cases in nego

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G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,

vs.

COURT OF APPEALS and SECURITY BANK AND TRUST

COMPANY, respondents.

REGALADO,J.:

This petition for review on certiorariimpugns and seeks the reversal of

the decision promulgated by respondent court on March 8, 1991 in CA-

G.R. CV No. 236151affirming with modifications, the earlier decision of

the Regional Trial Court of Manila, Branch XLII,2which dismissed the

complaint filed therein by herein petitioner against respondent bank.

The undisputed background of this case, as found by the court aquo and adopted by respondent court, appears of record:

1. On various dates, defendant, a commercial banking institution,

through its Sucat Branch issued 280 certificates of time deposit (CTDs)

in favor of one Angel dela Cruz who deposited with herein defendant

the aggregate amount of P1,120,000.00, as follows: (Joint Partial

Stipulation of Facts and Statement of Issues, Original Records, p. 207;

Defendant's Exhibits 1 to 280);

CTDCTD

DatesSerial Nos.QuantityAmount

22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,0002 Mar. 82 74701 to 74740 40 160,000

4 Mar. 82 90127 to 90146 20 80,000

5 Mar. 82 74797 to 94800 4 16,000

5 Mar. 82 89965 to 89986 22 88,000

5 Mar. 82 70147 to 90150 4 16,000

8 Mar. 82 90001 to 90020 20 80,000

9 Mar. 82 90023 to 90050 28 112,000

9 Mar. 82 89991 to 90000 10 40,000

9 Mar. 82 90251 to 90272 22 88,000

Total 280 P1,120,000

===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to

herein plaintiff in connection with his purchased of fuel products fromthe latter (Original Record, p. 208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo

Tiangco, the Sucat Branch Manger, that he lost all the certificates of

time deposit in dispute. Mr. Tiangco advised said depositor to execute

and submit a notarized Affidavit of Loss, as required by defendant

bank's procedure, if he desired replacement of said lost CTDs (TSN,

February 9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to

defendant bank the required Affidavit of Loss (Defendant's Exhibit 281).

On the basis of said affidavit of loss, 280 replacement CTDs were issued

in favor of said depositor (Defendant's Exhibits 282-561).

5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan

from defendant bank in the amount of Eight Hundred Seventy Five

Thousand Pesos (P875,000.00). On the same date, said depositor

executed a notarized Deed of Assignment of Time Deposit (Exhibit 562)

which stated, among others, that he (de la Cruz) surrenders to

defendant bank "full control of the indicated time deposits from and

after date" of the assignment and further authorizes said bank to pre-

terminate, set-off and "apply the said time deposits to the payment of

whatever amount or amounts may be due" on the loan upon its

maturity (TSN, February 9, 1987, pp. 60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff

Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and

presented for verification the CTDs declared lost by Angel dela Cruzalleging that the same were delivered to herein plaintiff "as security for

purchases made with Caltex Philippines, Inc." by said depositor (TSN,

February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's

Exhibit 563) from herein plaintiff formally informing it of its possession

of the CTDs in question and of its decision to pre-terminate the same.

8. On December 8, 1982, plaintiff was requested by herein defendant to

furnish the former "a copy of the document evidencing the guarantee

agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel

dela Cruz" obligation against which plaintiff proposed to apply the time

deposits (Defendant's Exhibit 564).

9. No copy of the requested documents was furnished herein

defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand and

claim for payment of the value of the CTDs in a letter dated February 7,

1983 (Defendant's Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendant bank

matured and fell due and on August 5, 1983, the latter set-off and

applied the time deposits in question to the payment of the matured

loan (TSN, February 9, 1987, pp. 130-131).

12. In view of the foregoing, plaintiff filed the instant complaint, praying

that defendant bank be ordered to pay it the aggregate value of the

certificates of time deposit of P1,120,000.00 plus accrued interest andcompounded interest therein at 16% per annum, moral and exemplary

damages as well as attorney's fees.

After trial, the court a quo rendered its decision dismissing the instant

complaint.3

On appeal, as earlier stated, respondent court affirmed the lower

court's dismissal of the complaint, hence this petition wherein

petitioner faults respondent court in ruling (1) that the subject

certificates of deposit are non-negotiable despite being clearly

negotiable instruments; (2) that petitioner did not become a holder in

due course of the said certificates of deposit; and (3) in disregarding the

pertinent provisions of the Code of Commerce relating to lost

instruments payable to bearer.4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to

provide a better understanding of the issues involved in this recourse.

SECURITY BANK

AND TRUST COMPANY

6778 Ayala Ave., Makati No. 90101

Metro Manila, Philippines

SUCAT OFFICEP 4,000.00

CERTIFICATE OF DEPOSIT

Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum

of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE

P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said

depositor 731 days. after date, upon presentation and surrender of this

certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

AUTHORIZED SIGNATURES5

Respondent court ruled that the CTDs in question are non-negotiable

instruments, nationalizing as follows:

. . . While it may be true that the word "bearer" appears rather boldly in

the CTDs issued, it is important to note that after the word "BEARER"

stamped on the space provided supposedly for the name of the

depositor, the words "has deposited" a certain amount follows. The

document further provides that the amount deposited shall be

"repayable to said depositor" on the period indicated. Therefore, the

text of the instrument(s) themselves manifest with clarity that they are

payable, not to whoever purports to be the "bearer" but only to the

specified person indicated therein, the depositor. In effect, the appellee

bank acknowledges its depositor Angel dela Cruz as the person who

made the deposit and further engages itself to pay said depositor theamount indicated thereon at the stipulated date.

6

We disagree with these findings and conclusions, and hereby hold that

the CTDs in question are negotiable instruments. Section 1 Act No.

2031, otherwise known as the Negotiable Instruments Law, enumerates

the requisites for an instrument to become negotiable, viz:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum

certain in money;

(c) Must be payable on demand, or at a fixed or determinable future

time;

(d) Must be payable to order or to bearer; and


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(e) Where the instrument is addressed to a drawee, he must be named

or otherwise indicated therein with reasonable certainty.

The CTDs in question undoubtedly meet the requirements of the law for

negotiability. The parties' bone of contention is with regard to requisite

(d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security

Bank's Branch Manager way back in 1982, testified in open court that

the depositor reffered to in the CTDs is no other than Mr. Angel de la

Cruz.

xxx xxx xxx

Atty. Calida:

q In other words Mr. Witness, you are saying that per books of the

bank, the depositor referred (sic) in these certificates states that it was

Angel dela Cruz?

witness:

a Yes, your Honor, and we have the record to show that Angel dela Cruz

was the one who cause (sic) the amount.

Atty. Calida:

q And no other person or entity or company, Mr. Witness?

witness:

a None, your Honor.7

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these certificates

of time deposit insofar as the bank is concerned?

witness:

a Angel dela Cruz is the depositor. 8

xxx xxx xxx

On this score, the accepted rule is that the negotiability or non-

negotiability of an instrument is determined from the writing, that is,

from the face of the instrument itself.9In the construction of a bill or

note, the intention of the parties is to control, if it can be legally

ascertained.10

While the writing may be read in the light of surrounding

circumstances in order to more perfectly understand the intent and

meaning of the parties, yet as they have constituted the writing to be

the only outward and visible expression of their meaning, no other

words are to be added to it or substituted in its stead. The duty of the

court in such case is to ascertain, not what the parties may have

secretly intended as contradistinguished from what their words express,

but what is the meaning of the words they have used. What the parties

meant must be determined by what they said.11

Contrary to what respondent court held, the CTDs are negotiable

instruments. The documents provide that the amounts deposited shall

be repayable to the depositor. And who, according to the document, is

the depositor? It is the "bearer." The documents do not say that the

depositor is Angel de la Cruz and that the amounts deposited are

repayable specifically to him. Rather, the amounts are to be repayable

to the bearer of the documents or, for that matter, whosoever may be

the bearer at the time of presentment.

If it was really the intention of respondent bank to pay the amount to

Angel de la Cruz only, it could have with facility so expressed that fact in

clear and categorical terms in the documents, instead of having the

word "BEARER" stamped on the space provided for the name of the

depositor in each CTD. On the wordings of the documents, therefore,

the amounts deposited are repayable to whoever may be the bearer

thereof. Thus, petitioner's aforesaid witness merely declared that Angel

de la Cruz is the depositor "insofar as the bank is concerned," but

obviously other parties not privy to the transaction between them

would not be in a position to know that the depositor is not the bearer

stated in the CTDs. Hence, the situation would require any party dealing

with the CTDs to go behind the plain import of what is written thereon

to unravel the agreement of the parties thereto through

facts aliunde. This need for resort to extrinsic evidence is what is sought

to be avoided by the Negotiable Instruments Law and calls for the

application of the elementary rule that the interpretation of obscure

words or stipulations in a contract shall not favor the party who caused

the obscurity.12

The next query is whether petitioner can rightfully recover on the CTDs.

This time, the answer is in the negative. The records reveal that Angel

de la Cruz, whom petitioner chose not to implead in this suit for reasons

of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner

without informing respondent bank thereof at any time. Unfortunately

for petitioner, although the CTDs are bearer instruments, a valid

negotiation thereof for the true purpose and agreement between it and

De la Cruz, as ultimately ascertained, requires both delivery and

indorsement. For, although petitioner seeks to deflect this fact, theCTDs were in reality delivered to it as a security for De la Cruz'

purchases of its fuel products. Any doubt as to whether the CTDs were

delivered as payment for the fuel products or as a security has been

dissipated and resolved in favor of the latter by petitioner's own

authorized and responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security

Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These

certificates of deposit were negotiated to us by Mr. Angel dela Cruz to

guarantee his purchases of fuel products" (Emphasis ours.)13

This

admission is conclusive upon petitioner, its protestations

notwithstanding. Under the doctrine of estoppel, an admission or

representation is rendered conclusive upon the person making it, and

cannot be denied or disproved as against the person relying

thereon. 14 A party may not go back on his own acts and representations

to the prejudice of the other party who relied upon them.15

In the law

of evidence, whenever a party has, by his own declaration, act, or

omission, intentionally and deliberately led another to believe a

particular thing true, and to act upon such belief, he cannot, in any

litigation arising out of such declaration, act, or omission, be permitted

to falsify it.16

If it were true that the CTDs were delivered as payment and not as

security, petitioner's credit manager could have easily said so, instead

of using the words "to guarantee" in the letter aforequoted. Besides,

when respondent bank, as defendant in the court below, moved for a

bill of particularity therein17

praying, among others, that petitioner, as

plaintiff, be required to aver with sufficient definiteness or particularity

(a) the due date or dates ofpaymentof the alleged indebtedness ofAngel de la Cruz to plaintiff and (b) whether or not it issued a receipt

showing that the CTDs were delivered to it by De la Cruz aspaymentof

the latter's alleged indebtedness to it, plaintiff corporation opposed the

motion.18

Had it produced the receipt prayed for, it could have proved,

if such truly was the fact, that the CTDs were delivered as payment and

not as security. Having opposed the motion, petitioner now labors

under the presumption that evidence willfully suppressed would be

adverse if produced.19

Under the foregoing circumstances, this disquisition in Intergrated

Realty Corporation, et al. vs. Philippine National Bank, et al.20

is

apropos:

. . . Adverting again to the Court's pronouncements in Lopez, supra, wequote therefrom:

The character of the transaction between the parties is to be

determined by their intention, regardless of what language was used or

what the form of the transfer was. If it was intended to secure the

payment of money, it must be construed as a pledge; but if there was

some other intention, it is not a pledge. However, even though a

transfer, if regarded by itself, appears to have been absolute, its object

and character might still be qualified and explained by

contemporaneous writing declaring it to have been a deposit of the

property as collateral security. It has been said that a transfer of

property by the debtor to a creditor, even if sufficient on its face to

make an absolute conveyance, should be treated as a pledge if the debt

continues in inexistence and is not discharged by the transfer, and that

accordingly the use of the terms ordinarily importing conveyance ofabsolute ownership will not be given that effect in such a transaction if

they are also commonly used in pledges and mortgages and therefore

do not unqualifiedly indicate a transfer of absolute ownership, in the

absence of clear and unambiguous language or other circumstances

excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the

question. Under the Negotiable Instruments Law, an instrument is

negotiated when it is transferred from one person to another in such a

manner as to constitute the transferee the holder thereof,21

and a

holder may be the payee or indorsee of a bill or note, who is in

possession of it, or the bearer thereof.22

In the present case, however,

there was no negotiation in the sense of a transfer of the legal title to

the CTDs in favor of petitioner in which situation, for obvious reasons,mere delivery of the bearer CTDs would have sufficed. Here, the

delivery thereof only as security for the purchases of Angel de la Cruz

(and we even disregard the fact that the amount involved was not


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disclosed) could at the most constitute petitioner only as a holder for

value by reason of his lien. Accordingly, a negotiation for such purpose

cannot be effected by mere delivery of the instrument since,

necessarily, the terms thereof and the subsequent disposition of such

security, in the event of non-payment of the principal obligation, must

be contractually provided for.

The pertinent law on this point is that where the holder has a lien on

the instrument arising from contract, he is deemed a holder for value to

the extent of his lien.23

As such holder of collateral security, he would

be a pledgee but the requirements therefor and the effects thereof, not

being provided for by the Negotiable Instruments Law, shall begoverned by the Civil Code provisions on pledge of incorporeal

rights,24

which inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . .

may also be pledged. The instrument proving the right pledged shall be

delivered to the creditor, and if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a

description of the thing pledged and the date of the pledge do not

appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed,

the factual findings of respondent court quoted at the start of this

opinion show that petitioner failed to produce any documentevidencing any contract of pledge or guarantee agreement between it

and Angel de la Cruz.25

Consequently, the mere delivery of the CTDs did

not legally vest in petitioner any right effective against and binding

upon respondent bank. The requirement under Article 2096

aforementioned is not a mere rule of adjective law prescribing the

mode whereby proof may be made of the date of a pledge contract, but

a rule of substantive law prescribing a condition without which the

execution of a pledge contract cannot affect third persons adversely.26

On the other hand, the assignment of the CTDs made by Angel de la

Cruz in favor of respondent bank was embodied in a public

instrument.27

With regard to this other mode of transfer, the Civil Code

specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no

effect as against third persons, unless it appears in a public instrument,

or the instrument is recorded in the Registry of Property in case the

assignment involves real property.

Respondent bank duly complied with this statutory requirement.

Contrarily, petitioner, whether as purchaser, assignee or lien holder of

the CTDs, neither proved the amount of its credit or the extent of its

lien nor the execution of any public instrument which could affect or

bind private respondent. Necessarily, therefore, as between petitioner

and respondent bank, the latter has definitely the better right over the

CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into the

question of whether or not private respondent observed the

requirements of the law in the case of lost negotiable instruments and

the issuance of replacement certificates therefor, on the ground that

petitioner failed to raised that issue in the lower court.28

On this matter, we uphold respondent court's finding that the aspect of

alleged negligence of private respondent was not included in the

stipulation of the parties and in the statement of issues submitted by

them to the trial court.29

The issues agreed upon by them for resolution

in this case are:

1. Whether or not the CTDs as worded are negotiable instruments.

2. Whether or not defendant could legally apply the amount covered by

the CTDs against the depositor's loan by virtue of the assignment

(Annex "C").

3. Whether or not there was legal compensation or set off involving the

amount covered by the CTDs and the depositor's outstanding account

with defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the

CTDs before the maturity date provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney's fees and

litigation expenses from each other.

As respondent court correctly observed, with appropriate citation of

some doctrinal authorities, the foregoing enumeration does not include

the issue of negligence on the part of respondent bank. An issue raised

for the first time on appeal and not raised timely in the proceedings in

the lower court is barred by estoppel.30

Questions raised on appeal

must be within the issues framed by the parties and, consequently,

issues not raised in the trial court cannot be raised for the first time on

appeal.31

Pre-trial is primarily intended to make certain that all issues necessary

to the disposition of a case are properly raised. Thus, to obviate the

element of surprise, parties are expected to disclose at a pre-trial

conference all issues of law and fact which they intend to raise at the

trial, except such as may involve privileged or impeaching matters. Thedetermination of issues at a pre-trial conference bars the consideration

of other questions on appeal.32

To accept petitioner's suggestion that respondent bank's supposed

negligence may be considered encompassed by the issues on its right to

preterminate and receive the proceeds of the CTDs would be

tantamount to saying that petitioner could raise on appeal any issue.

We agree with private respondent that the broad ultimate issue of

petitioner's entitlement to the proceeds of the questioned certificates

can be premised on a multitude of other legal reasons and causes of

action, of which respondent bank's supposed negligence is only one.

Hence, petitioner's submission, if accepted, would render a pre-trial

delimitation of issues a useless exercise.33

Still, even assuming arguendo that said issue of negligence was raised in

the court below, petitioner still cannot have the odds in its favor. A

close scrutiny of the provisions of the Code of Commerce laying down

the rules to be followed in case of lost instruments payable to bearer,

which it invokes, will reveal that said provisions, even assuming their

applicability to the CTDs in the case at bar, are merely permissive and

not mandatory. The very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may

be, mayapply to the judge or court of competent jurisdiction, asking

that the principal, interest or dividends due or about to become due, be

not paid a third person, as well as in order to prevent the ownership of

the instrument that a duplicate be issued him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not

mandatory but discretionary on the part of the "dispossessed owner" to

apply to the judge or court of competent jurisdiction for the issuance of

a duplicate of the lost instrument. Where the provision reads "may,"

this word shows that it is not mandatory but discretional.34

The word

"may" is usually permissive, not mandatory.35

It is an auxiliary verb

indicating liberty, opportunity, permission and possibility.36

Moreover, as correctly analyzed by private respondent,37

Articles 548

to 558 of the Code of Commerce, on which petitioner seeks to anchor

respondent bank's supposed negligence, merely established, on the one

hand, a right of recourse in favor of a dispossessed owner or holder of a

bearer instrument so that he may obtain a duplicate of the same, and,on the other, an option in favor of the party liable thereon who, for

some valid ground, may elect to refuse to issue a replacement of the

instrument. Significantly, none of the provisions cited by petitioner

categorically restricts or prohibits the issuance a duplicate or

replacement instrument sans compliance with the procedure outlined

therein, and none establishes a mandatory precedent requirement

therefor.

WHEREFORE, on the modified premises above set forth, the petition is

DENIEDand the appealed decision is hereby AFFIRMED.

SO ORDERED.


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G.R. No. L-18657 August 23, 1922

THE GREAT EASTERN LIFE INSURANCE CO., plaintiff-appellant,

vs.

HONGKONG & SHANGHAI BANKING CORPORATION and PHILIPPINE

NATIONAL BANK, defendants-appellees.

STATEMENT

The plaintiff is an insurance corporation, and the defendants are

banking corporations, and each is duly licensed to do its respectivebusiness in the Philippines Islands.

May 3, 1920, the plaintiff drew its check for P2,000 on the Hongkong

and Shanghai Banking Corporation with whom it had an account,

payable to the order of Lazaro Melicor. E. M. Maasim fraudulently

obtained possession of the check, forged Melicor's signature, as an

endorser, and then personally endorsed and presented it to the

Philippine National Bank where the amount of the check was placed to

his credit. After having paid the check, and on the next day, the

Philippine national Bank endorsed the check to the Hongkong and

Shanghai Banking Corporation which paid it and charged the amount of

the check to the account of the plaintiff. In the ordinary course of

business, the Hongkong Shanghai Banking Corporation rendered a bank

statement to the plaintiff showing that the amount of the check wascharged to its account, and no objection was then made to the

statement. About four months after the check was charged to the

account of the plaintiff, it developed that Lazaro Melicor, to whom the

check was made payable, had never received it, and that his signature,

as an endorser, was forged by Maasim, who presented and deposited it

to his private account in the Philippine National Bank. With this

knowledge , the plaintiff promptly made a demand upon the Hongkong

and Shanghai Banking Corporation that it should be given credit for the

amount of the forged check, which the bank refused to do, and the

plaintiff commenced this action to recover the P2,000 which was paid

on the forged check. On the petition of the Shanghai Bank, the

Philippine National Bank was made defendant. The Shanghai Bank

denies any liability, but prays that, if a judgment should be rendered

against it, in turn, it should have like judgment against the Philippine

National Bank which denies all liability to either party.

Upon the issues being joined, a trial was had and judgment was

rendered against the plaintiff and in favor of the defendants, from

which the plaintiff appeals, claiming that the court erred in dismissing

the case, notwithstanding its finding of fact, and in not rendering a

judgment in its favor, as prayed for in its complaint.

JOHNS,J.:

There is no dispute about any of the findings of fact made by the trial

court, and the plaintiff relies upon them for a reversal. Among other

things, the trial court says:

Who is responsible for the refund to the drawer of the amount of the

check drawn and payable to order, when its value was collected by a

third person by means of forgery of the signature of the payee? Is it the

drawee or the last indorser, who ignored the forgery at the time of

making the payment, or the forger?

To lower court found that Melicor's name was forged to the check. "So

that the person to whose order the check was issued did not receive the

money, which was collected by E. M. Maasim," and then says:

Now then, the National Bank should not be held responsible for the

payment of made to Maasim in good faith of the amount of the check,

because the indorsement of Maasim is unquestionable and his

signature perfectly genuine, and the bank was not obliged to identifythe signature of the former indorser. Neither could the Hongkong and

Shanghai Banking Corporation be held responsible in making payment

in good faith to the National Bank, because the latter is a holder in due

course of the check in question. In other words, the two defendant

banks can not be held civilly responsible for the consequences of the

falsification or forgery of the signature of Lazaro Melicor, the National

Bank having had no notice of said forgery in making payment to

Maasim, nor the Hongkong bank in making payment to National Bank.

Neither bank incurred in any responsibility arising from that crime, nor

was either of the said banks by subsequent acts, guilty of negligence or

fault.

This was fundamental error.

Plaintiff's check was drawn on Shanghai Bank payable to the order of

Melicor. In other words, the plaintiff authorized and directed the

Shanghai Bank to pay Melicor, or his order, P2,000. It did not authorize

or direct the bank to pay the check to any other person than Melicor, or

his order, and the testimony is undisputed that Melicor never did part

with his title or endorse the check, and never received any of its

proceeds. Neither is the plaintiff estopped or bound by the banks

statement, which was made to it by the Shanghai Bank. This is not a

case where the plaintiff's own signature was forged to one of it checks.

In such a case, the plaintiff would have known of the forgery, and it

would have been its duty to have promptly notified the bank of any

forged signature, and any failure on its part would have released bank

from any liability. That is not this case. Here, the forgery was that of

Melicor, who was the payee of the check, and the legal presumption isthat the bank would not honor the check without the genuine

endorsement of Melicor. In other words, when the plaintiff received it

banks statement, it had a right to assume that Melicor had personally

endorsed the check, and that, otherwise, the bank would not have paid

it.

Section 23 of Act No. 2031, known as the Negotiable Instruments Law,

says:

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 toenforce such right is precluded from setting up the forgery or want of

authority.

That section is square in point.

The money was on deposit in the Shanghai Bank, and it had no legal

right to pay it out to anyone except the plaintiff or its order. Here, the

plaintiff ordered the Shanghai Bank to pay the P2,000 to Melicor, and

the money was actually paid to Maasim and was never paid to Melicor,

and he never paid to Melicor, and he never personally endorsed the

check, or authorized any one to endorse it for him, and the alleged

endorsement was a forgery. Hence, upon the undisputed facts, it must

follow that the Shanghai Bank has no defense to this action.

It is admitted that the Philippine National Bank cashed the check upon a

forged signature, and placed the money to the credit of Maasim, who

was a forger. That the Philippine National Bank then endorsed the check

and forwarded it to the Shanghai Bank by whom it was paid. The

Philippine National Bank had no license or authority to pay the money

to Maasim or anyone else upon a forge signature. It was its legal duty to

know that Melicor's endorsment was genuine before cashing the check.

Its remedy is against Maasim to whom it paid the money.

The judgment of the lower court is reversed, and one will be entered

here in favor of the plaintiff and against the Hongkong and Shanghai

Banking Corporation for the P2,000, with interest thereon from

November 8, 1920 at the rate of 6 per cent per annum, and the costs of

this action, and a corresponding judgment will be entered in favor ofthe Hongkong Shanghai Banking Corporation against the Philippine

National Bank for the same amount, together with the amount of its

costs in this action. So ordered.

Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand and

Romualdez, JJ., concur.


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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.

D E C I S I O N

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 Company1("FEBTC") at

the latters Bel-Air, Makati branch.2The sole signatory to Samsung

Constructions account was Jong Kyu Lee ("Jong"), its Project

Manager,3while the checks remained in the custody of the companys

accountant, Kyu Yong Lee ("Kyu").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,5she

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.6

At the same time, Justiani forwarded the check to the branch Senior

Assistant Cashier Gemma Velez, as it was bank policy that two bankbranch 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.7He 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.8Jong proceeded to the police

station and consulted with his lawyers.9Subsequently, a criminal case

for qualified theft was filed against Sempio before the Laguna court .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.11

In

response, FEBTC said that it was still conducting an investigation on the

matter. Unsatisfied, Samsung Construction filed a Complainton 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.12

The case was

docketed as Civil Case No. 92-61506 before the Regional Trial Court

("RTC") of Manila, Branch 9.13

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 testifiedthat 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),14

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.15

Confronted with conflicting expert testimony, the RTC chose to believe

the findings of the NBI expert. In a Decisiondated 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 ofFifteen 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,16

reversing the RTC Decision and 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.17

Moreover, the appellate court 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.18

The Court of Appeals invoked the ruling

in PNB v. National City Bank of New York19

that, if a loss, which must be

borne by one or two innocent persons, can be traced to the neglect orfault of either, such loss would be borne by the negligent party, even if

innocent of intentional fraud.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 theCourt 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 "whollyinoperative," and payment made "through or under such signature" is

ineffectual or does not discharge the instrument.21

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.22

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. 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.
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6/43

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 ofthe 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 beenconsidered. 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 Paperwrote, 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 notchargeable 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.26

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.27

The forgery may be so near like the genuine as to defy

detection by the depositor himself, and yet the bank is liable to thedepositor if it pays the check.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 ofTenio-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. Reliancetherefore 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 specialattention, 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 PNP

Crime 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."31

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 arenormal deviations found in writing.

32Yet 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,"33

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.34

The most telling difference between the questioned and genuinesignatures 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.35

However, unlike the questioned signature, the upward strokes

of eight (8) of these signatures are looped, while the upward stroke of

the seventh36

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.

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,38

the same excuse she

proffered for the other marked differences noted by the Court and the

counsel for petitioner.39
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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.40

She had trained with the Royal Hongkong Police

Laboratory and is a member of the International Association for

Identification.41

As of the time she testified, she had examined more

than fifty to fifty-five thousand questioned documents, on an average offifteen to twenty documents a day.

42In comparison, PNP document

examiner Perez admitted to having examined only around five hundred

documents as of her testimony.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.44

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.45

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.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 dulyestablished 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.47

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 signatureon 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 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 thatSamsung 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 succeeded49

or who put into the power of the third person

to perpetuate the wrong."50

Applying these rules, the Court of Appeals

determined that it was the negligence of Samsung Construction that

allowed the encashment of the forged check.

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 KyuLee. 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.52

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 howmore care and prudence on his part 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 inPCI Bank v. Court of Appeals53

applies in this case, to

wit:

[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,"55

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.

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,56

and that the ordinary course of business has been

followed.57

Negligence is not presumed, but must be proven by him

who alleges it.58

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.

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 standardprocedures observed by the drawer, it well has the means of disputing

the presumption of regularity. Proving a negative fact may be "a

difficult office,"59

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.

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,60

as relied upon by the Court ofAppeals, deserves careful examination.

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.61

(Emphasis supplied)

Quite palpably, the general rule remains that the drawee who has paid

upon the forged signature bears the loss. The exception to this rulearises only when negligence can be traced on the part of the drawer

whose signature was forged, and the need arises to weigh the
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8/43

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.62

And for another, in

point of fact Samsung Construction was not negligent at all since it

reported the forgery almost immediately upon discovery.63

It is also worth noting that the forged signatures in PNB v. National City

Bank of New Yorkwere not of the drawer, but of indorsers. The same

circumstance attends PNB v. Court of Appeals,64

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.

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 payableto cash or to bearer, instead of to the order of a specified

person.68

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.69

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.

According to FEBTC Senior Assistant Cashier Gemma Velez, the banktried, but failed, to contact Jong over the phone to verify the

check.70

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."71

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.

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 eve

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