in accord with law and
applicable jurisprudence in the deletion of the award of exemplary damages granted by the court a
quo.15

They submit that BPI-FB acted in a wanton, reckless, oppressive and malevolent manner in freezing,
and subsequently closing, their account without prior notification. They insist that BPI-FB failed in its
obligation, as an entity engaged in business affected with public interest, to treat the accounts of its
depositors with meticulous care, having in mind the fiduciary nature of their relationship. Moreover,
as if to compound its reckless conduct, BPI-FB declared itself the owner of the money which the
depositors have placed in its care, freezing and later closing the depositors’ account, all before due
notice and without first giving the latter the opportunity to properly present their side or at least
sufficient time to direct their course of action, like refraining from issuing any check, to eventually
save themselves from any embarrassment and/or possible criminal prosecution for estafa or
violation of Batas Pambansa Blg. 22.

We rule in favor of Buenaventura, et al.

It is elementary that it is only in the name of a real party-in-interest that a civil suit may be
prosecuted. Under Section 2, Rule 3 of the Rules of Civil Procedure, a real party-in-interest is the
party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit. "Interest" within the meaning of the rule means material interest, an interest in
issue and to be affected by the decree, as distinguished from mere interest in the question involved,
or a mere incidental interest.16 One having no right or interest to protect cannot invoke the jurisdiction
of the court as a party plaintiff in an action.17 To qualify a person to be a real party-in-interest in
whose name an action must be prosecuted, he must appear to be the present real owner of the right
sought to be enforced.18 Since a contract may be violated only by the parties thereto as against each
other, in an action upon that contract, the real parties-in-interest, either as plaintiff or as defendant,
must be parties to the said contract.19

In the present case, Buenaventura, et al. are the real parties-in-interest. They are the parties who
contracted with BPI-FB with regard to the Current Account. While the funds were used for purposes
of the International Baptist Church and the International Baptist Academy, it must be noted that the
Current Account is in the name of Buenaventura, et al. They are the signatories of the check which
was dishonored by BPI-FB upon presentment and the ones who will be held accountable for the
nonpayment or dishonor of any check they issued. Thus, they are the real parties-in-interest to
enforce the terms of the contract of deposit with BPI-FB.

Furthermore, BPI-FB has no unilateral right to freeze the current account of Buenaventura, et
al. based on the suspicion that the funds in the latter’s account are illegal or unauthorized having
been sourced from the

unlawful transfer of funds from the account of FMIC to Tevesteco and disallow any withdrawal
therefrom to allegedly protect its interest.

Needless to stress, the contract between a bank and its depositor is governed by the provisions of
the Civil Code on simple loan.20 Thus, there is a debtor-creditor relationship between a bank and its
depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank
money and the bank agrees to pay the depositor on demand. The savings or current deposit
agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties.

Every bank that issues checks for the use of its customers should know whether or not the drawer's
signature thereon is genuine, whether there are sufficient funds in the drawers account to cover
checks issued, and it should be able to detect alterations, erasures, superimpositions or
intercalations thereon, for these instruments are prepared, printed and issued by itself, it has control
of the drawer's account, and it is supposed to be familiar with the drawer's signature. It should
possess appropriate detecting devices for uncovering forgeries and/or alterations on these
instruments. Unless a forgery or alteration is attributable to the fault or negligence of the drawer
himself, the remedy of the drawee bank that negligently clears a forged and/or altered check for
payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss.21

There is nothing inequitable in such a rule for if in the regular course of business the check comes to
the drawee bank which, having the opportunity to ascertain its character, pronounces it to be valid
and pays it, as in this case, it is not only a question of payment under mistake, but payment in
neglect of duty which the commercial law places upon it, and the result of its negligence must rest
upon it.22

Having been negligent in detecting the forgery prior to clearing the check, BPI-FB should bear the
loss and can’t shift the blame to Buenaventura, et al. having failed to show any participation on their
part in the forgery. BPI-FB fails to point any circumstance which should have put Buenaventura, et
al. on inquiry as to the why and wherefore of the possession of the check by Amado Franco.
Buenaventura, et al. were not privies to any transaction involving FMIC, Tevesteco or Franco. They
thus had no obligation to ascertain from Franco what the nature of the latter’s title to the checks was,
if any, or the nature of his possession. They cannot be guilty of gross neglect amounting to legal
absence of good faith, absent any showing that there was something amiss about Franco’s
acquisition or possession of the check, which was payable to bearer.23
Thus, the fact that the funds in deposit with BPI-FB under the name of Buenaventura, et al. were
allegedly derived exclusively from the alleged ₱80,000,000.00 unlawfully transferred from the funds
of FMIC or that the deposit under the name of Tevesteco consisted allegedly exclusively of the said
₱80,000,000.00 debited from FMIC’s account is immaterial. These circumstances cannot be used
against a party not privy to the forgery.

There is no merit to the claim that the CA erred in affirming the RTC’s order directing BPI-FB to pay
the balance of their account plus interest although the prayer was only to reinstate their Current
Account. The complaint does contain a general prayer "for such other relief as may be just and
equitable in the premises." And this general prayer is broad enough "to justify extension of a remedy
different from or together with the specific remedy sought."24Indeed, a court may grant relief to a
party, even if the party awarded did not pray for it in his pleadings.25

As to the prayer of Buenaventura, et al. for exemplary damages, the Court finds that the CA erred in
deleting the award of exemplary damages. The law allows the grant of exemplary damages to set an
example for the public good.26 The business of a bank is affected with public interest; thus, it makes
a sworn profession of diligence and meticulousness in giving irreproachable service.27 For this
reason, the bank should guard against injury attributable to negligence or bad faith on its part.28 The
award of exemplary damages is proper as a warning to BPI-FB and all concerned not to recklessly
disregard their obligation to exercise the highest and strictest diligence in serving their depositors.
However, the award should be in a reduced amount of ₱50,000.00 since exemplary damages are
imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a
negative incentive to curb socially deleterious actions.29

In summation, the Court reminds BPI-FB that the banking sector must at all times maintain a high
level of meticulousness, always having in mind the fiduciary nature of its relationship with its
depositors.30 This fiduciary relationship means that the bank’s obligation to observe "high standards
of integrity and performance" is deemed written into every deposit agreement between a bank and
its depositor. Failure to comply with this standard shall render a bank liable to its depositors for
damages.

WHEREFORE, the petition in G.R. No. 148196 is DENIED and the petition in G.R. No. 148259
is GRANTED. The assailed Decision dated November 27, 2000 and Resolution dated May 3, 2001
of the Court of Appeals in CA-G.R. CV No. 53962, which affirmed with modification the Decision
rendered by the Regional Trial Court, Branch 25, Manila, dated August 11, 1995 in Civil Case No.
90-53154, are hereby AFFIRMED with the modification that BPI Family Bank is directed to pay
Buenaventura, et al. the amount of ₱50,000.00 as exemplary damages. Costs against BPI Family
Bank.
 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 CASA’s 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 another’s 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

PNB vs. Quimpo

GR L-53194, 14 March 1988
First Division, Gancayco (J)

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

Issue: Who shall bear the loss resulting from the forged check.

Held: The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or
the depositor on the check being encashed. It is expected to use reasonable business prudence
in accepting and cashing a check being encashed or presented to it. Payment in neglect of duty
places upon him the result of such negligence. Still, Gozon’s act in leaving his checkbook in the
car, where his trusted friend remained in, cannot be considered negligence sufficient to excuse
the bank from its own negligence. The bank bears the loss.
Metropolitan Waterworks and Sewerage System vs Court of Appeals (July 1986)

143 SCRA 20 – Mercantile Law – Negotiable Instruments Law – Liabilities of Parties – Forgery – Negligence of
Drawer
Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB. When it was still called NAWASA,
MWSS made a special arrangement with PNB so that it may have personalized checks to be printed by Mesina
Enterprises. These personalized checks were the ones being used by MWSS in its business transactions.
From March to May 1969, MWSS issued 23 checks to various payees in the aggregate amount of P320,636.26. During
the same months, another set of 23 checks containing the same check numbers earlier issued were forged. The
aggregate amount of the forged checks amounted to P3,457,903.00. This amount was distributed to the bank
accounts of three persons: Arturo Sison, Antonio Mendoza, and Raul Dizon.
MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused. The trial court ruled in favor of
MWSS but the Court of Appeals reversed the trial court’s decision.
ISSUE: Whether or not PNB should restore the said amount.
HELD: No. MWSS is precluded from setting up the defense of forgery. It has been proven that MWSS has been
negligent in supervising the printing of its personalized checks. It failed to provide security measures and coordinate
the same with PNB. Further, the signatures in the forged checks appear to be genuine as reported by the National
Bureau of Investigation so much so that the MWSS itself cannot tell the difference between the forged signature
and the genuine one. The records likewise show that MWSS failed to provide appropriate security measures over its
own records thereby laying confidential records open to unauthorized persons. Even if the twenty-three (23) checks
in question are considered forgeries, considering the MWSS’s gross negligence, it is barred from setting up the
defense of forgery under Section 23 of the Negotiable Instruments Law.
The Supreme Court further emphasized that forgery cannot be presumed. It must be established by clear, positive,
and convincing evidence. This was not done in the present case.