G.R. No.

70145 November 13, 1986

MARCELO A. MESINA, petitioner,

vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT, HON. ARSENIO M. GONONG, in his capacity as Judge of Regional Trial Court —
Manila (Branch VIII), JOSE GO, and ALBERT UY, respondents.

PARAS, J.:

This is an appeal by certiorari from the decision of the then Intermediate Appellate Court (IAC for short), now the Court of Appeals (CA) in AC-G.R. S.P.
04710, dated Jan. 22, 1985, which dismissed the petition for certiorari and prohibition filed by Marcelo A. Mesina against the trial court in Civil Case No.
84-22515. Said case (an Interpleader) was filed by Associated Bank against Jose Go and Marcelo A. Mesina regarding their conflicting claims over
Associated Bank Cashier's Check No. 011302 for P800,000.00, dated December 29, 1983.

Briefly, the facts and statement of the case are as follows:

Respondent Jose Go, on December 29, 1983, purchased from Associated Bank Cashier's Check No. 011302 for P800,000.00. Unfortunately, Jose Go
left said check on the top of the desk of the bank manager when he left the bank. The bank manager entrusted the check for safekeeping to a bank
official, a certain Albert Uy, who had then a visitor in the person of Alexander Lim. Uy had to answer a phone call on a nearby telephone after which he
proceeded to the men's room. When he returned to his desk, his visitor Lim was already gone. When Jose Go inquired for his cashier's check from
Albert Uy, the check was not in his folder and nowhere to be found. The latter advised Jose Go to go to the bank to accomplish a "STOP PAYMENT"
order, which suggestion Jose Go immediately followed. He also executed an affidavit of loss. Albert Uy went to the police to report the loss of the check,
pointing to the person of Alexander Lim as the one who could shed light on it.

The records of the police show that Associated Bank received the lost check for clearing on December 31, 1983, coming from Prudential Bank, Escolta
Branch. The check was immediately dishonored by Associated Bank by sending it back to Prudential Bank, with the words "Payment Stopped" stamped
on it. However, the same was again returned to Associated Bank on January 4, 1984 and for the second time it was dishonored. Several days later,
respondent Associated Bank received a letter, dated January 9, 1984, from a certain Atty. Lorenzo Navarro demanding payment on the cashier's check
in question, which was being held by his client. He however refused to reveal the name of his client and threatened to sue, if payment is not made.
Respondent bank, in its letter, dated January 20, 1984, replied saying the check belonged to Jose Go who lost it in the bank and is laying claim to it.

On February 1, 1984, police sent a letter to the Manager of the Prudential Bank, Escolta Branch, requesting assistance in Identifying the person who
tried to encash the check but said bank refused saying that it had to protect its client's interest and the Identity could only be revealed with the client's
conformity. Unsure of what to do on the matter, respondent Associated Bank on February 2, 1984 filed an action for Interpleader naming as respondent,
Jose Go and one John Doe, Atty. Navarro's then unnamed client. On even date, respondent bank received summons and copy of the complaint for
damages of a certain Marcelo A. Mesina from the Regional Trial Court (RTC) of Caloocan City filed on January 23, 1984 bearing the number C-11139.
Respondent bank moved to amend its complaint, having been notified for the first time of the name of Atty. Navarro's client and substituted Marcelo A.
Mesina for John Doe. Simultaneously, respondent bank, thru representative Albert Uy, informed Cpl. Gimao of the Western Police District that the lost
check of Jose Go is in the possession of Marcelo Mesina, herein petitioner. When Cpl. Gimao went to Marcelo Mesina to ask how he came to possess
the check, he said it was paid to him by Alexander Lim in a "certain transaction" but refused to elucidate further. An information for theft (Annex J) was
instituted against Alexander Lim and the corresponding warrant for his arrest was issued (Annex 6-A) which up to the date of the filing of this instant
petition remains unserved because of Alexander Lim's successful evation thereof.

Meanwhile, Jose Go filed his answer on February 24, 1984 in the Interpleader Case and moved to participate as intervenor in the complain for damages.
Albert Uy filed a motion of intervention and answer in the complaint for Interpleader. On the Scheduled date of pretrial conference inthe interpleader
case, it was disclosed that the "John Doe" impleaded as one of the defendants is actually petitioner Marcelo A. Mesina. Petitioner instead of filing his
answer to the complaint in the interpleader filed on May 17, 1984 an Omnibus Motion to Dismiss Ex Abudante Cautela alleging lack of jurisdiction in view
of the absence of an order to litigate, failure to state a cause of action and lack of personality to sue. Respondent bank in the other civil case (CC-11139)
for damages moved to dismiss suit in view of the existence already of the Interpleader case.

The trial court in the interpleader case issued an order dated July 13, 1984, denying the motion to dismiss of petitioner Mesina and ruling that
respondent bank's complaint sufficiently pleaded a cause of action for itnerpleader. Petitioner filed his motion for reconsideration which was denied by
the trial court on September 26, 1984. Upon motion for respondent Jose Go dated October 31, 1984, respondent judge issued an order on November 6,
1984, declaring petitioner in default since his period to answer has already expirecd and set the ex-parte presentation of respondent bank's evidence on
November 7, 1984.

Petitioner Mesina filed a petition for certioari with preliminary injunction with IAC to set aside 1) order of respondent court denying his omnibus Motion to
Dismiss 2) order of 3) the order of default against him.

On January 22, 1985, IAC rendered its decision dimissing the petition for certiorari. Petitioner Mesina filed his Motion for Reconsideration which was also
denied by the same court in its resolution dated February 18, 1985.

Meanwhile, on same date (February 18, 1985), the trial court in Civil Case #84-22515 (Interpleader) rendered a decisio, the dispositive portion reading
as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering plaintiff Associate Bank to replace Cashier's Check
No. 011302 in favor of Jose Go or its cas equivalent with legal rate of itnerest from date of complaint, and with costs of suit against
the latter.

SO ORDERED.

On March 29, 1985, the trial court in Civil Case No. C-11139, for damages, issued an order, the pertinent portion of which states:
 The records of this case show that on August 20, 1984 proceedings in this case was (were) ordered suspended because the main
issue in Civil Case No. 84-22515 and in this instant case are the same which is: who between Marcelo Mesina and Jose Go is
entitled to payment of Associated Bank's Cashier's Check No. CC-011302? Said issue having been resolved already in Civil casde
No. 84-22515, really this instant case has become moot and academic.

WHEREFORE, in view of the foregoing, the motion sholud be as it is hereby granted and this case is ordered dismissed.

In view of the foregoing ruling no more action should be taken on the "Motion For Reconsideration (of the order admitting the
Intervention)" dated June 21, 1984 as well as the Motion For Reconsideration dated September 10, 1984.

SO ORDERED.

Petitioner now comes to Us, alleging that:

1. IAC erred in ruling that a cashier's check can be countermanded even in the hands of a holder in due course.

2. IAC erred in countenancing the filing and maintenance of an interpleader suit by a party who had earlier been sued on the same claim.

3. IAC erred in upholding the trial court's order declaring petitioner as in default when there was no proper order for him to plead in the interpleader
complaint.

4. IAC went beyond the scope of its certiorari jurisdiction by making findings of facts in advance of trial.

Petitioner now interposes the following prayer:

1. Reverse the decision of the IAC, dated January 22, 1985 and set aside the February 18, 1985 resolution denying the Motion for Reconsideration.

2. Annul the orders of respondent Judge of RTC Manila giving due course to the interpleader suit and declaring petitioner in default.

Petitioner's allegations hold no water. Theories and examples advanced by petitioner on causes and effects of a cashier's check such as 1) it cannot be
countermanded in the hands of a holder in due course and 2) a cashier's check is a bill of exchange drawn by the bank against itself-are general
principles which cannot be aptly applied to the case at bar, without considering other things. Petitioner failed to substantiate his claim that he is a holder
in due course and for consideration or value as shown by the established facts of the case. Admittedly, petitioner became the holder of the cashier's
check as endorsed by Alexander Lim who stole the check. He refused to say how and why it was passed to him. He had therefore notice of the defect of
his title over the check from the start. The holder of a cashier's check who is not a holder in due course cannot enforce such check against the issuing
bank which dishonors the same. If a payee of a cashier's check obtained it from the issuing bank by fraud, or if there is some other reason why the
payee is not entitled to collect the check, the respondent bank would, of course, have the right to refuse payment of the check when presented by the
payee, since respondent bank was aware of the facts surrounding the loss of the check in question. Moreover, there is no similarity in the cases cited by
petitioner since respondent bank did not issue the cashier's check in payment of its obligation. Jose Go bought it from respondent bank for purposes of
transferring his funds from respondent bank to another bank near his establishment realizing that carrying money in this form is safer than if it were in
cash. The check was Jose Go's property when it was misplaced or stolen, hence he stopped its payment. At the outset, respondent bank knew it was
Jose Go's check and no one else since Go had not paid or indorsed it to anyone. The bank was therefore liable to nobody on the check but Jose Go.
The bank had no intention to issue it to petitioner but only to buyer Jose Go. When payment on it was therefore stopped, respondent bank was not the
one who did it but Jose Go, the owner of the check. Respondent bank could not be drawer and drawee for clearly, Jose Go owns the money it
represents and he is therefore the drawer and the drawee in the same manner as if he has a current account and he issued a check against it; and from
the moment said cashier's check was lost and/or stolen no one outside of Jose Go can be termed a holder in due course because Jose Go had not
indorsed it in due course. The check in question suffers from the infirmity of not having been properly negotiated and for value by respondent Jose Go
who as already been said is the real owner of said instrument.

In his second assignment of error, petitioner stubbornly insists that there is no showing of conflicting claims and interpleader is out of the question. There
is enough evidence to establish the contrary. Considering the aforementioned facts and circumstances, respondent bank merely took the necessary
precaution not to make a mistake as to whom to pay and therefore interpleader was its proper remedy. It has been shown that the interpleader suit was
filed by respondent bank because petitioner and Jose Go were both laying their claims on the check, petitioner asking payment thereon and Jose Go as
the purchaser or owner. The allegation of petitioner that respondent bank had effectively relieved itself of its primary liability under the check by simply
filing a complaint for interpleader is belied by the willingness of respondent bank to issue a certificate of time deposit in the amount of P800,000
representing the cashier's check in question in the name of the Clerk of Court of Manila to be awarded to whoever wig be found by the court as validly
entitled to it. Said validity will depend on the strength of the parties' respective rights and titles thereto. Bank filed the interpleader suit not because
petitioner sued it but because petitioner is laying claim to the same check that Go is claiming. On the very day that the bank instituted the case in
interpleader, it was not aware of any suit for damages filed by petitioner against it as supported by the fact that the interpleader case was first
entitled Associated Bank vs. Jose Go and John Doe, but later on changed to Marcelo A. Mesina for John Doe when his name became known to
respondent bank.

In his third assignment of error, petitioner assails the then respondent IAC in upholding the trial court's order declaring petitioner in default when there
was no proper order for him to plead in the interpleader case. Again, such contention is untenable. The trial court issued an order, compelling petitioner
and respondent Jose Go to file their Answers setting forth their respective claims. Subsequently, a Pre-Trial Conference was set with notice to parties to
submit position papers. Petitioner argues in his memorandum that this order requiring petitioner to file his answer was issued without jurisdiction alleging
that since he is presumably a holder in due course and for value, how can he be compelled to litigate against Jose Go who is not even a party to the
check? Such argument is trite and ridiculous if we have to consider that neither his name or Jose Go's name appears on the check. Following such line
of argument, petitioner is not a party to the check either and therefore has no valid claim to the Check. Furthermore, the Order of the trial court requiring
the parties to file their answers is to all intents and purposes an order to interplead, substantially and essentially and therefore in compliance with the
provisions of Rule 63 of the Rules of Court. What else is the purpose of a law suit but to litigate?

The records of the case show that respondent bank had to resort to details in support of its action for Interpleader. Before it resorted to Interpleader,
respondent bank took an precautionary and necessary measures to bring out the truth. On the other hand, petitioner concealed the circumstances
known to him and now that private respondent bank brought these circumstances out in court (which eventually rendered its decision in the light of these
facts), petitioner charges it with "gratuitous excursions into these non-issues." Respondent IAC cannot rule on whether respondent RTC committed an
abuse of discretion or not, without being apprised of the facts and reasons why respondent Associated Bank instituted the Interpleader case. Both
parties were given an opportunity to present their sides. Petitioner chose to withhold substantial facts. Respondents were not forbidden to present their
side-this is the purpose of the Comment of respondent to the petition. IAC decided the question by considering both the facts submitted by petitioner and
those given by respondents. IAC did not act therefore beyond the scope of the remedy sought in the petition.

WHEREFORE, finding that the instant petition is merely dilatory, the same is hereby denied and the assailed orders of the respondent court are hereby
AFFIRMED in toto.

SO ORDERED.
 G.R. No. 219037, October 19, 2016

RCBC SAVINGS BANK, Petitioner, v. NOEL M. ODRADA, Respondent.

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review on certiorari1 assailing the 26 March 2014 Decision2 and the 18 June 2015 Resolution3 of the
Court of Appeals in CA-G.R. CV No. 94890.

The Facts

In April 2002, respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi Montero (Montero) to Teodoro L. Lim (Lim) for One
Million Five Hundred Ten Thousand Pesos (P1,510,000). Of the total consideration, Six Hundred Ten Thousand Pesos (P610,000) was
initially paid by Lim and the balance of Nine Hundred Thousand Pesos (P900,000) was financed by petitioner RCBC Savings Bank
(RCBC) through a car loan obtained by Lim.4 As a requisite for the approval of the loan, RCBC required Lim to submit the original
copies of the Certificate of Registration (CR) and Official Receipt (OR) in his name. Unable to produce the Montero's OR and CR, Lim
requested RCBC to execute a letter addressed to Odrada informing the latter that his application for a car loan had been approved.

On 5 April 2002, RCBC issued a letter that the balance of the loan would be delivered to Odrada upon submission of the OR and CR.
Following the letter and initial down payment, Odrada executed a Deed of Absolute Sale on 9 April 2002 in favor of Lim and the latter
took possession of the Montero.5chanrobleslaw

When RCBC received the documents, RCBC issued two manager's checks dated 12 April 2002 payable to Odrada for Nine Hundred
Thousand Pesos (P900,000) and Thirteen Thousand Five Hundred Pesos (P13,500). 6 After the issuance of the manager's checks and
their turnover to Odrada but prior to the checks' presentation, Lim notified Odrada in a letter dated 15 April 2002 that there was an
issue regarding the roadworthiness of the Montero. The letter states:

chanRoblesvirtualLawlibrary

April 15, 2002

Mr. Noel M. Odrada

C/o Kotse Pilipinas
Fronting Ultra, Pasig City

Thru: Shan Mendez;.

Dear Mr. Odrada,

Please be inform[ed] that I am going to cancel or exchange the (1) one unit Montero that you sold to me thru Mr. Shan Mendez
because it did not match your representations the way Mr. Shan Mendez explained to me like:ChanRoblesVirtualawlibrary

1. You told me that the said vehicle has not experience [d] collision. However, it is hidden, when you open its engine cover there is a
trace of a head-on collision. The condenser is smashed,; the fender support is not align[ed], both bumper supports] connecting [the]
chassis were crippled and welded, the hood support was repaired, etc.

2. The 4-wheel drive shift is not functioning. When Mr. Mendez was asked about it, he said it would not function until you can reach
the speed of 30 miles.

3. During Mr. Mendez['s] representation, he said the odometer has still an original mileage data but found tampered.

4. You represented the vehicle as model 1998 however; it is indicated in the front left A-pillar inscribed at the identification plate [as]
model 1997.

Therefore, please show your sincerity by personally inspecting the said vehicle at RCBC, Pacific Bldg. Pearl Drive, Ortigas Center,
Pasig City. Let us meet at the said bank at 10:00 A.M., April 17, 2002.

Meanwhile, kindly hold or do not encash the manager's check[s] issued to you by RCBC until you have clarified and satisfied my
complaints.

Sincerely yours,

Teodoro L. Lim

Cc: Dario E. Santiago, RCBC loan

Legal7
Odrada did not go to the slated meeting and instead deposited the manager's checks with International Exchange Bank (Ibank) on
16 April 2002 and redeposited them on 19 April 2002 but the checks were dishonored both times apparently upon Lim's instruction
to RCBC.8 Consequently, Odrada filed a collection suit9 against Lim and RCBC in the Regional Trial Court of Makati.10chanrobleslaw

In his Answer,11 Lim alleged that the cancellation of the loan was at his instance, upon discovery of the misrepresentations by
Odrada about the Montero's roadworthiness. Lim claimed that the cancellation was not done ex parte but through a letter12 dated 15
April 2002.13 He further alleged that the letter was delivered to Odrada prior to the presentation of the manager's checks to
RCBC.14chanrobleslaw

On the other hand, RCBC contended that the manager's checks were dishonored because Lim had cancelled the loan. RCBC claimed
that the cancellation of the loan was prior to the presentation of the manager's checks. Moreover, RCBC alleged that despite notice of
the defective condition of the Montero, which constituted a failure of consideration, Odrada still proceeded with presenting the
manager's checks.

It was later disclosed during trial that RCBC also sent a formal notice of cancellation of the loan on 18 April 2002 to both Odrada and
Lim.15chanrobleslaw

The Regional Trial Court's Ruling

In its Decision16 dated 1 October 2009, the trial court ruled in favor of Odrada. The trial court held that Odrada was the proper party
to ask for rescission.17 The lower court reasoned that the right of rescission is implied in reciprocal obligations where one party fails
to perform what is incumbent upon him when the other is willing and ready to comply. The trial court ruled that it was not proper for
Lim to exercise the right of rescission since Odrada had already complied with the contract of sale by delivering the Montero while
Lim remained delinquent in payment.18 Since Lim was not ready, willing, and able to comply with the contract of sale, he was not the
proper party entitled to rescind the contract.

The trial court ruled that the defective condition of the Montero was not a supervening event that would justify the dishonor of the
manager's checks. The trial court reasoned that a manager's check is equivalent to cash and is really the bank's own check. It may
be treated as a promissory note with the bank as maker. Hence, the check becomes the primary obligation of the bank which issued
it and constitutes a written promise to pay on demand.19 Being the party primarily liable, the trial court ruled that RCBC was liable to
Odrada for the value of the manager's checks.

Finally, the trial court found that Odrada suffered sleepless nights, humiliation, and was constrained to hire the services of a lawyer
meriting the award of damages.20chanrobleslaw

The dispositive portion of the Decision reads:

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WHEREFORE, premises considered, judgment is hereby rendered:ChanRoblesVirtualawlibrary

(a) Directing defendant RCBC to pay plaintiff the amount of Php 913,500.00 representing the cash equivalent of the two (2)
manager's checks, plus 12% interest from the date of filing of the case until fully paid;

(b) Directing defendants to solidarity pay moral damages in the amount of Php 500,000.00 and exemplary damages in the amount of
Php 500,000.00;

(c) Directing defendants to solidarity pay attorney's fees in the amount of Php 300,000.00.

Finally, granting the cross-claim of defendant RCBC, Teodoro L. Lim is hereby directed to indemnify RCBC Savings Bank for the
amount adjudged for it to pay plaintiff.

SO ORDERED.21

RCBC and Lim appealed from the trial court's decision.

The Court of Appeals' Ruling

In its assailed 26 March 2014 Decision, the Court of Appeals dismissed the appeal and affirmed the trial court's 1 October 2009
Decision.

The Court of Appeals ruled that the two manager's checks, which were complete and regular, reached the hands of Lim who
deposited the same in his bank account with Ibank. RCBC knew that the amount reflected on the manager's checks represented
Lim's payment for the remaining balance of the Montero's purchase price. The appellate court held that when RCBC issued the
manager's checks in favor of Odrada, RCBC admitted the existence of the payee and his then capacity to endorse, and undertook
that on due presentment the checks which were negotiable instruments would be accepted or paid, or both according to its
tenor.22 The appellate court held that the effective delivery of the checks to Odrada made RCBC liable for the checks.23chanrobleslaw

On RCBC's defense of want of consideration, the Court of Appeals affirmed the finding of the trial court that Odrada was a holder in
due course. The appellate court ruled that the defense of want of consideration is not available against a holder in due
course.24chanrobleslaw

Lastly, the Court of Appeals found that the award of moral and exemplary damages and attorney's fees was excessive. Hence,
modification was proper.

The dispositive portion of the Decision reads:

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WHEREFORE, the impugned Decision of the court a quo in Civil Case No. 02-453 is hereby AFFIRMED with MODIFICATION insofar as
the reduction of awards for moral, exemplary damages and attorney's fees to P50,000.00, P20,000.00, and P20,000.00 respectively.

SO ORDERED.25cralawred

RCBC and Lim filed a motion for reconsideration26 on 28 April 2014. In its 18 June 2015 Resolution, the Court of Appeals denied the
motion for lack of merit.27chanrobleslaw

RCBC alone28 filed this petition before the Court. Thus, the decision of the Court of Appeals became final and executory as to Lim.

The Issues

RCBC presented the following, issues in this petition:

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A. The court a quo gravely erred in finding that as between Odrada as seller and Lim as buyer of the vehicle, only the former has the
right to rescind the contract of sale finding failure to perform an obligation under the contract of sale on the part of the latter only
despite the contested roadworthiness of the vehicle, subject matter of the sale.

1. Whether or not the court a quo erred in holding that Lim cannot cancel the auto loan despite the failure in consideration due to the
contested roadworthiness of the vehicle delivered by Odrada to him.29

B. The court a quo gravely erred when it found that Odrada is a holder in due course of the manager's checks in question despite
being informed of the cancellation of the auto loan by the borrower, Lim.

1. Whether or not Lim can validly countermand the manager's checks in the hands of a holder who does not hold the same in due
course.30

Odrada failed to file a comment31 within the period prescribed by this Court.32chanrobleslaw

The Ruling of this Court

We grant the petition.

Under the law on sales, a contract of sale is perfected the moment there is a meeting of the minds upon the thing which is the object
of the contract and upon the price which is the consideration. From that moment, the parties may reciprocally demand
performance.33 Performance may be done through delivery, actual or constructive. Through delivery, ownership is transferred to the
vendee.34 However, the obligations between the parties do not cease upon delivery of the subject matter. The vendor and vendee
remain concurrently bound by specific obligations. The vendor, in particular, is responsible for an implied warranty against hidden
defects.

Article 1547 of the Civil Code states: "In a contract of sale, unless a contrary intention appears, there is an implied warranty that the
thing shall be free from any hidden faults or defects."35 Article 1566 of the Civil Code provides that "the vendor is responsible to the
vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof." 36 As a consequence, the law fixes
the liability of the vendor for hidden defects whether known or unknown to him at the time of the sale.

The law defines a hidden defect as one which would render the thing sold unfit for the use for which it is intended, or would diminish
its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have
given a lower price for it.37chanrobleslaw

In this case, Odrada and Lim entered into a contract of sale of the Montero. Following the initial downpayment and execution of the
deed of sale, the Montero was delivered by Odrada to Lim and the latter took possession of the Montero. Notably, under the law,
Odrada's warranties against hidden defects continued even after the Montero's delivery. Consequently, a misrepresentation as to the
Montero's roadworthiness constitutes a breach of warranty against hidden defects.

In Supercars Management & Development Corporation v. Flores,38 we held that a breach of warranty against hidden defects occurred
when the vehicle, after it was delivered to respondent, malfunctioned despite repairs by petitioner.39 In the present case, when Lim
acquired possession, he discovered that the Montero was not roadworthy. The engine was misaligned, the automatic transmission
was malfunctioning, and the brake rotor disks needed refacing.40 However, during the proceedings in the trial court, Lim's testimony
was stricken off the record because he failed to appear during cross-examination.41 In effect, Lim was not able to present clear
preponderant evidence of the Montero's defective condition.

RCBC May Refuse to Pay Manager's Checks

We address the legal question of whether or not the drawee bank of a manager's check has the option of refusing payment by
interposing a personal defense of the purchaser of the manager's check who delivered the check to a third party.

In resolving this legal question, this Court will examine the nature of a manager's check and its relation to personal defenses under
the Negotiable Instruments Law.42chanrobleslaw

Jurisprudence defines a manager's check as a check drawn by the bank's manager upon the bank itself and accepted in advance by
the bank by the act of its issuance.43 It is really the bank's own check and may be treated as a promissory note with the bank as its
maker.44 Consequently, upon its purchase, the check becomes the primary obligation of the bank and constitutes its written promise
to pay the holder upon demand.45 It is similar to a cashier's check46 both as to effect and use in that the bank represents that the
check is drawn against sufficient funds.47chanrobleslaw

As a general rule, the drawee bank is not liable until it accepts.48 Prior to a bill's acceptance, no contractual relation exists between
the holder49 and the drawee. Acceptance, therefore, creates a privity of contract between the holder and the drawee so much so that
the latter, once it accepts, becomes the party primarily liable on the instrument.50 Accordingly, acceptance is the act which triggers
the operation of the liabilities of the drawee (acceptor) under Section 6251of the Negotiable Instruments Law. Thus, once he accepts,
the drawee admits the following: (a) existence of the drawer; (b) genuineness of the drawer's signature; (c) capacity and authority
of the drawer to draw the instrument; and (d) existence of the payee and his then capacity to endorse.

As can be gleaned in a long line of cases decided by this Court, a manager's check is accepted by the bank upon its issuance. As
compared to an ordinary bill of exchange where acceptance occurs after the bill is presented to the drawee, the distinct feature of a
manager's check is that it is accepted in advance. Notably, the mere issuance of a manager's check creates a privity of contract
between the holder and the drawee bank, the latter primarily binding itself to pay according to the tenor of its acceptance.

The drawee bank, as a result, has the unconditional obligation to pay a manager's check to a holder in due course irrespective of any
available personal defenses. However, while this Court has consistently held that a manager's check is automatically accepted, a
holder other than a holder in due course is still subject to defenses. In International Corporate Bank v. Spouses Gueco,52 which
involves a delivered manager's check, the Court still considered whether the check had become stale:

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It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment
be determined. In the case at bar, there is no doubt that the petitioner bank held on the check and refused to encash the same
because of the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position
taken by the bank.53

In International Corporate Bank, this Court considered whether the holder presented the manager's check within a reasonable time
after its issuance - a circumstance required for holding the instrument in due course.54chanrobleslaw

Similarly, in Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation,55 the Court observed that the mere issuance
of a manager's check does not ipso facto work as an automatic transfer of funds to the account of the payee.56 In order for the
holder to acquire title to the instrument, there still must have been effective delivery. Accordingly, the Court, taking exception to the
manager's check automatic transfer of funds to the payee, declared that: "the doctrine that the deposit represented by a manager's
check automatically passes to the payee is inapplicable, because the instrument - although accepted in advance remains
undelivered."57 This Court ruled that the holder did not acquire the instrument in due course since title had not passed for lack of
delivery.58chanrobleslaw

We now address the main legal question: if the holder of a manager's check is not a holder in due course, can the drawee bank
interpose a personal defense of the purchaser?

Our rulings in Mesina v. Intermediate Appellate Court59 and United Coconut Planters Bank v. Intermediate Appellate Court60 shed
light on the matter.

In Mesina, Jose Go purchased a manager's check from Associated Bank. As he left the bank, Go inadvertently left the check on top of
the desk of the bank manager. The bank manager entrusted the check for safekeeping to another bank official who at the time was
attending to a customer named Alexander Lim.61 After the bank official answered the telephone and returned from the men's room,
the manager's check could no longer be found. After learning that his manager's check was missing, Go immediately returned to the
bank to give a stop payment order on the check. A third party named Marcelo Mesina deposited the manager's check with Prudential
Bank but the drawee bank sent back the manager's check to the collecting bank with the words "payment stopped." When asked
how he obtained the manager's check, Mesina claimed it was paid to him by Lim in a "certain transaction." 62chanrobleslaw

While this Court acknowledged the general causes and effects of a manager's check, it noted that other factors were needed to be
considered, namely the manner by which Mesina acquired the instrument. This Court declared:

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Petitioner's allegations hold no water. Theories and examples advanced by petitioner on causes and effects of a cashier's check such
as (1) it cannot be countermanded in the hands of a holder in due course and (2) a cashier's check is a bill of exchange drawn by the
bank against itself - are general principles which cannot be aptly applied to the case at bar, without considering other things.
Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or value as shown by the established
facts of the case. Admittedly, petitioner became the holder of the cashier's check as endorsed by Alexander Lim who stole the check.
He refused to say how and why it was passed to him. He had therefore notice of the defect of his title over the check from the
start.63

Ultimately, the notice of defect affected Mesina's claim as a holder of the manager's check. This Court ruled that the issuing
bank could validly refuse payment because Mesina was not a holder in due course. Unequivocally, the Court declared: "the
holder of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank which
dishonors the same."64chanrobleslaw

In the same manner, in United Coconut Planters Bank (UCPB),65 this Court ruled that the drawee bank was legally justified in
refusing to pay the holder of a manager's check who did not hold the check in due course. In UCPB, Altiura Investors, Inc. purchased
a manager's check from UCPB, which then issued a manager's check in the amount of Four Hundred Ninety Four Thousand Pesos
(P494,000) to Makati Bel-Air Developers, Inc. The manager's check represented the payment of Altiura Investors, Inc. for a
condominium unit it purchased from Makati Bel-Air Developers, Inc. Subsequently, Altiura Investors, Inc. instructed UCPB to hold
payment due to material misrepresentations by Makati Bel-Air Developers, Inc. regarding the condominium unit.66 Pending
negotiations; and while the stop payment order was in effect, Makati Bel-Air Developers, Inc. insisted that UCPB pay the value of the
manager's check. UCPB refused to pay and filed an interpleader to allow Altiura Investors, Inc. and Makati Bel-Air Developers, Inc. to
litigate their respective claims. Makati Bel-Air Developers, Inc. also filed a counterclaim against UCPB in the amount of Five Million
Pesos (P5,000,000) based on UCPB's violation of its warranty on its manager's check.67chanrobleslaw

In upholding UCPB's refusal to pay the value of the manager's check, this Court reasoned that Makati Bel-Air Developers, Inc.'s title
to the instrument became defective when there arose a partial failure of consideration.68 We held that UCPB could validly invoke a
personal defense of the purchaser against Makati Bel-Air Developers, Inc. because the latter was not a holder in due course of the
manager's check:

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There are other considerations supporting the conclusion reached by this Court that respondent appellate court had committed
reversible error. Makati Bel-Air was a party to the contract of sale of an office condominium unit to Altiura, for the payment of which
the manager's check was issued. Accordingly, Makati Bel-Air was fully aware, at the time it had received the manager's check, that
there was, or had arisen, at least partial failure of consideration since it was unable to comply with its obligation to deliver office
space amounting to 165 square meters to Altiura. Makati Bel-Air was also aware that petitioner Bank had been informed by Altiura of
the claimed defect in Makati Bel-Air's title to the manager's check or its right to the proceeds thereof. Vis-a-vis both Altiura and
petitioner Bank, Makati Bel-Air was not a holder in due course of the manager's check.69

The foregoing rulings clearly establish that the drawee bank of a manager's check may interpose personal defenses of the purchaser
of the manager's check if the holder is not a holder in due course. In short, the purchaser of a manager's check may validly
countermand payment to a holder who is not a holder in due course. Accordingly, the drawee bank may refuse to pay the manager's
check by interposing a personal defense of the purchaser. Hence, the resolution of the present case requires a determination of the
status of Odrada as holder of the manager's checks.

In this case, the Court of Appeals gravely erred when it considered Odrada as a holder in due course. Section 52 of the Negotiable
Instruments Law defines a holder in due course as one who has taken the instrument under the following conditions:

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(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the
fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person
negotiating it. (Emphasis supplied)

To be a holder in due course, the law requires that a party must have acquired the instrument in good faith and for value.

Good faith means that the person taking the instrument has acted with due honesty with regard to the rights of the parties liable on
the instrument and that at the time he,took the instrument, the holder has no knowledge of any defect or infirmity of the
instrument.70 To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the
person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action
in taking the instrument would amount to bad faith.71chanrobleslaw

Value, on the other hand, is defined as any consideration sufficient to support a simple contract. 72chanrobleslaw
In the present case, Odrada attempted to deposit the manager's checks on 16 April 2002, a day after Lim had informed him that
there was a serious problem with the Montero. Instead of addressing the issue, Odrada decided to deposit the manager's checks.
Odrada's actions do not amount to good faith. Clearly, Odrada failed to make an inquiry even when the circumstances strongly
indicated that there arose, at the very least, a partial failure of consideration due to the hidden defects of the Montero. Odrada's
action in depositing the manager's checks despite knowledge of the Montero's defects amounted to bad faith. Moreover, when
Odrada redeposited the manager's checks on 19 April 2002, he was already formally notified by RCBC the previous day of the
cancellation of Lim's auto loan transaction. Following UCPB,73RCBC may refuse payment by interposing a personal defense of Lim -
that the title of Odrada had become defective when there arose a partial failure or lack of consideration. 74chanrobleslaw

RCBC acted in good faith in following the instructions of Lim. The records show that Lim notified RCBC of the defective condition of
the Montero before Odrada presented the manager's checks.75 Lim informed RCBC of the hidden defects of the Montero including a
misaligned engine, smashed condenser, crippled bumper support, and defective transmission. RCBC also received a formal notice of
cancellation of the auto loan from Lim and this prompted RCBC to cancel the manager's checks since the auto loan was the
consideration for issuing the manager's checks. RCBC acted in good faith in stopping the payment of the manager's checks.

Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder other than a holder in due course, a negotiable
instrument is subject to the same defenses as if it were non-negotiable, x x x." Since Odrada was not a holder in due course, the
instrument becomes subject to personal defenses under the Negotiable Instruments Law. Hence, RCBC may legally act on a
countermand by Lim, the purchaser of the manager's checks.

Lastly, since Lim's testimony involving the Montero's hidden defects was stricken off the record by the trial court, Lim failed to prove
the existence of the hidden defects and thus Lim remains liable to Odrada for the purchase price of the Montero. Lim's failure to file
an appeal from the decision of the Court of Appeals made the decision of the appellate court final and executory as to Lim. RCBC
cannot be made liable because it acted in good faith in carrying out the stop payment order of Lim who presented to RCBC the
complaint letter to Odrada when Lim issued the stop payment order.

WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 26 March 2014 Decision and the 18 June 2015 Resolution
of the Court of Appeals in CA-G.R. CV No. 94890 only insofar as RCBC Savings Bank is concerned.

SO ORDERED.chanRoblesvirtualLawlibrary
G.R. No. 172652 November 26, 2014

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
WILFRED N. CHIOK, Respondent.

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

G.R. No. 175302

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
WILFRED N. CHIOK, Respondent.

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

G.R. No. 175394

GLOBAL BUSINESS BANK, INC., Petitioner,

vs.
WILFRED N. CHIOK, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

The three consolidated petitions herein all assail the Decision1 of the Court of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the
Resolution2 in the same case dated November 6, 2006.

Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several years. He usually buys dollars from Gonzalo B. Nuguid (Nuguid) at
the exchange rate prevailing on the date of the sale. Chiok pays Nuguid either in cash or manager’s check, to be picked up by the latter or deposited in
the latter’s bank account. Nuguid delivers the dollars either on the same day or on a later date as may be agreed upon between them, up to a week
later. Chiok and Nuguid had been dealing in this manner for about six to eight years, with their transactions running into millions of pesos. For this
purpose, Chiok maintained accounts with petitioners Metropolitan Bank and Trust Company (Metrobank) and Global Business Bank, Inc. (Global Bank),
the latter being then referred to as the Asian Banking Corporation (Asian Bank). Chiok likewise entered into a Bills Purchase Line Agreement (BPLA)
with Asian Bank. Under the BPLA, checks drawn in favor of, or negotiated to, Chiok may be purchased by Asian Bank. Upon such purchase, Chiok
receives a discounted cash equivalent of the amount of the check earlier than the normal clearing period.

On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased" Security Bank & Trust Company (SBTC) Manager’s Check (MC) No. 037364 in the
amount of ₱25,500,000.00 issued in the name of Chiok, and credited the same amount to the latter’s Savings Account No. 2-007-03-00201-3.

On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the amount of ₱7,550,000.00 and MC No. 025939 in the amount of
₱10,905,350.00 to Gonzalo Bernardo, who is the same person as Gonzalo B. Nuguid. The two Asian Bank manager’s checks, with a total value of
₱18,455,350.00 were issued pursuant toChiok’s instruction and was debited from his account. Likewise upon Chiok’s application, Metrobank issued
Cashier’s Check (CC) No. 003380 in the amount of ₱7,613,000.00 in the name of Gonzalo Bernardo. The same was debited from Chiok’s Savings
Account No. 154-42504955. The checks bought by Chiok for payee Gonzalo Bernardo are therefore summarized as follows:

Drawee Bank/Check No. Amount (P) Source of fund

Asian Bank MC No. 025935 7,550,000.00

Chiok’s Asian Bank Savings
Account No. 2-007-03-00201-3,
Asian Bank MC No. 025939 10,905,350.00 which had been credited with the
value of SBTC MC No. 037364
(aggregate value of (₱25,500,000.00) when the latter was purchased by Asian Bank
Asian Bank MCs: from Chiok pursuant to their BPLA.
18,455,350.00)

Metrobank CC No. 003380 7,613,000.00 Chiok’s Metrobank Savings

Account No. 154-425049553

TOTAL 26,068,350.00

Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and 025939, and Metrobank CC No. 003380), with an aggregate value of
₱26,068,350.00 in Nuguid’s account with Far East Bank & Trust Company (FEBTC), the predecessor-in-interest of petitioner Bank of the Philippine
Islands (BPI). Nuguid was supposed to deliver US$1,022,288.50, 4 the dollar equivalent of the three checks as agreed upon, in the afternoon of the same
day. Nuguid, however, failed to do so, prompting Chiok to request that payment on the three checks be stopped. Chiok was allegedly advised to secure
a court order within the 24-hour clearing period. On the following day, July 6, 1995, Chiok filed a Complaint for damages with application for ex parte
restraining order and/or preliminary injunction with the Regional Trial Court (RTC) of Quezon City against the spouses Gonzalo and Marinella Nuguid,
and the depositary banks, Asian Bank and Metrobank, represented by their respective managers, Julius de la Fuente and Alice Rivera. The complaint
was docketed as Civil Case No. Q-95-24299 and was raffled to Branch 96. The complaint was later amended5 to include the prayer of Chiok to be
declared the legal owner of the proceeds of the subject checks and to be allowed to withdraw the entire proceeds thereof.
On the same day, July 6, 1995, the RTC issued a temporary restraining order (TRO) directing the spouses Nuguid to refrain from presenting the said
checks for payment and the depositary banks from honoring the sameuntil further orders from the court. 6

Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to the TRO. Metrobank claimed that when it received the TRO on July 6, 1995,
it refused to honor CC No. 003380 and stopped payment thereon. However, in a letter also dated July 6, 1995, Ms. Jocelyn T. Paz of FEBTC, Cubao-
Araneta Branch informed Metrobank that the TRO was issued a day after the check was presented for payment. Thus, according to Paz, the transaction
was already consummated and FEBTC had already validly accepted the same. In another letter, FEBTC informed Metrobank that "the restraining order
indicates the name of the payee of the check as GONZALO NUGUID, but the check isin fact payable to GONZALO BERNARDO. We believe there is a
defect in the restraining order and as such should not bind your bank."7 Alice Rivera of Metrobank replied to said letters, reiterating Metrobank’s position
tocomply with the TRO lest it be cited for contempt by the trial court. However, as would later be alleged in Metrobank’s Answer before the trial court,
Metrobank eventually acknowledged the check when it became clear that nothing more can be done to retrieve the proceeds of the check. Metrobank
furthermore claimed that since it is the issuer of CC No. 003380, the check is its primary obligation and should not be affected by any prior transaction
between the purchaser (Chiok) and the payee (Nuguid).

In the meantime, FEBTC, as the collecting bank, filed a complaint against Asian Bank before the Philippine Clearing House Corporation (PCHC)
Arbitration Committee for the collection of the value of Asian Bank MC No. 025935 and 025939, which FEBTC had allegedly allowed Nuguid to withdraw
on July 5, 1995, the same day the checks were deposited. The case was docketed as Arbicom Case No. 95-082. The PCHC Arbitration Committee later
relayed, in a letter dated August 4, 1995, its refusal to assume jurisdiction over the case on the ground that any step it may take might be misinterpreted
as undermining the jurisdiction of the RTC over the case or a violation of the July 6, 1995 TRO.

On July 25, 1995, the RTC issued an Order directing the issuance of a writ of preliminary prohibitory injunction:

WHEREFORE, upon filing by the plaintiff of a sufficient bond in the amount of ₱26,068,350.00, to be executed in favor of the defendants under the
condition that the same shall answer for whatever damages they may sustain by reason of this injunction should the Court ultimately determine that he
was not entitled thereto, let a writ of preliminary prohibitory injunction issue restraining and preventing during the pendency of the case:

a) Defendant Asian Bank frompaying Manager’s Checks No. 025935 in the amount of ₱7,550,000.00 and No. 025939 in the amount of
₱10,905,350.00; and

b) Defendant Metro Bank frompaying Cashier’s Check No. 003380 in the amount of ₱7,613,000.00.

The application for preliminary mandatory injunctionis hereby denied and the order issued on July 7, 1995 directing defendant Metro Bank (Annapolis,
Greenhills Branch) to allow the plaintiff to withdraw the proceeds of Cashier’s Check No. 003380 in the amount of ₱7,613,000.00 is hereby set aside.

The plaintiff’s urgent motion todeclare defendants Asian Bank and Metro Bank in contempt of court filed last July 13, 1995 is hereby denied for lack of
legal basis.

The writ of preliminary prohibitory injunction and a copy of this order shall be served on the defendants by Deputy Sheriff Jose Martinez of this Branch. 8

Upon the filing by Chiok of the requisite bond, the Writ was subsequently issued on July 26, 1995.

Before the RTC, Asian Bank pointed out that SBTC returned and issued a Stop Payment Order on SBTC MC No. 037364 (payable to Chiok in the
amount of ₱25,500,000.00) on the basis of an Affidavit of Loss & Undertaking executed by a certain Helen Tan. Under said Affidavit of Loss &
Undertaking, Tan claims that she purchased SBTC MC No. 037364 from SBTC, but the manager’s check got lost on that day. Asian Bank argued that
Chiok would therefore be liable for the dishonor of the manager’s check under the terms of the BPLA, which provides for recourse against the seller
(Chiok) of the check when it is dishonored by the drawee (SBTC) for any reason, whether valid or not.

On October 18, 1995, FEBTC filed a Complaint-in-Intervention in Civil Case No. Q-95-24299. On February6, 1996, the RTC initially denied FEBTC’s
intervention in the case. On Motion for Reconsideration, however, the RTC, on April 15, 1996, reversed itself and allowed the same.

In the Complaint-in-Intervention, FEBTC claimed that it allowed the immediate withdrawal of the proceeds of Asian Bank MC Nos. 025935 and 025939
on the ground that, as manager’schecks, they were the direct obligations of Asian Bank and were accepted in advance by Asian Bank by the mere
issuance thereof. FEBTC presented the checks for payment on July 5, 1995 through the PCHC. Asian Bank, as admitted in its Answer before the RTC,
received the same on that day. Consequently, Asian Bank was deemed to have confirmed and booked payment of the subject checks in favor of FEBTC
or, at the latest, during the first banking hour of July 6, 1995, when payment should have been made. FEBTC claimed that Asian Bank exhibited bad
faith when, in anticipation of the TRO, it opted to float the checks until it received the TRO at 12:00 noon of July 6, 1995 to justify the nonpayment
thereof.

In their own Answer, the spouses Nuguid claimed that Gonzalo Nuguid had delivered much more dollars than what was required for the three checks at
the time of payment. By way of special affirmative defense, the spouses Nuguid also claims that since the subject checks had already been paid to him,
Chiok is no longer entitled to an injunction (to hold the payment of the subject checks), and Civil Case No. Q-95-24299 has already become moot.

On August 29, 2002, the RTC rendered its Decision, the dispositive portion of which states:

WHEREFORE, judgment is rendered:

1. Declaring as permanent the writ of preliminary injunction issued under the Order of July 25, 1995;

2. Ordering Global Business Bank, Inc.to pay the plaintiff [Chiok]:

a.) The amount of ₱34,691,876.71 (less the attorney’s fees of ₱255,000.00 which shall remain with Global Business Bank, Inc.),
plus interest at the legal rate of 12%/p.a. from September 30, 1999 until fully paid;

b.) The amount of ₱215,000.00, representing the excess amount debited from the plaintiff’s deposit in his account with Global
Business Bank, Inc. on July 7, 1995, plus interest of 12%/p.a. from July 7, 1995, until fully paid;
 c.) Attorney’s fees equivalentof 5% of the total amount due; and

3. Ordering Metropolitan Bank & Trust Companyto pay the plaintiff:

a. The amount of his deposit of ₱7,613,000.00, plus interest of 12%/p.a. from July 5, 1995 until said amount is fully paid; and

b. Attorney’s fees of 5%of the total amount due;

4. Ordering Spouses Gonzalo B. Nuguid and Marinella O. Nuguid liable jointly and severally with Global Business Bank, Inc. and Metropolitan
Bank & Trust Company, Inc. for the respective attorney’s fees;

5. Dismissing the complaint-in-interventionof BPI for lack of merit;

6. Ordering the defendantsand the intervenorto pay, jointly and severally, the costs of suit. 9

(Emphases supplied.)

The RTC held that Nuguid failed to prove the delivery of dollars to Chiok. According to the RTC, Nuguid’s claim that Chiok was still liable for seven
dishonored China Banking Corporation (CBC) checks with a total worth of ₱72,984,020.00 is highly doubtful since such claim was not presented as a
counterclaim in the case. Furthermore, the court ruled that the certification of CBC stating the reasons 10 for the stop payment order "are indicative of
Chiok’s non-liability to Nuguid." The RTC further noted that there was a criminal case filed by Chiok against Nuguid on March 29, 1996 for estafa and
other deceit on account of Nuguid’s alleged failure to return the originals of the seven CBC checks.11

The RTC went on to rule that manager’s checks and cashier’s checks may be the subject of a Stop Payment Order from the purchaser on the basis of
the payee’s contractual breach. As explanation for this ruling, the RTC adopted its pronouncements when it issued the July 25, 1995 Order:

Defendant Nuguid’s argument that the injunction could render manager’s and cashier’schecks unworthy of the faith they should have and could impair
their nature as independent undertakings of the issuing banks is probably an undistinguished simplification. While the argument may be applicable to
such checks in general, it does not adequately address the situation, as here, when specific manager’s and cashier’s checks are already covered by
reciprocal undertakings between their purchaser and their payee, in which the latter allegedly failed to perform. The agreement herein was supposedly
one in which Nuguid would deliver the equivalent amount in US dollars ($1,022,288.23) "on the same date" that the plaintiff purchased and delivered the
manager’s and cashier’s checks (₱26,068,350.00). Assuming that such a reciprocity was true, the purchaser should have the legal protection of the
injunctive writ (which, after all, the legal departments of the issuing banks themselves allegedly advised the plaintiff to obtain), since the usual order or
instruction to stop payment available in case of ordinary checks did not avail. This was probably the reason that Asian Bank has expressly announced in
its own comment/opposition of July 14, 1995 that it was not opposing the application for the prohibitory injunction.

The dedication of such checks pursuantto specific reciprocal undertakings between their purchasers and payees authorizes rescission by the former to
prevent substantial and material damage to themselves, which authority includes stopping the payment of the checks. 12 According to the RTC, both
manager’s and cashier’s checks are still subject to regular clearing under the regulations of the Bangko Sentral ng Pilipinas. Since manager’s and
cashier’s checks are the subject of regular clearing, they may consequently be refused for cause by the drawee, which refusal is in fact provided for in
the PCHC Rule Book.

The RTC found the argument by BPI that the manager’s and cashier’s checks are pre-cleared untenable under Section 60 of the New Central Bank Act
and Article 1249 of the Civil Code, which respectively provides:

Section 60. Legal Character. – Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts,
both public and private, is at the option of the creditor; Provided, however, that a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account.

Art. 1249. The payment of debts inmoney shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall
produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance. The RTC went on to rule that due to the timely service of
the TRO and the injunction, the value of the three checks remained with Global Bank and Metrobank. 13 The RTC concluded that since Nuguid did not
have a valid title to the proceeds of the manager’s and cashier’s checks, Chiok is entitled to be paid back everything he had paid to the drawees for the
checks.14

With respect to Global Bank, the RTC ruled that the entire amount of ₱34,691,876.71 it recovered from SBTC from the September 15, 1997 PCHC
Decision, as reflected in the September 29, 1999 Charge Slip No. 114977, less the sum of ₱225,000.00 awarded by the arbitration committee’s decision
as attorney’s fees, should be paidto Chiok, with interest at 12% per annum from September 30, 1999 until full payment. The RTC likewise ordered
Global Bank to pay Chiok the amount of ₱215,390.00, an amount debited from Chiok’s account as payment for outstanding bills purchase. 15

With respect to Metrobank, the RTC ruled that it should pay Chiok ₱7,613,000.00, the amount paid by Chiok to purchase the CC, plus interest of 12
percent per annum from July 5,1995 until full payment. The RTC explained this finding as follows:

The same conclusion is true with respect to Metro Bank, with whom the funds amounting to ₱7,613,000.00 for the purchase of CC No. 003380 has
remained. According to Chiok, Metro Bank used such funds in its operations.

In the hearing on May 17, 2001, Lita Salonga Tan was offered as a witness for Metro Bank, but in lieu ofher testimony, the parties agreed to stipulate on
the following as her testimony, to wit:

1. That Metro Bank paid the amount of CC No. 003280;

2. That the payment on July 12, 1995 was made while the TRO of July 5, 1995 was in force;
 3. [That] the payment on July 12, 1995 was on the third clearing of CC No. 003380; and

4. That the PCHC Rule book was the authority on the rules and regulations on the clearing operations of banks.

The payment to FEBTC by Metro Bank of CC No. 003380 on July 12, 1995 was an open defiance of the TRO of July 6, 1995. Metro Bank’s Branch
Manager Alice Rivera, through her letter of July 10, 1995 to FEBTC as the collecting bank, returned the CC to FEBTC in compliance with the TRO which
was received about 12:10 noon of July 6, 1999. Hence, Metro Bank should not have paid because the TRO was served within the 24-hour period to
clear checks. Moreover, the payment, being made on third clearing, was unjustified for violating existing regulations, particularly paragraph 1 of the
Clearing House Operating Memo (CHOM), effective September 1, 1984, which prohibited the reclearing of a check after its first presentation if it was
returned for the reason of "stop payment" or "closed account."

It also seems that Metro Bank paid the CC without first checking whether, in fact, any actual payment of the 3 checks had been made on July 5, 1995 to
the payee when the checks were deposited in payee’s account with FEBTC on July 5, 1995. The records show no such payment was ever made to
render the TRO of July 6, 1995 or the writ of preliminary injunction applied for moot and academic.

Jessy A. Degaños – adopted by Metro Bank as its own witness in injunction hearing of July 24, 1995 – stated that the payment of the 3 checks consisted
of the accounting entry made at the PCHC during the presenting process by debiting the respective accounts of the drawees and crediting the account
of collecting bank FEBTC. Yet, as already found hereinabove, such process was reversed due to the return by the drawees of the checks which they
dishonored on account of the TRO.

Also, Degaños, testifying on January 17, 2002 for intervenor BPI, was asked in what form was the withdrawal of the amounts of the checks made by
Nuguid on July 5, 1995, that is, whether:- 1) cash withdrawal; or 2) credit to Nuguid’s account; or 3) draft issued to Nuguid. His reply was that only the
bank’s branch which serviced the payee’s account could provide the answer. Yet, BPI did not present any competent personnel from the branch
concerned to enlighten the Court on this material point.

This amount of ₱7,613,000.00, having remained with Metro Bank since the service of the TRO of July 6, 1995 and the writ of preliminary injunction
issued under the Order of July 25, 1998, should be returned to Chiok with interest of 12%/p.a. from July 7, 1995 until full payment. 16

(Citations omitted.)

The RTC likewise denied BPI’s complaint-in-intervention to recover the value of the three checks from drawees Global Bank and Metrobank for lack of
merit. The RTC, after reprimanding Global Bank and Metrobank for siding with BPI on this issue, held that BPI, as a mere collecting bank of the payee
with a void title to the checks, had no valid claim as to the amounts of such checks. The RTC explained:

Firstly: BPI, being a collecting bankin relation to the 3 checks, was merely performing collection services as an agent of Nuguid, the payee. If, as found
hereinbefore, Nuguid could not have legal title to the 3 checks, it follows that BPI could not stake any claim for title better than Nuguid’s own void title.
Consequently, BPI has no right to claim the amounts of the 3 checks from the drawee-banks.

Secondly: The purpose of the delivery of the 3 checks to BPI – which was not even accompanied by Nuguid’s endorsement – was solely for deposit in
the account of payee Nuguid. Assuming, for the sake of argument, that BPI as the collecting bank paid the value of the checks – of which fact there has
been no proof whatsoever – BPI was nonetheless, at best, a mere transferee whose title was no better than the void title of the transferor, payee Nuguid.
Under such circumstance, BPI has no legal basis to demand payment of the amounts of the 3 checks from the draweebanks.

Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as transferee without indorsement, was not considered a holder of the instrument since it was
neither a payee nor an indorsee. It would become so only when and if the indorsement is actually made, and only as of then, but not before, is the issue
whether BPI was a holder in due course or not is determined.

Consequently, any alleged payment by BPI as the collecting bank, through the supposed though unproved withdrawal of the amounts of the 3 checks by
Nuguid upon the deposit of the checks on July 5, 1995, is not the payment which discharges liability under the 3 checks because BPI is neither the party
primarily liable northe drawee.

Such a payment, if true, is akin to, if it is not, drawing against uncollected deposits (DAUD). In such a case, BPI was in duty bound to send the 3 checks
to the PCHC for clearing pursuant to Section 1603.c.1 of the BSP Manual of Regulations and Sec. 60, R.A. No. 7653. It serves well to note herein that
Global Bank and Metro Bank returned the checks through the PCHC on July 6, 1995, well within the 24-hour clearing period, in compliance with the TRO
of July 6, 1995. Finally: As earlier noted and discussed, there is no evidence of any prior valid payment by the collecting bank to support its claim of the
amounts of the 3 checks against the defendant banks.17 (Citation omitted.)

The RTC held Global Bank and Metrobank liable for attorney’s fees equivalent to 5% of the total amountdue them, while the spouses Nuguid were held
solidarily liable for said fees.

Defendants Global Bank, Metrobank, and the spouses Nuguid, and intervenor BPI filed separate notices of appeal, which were approved in the
Order18 dated April 3, 2003. Chiok filed a Motion to Dismiss against the appeal of Global Bank, on the ground that the latter had ceased to operate as a
banking institution.

On May 26, 2004, the Court of Appeals dismissed the appeal of the spouses Nuguid pursuant to Section 1(e), Rule 50 of the Rules of Court, on account
of their failure to file their appellant’s brief. In the same Resolution, the Court of Appeals denied Chiok’s Motion to Dismiss.

On May 5, 2006, the Court of Appeals rendered the assailed Decision affirming the RTC Decision with modifications. The fallo of the Decision reads:

WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC, Branch 96, Quezon City is AFFIRMED with the following
MODIFICATIONS:

1.) The contract to buy foreign currency in the amount of $1,022,288.50 between plaintiff-appellee Wilfred N. Chiok and defendant Gonzalo B.
Nuguid is hereby rescinded. Corollarily, Manager’s Check Nos. 025935 and 025939 and Cashier’s Check No. 003380 are ordered cancelled.

2.) Global Business Holdings, Inc. is ordered to credit Savings Account No. 2-007-03-00201-3 with:
 a) The amount of ₱25,500,000.00, plus interest at 4% from September 29, 1999 until withdrawn by plaintiff-appellee;

b) The amount of ₱215,390.00, plus interest at 4% from July 7, 1995 until withdrawn by plaintiff-appellee.

3.) Metropolitan Bank & Trust Company is ordered to credit Savings Account No. 154-42504955 the amount of ₱7,613,000.00, with interest at
6% [per annum] from July 12, 1995 until the same is withdrawn;

4.) The Spouses Gonzalo B. Nuguid and Marinella O. Nuguid are ordered to pay attorney’s fees equivalent to 5% of the total amount due to
plaintiff-appellee from both depository banks, as well as the costs of suit. 19

According to the Court of Appeals, Article 1191 of the Civil Code provides a legal basis of the right of purchasers of MCs and CCs to make a stop
payment order on the ground of the failure of the payee to perform his obligation to the purchaser. The appellate court ruled that such claim was
impliedly incorporated in Chiok’s complaint. The Court of Appeals held:

By depositing the subject checks to the account of Nuguid, Chiok had already performed his obligation under the contract, and the subsequent failure of
Nuguid to comply with what was incumbent upon him gave rise to an action for rescission pursuant to Article 1191 of the Civil Code, which states:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

xxxx

Although the complaint a quowas entitled "DAMAGES, W/ EX PARTE RESTRAINING ORDER/INJUNCTION" when the action was really one for
rescission and damages, it is an elementary rule of procedure that what controls or determines the nature of the action is not the caption of the complaint
but the allegations contained therein. And even without the prayer for a specific remedy, proper relief may nevertheless be granted by the court if the
facts alleged in the complaint and the evidence introduced so warrant.

That Chiok had intended rescission isevident from his prayer to be declared the legal owner of the proceeds of the subject checks and to be allowed to
withdraw the same. Therefore, the argument of BPI that the obligation on the part of Nuguid to deliver the dollars still subsists is untenable. Article 1385
of the same Code provides that rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and
the price with its interest. The object of the contract herein to buy foreign currency is the peso-value of the dollars bought but in the form of negotiable
instruments – Manager’s Check/Cashier’s Check. Hence, respecting the negotiation thereof, and in order to afford complete relief to Chiok, there arose
the necessity for the issuance of the injunction restraining the payment of the subject checks with the end in view of the eventual return of the proceeds
to give effect to Article 1385. In other words, the injunctive relief was necessary in order not to render ineffectual the judgment in the instant case. We
quote with approval the following disquisition of the trial court, to wit:

xxxx

There is no question about the nature of manager’s and cashier’s checks being as good as cash, being primary obligations of the issuing bank and
accepted in advanceby their mere issuance. But even as such nature of unconditional commitment to pay on the part of the issuing bank may be
conceded, the Court opines that the injunctive relief cannot be denied to a party who purchased the manager’s or cashier’s check to stop its payment to
the payee in a suit against the payee and the issuing banks upon a claim that the payee himself had not performed his reciprocal obligation for which the
issuance and delivery of the self-same manager’sor cashier’s check were, in the first place, made x x x.

It bears stressing that the subject checks would not have been issued were it not for the contract between Chiok and Nuguid. Therefore, they cannot be
disassociated from the contract and given a distinct and exclusive signification, as the purchase thereof is part and parcel of the series of transactions
necessary to consummate the contract. Taken in this light, it cannot be argued that the issuing banks are bound to honor only their unconditional
undertakings on the subject checks vis-à-vis the payee thereof regardless of the failed transaction between the purchaser of the checks and the payee
on the ground that the banks were not privy to the said transaction.

Lest it be forgotten, the purchase of the checks was funded by the account of Chiok with the banks. As such, the banks were equally obligated to treat
the account of their depositor with meticulous care bearing in mind the fiduciary nature of their relationship with the depositor. Surely, the banks would
not allow their depositor to sit idly by and watch the dissipation of his livelihood considering that the business of foreign currency exchange is a highly
volatile undertaking where the probability of losing or gaining is counted by the ticking of the clock. With the millions of money involved in this
transaction, Chiok could not afford to be complacent and his vigilance for his rights could not have been more opportune under the
circumstances.20 (Citations omitted.)

The Court of Appeals proceeded to sustain the dismissal of BPI’s complaint-in-intervention, which sought to recover from Global Bank the amounts
allegedly paid to Nuguid. The Court of Appeals pointed out that BPI failed to prove the alleged withdrawal by Nuguid of the proceeds of the two
manager’s checks, as BPI’s representative, Jessy A. Degaños, failed to answer the question on the form of the alleged withdrawal. Furthermore, BPI
failed to prove that it was a holder in due course of the subject manager’s checks, for two reasons: (1) the checks were not indorsed to it by Nuguid; and
(2) BPI never presented its alleged bills purchase agreement with Nuguid. 21

The Court of Appeals likewise modified the order by the RTC for Global Bank and Metrobank to pay Chiok. The Court of Appeals held that Chiok’s cause
of action against Global Bank is limited to the proceeds of the two manager’s checks. Hence, Global Bank was ordered to credit Chiok’s Savings
Account No. 2-007-03-00201-3 with the amount of ₱25,500,000.00, the aggregate value of the two managers’ checks, instead of the entire
₱34,691,876.71 recovered from SBTC from the September 15, 1997 PCHC Decision. The interest was also reduced from 12% per annum to that
imposed upon savings deposits, which was established during the trial as 4% per annum. 22

As regards Metrobank, the appellate court noted that there was no evidence as to the interest rate imposed upon savings deposits at Metrobank.
Metrobank was ordered to credit the amount of ₱7,613,000.00 to Chiok’s Savings Account No. 154-42504955, with interest at 6% per annum.23
Global Bank and BPI filed separate Motions for Reconsideration of the May 5, 2006 Court of Appeals’ Decision. On November 6, 2006, the Court of
Appeals denied the Motions for Reconsideration.

Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global Bank (G.R. No. 175394) filed with this Court separate Petitions for Review on
Certiorari. In Resolutions dated February 21, 200724 and March 12, 2007,25 this Court resolved to consolidate the three petitions. Metrobank submitted
the following issues for the consideration of this Court:

(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT "IT IS LEGALLY POSSIBLE FOR A
PURCHASER OF A MANAGER’S CHECK OR CASHIER’S CHECK TO STOP PAYMENT THEREON THROUGH A COURT ORDER ON
THE GROUND OF THE PAYEE’S ALLEGED BREACH OF CONTRACTUAL OBLIGATION AMOUNTING TO AN ABSENCE OF
CONSIDERATION THEREFOR."

(B) GRANTING ARGUENDO THAT A MANAGER’S CHECK OR CASHIER’S CHECK, "IN VIEW OF THE PECULIAR CIRCUMSTANCES OF
THIS CASE" MAY BE SUBJECT TO A STOP PAYMENT ORDER BY THE PURCHASER THEREOF THROUGH A COURT ORDER,
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER HEREIN "HAD
KNOWLEDGE OF CIRCUMSTANCES THAT WOULD DEFEAT THE TITLE OF THE PAYEE TO THE CHECKS" WITHOUT, HOWEVER,
CITING ANY SPECIFIC EVIDENCE WHICH WOULD PROVE THE EXISTENCE OF SUCH KNOWLEDGE. (C) WHETHER OR NOT THE
HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE TRIAL COURT’S ORDER FOR PETITIONER HEREIN "TO PAY (TO
CHIOK) THE VALUE OF CASHIER’S CHECK NO. 003380 IN THE AMOUNT OF ₱7,613,000.00, WHICH WAS DEBITED AGAINST CHIOK’S
SAVINGS ACCOUNT # 154-42504955 ON THE OBSERVATION THAT THE PAYMENT TO FEBTC BY METROBANK OF CC NO.
003380ON JULY 12, 1995 WAS AN OPEN DEFIANCE OF THE TRO OF JULY 6, 1995."26

BPI, on the other hand, presented the following issues:

I.

Whether or not the Court of Appeals detracted from well-settled concepts and principles in commercial law regarding the nature, causes, and effects of a
manager’s check and cashier’s checkin ruling that [the] power of the court can be invoked by the purchaser [Chiok] in a proper action, which the Court
su[b]stantially construed as a rescissory action or the power to rescind obligations under Article 1191 of the Civil Code.

II.

Whether or not the Honorable Court of Appeals erred in ruling that where a purchaser invokes rescission due to an alleged breach of the payee’s
contractual obligation, it is deemed as "peculiar circumstance" which justifies a stop payment order issued by the purchaser or a temporary restraining
order/injunction from a Court to prevent payment of a Manager’s Check or a Cashier’s Check.

III.

Whether or not the Honorable Court of Appeals erred in ruling that judicial admissions in the pleadings of Nuguid, BPI, Asian Bank, Metrobank and even
Chiok himself that Nuguid had withdrawn the proceeds of the checks will not defeat Chiok’s "substantial right" to restrain the drawee bank from paying
BPI, the collecting bank or presenting bank in this case who paid the value of the Cashier’s/Manager’s Checks to the payee.27

Finally, Global Bank rely upon the following grounds in its petition with this Court:

A.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER GLOBAL BANK HAD NO JUSTIFICATION FOR ITS RIGHT OF
RECOURSE AGAINST RESPONDENT CHIOK NOTWITHSTANDING THE CLEAR AND UNMISTAKABLE PROVISIONS OF THE BILLS PURCHASE
AGREEMENT.

B.

THE COURT OF APPEALS GRAVELY ERRED IN MAKING PETITIONER GLOBAL BANK LIABLE FOR INTEREST OF 4% PER ANNUM DESPITE
THE FACT THAT:

1. RESPONDENT DID NOT ASK FOR SUCH RELIEF IN HIS COMPLAINT;

2. RESPONDENT HAD WAIVED HIS RIGHT TO ANY INTEREST; AND

3. THERE IS NO EVIDENCE ON RECORD AS THE BASIS FOR ANY INTEREST.28

Before delving into the merits of these cases, we shall first dispose of a procedural development during their pendency with the Court.

Joint Manifestation and Motion allegedly

filed by Metrobank, Global Bank and
respondent Chiok

On May 28, 2013, this Court received a Joint Manifestation and Motion allegedly filed by petitioners Metrobank, Global Bank, and respondent Chiok,
which reads:

PETITIONERS METROPOLITAN BANK & TRUST COMPANY & GLOBAL BUSINESS BANK, INC., and RESPONDENT WILFRED N. CHIOK, by their
respective counsels, unto this Honorable Court, respectfully state that after a thorough consideration, the parties herein have decided to forego their
respective claims against each other, including, past, present and/or contingent, in relation to the above referenced cases.

PRAYER
WHEREFORE, it is respectfully prayed that no further action be taken by this Honorable Court on the foregoing petitions, that the instant proceedings be
declared CLOSED and TERMINATED, and that an Order be rendered dismissing the above-referenced cases with prejudice.

In the above Joint Manifestation and Motion, respondent Chiok was not represented by his counsel of record, Cruz Durian Alday and Cruz-Matters, but
was assisted by Espiritu Vitales Espiritu Law Office, with Atty. Cesar D. Vitales as signatory, by way of special appearance and assistance.

On June 19, 2013, this Court issued a Resolution requiring petitioner BPI to comment on the Joint Manifestation and Motion filed by its copetitioners
Metrobank, Global Bank, and respondent Chiok. The Resolution reads:

Considering the joint manifestation and motion of petitioners Metropolitan Bank and Trust Company and Global Business Bank, Inc., and respondent,
that after a thorough consideration, they have decided to forego their respective claims against each other, including past, present and/or contingent, in
these cases and praying that the instant proceedings in G.R. Nos. 172652 and 175394 be declared closed and terminated, the Court resolves to require
petitioner Bank of the Philippine Islands to COMMENT thereon within ten (10) days from notice thereof x x x.

On September 12, 2013, respondent Chiok, this time assisted by his counsel of record, Cruz Durian Alday & Cruz-Matters, filed a Motion for
Reconsideration of our Resolution dated June 19, 2013. The signatory to the Motion for Reconsideration, Atty. Angel Cruz, grossly misread our
Resolution requiring BPI to comment on the Joint Manifestation and Motion, and apparently contemplated that we are already granting said Motion. Atty.
Cruz objected to the Joint Manifestation and Motion, labeling the same as tainted with fraud. According to Atty. Cruz, Espiritu Vitales and Espiritu’s
failure to give prior notice to him is in violation of Canon 8 of the Code of Professional Responsibility. Atty. Cruz prays that Metrobank and Global Bank
be ordered to submit a document of their settlement showing the amounts paid to Chiok, and for the June19, 2013 Resolution of this Court be
reconsidered and set aside.

On October 9, 2013, BPI filed its comment to the Joint Manifestation and Motion, opposing the samefor being an implied procedural shortcut to a
Compromise Agreement. It averred that while the courts encourage parties to amicably settle cases, such settlements are strictly scrutinized by the
courts for approval. BPI also pointed out that the Joint Manifestation and Motion was not supported by any required appropriate Board Resolution of
Metrobank and Global Bank granting the supposed signatories the authority to enter into a compromise. BPI prayed that the Joint Manifestation and
Motion of Metrobank, Global Bank, and Chiok be denied, and to render a full Decision on the merits reversing the Decision of the Court of Appeals.

On January 20, 2014, Global Bank filed a Comment to Atty. Cruz’s Motion for Reconsideration on behalf of Chiok, praying that said Motion be expunged
from the records for failure of Atty. Cruz to indicate the number and date of issue of his MCLE Certificate of Compliance or Certificate of Exemption for
the immediately preceding compliance period.

As far as this Court is concerned, the counsel of record of respondent Chiok is still Cruz Durian Alday & Cruz-Matters. The requisites of a proper
substitution of counsel of record are stated and settled in jurisprudence:

No substitution of counsel of record is allowed unless the following essential requisites of a valid substitution of counsel concur: (1) there must be a
written request for substitution; (2) it must be filed with the written consent of the client; (3) it must be with the written consent of the attorney to be
substituted; and (4) in case the consent of the attorney to be substituted cannot be obtained, there must be at least a proof of notice that the motion for
substitution was served on him in the manner prescribed by the Rules of Court. 29 (Citation omitted.)

Therefore, while we should indeed require Atty. Cruz to indicate the number and date of issue of his MCLE Certificate of Compliance or Certificate of
Exemption for the immediately preceding compliance period, he is justified in pointing out the violation of Canon 830 of the Code of Professional
Responsibility, Rule 8.02 of which provides:

Rule 8.02. – A lawyer shall not, directly or indirectly, encroach upon the professional employment of another lawyer; however, it is the right of any
lawyer, without fear or favor, to give proper advice and assistance to those seeking relief against unfaithful or neglectful counsel.

We should also give weight to the opposition of BPI to the supposed compromise agreement. As stated above, the consolidated petitions filed by
Metrobank, BPI, and Global Bank all assail the Decision of the Court of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution on the
same case dated November 6, 2006. BPI itself has a claim against Global Bank, which appear to be intimately related to issues brought forth in the other
consolidated petitions.

Furthermore, the failure of the parties to the Joint Manifestation and Motion to declare with particularity the terms of their agreement prevents us from
approving the same so as to allow it to attain the effect of res judicata. A judicial compromise is not a mere contract between the parties. Thus, we have
held that:

A compromise agreement intended to resolve a matter already under litigation is a judicial compromise. Having judicial mandate and entered as its
determination of the controversy, such judicial compromise has the force and effect of a judgment. It transcends its identity as a mere contract between
the parties, as it becomes a judgment that is subject to execution in accordance with the Rules of Court. Thus, a compromise agreement that has been
made and duly approved by the court attains the effect and authority of res judicata, although no execution may be issued unless the agreement
receives the approval of the court where the litigation is pending and compliance with the terms of the agreement is decreed. 31 (Citation omitted.)

We are therefore constrained to deny the Joint Manifestation and Motion filed with this Court on May 28, 2013 and to hereby decide the consolidated
petitions on their merits.

The Court’s ruling on the merits of these

consolidated petitions

Whether or not payment of manager’s

and cashier’s checks are subject to the
condition that the payee thereof should
comply with his obligations to the
purchaser of the checks

The legal effects of a manager’s check and a cashier’s check are the same. A manager’s check, like a cashier’s check, is an order of the bank to pay,
drawn upon itself, committing in effect its total resources, integrity, and honor behind its issuance. By its peculiar character and general use in
commerce, a manager’s check or a cashier’s check is regarded substantially to be as good as the money it represents. 32 Thus, the succeeding
discussions and jurisprudence on manager’s checks, unless stated otherwise, are applicable to cashier’s checks, and vice versa. The RTC effectively
ruled that payment of manager’s and cashier’s checks are subject to the condition that the payee thereof complies with his obligations to the purchaser
of the checks:

The dedication of such checks pursuant to specific reciprocal undertakings between their purchasers and payees authorizes rescission by the former to
prevent substantial and material damage to themselves, which authority includes stopping the payment of the checks.

Moreover, it seems to be fallacious to hold that the unconditional payment of manager’s and cashier’s checks is the rule. To begin with, both
manager’sand cashier’s checks are still subject to regular clearing under the regulations of the Bangko Sentral ng Pilipinas, a fact borne out by the BSP
manual for banks and intermediaries, which provides, among others, in its Section 1603.1, c, as follows:

xxxx

c. Items for clearing. All checks and documents payable on demand and drawn against a bank/branch, institution or entity allowed to clear may be
exchanged through the Clearing Office inManila and the Regional Clearing Units in regional clearing centers designated by the Central Bank x x x.33

The RTC added that since manager’s and cashier’s checks are the subject of regular clearing, they may consequently be refused for cause by the
drawee, which refusal is in fact provided for in Section 20 of the Rule Book of the PCHC:

Sec. 20 – REGULAR RETURN ITEM PROCEDURE

20.1 Any check/item sent for clearing through the PCHC on which payment should be refused by the Drawee Bank in accordance with long standing and
accepted banking practices, such as but not limited to the fact that:

(a) it bears the forged or unauthorized signature of the drawer(s); or

(b) it is drawn against a closed account; or

(c) it is drawn against insufficient funds; or

(d) payment thereof has been stopped; or

(e) it is post-dated or stale-dated; and

(f) it is a cashier’s/manager’s/treasurer’s check of the drawee which has been materially altered;

shall be returned through the PCHC not later than the next regular clearing for local exchanges and the acceptance of said return by the Sending Bank
shall be mandatory.

It goes without saying that under the aforecited clearing rule[,] the enumeration of causes to return checks is not exclusive but may include other causes
which are consistent with long standing and accepted banking practices. The reason of plaintiffs can well constitute such a justifiable cause to enjoin
payment.34

The RTC made an error at this point. While indeed, it cannot be said that manager’s and cashier’s checks are pre-cleared, clearing should not be
confused with acceptance. Manager’s and cashier’s checks are still the subject of clearing to ensure that the same have not been materially altered or
otherwise completely counterfeited. However, manager’s and cashier’s checks are pre-accepted by the mere issuance thereof by the bank, which is both
its drawer and drawee. Thus, while manager’s and cashier’s checks are still subject to clearing, they cannot be countermanded for being drawn against
a closed account, for being drawn against insufficient funds, or for similar reasons such as a condition not appearing on the face of the check. Long
standing and accepted banking practicesdo not countenance the countermanding of manager’s and cashier’s checks on the basis of a mere allegation of
failure of the payee to comply with its obligations towards the purchaser. On the contrary, the accepted banking practice is that such checks are as good
as cash. Thus, in New Pacific Timber & Supply Company, Inc. v. Hon. Seneris,35 we held:

It is a well-known and accepted practice in the business sector that a Cashier's Check is deemed as cash. Moreover, since the said check had been
certified by the drawee bank, by the certification, the funds represented by the check are transferred from the credit of the maker to that of the payee or
holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation. Where a
check is certified by the bank on which it is drawn, the certification is equivalent to acceptance. Said certification "implies that the check is drawn upon
sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is
presented for payment. It is an understanding that the check is good then, and shall continue good, and this agreement is as binding on the bank as its
notes in circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it can assume. The object of certifying a check,
as regards both parties, is to enable the holder to use it as money." When the holder procures the check to be certified, "the check operates as an
assignment of a part of the funds to the creditors." Hence, the exception to the rule enunciated under Section 63 of the Central Bank Act to the effect
"that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount
equal to the amount credited to his account" shall apply in this case. x x x. (Emphases supplied, citations omitted.)

Even more telling is the Court’s pronouncement in Tan v. Court of Appeals, 36 which unequivocally settled the unconditional nature of the credit created
by the issuance of manager’s or cashier’s checks:

A cashier’s check is a primary obligation of the issuing bank and accepted in advanceby its mere issuance. By its very nature, a cashier’s check is the
bank’s order to pay drawn upon itself, committing in effect its total resources, integrity and honor behind the check. A cashier’s check by its peculiar
character and general use in the commercial world is regarded substantially to be as good asthe money which it represents. In this case, therefore, PCIB
by issuing the check created an unconditional creditin favor of any collecting bank. (Emphases supplied, citations omitted.)

Furthermore, under the principle of ejusdem generis, where a statute describes things of a particular class or kind accompanied by words of a generic
character, the generic word willusually be limited to things of a similar nature with those particularly enumerated, unless there be something in the
context of the statute which would repel such inference. 37 Thus, any long standing and accepted banking practice which can be considered as a valid
cause to return manager’s or cashier’s checks should be of a similar nature to the enumerated cause applicable to manager’s or cashier’s checks:
material alteration. As stated above, an example ofa similar cause is the presentation of a counterfeit check.

Whether or not the purchaser of

manager’s and cashier’s checks has the
right to have the checks cancelled by
filing an action for rescission of its
contract with the payee

The Court of Appeals affirmed the order of the RTC for Global Bank and Metrobank to pay Chiok for the amounts of the subject manager’s and cashier’s
checks. However, since it isclear to the appellate court that the payment of manager’s and cashier’s checks cannot be considered to be subject to the
condition the payee thereof complies with his obligations to the purchaser of the checks, the Court of Appeals provided another legal basis for such
liability – rescission under Article 1191 of the Civil Code:

WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC, Branch 96, Quezon City is AFFIRMED with the following
MODIFICATIONS:

1.) The contract to buy foreign currency in the amount of $1,022,288.50 between plaintiff-appellee Wilfred N. Chiok and defendant Gonzalo B. Nuguid is
hereby rescinded. Corollarily, Manager’s Check Nos. 025935 and 025939 and Cashier’s Check No. 003380 are ordered cancelled. 38

According to the Court of Appeals, while such rescission was not mentioned in Chiok’s Amended Complaint, the same was evident from his prayer to be
declared the legal owner of the proceeds of the subject checks and to be allowed to withdraw the same. Since rescission creates the obligation to return
the things which are the object of the contract, together with the fruits, the price and the interest, 39 injunctive relief was necessary to restrain the payment
of the subject checks with the end in view of the return of the proceeds to Chiok. 40

Thus, as it was construed by the Court of Appeals, the Amended Complaint of Chiok was in reality an action for rescission of the contract to buy foreign
currency between Chiok and Nuguid. The Court of Appeals then proceeded to cancel the manager’s and cashier’s checks as a consequence of the
granting of the action for rescission, explaining that "the subject checks would not have been issued were it not for the contract between Chiok and
Nuguid. Therefore, they cannot be disassociated from the contract and given a distinct and exclusive signification, as the purchase thereof is part and
parcel of the series of transactions necessary to consummate the contract." 41

We disagree with the above ruling.

The right to rescind invoked by the Court of Appeals is provided by Article 1191 of the Civil Code, which reads:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law.

The cause of action supplied by the above article, however, is clearly predicated upon the reciprocity of the obligations of the injured party and the guilty
party. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned
upon the simultaneous fulfillment of the other.42 When Nuguid failed to deliver the agreed amount to Chiok, the latter had a cause of action against
Nuguid to ask for the rescission of their contract. On the other hand, Chiok did not have a cause of action against Metrobank and Global Bank that would
allow him to rescind the contracts of sale of the manager’s or cashier’s checks, which would have resulted in the crediting of the amounts thereof back to
his accounts.

Otherwise stated, the right of rescission43 under Article 1191 of the Civil Code can only be exercised in accordance with the principle of relativity of
contracts under Article 1131 of the same code, which provides:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by provision of law. x x x.

In several cases, this Court has ruled that under the civil law principle of relativity of contracts under Article 1131, contracts can only bind the parties who
entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof.44 Metrobank
and Global Bank are not parties to the contract to buy foreign currency between Chiok and Nuguid. Therefore, they are not bound by such contract and
cannot be prejudiced by the failure of Nuguid to comply with the terms thereof.

Neither could Chiok be validly granted a writ of injunction against Metrobank and Global Bank to enjoin said banks from honoring the subject manager’s
and cashier’s checks. It is elementary that "(a)n injunction should never issue when an action for damages would adequately compensate the injuries
caused. The very foundation of the jurisdiction to issue the writ of injunction rests in the fact that the damages caused are irreparable and that damages
would not adequately compensate."45 Chiok could have and should have proceeded directly against Nuguid to claim damages for breach of contract and
to have the very account where he deposited the subject checks garnished under Section 7(d)46 and Section 8,47 Rule 57 of the Rules of Court. Instead,
Chiok filed an action to enjoin Metrobank and Global Bank from complying with their primary obligation under checks in which they are liable as both
drawer and drawee.

It is undisputed that Chiok personally deposited the subject manager’s and cashier’s checks to Nuguid’s account.1âwphi1 If the intention of Chiok was
for Nuguid to be allowed to withdraw the proceeds of the checks after clearing, he could have easily deposited personal checks, instead of going through
the trouble of purchasing manager’s and cashier’s checks. Chiok therefore knew, and actually intended, that Nuguid will be allowed to immediately
withdraw the proceeds of the subject checks. The deposit of the checks which were practically as good as cash was willingly and voluntarily made by
Chiok, without any assurance that Nuguid will comply with his end of the bargain on the same day. The explanation for such apparently reckless action
was admitted by Chiok in the Amended Complaint itself:

That plaintiff [Chiok] due to the numberof years (five to seven years) of business transactions with defendant [Nuguid] has reposed utmost trust and
confidence on the latterthat their transactions as of June 1995 reaches millions of pesos. x x x. 48 (Emphases supplied.)

As between two innocent persons, one of whom must suffer the consequences of a breach of trust, the one who made it possible by his act of
confidence must bear the loss.49 Evidently, it was the utmost trust and confidence reposed by Chiok to Nuguid that caused this entire debacle, dragging
three banks into the controversy, and having their resources threatened because of an alleged default in a contract they were not privy to.

Whether or not the peculiar

circumstances of this case justify the
deviation from the general principles on
causes and effects of manager’s and
cashier’s checks

The Court of Appeals, while admitting that the general principles on the causes and effects of manager’s and cashier’s checks do not allow the
countermanding of such checks on the basis of an alleged failure of consideration of the payee to the purchaser, nevertheless held that the peculiar
circumstances of this case justify a deviation from said general principles, applying the aforementioned case of Mesina. The Court of Appeals held:

At the core of the appeal interposed by the intervenor BPI, as well as the depository banks, Global Bank and Metrobank, is the issue of whether or not it
is legally possible for a purchaser of a Manager’s Check or Cashier’s Check to stop payment thereon through a court order on the ground of the payee’s
alleged breach of contractual obligation amounting to an absence of consideration therefor.

In view of the peculiar circumstances of this case, and in the interest of substantial justice, We are constrained to rule in the affirmative.

xxxx

In the case of Mesina v. Intermediate Appellate Court, cited by BPI in its appeal brief, the Supreme Court had the occasion to rule that general principles
on causes and effects of a cashier’s check, i.e., that it cannot be countermanded in the hands of a holder in due course and that it is a bill of exchange
drawn by the bank against itself, cannot be applied without considering that the bank was aware of facts (in this case, the cashier’s check was stolen)
that would not entitle the payee thereof to collect on the check and, consequently, the bank has the right to refuse payment when the check is presented
by the payee.

While the factual milieu of the Mesinacase is different from the case at bench, the inference drawn therein by the High Court is nevertheless applicable.
The refusal of Nuguid to deliver the dollar equivalent of the three checks in the amount of $1,022,288.50 in the afternoon of July 5, 1995 amounted to a
failure of consideration that would not entitle Nuguid to collect on the subject checks.

xxxx

Let it be emphasized that in resolving the matter before Us, We do not detract from well-settled concepts and principles in commercial law regarding the
nature, causes and effects of a manager’s check and cashier’s check. Such checks are primary obligations of the issuing bank and accepted in advance
by the mere issuance thereof. They are a bank’s order to pay drawn upon itself, committing in effect its total resources, integrity, and honor. By their
peculiar character and general use in the commercial world, they are regarded substantially as good as the money they represent. However, in view of
the peculiar circumstances of the case at bench, We are constrained to set aside the foregoing concepts and principles in favor of the exercise of the
right to rescind a contract upon the failure of consideration thereof. 50 (Emphases ours, citations omitted.)

In deviating from general banking principles and disposing the case on the basis of equity, the courts a quo should have at least ensured that their
dispositions were indeed equitable. This Court observes that equity was not served in the dispositions below wherein Nuguid, the very person found to
have violated his contract by not delivering his dollar obligation, was absolved from his liability, leaving the banks who are not parties to the contract to
suffer the losses of millions of pesos.

The Court of Appeals’ reliance in the 1986 case of Mesina was likewise inappropriate. In Mesina, respondent Jose Go purchased from Associated Bank
a cashier’s check for ₱800,000.00, payable to bearer. 51 Jose Go inadvertently left the check on the top desk of the bank manager

when he left the bank. The bank manager entrusted the check for safekeeping to a certain bank official named Albert Uy, who then had a certain
Alexander Lim as visitor. Uy left his deskto answer a phone call and to go to the men’s room. When Uy returned to his desk, Lim was gone. Jose Go
inquired for his check from Uy, but the check was nowhereto be found. At the advice of Uy, Jose Go accomplished a Stop Payment Order and executed
an affidavit of loss. Uy reported the loss to the police. Petitioner Marcelo Mesina tried to encash the check with Prudential Bank, but the check was
dishonored by Associated Bank by sending it back to Prudential Bank with the words "Payment Stopped" stamped on it. When the police asked Mesina
how he came to possess the check, he said it was paid to him by Alexander Lim in a "certain transaction"but refused to elucidate further. Associated
Bank filed an action for Interpleader against Jose Go and Mesina to determine which of them is entitled to the proceeds of the check. It was in the
appeal on said interpleader case that this Court allowed the deviation from the general principles on cashier’s checks on account of the bank’s
awareness of certain facts that would prevent the payee to collect on the check.

There is no arguing that the peculiar circumstances in Mesina indeed called for such deviation on account of the drawee bank’s awareness of certain
relevant facts. There is, however, no comparable peculiar circumstance in the case at bar that would justify applying the Mesina disposition. In Mesina,
the cashier’s check was stolen while it was in the possession of the drawee bank. In the case at bar, the manager’s and cashier’s checks were
personally deposited by Chiok in the account of Nuguid. The only knowledge that can be attributed to the drawee banks is whatever was relayed by
Chiok himself when he asked for a Stop Payment Order. Chiok testified on this matter, to wit:

Q: Now, Mr. witness, since according to you the defendant failed to deliver [this] amount of ₱1,023,288.23 what action have you undertaken to
protect yourinterest Mr. witness?

A: I immediately call my lawyer, Atty. Espiritu to seek his legal advise in this matter.
 Q: Prior to that matter that you soughtthe advise of your lawyer, Atty. Espiritu insofar as the issuing bank is concerned, namely, Asian Bank,
what did you do in order to protect your interest? A: I immediately call the bank asking them if what is the procedure for stop payment and the
bank told me that you have to secure a court order as soon as possible before the clearing of these checks. 52 (Emphasis supplied.)

Asian Bank, which is now Global Bank, obeyed the TRO and denied the clearing of the manager’s checks. As such, Global Bank may not be held liable
on account of the knowledge of whatever else Chiok told them when he asked for the procedure to secure a Stop Payment Order. On the other hand,
there was no mention that Metrobank was ever notified of the alleged failure of consideration. Only Asian Bank was notified of such fact. Furthermore,
the mere allegation of breach on the part of the payee of his personal contract with the purchaser should not be considered a sufficient cause to
immediately nullify such checks, thereby eroding their integrity and honor as being as good as cash.

In view of all the foregoing, we resolve that Chiok’s complaint should be denied insofar as it prayed for the withdrawal of the proceeds of the subject
manager’s and cashier’s checks. Accordingly, the writ of preliminary prohibitory injunction enjoining Metrobank and Global Bank from honoring the
subject manager’s and cashier’s checks should be lifted.

Since we have ruled that Chiok cannot claim the amounts of the checks from Metrobank and Global Bank, the issue concerning the setting off of Global
Bank’s judgment debt to Chiok with the outstanding obligations of Chiok is hereby mooted. We furthermore note that Global Bank had not
presented53 such issue as a counterclaim in the case at bar, preventing us from ruling on the same.

BPI’s right to the proceeds of the

manager’s checks from Global Bank

While our ruling in Mesinais inapplicable to the case at bar, a much more relevant case as regards the effect of a Stop Payment Order upon a manager’s
check would be Security Bank and Trust Company v. Rizal Commercial Banking Corporation, 54 which was decided by this Court in 2009. In said case,
SBTC issued a manager’s check for ₱8 million, payable to "CASH," as proceeds of the loan granted to Guidon Construction and Development
Corporation (GCDC). On the same day, the manager’s check was deposited by Continental Manufacturing Corporation (CMC) in its current account with
Rizal Commercial Banking Corporation (RCBC). RCBC immediately honored the manager’s check and allowed CMC to withdraw the same. GCDC
issued a Stop Payment Order to SBTC on the next day, claiming that the check was released to a third party by mistake. SBTC dishonored and returned
the manager’s check to RCBC. The check was returned back and forth between the two banks, resulting in automatic debits and credits in each bank’s
clearing balance. RCBC filed a complaint for damages against SBTC. When the case reached this Court, we held:

At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check but a manager’s check. A manager’s check is one
drawn by a bank’s manager upon the bank itself. It stands on the same footing as a certified check, which is deemed to have been accepted by the bank
that certified it. As the bank’s own check, a manager’s check becomes the primary obligation of the bank and is accepted in advance by the act of its
issuance.

In this case, RCBC, in immediately crediting the amount of ₱8 million to CMC’s account, relied on the integrity and honor of the check as it is regarded in
commercial transactions. Where the questioned check, which was payable to"Cash," appeared regular on its face, and the bank found nothing unusual
in the transaction, as the drawer usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying the value of the
questioned check.

In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting drawings
against uncollected deposits. For we must point out that the Central Bank at that timeissued a Memorandum dated July 9, 1980, which interpreted said
Monetary Board Resolution No. 2202. In its pertinent portion, saidMemorandum reads:

MEMORANDUM TO ALL BANKS

July 9, 1980

For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31, 1979 prohibiting, as a matter of policy, drawing against
uncollected deposit effective July 1, 1980, uncollected deposits representing manager’s/cashier’s/treasurer’schecks, treasury warrants, postal money
orders and duly funded "on us" checks which may be permitted at the discretion of each bank, covers drawings against demand deposits as well as
withdrawals from savings deposits.

Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow immediate drawings on uncollected deposits of
manager’s checks, among others. Consequently, RCBC, in allowing the immediate withdrawal against the subject manager’s check, only exercised a
prerogative expressly granted to it bythe Monetary Board.

Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters the extraordinary nature of the manager’s check and
the relativerights of the parties thereto. SBTC’s liability as drawer remains the same— by drawing the instrument, it admits the existence of the payee
and his then capacity to indorse; and engages that on due presentment, the instrument will be accepted, or paid, or both, according to its
tenor.55(Emphases supplied, citations omitted.)

As in SBTC, BPI in the case at bar relied on the integrity and honor of the manager’s and cashier’s checks asthey are regarded in commercial
transactions when it immediately credited their amounts to Nuguid’s account.

The Court of Appeals, however, sustained the dismissal of BPI’s complaint-in-intervention to recover the amounts of the manager’s checks from Global
Bank on account of BPI’s failure to prove the supposed withdrawal by Nuguid of the value of the checks:

BPI’s cause of action against Asian Bank (now Global Bank) is derived from the supposed withdrawal by Nuguid of the proceeds of the two Manager’s
Checks it issued and the refusal of Asian Bank to make good the same. That the admissions in the pleadings to the effect that Nuguid had withdrawn the
said proceeds failed to satisfy the trial court is understandable. Such withdrawal is anessential fact that, if properly substantiated, would have defeated
Chiok’s right toan injunction. BPI could so easily have presented withdrawal slips or, with Nuguid’s consent, statements of account orthe passbook itself,
which would indubitably show that money actually changed hands at the crucial period before the issuance of the TRO. But it did not.56

We disagree with this ruling. As provided for in Section 4, Rule 129 of the Rules of Court, admissions in pleadings are judicial admissions and do not
require proof:
Section 4. Judicial admissions. – An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require
proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.

Nuguid has admitted that FEBTC (now BPI) has paid him the value of the subject checks. 57 This statement by Nuguid is certainly against his own
interest as he can be held liable for said amounts. Unfortunately, Nuguid allowed his appeal with the Court of Appeals to lapse, without taking steps to
have it reinstated. This course of action, which is highly unlikely if Nuguid had not withdrawn the value of the manager’s and cashier’s checks deposited
into his account, likewise prevents us from ordering Nuguid to deliver the amounts of the checks to Chiok. Parties who did not appeal will not be affected
by the decision of an appellate court rendered to appealing parties. 58

Another reason given by the Court of Appeals for sustaining the dismissal of BPI’s complaint-in-intervention was that BPI failed to prove that it was a
holder in due course with respect to the manager’s checks. 59

We agree with the finding of the Court of Appeals that BPI is not a holder in due course with respect to manager’s checks. Said checks were never
indorsed by Nuguid to FEBTC, the predecessor-in-interest of BPI, for the reason that they were deposited by Chiok directly to Nuguid’s account with
FEBTC. However, inview of our ruling that Nuguid has withdrawn the value of the checks from his account, BPI has the rights of an equitable assignee
for value under Section 49 of the Negotiable Instruments Law, which provides:

Section 49. Transfer without indorsement; effect of. – Where the holder of an instrument payable to his order transfers it for value without indorsing it, the
transfer vests in the transferee suchtitle as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the
transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the
indorsement is actually made.

As an equitable assignee, BPI acquires the instrument subject to defenses and equities available among prior parties 60 and, in addition, the right to have
the indorsement of Nuguid. Since the checks in question are manager’s checks, the drawer and the drawee thereof are both Global Bank. Respondent
Chiok cannot be considered a prior party as he is not the check’s drawer, drawee, indorser, payee or indorsee. Global Bank is consequently primarily
liable upon the instrument, and cannot hide behind respondent Chiok’s defenses. As discussed above, manager’s checks are pre-accepted. By issuing
the manager’s check, therefore, Global Bank committed in effect its total resources, integrity and honor towards its payment.61

Resultantly, Global Bank should pay BPI the amount of ₱18,455,350.00, representing the aggregate face value ofMC No. 025935 and MC No. 025939.
Since Global Bank was merely following the TRO and preliminary injunction issued by the RTC, it cannot be held liable for legal interest during the time
said amounts are in its possession. Instead, we are adopting the formulation of the Court of Appeals that the amounts be treated as savings deposits in
Global Bank. The interest rate, however, should not be fixed at 4% as determined by the Court of Appeals, since said rates have fluctuated since July 7,
1995, the date Global Bank refused to honor the subject manager’s checks. Thus, Global Bank should pay BPI interest based on the rates it actually
paid its depositors from July 7, 1995 until the finality of this Decision, in accordance with the same compounding rules it applies to its depositors. The
legal rate of6% per annum shall apply after the finality of this Decision. 62

We have to stress that respondent Chiok is not left without recourse. Respondent Chiok’s cause of action to recover the value of the checks is against
Nuguid. Unfortunately, Nuguid allowed his appeal with the Court of Appeals to lapse, without taking steps tohave it reinstated. As stated above, parties
who did not appeal will not be affected by the decision of the appellate court rendered to appealing parties. 63 Moreover, since Nuguid was not impleaded
as a party to the present consolidated cases, he cannot be bound by our judgment herein. Respondent Chiok should therefore pursue his remedy
against Nuguid in a separate action to recover the amounts of the checks.

Despite the reversal of the Court of Appeals Decision, the liability of Nuguid therein to respondent Chiok for attorney’s fees equivalent to 5% of the total
amount due remains valid, computed from the amounts stated in said Decision. This is a consequence of the finality of the Decision of the Court of
Appeals with respect to him.

WHEREFORE, the Court resolves to DENY the Joint Manifestation and Motion filed with this Court on May 28, 2013.

The petitions in G.R. No. 172652 and G.R. No. 175302 are GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 77508 dated May 5,
2006, and the Resolution on the same case dated November 6, 2006 are hereby REVERSED AND SET ASIDE, and a new one is issued ordering the
DENIAL of the Amended Complaint in Civil Case No. Q-95-24299 in Branch 96 of the Regional Trial Court of Quezon City for lack of merit. The Writ of
Preliminary Prohibitory Injunction enjoining Asian Banking Corporation (now Global Business Bank, Inc.) from honoring MC No. 025935 and MC No.
025939, and Metropolitan Bank & Trust Company from honoring CC No. 003380, is hereby LIFTED and SET ASIDE.

Global Business Bank, Inc. is ORDERED TO PAY the Bank of the Philippine Islands, as successor-in-interest of Far East Bank & Trust Company, the
amount of ₱18,455,350.00, representing the aggregate face value of MC No. 025935 and MC No. 025939, with interest based on the rates it actually
paid its depositors from July 7, 1995 until the finality of this Decision, in accordance with the same compounding rules it applies to its depositors.

The petition in G.R. No. 175394 is hereby rendered MOOT.

The liabilities of spouses Gonzalo B. Nuguid and Marinella O. Nuguid under the Decision and Resolution of the Court of Appeals in CAG.R. CV No.
77508 remain VALID and SUBSISTING, computed from the amounts adjudged by the Court of Appeals, without prejudice to any further action that may
be filed by Wilfred N. Chiok.

SO ORDERED.
G.R. No. 129015 August 13, 2004

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner,

vs.
FAR EAST BANK AND TRUST COMPANY AND COURT OF APPEALS, respondents.

DECISION

TINGA, J.:

Called to fore in the present petition is a classic textbook question – if a bank pays out on a forged check, is it liable to reimburse the drawer from whose
account the funds were paid out? The Court of Appeals, in reversing a trial court decision adverse to the bank, invoked tenuous reasoning to acquit the
bank of liability. We reverse, applying time-honored principles of law.

The salient facts follow.

Plaintiff Samsung Construction Company Philippines, Inc. ("Samsung Construction"), while based in Biñan, Laguna, maintained a current account with
defendant Far East Bank and Trust Company1 ("FEBTC") at the latter’s Bel-Air, Makati branch.2 The sole signatory to Samsung Construction’s account
was Jong Kyu Lee ("Jong"), its Project Manager, 3 while the checks remained in the custody of the company’s accountant, Kyu Yong Lee ("Kyu"). 4

On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the bank’s branch in Bel-Air, Makati. The check,
payable to cash and drawn against Samsung Construction’s current account, was in the amount of Nine Hundred Ninety Nine Thousand Five Hundred
Pesos (P999,500.00). The bank teller, Cleofe Justiani, first checked the balance of Samsung Construction’s account. After ascertaining there were
enough funds to cover the check,5 she compared the signature appearing on the check with the specimen signature of Jong as contained in the
specimen signature card with the bank. After comparing the two signatures, Justiani was satisfied as to the authenticity of the signature appearing on the
check. She then asked Gonzaga to submit proof of his identity, and the latter presented three (3) identification cards. 6

At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier Gemma Velez, as it was bank policy that two bank branch officers
approve checks exceeding One Hundred Thousand Pesos, for payment or encashment. Velez likewise counterchecked the signature on the check as
against that on the signature card. He too concluded that the check was indeed signed by Jong. Velez then forwarded the check and signature card to
Shirley Syfu, another bank officer, for approval. Syfu then noticed that Jose Sempio III ("Sempio"), the assistant accountant of Samsung Construction,
was also in the bank. Sempio was well-known to Syfu and the other bank officers, he being the assistant accountant of Samsung Construction. Syfu
showed the check to Sempio, who vouched for the genuineness of Jong’s signature. Confirming the identity of Gonzaga, Sempio said that the check
was for the purchase of equipment for Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu authorized the bank’s
encashment of the check to Gonzaga.

The following day, 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
Jong’s signature, Kyu perused the checkbook and found that the last blank check was missing. 7 He reported the matter to Jong, who then proceeded to
the bank. Jong learned of the encashment of the check, and realized that his signature had been forged. The Bank Manager reputedly told Jong that he
would be reimbursed for the amount of the check.8 Jong proceeded to the police station and consulted with his lawyers.9 Subsequently, 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 Complaint on 10 June 1992 for violation of Section 23 of the Negotiable Instruments Law, and prayed for the
payment of the amount debited as a result of the questioned check plus interest, and attorney’s 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 Jong’s signature was forged. Samsung Corporation,
which had referred the check for investigation to the NBI, presented Senior NBI Document Examiner Roda B. Flores. She testified that based on her
examination, she concluded that Jong’s signature had been forged on the check. On the other hand, FEBTC, which had sought the assistance of the
Philippine National Police (PNP),14 presented Rosario C. Perez, a document examiner from the PNP Crime Laboratory. She testified that her findings
showed that Jong’s signature on the check was genuine.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 Jong’s signature on the check was forged and accordingly directed the bank to pay or credit back to Samsung Construction’s 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
attorney’s fees in the amount of Fifteen Thousand Pesos (P15,000.00).

FEBTC timely appealed to the Court of Appeals. On 28 November 1996, the Special Fourteenth Division of the Court of Appeals rendered
a Decision,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 or fault 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 RTC’s finding of forgery. It
also contends that the appellate court erred in finding that it had been negligent in safekeeping the check, and in applying the equity principle enunciated
in PNB v. National City Bank of New York.

Since the trial court and the Court of Appeals arrived at contrary findings on questions of fact, the Court is obliged to examine the record to draw out the
correct conclusions. Upon examination of the record, and based on the applicable laws and jurisprudence, we reverse the Court of Appeals.

Section 23 of the Negotiable Instruments Law states:

When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired
through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority. (Emphasis supplied)

The general rule is to the effect that a forged signature is "wholly inoperative," and payment made "through or under such signature" is ineffectual or
does not discharge the instrument.21 If payment is made, the drawee cannot charge it to the drawer’s account. The traditional justification for the result is
that the drawee is in a superior position to detect a forgery because he has the maker’s 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 bank’s 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 depositor’s order. When the bank pays a check, on which the depositor’s signature is a forgery, it has failed to comply with its contract in
this respect. Therefore, the bank is held liable.

The fact that the forgery is a clever one is immaterial. The forged signature may so closely resemble the genuine as to defy detection by the
depositor himself. And yet, if a bank pays the check, it is paying out its own money and not the depositor’s.

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 depositor’s 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 plaintiff’s credit
and which the bank had paid out on checks bearing forgeries of the plaintiff’s signature.

xxx

It was held that the bank was liable. It was further held that the fact that the plaintiff waited eight or nine months after discovering the forgery,
before notifying the bank, did not, as a matter of law, constitute a ratification of the payment, so as to preclude the plaintiff from holding the
bank liable. xxx

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

By no means is the principle rendered obsolete with the advent of modern commercial transactions. Contemporary texts still affirm this well-entrenched
standard. Nickles, in his book Negotiable Instruments and Other Related Commercial Paper wrote, thus:

The deposit contract between a payor bank and its customer determines who can draw against the customer’s account by specifying whose
signature is necessary on checks that are chargeable against the customer’s account. Therefore, a check drawn against the account of an
individual customer that is signed by someone other than the customer, and without authority from her, is not properly payable and is not
chargeable to the customer’s 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
Jong’s 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 the depositor 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 of Tenio-Obsequio v. Court of Appeals, 230
SCRA 550, the Supreme Court held that forgery cannot be presumed; it must be proved by clear, positive and convincing evidence.

This reasoning is pure sophistry. Any litigator worth his or her salt would never allow an opponent’s expert witness to stand uncontradicted, thus the
spectacle of competing expert witnesses is not unusual. The trier of fact will have to decide which version to believe, and explain why or why not such
version is more credible than the other. Reliance therefore cannot be placed merely on the fact that there are colliding opinions of two experts, both
clothed with the presumption of official duty, in order to draw a conclusion, especially one which is extremely crucial. Doing so is tantamount to a
jurisprudential cop-out.

Much is expected from the Court of Appeals as it occupies the penultimate tier in the judicial hierarchy. This Court has long deferred to the appellate
court as to its findings of fact in the understanding that it has the appropriate skill and competence to plough through the minutiae that scatters the
factual field. In failing to thoroughly evaluate the evidence before it, and relying instead on presumptions haphazardly drawn, the Court of Appeals was
sadly remiss. Of course, courts, like humans, are fallible, and not every error deserves a stern rebuke. Yet, the appellate court’s error in this case
warrants special attention, as it is absurd and even dangerous as a precedent. If this rationale were adopted as a governing standard by every court in
the land, barely any actionable claim would prosper, defeated as it would be by the mere invocation of the existence of a contrary "expert" opinion.

On the other hand, the RTC did adjudge the testimony of the NBI expert as more credible than that of the PNP, and explained its reason behind the
conclusion:

After subjecting the evidence of both parties to a crucible of analysis, the court arrived at the conclusion that the testimony of the NBI
document examiner is more credible because the testimony of the 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 are normal deviations found in writing.32 Yet the RTC, which had the opportunity to examine the relevant
documents and to personally observe the expert witness, clearly disbelieved the PNP expert. The Court similarly finds the testimony of the PNP expert
as unconvincing. During the trial, she was confronted several times with apparent differences between strokes in the questioned signature and the
genuine samples. Each time, she would just blandly assert that these differences were just "variations," 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 genuine signatures examined by the PNP is in the final upward stroke in the signature, or "the
point to the short stroke of the terminal in the capital letter ‘L,’" as referred to by the PNP examiner who had marked it in her comparison chart as "point
no. 6." To the plain eye, such upward final stroke consists of a vertical line which forms a ninety degree (90º) 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 seventh 36 forms a severe forty-five degree (45º)
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

There is no reason to doubt why the RTC gave credence to the testimony of the NBI examiner, and not the PNP expert’s. The NBI expert, Rhoda Flores,
clearly qualifies as an expert witness. A document examiner for fifteen years, she had been promoted to the rank of Senior Document Examiner with the
NBI, and had held that rank for twelve years prior to her testimony. 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. 40She 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 of fifteen to twenty documents a day. 42 In 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 examiner’s testimony, and explained her reasons in its Decisions. While the Court of Appeals disagreed
and upheld the findings of the PNP, it failed to convincingly demonstrate why such findings were more credible than those of the NBI expert. 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 Jong’s signature. The distinction is irrelevant in establishing forgery. Forgery can be
established comparing the contested signatures as against those of any sample signature duly established as that of the persons whose signature was
forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did compare the questioned signature against the bank signature cards. The crucial
fact in question is whether or not the check was forged, not whether the bank could have detected the forgery. The latter issue becomes
relevant only if there is need to weigh the comparative negligence between the bank and the party whose signature was forged.

At the same time, the Court of Appeals failed to assess the effect of Jong’s 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 signature on the check was his.
While his claim should not be taken at face value, any averments he would have on the matter, if adjudged as truthful, deserve primacy in consideration.
Jong’s 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 that Samsung Construction was negligent, and invoked the doctrines that "where a loss must be
borne by one of two innocent person, can be traced to the neglect or fault of either, it is reasonable that it would be borne by him, even if innocent of any
intentional fraud, through whose means it has 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 Kyu Lee. Sempio was assistant to the Korean accountant who was in
possession of the blank checks and who through negligence, enabled Sempio to have access to the same. Had the Korean accountant been
more careful and prudent in keeping the blank checks Sempio would not have had the chance to steal a page thereof and to effect the forgery.
Besides, Sempio was an employee who appears to have had dealings with the defendant Bank in behalf of the plaintiff corporation and on the
date the check was encashed, he was there to certify that it was a genuine check issued to purchase equipment for the company.51

We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty of negligence.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 how more 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 party’s
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 Court’s pronouncement in PCI Bank v. Court of Appeals53 applies in this case, to wit:

[T]he mere fact that the forgery was committed by a drawer-payor’s 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 Jong’s 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 Construction’s 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 standard procedures observed by the drawer, it well has the means of disputing the presumption of
regularity. Proving a negative fact may be "a difficult office,"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 of Appeals, 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 rule arises only
when negligence can be traced on the part of the drawer whose signature was forged, and the need arises to weigh the comparative negligence
between the drawer and the drawee to determine who should bear the burden of loss. The Court finds no basis to conclude that Samsung Construction
was negligent in the safekeeping of its checks. For one, the settled rule is that the mere fact that the depositor leaves his check book lying around does
not constitute such negligence as will free the bank from liability to him, where a clerk of the depositor or other persons, taking advantage of the
opportunity, abstract some of the check blanks, forges the depositor’s 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 York were 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 drawer’s 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 drawer’s 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 drawer’s 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 bank’s
performance of its duty. It might be so that the bank complied with its own internal rules prior to paying out on the questionable check. Yet, there are
several troubling circumstances that lead us to believe that the bank itself was remiss in its duty.

The fact that the check was made out in the amount of nearly one million pesos is unusual enough to require a higher degree of caution on the part of
the bank. Indeed, FEBTC confirms this through its own internal procedures. Checks below twenty-five thousand pesos require only the approval of the
teller; those between twenty-five thousand to one hundred thousand pesos necessitate the approval of one bank officer; and should the amount exceed
one hundred thousand pesos, the concurrence of two bank officers is required. 67

In this case, not only did the amount in the check nearly total one million pesos, it was also payable to cash. That latter circumstance should have
aroused the suspicion of the bank, as it is not ordinary business practice for a check for such large amount to be made payable to cash or to bearer,
instead of to the order of a specified person.68Moreover, 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 Gonzaga’s presentment of the check, it was not sufficient for FEBTC to
have merely complied with its internal procedures, but mandatory that all earnest efforts be undertaken to ensure the validity of the check, and of the
authority of Gonzaga to collect payment therefor.

According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, 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
even claimed that everytime FEBTC would contact Jong about problems with his account, Jong would hand the phone over to Sempio. 72 However, the
only proof of such allegations is the testimony of Gemma Velez, who also testified that she did not know Sempio personally, 73 and had met Sempio for
the first time only on the day the check was encashed. 74 In fact, Velez had to inquire with the other officers of the bank as to whether Sempio was
actually known to the employees of the bank.75 Obviously, Velez had no personal knowledge as to the past relationship between FEBTC and Sempio,
and any averments of her to that effect should be deemed hearsay evidence. Interestingly, FEBTC did not present as a witness any other employee of
their Bel-Air branch, including those who supposedly had transacted with Sempio before.

Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf of Samsung Construction, the irregular circumstances
attending the presentment of the forged check should have put the bank on the highest degree of alert. The Court recently emphasized that the highest
degree of care and diligence is required of banks.

Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who
transact business with them. They have the obligation to treat their client’s account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.76

Given the circumstances, extraordinary diligence dictates that FEBTC should have ascertained from Jong personally that the signature in the
questionable check was his.

Still, even if the bank performed with utmost diligence, the drawer whose signature was forged may still recover from the bank as long as he or she is not
precluded from setting up the defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly states that no right to enforce the
payment of a check can arise out of a forged signature. Since the drawer, Samsung Construction, is not precluded by negligence from setting up the
forgery, the general rule should apply. Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge
the amount so paid to the account of the depositor.77 A bank is liable, irrespective of its good faith, in paying a forged check. 78

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

SO ORDERED.
G.R. No. 112392 February 29, 2000

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial
Court of Makati, Branch 139,2 which dismissed the complaint filed by petitioner Bank of the Philippine Islands against private respondent Benjamin C.
Napiza for sum of money.

On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-1873 which he maintained in
petitioner bank's Buendia Avenue Extension Branch, Continental Bank Manager's Check No. 000147574 dated August 17, 1984, payable to "cash" in the
amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent on its dorsal side. 5 It appears that the check
belonged to a certain Henry who went to the office of private respondent and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip,
with the understanding that as soon as the check is cleared, both of them would go to the bank to withdraw the amount of the check upon private
respondent's presentation to the bank of his passbook.

Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of
$2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal slip shows that the amount was payable to Ramon A. de Guzman and
Agnes C. de Guzman and was duly initialed by the branch assistant manager, Teresita Lindo. 6

On November 20, 1984, petitioner received communication from the Wells Fargo Bank International of New York that the said check deposited by
private respondent was a counterfeit check7 because it was "not of the type or style of checks issued by Continental Bank International." 8 Consequently,
Mr. Ariel Reyes, the manager of petitioner's Buendia Avenue Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is private
respondent's son, to inform his father that the check bounced. 9 Reyes himself sent a telegram to private respondent regarding the dishonor of the check.
In turn, private respondent's son wrote to Reyes stating that the check been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de
Guzman after it shall have been cleared upon instruction of Chan. He also said that upon learning of the dishonor of the check, his father immediately
tried to contact Chan but the latter was out of town.10

Private respondent's son undertook to return the amount of $2,500.00 to petitioner bank. On December 18, 1984, Reyes reminded private respondent of
his son's promise and warned that should he fail to return that amount within seven (7) days, the matter would be referred to the bank's lawyers for
appropriate action to protect the bank's interest. 11 This was followed by a letter of the bank's lawyer dated April 8, 1985 demanding the return of the
$2,500.00.12

In reply, private respondent wrote petitioner's counsel on April 20, 198513 stating that he deposited the check "for clearing purposes" only to
accommodate Chan. He added:

Further, please take notice that said check was deposited on September 3, 1984 and withdrawn on October 23, 1984, or a total period of fifty
(50) days had elapsed at the time of withdrawal. Also, it may not be amiss to mention here that I merely signed an authority to withdraw said
deposit subject to its clearing, the reason why the transaction is not reflected in the passbook of the account. Besides, I did not receive its
proceeds as may be gleaned from the withdrawal slip under the captioned signature of recipient.1âwphi1.nêt

If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic) still exerting utmost and maximum efforts to
collect from Mr. Henry Chan who is directly liable under the circumstances.

xxx xxx xxx

On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of the amount of $2,500.00 or the prevailing peso
equivalent plus legal interest from date of demand to date of full payment, a sum equivalent to 20% of the total amount due as attorney's fees, and
litigation and/or costs of suit.

Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the understanding that the amount deposited would be
withdrawn only after the check in question has been cleared. He likewise alleged that he instructed the party to whom he issued the signed blank
withdrawal slip to return it to him after the bank draft's clearance so that he could lend that party his passbook for the purpose of withdrawing the amount
of $2,500.00. However, without his knowledge, said party was able to withdraw the amount of $2,541.67 from his dollar savings account through
collusion with one of petitioner's employees. Private respondent added that he had "given the Plaintiff fifty one (51) days with which to clear the bank
draft in question." Petitioner should have disallowed the withdrawal because his passbook was not presented. He claimed that petitioner had no one to
blame except itself "for being grossly negligent;" in fact, it had allegedly admitted having paid the amount in the check "by mistake" . . . "if not altogether
due to collusion and/or bad faith on the part of (its) employees." Charging petitioner with "apparent ignorance of routine bank procedures," by way of
counterclaim, private respondent prayed for moral damages of P100,000.00, exemplary damages of P50,000.00 and attorney's fees of 30% of whatever
amount that would be awarded to him plus an honorarium of P500.00 per appearance in court.

Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged that "thru strategem and/or manipulation," Chan
was able to withdraw the amount of $2,500.00 even without private respondent's passbook. Thus, private respondent prayed that third party defendant
Chan be made to refund to him the amount withdrawn and to pay attorney's fees of P5,000.00 plus P300.00 honorarium per appearance.

Petitioner filed a comment on the motion for leave of court to admit the third party complaint, whenever it asserted that per paragraph 2 of the Rules and
Regulations governing BPI savings accounts, private respondent alone was liable "for the value of the credit given on account of the draft or check
deposited." It contended that private respondent was estopped from disclaiming liability because he himself authorized the withdrawal of the amount by
signing the withdrawal slip. Petitioner prayed for the denial of the said motion so as not to unduly delay the disposition of the main case asserting that
private respondent's claim could be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits, the motion to admit third party complaint should
be granted. Meanwhile, the trial court issued orders on August 25, 1987 and October 28, 1987 directing private respondent to actively participate in
locating Chan. After private respondent failed to comply, the trial court, on May 18, 1988, dismissed the third party complaint without prejudice.

On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that petitioner could not hold private respondent liable
based on the check's face value alone. To so hold him liable "would render inutilethe requirement of "clearance" from the drawee bank before the value
of a particular foreign check or draft can be credited to the account of a depositor making such deposit." The lower court further held that "it was
incumbent upon the petitioner to credit the value of the check in question to the account of the private respondent only upon receipt of the notice of final
payment and should not have authorized the withdrawal from the latter's account of the value or proceeds of the check." Having admitted that it
committed a "mistake" in not waiting for the clearance of the check before authorizing the withdrawal of its value or proceeds, petitioner should suffer the
resultant loss.

On appeal, the Court of Appeals affirmed the lower court's decision. The appellate court held that petitioner committed "clears gross negligence" in
allowing Ruben Gayon, Jr. to withdraw the money without presenting private respondent's passbook and, before the check was cleared and in crediting
the amount indicated therein in private respondent's account. It stressed that the mere deposit of a check in private respondent's account did not mean
that the check was already private respondent's property. The check still had to be cleared and its proceeds can only be withdrawn upon presentation of
a passbook in accordance with the bank's rules and regulations. Furthermore, petitioner's contention that private respondent warranted the check's
genuineness by endorsing it is untenable for it would render useless the clearance requirement. Likewise, the requirement of presentation of a passbook
to ascertain the propriety of the accounting reflected would be a meaningless exercise. After all, these requirements are designed to protect the bank
from deception or fraud.

The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,14 where this Court stated that a personal check is not legal tender
or money, and held that the check deposited in this case must be cleared before its value could be properly transferred to private respondent's account.

Without filing a motion for the reconsideration of the Court of Appeals' Decision, petitioner filed this petition for review on certiorari, raising the following
issues:

1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL INDORSER.

2. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN GAYON.

3. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL.

Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be liable for the amount stated therein in
accordance with the following provision of the Negotiable Instruments Law (Act No. 2031):

Sec. 66. Liability of general indorser. — Every indorser who indorses without qualification, warrants to all subsequent holders in due course —

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and

(b) That the instrument is at the time of his indorsement, valid and subsisting.

And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and
that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.

Sec. 65, on the other hand, provides for the following warranties of a person negotiating an instrument by delivery or by qualified indorsement: (a) that
the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it, and (c) that all prior parties had capacity to
contract.15 In People v. Maniego,16 this Court described the liabilities of an indorser as follows:

Appellant's contention that as mere indorser, she may not be liable on account of the dishonor of the checks indorsed by her, is likewise
untenable. Under the law, the holder or last indorsee of a negotiable instrument has the right "to enforce payment of the instrument for the full
amount thereof against all parties liable thereon. Among the "parties liable thereon." Is an indorser of the instrument, i.e., "a person placing his
signature upon an instrument otherwise than as a maker, drawer or acceptor * * unless he clearly indicated by appropriate words his intention
to be bound in some other capacity." Such an indorser "who indorses without qualification," inter alia "engages that on due presentment, *
* (the instrument) shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or any subsequent indorser who may be compelled to
pay it." Maniego may also be deemed an "accommodation party" in the light of the facts, i.e., a person "who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value thereof, and for the purpose of lending his name to some other person." As such,
she is under the law "liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew *
* (her) to be only an accommodation party," although she has the right, after paying the holder, to obtain reimbursement from the party
accommodated, "since the relation between them is in effect that of principal and surety, the accommodation party being the surety.

It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party.17 However, to hold
private respondent liable for the amount of the check he deposited by the strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system. The interest of justice thus demands
looking into the events that led to the encashment of the check.

Petitioner asserts that by signing the withdrawal slip, private respondent "presented the opportunity for the withdrawal of the amount in question."
Petitioner relied "on the genuine signature on the withdrawal slip, the personality of private respondent's son and the lapse of more than fifty (50) days
from date of deposit of the Continental Bank draft, without the same being returned yet." 18 We hold, however, that the propriety of the withdrawal should
be gauged by compliance with the rules thereon that both petitioner bank and its depositors are duty-bound to observe.

In the passbook that petitioner issued to private respondent, the following rules on withdrawal of deposits appear:
 4. Withdrawals must be made by the depositor personally but in some exceptional circumstances, the Bank may allow withdrawal by another
upon the depositor's written authority duly authenticated; and neither a deposit nor a withdrawal will be permitted except upon the presentation
of the depositor's savings passbook, in which the amount deposited withdrawn shall be entered only by the Bank.

5. Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at the request of the depositor in writing on the
withdrawal slip or by authenticated cable. Such request must indicate the name of the payee/s, amount and the place where the funds are to
be paid. Any stamp, transmission and other charges related to such withdrawals shall be for the account of the depositor and shall be paid by
him/her upon demand. Withdrawals may also be made in the form of travellers checks and in pesos. Withdrawals in the form of notes/bills are
allowed subject however, to their (availability).

6. Deposits shall not be subject to withdrawal by check, and may be withdrawal only in the manner above provided, upon presentation of the
depositor's savings passbook and with the withdrawal form supplied by the Bank at the counter. 19

Under these rules, to be able to withdraw from the savings account deposit under the Philippine foreign currency deposit system, two requisites must be
presented to petitioner bank by the person withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b) the depositor's passbook. Private
respondent admits he signed a blank withdrawal slip ostensibly in violation of Rule No. 6 requiring that the request for withdrawal must name the payee,
the amount to be withdrawn and the place where such withdrawal should be made. That the withdrawal slip was in fact a blank one with only private
respondent's two signatures affixed on the proper spaces is buttressed by petitioner's allegation in the instant petition that had private respondent
indicated therein the person authorized to receive the money, then Ruben Gayon, Jr. could not have withdrawn any amount. Petitioner contends that
"(I)n failing to do so (i.e., naming his authorized agent), he practically authorized any possessor thereof to write any amount and to collect the same."20

Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special instruction that the amount is payable to
"Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioner's personnel should have been duly warned that Gayon, who was
also employed in petitioner's Buendia Ave. Extension branch,21 was not the proper payee of the proceeds of the check. Otherwise, either Ramon or
Agnes de Guzman should have issued another authority to Gayon for such withdrawal. Of course, at the dorsal side of the withdrawal slip is an
"authority to withdraw" naming Gayon the person who can withdraw the amount indicated in the check. Private respondent does not deny having signed
such authority. However, considering petitioner's clear admission that the withdrawal slip was a blank one except for private respondent's signature, the
unavoidable conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by Gayon or whoever was
allowed by petitioner to withdraw the amount. Under these facts, there could not have been a principal-agent relationship between private respondent
and Gayon so as to render the former liable for the amount withdrawn.

Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with the corresponding foreign currency
savings passbook by the depositor in person. For withdrawals thru a representative, depositor should accomplish the authority at the back." The
requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip service even though the person making the
withdrawal is authorized by the depositor to do so. This is clear from Rule No. 6 set out by petitioner so that, for the protection of the bank's interest and
as a reminder to the depositor, the withdrawal shall be entered in the depositor's passbook. The fact that private respondent's passbook was not
presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made with the bank was on September 3,
1984, the date he deposited the controversial check in the amount of $2,500.00. 22

In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook. Thus:

2. All deposits will be received as current funds and will be repaid in the same manner; provided, however, that deposits of drafts, checks,
money orders, etc. will be accented as subject to collection only and credited to the account only upon receipt of the notice of final payment.
Collection charges by the Bank's foreign correspondent in effecting such collection shall be for the account of the depositor. If the account has
sufficient balance, the collection shall be debited by the Bank against the account. If, for any reason, the proceeds of the deposited checks,
drafts, money orders, etc., cannot be collected or if the Bank is required to return such proceeds, the provisional entry therefor made by the
Bank in the savings passbook and its records shall be deemed automatically cancelled regardless of the time that has elapsed, and whether
or not the defective items can be returned to the depositor; and the Bank is hereby authorized to execute immediately the necessary
corrections, amendments or changes in its record, as well as on the savings passbook at the first opportunity to reflect such cancellation.
(Emphasis and underlining supplied.)

As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did not become the outright owner of the amount
stated therein. Under the above rule, by depositing the check with petitioner, private respondent was, in a way, merely designating petitioner as the
collecting bank. This is in consonance with the rule that a negotiable instrument, such as a check, whether a manager's check or ordinary check, is not
legal tender.23 As such, after receiving the deposit, under its own rules, petitioner shall credit the amount in private respondent's account or infuse value
thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit. Again, this is in accordance with
ordinary banking practices and with this Court's pronouncement that "the collecting bank or last endorser generally suffers the loss because has the duty
to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that
the party making the presentment has done its duty to ascertain the genuineness of the endorsements." 24 The rule finds more meaning in this case
where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the
check in question is a manager's check.25

In Banco Atlantico v. Auditor General,26 Banco Atlantico, a commercial bank in Madrid, Spain, paid the amounts represented in three (3) checks to
Virginia Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did so without previously clearing the checks with the drawee bank,
the Philippine National Bank in New York, on account of the "special treatment" that Boncan received from the personnel of Banco Atlantico's foreign
department. The Court held that the encashment of the checks without prior clearance is "contrary to normal or ordinary banking practice specially so
where the drawee bank is a foreign bank and the amounts involved were large." Accordingly, the Court approved the Auditor General's denial of Banco
Atlantico's claim for payment of the value of the checks that was withdrawn by Boncan.

Said ruling brings to light the fact that the banking business is affected with public interest. By the nature of its functions, a bank is under obligation to
treat the accounts of its depositors "with meticulous care, always having in mind the fiduciary nature of their relationship."27 As such, in dealing with its
depositors, a bank should exercise its functions not only with the diligence of a good father of a family but it should do so with the highest degree of
care.28

In the case at bar, petitioner, in allowing the withdrawal of private respondent's deposit, failed to exercise the diligence of a good father of a family. In
total disregard of its own rules, petitioner's personnel negligently handled private respondent's account to petitioner's detriment. As this Court once said
on this matter:
 Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something which a prudent and reasonable man would do. The seventy-eight (78)-year-old, yet still
relevant, case of Picart v. Smith, provides that test by which to determine the existence of negligence in a particular case which may be stated
as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would
have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by
the imaginary conduct of the discreetpater-familias of the Roman law. The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and determines liability by that. 29

Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of private respondent's
dollar deposits that had yet to be cleared. The bank's ledger on private respondent's account shows that before he deposited $2,500.00, private
respondent had a balance of only $750.00.30 Upon private respondent's deposit of $2,500.00 on September 3, 1984, that amount was credited in his
ledger as a deposit resulting in the corresponding total balance of $3,250.00. 31 On September 10, 1984, the amount of $600.00 and the additional
charges of $10.00 were indicated therein as withdrawn thereby leaving a balance $2,640.00. On September 30, 1984, an interest of $11.59 was
reflected in the ledger and on October 23, 1984, the amount of $2,541.67 was entered as withdrawn with a balance of $109.92. 32 On November 19,
1984 the word "hold" was written beside the balance of $109.92.33 That must have been the time when Reyes, petitioner's branch manager, was
informed unofficially of the fact that the check deposited was a counterfeit, but petitioner's Buendia Ave. Extension Branch received a copy of the
communication thereon from Wells Fargo Bank International in New York the following day, November 20, 1984. 34 According to Reyes, Wells Fargo
Bank International handled the clearing of checks drawn against U.S. banks that were deposited with petitioner.35

From these facts on record, it is at once apparent that petitioner's personnel allowed the withdrawal of an amount bigger than the original deposit of
$750.00 and the value of the check deposited in the amount of $2,500.00 although they had not yet received notice from the clearing bank in the United
States on whether or not the check was funded. Reyes' contention that after the lapse of the 35-day period the amount of a deposited check could be
withdrawn even in the absence of a clearance thereon, otherwise it could take a long time before a depositor could make a withdrawal, 36 is untenable.
Said practice amounts to a disregard of the clearance requirement of the banking system.

While it is true that private respondent's having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of
the counterfeit check, the negligence of petitioner's personnel was the proximate cause of the loss that petitioner sustained. Proximate cause, which is
determined by a mixed consideration of logic, common sense, policy and precedent, is "that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred." 37 The proximate cause of the
withdrawal and eventual loss of the amount of $2,500.00 on petitioner's part was its personnel's negligence in allowing such withdrawal in disregard of
its own rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer the resulting damage.1âwphi1.nêt

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED.

SO ORDERED.
G.R. No. 150228 July 30, 2009

BANK OF AMERICA NT & SA, Petitioner,

vs.
PHILIPPINE RACING CLUB, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision1 promulgated on July 16, 2001 by the former Second
Division of the Court of Appeals (CA), in CA-G.R. CV No. 45371 entitled "Philippine Racing Club, Inc. v. Bank of America NT & SA," affirming the
Decision2 dated March 17, 1994 of the Regional Trial Court (RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in favor of the respondent. Likewise,
the present petition assails the Resolution3 promulgated on September 28, 2001, denying the Motion for Reconsideration of the CA Decision.

The facts of this case as narrated in the assailed CA Decision are as follows:

Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with different banks in the Metro Manila area. Among the accounts
maintained was Current Account No. 58891-012 with defendant-appellant BA (Paseo de Roxas Branch). The authorized joint signatories with respect to
said Current Account were plaintiff-appellee’s President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes).

On or about the 2nd week of December 1988, the President and Vice President of plaintiff-appellee corporation were scheduled to go out of the country
in connection with the corporation’s business. In order not to disrupt operations in their absence, they pre-signed several checks relating to Current
Account No. 58891-012. The intention was to insure continuity of plaintiff-appellee’s operations by making available cash/money especially to settle
obligations that might become due. These checks were entrusted to the accountant with instruction to make use of the same as the need arose. The
internal arrangement was, in the event there was need to make use of the checks, the accountant would prepare the corresponding voucher and
thereafter complete the entries on the pre-signed checks.

It turned out that on December 16, 1988, a John Doe presented to defendant-appellant bank for encashment a couple of plaintiff-appellee corporation’s
checks (Nos. 401116 and 401117) with the indicated value of P110,000.00 each. It is admitted that these 2 checks were among those presigned by
plaintiff-appellee corporation’s authorized signatories.

The two (2) checks had similar entries with similar infirmities and irregularities. On the space where the name of the payee should be indicated (Pay To
The Order Of) the following 2-line entries were instead typewritten: on the upper line was the word "CASH" while the lower line had the following
typewritten words, viz: "ONE HUNDRED TEN THOUSAND PESOS ONLY." Despite the highly irregular entries on the face of the checks, defendant-
appellant bank, without as much as verifying and/or confirming the legitimacy of the checks considering the substantial amount involved and the obvious
infirmity/defect of the checks on their faces, encashed said checks. A verification process, even by was of a telephone call to PRCI office, would have
taken less than ten (10) minutes. But this was not done by BA. Investigation conducted by plaintiff-appellee corporation yielded the fact that there was no
transaction involving PRCI that call for the payment of P220,000.00 to anyone. The checks appeared to have come into the hands of an employee of
PRCI (one Clarita Mesina who was subsequently criminally charged for qualified theft) who eventually completed without authority the entries on the pre-
signed checks. PRCI’s demand for defendant-appellant to pay fell on deaf ears. Hence, the complaint.4

After due proceedings, the trial court rendered a Decision in favor of respondent, the dispositive portion of which reads:

PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against the defendant, and the latter is ordered to pay plaintiff:

(1) The sum of Two Hundred Twenty Thousand (₱220,000.00) Pesos, with legal interest to be computed from date of the filing of the herein
complaint;

(2) The sum of Twenty Thousand (₱20,000.00) Pesos by way of attorney’s fees;

(3) The sum of Ten Thousand (₱10,000.00) Pesos for litigation expenses, and

(4) To pay the costs of suit.

SO ORDERED.5

Petitioner appealed the aforesaid trial court Decision to the CA which, however, affirmed said decision in toto in its July 16, 2001 Decision. Petitioner’s
Motion for Reconsideration of the CA Decision was subsequently denied on September 28, 2001.

Petitioner now comes before this Court arguing that:

I. The Court of Appeals gravely erred in holding that the proximate cause of respondent’s loss was petitioner’s encashment of the checks.

A. The Court of Appeals gravely erred in holding that petitioner was liable for the amount of the checks despite the fact that petitioner was
merely fulfilling its obligation under law and contract.

B. The Court of Appeals gravely erred in holding that petitioner had a duty to verify the encashment, despite the absence of any obligation to
do so.

C. The Court of Appeals gravely erred in not applying Section 14 of the Negotiable Instruments Law, despite its clear applicability to this case;

II. The Court of Appeals gravely erred in not holding that the proximate cause of respondent’s loss was its own grossly negligent practice of pre-signing
checks without payees and amounts and delivering these pre-signed checks to its employees (other than their signatories).
III. The Court of Appeals gravely erred in affirming the trial court’s award of attorney’s fees despite the absence of any applicable ground under Article
2208 of the Civil Code.

IV. The Court of Appeals gravely erred in not awarding attorney’s fees, moral and exemplary damages, and costs of suit in favor of petitioner, who
clearly deserves them.6

From the discussions of both parties in their pleadings, the key issue to be resolved in the present case is whether the proximate cause of the wrongful
encashment of the checks in question was due to (a) petitioner’s failure to make a verification regarding the said checks with the respondent in view of
the misplacement of entries on the face of the checks or (b) the practice of the respondent of pre-signing blank checks and leaving the same with its
employees.

Petitioner insists that it merely fulfilled its obligation under law and contract when it encashed the aforesaid checks. Invoking Sections 1267 and 1858 of
the Negotiable Instruments Law (NIL), petitioner claims that its duty as a drawee bank to a drawer-client maintaining a checking account with it is to pay
orders for checks bearing the drawer-client’s genuine signatures. The genuine signatures of the client’s duly authorized signatories affixed on the checks
signify the order for payment. Thus, pursuant to the said obligation, the drawee bank has the duty to determine whether the signatures appearing on the
check are the drawer-client’s or its duly authorized signatories. If the signatures are genuine, the bank has the unavoidable legal and contractual duty to
pay. If the signatures are forged and falsified, the drawee bank has the corollary, but equally unavoidable legal and contractual, duty not to pay.9

Furthermore, petitioner maintains that there exists a duty on the drawee bank to inquire from the drawer before encashing a check only when the check
bears a material alteration. A material alteration is defined in Section 125 of the NIL to be one which changes the date, the sum payable, the time or
place of payment, the number or relations of the parties, the currency in which payment is to be made or one which adds a place of payment where no
place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect. With respect to the checks at
issue, petitioner points out that they do not contain any material alteration. 10 This is a fact which was affirmed by the trial court itself.11

There is no dispute that the signatures appearing on the subject checks were genuine signatures of the respondent’s authorized joint signatories;
namely, Antonia Reyes and Gregorio Reyes who were respondent’s President and Vice-President for Finance, respectively. Both pre-signed the said
checks since they were both scheduled to go abroad and it was apparently their practice to leave with the company accountant checks signed in black to
answer for company obligations that might fall due during the signatories’ absence. It is likewise admitted that neither of the subject checks contains any
material alteration or erasure.

However, on the blank space of each check reserved for the payee, the following typewritten words appear: "ONE HUNDRED TEN THOUSAND PESOS
ONLY." Above the same is the typewritten word, "CASH." On the blank reserved for the amount, the same amount of One Hundred Ten Thousand
Pesos was indicated with the use of a check writer. The presence of these irregularities in each check should have alerted the petitioner to be cautious
before proceeding to encash them which it did not do.

It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and
depositors who transact business with them. They have the obligation to treat their client’s account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.12

Petitioner asserts that it was not duty-bound to verify with the respondent since the amount below the typewritten word "CASH," expressed in words, is
the very same amount indicated in figures by means of a check writer on the amount portion of the check. The amount stated in words is, therefore, a
mere reiteration of the amount stated in figures. Petitioner emphasizes that a reiteration of the amount in words is merely a repetition and that a
repetition is not an alteration which if present and material would have enjoined it to commence verification with respondent. 13

We do not agree with petitioner’s myopic view and carefully crafted defense. Although not in the strict sense "material alterations," the misplacement of
the typewritten entries for the payee and the amount on the same blank and the repetition of the amount using a check writer were glaringly obvious
irregularities on the face of the check. Clearly, someone made a mistake in filling up the checks and the repetition of the entries was possibly an attempt
to rectify the mistake. Also, if the check had been filled up by the person who customarily accomplishes the checks of respondent, it should have
occurred to petitioner’s employees that it would be unlikely such mistakes would be made. All these circumstances should have alerted the bank to the
possibility that the holder or the person who is attempting to encash the checks did not have proper title to the checks or did not have authority to fill up
and encash the same. As noted by the CA, petitioner could have made a simple phone call to its client to clarify the irregularities and the loss to
respondent due to the encashment of the stolen checks would have been prevented.

In the case at bar, extraordinary diligence demands that petitioner should have ascertained from respondent the authenticity of the subject checks or the
accuracy of the entries therein not only because of the presence of highly irregular entries on the face of the checks but also of the decidedly unusual
circumstances surrounding their encashment. Respondent’s witness testified that for checks in amounts greater than Twenty Thousand Pesos
(₱20,000.00) it is the company’s practice to ensure that the payee is indicated by name in the check. 14 This was not rebutted by petitioner. Indeed, it is
highly uncommon for a corporation to make out checks payable to "CASH" for substantial amounts such as in this case. If each irregular circumstance in
this case were taken singly or isolated, the bank’s employees might have been justified in ignoring them. However, the confluence of the irregularities on
the face of the checks and circumstances that depart from the usual banking practice of respondent should have put petitioner’s employees on guard
that the checks were possibly not issued by the respondent in due course of its business. Petitioner’s subtle sophistry cannot exculpate it from behavior
that fell extremely short of the highest degree of care and diligence required of it as a banking institution.

Indeed, taking this with the testimony of petitioner’s operations manager that in case of an irregularity on the face of the check (such as when blanks
were not properly filled out) the bank may or may not call the client depending on how busy the bank is on a particular day, 15 we are even more
convinced that petitioner’s safeguards to protect clients from check fraud are arbitrary and subjective. Every client should be treated equally by a
banking institution regardless of the amount of his deposits and each client has the right to expect that every centavo he entrusts to a bank would be
handled with the same degree of care as the accounts of other clients. Perforce, we find that petitioner plainly failed to adhere to the high standard of
diligence expected of it as a banking institution.

In defense of its cashier/teller’s questionable action, petitioner insists that pursuant to Sections 14 16 and 1617 of the NIL, it could validly presume, upon
presentation of the checks, that the party who filled up the blanks had authority and that a valid and intentional delivery to the party presenting the
checks had taken place. Thus, in petitioner’s view, the sole blame for this debacle should be shifted to respondent for having its signatories pre-sign and
deliver the subject checks.18 Petitioner argues that there was indeed delivery in this case because, following American jurisprudence, the gross
negligence of respondent’s accountant in safekeeping the subject checks which resulted in their theft should be treated as a voluntary delivery by the
maker who is estopped from claiming non-delivery of the instrument.19
Petitioner’s contention would have been correct if the subject checks were correctly and properly filled out by the thief and presented to the bank in good
order. In that instance, there would be nothing to give notice to the bank of any infirmity in the title of the holder of the checks and it could validly
presume that there was proper delivery to the holder. The bank could not be faulted if it encashed the checks under those circumstances. However, the
undisputed facts plainly show that there were circumstances that should have alerted the bank to the likelihood that the checks were not properly
delivered to the person who encashed the same. In all, we see no reason to depart from the finding in the assailed CA Decision that the subject checks
are properly characterized as incomplete and undelivered instruments thus making Section 1520 of the NIL applicable in this case.

However, we do agree with petitioner that respondent’s officers’ practice of pre-signing of blank checks should be deemed seriously negligent behavior
and a highly risky means of purportedly ensuring the efficient operation of businesses. It should have occurred to respondent’s officers and managers
that the pre-signed blank checks could fall into the wrong hands as they did in this case where the said checks were stolen from the company
accountant to whom the checks were entrusted.

Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, petitioner will still emerge as the party foremost liable
in this case. In instances where both parties are at fault, this Court has consistently applied the doctrine of last clear chance in order to assign liability.

In Westmont Bank v. Ong,21 we ruled:

…[I]t is petitioner [bank] which had the last clear chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and
followed the proper and regular banking procedures in clearing checks. As we had earlier ruled, the one who had a last clear opportunity to avoid the
impending harm but failed to do so is chargeable with the consequences thereof. 22 (emphasis ours)

In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part of respondent because, even if we concur that
the latter was indeed negligent in pre-signing blank checks, the former had the last clear chance to avoid the loss. To reiterate, petitioner’s own
operations manager admitted that they could have called up the client for verification or confirmation before honoring the dubious checks. Verily,
petitioner had the final opportunity to avert the injury that befell the respondent. Failing to make the necessary verification due to the volume of banking
transactions on that particular day is a flimsy and unacceptable excuse, considering that the "banking business is so impressed with public interest
where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be a high degree
of diligence, if not the utmost diligence."23 Petitioner’s negligence has been undoubtedly established and, thus, pursuant to Art. 1170 of the NCC, 24 it
must suffer the consequence of said negligence.

In the interest of fairness, however, we believe it is proper to consider respondent’s own negligence to mitigate petitioner’s liability. Article 2179 of the
Civil Code provides:

Art. 2179. When the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence
was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages, but
the courts shall mitigate the damages to be awarded.1avvph!1

Explaining this provision in Lambert v. Heirs of Ray Castillon,25 the Court held:

The underlying precept on contributory negligence is that a plaintiff who is partly responsible for his own injury should not be entitled to recover damages
in full but must bear the consequences of his own negligence. The defendant must thus be held liable only for the damages actually caused by his
negligence. xxx xxx xxx

As we previously stated, respondent’s practice of signing checks in blank whenever its authorized bank signatories would travel abroad was a
dangerous policy, especially considering the lack of evidence on record that respondent had appropriate safeguards or internal controls to prevent the
pre-signed blank checks from falling into the hands of unscrupulous individuals and being used to commit a fraud against the company. We cannot
believe that there was no other secure and reasonable way to guarantee the non-disruption of respondent’s business. As testified to by petitioner’s
expert witness, other corporations would ordinarily have another set of authorized bank signatories who would be able to sign checks in the absence of
the preferred signatories.26 Indeed, if not for the fortunate happenstance that the thief failed to properly fill up the subject checks, respondent would
expectedly take the blame for the entire loss since the defense of forgery of a drawer’s signature(s) would be unavailable to it. Considering that
respondent knowingly took the risk that the pre-signed blank checks might fall into the hands of wrongdoers, it is but just that respondent shares in the
responsibility for the loss.

We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from respondent’s accountant turned out to be
another employee, purportedly a clerk in respondent’s accounting department. As the employer of the "thief," respondent supposedly had control and
supervision over its own employee. This gives the Court more reason to allocate part of the loss to respondent.

Following established jurisprudential precedents,27 we believe the allocation of sixty percent (60%) of the actual damages involved in this case
(represented by the amount of the checks with legal interest) to petitioner is proper under the premises. Respondent should, in light of its contributory
negligence, bear forty percent (40%) of its own loss.

Finally, we find that the awards of attorney’s fees and litigation expenses in favor of respondent are not justified under the circumstances and, thus, must
be deleted. The power of the court to award attorney’s fees and litigation expenses under Article 2208 of the NCC28 demands factual, legal, and
equitable justification.

An adverse decision does not ipso facto justify an award of attorney’s fees to the winning party.29 Even when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorney’s fees may not be awarded where no sufficient showing of bad faith could be reflected in
a party’s persistence in a case other than an erroneous conviction of the righteousness of his cause. 30

WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its Resolution dated September 28, 2001 are AFFIRMED with the following
MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to respondent Philippine Racing Club sixty percent (60%) of the sum of Two
Hundred Twenty Thousand Pesos (₱220,000.00) with legal interest as awarded by the trial court and (b) the awards of attorney’s fees and litigation
expenses in favor of respondent are deleted.

Proportionate costs.
SO ORDERED.
G.R. No. 168842 August 11, 2010

VICENTE GO, Petitioner,

vs.
METROPOLITAN BANK AND TRUST CO., Respondent.

DECISION

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision1dated May 27, 2005 and the
Resolution2 dated August 31, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 63469.

The Facts

The facts of the case are as follows:

Petitioner filed two separate cases before the Regional Trial Court (RTC) of Cebu. Civil Case No. CEB-9713 was filed by petitioner against Ma. Teresa
Chua (Chua) and Glyndah Tabañag (Tabañag) for a sum of money with preliminary attachment. Civil Case No. CEB-9866 was filed by petitioner for a
sum of money with damages against herein respondent Metropolitan Bank and Trust Company (Metrobank) and Chua. 3

In both cases, petitioner alleged that he was doing business under the name "Hope Pharmacy" which sells medicine and other pharmaceutical products
in the City of Cebu. Petitioner had in his employ Chua as his pharmacist and trustee or caretaker of the business; Tabañag, on the other hand, took care
of the receipts and invoices and assisted Chua in making deposits for petitioner’s accounts in the business operations of Hope Pharmacy. 4

In CEB-9713, petitioner claimed that there were unauthorized deposits and encashments made by Chua and Tabañag in the total amount of One
Hundred Nine Thousand Four Hundred Thirty-three Pesos and Thirty Centavos (₱109,433.30). He questioned particularly the following:

(1) FEBTC Check No. 251111 dated April 29, 1990 in the amount of ₱22,635.00 which was issued by plaintiff’s [petitioner’s] customer Loy
Libron in payment of the stocks purchased was deposited under Metrobank Savings Account No. 420-920-6 belonging to the defendant Ma.
Teresa Chua;

(2) RCBC Checks Nos. 330958 and 294515, which were in blank but pre-signed by him (plaintiff [petitioner] Vicente Go) for convenience and
intended for payment to plaintiff’s [petitioner’s] suppliers, were filled up and dated September 22, 1990 and September 7, 1990 in the amount
of ₱30,000.00 and ₱50,000.00 respectively, and were deposited with defendant Chua’s aforestated account with Metrobank;

(3) PBC Check No. 005874, drawn by Elizabeth Enriquez payable to the Hope Pharmacy in the amount of ₱6,798.30 was encashed by the
defendant Glyndah Tabañag;

(4) There were unauthorized deposits and encashments in the total sum of ₱109,433.30; 5

In CEB-9866, petitioner averred that there were thirty-two (32) checks with Hope Pharmacy as payee, for varying sums, amounting to One Million Four
Hundred Ninety-Two Thousand Five Hundred Ninety-Five Pesos and Six Centavos (₱1,492,595.06), that were not endorsed by him but were deposited
under the personal account of Chua with respondent bank,6 and these are the following:

CHECK NO. DATE AMOUNT

FEBTC 251166 5-23-90 ₱ 65,214.88

FEBTC 239399 5-08-90 24,917.75

FEBTC 251350 7-24-90 212,326.56

PBC 279887 6-27-90 2,000.00

PBC 162387 1-24-90 6,300.00

PBC 162317 12-22-89 3,300.00

PBC 279881 6-23-90 7,650.00

PBC 009005 7-21-89 3,584.00

PBC 279771 5-14-90 3,600.00

 PBC 279726 4-25-90 2,000.00

PBC 168004 3-22-90 2,800.00

PBC 167963 3-07-90 1,700.00

FEBTC 267793 8-20-90 80,085.66

FEBTC 267761 7-21-90 45,304.63

FEBTC 251252 6-03-90 64,000.00

FEBTC 267798 8-15-90 40,078.67

PBC 367292 8-06-90 2,100.00

PBC 376445 9-26-90 1,125.00

PBC 009056 8-07-89 2,500.00

PBC 376402 9-12-90 12,105.40

BPI 197074 7-17-90 5,240.00

BPI 197051 7-06-90 1,350.00

BPI 204358 9-19-90 5,402.60

BPI 204252 7-31-90 6,715.60

FEBTC 251171 6-27-90 83,175.54

FEBTC 251165 6-28-90 231,936.10

FEBTC 251251 6-30-90 47,087.25

FEBTC 251163 6-21-90 170,600.85

FEBTC 251170 5-23-90 16,440.00

FEBTC 251112 5-31-90 211,592.69

FEBTC 239400 6-15-90 47,664.03

FEBTC 251162 6-22-90 82,697.85

₱1,492,595.067

Petitioner claimed that the said checks were crossed checks payable to Hope Pharmacy only; and that without the participation and connivance of
respondent bank, the checks could not have been accepted for deposit to any other account, except petitioner’s account. 8
Thus, in CEB-9866, petitioner prayed that Chua and respondent bank be ordered, jointly and severally, to pay the principal amount of ₱1,492,595.06,
plus interest at 12% from the dates of the checks, until the obligation shall have been fully paid; moral damages of Five Hundred Thousand Pesos
(₱500,000.00); exemplary damages of ₱500,000.00; and attorney’s fees and costs in the amount of ₱500,000.00. 9

On February 23, 1995, the RTC rendered a Joint Decision,10 the dispositive portion of which reads:

WHEREFORE, premises considered, the Court hereby renders judgment dismissing plaintiff Vicente Go’s complaint against the defendant Ma. Teresa
Chua and Glyndah Tabañag in Civil Case No. CEB-9713, as well as plaintiff’s complaint against the same defendant Ma. Teresa Chua in Civil Case No.
CEB-9866.

Plaintiff Vicente Go is moreover sentenced to pay ₱50,000.00 in attorney’s fees and litigation expenses to the defendants Ma. Teresa Chua and
Glyndah Tabañag in Civil Case No. CEB-9713.

Defendant Metrobank in Civil Case No. CEB-9866 is hereby condemned to pay unto plaintiff Vicente Go/Hope Pharmacy the amount of ₱50,000.00 as
moral damages, and attorney’s fees and litigation expenses in the aggregate sum of ₱25,000.00.

The defendant Metrobank’s crossclaim against its co-defendant Ma. Teresa Chua in Civil Case No. CEB-9866 is dismissed for lack of merit.

No special pronouncement as to costs in both instances.

SO ORDERED.11

In striking down the complaint of the petitioner against Chua and Tabañag in CEB-9713, the RTC made the following findings:

(1) FEBTC Check No. 251111, dated April 29, 1990, in the amount of ₱22,635.00 payable to cash, was drawn by Loy Libron in payment of her
purchases of medicines and other drugs which Ma. Teresa Chua was selling side by side with the medicines and drugs of the Hope
Pharmacy, for which she (Maritess) was granted permission by its owner, Mr. Vicente Chua. These medicines and drugs from Thailand were
Maritess’ sideline, and were segregated from the stocks of Hope Pharmacy; x x x.

(2) RCBC Check Nos. 294519 and 330958 were checks belonging to plaintiff Vicente Go payable to cash x x x; these checks were
replacements of the sums earlier advanced by Ma. Teresa Chua, but which were deposited in the account of Vicente Go with RCBC, as
shown by the deposit slips x x x, and confirmed by the statement of account of Vicente Go with RCBC.

(3) Check No. PCIB 005374 drawn by Elizabeth Enriquez payable to Hope Pharmacy/Cash in the amount of ₱6,798.30 dated September 6,
1990, was admittedly encashed by the defendant, Glyndah Tabañag. As per instruction by Vicente Go, Glyndah requested the drawer to insert
the word "Cash," so that she could encash the same with PCIB, to meet the Hope Pharmacy’s overdraft.

The listings x x x, made by Glyndah Tabañag and Flor Ouano will show that the corresponding amounts covered thereby were in fact deposited to the
account of Mr. Vicente Go with RCBC; the Bank Statement of Mr. Go x x x, confirms defendants’ claim independently of the deposit slip[s] x x x.12

The trial court absolved Chua in CEB-9866 because of the finding that the subject checks in CEB-9866 were payments of petitioner for his loans or
borrowings from the parents of Ma. Teresa Chua, through Ma. Teresa, who was given the total discretion by petitioner to transfer money from the offices
of Hope Pharmacy to pay the advances and other obligations of the drugstore; she was also given the full discretion where to source the funds to cover
the daily overdrafts, even to the extent of borrowing money with interest from other persons. 13

While the trial court exonerated Chua in CEB-9866, it however declared respondent bank liable for being negligent in allowing the deposit of crossed
checks without the proper indorsement.

Petitioner filed an appeal before the CA. On May 27, 2005, the CA rendered a Decision, 14 the fallo of which reads:

WHEREFORE, except for the award of attorney’s fees and litigation expenses in favor of defendants Chua and Tabañag which is hereby deleted, the
decision of the lower court is hereby AFFIRMED.

SO ORDERED.15

Hence, this petition.

The Issue

Petitioner presented this sole issue for resolution:

The Court of Appeals Erred In Not Holding Metrobank Liable For Allowing The Deposit, Of Crossed Checks Which Were Issued In Favor Of And
Payable To Petitioner And Without Being Indorsed By The Petitioner, To The Account Of Maria Teresa Chua. 16

The Ruling of the Court

A check is a bill of exchange drawn on a bank payable on demand. 17 There are different kinds of checks. In this case, crossed checks are the subject of
the controversy. A crossed check is one where two parallel lines are drawn across its face or across the corner thereof. It may be crossed generally or
specially.18

A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is crossed generally when
only the words "and company" are written or nothing is written at all between the parallel lines, as in this case. It may be issued so that presentment can
be made only by a bank.19

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check has the following effects: (a) the check may
not be encashed but only deposited in the bank; (b) the check may be
negotiated only once — to one who has an account with a bank; and (c) the act of crossing the check serves as warning to the holder that the check has
been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due
course.20

The Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be
deposited and not converted into cash. The effect of crossing a check,

thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named
therein.21 The crossing of a check is a warning that the check should be deposited only in the account of the payee. Thus, it is the duty of the collecting
bank to ascertain that the check be deposited to the payee’s account only.22

In the instant case, there is no dispute that the subject 32 checks with the total amount of ₱1,492,595.06 were crossed checks with petitioner as the
named payee. It is the submission of petitioner that respondent bank should be held accountable for the entire amount of the checks because it
accepted the checks for deposit under Chua’s account despite the fact that the checks were crossed and that the payee named therein was not Chua.

In its defense, respondent bank countered that petitioner is not entitled to reimbursement of the total sum of ₱1,492,595.06 from either Maria Teresa
Chua or respondent bank because petitioner was not damaged thereby.23

Respondent bank’s contention is meritorious. Respondent bank should not be held liable for the entire amount of the checks considering that, as found
by the RTC and affirmed by the CA, the checks were actually given to Chua as payments by petitioner for loans obtained from the parents of Chua.
Furthermore, petitioner’s non-inclusion of Chua and Tabañag in the petition before this Court is, in effect, an admission by the petitioner that Chua, in
representation of her parents, had rightful claim to the proceeds of the checks, as payments by petitioner for money he borrowed from the parents of
Chua. Therefore, petitioner suffered no pecuniary loss in the deposit of the checks to the account of Chua.ten.lihpwal

However, we affirm the finding of the RTC that respondent bank was negligent in permitting the deposit and encashment of the crossed checks without
the proper indorsement. An indorsement is necessary for the proper negotiation of checks specially if the payee named therein or holder thereof is not
the one depositing or encashing it. Knowing fully well that the subject checks were crossed, that the payee was not the holder and that the checks
contained no indorsement, respondent bank should have taken reasonable steps in order to determine the validity of the representations made by Chua.
Respondent bank was amiss in its duty as an agent of the payee. Prudence dictates that respondent bank should not have merely relied on the
assurances given by Chua.1avvphi1

Respondent presented Jonathan Davis as its witness in the trial before the RTC. He was the officer-in-charge and ranked second to the assistant vice
president of the bank at the time material to this case. Davis’ testimony was summarized by the RTC as follows:

Davis also testified that he allowed Ma. Teresa Chua to deposit the checks subject of this litigation which were payable to Hope Pharmacy. According to
him, it was a privilege given to valued customers on a highly selective case to case basis, for marketing purposes, based on trust and confidence,
because Ma. Teresa [Chua] told him that those checks belonged to her as payment for the advances she extended to Mr. Go/Hope Pharmacy. x x x

Davis stressed that Metrobank granted the privilege to Ma. Teresa Chua that for every check she deposited with Metrobank, the same would be credited
outright to her account, meaning that she could immediately make use of the amount credited; this arrangement went on for about three years, without
any complaint from Mr. Go/Hope Pharmacy, and Ma. Teresa Chua made warranty that she would reimburse Metrobank if Mr. Go complained. He did not
however call or inform Mr. Go about this arrangement, because their bank being a Chinese bank, transactions are based on trust and confidence, and
for him to inform Mr. Vicente Go about it, was tantamount to questioning the integrity of their client, Ma. Teresa Chua. Besides, this special privilege or
arrangement would not bring any monetary gain to the bank.24

Negligence was committed by respondent bank in accepting for deposit the crossed checks without indorsement and in not verifying the authenticity of
the negotiation of the checks. The law imposes a duty of extraordinary diligence on the collecting bank to scrutinize checks deposited with it, for the
purpose of determining their genuineness and regularity. 25 As a business affected with public interest and because of the nature of its functions, the
banks are under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of the
relationship.26 The fact that this arrangement had been practiced for three years without Mr. Go/Hope Pharmacy raising any objection does not detract
from the duty of the bank to exercise extraordinary diligence. Thus, the Decision of the RTC, as affirmed by the CA, holding respondent bank liable for
moral damages is sufficient to remind it of its responsibility to exercise extraordinary diligence in the course of its business which is imbued with public
interest.

WHEREFORE, the Decision dated May 27, 2005 and the Resolution dated August 31, 2005 of the Court of Appeals in CA-G.R. CV No. 63469 are
hereby AFFIRMED.

SO ORDERED.
G.R. No. L-62943 July 14, 1986

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,

vs.
COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE PHILIPPINE NATIONAL BANK, respondents.

Juan J. Diaz and Cesar T. Basa for respondent PNB.

San Juan, Africa, Gonzales & San Agustin Law Offices for respondent PCIB.

GUTIERREZ, JR., J.:

This petition for review asks us to set aside the October 29, 1982 decision of the respondent Court of Appeals, now Intermediate Appellate Court which
reversed the decision of the Court of First Instance of Manila, Branch XL, and dismissed the plaintiff's complaint, the third party complaint, as well as the
defendant's counterclaim.

The background facts which led to the filing of the instant petition are summarized in the decision of the respondent Court of Appeals:

Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is a government owned and controlled
corporation created under Republic Act No. 6234 as the successor-in- interest of the defunct NWSA. The Philippine National Bank
(PNB for short), on the other hand, is the depository bank of MWSS and its predecessor-in-interest NWSA. Among the several
accounts of NWSA with PNB is NWSA Account No. 6, otherwise known as Account No. 381-777 and which is presently allocated
No. 010-500281. The authorized signature for said Account No. 6 were those of MWSS treasurer Jose Sanchez, its auditor Pedro
Aguilar, and its acting General Manager Victor L. Recio. Their respective specimen signatures were submitted by the MWSS to and
on file with the PNB. By special arrangement with the PNB, the MWSS used personalized checks in drawing from this account.
These checks were printed for MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal Extension, Caloocan City.

During the months of March, April and May 1969, twenty-three (23) checks were prepared, processed, issued and released by
NWSA, all of which were paid and cleared by PNB and debited by PNB against NWSA Account No. 6, to wit:

Check No. Date Payee Amount Date Paid

By PNB

1. 59546 8-21-69 Deogracias P 3,187.79 4-2-69

Estrella

2. 59548 3-31-69 Natividad 2,848.86 4-23 69

Rosario

3. 59547 3-31-69 Pangilinan 195.00 Unreleased

Enterprises

4. 59549 3-31-69 Natividad 3,239.88 4-23-69

Rosario

5. 59552 4-1-69 Villarama 987.59 5-6-69

& Sons

6. 59554 4-1-69 Gascom 6,057.60 4-16 69

Engineering

7. 59558 4-2-69 The Evening 112.00 Unreleased

News

8. 59544 3-27-69 Progressive 18,391.20 4-18 69

Const.

9. 59564 4-2-69 Ind. Insp. 594.06 4-18 69

Int. Inc.

10. 59568 4-7-69 Roberto 800.00 4-22-69

Marsan
11. 59570 4-7-69 Paz Andres 200.00 4-22-69

12. 59574 4-8-69 Florentino 100,000.00 4-11-69

Santos

13. 59578 4-8-69 Mla. Daily 95.00 Unreleased

Bulletin

14. 59580 4-8-69 Phil. Herald 100.00 5-9-69

15. 59582 4-8-69 Galauran 7,729.09 5-6-69

& Pilar

16. 59581 4-8-69 Manila 110.00 5-12 69

Chronicle

17. 59588 4-8-69 Treago 21,583.00 4-11 69

Tunnel

18. 59587 4-8-69 Delfin 120,000.00 4-11-69

Santiago

19. 59589 4-10-69 Deogracias 1,257.49 4-16 69

Estrella

20. 59594 4-14-69 Philam Ac- 33.03 4-29 69

cident Inc.

21. 59577 4-8-69 Esla 9,429.78 4-29 69

22. 59601 4-16-69 Justino 20,000.00 4-18-69

Torres

23. 59595 4-14-69 Neris Phil. 4,274.00 5-20-69

Inc. --------------------

P 320,636.26

During the same months of March, April and May 1969, twenty-three (23) checks bearing the same numbers as the aforementioned
NWSA checks were likewise paid and cleared by PNB and debited against NWSA Account No. 6, to wit:

Check Date Payee Amount Date Paid

No. Issued By PNB

1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69

2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69

3. 59547 3-14-69 Arturo Sison 56,903.00 4-11-69

4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69

5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69

6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69

7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69

8. 59544 3-16-69 Antonio 38,490.00 4-22-69 Mendoza

9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69

10.59568 4-2-69 Arturo Sison 134,940.00 4- 5-69

 11.59570 4-1-69 Arturo Sison 64,550.00 4-28-69

12.59574 4-2-69 Arturo Sison 148,610.00 4-29-69

13.59578 4-10-69 Antonio 93,950.00 4-29-69

Mendoza

14.59580 4-8-69 Arturo Sison 160,000.00 5-2-69

15.59582 4-10-69 Arturo Sison 155,400.00 5-5-69

16.59581 4-8-69 Antonio 176,580.00 5-6-69

Mendoza

17.59588 4-16-69 Arturo Sison 176,000.00 5-8-69

18.59587 4-16-69 Arturo Sison 300,000.00 5-12-69

19.59589 4-18-69 Arturo Sison 122,000.00 5-14-69

20.59594 4-18-69 Arturo Sison 280,000.00 5-15-69

21.59577 4-14-69 Antonio 260,000.00 5-16-69

Mendoza

22.59601 4-18-69 Arturo Sison 400,000.00 5-19-69

23.59595 4-28-69 Arturo Sison 190,800.00 5-21-69

---------------

P3,457,903.00

The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and Antonio Mendoza in their respective current
accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC) in the months of
March, April and May 1969. Thru the Central Bank Clearing, these checks were presented for payment by PBC and PCIB to the
defendant PNB, and paid, also in the months of March, April and May 1969. At the time of their presentation to PNB these checks
bear the standard indorsement which reads 'all prior indorsement and/or lack of endorsement guaranteed.'

Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo Sison and Antonio Mendoza were all
fictitious persons. The respective balances in their current account with the PBC and/or PCIB stood as follows: Raul Dizon
P3,455.00 as of April 30, 1969; Antonio Mendoza P18,182.00 as of May 23, 1969; and Arturo Sison Pl,398.92 as of June 30, 1969.

On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate restoration to its Account No. 6, of the total sum of
P3,457,903.00 corresponding to the total amount of these twenty-three (23) checks claimed by NWSA to be forged and/or spurious
checks. "In view of the refusal of PNB to credit back to Account No. 6 the said total sum of P3,457,903.00 MWSS filed the instant
complaint on November 10, 1972 before the Court of First Instance of Manila and docketed thereat as Civil Case No. 88950.

In its answer, PNB contended among others, that the checks in question were regular on its face in all respects, including the
genuineness of the signatures of authorized NWSA signing officers and there was nothing on its face that could have aroused any
suspicion as to its genuineness and due execution and; that NWSA was guilty of negligence which was the proximate cause of the
loss.

PNB also filed a third party complaint against the negotiating banks PBC and PCIB on the ground that they failed to ascertain the
Identity of the payees and their title to the checks which were deposited in the respective new accounts of the payees with them.

xxx xxx xxx

On February 6, 1976, the Court of First Instance of Manila rendered judgment in favor of the MWSS. The dispositive portion of the decision reads:

WHEREFORE, on the COMPLAINT by a clear preponderance of evidence and in accordance with Section 23 of the Negotiable
Instruments Law, the Court hereby renders judgment in favor of the plaintiff Metropolitan Waterworks and Sewerage System
(MWSS) by ordering the defendant Philippine National Bank (PNB) to restore the total sum of THREE MILLION FOUR HUNDRED
FIFTY SEVEN THOUSAND NINE HUNDRED THREE PESOS (P3,457,903.00) to plaintiff's Account No. 6, otherwise known as
Account No. 010-50030-3, with legal interest thereon computed from the date of the filing of the complaint and until as restored in
the said Account No. 6.

On the THIRD PARTY COMPLAINT, the Court, for lack of evidence, hereby renders judgment in favor of the third party defendants
Philippine Bank of Commerce (PBC) and Philippine Commercial and Industrial Bank (PCIB) by dismissing the Third Party
Complaint.

The counterclaims of the third party defendants are likewise dismissed for lack of evidence.
 No pronouncement as to costs.

As earlier stated, the respondent court reversed the decision of the Court of First Instance of Manila and rendered judgment in favor of the respondent
Philippine National Bank.

A motion for reconsideration filed by the petitioner MWSS was denied by the respondent court in a resolution dated January 3, 1983.

The petitioner now raises the following assignments of errors for the grant of this petition:

I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS WERE FORGED, THE DRAWEE BANK WAS LIABLE FOR
THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW.

II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB IN ACCEPTING THE SPURIOUS CHECKS DESPITE
THE OBVIOUS IRREGULARITY OF TWO SETS OF CHECKS BEARING IdENTICAL NUMBER BEING ENCASHED WITHIN
DAYS OF EACH OTHER.

III. IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE MWSS BEING CLEARLY FORGED, AND THE CHECKS
SPURIOUS, SAME ARE INOPERATIVE AS AGAINST THE ALLEGED DRAWEE.

The appellate court applied Section 24 of the Negotiable Instruments Law which provides:

Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose
signature appears thereon to have become a party thereto for value.

The petitioner submits that the above provision does not apply to the facts of the instant case because the questioned checks were not those of the
MWSS and neither were they drawn by its authorized signatories. The petitioner states that granting that Section 24 of the Negotiable Instruments Law
is applicable, the same creates only a prima facie presumption which was overcome by the following documents, to wit: (1) the NBI Report of November
2, 1970; (2) the NBI Report of November 21, 1974; (3) the NBI Chemistry Report No. C-74891; (4) the Memorandum of Mr. Juan Dino, 3rd Assistant
Auditor of the respondent drawee bank addressed to the Chief Auditor of the petitioner; (5) the admission of the respondent bank's counsel in open court
that the National Bureau of Investigation found the signature on the twenty-three (23) checks in question to be forgeries; and (6) the admission of the
respondent bank's witness, Mr. Faustino Mesina, Jr. that the checks in question were not printed by his printing press. The petitioner contends that since
the signatures of the checks were forgeries, the respondent drawee bank must bear the loss under the rulings of this Court.

A bank is bound to know the signatures of its customers; and if it pays a forged check it must be considered as making the payment
out of its obligation funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.

xxx xxx xxx

The signatures to the checks being forged, under Section 23 of the Negotiable Instruments Law they are not a charge against
plaintiff nor are the checks of any value to the defendant.

It must therefore be held that the proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in
honoring and cashing the two forged checks. (San Carlos Milling Co. v. Bank of the P. I., 59 Phil. 59)

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 the forger. That the Philippine National Bank then endorsed the chock 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
forged signature. It was its legal duty to know that Malicor's endorsement was genuine before cashing the check. Its remedy is
against Maasim to whom it paid the money. (Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, 43 Phil. 678).

We have carefully reviewed the documents cited by the petitioner. There is no express and categorical finding in these documents that the twenty-three
(23) questioned checks were indeed signed by persons other than the authorized MWSS signatories. On the contrary, the findings of the National
Bureau of Investigation in its Report dated November 2, 1970 show that the MWSS fraud was an "inside job" and that the petitioner's delay in the
reconciliation of bank statements and the laxity and loose records control in the printing of its personalized checks facilitated the fraud. Likewise, the
questioned Documents Report No. 159-1074 dated November 21, 1974 of the National Bureau of Investigation does not declare or prove that the
signatures appearing on the questioned checks are forgeries. The report merely mentions the alleged differences in the type face, checkwriting, and
printing characteristics appearing in the standard or submitted models and the questioned typewritings. The NBI Chemistry Report No. C-74-891 merely
describes the inks and pens used in writing the alleged forged signatures.

It is clear that these three (3) NBI Reports relied upon by the petitioner are inadequate to sustain its allegations of forgery. These reports did not touch
on the inherent qualities of the signatures which are indispensable in the determination of the existence of forgery. There must be conclusive findings
that there is a variance in the inherent characteristics of the signatures and that they were written by two or more different persons.

Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139 SCRA 238). It must be established by clear, positive, and
convincing evidence. This was not done in the present case.

The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59 Phil. 59) and Great Eastern Life Ins., Co. v. Hongkong and Shanghai
Bank (43 Phil. 678) relied upon by the petitioner are inapplicable in this case because the forgeries in those cases were either clearly established or
admitted while in the instant case, the allegations of forgery were not clearly established during trial.

Considering the absence of sufficient security in the printing of the checks coupled with the very close similarities between the genuine signatures and
the alleged forgeries, the twenty-three (23) checks in question could have been presented to the petitioner's signatories without their knowing that they
were bogus checks. Indeed, the cashier of the petitioner whose signatures were allegedly forged was unable to ten the difference between the allegedly
forged signature and his own genuine signature. On the other hand, the MWSS officials admitted that these checks could easily be passed on as
genuine.
The memorandum of Mr. A. T. Tolentino, no, Assistant Chief Accountant of the drawee Philippine National Bank to Mr. E. Villatuya, Executive Vice-
President of the petitioner dated June 9, 1969 cites an instance where even the concerned NWSA officials could not ten the differences between the
genuine checks and the alleged forged checks.

At about 12:00 o'clock on June 6, 1969, VP Maramag requested me to see him in his office at the Cashier's Dept. where Messrs.
Jose M. Sanchez, treasurer of NAWASA and Romeo Oliva of the same office were present. Upon my arrival I observed the
NAWASA officials questioning the issue of the NAWASA checks appearing in their own list, xerox copy attached.

For verification purposes, therefore, the checks were taken from our file. To everybody there present namely VIP Maramag, the two
abovementioned NAWASA officials, AVP, Buhain, Asst. Cashier Castelo, Asst. Cashier Tejada and Messrs. A. Lopez and L.
Lechuga, both C/A bookkeepers, no one was able to point out any difference on the signatures of the NAWASA officials appearing
on the checks compared to their official signatures on file. In fact 3 checks, one of those under question, were presented to the
NAWASA treasurer for verification but he could not point out which was his genuine signature. After intent comparison, he pointed
on the questioned check as bearing his correct signature.

xxx xxx xxx

Moreover, the petitioner is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law which provides that:

SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or made without 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.

because it was guilty of negligence not only before the questioned checks were negotiated but even after the same had already been negotiated. (See
Republic v. Equitable Banking Corporation, 10 SCRA 8) The records show that at the time the twenty-three (23) checks were prepared, negotiated, and
encashed, the petitioner was using its own personalized checks, instead of the official PNB Commercial blank checks. In the exercise of this special
privilege, however, the petitioner failed to provide the needed security measures. That there was gross negligence in the printing of its personalized
checks is shown by the following uncontroverted facts, to wit:

(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions relative to the safekeeping and disposition of excess forms, check
vouchers, and safety papers;

(2) The petitioner failed to retrieve from its printer all spoiled check forms;

(3) The petitioner failed to provide any control regarding the paper used in the printing of said checks;

(4) The petitioner failed to furnish the respondent drawee bank with samples of typewriting, cheek writing, and print used by its printer in the printing of
its checks and of the inks and pens used in signing the same; and

(5) The petitioner failed to send a representative to the printing office during the printing of said checks.

This gross negligence of the petitioner is very evident from the sworn statement dated June 19, 1969 of Faustino Mesina, Jr., the owner of the printing
press which printed the petitioner's personalized checks:

xxx xxx xxx

7. Q: Do you have any business transaction with the National Waterworks and Sewerage Authority (NAWASA)?

A: Yes, sir. I have a contract with the NAWASA in printing NAWASA Forms such as NAWASA Check

xxx xxx xxx

15. Q: Were you given any ingtruction by the NAWASA in connection with the printing of these check vouchers?

A: There is none, sir. No instruction whatsoever was given to me.

16. Q: Were you not advised as to what kind of paper would be used in the check vouchers?

A: Only as per sample, sir.

xxx xxx xxx

20. Q: Where did you buy this Hammermill Safety check paper?

A: From Tan Chiong, a paper dealer with store located at Juan Luna, Binondo, Manila. (In front of the
Metropolitan Bank).

xxx xxx xxx

24. Q: Were all these check vouchers printed by you submitted to NAWASA?

A: Not all, sir. Because we have to make reservations or allowances for spoilage.
 25. Q: Out of these vouchers printed by you, how many were spoiled and how many were the excess printed
check vouchers?

A: Approximately four hundred (400) sheets, sir. I cannot determine the proportion of the excess and spoiled
because the final act of perforating these check vouchers has not yet been done and spoilage can only be
determined after this final act of printing.

26. Q: What did you do with these excess check vouchers?

A: I keep it under lock and key in my firing cabinet.

xxx xxx xxx

28. Q: Were you not instructed by the NAWASA authorities to bum these excess check vouchers?

A: No, sir. I was not instructed.

29. Q: What do you intend to do with these excess printed check vouchers?

A: I intend to use them for future orders from the

xxx xxx xxx

32. Q: In the process of printing the check vouchers ordered by the NAWASA, how many sheets were actually
spoiled?

A: I cannot approximate, sir. But there are spoilage in the process of printing and perforating.

33. Q: What did you do with these spoilages?

A: Spoiled printed materials are usually thrown out, in the garbage can.

34. Q: Was there any representative of the NAWASA to supervise the printing or watch the printing of these
check vouchers?

A: None, sir.

xxx xxx xxx

39. Q: During the period of printing after the days work, what measures do you undertake to safeguard the mold
and other paraphernalia used in the printing of these particular orders of NAWASA?

A: Inasmuch as I have an employee who sleeps in the printing shop and at the same time do the guarding, we
just leave the mold attached to the machine and the other finished or unfinished work check vouchers are left in
the rack so that the work could be continued the following day.

The National Bureau of Investigation Report dated November 2, 1970 is even more explicit. Thus—

xxx xxx xxx

60. We observed also that there is some laxity and loose control in the printing of NAWASA cheeks. We
gathered from MESINA ENTERPRISES, the printing firm that undertook the printing of the check vouchers of
NAWASA that NAWASA had no representative at the printing press during the process of the printing and no
particular security measure instructions adopted to safeguard the interest of the government in connection with
printing of this accountable form.

Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks in question was the failure of the petitioner to reconcile the
bank statements with its own records.

It is accepted banking procedure for the depository bank to furnish its depositors bank statements and debt and credit memos through the mail. The
records show that the petitioner requested the respondent drawee bank to discontinue the practice of mailing the bank statements, but instead to deliver
the same to a certain Mr. Emiliano Zaporteza. For reasons known only to Mr. Zaporteza however, he was unreasonably delayed in taking prompt
deliveries of the said bank statements and credit and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the bank statements with the
petitioner's records. If Mr. Zaporteza had not been remiss in his duty of taking the bank statements and reconciling them with the petitioner's records, the
fraudulent encashments of the first checks should have been discovered, and further frauds prevented. This negligence was, therefore, the proximate
cause of the failure to discover the fraud. Thus,

When a person opens a checking account with a bank, he is given blank checks which he may fill out and use whenever he wishes.
Each time he issues a check, he should also fill out the check stub to which the check is usually attached. This stub, if properly kept,
will contain the number of the check, the date of its issue, the name of the payee and the amount thereof. The drawer would
therefore have a complete record of the checks he issues. It is the custom of banks to send to its depositors a monthly statement of
the status of their accounts, together with all the cancelled checks which have been cashed by their respective holders. If the
depositor has filled out his check stubs properly, a comparison between them and the cancelled checks will reveal any forged check
not taken from his checkbook. It is the duty of a depositor to carefully examine the bank's statement, his cancelled checks, his check
stubs and other pertinent records within a reasonable time, and to report any errors without unreasonable delay. If his negligence
should cause the bank to honor a forged check or prevent it from recovering the amount it may have already paid on such check, he
 cannot later complain should the bank refuse to recredit his account with the amount of such check. (First Nat. Bank of Richmond v.
Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA, NS 744 [1907]. See also Leather Manufacturers' Bank v. Morgan, 117 US
96, 6 S. Ct. 657 [1886]; Deer Island Fish and Oyster Co. v. First Nat. Bank of Biloxi, 166 Miss. 162, 146 So. 116 [1933]). Campos
and Campos, Notes and Selected Cases on Negotiable Instruments Law, 1971, pp. 267-268).

This failure of the petitioner to reconcile the bank statements with its cancelled checks was noted by the National Bureau of Investigation in its report
dated November 2, 1970:

58. One factor which facilitate this fraud was the delay in the reconciliation of bank (PNB) statements with the NAWASA bank
accounts. x x x. Had the NAWASA representative come to the PNB early for the statements and had the bank been advised
promptly of the reported bogus check, the negotiation of practically all of the remaining checks on May, 1969, totalling
P2,224,736.00 could have been prevented.

The records likewise show that the petitioner failed to provide appropriate security measures over its own records thereby laying confidential records
open to unauthorized persons. The petitioner's own Fact Finding Committee, in its report submitted to their General manager underscored this laxity of
records control. It observed that the "office of Mr. Ongtengco (Cashier No. VI of the Treasury Department at the NAWASA) is quite open to any person
known to him or his staff members and that the check writer is merely on top of his table."

When confronted with this report at the Anti-Fraud Action Section of the National Bureau of Investigation. Mr. Ongtengco could only state that:

A. Generally my order is not to allow anybody to enter my office. Only authorized persons are allowed to enter
my office. There are some cases, however, where some persons enter my office because they are following up
their checks. Maybe, these persons may have been authorized by Mr. Pantig. Most of the people entering my
office are changing checks as allowed by the Resolution of the Board of Directors of the NAWASA and the
Treasurer. The check writer was never placed on my table. There is a place for the check write which is also
under lock and key.

Q. Is Mr. Pantig authorized to allow unauthorized persons to enter your office?

A. No, sir.

Q. Why are you tolerating Mr. Pantig admitting unauthorized persons in your office?

A. I do not want to embarrass Mr. Pantig. Most of the people following up checks are employees of the
NAWASA.

Q. Was the authority given by the Board of Directors and the approval by the Treasurer for employees, and
other persons to encash their checks carry with it their authority to enter your office?

A. No, sir.

xxx xxx xxx

Q. From the answers that you have given to us we observed that actually there is laxity and poor control on
your part with regards to the preparations of check payments inasmuch as you allow unauthorized persons to
follow up their vouchers inside your office which may leakout confidential informations or your books of account.
After being apprised of all the shortcomings in your office, as head of the Cashiers' Office of the Treasury
Department what remedial measures do you intend to undertake?

A. Time and again the Treasurer has been calling our attention not to allow interested persons to hand carry
their voucher checks and we are trying our best and if I can do it to follow the instructions to the letter, I will do it
but unfortunately the persons who are allowed to enter my office are my co-employees and persons who have
connections with our higher ups and I can not possibly antagonize them. Rest assured that even though that
everybody will get hurt, I win do my best not to allow unauthorized persons to enter my office.

xxx xxx xxx

Q. Is it not possible inasmuch as your office is in charge of the posting of check payments in your books that
leakage of payments to the banks came from your office?

A. I am not aware of it but it only takes us a couple of minutes to process the checks. And there are cases
wherein every information about the checks may be obtained from the Accounting Department, Auditing
Department, or the Office of the General Manager.

Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of Investigation concluded in its Report dated November 2, 1970 that the
fraudulent encashment of the twenty-three (23)cheeks in question was an "inside job". Thus-

We have all the reasons to believe that this fraudulent act was an inside job or one pulled with inside connivance at NAWASA. As
pointed earlier in this report, the serial numbers of these checks in question conform with the numbers in current use of NAWASA,
aside from the fact that these fraudulent checks were found to be of the same kind and design as that of NAWASA's own checks.
While knowledge as to such facts may be obtained through the possession of a NAWASA check of current issue, an outsider
without information from the inside can not possibly pinpoint which of NAWASA's various accounts has sufficient balance to cover all
these fraudulent checks. None of these checks, it should be noted, was dishonored for insufficiency of funds. . .

Even if the twenty-three (23) checks in question are considered forgeries, considering the petitioner's gross negligence, it is barred from setting up the
defense of forgery under Section 23 of the Negotiable Instruments Law.
Nonetheless, the petitioner claims that it was the negligence of the respondent Philippine National Bank that was the proximate cause of the loss. The
petitioner relies on our ruling in Philippine National Bank v. Court of Appeals (25 SCRA 693) that.

Thus, by not returning the cheek to the PCIB, by thereby indicating that the PNB had found nothing wrong with the check and would
honor the same, and by actually paying its amount to the PCIB, the PNB induced the latter, not only to believe that the check was
genuine and good in every respect, but, also, to pay its amount to Augusto Lim. In other words, the PNB was the primary or
proximate cause of the loss, and, hence, may not recover from the PCIB.

The argument has no merit. The records show that the respondent drawee bank, had taken the necessary measures in the detection of forged checks
and the prevention of their fraudulent encashment. In fact, long before the encashment of the twenty-three (23) checks in question, the respondent Bank
had issued constant reminders to all Current Account Bookkeepers informing them of the activities of forgery syndicates. The Memorandum of the
Assistant Vice-President and Chief Accountant of the Philippine National Bank dated February 17, 1966 reads in part:

SUBJECT: ACTIVITIES OF FORGERY SYNDICATE

From reliable information we have gathered that personalized checks of current account depositors are now the target of the forgery
syndicate. To protect the interest of the bank, you are hereby enjoined to be more careful in examining said checks especially those
coming from the clearing, mails and window transactions. As a reminder please be guided with the following:

1. Signatures of drawers should be properly scrutinized and compared with those we have on file.

2. The serial numbers of the checks should be compared with the serial numbers registered with the Cashier's Dept.

3. The texture of the paper used and the printing of the checks should be compared with the sample we have on file with the
Cashier's Dept.

4. Checks bearing several indorsements should be given a special attention.

5. Alteration in amount both in figures and words should be carefully examined even if signed by the drawer.

6. Checks issued in substantial amounts particularly by depositors who do not usually issue checks in big amounts should be
brought to the attention of the drawer by telephone or any fastest means of communication for purposes of confirmation.

and your attention is also invited to keep abreast of previous circulars and memo instructions issued to bookkeepers.

We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks because the printing of the petitioner's
personalized checks was not done under the supervision and control of the Bank. There is no evidence on record indicating that because of this private
printing the petitioner furnished the respondent Bank with samples of checks, pens, and inks or took other precautionary measures with the PNB to
safeguard its interests.

Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent encashment of its checks.

WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of merit. The decision of the respondent Court of Appeals dated
October 29, 1982 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.
G.R. No. L-53194 March 14, 1988

PHILIPPINE NATIONAL BANK petitioner,

vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of First Instance of Rizal, Branch XIV, and FRANCISCO S. GOZON II, respondents.

GANCAYCO, J.:

On July 3, 1973, Francisco S. Gozon II, who was a depositor of the Caloocan City Branch of the Philippine National Bank, went to the bank in his car
accompanied by his friend Ernesto Santos whom he left in the car while he transacted business in the bank. When Santos saw that Gozon left his check
book he took a check therefrom, filled it up for the amount of P5,000.00, forged the signature of Gozon, and thereafter he encashed the check in the
bank on the same day. The account of Gozon was debited the said amount. Upon receipt of the statement of account from the bank, Gozon asked that
the said amount of P5,000.00 should be returned to his account as his signature on the check was forged but the bank refused.

Upon complaint of private respondent on February 1, 1974 Ernesto Santos was apprehended by the police authorities and upon investigation he
admitted that he stole the check of Gozon, forged his signature and encashed the same with the Bank.

Hence Gozon filed the complaint for recovery of the amount of P5,000.00, plus interest, damages, attorney's fees and costs against the bank in the
Court of First Instance of Rizal. After the issues were joined and the trial on the merits ensued, a decision was rendered on February 4, 1980, the
dispositive part of which reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff. The defendant is hereby condemned to return to plaintiff the
amount of P5,000.00 which it had unlawfully withheld from the latter, with interest at the legal rate from September 22, 1972 until the
amount is fully delivered. The defendant is further condemned to pay plaintiff the sum of P2,000.00 as attorney's fees and to pay the
costs of this suit.

Not satisfied therewith, the bank now filed this petition for review on certiorari in this Court raising the sole legal issue that —

THE ACT OF RESPONDENT FRANCISCO GOZON, II IN PUTTING HIS CHECK BOOK CONTAINING THE CHECK IN
QUESTION INTO THE HANDS OF ERNESTO SANTOS WAS INDEED THE PROXIMATE CAUSE OF THE LOSS, THEREBY
PRECLUDING HIM FROM SETTING UP THE DEFENSE OF FORGERY OR WANT 0F AUTHORITY UNDER SECTION 23 OF
THE NEGOTIABLE INSTRUMENTS LAW, ACT NO. 3201

The petition is devoid of merit.

This Court reproduces with approval the disquisition of the court a quo as follows:

A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment
out of its own funds, and cannot ordinarily change the amount so paid to the account of the depositor whose name was forged' (San
Carlos Milling Co. vs. Bank of the P.I., 59 Phil. 59).

This rule is absolutely necessary to the circulation of drafts and checks, and is based upon the presumed negligence of the drawee
in failing to meet its obligation to know the signature of its correspondent. ... There is nothing inequitable in such a rule. If the paper
comes to the drawee in the regular course of business, and he, having the opportunity ascertaining its character, pronounces it to be
valid and pays it, it is not only a question of payment under mistake, but payment in neglect of duty which the commercial law places
upon him, and the result of his negligence must rest upon him (12 ALR 1901, citing many cases found in I Agbayani, supra).

Defendant, however, interposed the defense that it exercised diligence in accordance with the accepted norms of banking practice
when it accepted and paid Exhibit "A". It presented evidence that the check had to pass scrutiny by a signature verifier as well as an
officer of the bank.

A comparison of the signature (Exhibit "A-l") on the forged check (Exhibit "A") with plaintiffs exemplar signatures (Exhibits "5-N" and
"5-B") found in the PNB Form 35-A would immediately show the negligence of the employees of the defendant bank. Even a not too
careful comparison would immediately arrest one's attention and direct it to the graceful lines of plaintiffs exemplar signatures found
in Exhibits "5-A" and "5-B". The formation of the first letter "F" in the exemplars, which could be regarded as artistic, is completely
different from the way the same letter is formed in Exhibit "A-l". That alone should have alerted a more careful and prudent signature
verifier.

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. 1 It is expected to
use reasonable business prudence in accepting and cashing a check presented to it.

In this case the findings of facts of the court a quo are conclusive. The trial court found that a comparison of the signature on the forged check and the
sample signatures of private respondent show marked differences as the graceful lines in the sample signature which is completely different from those
of the signature on the forged check. Indeed the NBI handwriting expert Estelita Santiago Agnes whom the trial court considered to be an "unbiased
scientific expert" indicated the marked differences between the signature of private respondent on the sample signatures and the questioned signature.
Notwithstanding the testimony of Col. Fernandez, witness for petitioner, advancing the opinion that the questioned signature appears to be genuine, the
trial court by merely examining the pictorial report presented by said witness, found a marked difference in the second "c" in Francisco as written on the
questioned signature as compared to the sample signatures, and the separation between the "s" and the "c" in the questioned signature while they are
connected in the sample signatures.2

Obviously, petitioner was negligent in encashing said forged check without carefully examining the signature which shows marked variation from the
genuine signature of private respondent.
In reference to the allegation of the petitioner that it is the negligence of private respondent that is the cause of the loss which he suffered, the trial court
held:

The act of plaintiff in leaving his checkbook in the car while he went out for a short while can not be considered negligence sufficient
to excuse the defendant bank from its own negligence. It should be home in mind that when defendant left his car, Ernesto Santos,
a long time classmate and friend remained in the same. Defendant could not have been expected to know that the said Ernesto
Santos would remove a check from his checkbook. Defendant had trust in his classmate and friend. He had no reason to suspect
that the latter would breach that trust .

We agree.

Private respondent trustee Ernesto Santos as a classmate and a friend. He brought him along in his car to the bank and he left his personal belongings
in the car. Santos however removed and stole a check from his cheek book without the knowledge and consent of private respondent. No doubt private
respondent cannot be considered negligent under the circumstances of the case.

WHEREFORE, the petition is DISMISSED for lack of merit with costs against petitioner.

SO ORDERED.
G.R. No. 107382/G.R. No. 107612 January 31, 1996

ASSOCIATED BANK, petitioner,

vs.
HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK, respondents.

xxxxxxxxxxxxxxxxxxxxx

G.R. No. 107612 January 31, 1996

PHILIPPINE NATIONAL BANK, petitioner,

vs.
HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and ASSOCIATED BANK, respondents.

DECISION

ROMERO, J.:

Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank?

This is the main issue in these consolidated petitions for review assailing the decision of the Court of Appeals in "Province of Tarlac v. Philippine
National Bank v. Associated Bank v. Fausto Pangilinan, et. al." (CA-G.R. No. CV No. 17962). 1

The facts of the case are as follows:

The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds are deposited.
Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang
Bayan.

A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. 2 The allotment checks for said government hospital are drawn
to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac." The checks
are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and cashier.

In January 1981, the books of account of the Provincial Treasurer were post-audited by the Provincial Auditor. It was then discovered that the hospital
did not receive several allotment checks drawn by the Province.

On February 19, 1981, the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued from 1977 to
1980 in order to verify the regularity of their encashment. After the checks were examined, the Provincial Treasurer learned that 30 checks amounting to
P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank.

It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital until his retirement on February 28, 1978, collected
the questioned checks from the office of the Provincial Treasurer. He claimed to be assisting or helping the hospital follow up the release of the checks
and had official receipts. 3Pangilinan sought to encash the first check 4 with Associated Bank. However, the manager of Associated Bank refused and
suggested that Pangilinan deposit the check in his personal savings account with the same bank. Pangilinan was able to withdraw the money when the
check was cleared and paid by the drawee bank, PNB.

After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same procedure for the second check, in
the amount of P5,000.00 and dated April 20, 1978, 5 as well as for twenty-eight other checks of various amounts and on various dates. The last check
negotiated by Pangilinan was for f8,000.00 and dated February 10, 1981. 6 All the checks bore the stamp of Associated Bank which reads "All prior
endorsements guaranteed ASSOCIATED BANK."

Jesus David, the manager of Associated Bank testified that Pangilinan made it appear that the checks were paid to him for certain projects with the
hospital. 7 He did not find as irregular the fact that the checks were not payable to Pangilinan but to the Concepcion Emergency Hospital. While he
admitted that his wife and Pangilinan's wife are first cousins, the manager denied having given Pangilinan preferential treatment on this account. 8

On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited from the current
account of the Province. 9

10
In turn, the PNB manager demanded reimbursement from the Associated Bank on May 15, 1981.

As both banks resisted payment, the Province of Tarlac brought suit against PNB which, in turn, impleaded Associated Bank as third-party defendant.
The latter then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. 11

After trial on the merits, the lower court rendered its decision on March 21, 1988, disposing as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. On the basic complaint, in favor of plaintiff Province of Tarlac and against defendant Philippine National Bank (PNB), ordering the latter to
pay to the former, the sum of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interest thereon from March 20,
1981 until fully paid;

2. On the third-party complaint, in favor of defendant/third-party plaintiff Philippine National Bank (PNB) and against third-party
defendant/fourth-party plaintiff Associated Bank ordering the latter to reimburse to the former the amount of Two Hundred Three Thousand
Three Hundred (P203,300.00) Pesos with legal interests thereon from March 20, 1981 until fully paid;.
 3. On the fourth-party complaint, the same is hereby ordered dismissed for lack of cause of action as against fourth-party defendant Adena
Canlas and lack of jurisdiction over the person of fourth-party defendant Fausto Pangilinan as against the latter.

4. On the counterclaims on the complaint, third-party complaint and fourth-party complaint, the same are hereby ordered dismissed for lack of
merit.

SO ORDERED. 12

PNB and Associated Bank appealed to the Court of Appeals. 13 Respondent court affirmed the trial court's decision in toto on September 30, 1992.

Hence these consolidated petitions which seek a reversal of respondent appellate court's decision.

PNB assigned two errors. First, the bank contends that respondent court erred in exempting the Province of Tarlac from liability when, in fact, the latter
was negligent because it delivered and released the questioned checks to Fausto Pangilinan who was then already retired as the hospital's cashier and
administrative officer. PNB also maintains its innocence and alleges that as between two innocent persons, the one whose act was the cause of the loss,
in this case the Province of Tarlac, bears the loss.

Next, PNB asserts that it was error for the court to order it to pay the province and then seek reimbursement from Associated Bank. According to
petitioner bank, respondent appellate Court should have directed Associated Bank to pay the adjudged liability directly to the Province of Tarlac to avoid
circuity. 14

Associated Bank, on the other hand, argues that the order of liability should be totally reversed, with the drawee bank (PNB) solely and ultimately
bearing the loss.

Respondent court allegedly erred in applying Section 23 of the Philippine Clearing House Rules instead of Central Bank Circular No. 580, which, being
an administrative regulation issued pursuant to law, has the force and effect of law. 15 The PCHC Rules are merely contractual stipulations among and
between member-banks. As such, they cannot prevail over the aforesaid CB Circular.

It likewise contends that PNB, the drawee bank, is estopped from asserting the defense of guarantee of prior indorsements against Associated Bank, the
collecting bank. In stamping the guarantee (for all prior indorsements), it merely followed a mandatory requirement for clearing and had no choice but to
place the stamp of guarantee; otherwise, there would be no clearing. The bank will be in a "no-win" situation and will always bear the loss as against the
drawee bank. 16

Associated Bank also claims that since PNB already cleared and paid the value of the forged checks in question, it is now estopped from asserting the
defense that Associated Bank guaranteed prior indorsements. The drawee bank allegedly has the primary duty to verify the genuineness of payee's
indorsement before paying the check. 17

While both banks are innocent of the forgery, Associated Bank claims that PNB was at fault and should solely bear the loss because it cleared and paid
the forged checks.

xxx xxx xxx

The case at bench concerns checks payable to the order of Concepcion Emergency Hospital or its Chief. They were properly issued and bear the
genuine signatures of the drawer, the Province of Tarlac. The infirmity in the questioned checks lies in the payee's (Concepcion Emergency Hospital)
indorsements which are forgeries. At the time of their indorsement, the checks were order instruments.

Checks having forged indorsements should be differentiated from forged checks or checks bearing the forged signature of the drawer.

Section 23 of the Negotiable Instruments Law (NIL) provides:

Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a signature is forged or made without 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.

A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person
whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such
instrument. 18 Section 23 does not avoid the instrument but only the forged signature. 19 Thus, a forged indorsement does not operate as the payee's
indorsement.

The exception to the general rule in Section 23 is where "a party against whom it is sought to enforce a right is precluded from setting up the forgery or
want of authority." Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are
estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are
warrantors of the genuineness of the signatures on the instrument. 20

In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the indorsement is a forgery, only
the person whose signature is forged can raise the defense of forgery against a holder in due course. 21

The checks involved in this case are order instruments, hence, the following discussion is made with reference to the effects of a forged indorsement on
an instrument payable to order.

Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee
hospital) is essential to transfer title to the same instrument. When the holder's indorsement is forged, all parties prior to the forgery may raise the real
defense of forgery against all parties subsequent thereto. 22
An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all
prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting." 23 He cannot interpose the defense
that signatures prior to him are forged.

A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the
indorsement on the check deposited by the banks's client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the
defense of forgery as against the drawee bank.

The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawer's
instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawer's order. When the drawee
bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customer's (the drawer)
account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to
reimbursement from the drawer. 24 The general rule then is that the drawee bank may not debit the drawer's account and is not entitled to indemnification
from the drawer. 25 The risk of loss must perforce fall on the drawee bank.

However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the
forged signature, the drawer is precluded from asserting the forgery.

If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the forgery can be
apportioned between the negligent drawer and the negligent bank. 26

In cases involving a forged check, where the drawer's signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to
pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank
whose responsibility it is to know the drawer's signature since the latter is its customer. 27

In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee
bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and,
of course, to the forger himself, if available. 28 In other words, the drawee bank canseek reimbursement or a return of the amount it paid from the
presentor bank or person. 29 Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls
on the party who took the check from the forger, or on the forger himself.

In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the
latter for the checks bearing forged indorsements. If the forgery is that of the payee's or holder's indorsement, the collecting bank is held liable, without
prejudice to the latter proceeding against the forger.

Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must necessarily return the money
paid by the latter because it was paid wrongfully. 30

More importantly, by reason of the statutory warranty of a general indorser in section 66 of the Negotiable Instruments Law, a collecting bank which
indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement.
It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the
collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on
the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement.

The Court has consistently ruled that "the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness
of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the endorsements." 31

The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness. of any
indorsement. 32 The drawee bank's duty is but to verify the genuineness of the drawer's signature and not of the indorsement because the drawer is its
client.

Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history
because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement.

Hence, the drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has
the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby
depriving said presentor of the right to recover from the forger, the former is deemed negligent and can no longer recover from the presentor. 33

Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks
which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the
drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent, the loss should be properly
apportioned between them.

The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it.
Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable.

If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its
right to reimbursement and will be made to bear the loss.

After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss
from the checks bearing a forged indorsement.

The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer
connected with the hospital. With the exception of the first check (dated January 17, 1978), all the checks were issued and released after Pangilinan's
retirement on February 28, 1978. After nearly three years, the Treasurer's office was still releasing the checks to the retired cashier. In addition, some of
the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were now two persons
collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurer's office of the fraud
being committed. There is also evidence indicating that the provincial employees were aware of Pangilinan's retirement and consequent dissociation
from the hospital. Jose Meru, the Provincial Treasurer, testified:.

ATTY. MORGA:

Q Now, is it true that for a given month there were two releases of checks, one went to Mr. Pangilinan and one went to Miss Juco?

JOSE MERU:

A Yes, sir.

Q Will you please tell us how at the time (sic) when the authorized representative of Concepcion Emergency Hospital is and was supposed to
be Miss Juco?

A Well, as far as my investigation show (sic) the assistant cashier told me that Pangilinan represented himself as also authorized to help in the
release of these checks and we were apparently misled because they accepted the representation of Pangilinan that he was helping them in
the release of the checks and besides according to them they were, Pangilinan, like the rest, was able to present an official receipt to
acknowledge these receipts and according to them since this is a government check and believed that it will eventually go to the hospital
following the standard procedure of negotiating government checks, they released the checks to Pangilinan aside from Miss Juco.34

The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount to negligence. Hence, the Province of
Tarlac should be liable for part of the total amount paid on the questioned checks.

The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and should also bear part
of the loss.

As earlier stated, PNB can recover from the collecting bank.

In the case of Associated Bank v. CA, 35 six crossed checks with forged indorsements were deposited in the forger's account with the collecting bank and
were later paid by four different drawee banks. The Court found the collecting bank (Associated) to be negligent and held:

The Bank should have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the
checks to his own account. The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit only to the
private respondent's account. . . .

The situation in the case at bench is analogous to the above case, for it was not the payee who deposited the checks with the collecting bank. Here, the
checks were all payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who deposited the checks in his personal savings account.

Although Associated Bank claims that the guarantee stamped on the checks (All prior and/or lack of endorsements guaranteed) is merely a requirement
forced upon it by clearing house rules, it cannot but remain liable. The stamp guaranteeing prior indorsements is not an empty rubric which a bank must
fulfill for the sake of convenience. A bank is not required to accept all the checks negotiated to it. It is within the bank's discretion to receive a check for
no banking institution would consciously or deliberately accept a check bearing a forged indorsement. When a check is deposited with the collecting
bank, it takes a risk on its depositor. It is only logical that this bank be held accountable for checks deposited by its customers.

A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence
on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement.

It is here that Associated Bank's assignment of error concerning C.B. Circular No. 580 and Section 23 of the Philippine Clearing House Corporation
Rules comes to fore. Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be returned within twenty-Sour (24) hours
after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank. Section 23 of the
PCHC Rules deleted the requirement that items bearing a forged endorsement should be returned within twenty-four hours. Associated Bank now
argues that the aforementioned Central Bank Circular is applicable. Since PNB did not return the questioned checks within twenty-four hours, but
several days later, Associated Bank alleges that PNB should be considered negligent and not entitled to reimbursement of the amount it paid on the
checks.

The Court deems it unnecessary to discuss Associated Bank's assertions that CB Circular No. 580 is an administrative regulation issued pursuant to law
and as such, must prevail over the PCHC rule. The Central Bank circular was in force for all banks until June 1980 when the Philippine Clearing House
Corporation (PCHC) was set up and commenced operations. Banks in Metro Manila were covered by the PCHC while banks located elsewhere still had
to go through Central Bank Clearing. In any event, the twenty-four-hour return rule was adopted by the PCHC until it was changed in 1982. The
contending banks herein, which are both branches in Tarlac province, are therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly
then, the CB circular was applicable when the forgery of the checks was discovered in 1981.

The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by law for
filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger.
If prompt notice is not given, the collecting bank maybe prejudiced and lose the opportunity to go after its depositor.

The Court finds that even if PNB did not return the questioned checks to Associated Bank within twenty-four hours, as mandated by the rule, PNB did
not commit negligent delay. Under the circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after
Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect the checks and conduct its own
investigation. Thereafter, it requested the Provincial Treasurer's office on March 31, 1981 to return the checks for verification. The Province of Tarlac
returned the checks only on April 22, 1981. Two days later, Associated Bank received the checks from PNB. 36

Associated Bank was also furnished a copy of the Province's letter of demand to PNB dated March 20, 1981, thus giving it notice of the forgeries. At this
time, however, Pangilinan's account with Associated had only P24.63 in it. 37Had Associated Bank decided to debit Pangilinan's account, it could not
have recovered the amounts paid on the questioned checks. In addition, while Associated Bank filed a fourth-party complaint against Fausto Pangilinan,
it did not present evidence against Pangilinan and even presented him as its rebuttal witness. 38 Hence, Associated Bank was not prejudiced by PNB's
failure to comply with the twenty-four-hour return rule.

Next, Associated Bank contends that PNB is estopped from requiring reimbursement because the latter paid and cleared the checks. The Court finds
this contention unmeritorious. Even if PNB cleared and paid the checks, it can still recover from Associated Bank. This is true even if the payee's Chief
Officer who was supposed to have indorsed the checks is also a customer of the drawee bank. 39 PNB's duty was to verify the genuineness of the
drawer's signature and not the genuineness of payee's indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify the
genuineness of the payee's indorsement.

PNB also avers that respondent court erred in adjudging circuitous liability by directing PNB to return to the Province of Tarlac the amount of the checks
and then directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the mode of the award. The drawer, Province of Tarlac, is a
clientor customer of the PNB, not of Associated Bank. There is no privity of contract between the drawer and the collecting bank.

The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981, the date of extrajudicial demand made by the Province of
Tarlac on PNB. The payments to be made in this case stem from the deposits of the Province of Tarlac in its current account with the PNB. Bank
deposits are considered under the law as loans. 40 Central Bank Circular No. 416 prescribes a twelve percent (12%) interest per annum for loans,
forebearance of money, goods or credits in the absence of express stipulation. Normally, current accounts are likewise interest-bearing, by express
contract, thus excluding them from the coverage of CB Circular No. 416. In this case, however, the actual interest rate, if any, for the current account
opened by the Province of Tarlac with PNB was not given in evidence. Hence, the Court deems it wise to affirm the trial court's use of the legal interest
rate, or six percent (6%) per annum. The interest rate shall be computed from the date of default, or the date of judicial or extrajudicial demand. 41 The
trial court did not err in granting legal interest from March 20, 1981, the date of extrajudicial demand.

The Court finds as reasonable, the proportionate sharing of fifty percent - fifty percent (50%-50%). Due to the negligence of the Province of Tarlac in
releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital
for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition
to the hospital's real cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent
thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB.

The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks
which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee
hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payee's indorsement.

IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The
petition for review filed by the Associated Bank (G.R. No. 107382) is hereby DENIED. The decision of the trial court is MODIFIED. The Philippine
National Bank shall pay fifty percent (50%) of P203,300.00 to the Province of Tarlac, with legal interest from March 20, 1981 until the payment thereof.
Associated Bank shall pay fifty percent (50%) of P203,300.00 to the Philippine National Bank, likewise, with legal interest from March 20, 1981 until
payment is made.

SO ORDERED.
G.R. No. 132560 January 30, 2002

WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), petitioner,

vs.
EUGENE ONG, respondent.

DECISION

QUISUMBING, J.:

This is a petition for review of the decision1 dated January 13, 1998, of the Court of Appeals in CA-G.R. CV No. 28304 ordering the petitioner to pay
respondent ₱1,754,787.50 plus twelve percent (12%) interest per annum computed from October 7, 1977, the date of the first extrajudicial demand, plus
damages.

The facts of this case are undisputed.

Respondent Eugene Ong maintained a current account with petitioner, formerly the Associated Banking Corporation, but now known as Westmont Bank.
Sometime in May 1976, he sold certain shares of stocks through Island Securities Corporation. To pay Ong, Island Securities purchased two (2) Pacific
Banking Corporation manager’s checks,2 both dated May 4, 1976, issued in the name of Eugene Ong as payee. Before Ong could get hold of the
checks, his friend Paciano Tanlimco got hold of them, forged Ong’s signature and deposited these with petitioner, where Tanlimco was also a depositor.
Even though Ong’s specimen signature was on file, petitioner accepted and credited both checks to the account of Tanlimco, without verifying the
‘signature indorsements’ appearing at the back thereof. Tanlimco then immediately withdrew the money and absconded.

Instead of going straight to the bank to stop or question the payment, Ong first sought the help of Tanlimco’s family to recover the amount. Later, he
reported the incident to the Central Bank, which like the first effort, unfortunately proved futile.

It was only on October 7, 1977, about five (5) months from discovery of the fraud, did Ong cry foul and demanded in his complaint that petitioner pay the
value of the two checks from the bank on whose gross negligence he imputed his loss. In his suit, he insisted that he did not "deliver, negotiate, endorse
or transfer to any person or entity" the subject checks issued to him and asserted that the signatures on the back were spurious.3

The bank did not present evidence to the contrary, but simply contended that since plaintiff Ong claimed to have never received the originals of the two
(2) checks in question from Island Securities, much less to have authorized Tanlimco to receive the same, he never acquired ownership of these checks.
Thus, he had no legal personality to sue as he is not a real party in interest. The bank then filed a demurrer to evidence which was denied.

On February 8, 1989, after trial on the merits, the Regional Trial Court of Manila, Branch 38, rendered a decision, thus:

IN VIEW OF THE FOREGOING, the court hereby renders judgment for the plaintiff and against the defendant, and orders the defendant to pay the
plaintiff:

1. The sum of P1,754,787.50 representing the total face value of the two checks in question, exhibits "A" and "B", respectively, with interest
thereon at the legal rate of twelve percent (12%) per annum computed from October 7, 1977 (the date of the first extrajudicial demand) up to
and until the same shall have been paid in full;

2. Moral damages in the amount of P250,000.00;

3. Exemplary or corrective damages in the sum of P100,000.00 by way of example or correction for the public good;

4. Attorney’s fees of P50,000.00 and costs of suit.

Defendant’s counterclaims are dismissed for lack of merit.

SO ORDERED.4

Petitioner elevated the case to the Court of Appeals without success. In its decision, the appellate court held:

WHEREFORE, in view of the foregoing, the appealed decision is AFFIRMED in toto.5

Petitioner now comes before this Court on a petition for review, alleging that the Court of Appeals erred:

... IN AFFIRMING THE TRIAL COURT’S CONCLUSION THAT RESPONDENT HAS A CAUSE OF ACTION AGAINST THE PETITIONER.

II

... IN AFFIRMING THE TRIAL COURT’S DECISION FINDING PETITIONER LIABLE TO RESPONDENT AND DECLARING THAT THE
LATTER MAY RECOVER DIRECTLY FROM THE FORMER; AND

III

... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN NOT ABSOLVING PETITIONER FROM LIABILITY.

Essentially the issues in this case are: (1) whether or not respondent Ong has a cause of action against petitioner Westmont Bank; and (2) whether or
not Ong is barred to recover the money from Westmont Bank due to laches.
Respondent admitted that he was never in actual or physical possession of the two (2) checks of the Island Securities nor did he authorize Tanlimco or
any of the latter’s representative to demand, accept and receive the same. For this reason, petitioner argues, respondent cannot sue petitioner because
under Section 51 of the Negotiable Instruments Law6 it is only when a person becomes a holder of a negotiable instrument can he sue in his own name.
Conversely, prior to his becoming a holder, he had no right or cause of action under such negotiable instrument. Petitioner further argues that since
Section 1917 of the Negotiable Instruments Law defines a "holder" as the ‘payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof,’ in order to be a holder, it is a requirement that he be in possession of the instrument or the bearer thereof. Simply stated, since Ong never had
possession of the checks nor did he authorize anybody, he did not become a holder thereof hence he cannot sue in his own name.8

Petitioner also cites Article 12499 of the Civil Code explaining that a check, even if it is a manager’s check, is not legal tender. Hence, the creditor cannot
be compelled to accept payment thru this means.10 It is petitioner’s position that for all intents and purposes, Island Securities has not yet tendered
payment to respondent Ong, thus, any action by Ong should be directed towards collecting the amount from Island Securities. Petitioner claims that
Ong’s cause of action against it has not ripened as of yet. It may be that petitioner would be liable to the drawee bank - - but that is a matter between
petitioner and drawee-bank, Pacific Banking Corporation.11

For its part, respondent Ong leans on the ruling of the trial court and the Court of Appeals which held that the suit of Ong against the petitioner bank is a
desirable shortcut to reach the party who ought in any event to be ultimately liable.12 It likewise cites the ruling of the courts a quo which held that
according to the general rule, a bank who has obtained possession of a check upon an unauthorized or forged indorsement of the payee’s signature and
who collects the amount of the check from the drawee is liable for the proceeds thereof to the payee. The theory of said rule is that the collecting bank’s
possession of such check is wrongful.13

Respondent also cites Associated Bank vs. Court of Appeals14 which held that the collecting bank or last endorser generally suffers the loss because it
has the duty to ascertain the genuineness of all prior endorsements. The collecting bank is also made liable because it is privy to the depositor who
negotiated the check. The bank knows him, his address and history because he is a client. Hence, it is in a better position to detect forgery, fraud or
irregularity in the indorsement.15

Anent Article 1249 of the Civil Code, Ong points out that bank checks are specifically governed by the Negotiable Instruments Law which is a special law
and only in the absence of specific provisions or deficiency in the special law may the Civil Code be invoked.16

Considering the contentions of the parties and the evidence on record, we find no reversible error in the assailed decisions of the appellate and trial
courts, hence there is no justifiable reason to grant the petition.

Petitioner’s claim that respondent has no cause of action against the bank is clearly misplaced. As defined, a cause of action is the act or omission by
which a party violates a right of another.17 The essential elements of a cause of action are: (a) a legal right or rights of the plaintiff, (b) a correlative
obligation of the defendant, and (c) an act or omission of the defendant in violation of said legal right. 18

The complaint filed before the trial court expressly alleged respondent’s right as payee of the manager’s checks to receive the amount involved,
petitioner’s correlative duty as collecting bank to ensure that the amount gets to the rightful payee or his order, and a breach of that duty because of a
blatant act of negligence on the part of petitioner which violated respondent’s rights. 19

Under Section 23 of the Negotiable Instruments Law:

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.

Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an indorsement in favor of the forger, such
signature should be deemed as 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 recover from the collecting bank.

The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payee’s endorsement was genuine
before cashing the check.20 As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged
indorsement of the payee’s signature and who collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other
owner, notwithstanding that the amount has been paid to the person from whom the check was obtained. 21

The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is wrongful, and when the money had been
collected on the check, the bank or other person or corporation can be held as for moneys had and received, and the proceeds are held for the rightful
owners who may recover them. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the
check and collected the money without indorsement at all and the act of the bank amounts to conversion of the check. 22

Petitioner’s claim that since there was no delivery yet and respondent has never acquired possession of the checks, respondent’s remedy is with the
drawer and not with petitioner bank. Petitioner relies on the view to the effect that where there is no delivery to the payee and no title vests in him, he
ought not to be allowed to recover on the ground that he lost nothing because he never became the owner of the check and still retained his claim of
debt against the drawer.23 However, another view in certain cases holds that even if the absence of delivery is considered, such consideration is not
material. The rationale for this view is that in said cases the plaintiff uses one action to reach, by a desirable short cut, the person who ought in any
event to be ultimately liable as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed to recover directly
from the collecting bank, regardless of whether the check was delivered to the payee or not. 24

Considering the circumstances in this case, in our view, petitioner could not escape liability for its negligent acts. Admittedly, respondent Eugene Ong at
the time the fraudulent transaction took place was a depositor of petitioner bank. Banks are engaged in a business impressed with public interest, and it
is their duty to protect in return their many clients and depositors who transact business with them. 25 They have the obligation to treat their client’s
account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks,
therefore, is more than that of a good father of a family. 26 In the present case, petitioner was held to be grossly negligent in performing its duties. As
found by the trial court:

xxx (A)t the time the questioned checks were accepted for deposit to Paciano Tanlimco’s account by defendant bank, defendant bank, admittedly had in
its files specimen signatures of plaintiff who maintained a current account with them (Exhibits "L-1" and "M-1"; testimony of Emmanuel Torio). Given the
substantial face value of the two checks, totalling P1,754,787.50, and the fact that they were being deposited by a person not the payee, the very least
defendant bank should have done, as any reasonable prudent man would have done, was to verify the genuineness of the indorsements thereon. The
Court cannot help but note that had defendant conducted even the most cursory comparison with plaintiff’s specimen signatures in its files (Exhibit "L-1"
and "M-1") it would have at once seen that the alleged indorsements were falsified and were not those of the plaintiff-payee. However, defendant
apparently failed to make such a verification or, what is worse did so but, chose to disregard the obvious dissimilarity of the signatures. The first
omission makes it guilty of gross negligence; the second of bad faith. In either case, defendant is liable to plaintiff for the proceeds of the checks in
question.27

These findings are binding and conclusive on the appellate and the reviewing courts.

On the second issue, petitioner avers that respondent Ong is barred by laches for failing to assert his right for recovery from the bank as soon as he
discovered the scam. The lapse of five months before he went to seek relief from the bank, according to petitioner, constitutes laches.

In turn, respondent contends that petitioner presented no evidence to support its claim of laches. On the contrary, the established facts of the case as
found by the trial court and affirmed by the Court of Appeals are that respondent left no stone unturned to obtain relief from his predicament.

On the matter of delay in reporting the loss, respondent calls attention to the fact that the checks were issued on May 4, 1976, and on the very next day,
May 5, 1976, these were already credited to the account of Paciano Tanlimco and presented for payment to Pacific Banking Corporation. So even if the
theft of the checks were discovered and reported earlier, respondent argues, it would not have altered the situation as the encashment of the checks
was consummated within twenty four hours and facilitated by the gross negligence of the petitioner bank.28

Laches may be defined as the failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could
or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled
thereto has either abandoned or declined to assert it. 29 It concerns itself with whether or not by reason of long inaction or inexcusable neglect, a person
claiming a right should be barred from asserting the same, because to allow him to do so would be unjust to the person against whom such right is
sought to be enforced.30

In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted after knowing of the forgery by proceeding to seek help from
the Tanlimco family and later the Central Bank, to remedy the situation and recover his money from the forger, Paciano Tanlimco. Only after he had
exhausted possibilities of settling the matter amicably with the family of Tanlimco and through the CB, about five months after the unlawful transaction
took place, did he resort to making the demand upon the petitioner and eventually before the court for recovery of the money value of the two checks.
These acts cannot be construed as undue delay in or abandonment of the assertion of his rights.

Moreover, the claim of petitioner that respondent should be barred by laches is clearly a vain attempt to deflect responsibility for its negligent
act.1âwphi1 As explained by the appellate court, it is petitioner which had the last clear chance to stop the fraudulent encashment of the subject checks
had it exercised due diligence and followed the proper and regular banking procedures in clearing checks. 31 As we had earlier ruled, the one who had
the last clear opportunity to avoid the impending harm but failed to do so is chargeable with the consequences thereof. 32

WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals, sustaining the judgment of the Regional
Trial Court of Manila, is AFFIRMED.

Costs against petitioner.

SO ORDERED.

G.R. No. L-62943 July 14, 1986

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,

vs.
COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE PHILIPPINE NATIONAL BANK, respondents.

Juan J. Diaz and Cesar T. Basa for respondent PNB.

San Juan, Africa, Gonzales & San Agustin Law Offices for respondent PCIB.

GUTIERREZ, JR., J.:

This petition for review asks us to set aside the October 29, 1982 decision of the respondent Court of Appeals, now Intermediate Appellate Court which
reversed the decision of the Court of First Instance of Manila, Branch XL, and dismissed the plaintiff's complaint, the third party complaint, as well as the
defendant's counterclaim.

The background facts which led to the filing of the instant petition are summarized in the decision of the respondent Court of Appeals:

Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is a government owned and controlled
corporation created under Republic Act No. 6234 as the successor-in- interest of the defunct NWSA. The Philippine National Bank
(PNB for short), on the other hand, is the depository bank of MWSS and its predecessor-in-interest NWSA. Among the several
accounts of NWSA with PNB is NWSA Account No. 6, otherwise known as Account No. 381-777 and which is presently allocated
No. 010-500281. The authorized signature for said Account No. 6 were those of MWSS treasurer Jose Sanchez, its auditor Pedro
Aguilar, and its acting General Manager Victor L. Recio. Their respective specimen signatures were submitted by the MWSS to and
on file with the PNB. By special arrangement with the PNB, the MWSS used personalized checks in drawing from this account.
These checks were printed for MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal Extension, Caloocan City.

During the months of March, April and May 1969, twenty-three (23) checks were prepared, processed, issued and released by
NWSA, all of which were paid and cleared by PNB and debited by PNB against NWSA Account No. 6, to wit:
Check No. Date Payee Amount Date Paid

By PNB

1. 59546 8-21-69 Deogracias P 3,187.79 4-2-69

Estrella

2. 59548 3-31-69 Natividad 2,848.86 4-23 69

Rosario

3. 59547 3-31-69 Pangilinan 195.00 Unreleased

Enterprises

4. 59549 3-31-69 Natividad 3,239.88 4-23-69

Rosario

5. 59552 4-1-69 Villarama 987.59 5-6-69

& Sons

6. 59554 4-1-69 Gascom 6,057.60 4-16 69

Engineering

7. 59558 4-2-69 The Evening 112.00 Unreleased

News

8. 59544 3-27-69 Progressive 18,391.20 4-18 69

Const.

9. 59564 4-2-69 Ind. Insp. 594.06 4-18 69

Int. Inc.

10. 59568 4-7-69 Roberto 800.00 4-22-69

Marsan

11. 59570 4-7-69 Paz Andres 200.00 4-22-69

12. 59574 4-8-69 Florentino 100,000.00 4-11-69

Santos

13. 59578 4-8-69 Mla. Daily 95.00 Unreleased

Bulletin

14. 59580 4-8-69 Phil. Herald 100.00 5-9-69

15. 59582 4-8-69 Galauran 7,729.09 5-6-69

& Pilar

16. 59581 4-8-69 Manila 110.00 5-12 69

Chronicle

17. 59588 4-8-69 Treago 21,583.00 4-11 69

Tunnel

18. 59587 4-8-69 Delfin 120,000.00 4-11-69

Santiago

19. 59589 4-10-69 Deogracias 1,257.49 4-16 69

Estrella
20. 59594 4-14-69 Philam Ac- 33.03 4-29 69

cident Inc.

21. 59577 4-8-69 Esla 9,429.78 4-29 69

22. 59601 4-16-69 Justino 20,000.00 4-18-69

Torres

23. 59595 4-14-69 Neris Phil. 4,274.00 5-20-69

Inc. --------------------

P 320,636.26

During the same months of March, April and May 1969, twenty-three (23) checks bearing the same numbers as the aforementioned
NWSA checks were likewise paid and cleared by PNB and debited against NWSA Account No. 6, to wit:

Check Date Payee Amount Date Paid

No. Issued By PNB

1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69

2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69

3. 59547 3-14-69 Arturo Sison 56,903.00 4-11-69

4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69

5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69

6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69

7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69

8. 59544 3-16-69 Antonio 38,490.00 4-22-69 Mendoza

9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69

10.59568 4-2-69 Arturo Sison 134,940.00 4- 5-69

11.59570 4-1-69 Arturo Sison 64,550.00 4-28-69

12.59574 4-2-69 Arturo Sison 148,610.00 4-29-69

13.59578 4-10-69 Antonio 93,950.00 4-29-69

Mendoza

14.59580 4-8-69 Arturo Sison 160,000.00 5-2-69

15.59582 4-10-69 Arturo Sison 155,400.00 5-5-69

16.59581 4-8-69 Antonio 176,580.00 5-6-69

Mendoza

17.59588 4-16-69 Arturo Sison 176,000.00 5-8-69

18.59587 4-16-69 Arturo Sison 300,000.00 5-12-69

19.59589 4-18-69 Arturo Sison 122,000.00 5-14-69

20.59594 4-18-69 Arturo Sison 280,000.00 5-15-69

21.59577 4-14-69 Antonio 260,000.00 5-16-69

Mendoza

22.59601 4-18-69 Arturo Sison 400,000.00 5-19-69

23.59595 4-28-69 Arturo Sison 190,800.00 5-21-69

---------------
 P3,457,903.00

The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and Antonio Mendoza in their respective current
accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC) in the months of
March, April and May 1969. Thru the Central Bank Clearing, these checks were presented for payment by PBC and PCIB to the
defendant PNB, and paid, also in the months of March, April and May 1969. At the time of their presentation to PNB these checks
bear the standard indorsement which reads 'all prior indorsement and/or lack of endorsement guaranteed.'

Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo Sison and Antonio Mendoza were all
fictitious persons. The respective balances in their current account with the PBC and/or PCIB stood as follows: Raul Dizon
P3,455.00 as of April 30, 1969; Antonio Mendoza P18,182.00 as of May 23, 1969; and Arturo Sison Pl,398.92 as of June 30, 1969.

On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate restoration to its Account No. 6, of the total sum of
P3,457,903.00 corresponding to the total amount of these twenty-three (23) checks claimed by NWSA to be forged and/or spurious
checks. "In view of the refusal of PNB to credit back to Account No. 6 the said total sum of P3,457,903.00 MWSS filed the instant
complaint on November 10, 1972 before the Court of First Instance of Manila and docketed thereat as Civil Case No. 88950.

In its answer, PNB contended among others, that the checks in question were regular on its face in all respects, including the
genuineness of the signatures of authorized NWSA signing officers and there was nothing on its face that could have aroused any
suspicion as to its genuineness and due execution and; that NWSA was guilty of negligence which was the proximate cause of the
loss.

PNB also filed a third party complaint against the negotiating banks PBC and PCIB on the ground that they failed to ascertain the
Identity of the payees and their title to the checks which were deposited in the respective new accounts of the payees with them.

xxx xxx xxx

On February 6, 1976, the Court of First Instance of Manila rendered judgment in favor of the MWSS. The dispositive portion of the decision reads:

WHEREFORE, on the COMPLAINT by a clear preponderance of evidence and in accordance with Section 23 of the Negotiable
Instruments Law, the Court hereby renders judgment in favor of the plaintiff Metropolitan Waterworks and Sewerage System
(MWSS) by ordering the defendant Philippine National Bank (PNB) to restore the total sum of THREE MILLION FOUR HUNDRED
FIFTY SEVEN THOUSAND NINE HUNDRED THREE PESOS (P3,457,903.00) to plaintiff's Account No. 6, otherwise known as
Account No. 010-50030-3, with legal interest thereon computed from the date of the filing of the complaint and until as restored in
the said Account No. 6.

On the THIRD PARTY COMPLAINT, the Court, for lack of evidence, hereby renders judgment in favor of the third party defendants
Philippine Bank of Commerce (PBC) and Philippine Commercial and Industrial Bank (PCIB) by dismissing the Third Party
Complaint.

The counterclaims of the third party defendants are likewise dismissed for lack of evidence.

No pronouncement as to costs.

As earlier stated, the respondent court reversed the decision of the Court of First Instance of Manila and rendered judgment in favor of the respondent
Philippine National Bank.

A motion for reconsideration filed by the petitioner MWSS was denied by the respondent court in a resolution dated January 3, 1983.

The petitioner now raises the following assignments of errors for the grant of this petition:

I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS WERE FORGED, THE DRAWEE BANK WAS LIABLE FOR
THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW.

II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB IN ACCEPTING THE SPURIOUS CHECKS DESPITE
THE OBVIOUS IRREGULARITY OF TWO SETS OF CHECKS BEARING IdENTICAL NUMBER BEING ENCASHED WITHIN
DAYS OF EACH OTHER.

III. IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE MWSS BEING CLEARLY FORGED, AND THE CHECKS
SPURIOUS, SAME ARE INOPERATIVE AS AGAINST THE ALLEGED DRAWEE.

The appellate court applied Section 24 of the Negotiable Instruments Law which provides:

Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose
signature appears thereon to have become a party thereto for value.

The petitioner submits that the above provision does not apply to the facts of the instant case because the questioned checks were not those of the
MWSS and neither were they drawn by its authorized signatories. The petitioner states that granting that Section 24 of the Negotiable Instruments Law
is applicable, the same creates only a prima facie presumption which was overcome by the following documents, to wit: (1) the NBI Report of November
2, 1970; (2) the NBI Report of November 21, 1974; (3) the NBI Chemistry Report No. C-74891; (4) the Memorandum of Mr. Juan Dino, 3rd Assistant
Auditor of the respondent drawee bank addressed to the Chief Auditor of the petitioner; (5) the admission of the respondent bank's counsel in open court
that the National Bureau of Investigation found the signature on the twenty-three (23) checks in question to be forgeries; and (6) the admission of the
respondent bank's witness, Mr. Faustino Mesina, Jr. that the checks in question were not printed by his printing press. The petitioner contends that since
the signatures of the checks were forgeries, the respondent drawee bank must bear the loss under the rulings of this Court.
 A bank is bound to know the signatures of its customers; and if it pays a forged check it must be considered as making the payment
out of its obligation funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.

xxx xxx xxx

The signatures to the checks being forged, under Section 23 of the Negotiable Instruments Law they are not a charge against
plaintiff nor are the checks of any value to the defendant.

It must therefore be held that the proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in
honoring and cashing the two forged checks. (San Carlos Milling Co. v. Bank of the P. I., 59 Phil. 59)

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 the forger. That the Philippine National Bank then endorsed the chock 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
forged signature. It was its legal duty to know that Malicor's endorsement was genuine before cashing the check. Its remedy is
against Maasim to whom it paid the money. (Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, 43 Phil. 678).

We have carefully reviewed the documents cited by the petitioner. There is no express and categorical finding in these documents that the twenty-three
(23) questioned checks were indeed signed by persons other than the authorized MWSS signatories. On the contrary, the findings of the National
Bureau of Investigation in its Report dated November 2, 1970 show that the MWSS fraud was an "inside job" and that the petitioner's delay in the
reconciliation of bank statements and the laxity and loose records control in the printing of its personalized checks facilitated the fraud. Likewise, the
questioned Documents Report No. 159-1074 dated November 21, 1974 of the National Bureau of Investigation does not declare or prove that the
signatures appearing on the questioned checks are forgeries. The report merely mentions the alleged differences in the type face, checkwriting, and
printing characteristics appearing in the standard or submitted models and the questioned typewritings. The NBI Chemistry Report No. C-74-891 merely
describes the inks and pens used in writing the alleged forged signatures.

It is clear that these three (3) NBI Reports relied upon by the petitioner are inadequate to sustain its allegations of forgery. These reports did not touch
on the inherent qualities of the signatures which are indispensable in the determination of the existence of forgery. There must be conclusive findings
that there is a variance in the inherent characteristics of the signatures and that they were written by two or more different persons.

Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139 SCRA 238). It must be established by clear, positive, and
convincing evidence. This was not done in the present case.

The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59 Phil. 59) and Great Eastern Life Ins., Co. v. Hongkong and Shanghai
Bank (43 Phil. 678) relied upon by the petitioner are inapplicable in this case because the forgeries in those cases were either clearly established or
admitted while in the instant case, the allegations of forgery were not clearly established during trial.

Considering the absence of sufficient security in the printing of the checks coupled with the very close similarities between the genuine signatures and
the alleged forgeries, the twenty-three (23) checks in question could have been presented to the petitioner's signatories without their knowing that they
were bogus checks. Indeed, the cashier of the petitioner whose signatures were allegedly forged was unable to ten the difference between the allegedly
forged signature and his own genuine signature. On the other hand, the MWSS officials admitted that these checks could easily be passed on as
genuine.

The memorandum of Mr. A. T. Tolentino, no, Assistant Chief Accountant of the drawee Philippine National Bank to Mr. E. Villatuya, Executive Vice-
President of the petitioner dated June 9, 1969 cites an instance where even the concerned NWSA officials could not ten the differences between the
genuine checks and the alleged forged checks.

At about 12:00 o'clock on June 6, 1969, VP Maramag requested me to see him in his office at the Cashier's Dept. where Messrs.
Jose M. Sanchez, treasurer of NAWASA and Romeo Oliva of the same office were present. Upon my arrival I observed the
NAWASA officials questioning the issue of the NAWASA checks appearing in their own list, xerox copy attached.

For verification purposes, therefore, the checks were taken from our file. To everybody there present namely VIP Maramag, the two
abovementioned NAWASA officials, AVP, Buhain, Asst. Cashier Castelo, Asst. Cashier Tejada and Messrs. A. Lopez and L.
Lechuga, both C/A bookkeepers, no one was able to point out any difference on the signatures of the NAWASA officials appearing
on the checks compared to their official signatures on file. In fact 3 checks, one of those under question, were presented to the
NAWASA treasurer for verification but he could not point out which was his genuine signature. After intent comparison, he pointed
on the questioned check as bearing his correct signature.

xxx xxx xxx

Moreover, the petitioner is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law which provides that:

SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or made without 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.

because it was guilty of negligence not only before the questioned checks were negotiated but even after the same had already been negotiated. (See
Republic v. Equitable Banking Corporation, 10 SCRA 8) The records show that at the time the twenty-three (23) checks were prepared, negotiated, and
encashed, the petitioner was using its own personalized checks, instead of the official PNB Commercial blank checks. In the exercise of this special
privilege, however, the petitioner failed to provide the needed security measures. That there was gross negligence in the printing of its personalized
checks is shown by the following uncontroverted facts, to wit:

(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions relative to the safekeeping and disposition of excess forms, check
vouchers, and safety papers;
(2) The petitioner failed to retrieve from its printer all spoiled check forms;

(3) The petitioner failed to provide any control regarding the paper used in the printing of said checks;

(4) The petitioner failed to furnish the respondent drawee bank with samples of typewriting, cheek writing, and print used by its printer in the printing of
its checks and of the inks and pens used in signing the same; and

(5) The petitioner failed to send a representative to the printing office during the printing of said checks.

This gross negligence of the petitioner is very evident from the sworn statement dated June 19, 1969 of Faustino Mesina, Jr., the owner of the printing
press which printed the petitioner's personalized checks:

xxx xxx xxx

7. Q: Do you have any business transaction with the National Waterworks and Sewerage Authority (NAWASA)?

A: Yes, sir. I have a contract with the NAWASA in printing NAWASA Forms such as NAWASA Check

xxx xxx xxx

15. Q: Were you given any ingtruction by the NAWASA in connection with the printing of these check vouchers?

A: There is none, sir. No instruction whatsoever was given to me.

16. Q: Were you not advised as to what kind of paper would be used in the check vouchers?

A: Only as per sample, sir.

xxx xxx xxx

20. Q: Where did you buy this Hammermill Safety check paper?

A: From Tan Chiong, a paper dealer with store located at Juan Luna, Binondo, Manila. (In front of the
Metropolitan Bank).

xxx xxx xxx

24. Q: Were all these check vouchers printed by you submitted to NAWASA?

A: Not all, sir. Because we have to make reservations or allowances for spoilage.

25. Q: Out of these vouchers printed by you, how many were spoiled and how many were the excess printed
check vouchers?

A: Approximately four hundred (400) sheets, sir. I cannot determine the proportion of the excess and spoiled
because the final act of perforating these check vouchers has not yet been done and spoilage can only be
determined after this final act of printing.

26. Q: What did you do with these excess check vouchers?

A: I keep it under lock and key in my firing cabinet.

xxx xxx xxx

28. Q: Were you not instructed by the NAWASA authorities to bum these excess check vouchers?

A: No, sir. I was not instructed.

29. Q: What do you intend to do with these excess printed check vouchers?

A: I intend to use them for future orders from the

xxx xxx xxx

32. Q: In the process of printing the check vouchers ordered by the NAWASA, how many sheets were actually
spoiled?

A: I cannot approximate, sir. But there are spoilage in the process of printing and perforating.

33. Q: What did you do with these spoilages?

A: Spoiled printed materials are usually thrown out, in the garbage can.

34. Q: Was there any representative of the NAWASA to supervise the printing or watch the printing of these
check vouchers?
 A: None, sir.

xxx xxx xxx

39. Q: During the period of printing after the days work, what measures do you undertake to safeguard the mold
and other paraphernalia used in the printing of these particular orders of NAWASA?

A: Inasmuch as I have an employee who sleeps in the printing shop and at the same time do the guarding, we
just leave the mold attached to the machine and the other finished or unfinished work check vouchers are left in
the rack so that the work could be continued the following day.

The National Bureau of Investigation Report dated November 2, 1970 is even more explicit. Thus—

xxx xxx xxx

60. We observed also that there is some laxity and loose control in the printing of NAWASA cheeks. We
gathered from MESINA ENTERPRISES, the printing firm that undertook the printing of the check vouchers of
NAWASA that NAWASA had no representative at the printing press during the process of the printing and no
particular security measure instructions adopted to safeguard the interest of the government in connection with
printing of this accountable form.

Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks in question was the failure of the petitioner to reconcile the
bank statements with its own records.

It is accepted banking procedure for the depository bank to furnish its depositors bank statements and debt and credit memos through the mail. The
records show that the petitioner requested the respondent drawee bank to discontinue the practice of mailing the bank statements, but instead to deliver
the same to a certain Mr. Emiliano Zaporteza. For reasons known only to Mr. Zaporteza however, he was unreasonably delayed in taking prompt
deliveries of the said bank statements and credit and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the bank statements with the
petitioner's records. If Mr. Zaporteza had not been remiss in his duty of taking the bank statements and reconciling them with the petitioner's records, the
fraudulent encashments of the first checks should have been discovered, and further frauds prevented. This negligence was, therefore, the proximate
cause of the failure to discover the fraud. Thus,

When a person opens a checking account with a bank, he is given blank checks which he may fill out and use whenever he wishes.
Each time he issues a check, he should also fill out the check stub to which the check is usually attached. This stub, if properly kept,
will contain the number of the check, the date of its issue, the name of the payee and the amount thereof. The drawer would
therefore have a complete record of the checks he issues. It is the custom of banks to send to its depositors a monthly statement of
the status of their accounts, together with all the cancelled checks which have been cashed by their respective holders. If the
depositor has filled out his check stubs properly, a comparison between them and the cancelled checks will reveal any forged check
not taken from his checkbook. It is the duty of a depositor to carefully examine the bank's statement, his cancelled checks, his check
stubs and other pertinent records within a reasonable time, and to report any errors without unreasonable delay. If his negligence
should cause the bank to honor a forged check or prevent it from recovering the amount it may have already paid on such check, he
cannot later complain should the bank refuse to recredit his account with the amount of such check. (First Nat. Bank of Richmond v.
Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA, NS 744 [1907]. See also Leather Manufacturers' Bank v. Morgan, 117 US
96, 6 S. Ct. 657 [1886]; Deer Island Fish and Oyster Co. v. First Nat. Bank of Biloxi, 166 Miss. 162, 146 So. 116 [1933]). Campos
and Campos, Notes and Selected Cases on Negotiable Instruments Law, 1971, pp. 267-268).

This failure of the petitioner to reconcile the bank statements with its cancelled checks was noted by the National Bureau of Investigation in its report
dated November 2, 1970:

58. One factor which facilitate this fraud was the delay in the reconciliation of bank (PNB) statements with the NAWASA bank
accounts. x x x. Had the NAWASA representative come to the PNB early for the statements and had the bank been advised
promptly of the reported bogus check, the negotiation of practically all of the remaining checks on May, 1969, totalling
P2,224,736.00 could have been prevented.

The records likewise show that the petitioner failed to provide appropriate security measures over its own records thereby laying confidential records
open to unauthorized persons. The petitioner's own Fact Finding Committee, in its report submitted to their General manager underscored this laxity of
records control. It observed that the "office of Mr. Ongtengco (Cashier No. VI of the Treasury Department at the NAWASA) is quite open to any person
known to him or his staff members and that the check writer is merely on top of his table."

When confronted with this report at the Anti-Fraud Action Section of the National Bureau of Investigation. Mr. Ongtengco could only state that:

A. Generally my order is not to allow anybody to enter my office. Only authorized persons are allowed to enter
my office. There are some cases, however, where some persons enter my office because they are following up
their checks. Maybe, these persons may have been authorized by Mr. Pantig. Most of the people entering my
office are changing checks as allowed by the Resolution of the Board of Directors of the NAWASA and the
Treasurer. The check writer was never placed on my table. There is a place for the check write which is also
under lock and key.

Q. Is Mr. Pantig authorized to allow unauthorized persons to enter your office?

A. No, sir.

Q. Why are you tolerating Mr. Pantig admitting unauthorized persons in your office?

A. I do not want to embarrass Mr. Pantig. Most of the people following up checks are employees of the
NAWASA.
 Q. Was the authority given by the Board of Directors and the approval by the Treasurer for employees, and
other persons to encash their checks carry with it their authority to enter your office?

A. No, sir.

xxx xxx xxx

Q. From the answers that you have given to us we observed that actually there is laxity and poor control on
your part with regards to the preparations of check payments inasmuch as you allow unauthorized persons to
follow up their vouchers inside your office which may leakout confidential informations or your books of account.
After being apprised of all the shortcomings in your office, as head of the Cashiers' Office of the Treasury
Department what remedial measures do you intend to undertake?

A. Time and again the Treasurer has been calling our attention not to allow interested persons to hand carry
their voucher checks and we are trying our best and if I can do it to follow the instructions to the letter, I will do it
but unfortunately the persons who are allowed to enter my office are my co-employees and persons who have
connections with our higher ups and I can not possibly antagonize them. Rest assured that even though that
everybody will get hurt, I win do my best not to allow unauthorized persons to enter my office.

xxx xxx xxx

Q. Is it not possible inasmuch as your office is in charge of the posting of check payments in your books that
leakage of payments to the banks came from your office?

A. I am not aware of it but it only takes us a couple of minutes to process the checks. And there are cases
wherein every information about the checks may be obtained from the Accounting Department, Auditing
Department, or the Office of the General Manager.

Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of Investigation concluded in its Report dated November 2, 1970 that the
fraudulent encashment of the twenty-three (23)cheeks in question was an "inside job". Thus-

We have all the reasons to believe that this fraudulent act was an inside job or one pulled with inside connivance at NAWASA. As
pointed earlier in this report, the serial numbers of these checks in question conform with the numbers in current use of NAWASA,
aside from the fact that these fraudulent checks were found to be of the same kind and design as that of NAWASA's own checks.
While knowledge as to such facts may be obtained through the possession of a NAWASA check of current issue, an outsider
without information from the inside can not possibly pinpoint which of NAWASA's various accounts has sufficient balance to cover all
these fraudulent checks. None of these checks, it should be noted, was dishonored for insufficiency of funds. . .

Even if the twenty-three (23) checks in question are considered forgeries, considering the petitioner's gross negligence, it is barred from setting up the
defense of forgery under Section 23 of the Negotiable Instruments Law.

Nonetheless, the petitioner claims that it was the negligence of the respondent Philippine National Bank that was the proximate cause of the loss. The
petitioner relies on our ruling in Philippine National Bank v. Court of Appeals (25 SCRA 693) that.

Thus, by not returning the cheek to the PCIB, by thereby indicating that the PNB had found nothing wrong with the check and would
honor the same, and by actually paying its amount to the PCIB, the PNB induced the latter, not only to believe that the check was
genuine and good in every respect, but, also, to pay its amount to Augusto Lim. In other words, the PNB was the primary or
proximate cause of the loss, and, hence, may not recover from the PCIB.

The argument has no merit. The records show that the respondent drawee bank, had taken the necessary measures in the detection of forged checks
and the prevention of their fraudulent encashment. In fact, long before the encashment of the twenty-three (23) checks in question, the respondent Bank
had issued constant reminders to all Current Account Bookkeepers informing them of the activities of forgery syndicates. The Memorandum of the
Assistant Vice-President and Chief Accountant of the Philippine National Bank dated February 17, 1966 reads in part:

SUBJECT: ACTIVITIES OF FORGERY SYNDICATE

From reliable information we have gathered that personalized checks of current account depositors are now the target of the forgery
syndicate. To protect the interest of the bank, you are hereby enjoined to be more careful in examining said checks especially those
coming from the clearing, mails and window transactions. As a reminder please be guided with the following:

1. Signatures of drawers should be properly scrutinized and compared with those we have on file.

2. The serial numbers of the checks should be compared with the serial numbers registered with the Cashier's Dept.

3. The texture of the paper used and the printing of the checks should be compared with the sample we have on file with the
Cashier's Dept.

4. Checks bearing several indorsements should be given a special attention.

5. Alteration in amount both in figures and words should be carefully examined even if signed by the drawer.

6. Checks issued in substantial amounts particularly by depositors who do not usually issue checks in big amounts should be
brought to the attention of the drawer by telephone or any fastest means of communication for purposes of confirmation.

and your attention is also invited to keep abreast of previous circulars and memo instructions issued to bookkeepers.
We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks because the printing of the petitioner's
personalized checks was not done under the supervision and control of the Bank. There is no evidence on record indicating that because of this private
printing the petitioner furnished the respondent Bank with samples of checks, pens, and inks or took other precautionary measures with the PNB to
safeguard its interests.

Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent encashment of its checks.

WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of merit. The decision of the respondent Court of Appeals dated
October 29, 1982 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.
G.R. No. 138074 August 15, 2003

CELY YANG, Petitioner,

vs.
HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO., EQUITABLE BANKING
CORPORATION, PREM CHANDIRAMANI and FERNANDO DAVID, Respondents.

DECISION

QUISUMBING, J.:

For review on certiorari is the decision1 of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398, which affirmed with modification the
joint decision of the Regional Trial Court (RTC) of Pasay City, Branch 117, dated July 4, 1995, in Civil Cases Nos. 5479 2 and 5492.3 The trial court
dismissed the complaint against herein respondents Far East Bank & Trust Company (FEBTC), Equitable Banking Corporation (Equitable), and
Philippine Commercial International Bank (PCIB) and ruled in favor of respondent Fernando David as to the proceeds of the two cashier’s checks,
including the earnings thereof pendente lite. Petitioner Cely Yang was ordered to pay David moral damages of ₱100,000.00 and attorney’s fees also in
the amount of ₱100,000.00.

The facts of this case are not disputed, to wit:

On or before December 22, 1987, petitioner Cely Yang and private respondent Prem Chandiramani entered into an agreement whereby the latter was to
give Yang a PCIB manager’s check in the amount of ₱4.2 million in exchange for two (2) of Yang’s manager’s checks, each in the amount of ₱2.087
million, both payable to the order of private respondent Fernando David. Yang and Chandiramani agreed that the difference of ₱26,000.00 in the
exchange would be their profit to be divided equally between them.

Yang and Chandiramani also further agreed that the former would secure from FEBTC a dollar draft in the amount of US$200,000.00, payable to PCIB
FCDU Account No. 4195-01165-2, which Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang Seng Bank
Ltd. of Hong Kong.

Accordingly, on December 22, 1987, Yang procured the following:

a) Equitable Cashier’s Check No. CCPS 14-009467 in the sum of ₱2,087,000.00, dated December 22, 1987, payable to the order of Fernando
David;

b) FEBTC Cashier’s Check No. 287078, in the amount of ₱2,087,000.00, dated December 22, 1987, likewise payable to the order of Fernando
David; and

c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the amount of US$200,000.00, dated December 22, 1987, payable to
PCIB FCDU Account No. 4195-01165-2.

At about one o’clock in the afternoon of the same day, Yang gave the aforementioned cashier’s checks and dollar drafts to her business associate,
Albert Liong, to be delivered to Chandiramani by Liong’s messenger, Danilo Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala
Avenue, Makati City, Metro Manila where he would turn over Yang’s cashier’s checks and dollar draft to Chandiramani who, in turn, would deliver to
Ranigo a PCIB manager’s check in the sum of P4.2 million and a Hang Seng Bank dollar draft for US$200,000.00 in exchange.

Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashier’s checks and the dollar draft bought by petitioner. Ranigo
reported the alleged loss of the checks and the dollar draft to Liong at half past four in the afternoon of December 22, 1987. Liong, in turn, informed
Yang, and the loss was then reported to the police.

It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was able to get hold of said instruments, without delivering the
exchange consideration consisting of the PCIB manager’s check and the Hang Seng Bank dollar draft.

At three o’clock in the afternoon or some two (2) hours after Chandiramani and Ranigo were to meet in Makati City, Chandiramani delivered to
respondent Fernando David at China Banking Corporation branch in San Fernando City, Pampanga, the following: (a) FEBTC Cashier’s Check No.
287078, dated December 22, 1987, in the sum of ₱2.087 million; and (b) Equitable Cashier’s Check No. CCPS 14-009467, dated December 22, 1987,
also in the amount of ₱2.087 million. In exchange, Chandiramani got US$360,000.00 from David, which Chandiramani deposited in the savings account
of his wife, Pushpa Chandiramani; and his mother, Rani Reynandas, who held FCDU Account No. 124 with the United Coconut Planters Bank branch in
Greenhills, San Juan, Metro Manila. Chandiramani also deposited FEBTC Dollar Draft No. 4771, dated December 22, 1987, drawn upon the Chemical
Bank, New York for US$200,000.00 in PCIB FCDU Account No. 4195-01165-2 on the same date.

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. Both banks complied with her request,
but upon the representation of PCIB, FEBTC subsequently lifted the stop payment order on FEBTC Dollar Draft No. 4771, thus enabling the holder of
PCIB FCDU Account No. 4195-01165-2 to receive the amount of US$200,000.00.

On December 28, 1987, herein petitioner Yang lodged a Complaint 4 for injunction and damages against Equitable, Chandiramani, and David, with prayer
for a temporary restraining order, with the Regional Trial Court of Pasay City. The Complaint was docketed as Civil Case No. 5479. The Complaint was
subsequently amended to include a prayer for Equitable to return to Yang the amount of P2.087 million, with interest thereon until fully paid. 5

On January 12, 1988, Yang filed a separate case for injunction and damages, with prayer for a writ of preliminary injunction against FEBTC, PCIB,
Chandiramani and David, with the RTC of Pasay City, docketed as Civil Case No. 5492. This complaint was later amended to include a prayer that
defendants therein return to Yang the amount of P2.087 million, the value of FEBTC Dollar Draft No. 4771, with interest at 18% annually until fully paid.6

On February 9, 1988, upon the filing of a bond by Yang, the trial court issued a writ of preliminary injunction in Civil Case No. 5479. A writ of preliminary
injunction was subsequently issued in Civil Case No. 5492 also.
Meanwhile, herein respondent David moved for dismissal of the cases against him and for reconsideration of the Orders granting the writ of preliminary
injunction, but these motions were denied. David then elevated the matter to the Court of Appeals in a special civil action for certiorari docketed as CA-
G.R. SP No. 14843, which was dismissed by the appellate court.

As Civil Cases Nos. 5479 and 5492 arose from the same set of facts, the two cases were consolidated. The trial court then conducted pre-trial and trial
of the two cases, but the proceedings had to be suspended after a fire gutted the Pasay City Hall and destroyed the records of the courts.

After the records were reconstituted, the proceedings resumed and the parties agreed that the money in dispute be invested in Treasury Bills to be
awarded in favor of the prevailing side. It was also agreed by the parties to limit the issues at the trial to the following:

1. Who, between David and Yang, is legally entitled to the proceeds of Equitable Banking Corporation (EBC) Cashier’s Check No. CCPS 14-
009467 in the sum of ₱2,087,000.00 dated December 22, 1987, and Far East Bank and Trust Company (FEBTC) Cashier’s Check No.
287078 in the sum of ₱2,087,000.00 dated December 22, 1987, together with the earnings derived therefrom pendente lite?

2. Are the defendants FEBTC and PCIB solidarily liable to Yang for having allowed the encashment of FEBTC Dollar Draft No. 4771, in the
sum of US$200,000.00 plus interest thereon despite the stop payment order of Cely Yang? 7

On July 4, 1995, the trial court handed down its decision in Civil Cases Nos. 5479 and 5492, to wit:

WHEREFORE, the Court renders judgment in favor of defendant Fernando David against the plaintiff Cely Yang and declaring the former entitled to the
proceeds of the two (2) cashier’s checks, together with the earnings derived therefrom pendente lite; ordering the plaintiff to pay the defendant Fernando
David moral damages in the amount of ₱100,000.00; attorney’s fees in the amount of ₱100,000.00 and to pay the costs. The complaint against Far East
Bank and Trust Company (FEBTC), Philippine Commercial International Bank (PCIB) and Equitable Banking Corporation (EBC) is dismissed. The
decision is without prejudice to whatever action plaintiff Cely Yang will file against defendant Prem Chandiramani for reimbursement of the amounts
received by him from defendant Fernando David.

SO ORDERED.8

In finding for David, the trial court ratiocinated:

The evidence shows that defendant David was a holder in due course for the reason that the cashier’s checks were complete on their face when they
were negotiated to him. They were not yet overdue when he became the holder thereof and he had no notice that said checks were previously
dishonored; he took the cashier’s checks in good faith and for value. He parted some $200,000.00 for the two (2) cashier’s checks which were given to
defendant Chandiramani; he had also no notice of any infirmity in the cashier’s checks or defect in the title of the drawer. As a matter of fact, he asked
the manager of the China Banking Corporation to inquire as to the genuineness of the cashier’s checks (tsn, February 5, 1988, p. 21, September 20,
1991, pp. 13-14). Another proof that defendant David is a holder in due course is the fact that the stop payment order on [the] FEBTC cashier’s check
was lifted upon his inquiry at the head office (tsn, September 20, 1991, pp. 24-25). The apparent reason for lifting the stop payment order was because
of the fact that FEBTC realized that the checks were not actually lost but indeed reached the payee defendant David. 9

Yang then moved for reconsideration of the RTC judgment, but the trial court denied her motion in its Order of September 20, 1995.

In the belief that the trial court misunderstood the concept of a holder in due course and misapprehended the factual milieu, Yang seasonably filed an
appeal with the Court of Appeals, docketed as CA-G.R. CV No. 52398.

On March 25, 1999, the appellate court decided CA-G.R. CV No. 52398 in this wise:

WHEREFORE, this court AFFIRMS the judgment of the lower court with modification and hereby orders the plaintiff-appellant to pay defendant-
appellant PCIB the amount of Twenty-Five Thousand Pesos (₱25,000.00).

SO ORDERED.10

In affirming the trial court’s judgment with respect to herein respondent David, the appellate court found that:

In this case, defendant-appellee had taken the necessary precautions to verify, through his bank, China Banking Corporation, the genuineness of
whether (sic) the cashier’s checks he received from Chandiramani. As no stop payment order was made yet (at) the time of the inquiry, defendant-
appellee had no notice of what had transpired earlier between the plaintiff-appellant and Chandiramani. All he knew was that the checks were issued to
Chandiramani with whom he was he had (sic) a transaction. Further on, David received the checks in question in due course because Chandiramani,
who at the time the checks were delivered to David, was acting as Yang’s agent.

David had no notice, real or constructive, cogent for him to make further inquiry as to any infirmity in the instrument(s) and defect of title of the holder. To
mandate that each holder inquire about every aspect on how the instrument came about will unduly impede commercial transactions,
Although negotiable instruments do not constitute legal tender, they often take the place of money as a means of payment.

The mere fact that David and Chandiramani knew one another for a long time is not sufficient to establish that they connived with each other to defraud
Yang. There was no concrete proof presented by Yang to support her theory. 11

The appellate court awarded ₱25,000.00 in attorney’s fees to PCIB as it found the action filed by Yang against said bank to be "clearly unfounded and
baseless." Since PCIB was compelled to litigate to protect itself, then it was entitled under Article 2208 12 of the Civil Code to attorney’s fees and litigation
expenses.

Hence, the instant recourse wherein petitioner submits the following issues for resolution:

a - WHETHER THE CHECKS WERE ISSUED TO PREM CHANDIRAMANI BY PETITIONER;

b - WHETHER THE ALLEGED TRANSACTION BETWEEN PREM CHANDIRAMANI AND FERNANDO DAVID IS LEGITIMATE OR A
SCHEME BY BOTH PRIVATE RESPONDENTS TO SWINDLE PETITIONER;
 c - WHETHER FERNANDO DAVID GAVE PREM CHANDIRAMANI US$360,000.00 OR JUST A FRACTION OF THE AMOUNT
REPRESENTING HIS SHARE OF THE LOOT;

d - WHETHER PRIVATE RESPONDENTS FERNANDO DAVID AND PCIB ARE ENTITLED TO DAMAGES AND ATTORNEY’S FEES. 13

At the outset, we must stress that this is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure. It is basic that in petitions for review
under Rule 45, the jurisdiction of this Court is limited to reviewing questions of law, questions of fact are not entertained absent a showing that the
factual findings complained of are totally devoid of support in the record or are glaringly erroneous. 14 Given the facts in the instant case, despite
petitioner’s formulation, we find that the following are the pertinent issues to be resolved:

a) Whether the Court of Appeals erred in holding herein respondent Fernando David to be a holder in due course; and

b) Whether the appellate court committed a reversible error in awarding damages and attorney’s fees to David and PCIB.

On the first issue, petitioner Yang contends that private respondent Fernando David is not a holder in due course of the checks in question. While it is
true that he was named the payee thereof, David failed to inquire from Chandiramani about how the latter acquired possession of said checks. Given his
failure to do so, it cannot be said that David was unaware of any defect or infirmity in the title of Chandiramani to the checks at the time of their
negotiation. Moreover, inasmuch as the checks were crossed, then David should have, pursuant to our ruling in Bataan Cigar & Cigarette Factory, Inc. v.
Court of Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA 643, been put on guard that the checks were issued for a definite purpose and
accordingly, made inquiries to determine if he received the checks pursuant to that purpose. His failure to do so negates the finding in the proceedings
below that he was a holder in due course.

Finally, the petitioner argues that there is no showing whatsoever that David gave Chandiramani any consideration of value in exchange for the
aforementioned checks.

Private respondent Fernando David counters that the evidence on record shows that when he received the checks, he verified their genuineness with his
bank, and only after said verification did he deposit them. David stresses that he had no notice of previous dishonor or any infirmity that would have
aroused his suspicions, the instruments being complete and regular upon their face. David stresses that the checks in question were cashier’s checks.
From the very nature of cashier’s checks, it is highly unlikely that he would have suspected that something was amiss. David also stresses negotiable
instruments are presumed to have been issued for valuable consideration, and he who alleges otherwise must controvert the presumption with sufficient
evidence. The petitioner failed to discharge this burden, according to David. He points out that the checks were delivered to him as the payee, and he
took them as holder and payee thereof. Clearly, he concludes, he should be deemed to be their holder in due course.

We shall now resolve the first issue.

Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises only in favor of a person who is
a holder as defined in Section 191 of the Negotiable Instruments Law, 15meaning a "payee or indorsee of a bill or note, who is in possession of it, or the
bearer thereof."

In the present case, it is not disputed that David was the payee of the checks in question. The weight of authority sustains the view that a payee may be
a holder in due course.16 Hence, the presumption that he is a prima facieholder in due course applies in his favor. However, said presumption may be
rebutted. Hence, what is vital to the resolution of this issue is whether David took possession of the checks under the conditions provided for in Section
5217 of the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in David’s case, otherwise he cannot be deemed a
holder in due course.

We find that the petitioner’s challenge to David’s status as a holder in due course hinges on two arguments: (1) the lack of proof to show that David
tendered any valuable consideration for the disputed checks; and (2) David’s failure to inquire from Chandiramani as to how the latter acquired
possession of the checks, thus resulting in David’s intentional ignorance tantamount to bad faith. In sum, petitioner posits that the last two requisites of
Section 52 are missing, thereby preventing David from being considered a holder in due course. Unfortunately for the petitioner, her arguments on this
score are less than meritorious and far from persuasive.

First, with respect to consideration, Section 2418 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the
same for a consideration19 or for value.20 Thus, the law itself creates a presumption in David’s favor that he gave valuable consideration for the checks in
question. In alleging otherwise, the petitioner has the onus to prove that David got hold of the checks absent said consideration. In other words, the
petitioner must present convincing evidence to overthrow the presumption. Our scrutiny of the records, however, shows that the petitioner failed to
discharge her burden of proof. The petitioner’s averment that David did not give valuable consideration when he took possession of the checks is
unsupported, devoid of any concrete proof to sustain it. Note that both the trial court and the appellate court found that David did not receive the
checks gratis, but instead gave Chandiramani US$360,000.00 as consideration for the said instruments. Factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Court; they carry great weight when the factual findings of the trial court are affirmed by the
appellate court.21

Second, petitioner fails to point any circumstance which should have put David on inquiry as to the why and wherefore of the possession of the checks
by Chandiramani. David was not privy to the transaction between petitioner and Chandiramani. Instead, Chandiramani and David had a separate dealing
in which it was precisely Chandiramani’s duty to deliver the checks to David as payee. The evidence shows that Chandiramani performed said task to
the letter. Petitioner admits that David took the step of asking the manager of his bank to verify from FEBTC and Equitable as to the genuineness of the
checks and only accepted the same after being assured that there was nothing wrong with said checks. At that time, David was not aware of any "stop
payment" order. Under these circumstances, David thus had no obligation to ascertain from Chandiramani what the nature of the latter’s title to the
checks was, if any, or the nature of his possession. Thus, we cannot hold him guilty of gross neglect amounting to legal absence of good faith, absent
any showing that there was something amiss about Chandiramani’s acquisition or possession of the checks. David did not close his eyes deliberately to
the nature or the particulars of a fraud allegedly committed by Chandiramani upon the petitioner, absent any knowledge on his part that the action in
taking the instruments amounted to bad faith.22

Belatedly, and we say belatedly since petitioner did not raise this matter in the proceedings below, petitioner now claims that David should have been
put on alert as the instruments in question were crossed checks. Pursuant to Bataan Cigar & Cigarette Factory, Inc. v. Court of Appeals, David should at
least have inquired as to whether he was acquiring said checks for the purpose for which they were issued, according to petitioner’s submission.
Petitioner’s reliance on the Bataan Cigar case, however, is misplaced. The facts in the present case are not on all fours with Bataan Cigar. In the latter
case, the crossed checks were negotiated and sold at a discount by the payee, while in the instant case, the payee did not negotiate further the checks
in question but promptly deposited them in his bank account.

The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce23 makes reference to such instruments.
Nonetheless, this Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could
only be deposited and not converted into cash.24 The effects of crossing a check, thus, relates to the mode of payment, meaning that the drawer had
intended the check for deposit only by the rightful person, i.e., the payee named therein. In Bataan Cigar, the rediscounting of the check by the payee
knowingly violated the avowed intention of crossing the check. Thus, in accepting the cross checks and paying cash for them, despite the warning of the
crossing, the subsequent holder could not be considered in good faith and thus, not a holder in due course. Our ruling in Bataan Cigar reiterates that
in De Ocampo & Co. v. Gatchalian.25

The factual circumstances in De Ocampo and in Bataan Cigar are not present in this case. For here, there is no dispute that the crossed checks were
delivered and duly deposited by David, the payee named therein, in his bank account. In other words, the purpose behind the crossing of the checks
was satisfied by the payee.

Proceeding to the issue of damages, petitioner merely argues that respondents David and PCIB are not entitled to damages, attorney’s fees, and costs
of suit as both acted in bad faith towards her, as shown by her version of the facts which gave rise to the instant case.

Respondent David counters that he was maliciously and unceremoniously dragged into this suit for reasons which have nothing to do with him at all, but
which arose from petitioner’s failure to receive her share of the profit promised her by Chandiramani.1âwphi1 Moreover, in filing this suit which has
lasted for over a decade now, the petitioner deprived David of the rightful enjoyment of the two checks, to which he is entitled, under the law, compelled
him to hire the services of counsel to vindicate his rights, and subjected him to social humiliation and besmirched reputation, thus harming his standing
as a person of good repute in the business community of Pampanga. David thus contends that it is but proper that moral damages, attorney’s fees, and
costs of suit be awarded him.

For its part, respondent PCIB stresses that it was established by both the trial court and the appellate court that it was needlessly dragged into this case.
Hence, no error was committed by the appellate court in declaring PCIB entitled to attorney’s fees as it was compelled to litigate to protect itself.

We have thoroughly perused the records of this case and find no reason to disagree with the finding of the trial court, as affirmed by the appellate court,
that:

[D]efendant David is entitled to [the] award of moral damages as he has been needlessly and unceremoniously dragged into this case which should
have been brought only between the plaintiff and defendant Chandiramani. 26

A careful reading of the findings of facts made by both the trial court and appellate court clearly shows that the petitioner, in including David as a party in
these proceedings, is barking up the wrong tree. It is apparent from the factual findings that David had no dealings with the petitioner and was not privy
to the agreement of the latter with Chandiramani. Moreover, any loss which the petitioner incurred was apparently due to the acts or omissions of
Chandiramani, and hence, her recourse should have been against him and not against David. By needlessly dragging David into this case all because
he and Chandiramani knew each other, the petitioner not only unduly delayed David from obtaining the value of the checks, but also caused him anxiety
and injured his business reputation while waiting for its outcome. Recall that under Article 2217 27 of the Civil Code, moral damages include mental
anguish, serious anxiety, besmirched reputation, wounded feelings, social humiliation, and similar injury. Hence, we find the award of moral damages to
be in order.

The appellate court likewise found that like David, PCIB was dragged into this case on unfounded and baseless grounds. Both were thus compelled to
litigate to protect their interests, which makes an award of attorney’s fees justified under Article 2208 (2) 28 of the Civil Code. Hence, we rule that the
award of attorney’s fees to David and PCIB was proper.

WHEREFORE, the instant petition is DENIED. The assailed decision of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398 is
AFFIRMED. Costs against the petitioner.

SO ORDERED.
G.R. No. 141408 October 18, 2007

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
PHILIPPINE BANK OF COMMUNICATIONS, FILIPINAS ORIENT FINANCE CORPORATION, PIPE MASTER CORPORATION and TAN JUAN
LIAN, Respondents.

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

G.R. No. 141429 October 18, 2007

SOLID BANK CORPORATION, Petitioner,

vs.
FILIPINAS ORIENT FINANCE CORPORATION, PIPE MASTER CORPORATION, TAN JUAN LIAN and/or PHILIPPINE BANK OF
COMMUNICATIONS, Respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:

Sometime in 1978, Pipe Master Corporation (Pipe Master) represented by Yu Kio, its president, applied for check discounting with Filipinas Orient
Finance Corporation (Filipinas Orient). The latter approved and granted the same.

On July 1, 1978, the Board of Directors of Pipe Master issued a Board Resolution authorizing Yu Kio, in his capacity as president, and/or Tan Juan Lian,
in his capacity as vice-president, to execute, indorse, make, sign, deliver or negotiate instruments, documents and such other papers necessary in
connection with any transaction coursed through Filipinas Orient for and in behalf of the corporation.

Tan Juan Lian then executed in favor of Filipinas Orient a continuing guaranty that he shall pay at maturity any and all promissory notes, drafts, checks,
or other instruments or evidence of indebtedness for which Pipe Master may become liable; that the extent of his liability shall not at any one time
exceed the sum of ₱1,000,000.00; and that in the event of default by Pipe Master, Filipinas Orient may proceed directly against him.

On April 9, 1980, under the check discounting agreement between Pipe Master and Filipinas Orient, Yu Kio sold to Filipinas Orient four Metropolitan
Bank and Trust Company (Metro Bank) checks amounting to ₱1,000,000.00. In exchange for the four Metro Bank checks, Filipinas Orient issued to Yu
Kio four Philippine Bank of Communications (PBCom) crossed checks totaling ₱964,303.62, payable to Pipe Master with the statement "for payee’s
account only."

Upon his receipt of the four PBCom checks, Yu Kio indorsed and deposited in the Metro Bank, in his personal account, three of the checks valued at
₱721,596.95. As to the remaining check amounting to ₱242,706.67, he deposited it in the Solid Bank Corporation (Solid Bank), also in his personal
account. Eventually, PBCom paid Metro Bank and Solid Bank the amounts of the checks. In turn, Metro Bank and Solid Bank credited the value of the
checks to the personal accounts of Yu Kio.

Subsequently, when Filipinas Orient presented the four Metro Bank checks equivalent to ₱1,000,000.00 it received from Yu Kio, they were dishonored
by the drawee bank. Pipe Master, the drawer, refused to pay the amounts of the checks, claiming that it never received the proceeds of the PBCom
checks as they were delivered and paid to the wrong party, Yu Kio, who was not the named payee.

Filipinas Orient then demanded that PBCom restore to its (Filipinas Orient’s) account the value of the PBCom checks. In turn, PBCom sought
reimbursement from Metro Bank and Solid Bank, being the collecting banks, but they refused. Thus, Filipinas Orient filed with the Regional Trial Court
(RTC), Branch 39, Manila a complaint for a sum of money against Pipe Master, Tan Juan Lian and/or PBCom.

In their answer to the complaint, Pipe Master and Tan Juan Lian averred that they did not authorize Yu Kio to negotiate and enter into discounting
transaction with Filipinas Orient, and even if Yu Kio was so authorized, Pipe Master never received the proceeds of the checks. Consequently, they filed
a cross-claim against PBCom for gross negligence for having paid the wrong party. In turn, PBCom, Pipe Master and Tan Juan Lian filed third-party
complaints against Metro Bank and Solid Bank.

On July 12, 1990, the RTC rendered a Decision against Metro Bank and Solid Bank, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering third-party defendant Metro Bank to pay plaintiff the amount of Seven Hundred Twenty One Thousand Five Hundred Ninety Six
Pesos and Ninety-Five Centavos (₱721,596.95) plus legal interest;

2. Ordering third-party defendant Solid Bank to pay plaintiff the amount of Two Hundred Forty-Two Thousand Seven Hundred Six Pesos and
Sixty-Seven Centavos (₱242,706.67) plus legal interest;

3. Ordering third-party defendants to pay the costs of suit.

SO ORDERED.

On appeal, the appellate court affirmed in toto the Decision of the trial court. Metro Bank and Solid Bank filed their respective motions for reconsideration
but the same were denied.

Hence, the instant consolidated petitions for review on certiorari filed by Metro Bank and Solid Bank.

The issue for our resolution is whether Metro Bank and Solid Bank, petitioners, are liable to respondent Filipinas Orient for accepting the PBCom
crossed checks payable to Pipe Master.
Petitioner banks contend that respondents Pipe Master, Tan Juan Lian and/or PBCom should be made liable to respondent Filipinas Orient for the value
of the checks.

Respondents Pipe Master and Tan Juan Lian counter that although Yu Kio was expressly authorized to indorse Pipe Master’s checks, such authority
extended only to acts done in the ordinary course of business, not in his personal capacity. For its part, respondent Filipinas Orient contends that
petitioner banks were negligent in allowing Yu Kio to deposit the PBCom checks in his account. Respondent PBCom, as the drawee bank, maintains
that it has no liability because in clearing the checks, it relied on the express guarantee made by petitioner banks that the checks were validly indorsed.

We find in favor of respondents.

A check is defined by law as a bill of exchange drawn on a bank payable on demand. 1 The Negotiable Instruments Law is silent with respect to crossed
checks. Nonetheless, this Court has taken judicial cognizance of the practice that a check with two parallel lines on the upper left hand corner means
that it could only be deposited and not converted into cash. 2 The crossing of a check with the phrase "Payee’s Account Only" is a warning that the check
should be deposited in the account of the payee. It is the collecting bank which is bound to scrutinize the check and to know its depositors before it can
make the clearing indorsement, "all prior indorsements and/or lack of indorsement guaranteed." 3

Here, petitioner banks have the obligation to ensure that the PBCom checks were deposited in accordance with the instructions stated in the
checks.4 The four PBCom checks in question had been crossed and issued "for payee’s account only." This could only mean that the drawer, Filipinas
Orient, intended the same for deposit only by the payee, Pipe Master. The effect of crossing a check means that the drawer had intended the check for
deposit only by the rightful person, i.e., the payee named therein5 – Pipe Master.

As what transpired in this case, petitioner banks accommodated Yu Kio, being a valued client and the president of Pipe Master, and accepted the
crossed checks. They stamped at the back thereof that "all prior indorsements and/or lack of indorsements are guaranteed." In so doing, they became
general endorsers. Under Section 66 of the Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and in all respects what it
purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid
and subsisting."

Clearly, petitioner banks, being endorsers, cannot deny liability.

In Associated Bank v. Court of Appeals,6 we held that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain
the genuineness of all prior indorsements and is privy to the depositor who negotiated the check.

PBCom, as the drawee bank, cannot be held liable since it mainly relied on the express guarantee made by petitioners, the collecting banks, of all prior
indorsements.

Evidently, petitioner banks disregarded established banking rules and procedures. They were negligent in accepting the checks and allowing the
transaction to push through. In Jai-Alai Corp. of the Phil. v. Bank of the Phil. Islands,7we ruled that one who accepts and encashes a check from an
individual knowing that the payee is a corporation does so at his peril. Therefore, petitioner banks are liable to respondent Filipinas Orient.1âwphi1

In fine, it must be emphasized that the law imposes on the collecting bank the duty to diligently scrutinize the checks deposited with it for the purpose of
determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this
field, and the law thus holds it to a high standard of conduct.8 Since petitioner banks’ negligence was the direct cause of the misappropriation of the
checks, they should bear and answer for respondent Filipinas Orient’s loss, without prejudice to their filing of an appropriate action against Yu Kio.

WHEREFORE, we DENY the petitions. The challenged Decision9 and Resolution of the Court of Appeals in CA-G.R. CV No. 30702 are AFFIRMED.
Costs against petitioners.

SO ORDERED.
G.R. No. 170325 September 26, 2008

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.

DECISION

REYES, R.T., J.:

WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it payable to order or bearer? What is the fictitious-payee rule
and who is liable under it? Is there any exception?

These questions seek answers in this petition for review on certiorari of the Amended Decision 1 of the Court of Appeals (CA) which affirmed with
modification that of the Regional Trial Court (RTC).2

The Facts

The facts as borne by the records are as follows:

Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB), Amelia Avenue Branch, Cebu City.
They maintained savings and demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current Account No. 810624-6 under the
account name Erlando and/or Norma Rodriguez), and PNBig Demand Deposit (Checking/Current Account No. 810480-4 under the account name
Erlando T. Rodriguez).

The spouses were engaged in the informal lending business. In line with their business, they had a discounting3 arrangement with the Philnabank
Employees Savings and Loan Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia
Avenue Branch. The association maintained current and savings accounts with petitioner bank.

PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the
association was short of funds. As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the
members.

It was PEMSLA’s policy not to approve applications for loans of members with outstanding debts. To subvert this policy, some PEMSLA officers devised
a scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in the names of unknowing members, without the
knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers carried
this out by forging the indorsement of the named payees in the checks.

In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the checks to an officer of PEMSLA.
The PEMSLA checks, on the other hand, were deposited by the spouses to their account.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was
an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It
appears that this became the usual practice for the parties.

For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total amount of P2,345,804.00. These were payable
to forty seven (47) individual payees who were all members of PEMSLA. 4

Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the current account of PEMSLA. As a result,
the PEMSLA checks deposited by the spouses were returned or dishonored for the reason "Account Closed." The corresponding Rodriguez checks,
however, were deposited as usual to the PEMSLA savings account. The amounts were duly debited from the Rodriguez account. Thus, because the
PEMSLA checks given as payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions.

RTC Disposition

Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative
of Philnabankers (MCP), and petitioner PNB. They sought to recover the value of their checks that were deposited to the PEMSLA savings account
amounting to P2,345,804.00. The spouses contended that because PNB credited the checks to the PEMSLA account even without indorsements, PNB
violated its contractual obligation to them as depositors. PNB paid the wrong payees, hence, it should bear the loss.

PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that the claim for damages should come from the payees of
the checks, and not from spouses Rodriguez. Since there was no demand from the said payees, the obligation should be considered as discharged.

In an Order dated January 12, 2000, the RTC denied PNB’s motion to dismiss.

In its Answer,5 PNB claimed it is not liable for the checks which it paid to the PEMSLA account without any indorsement from the payees. The bank
contended that spouses Rodriguez, the makers, actually did not intend for the named payees to receive the proceeds of the checks. Consequently, the
payees were considered as "fictitious payees" as defined under the Negotiable Instruments Law (NIL). Being checks made to fictitious payees which are
bearer instruments, the checks were negotiable by mere delivery. PNB’s Answer included its cross-claim against its co-defendants PEMSLA and the
MCP, praying that in the event that judgment is rendered against the bank, the cross-defendants should be ordered to reimburse PNB the amount it shall
pay.

After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that PNB (defendant) is liable to return the value of the checks.
All counterclaims and cross-claims were dismissed. The dispositive portion of the RTC decision reads:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:
 1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00 or reinstate or restore the amount of P775,337.00 in the
PNBig Demand Deposit Checking/Current Account No. 810480-4 of Erlando T. Rodriguez, and the amount of P1,570,467.00 in the PNBig
Demand Deposit, Checking/Current Account No. 810624-6 of Erlando T. Rodriguez and/or Norma Rodriguez, plus legal rate of interest
thereon to be computed from the filing of this complaint until fully paid;

2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount of damages suffered by them taking into
consideration the standing of the plaintiffs being sugarcane planters, realtors, residential subdivision owners, and other businesses:

(a) Consequential damages, unearned income in the amount of P4,000,000.00, as a result of their having incurred great dificulty
(sic) especially in the residential subdivision business, which was not pushed through and the contractor even threatened to file a
case against the plaintiffs;

(b) Moral damages in the amount of P1,000,000.00;

(c) Exemplary damages in the amount of P500,000.00;

(d) Attorney’s fees in the amount of P150,000.00 considering that this case does not involve very complicated issues; and for the

(e) Costs of suit.

3. Other claims and counterclaims are hereby dismissed.6

CA Disposition

PNB appealed the decision of the trial court to the CA on the principal ground that the disputed checks should be considered as payable to bearer and
not to order.

In a Decision7 dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA concluded that the checks were obviously meant by the
spouses to be really paid to PEMSLA. The court a quo declared:

We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of action arose from the alleged breach of contract
by the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA despite the checks being payable to order. Rather, we are more
convinced by the strong and credible evidence for the defendant-appellant with regard to the plaintiffs-appellees’ and PEMSLA’s business arrangement
– that the value of the rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLA’s account for payment of the loans it has approved
in exchange for PEMSLA’s checks with the full value of the said loans. This is the only obvious explanation as to why all the disputed sixty-nine (69)
checks were in the possession of PEMSLA’s errand boy for presentment to the defendant-appellant that led to this present controversy. It also appears
that the teller who accepted the said checks was PEMSLA’s officer, and that such was a regular practice by the parties until the defendant-appellant
discovered the scam. The logical conclusion, therefore, is that the checks were never meant to be paid to order, but instead, to PEMSLA. We thus find
no breach of contract on the part of the defendant-appellant.

According to plaintiff-appellee Erlando Rodriguez’ testimony, PEMSLA allegedly issued post-dated checks to its qualified members who had applied for
loans. However, because of PEMSLA’s insufficiency of funds, PEMSLA approached the plaintiffs-appellees for the latter to issue rediscounted checks in
favor of said applicant members. Based on the investigation of the defendant-appellant, meanwhile, this arrangement allowed the plaintiffs-appellees to
make a profit by issuing rediscounted checks, while the officers of PEMSLA and other members would be able to claim their loans, despite the fact that
they were disqualified for one reason or another. They were able to achieve this conspiracy by using other members who had loaned lesser amounts of
money or had not applied at all. x x x.8 (Emphasis added)

The CA found that the checks were bearer instruments, thus they do not require indorsement for negotiation; and that spouses Rodriguez and PEMSLA
conspired with each other to accomplish this money-making scheme. The payees in the checks were "fictitious payees" because they were not the
intended payees at all.

The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on their faces were unquestionably payable to order; and
that PNB committed a breach of contract when it paid the value of the checks to PEMSLA without indorsement from the payees. They also argued that
their cause of action is not only against PEMSLA but also against PNB to recover the value of the checks.

On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and fallo of which read:

In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps. Rodriguez for the following:

1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May 1999 until fully paid;

2. Moral damages in the amount of P200,000;

3. Attorney’s fees in the amount of P100,000; and

4. Costs of suit.

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us AFFIRMING WITH MODIFICATION the assailed decision
rendered in Civil Case No. 99-10892, as set forth in the immediately next preceding paragraph hereof, and SETTING ASIDE Our original decision
promulgated in this case on 22 July 2004.

SO ORDERED.9

The CA ruled that the checks were payable to order. According to the appellate court, PNB failed to present sufficient proof to defeat the claim of the
spouses Rodriguez that they really intended the checks to be received by the specified payees. Thus, PNB is liable for the value of the checks which it
paid to PEMSLA without indorsements from the named payees. The award for damages was deemed appropriate in view of the failure of PNB to treat
the Rodriguez account with the highest degree of care considering the fiduciary nature of their relationship, which constrained respondents to seek legal
action.

Hence, the present recourse under Rule 45.

Issues

The issues may be compressed to whether the subject checks are payable to order or to bearer and who bears the loss?

PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not intend for the named payees to receive the proceeds.
Thus, they are bearer instruments that could be validly negotiated by mere delivery. Further, testimonial and documentary evidence presented during
trial amply proved that spouses Rodriguez and the officers of PEMSLA conspired with each other to defraud the bank.

Our Ruling

Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining finality to the prejudice of innocent parties. A court
discovering an erroneous judgment before it becomes final may, motu proprio or upon motion of the parties, correct its judgment with the singular
objective of achieving justice for the litigants.10

However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order. The Court does not sanction careless disposition of cases
by courts of justice. The highest degree of diligence must go into the study of every controversy submitted for decision by litigants. Every issue and
factual detail must be closely scrutinized and analyzed, and all the applicable laws judiciously studied, before the promulgation of every judgment by the
court. Only in this manner will errors in judgments be avoided.

Now to the core of the petition.

As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer instrument. A check is
"a bill of exchange drawn on a bank payable on demand."11 It is either an order or a bearer instrument. Sections 8 and 9 of the NIL states:

SEC. 8. When payable to order. – The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It
may be drawn payable to the order of –

(a) A payee who is not maker, drawer, or drawee; or

(b) The drawer or maker; or

(c) The drawee; or

(d) Two or more payees jointly; or

(e) One or some of several payees; or

(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.

SEC. 9. When payable to bearer. – The instrument is payable to bearer –

(a) When it is expressed to be so payable; or

(b) When it is payable to a person named therein or bearer; or

(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable; or

(d) When the name of the payee does not purport to be the name of any person; or

(e) Where the only or last indorsement is an indorsement in blank.12 (Underscoring supplied)

The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL, an order instrument requires an
indorsement from the payee or holder before it may be validly negotiated. A bearer instrument, on the other hand, does not require an indorsement to be
validly negotiated. It is negotiable by mere delivery. The provision reads:

SEC. 30. What constitutes negotiation. – An instrument is negotiated when it is transferred from one person to another in such manner as to constitute
the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder
completed by delivery.

A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check payable to a specified payee may
nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person, and such fact is known to the person
making it so payable. Thus, checks issued to "Prinsipe Abante" or "Si Malakas at si Maganda," who are well-known characters in Philippine mythology,
are bearer instruments because the named payees are fictitious and non-existent.

We have yet to discuss a broader meaning of the term "fictitious" as used in the NIL. It is for this reason that We look elsewhere for guidance. Court
rulings in the United States are a logical starting point since our law on negotiable instruments was directly lifted from the Uniform Negotiable
Instruments Law of the United States.13
A review of US jurisprudence yields that an actual, existing, and living payee may also be "fictitious" if the maker of the check did not intend for the
payee to in fact receive the proceeds of the check. This usually occurs when the maker places a name of an existing payee on the check for
convenience or to cover up an illegal activity.14 Thus, a check made expressly payable to a non-fictitious and existing person is not necessarily an order
instrument. If the payee is not the intended recipient of the proceeds of the check, the payee is considered a "fictitious" payee and the check is a bearer
instrument.

In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced with a check payable to a fictitious
payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying theory is that one cannot expect a fictitious payee to
negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he must have intended for the instrument to be
negotiated by mere delivery. Thus, in case of controversy, the drawer of the check will bear the loss. This rule is justified for otherwise, it will be most
convenient for the maker who desires to escape payment of the check to always deny the validity of the indorsement. This despite the fact that the
fictitious payee was purposely named without any intention that the payee should receive the proceeds of the check.15

The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank. 16 In the said case, the corporation Mueller & Martin was
defrauded by George L. Martin, one of its authorized signatories. Martin drew seven checks payable to the German Savings Fund Company Building
Association (GSFCBA) amounting to $2,972.50 against the account of the corporation without authority from the latter. Martin was also an officer of the
GSFCBA but did not have signing authority. At the back of the checks, Martin placed the rubber stamp of the GSFCBA and signed his own name as
indorsement. He then successfully drew the funds from Liberty Insurance Bank for his own personal profit. When the corporation filed an action against
the bank to recover the amount of the checks, the claim was denied.

The US Supreme Court held in Mueller that when the person making the check so payable did not intend for the specified payee to have any part in the
transactions, the payee is considered as a fictitious payee. The check is then considered as a bearer instrument to be validly negotiated by mere
delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as drawee, was authorized to make payment to the bearer of the check,
regardless of whether prior indorsements were genuine or not. 17

The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company, Inc. 18 upheld the fictitious-payee rule. The rule protects
the depositary bank and assigns the loss to the drawer of the check who was in a better position to prevent the loss in the first place. Due care is not
even required from the drawee or depositary bank in accepting and paying the checks. The effect is that a showing of negligence on the part of the
depositary bank will not defeat the protection that is derived from this rule.

However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the part of the drawee bank, or any
transferee of the check for that matter, will work to strip it of this defense. The exception will cause it to bear the loss. Commercial bad faith is present if
the transferee of the check acts dishonestly, and is a party to the fraudulent scheme. Said the US Supreme Court in Getty:

Consequently, a transferee’s lapse of wary vigilance, disregard of suspicious circumstances which might have well induced a prudent banker to
investigate and other permutations of negligence are not relevant considerations under Section 3-405 x x x. Rather, there is a "commercial bad faith"
exception to UCC 3-405, applicable when the transferee "acts dishonestly – where it has actual knowledge of facts and circumstances that amount to
bad faith, thus itself becoming a participant in a fraudulent scheme. x x x Such a test finds support in the text of the Code, which omits a standard of care
requirement from UCC 3-405 but imposes on all parties an obligation to act with "honesty in fact." x x x19 (Emphasis added)

Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees of the checks.

In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the 69 checks were payable to specific persons.
Likewise, it is uncontroverted that the payees were actual, existing, and living persons who were members of PEMSLA that had a rediscounting
arrangement with spouses Rodriguez.

What remains to be determined is if the payees, though existing persons, were "fictitious" in its broader context.

For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named payees to be part of the
transaction involving the checks. At most, the bank’s thesis shows that the payees did not have knowledge of the existence of the checks. This lack of
knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not
receive the checks’ proceeds. Considering that respondents-spouses were transacting with PEMSLA and not the individual payees, it is understandable
that they relied on the information given by the officers of PEMSLA that the payees would be receiving the checks.

Verily, the subject checks are presumed order instruments. This is because, as found by both lower courts, PNB failed to present sufficient evidence to
defeat the claim of respondents-spouses that the named payees were the intended recipients of the checks’ proceeds. The bank failed to satisfy a
requisite condition of a fictitious-payee situation – that the maker of the check intended for the payee to have no interest in the transaction.

Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-payee rule does not apply. Thus, the checks are to be
deemed payable to order. Consequently, the drawee bank bears the loss. 20

PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted the 69 checks for deposit to the PEMSLA
account even without any indorsement from the named payees. It bears stressing that order instruments can only be negotiated with a valid
indorsement.

A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is apparently grossly negligent in its
operations.21 This Court has recognized the unique public interest possessed by the banking industry and the need for the people to have full trust and
confidence in their banks.22 For this reason, banks are minded to treat their customer’s accounts with utmost care, confidence, and honesty. 23

In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the check strictly in
accordance with the drawer’s instructions, i.e., to the named payee in the check. It should charge to the drawer’s accounts only the payables authorized
by the latter. Otherwise, the drawee will be violating the instructions of the drawer and it shall be liable for the amount charged to the drawer’s account.24

In the case at bar, respondents-spouses were the bank’s depositors. The checks were drawn against respondents-spouses’ accounts. PNB, as the
drawee bank, had the responsibility to ascertain the regularity of the indorsements, and the genuineness of the signatures on the checks before
accepting them for deposit. Lastly, PNB was obligated to pay the checks in strict accordance with the instructions of the drawers. Petitioner miserably
failed to discharge this burden.

The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement, forged or otherwise. The facts clearly
show that the bank did not pay the checks in strict accordance with the instructions of the drawers, respondents-spouses. Instead, it paid the values of
the checks not to the named payees or their order, but to PEMSLA, a third party to the transaction between the drawers and the payees.alf-ITC

Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank employees is indispensable to maintain the
stability of the banking industry. Thus, banks are enjoined to be extra vigilant in the management and supervision of their employees. In Bank of the
Philippine Islands v. Court of Appeals,25 this Court cautioned thus:

Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far greater than those of ordinary clerks and employees. For obvious reasons, the banks are expected to
exercise the highest degree of diligence in the selection and supervision of their employees. 26

PNB’s tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of checks to the PEMSLA account. Indeed, when it is
the gross negligence of the bank employees that caused the loss, the bank should be held liable.27

PNB’s argument that there is no loss to compensate since no demand for payment has been made by the payees must also fail. Damage was caused to
respondents-spouses when the PEMSLA checks they deposited were returned for the reason "Account Closed." These PEMSLA checks were the
corresponding payments to the Rodriguez checks. Since they could not encash the PEMSLA checks, respondents-spouses were unable to collect
payments for the amounts they had advanced.

A bank that has been remiss in its duty must suffer the consequences of its negligence. Being issued to named payees, PNB was duty-bound by law
and by banking rules and procedure to require that the checks be properly indorsed before accepting them for deposit and payment. In fine, PNB should
be held liable for the amounts of the checks.

One Last Note

We note that the RTC failed to thresh out the merits of PNB’s cross-claim against its co-defendants PEMSLA and MPC. The records are bereft of any
pleading filed by these two defendants in answer to the complaint of respondents-spouses and cross-claim of PNB. The Rules expressly provide that
failure to file an answer is a ground for a declaration that defendant is in default. 28 Yet, the RTC failed to sanction the failure of both PEMSLA and MPC
to file responsive pleadings. Verily, the RTC dismissal of PNB’s cross-claim has no basis. Thus, this judgment shall be without prejudice to whatever
action the bank might take against its co-defendants in the trial court.

To PNB’s credit, it became involved in the controversial transaction not of its own volition but due to the actions of some of its employees. Considering
that moral damages must be understood to be in concept of grants, not punitive or corrective in nature, We resolve to reduce the award of moral
damages to P50,000.00.29

WHEREFORE, the appealed Amended Decision is AFFIRMED with the MODIFICATION that the award for moral damages is reduced to P50,000.00,
and that this is without prejudice to whatever civil, criminal, or administrative action PNB might take against PEMSLA, MPC, and the employees
involved.

SO ORDERED.