TRADERS ROYAL BANK, petitioner,

vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of
the PHILIPPINES, respondents.

TORRES, JR., J.:

Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment" . . ., whereby Filriters, as
registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance)
all its rights and title to Central Bank Certificates of Indebtedness of PESOS: (P500,000)
- The a Detached Assignment (Annex "A") contains an express authorization executed by the transferor intended to
complete the assignment through the registration of the transfer in the name of PhilFinance,
-Petitioner entered into a Repurchase Agreement with PhilFinance . . ., whereby, for and in consideration of the sum of
PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI
which CBCI was among those previously acquired by PhilFinance from Filriters
-PhilFinance failed to repurchase the CBCI when the checks it issued in favor of petitioner were dishonored for insufficient
funds;
-executed a Detached Assignment in favor of the Petitioner to enable the latter to have its title completed and registered
in the books of the respondent. And by means of said Detachment, Philfinance transferred and assigned all, its rights and
title in the said CBCI (Annex "C") to petitioner
-Petitioner presented the CBCI together with the two (2) aforementioned Detached Assignments (Annexes "B" and "D"),
to the Securities Servicing Department of the respondent, and requested the latter to effect the transfer of the CBCI on
its books and to issue a new certificate in the name of petitioner as absolute owner thereof;
-Respondent failed and refused to register the transfer as requested
- The express provisions governing the transfer of the CBCI were substantially complied with the petitioner's request for
registration, to wit:
"No transfer thereof shall be valid unless made at said office (where the Certificate has been registered) by the registered
owner hereof, in person or by his attorney duly authorized in writing, and similarly noted hereon, and upon payment of a
nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered holder
thereof."
and, without a doubt, the Detached Assignments presented to respondent were sufficient authorizations in writing
executed by the registered owner, Filriters, and its transferee, PhilFinance, as required by the above-quoted provision;
12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a transfer of ownership
over the CBCI and issuing a new certificate to the transferee devolves upon the respondent;

For its part, Filriters interjected as Special Defenses the following:

Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar Jacobe, Vice-President-Treasury of Filriters
(both of whom were holding the same positions in Philfinance), without any consideration or benefit redounding to
Filriters and to the grave prejudice of Filriters, its policy holders and all who have present or future claims against its
policies, executed similar detached assignment forms transferring the CBCI to plaintiff;
xxx xxx xxx
15. The detached assignment is patently void and inoperative because the assignment is without the knowledge and consent
of directors of Filriters, and not duly authorized in writing by the Board, as requiring by Article V, Section 3 of CB Circular
No. 769;
16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate act of Filriters
and such null and void;
a) The assignment was executed without consideration and for that reason, the assignment is void from the beginning
(Article 1409, Civil Code);
b) The assignment was executed without any knowledge and consent of the board of directors of Filriters;
c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement under the Insurance Code
for its existence as an insurance company and the pursuit of its business operations. The assignment of the CBCI is illegal
act in the sense of malum in se or malum prohibitum, for anyone to make, either as corporate or personal act;
d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited by law, is immoral and against
public policy;
e) The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of Filriters (and has
in fact helped in placing Filriters under conservatorship), an inevitable result known to the officer who executed
assignment.
17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment.
a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not payable to bearer but is a
registered in the name of Filriters;
b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the registered owner as the absolute owner
and that the value of the registered certificates shall be payable only to the registered owner; a sufficient notice to plaintiff
that the assignments do not give them the registered owner's right as absolute owner of the CBCI's;
c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that the registered certificates are
payable only to the registered owner (Article II, Section 1).
18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a regular transaction
made in the usual of ordinary course of business;
a) The CBCI constitutes part of the reserve investments of Filriters against liabilities requires by the Insurance Code and
its assignment or transfer is expressly prohibited by law. There was no attempt to get any clearance or authorization from
the Insurance Commissioner;
b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of its business;

RTC & CA: in favor of Philfinance, and the subsequent assignment of the same CBCI by Philfinance in favor of Traders
Royal Bank null and void and of no force and effect. The dispositive portion of the decision reads:
ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance Corporation and
against the plaintiff Traders Royal Bank

ISSUE: W/N CBCI is Negotiable

HELD: NO
Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity and the two
corporations have identical corporate officers, thus demanding the application of the doctrine or piercing the veil of
corporate fiction, as to give validity to the transfer of the CBCI from registered owner to petitioner TRB. 14 This renders
the payment by TRB to Philfinance of CBCI, as actual payment to Filriters. Thus, there is no merit to the lower court's
ruling that the transfer of the CBCI from Filriters to Philfinance was null and void for lack of consideration.

Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable remedy, and may
be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or
defend crime or where a corporation is a mere alter ego or business conduit of a person. 18
Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders
from liabilities that ordinarily, they could be subject to, or distinguished one corporation from a seemingly separate one,
were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused,
to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It
is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect
by this doctrine.
The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the contrary.
For one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of one shall be maintained
as to the other, there is nothing else which could lead the court under circumstance to disregard their corporate
personalities.

In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject
certificate of indebtedness from Philfinance.
On its face the subject certificates states that it is registered in the name of Filriters. This should have put the petitioner
on notice, and prompted it to inquire from Filriters as to Philfinance's title over the same or its authority to assign the
certificate. As it is, there is no showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it
make inquiries as to the ownership of the certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to
submit such an authorization from Filriters.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-owner was disposing
of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title
Philfinance to dispose to the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules and Regulations
Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides that:
Sec. 3. Assignment of Registered Certificates. — Assignment of registered certificates shall not be valid unless made at the
office where the same have been issued and registered or at the Securities Servicing Department, Central Bank of the
Philippines, and by the registered owner thereof, in person or by his representative, duly authorized in writing. For this
purpose, the transferee may be designated as the representative of the registered owner.
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. An entity
which deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority,
may not hold the corporation liable. 22 This is only fair, as everyone must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. 23
The transfer made by Filriters to Philfinance did not conform to the said. Central Bank Circular, which for all intents, is
considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed of assignment from
Filriters to Philfinance, purportedly for and in favor of Filriters, did not have the necessary written authorization from the
Board of Directors of Filriters to act for the latter. As it is, the sale from Filriters to Philfinance was fictitious, and therefore
void and inexistent, as there was no consideration for the same. This is fatal to the petitioner's cause, for then, Philfinance
had no title over the subject certificate to convey the Traders Royal Bank. Nemo potest nisi quod de jure potest — no man can
do anything except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves, which are required by
law 24 to be maintained at a mandated level. This was pointed out by Elias Garcia, Manager-in-Charge of respondent
Filriters, in his testimony given before the court on May 30, 1986.
A Well, you see, the Insurance companies are required to put up legal reserves under Section 213 of the Insurance Code
equivalent to 40 percent of the premiums receipt and further, the Insurance Commission requires this reserve to be
invested preferably in government securities or government binds.

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.
DECISION
REYES, R.T., J.:
Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank
The spouses were engaged in the informal lending business. In line with their business, they had a discounting 3 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.

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 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.

ISSUE: W/N the subject checks are payable to order or to bearer and who bears the loss?

HELD: Payable to Order

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
SEC. 9. When payable to bearer. – The instrument is payable to bearer –
(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
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.

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.
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..
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.
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.
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.
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
employees. For obvious reasons, the banks are expected to exercise the highest degree of diligence in the selection and
supervision of their employees.

TING TING PUA, Petitioner,

vs.
SPOUSES BENITO LO BUN TIONG and CAROLINE SIOK CHING TENG, Respondents.
RESOLUTION
VELASCO, JR., J.:
The controversy arose from a Complaint for a Sum of Money 3 filed by petitioner Pua against respondent-spouses Benito
In the complaint, Pua prayed that, among other things, respondents, or then defendants, pay Pua the amount eight million
five hundred thousand pesos (PhP 8,500,000), covered by a check.
During trial, petitioner Pua clarified that the PhP 8,500,000 check was given by respondents to pay the loans they obtained
from her under a compounded interest agreement 4 As Pua narrated, her sister, Lilian Balboa (Lilian), vouched for
respondents’ ability to pay so that when respondents approached her, she immediately acceded and lent money to
respondents without requiring any collateral except post-dated checks bearing the borrowed amounts.5 In all, respondents
issued 176 checks for a total amount of one million nine hundred seventy-five thousand pesos (PhP 1,975,000). These
checks were dishonored upon presentment to the drawee bank. 7
As a result of the dishonor, petitioner demanded payment. Respondents, however, pleaded for more time because of their
financial difficulties.8 Petitioner Pua obliged and simply reminded the respondents of their indebtedness from time to
time.9
Sometime in September 1996, when their financial situation turned better, respondents allegedly called and asked petitioner
Pua for the computation of their loan obligations.10 Hence, petitioner handed them a computation dated October 2, 199611
which showed that, at the agreed 2% compounded interest rate per month, the amount of the loan payable to petitioner
rose to (PhP 13,218,544.20).12 On receiving the computation, the respondents asked petitioner to reduce their indebtedness
to PhP 8,500,000.13 Wanting to get paid the soonest possible time, petitioner Pua agreed to the lowered amount. 14
Respondents then delivered to petitioner Asiatrust Check No. BND057750 bearing the reduced amount of PhP 8,500,000
dated March 30, 1997 with the assurance that the check was good. 15 In turn, respondents demanded the return of the 17
previously dishonored checks. Petitioner, however, refused to return the bad checks and advised respondents that she will
do so only after the encashment of Asiatrust Check No. BND057750. 16
Like the 17 checks, however, Check No. BND057750 was also dishonored when it was presented by petitioner to the
drawee bank. Hence, as claimed by petitioner, she decided to file a complaint to collect the money owed her by
respondents.
For the defense, Respondents categorically denied obtaining a loan from petitioner. 17 Respondent Caroline, in particular,
narrated that, in August 1995, she and petitioner’s sister, Lilian, forged a partnership that operated a mahjong business.
Their agreement was for Lilian to serve as the capitalist while respondent Caroline was to act as the cashier. Caroline also
agreed to use her personal checks to pay for the operational expenses including the payment of the winners of the games.18
As the partners anticipated that Caroline will not always be in town to prepare these checks, she left with Lilian five (5)
pre-signed and consecutively numbered checks19 on the condition that these checks will only be used to cover the costs
of the business operations and in no circumstance will the amount of the checks exceed PhP 5,000. 20
In March 1996, however, respondent Caroline and Lilian had a serious disagreement that resulted in the dissolution of
their partnership and the cessation of their business. In the haste of the dissolution and as a result of their bitter separation,
respondent Caroline alleged that she forgot about the five (5) pre-signed checks she left with Lilian.21 It was only when
Lilian’s husband, Vicente Balboa (Vicente), filed a complaint for sum of money in February 1997 against respondents to
recover five million one hundred seventy-five thousand two hundred fifty pesos (PhP 5,175,250), covering three of the
five post-dated and pre-signed checks.22
Respondent Caroline categorically denied having completed Check No. BND057750 by using a check writer or typewriter
as she had no check writer and she had always completed checks in her own handwriting. 23 She insisted that petitioner
and her sister completed the check after its delivery.24 Furthermore, she could not have gone to see petitioner Pua with
her husband as they had been separated in fact for nearly 10 years. 25 As for the 17 checks issued by her in 1988, Caroline
alleged that they were not intended for Pua but were issued for the benefit of other persons. 26 Caroline postulated that the
complaint is designed to allow Pua’s sister, Lilian, to recover her losses in the foreign exchange business she had with
Caroline in the 1980s. Respondent Benito corroborated Caroline’s testimony respecting their almost a decade separation. 27
As such, he could not have had accompanied his wife to see petitioner to persuade the latter to lower down any alleged
indebtedness.28 In fact, Benito declared, before the filing of the Complaint, he had never met petitioner Pua, let alone
approached her with his wife to borrow money.29 He claimed that he was impleaded in the case to attach his property and
force him to enter into an amicable settlement with petitioner.30 Benito pointed out that Check No. BND057750 was
issued under Asiatrust Account No. 5513-0054-9, which is solely under the name of his wife.31
The witness for the respondents, Ms. Tuazon, testified that respondent Caroline opened Asiatrust Account No. 5513-
0054-9 in September 1994.32 She claimed that the average maintaining balance of respondent Caroline was PhP 2,000 and
the highest amount issued by Caroline from her account was PhP 435,000. 33 She maintained that respondent Caroline had
always completed her checks with her own handwriting and not with a check writer. On October 15, 1996, Caroline’s
checking account was closed at the instance of the bank due to 69 instances of check issuance against insufficient balance.34
After trial, the RTC issued its Decision dated January 31, 2006 in favor of petitioner. In holding thus, the RTC stated that
the possession by petitioner of the checks signed by Caroline, under the Negotiable Instruments Law, raises the
presumption that they were issued and delivered for a valuable consideration. On the other hand, the court a quo
discounted the testimony for the defense completely denying respondents’ loan obligation to Pua. 35
The trial court, however, refused to order respondents to pay petitioner the amount of PhP 8,500,000 considering that the
agreement to pay interest on the loan was not expressly stipulated in writing by the parties. The RTC, instead, ordered
respondents to pay the principal amount of the loan as represented by the 17 checks plus legal interest from the date of
demand. As rectified,36 the dispositive portion of RTC’s Decision reads:
Defendant-spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, are hereby ordered jointly and solidarily:
1. To pay plaintiff ₱1,975,000.00 plus 12% interest per annum from September 30, 1998, until fully paid;
2. To pay plaintiff attorney’s fees of ₱200,000.00; and
3. To pay the costs of the suit.
Aggrieved, respondents went to the CA arguing that the court a quo erred in finding that they obtained and are liable for
a loan from petitioner. To respondents, petitioner has not sufficiently proved the existence of the loan that they supposedly
acquired from her way back in the late 1980s by any written agreement or memorandum.
By Decision of March 31, 2011, as reiterated in a Resolution dated September 26, 2011, the appellate court set aside the
RTC Decision holding that Asiatrust Bank Check No. BND057550 was an incomplete delivered instrument and that
petitioner has failed to prove the existence of respondents’ indebtedness to her. Hence, the CA added, petitioner does not
have a cause of action against respondents.37
Hence, petitioner came to this Court via a Petition for Review on Certiorari 38 alleging grievous reversible error on the part
of the CA in reversing the findings of the court a quo.
As adverted to at the outset, the Court, in a Minute Resolution dated April 18, 2012, resolved to deny the petition. 39
In this Motion for Reconsideration,40 petitioner pleads that this Court take a second hard look on the facts and issues of
the present case and affirm the RTC’s case disposition. Petitioner argues, in the main, that the finding of the appellate
court that petitioner has not established respondents’ indebtedness to her is not supported by the evidence on record and
is based solely on respondents’ general denial of liability.
Respondents, on the other hand, argued in their Comment on the Motion for Reconsideration dated October 6, 2012 that
the CA correctly ruled that Asiatrust Check No. BND057550 is an incomplete instrument which found its way into
petitioner’s hands and that the petitioner failed to prove respondents’ indebtedness to her. Petitioner, so respondents
contend, failed to show to whom the 17 1988 checks were delivered, for what consideration or purpose, and under whose
account said checks were deposited or negotiated.
Clearly, the issue in the present case is factual in nature as it involves an inquiry into the very existence of the debt
supposedly owed by respondents to petitioner.
The general rule is that this Court in petitions for review on certiorari only concerns itself with questions of law, not of
fact,41 the resolution of factual issues being the primary function of lower courts.42 However, several exceptions have been
laid down by jurisprudence to allow the scrutiny of the factual arguments advanced by the contending parties, viz: (1) the
conclusion is grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd or
impossible ; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings
of fact are conflicting ; (6) there is no citation of specific evidence on which the factual findings are based; (7) the findings
of absence of fact are contradicted by the presence of evidence on record ; (8) the findings of the CA are contrary to those
of the trial court ; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered,
would justify a different conclusion ; (10) the findings of the CA are beyond the issues of the case; and (11) such findings
are contrary to the admissions of both parties.43 At the very least, therefore, the inconsonance of the findings of the RTC
and the CA regarding the existence of the loan sanctions the recalibration of the evidence presented by the parties before
the trial court.
In the main, petitioner asserts that respondents owed her a sum of money way back in 1988 for which the latter gave her
several checks. These checks, however, had all been dishonored and petitioner has not been paid the amount of the loan
plus the agreed interest. In 1996, respondents approached her to get the computation of their liability including the 2%
compounded interest. After bargaining to lower the amount of their liability, respondents supposedly gave her a postdated
check bearing the discounted amount of the money they owed to petitioner. Like the 1988 checks, the drawee bank likewise
dishonored this check. To prove her allegations, petitioner submitted the original copies of the 17 checks issued by
respondent Caroline in 1988 and the check issued in 1996, Asiatrust Check No. BND057750. In ruling in her favor, the
RTC sustained the version of the facts presented by petitioner.
Respondents, on the other hand, completely deny the existence of the debt asserting that they had never approached
petitioner to borrow money in 1988 or in 1996. They hypothesize, instead, that petitioner Pua is simply acting at the
instance of her sister, Lilian, to file a false charge against them using a check left to fund a gambling business previously
operated by Lilian and respondent Caroline. While not saying so in express terms, the appellate court considered
respondents’ denial as worthy of belief.
After another circumspect review of the records of the present case, however, this Court is inclined to depart from the
findings of the CA.
Certainly, in a suit for a recovery of sum of money, as here, the plaintiff-creditor has the burden of proof to show that
defendant had not paid her the amount of the contracted loan. However, it has also been long established that where the
plaintiff-creditor possesses and submits in evidence an instrument showing the indebtedness, a presumption that the credit
has not been satisfied arises in her favor. Thus, the defendant is, in appropriate instances, required to overcome the said
presumption and present evidence to prove the fact of payment so that no judgment will be entered against him. 44
In overruling the trial court, however, the CA opined that petitioner "failed to establish [the] alleged indebtedness in
writing."45 Consequently, so the CA held, respondents were under no obligation to prove their defense. Clearly, the CA
had discounted the value of the only hard pieces of evidence extant in the present case—the checks issued by respondent
Caroline in 1988 and 1996 that were in the possession of, and presented in court by, petitioner.
In Pacheco v. Court of Appeals,46 this Court has expressly recognized that a check "constitutes an evidence of
indebtedness"47 and is a veritable "proof of an obligation."48 Hence, it can be used "in lieu of and for the same purpose as
a promissory note."49 In fact, in the seminal case of Lozano v. Martinez,50 We pointed out that a check functions more
than a promissory note since it not only contains an undertaking to pay an amount of money but is an "order addressed
to a bank and partakes of a representation that the drawer has funds on deposit against which the check is drawn, sufficient
to ensure payment upon its presentation to the bank." 51 This Court reiterated this rule in the relatively recent Lim v.
Mindanao Wines and Liquour Galleria stating that "a check, the entries of which are in writing, could prove a loan
transaction."52 This very same principle underpins Section 24 of the Negotiable Instruments Law (NIL):
Section 24. Presumption of consideration. – Every negotiable instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature appears thereon to have become a party for value.
Consequently, the 17 original checks, completed and delivered to petitioner, are sufficient by themselves to prove the
existence of the loan obligation of the respondents to petitioner. Note that respondent Caroline had not denied the
genuineness of these checks.53 Instead, respondents argue that they were given to various other persons and petitioner had
simply collected all these 17 checks from them in order to damage respondents’ reputation. 54 This account is not only
incredible; it runs counter to human experience, as enshrined in Sec. 16 of the NIL which provides that when an instrument
is no longer in the possession of the person who signed it and it is complete in its terms "a valid and intentional delivery
by him is presumed until the contrary is proved."
The appellate court’s justification in giving credit to respondents’ contention that the respondents had delivered the 17
checks to persons other than petitioner lies on the supposed failure of petitioner "to establish for whose accounts [the
checks] were deposited and subsequently dishonored." 55 This is clearly contrary to the evidence on record. It seems that
the appellate court overlooked the original copies of the bank return slips offered by petitioner in evidence. These return
slips show that the 1988 checks issued by respondent Caroline were dishonored by the drawee banks because they were
"drawn against insufficient funds."56 Further, a close scrutiny of these return slips will reveal that the checks were deposited
either in petitioner’s account57 or in the account of her brother, Ricardo Yulo—a fact she had previously testified to
explaining that petitioner indorsed some checks to her brother to pay for a part of the capital she used in her financing
business.58
As for the Asiatrust check issued by respondent Caroline in 1996 to substitute the compounded value of the 1988 checks,
the appellate court likewise sympathized with respondents’ version of the story holding that it is buttressed by respondents’
allegations describing the same defense made in the two related cases filed against them by petitioner’s brother-in-law,
Vicente Balboa.1âwphi1 These related cases consisted of a criminal case for violation of BP 22 59 and a civil case for
collection of sum of money60 involving three (3) of the five (5) consecutively numbered checks she allegedly left with
Lilian.61 It should be noted, however, that while respondents were exculpated from their criminal liability, 62 in Sps. Benito
Lo Bun Tiong and Caroline Siok Ching Teng v. Vicente Balboa,63 this Court sustained the factual findings of the appellate
court in the civil case finding respondents civilly liable to pay the amount of the checks.
It bears to note that the Decision of the appellate court categorically debunked the same defense advanced by respondents
in the present case primarily because of Caroline’s admission to the contrary. The Decision of the appellate court found
without any reversible error by this Court reads, thus:
The claim of Caroline Siok Ching Teng that the three (3) checks were part of the blank checks she issued and delivered to
Lilian Balboa, wife of plaintiff-appellee, and intended solely for the operational expenses of their mahjong business is
belied by her admission that she issued three (3) checks (Exhs. "A", "B" "C") because Vicente showed the listing of their
account totaling ₱5,175,250.00 (TSN, November 17, 1997, p. 10).64 x x x
Clearly, respondents’ defense that Caroline left blank checks with petitioner’s sister who, it is said, is now determined to
recoup her past losses and bring financial ruin to respondents by falsifying the same blank checks, had already been
thoroughly passed upon and rejected by this Court. It cannot, therefore, be used to support respondents’ denial of their
liability.
Respondents’ other defenses are equally unconvincing. They assert that petitioner could not have accepted a check worth
PhP 8.5 million considering that she should have known that respondent Caroline had issued several checks for PhP
25,000 each in favor of Lilian and all of them had bounced.65 Needless to state, an act done contrary to law cannot be
sustained to defeat a legal obligation; repeated failure to honor obligations covered by several negotiable instruments
cannot serve to defeat yet another obligation covered by another instrument.
Indeed, it seems that respondent Caroline had displayed a cavalier attitude towards the value, and the obligation
concomitant with the issuance, of a check. As attested to by respondents’ very own witness, respondent Caroline has a
documented history of issuing insufficiently funded checks for 69 times, at the very least. 66 This fact alone bolsters
petitioner’s allegation that the checks delivered to her by respondent Caroline were similarly not funded.
In Magdiwang Realty Corp. v. Manila Banking Corp., We stressed that the quantum of evidence required in civil cases—
preponderance of evidence—"is a phrase which, in the last analysis, means probability to truth. It is evidence which is
more convincing to the court as worthier of belief than that which is offered in opposition thereto." 67 Based on the
evidence submitted by the parties and the legal presumptions arising therefrom, petitioner’s evidence outweighs that of
respondents. This preponderance of evidence in favor of Pua requires that a judgment ordering respondents to pay their
obligation be entered.
As aptly held by the court a quo, however, respondents cannot be obliged to pay the interest of the loan on the ground
that the supposed agreement to pay such interest was not reduced to writing. Article 1956 of the Civil Code, which refers
to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. 68
Thus, the collection of interest in loans or forbearance of money is allowed only when these two conditions concur: (1)
there was an express stipulation for the payment of interest; (2) the agreement for the payment of the interest was reduced
in writing.69 Absent any of these two conditions, the money debtor cannot be made liable for interest. Thus, petitioner is
entitled only to the principal amount of the loan plus the allowable legal interest from the time of the demand, 70 at the rate
of 6% per annum.71
Respondent Benito cannot escape the joint and solidary liability to pay the loan on the ground that the obligation arose
from checks solely issued by his wife. Without any evidence to the contrary, it is presumed that the proceeds of the loan
redounded to the benefit of their family. Hence, the conjugal partnership is liable therefor.72 The unsupported allegation
that respondents were separated in fact, standing alone, does not persuade this Court to solely bind respondent Caroline
and exempt Benito. As the head of the family, there is more reason that respondent Benito should answer for the liability
incurred by his wife presumably in support of their family.
WHEREFORE, the Motion for Reconsideration is GRANTED. The Resolution of this Court dated April 18, 2012 is set
aside and a new one entered REVERSING and SETTING ASIDE the Decision dated March 31, 2011 and the Resolution
dated September 26, 2011 of the Court of Appeals in CA-G.R. CV No. 93755. The Decision in Civil Case No. 97-83027
of the Regional Trial Court (RTC) of the City of Manila, Branch 29 is REINSTATED with MODIFICATION.
Accordingly, respondents Benito Lo Bun Tiong and Caroline Siok Ching Teng are ordered jointly and solidarily to pay
petitioner PhP 1,975,000 plus 6% interest per annum from April 18, 1997, until fully paid, and ₱200,000.00 as attorney’s
fees.

SAN MIGUEL CORPORATION, Petitioner,

vs.
BARTOLOME PUZON, JR., Respondent.
DECISION
DEL CASTILLO, J.:
This petition for review assails the December 21, 2004 Decision1 and March 28, 2005 Resolution2 of the Court of Appeals
(CA) in CA-G.R. SP No. 83905, which dismissed the petition before it and denied reconsideration, respectively.
Factual Antecedents
Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of beer products of petitioner
San Miguel Corporation (SMC) for Parañaque City. Puzon purchased SMC products on credit. To ensure payment and as
a business practice, SMC required him to issue postdated checks equivalent to the value of the products purchased on
credit before the same were released to him. Said checks were returned to Puzon when the transactions covered by these
checks were paid or settled in full.
On December 31, 2000, Puzon purchased products on credit amounting to ₱11,820,327 for which he issued, and gave to
SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904 (for ₱309,500.00) and 27903 (for ₱11,510,827.00) to cover
the said transaction.
On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in Parañaque City to reconcile his
account with SMC. During that visit Puzon allegedly requested to see BPI Check No. 17657. However, when he got hold
of BPI Check No. 27903 which was attached to a bond paper together with BPI Check No. 17657 he allegedly immediately
left the office with his accountant, bringing the checks with them.
SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon ignored the demand hence
SMC filed a complaint against him for theft with the City Prosecutor’s Office of Parañaque City.
Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ)
The investigating prosecutor, Elizabeth Yu Guray found that the "relationship between [SMC] and [Puzon] appears to be
one of credit or creditor-debtor relationship. The problem lies in the reconciliation of accounts and the non-payment of
beer empties which cannot give rise to a criminal prosecution for theft." 3 Thus, in her July 31, 2001 Resolution, 4 she
recommended the dismissal of
the case for lack of evidence. SMC appealed.
On June 4, 2003, the DOJ issued its resolution5 affirming the prosecutor’s Resolution dismissing the case. Its motion for
reconsideration having been denied in the April 23, 2004 DOJ Resolution, 6 SMC filed a petition for certiorari with the
CA.
Ruling of the Court of Appeals
The CA found that the postdated checks were issued by Puzon merely as a security for the payment of his purchases and
that these were not intended to be encashed. It thus concluded that SMC did not acquire ownership of the checks as it
was duty bound to return the same checks to Puzon after the transactions covering them were settled. The CA agreed
with the prosecutor that there was no theft, considering that a person cannot be charged with theft for taking personal
property that belongs to himself. It disposed of the appeal as follows:
WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant petition is hereby
DISMISSED. The assailed Resolutions of public respondent, dated 04 June 2003 and 23 April 2004, are AFFIRMED.
No costs at this instance.
SO ORDERED.7
The motion for reconsideration of SMC was denied. Hence, the present petition.
Issues
Petitioner now raises the following issues:
Petitioner's Arguments
SMC contends that Puzon was positively identified by its employees to have taken the subject postdated checks. It also
contends that ownership of the checks was transferred to it because these were issued, not merely as security but were, in
payment of Puzon’s purchases. SMC points out that it has established more than sufficient probable cause to justify the
indictment of Puzon for the crime of Theft.
Respondent’s Arguments
On the other hand, Puzon contends that SMC raises questions of fact that are beyond the province of an appeal on
certiorari. He also insists that there is no probable cause to charge him with theft because the subject checks were issued
only as security and he therefore retained ownership of the same.
Our Ruling
The petition has no merit.
Preliminary Matters
At the outset we find that as pointed out by Puzon, SMC raises questions of fact. The resolution of the first issue raised
by SMC of whether respondent stole the subject check, which calls for the Court to determine whether respondent is
guilty of a felony, first requires that the facts be duly established in the proper forum and in accord with the proper
procedure. This issue cannot be resolved based on mere allegations of facts and affidavits. The same is true with the second
issue raised by petitioner, to wit: whether the checks issued by Puzon were payments for his purchases or were intended
merely as security to ensure payment. These issues cannot be properly resolved in the present petition for review on
certiorari which is rooted merely on the resolution of the prosecutor finding no probable cause for the filing of an
information for theft.
The third issue raised by petitioner, on the other hand, would entail venturing into constitutional matters for a complete
resolution. This route is unnecessary in the present case considering that the main matter for resolution here only concerns
grave abuse of discretion and the existence of probable cause for theft, which at this point is more properly resolved
through another more clear cut route.
Probable Cause for Theft
"Probable cause is defined as such facts and circumstances that will engender a well-founded belief that a crime has been
committed and that the respondent is probably guilty thereof and should be held for trial." 9 On the fine points of the
determination of probable cause, Reyes v. Pearlbank Securities, Inc.10 comprehensively elaborated that:
The determination of [the existence or absence of probable cause] lies within the discretion of the prosecuting officers
after conducting a preliminary investigation upon complaint of an offended party. Thus, the decision whether to dismiss
a complaint or not is dependent upon the sound discretion of the prosecuting fiscal. He may dismiss the complaint
forthwith, if he finds the charge insufficient in form or substance or without any ground. Or he may proceed with the
investigation if the complaint in his view is sufficient and in proper form. To emphasize, the determination of probable
cause for the filing of information in court is an executive function, one that properly pertains at the first instance to the
public prosecutor and, ultimately, to the Secretary of Justice, who may direct the filing of the corresponding information
or move for the dismissal of the case. Ultimately, whether or not a complaint will be dismissed is dependent on the sound
discretion of the Secretary of Justice. And unless made with grave abuse of discretion, findings of the Secretary of Justice
are not subject to review.
For this reason, the Court considers it sound judicial policy to refrain from interfering in the conduct of preliminary
investigations and to leave the Department of Justice ample latitude of discretion in the determination of what constitutes
sufficient evidence to establish probable cause for the prosecution of supposed offenders. Consistent with this policy,
courts do not reverse the Secretary of Justice's findings and conclusions on the matter of probable cause except in clear
cases of grave abuse of discretion.
In the present case, we are also not sufficiently convinced to deviate from the general rule of non-interference. Indeed the
CA did not err in dismissing the petition for certiorari before it, absent grave abuse of discretion on the part of the DOJ
Secretary in not finding probable cause against Puzon for theft.
The Revised Penal Code provides:
Art. 308. Who are liable for theft. - Theft is committed by any person who, with intent to gain but without violence against,
or intimidation of persons nor force upon things, shall take personal property of another without the latter’s consent.
xxxx
"[T]he essential elements of the crime of theft are the following: (1) that there be a taking of personal property; (2) that
said property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done without the
consent of the owner; and (5) that the taking be accomplished without the use of violence or intimidation against persons
or force upon things."11
Considering that the second element is that the thing taken belongs to another, it is relevant to determine whether ownership
of the subject check was transferred to petitioner. On this point the Negotiable Instruments Law provides:
Sec. 12. Antedated and postdated – The instrument is not invalid for the reason only that it is antedated or postdated,
provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered
acquires the title thereto as of the date of delivery. (Underscoring supplied.)
Note however that delivery as the term is used in the aforementioned provision means that the party delivering did so for
the purpose of giving effect thereto.12 Otherwise, it cannot be said that there has been delivery of the negotiable instrument.
Once there is delivery, the person to whom the instrument is delivered gets the title to the instrument completely and
irrevocably.
If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving effect to the instrument
is evident thus title to or ownership of the check was transferred upon delivery. However, if the check was not given as
payment, there being no intent to give effect to the instrument, then ownership of the check was not transferred to SMC.
The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. There was no
provisional receipt or official receipt issued for the amount of the check. What was issued was a receipt for the document, a
"POSTDATED CHECK SLIP."13
Furthermore, the petitioner's demand letter sent to respondent states "As per company policies on receivables, all issuances
are to be covered by post-dated checks. However, you have deviated from this policy by forcibly taking away the check
you have issued to us to cover the December issuance." 14 Notably, the term "payment" was not used instead the terms
"covered" and "cover" were used.
Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit that the check was given in
payment of the obligation of Puzon, the same is contradicted by his statements in paragraph 4, where he states that "As a
standard company operating procedure, all beer purchases by dealers on credit shall be covered by postdated checks
equivalent to the value of the beer products purchased"; in paragraph 9 where he states that "the transaction covered by the
said check had not yet been paid for," and in paragraph 8 which clearly shows that partial payment is expected to be made
by the return of beer empties, and not by the deposit or encashment of the check.1avvphi1 Clearly the term "cover" was
not meant to be used interchangeably with "payment."
When taken in conjunction with the counter-affidavit of Puzon – where he states that "As the [liquid beer] contents are
paid for, SMC return[s] to me the corresponding PDCs or request[s] me to replace them with whatever was the unpaid
balance."15 – it becomes clear that both parties did not intend for the check to pay for the beer products. The evidence
proves that the check was accepted, not as payment, but in accordance with the long-standing policy of SMC to require
its dealers to issue postdated checks to cover its receivables. The check was only meant to cover the transaction and in the
meantime Puzon was to pay for the transaction by some other means other than the check. This being so, title to the check
did not transfer to SMC; it remained with Puzon. The second element of the felony of theft was therefore not established.
Petitioner was not able to show that Puzon took a check that belonged to another. Hence, the prosecutor and the DOJ were
correct in finding no probable cause for theft.
Consequently, the CA did not err in finding no grave abuse of discretion committed by the DOJ in sustaining the dismissal
of the case for theft for lack of probable cause.
WHEREFORE, the petition is DENIED. The December 21, 2004 Decision and March 28, 2005 Resolution of the Court
of Appeals in CA-G.R. SP. No. 83905 are AFFIRMED.
SO ORDERED.
B.) COMPLETION AND DELIVERY

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

ALLIED BANKING CORPORATION, Petitioner,

vs.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS BANK, Respondents.
DECISION
VELASCO, JR., J.:
To ingratiate themselves to their valued depositors, some banks at times bend over backwards that they unwittingly expose
themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of Appeals’ (CA’s) Decision promulgated
on March 18, 19981 in CA-G.R. CV No. 46290 entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision
modified the Decision dated November 15, 19932 of the Regional Trial Court (RTC), Branch 63 in Makati City rendered
in Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking Corporation (Allied) at its
Quintin Paredes Branch in Manila a money market placement of PhP 1,152,597.35 for a term of 31 days to mature on
December 15, 1983,3 as evidenced by Provisional Receipt No. 1356 dated November 14, 1983. 4
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied, and instructed the
latter to pre-terminate Lim Sio Wan’s money market placement, to issue a manager’s check representing the proceeds of
the placement, and to give the check to one Deborah Dee Santos who would pick up the check.5 Lim Sio Wan described
the appearance of Santos so that So could easily identify her. 6
Later, Santos arrived at the bank and signed the application form for a manager’s check to be issued. 7 The bank issued
Manager’s Check No. 035669 for PhP 1,158,648.49, representing the proceeds of Lim Sio Wan’s money market placement
in the name of Lim Sio Wan, as payee.8 The check was cross-checked "For Payee’s Account Only" and given to Santos.9
Thereafter, the manager’s check was deposited in the account of Filipinas Cement Corporation (FCC) at respondent
Metropolitan Bank and Trust Co. (Metrobank),10 with the forged signature of Lim Sio Wan as indorser.11
Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million with respondent
Producers Bank. Santos was the money market trader assigned to handle FCC’s account. 12 Such deposit is evidenced by
Official Receipt No. 31756813 and a Letter dated September 21, 1983 of Santos addressed to Angie Lazo of FCC,
acknowledging receipt of the placement.14 The placement matured on October 25, 1983 and was rolled-over until
December 5, 1983 as evidenced by a Letter dated October 25, 1983. 15 When the placement matured, FCC demanded the
payment of the proceeds of the placement.16 On December 5, 1983, the same date that So received the phone call
instructing her to pre-terminate Lim Sio Wan’s placement, the manager’s check in the name of Lim Sio Wan was deposited
in the account of FCC, purportedly representing the proceeds of FCC’s money market placement with Producers Bank.17
In other words, the Allied check was deposited with Metrobank in the account of FCC as Producers Bank’s payment of
its obligation to FCC.
To clear the check and in compliance with the requirements of the Philippine Clearing House Corporation (PCHC) Rules
and Regulations, Metrobank stamped a guaranty on the check, which reads: "All prior endorsements and/or lack of
endorsement guaranteed."18
The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied funded the check even
without checking the authenticity of Lim Sio Wan’s purported indorsement. Thus, the amount on the face of the check
was credited to the account of FCC.19
On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to mature on January 9,
1984.20
On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio Wan went to Allied to
withdraw it.21 She was then informed that the placement had been pre-terminated upon her instructions. She denied giving
any instructions and receiving the proceeds thereof. She desisted from further complaints when she was assured by the
bank’s manager that her money would be recovered.22
When Lim Sio Wan’s second placement matured on January 9, 1984, So called Lim Sio Wan to ask for the latter’s
instructions on the second placement. Lim Sio Wan instructed So to roll-over the placement for another 30 days.23 On
January 24, 1984, Lim Sio Wan, realizing that the promise that her money would be recovered would not materialize, sent
a demand letter to Allied asking for the payment of the first placement.24 Allied refused to pay Lim Sio Wan, claiming that
the latter had authorized the pre-termination of the placement and its subsequent release to Santos.25
Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13, 1984 26 docketed as Civil Case No. 6757
against Allied to recover the proceeds of her first money market placement. Sometime in February 1984, she withdrew her
second placement from Allied.
Allied filed a third party complaint27 against Metrobank and Santos. In turn, Metrobank filed a fourth party complaint 28
against FCC. FCC for its part filed a fifth party complaint 29 against Producers Bank. Summonses were duly served upon
all the parties except for Santos, who was no longer connected with Producers Bank. 30
On May 15, 1984, or more than six (6) months after funding the check, Allied informed Metrobank that the signature on
the check was forged.31 Thus, Metrobank withheld the amount represented by the check from FCC. Later on, Metrobank
agreed to release the amount to FCC after the latter executed an Undertaking, promising to indemnify Metrobank in case
it was made to reimburse the amount.32
Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-defendant, along with Allied.33 The
RTC admitted the amended complaint despite the opposition of Metrobank.34 Consequently, Allied’s third party complaint
against Metrobank was converted into a cross-claim and the latter’s fourth party complaint against FCC was converted
into a third party complaint.35
After trial, the RTC issued its Decision, holding as follows:
Defendant Allied Bank’s cross-claim against defendant Metrobank is DISMISSED.
Likewise defendant Metrobank’s third-party complaint as against Filipinas Cement Corporation is DISMISSED.
Filipinas Cement Corporation’s fourth-party complaint against Producer’s Bank is also DISMISSED.
SO ORDERED.36
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998, modifying the RTC Decision, as
follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and
sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee
Metropolitan Bank and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum from
March 16, 1984 until fully paid. The moral damages, attorney’s fees and costs of suit adjudged shall likewise be paid by
defendant-appellant Allied Banking Corporation and defendant-appellee Metropolitan Bank and Trust Company in the
same proportion of 60-40. Except as thus modified, the decision appealed from is AFFIRMED.
SO ORDERED.37
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied] to pre-terminate the initial
placement and to deliver the check to Deborah Santos.
The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the reimbursement of amount
adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of amount adjudged demandable in
clear disregard to the ultimate liability of Metrobank as guarantor of all endorsement on the check, it being the collecting
bank.38
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that Allied was not authorized to release the proceeds of
Lim Sio Wan’s money market placement to Santos. Allied clearly raises a question of fact. When the CA affirms the
findings of fact of the RTC, the factual findings of both courts are binding on this Court. 39
We also agree with the CA when it said that it could not disturb the trial court’s findings on the credibility of witness So
inasmuch as it was the trial court that heard the witness and had the opportunity to observe closely her deportment and
manner of testifying. Unless the trial court had plainly overlooked facts of substance or value, which, if considered, might
affect the result of the case,40 we find it best to defer to the trial court on matters pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of negligence is also a factual question. 41 Thus, the finding of the RTC,
affirmed by the CA, that the respective parties were negligent in the exercise of their obligations is also conclusive upon
this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and familiar is the doctrine that
the relationship between a bank and a client is one of debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or mutuum.42 More succinctly,
in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano, this Court ruled that a money market placement is a
simple loan or mutuum.43 Further, we defined a money market in Cebu International Finance Corporation v. Court of
Appeals, as follows:
[A] money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders
and borrowers do not deal directly with each other but through a middle man or dealer in open market. In a money market
transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a
loan.44
Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her request, or upon
maturity of the placement, or until the bank is released from its obligation as debtor. Until any such event, the obligation
of Allied to Lim Sio Wan remains unextinguished.
Art. 1231 of the Civil Code enumerates the instances when obligations are considered extinguished, thus:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code. (Emphasis supplied.)
From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize the release of her money
market placement to Santos and the bank had been negligent in so doing, there is no question that the obligation of Allied
to pay Lim Sio Wan had not been extinguished. Art. 1240 of the Code states that "payment shall be made to the person
in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." As
commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no fault or
negligence which can be imputed to the latter. Even when the debtor acted in utmost good faith and by mistake as to the
person of his creditor, or through error induced by the fraud of a third person, the payment to one who is not in fact his
creditor, or authorized to receive such payment, is void, except as provided in Article 1241. Such payment does not
prejudice the creditor, and accrual of interest is not suspended by it. 45 (Emphasis supplied.)
Since there was no effective payment of Lim Sio Wan’s money market placement, the bank still has an obligation to pay
her at six percent (6%) interest from March 16, 1984 until the payment thereof.
We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wan’s money. It points out that Metrobank
guaranteed all prior indorsements inscribed on the manager’s check, and without Metrobank’s guarantee, the present
controversy would never have occurred. According to Allied:
Failure on the part of the collecting bank to ensure that the proceeds of the check is paid to the proper party is, aside from
being an efficient intervening cause, also the last negligent act, x x x contributory to the injury caused in the present case,
which thereby leads to the conclusion that it is the collecting bank, Metrobank that is the proximate cause of the alleged
loss of the plaintiff in the instant case.46
We are not persuaded.
Proximate cause is "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury and without which the result would not have occurred." 47 Thus, there is an efficient supervening event
if the event breaks the sequence leading from the cause to the ultimate result. To determine the proximate cause of a
controversy, the question that needs to be asked is: If the event did not happen, would the injury have resulted? If the
answer is NO, then the event is the proximate cause.
In the instant case, Allied avers that even if it had not issued the check payment, the money represented by the check
would still be lost because of Metrobank’s negligence in indorsing the check without verifying the genuineness of the
indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 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.
Section 65. Warranty where negotiation by delivery, so forth.—Every person negotiating an instrument by delivery or by
a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate
transferee.
The provisions of subdivision (c) of this section do not apply to persons negotiating public or corporation securities, other
than bills and notes. (Emphasis supplied.)
The warranty "that the instrument is genuine and in all respects what it purports to be" covers all the defects in the
instrument affecting the validity thereof, including a forged indorsement. Thus, the last indorser will be liable for the
amount indicated in the negotiable instrument even if a previous indorsement was forged. We held in a line of cases that
"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 itself, and ultimately should be held liable therefor." 48
However, this general rule is subject to exceptions. One such exception is when the issuance of the check itself was
attended with negligence. Thus, in the cases cited above where the collecting bank is generally held liable, in two of the
cases where the checks were negligently issued, this Court held the institution issuing the check just as liable as or more
liable than the collecting bank.
In isolated cases where the checks were deposited in an account other than that of the payees on the strength of forged
indorsements, we held the collecting bank solely liable for the whole amount of the checks involved for having indorsed
the same. In Republic Bank v. Ebrada,49 the check was properly issued by the Bureau of Treasury. While in Banco de Oro
Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking Corporation, 50 Banco de Oro admittedly issued the
checks in the name of the correct payees. And in Traders Royal Bank v. Radio Philippines Network, Inc., 51 the checks
were issued at the request of Radio Philippines Network, Inc. from Traders Royal Bank.1avvphi1
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank is liable for 60% of the
amount on the face of the negotiable instrument and the collecting bank is liable for 40%. We also noted the relative
negligence exhibited by two banks, to wit:
Both banks were negligent in the selection and supervision of their employees resulting in the encashment of the forged
checks by an impostor. Both banks were not able to overcome the presumption of negligence in the selection and
supervision of their employees. It was the gross negligence of the employees of both banks which resulted in the fraud
and the subsequent loss. While it is true that petitioner BPI’s negligence may have been the proximate cause of the loss,
respondent CBC’s negligence contributed equally to the success of the impostor in encashing the proceeds of the forged
checks. Under these circumstances, we apply Article 2179 of the Civil Code to the effect that while respondent CBC may
recover its losses, such losses are subject to mitigation by the courts. (See Phoenix Construction Inc. v. Intermediate
Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule that the demands of substantial justice are satisfied
by allocating the loss of P2,413,215.16 and the costs of the arbitration proceeding in the amount of P7,250.00 and the cost
of litigation on a 60-40 ratio.52
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the collecting bank should
equally share the liability for the loss of amount represented by the checks concerned due to the negligence of both parties:
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.53
A reading of the facts of the two immediately preceding cases would reveal that the reason why the bank or institution
which issued the check was held partially liable for the amount of the check was because of the negligence of these parties
which resulted in the issuance of the checks.
In the instant case, the trial court correctly found Allied negligent in issuing the manager’s check and in transmitting it to
Santos without even a written authorization.54 In fact, Allied did not even ask for the certificate evidencing the money
market placement or call up Lim Sio Wan at her residence or office to confirm her instructions. Both actions could have
prevented the whole fraudulent transaction from unfolding. Allied’s negligence must be considered as the proximate cause
of the resulting loss.
To reiterate, had Allied exercised the diligence due from a financial institution, the check would not have been issued and
no loss of funds would have resulted. In fact, there would have been no issuance of indorsement had there been no check
in the first place.
The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the check. When Metrobank
indorsed the check in compliance with the PCHC Rules and Regulations 55 without verifying the authenticity of Lim Sio
Wan’s indorsement and when it accepted the check despite the fact that it was cross-checked payable to payee’s account
only,56 its negligent and cavalier indorsement contributed to the easier release of Lim Sio Wan’s money and perpetuation
of the fraud. Given the relative participation of Allied and Metrobank to the instant case, both banks cannot be adjudged
as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio Wan’s indorsement, can raise
the real defense of forgery as against both banks.57
As to Producers Bank, Allied Bank’s argument that Producers Bank must be held liable as employer of Santos under Art.
2180 of the Civil Code is erroneous. Art. 2180 pertains to the vicarious liability of an employer for quasi-delicts that an
employee has committed. Such provision of law does not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal Code in the instant case. Such
liability on the part of the employer for the civil aspect of the criminal act of the employee is based on the conviction of
the employee for a crime. Here, there has been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers Bank, the same is correct. Allied correctly claims
in its petition that Producers Bank should reimburse Allied for whatever judgment that may be rendered against it pursuant
to Art. 22 of the Civil Code, which provides: "Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter without just cause or legal ground,
shall return the same to him."1avvphi1
The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here is unjust enrichment when a person
unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience." 58
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under Article 22 of the Civil Code,
there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with
damages to another."59
In the instant case, Lim Sio Wan’s money market placement in Allied Bank was pre-terminated and withdrawn without
her consent. Moreover, the proceeds of the placement were deposited in Producers Bank’s account in Metrobank without
any justification. In other words, there is no reason that the proceeds of Lim Sio Wans’ placement should be deposited in
FCC’s account purportedly as payment for FCC’s money market placement and interest in Producers Bank.lavvphil With
such payment, Producers Bank’s indebtedness to FCC was extinguished, thereby benefitting the former. Clearly, Producers
Bank was unjustly enriched at the expense of Lim Sio Wan. Based on the facts and circumstances of the case, Producers
Bank should reimburse Allied and Metrobank for the amounts the two latter banks are ordered to pay Lim Sio Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should be considered as having been unjustly enriched. It
must be remembered that FCC’s money market placement with Producers Bank was already due and demandable; thus,
Producers Bank’s payment thereof was justified. FCC was entitled to such payment. As earlier stated, the fact that the
indorsement on the check was forged cannot be raised against FCC which was not a part in any stage of the negotiation
of the check. FCC was not unjustly enriched.
From the facts of the instant case, we see that Santos could be the architect of the entire controversy. Unfortunately, since
summons had not been served on Santos, the courts have not acquired jurisdiction over her. 60 We, therefore, cannot
ascribe to her liability in the instant case.
Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of the check plus 12% interest per
annum, moral damages, attorney’s fees, and costs of suit which Allied and Metrobank are adjudged to pay Lim Sio Wan
based on a proportion of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision in CA-G.R. CV No. 46290 and
the November 15, 1993 RTC Decision in Civil Case No. 6757 are AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and
sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee
Metropolitan Bank and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum from
March 16, 1984 until fully paid. The moral damages, attorney’s fees and costs of suit adjudged shall likewise be paid by
defendant-appellant Allied Banking Corporation and defendant-appellee Metropolitan Bank and Trust Company in the
same proportion of 60-40. Except as thus modified, the decision appealed from is AFFIRMED.
SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay Allied and Metrobank the
aforementioned amounts. The liabilities of the parties are concurrent and independent of each other.

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner,

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

DECISION

TINGA, J.:
Plaintiff Samsung Construction Company Philippines, Inc. ("Samsung Construction"), while based in Biñan, Laguna,
maintained a current account with defendant Far East Bank and Trust Company 1 ("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 Decision dated
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.40 She had trained with the Royal Hongkong
Police Laboratory and is a member of the International Association for Identification. 41 As of the time she testified, she
had examined more than fifty to fifty-five thousand questioned documents, on an average 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. 68 Moreover, the check
was presented for payment by one Roberto Gonzaga, who was not designated as the payee of the check, and who did not
carry with him any written proof that he was authorized by Samsung Construction to encash the check. Gonzaga, a stranger
to FEBTC, was not even an employee of Samsung Construction.69 These circumstances are already suspicious if taken
independently, much more so if they are evaluated in concurrence. Given the shadiness attending 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.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,

vs.
ANTONIO B. BALMACEDA and ROLANDO N. RAMOS, Respondents.
On September 10, 1993, PCIB filed an action for recovery of sum of money with damages before the RTC against Antonio
Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB alleged that between 1991 and
1993, Balmaceda, by taking advantage of his position as branch manager, fraudulently obtained and encashed 31 Manager’s
checks in the total amount of Ten Million Seven Hundred Eighty Two Thousand One Hundred Fifty Pesos
(₱10,782,150.00).
On February 28, 1994, PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as one of the
recipients of a portion of the proceeds from Balmaceda’s alleged fraud. PCIB also increased the number of fraudulently
obtained and encashed Manager’s checks to 34, in the total amount of Eleven Million Nine Hundred Thirty Seven
Thousand One Hundred Fifty Pesos (₱11,937,150.00). The RTC granted this motion.
Since Balmaceda did not file an Answer, he was declared in default. On the other hand, Ramos filed an Answer denying
any knowledge of Balmaceda’s scheme. According to Ramos, he is a reputable businessman engaged in the business of
buying and selling fighting cocks, and Balmaceda was one of his clients. Ramos admitted receiving money from Balmaceda
as payment for the fighting cocks that he sold to Balmaceda, but maintained that he had no knowledge of the source of
Balmaceda’s money.
THE RTC DECISION
On September 22, 2000, the RTC issued a decision in favor of PCIB, with the following dispositive portion:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants as
follows:
1. Ordering defendant Antonio Balmaceda to pay the amount of ₱11,042,150.00 with interest thereon at the legal rate
from [the] date of his misappropriation of the said amount until full restitution shall have been made[.]
2. Ordering defendant Rolando Ramos to pay the amount of ₱895,000.00 with interest at the legal rate from the date of
misappropriation of the said amount until full restitution shall have been made[.]
3. Ordering the defendants to pay plaintiff moral damages in the sum of ₱500,000.00 and attorney’s fees in the amount of
ten (10%) percent of the total misappropriated amounts sought to be recovered.
4. Plus costs of suit.
SO ORDERED.4
From the evidence presented, the RTC found that Balmaceda, by taking undue advantage of his position and authority as
branch manager of the Sta. Cruz, Manila branch of PCIB, successfully obtained and misappropriated the bank’s funds by
falsifying several commercial documents. He accomplished this by claiming that he had been instructed by one of the
Bank’s corporate clients to purchase Manager’s checks on its behalf, with the value of the checks to be debited from the
client’s corporate bank account. First, he would instruct the Bank staff to prepare the application forms for the purchase
of Manager’s checks, payable to several persons. Then, he would forge the signature of the client’s authorized
representative on these forms and sign the forms as PCIB’s approving officer. Finally, he would have an authorized officer
of PCIB issue the Manager’s checks. Balmaceda would subsequently ask his subordinates to release the Manager’s checks
to him, claiming that the client had requested that he deliver the checks.5 After receiving the Manager’s checks, he encashed
them by forging the signatures of the payees on the checks.
In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the Manager’s checks payable to
Ramos were crossed checks, Balmaceda was still able to encash the checks.6 After Balmaceda encashed three of these
Manager’s checks, he deposited most of the money into Ramos’ account.7 The RTC concluded that from the
₱11,937,150.00 that Balmaceda misappropriated from PCIB, ₱895,000.00 actually went to Ramos. Since the RTC
disbelieved Ramos’ allegation that the sum of money deposited into his Savings Account (PCIB, Pasig branch) were
proceeds from the sale of fighting cocks, it held Ramos liable to pay PCIB the amount of ₱895,000.00.
THE COURT OF APPEALS DECISION
On appeal, the CA dismissed the complaint against Ramos, holding that no sufficient evidence existed to prove that Ramos
colluded with Balmaceda in the latter’s fraudulent manipulations. 8
According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the Manager’s checks does not
suffice to prove that Ramos was complicit in Balmaceda’s fraudulent scheme. It observed that other persons were also
named as payees in the checks that Balmaceda acquired and encashed, and PCIB only chose to go after Ramos. With
PCIB’s failure to prove Ramos’ actual participation in Balmaceda’s fraud, no legal and factual basis exists to hold him
liable.
The CA also found that PCIB acted illegally in freezing and debiting ₱251,910.96 from Ramos’ bank account. The CA
thus decreed:
WHEREFORE, the appeal is granted. The Decision of the trial court rendered on September 22, 2000[,] insofar as
appellant Ramos is concerned, is SET ASIDE, and the complaint below against him is DISMISSED.
Appellee is hereby ordered to release the amount of ₱251,910.96 to appellant Ramos plus interest at [the] legal rate
computed from September 30, 1993 until appellee shall have fully complied therewith.
Appellee is likewise ordered to pay appellant Ramos the following:
a) ₱50,000.00 as moral damages
b) ₱50,000.00 as exemplary damages, and
c) ₱20,000.00 as attorney’s fees.
No costs.
SO ORDERED.9
THE PETITION
In the present petition, PCIB avers that:
I
THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE TO HOLD THAT
RESPONDENT RAMOS ACTED IN COMPLICITY WITH RESPONDENT BALMACEDA
II
THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO RELEASE THE AMOUNT OF
₱251,910.96 TO RESPONDENT RAMOS AND TO PAY THE LATTER MORAL AND EXEMPLARY DAMAGES
AND ATTORNEY’S FEES10
PCIB contends that the circumstantial evidence shows that Ramos had knowledge of, and acted in complicity with
Balmaceda in, the perpetuation of the fraud. Ramos’ explanation that he is a businessman and that he received the
Manager’s checks as payment for the fighting cocks he sold to Balmaceda is unconvincing, given the large sum of money
involved. While Ramos presented evidence that he is a reputable businessman, this evidence does not explain why the
Manager’s checks were made payable to him in the first place.
PCIB maintains that it had the right to freeze and debit the amount of ₱251,910.96 from Ramos’ bank account, even
without his consent, since legal compensation had taken place between them by operation of law. PCIB debited Ramos’
bank account, believing in good faith that Ramos was not entitled to the proceeds of the Manager’s checks and was actually
privy to the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable for moral and exemplary damages.
OUR RULING
We partly grant the petition.
At the outset, we observe that the petition raises mainly questions of fact whose resolution requires the re-examination of
the evidence on record. As a general rule, petitions for review on certiorari only involve questions of law. 11 By way of
exception, however, we can delve into evidence and the factual circumstance of the case when the findings of fact in the
tribunals below (in this case between those of the CA and of the RTC) are conflicting. When the exception applies, we are
given latitude to review the evidence on record to decide the case with finality.12
Ramos’ participation in Balmaceda’s scheme not proven
From the testimonial and documentary evidence presented, we find it beyond question that Balmaceda, by taking
advantage of his position as branch manager of PCIB’s Sta. Cruz, Manila branch, was able to apply for and obtain
Manager’s checks drawn against the bank account of one of PCIB’s clients. The unsettled question is whether Ramos, who
received a portion of the money that Balmaceda took from PCIB, should also be held liable for the return of this money
to the Bank.
PCIB insists that it presented sufficient evidence to establish that Ramos colluded with Balmaceda in the scheme to
fraudulently secure Manager’s checks and to misappropriate their proceeds. Since Ramos’ defense – anchored on mere
denial of any participation in Balmaceda’s wrongdoing – is an intrinsically weak defense, it was error for the CA to
exonerate Ramos from any liability.
In civil cases, the party carrying the burden of proof must establish his case by a preponderance of evidence, or evidence
which, to the court, is more worthy of belief than the evidence offered in opposition. 13 This Court, in Encinas v. National
Bookstore, Inc.,14 defined "preponderance of evidence" in the following manner:
"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side and is usually
considered to be synonymous with the term "greater weight of the evidence" or "greater weight of the credible evidence."
Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is
more convincing to the court as worthy of belief than that which is offered in opposition thereto.
The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue has the onus to prove his assertion
in order to obtain a favorable judgment, subject to the overriding rule that the burden to prove his cause of action never
leaves the plaintiff. For the defendant, an affirmative defense is one that is not merely a denial of an essential ingredient in
the plaintiff's cause of action, but one which, if established, will constitute an "avoidance" of the claim. 15
Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion that Ramos conspired with
Balmaceda in perpetrating the latter’s scheme to defraud the Bank. In PCIB’s estimation, it successfully accomplished this
through the submission of the following evidence:
[1] Exhibits "A," "D," "PPPP," "QQQQ," and "RRRR" and their submarkings, the application forms for MCs, show that
[these MCs were applied for in favor of Ramos;]
[2] Exhibits "K," "N," "SSSS," "TTTT," and "UUUU" and their submarkings prove that the MCs were issued in favor of
x x x Ramos[; and]
[3] [T]estimonies of the witness for [PCIB].16
We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of proof that PCIB carries as
plaintiff.
On its face, all that PCIB’s evidence proves is that Balmaceda used Ramos’ name as a payee when he filled up the
application forms for the Manager’s checks. But, as the CA correctly observed, the mere fact that Balmaceda made Ramos
the payee on some of the Manager’s checks is not enough basis to conclude that Ramos was complicit in Balmaceda’s
fraud; a number of other people were made payees on the other Manager’s checks yet PCIB never alleged them to be
liable, nor did the Bank adduce any other evidence pointing to Ramos’ participation that would justify his separate
treatment from the others. Also, while Ramos is Balmaceda’s brother-in-law, their relationship is not sufficient, by itself,
to render Ramos liable, absent concrete proof of his actual participation in the fraudulent scheme.
Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he applied for the Manager’s
checks against the bank account of one of PCIB’s clients, as well as when he encashed the fraudulently acquired Manager’s
checks.
Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, testified that Balmaceda committed
all the acts necessary to obtain the unauthorized Manager’s checks – from filling up the application form by forging the
signature of the client’s representative, to forging the signatures of the payees in order to encash the checks. As Mrs. Costes
stated in her testimony:
We also find no reason to doubt Ramos’ claim that Balmaceda deposited these large sums of money into his bank account
as payment for the fighting cocks that Balmaceda purchased from him. Ramos presented two witnesses – Vicente
Cosculluela and Crispin Gadapan – who testified that Ramos previously engaged in the business of buying and selling
fighting cocks, and that Balmaceda was one of Ramos’ biggest clients.
Quoting from the RTC decision, PCIB stresses that Ramos’ own witness and business partner, Cosculluela, testified that
the biggest net profit he and Ramos earned from a single transaction with Balmaceda amounted to no more than
₱100,000.00, for the sale of approximately 45 fighting cocks.22 In PCIB’s view, this testimony directly contradicts Ramos’
assertion that he received approximately ₱400,000.00 from his biggest transaction with Balmaceda. To PCIB, the testimony
also renders questionable Ramos’ assertion that Balmaceda deposited large amounts of money into his bank account as
payment for the fighting cocks.
On this point, we find that PCIB misunderstood Cosculluela’s testimony. A review of the testimony shows that Cosculluela
specifically referred to the net profit that they earned from the sale of the fighting cocks;23 PCIB apparently did not take
into account the capital, transportation and other expenses that are components of these transactions. Obviously, in sales
transactions, the buyer has to pay not only for the value of the thing sold, but also for the shipping costs and other
incidental costs that accompany the acquisition of the thing sold. Thus, while the biggest net profit that Ramos and
Cosculluela earned in a single transaction amounted to no more than ₱100,000.00,24 the inclusion of the actual acquisition
costs of the fighting cocks, the transportation expenses (i.e., airplane tickets from Bacolod or Zamboanga to Manila) and
other attendant expenses could account for the ₱400,000.00 that Balmaceda deposited into Ramos’ bank account.
Given that PCIB failed to establish Ramos’ participation in Balmaceda’s scheme, it was not even necessary for Ramos to
provide an explanation for the money he received from Balmaceda. Even if the evidence adduced by the plaintiff appears
stronger than that presented by the defendant, a judgment cannot be entered in the plaintiff’s favor if his evidence still
does not suffice to sustain his cause of action;25 to reiterate, a preponderance of evidence as defined must be established
to achieve this result.
PCIB itself at fault as employer
In considering this case, one point that cannot be disregarded is the significant role that PCIB played which contributed
to the perpetration of the fraud. We cannot ignore that Balmaceda managed to carry out his fraudulent scheme primarily
because other PCIB employees failed to carry out their assigned tasks – flaws imputable to PCIB itself as the employer.
Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB, Sta. Cruz, Manila branch
at the time of the incident, testified that Balmaceda broke the Bank’s protocol when he ordered the Bank’s employees to
fill up the application forms for the Manager’s checks, to be debited from the bank account of one of the bank’s clients,
without providing the necessary Authority to Debit from the client.26 PCIB also admitted that these Manager’s checks
were subsequently released to Balmaceda, and not to the client’s representative, based solely on Balmaceda’s word that the
client had tasked him to deliver these checks.27
Despite Balmaceda’s gross violations of bank procedures – mainly in the processing of the applications for Manager’s
checks and in the releasing of the Manager’s checks – Balmaceda’s co-employees not only turned a blind eye to his actions,
but actually complied with his instructions. In this way, PCIB’s own employees were unwitting accomplices in
Balmaceda’s fraud.
Another telling indicator of PCIB’s negligence is the fact that it allowed Balmaceda to encash the Manager’s checks that
were plainly crossed checks. A crossed check is one where two parallel lines are drawn across its face or across its corner. 28
Based on jurisprudence, the 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 the one who has an account with the bank; and
(c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose
and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course. 29 In
other words, the crossing of a check is a warning that the check should be deposited only in the account of the payee.
When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the payee’s
account.30 In complete disregard of this duty, PCIB’s systems allowed Balmaceda to encash 26 Manager’s checks which
were all crossed checks, or checks payable to the "payee’s account only."
The General Banking Law of 200031 requires of banks the highest standards of integrity and performance. The banking
business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general
in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good
father of a family.32 The highest degree of diligence is expected.33
While we appreciate that Balmaceda took advantage of his authority and position as the branch manager to commit these
acts, this circumstance cannot be used to excuse the manner the Bank – through its employees –handled its clients’ bank
accounts and thereby ignored established bank procedures at the branch manager’s mere order. This lapse is made all the
more glaring by Balmaceda’s repetition of his modus operandi 33 more times in a period of over one year by the Bank’s
own estimation. With this kind of record, blame must be imputed on the Bank itself and its systems, not solely on the
weakness or lapses of individual employees.
Principle of unjust enrichment not applicable
PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right to recover the amounts unjustly
received by Ramos pursuant to the principle of unjust enrichment. This principle is embodied in Article 22 of the Civil
Code which provides:
Article 22. Every person who through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall return the same to him.
To have a cause of action based on unjust enrichment, we explained in University of the Philippines v. Philab Industries,
Inc.34 that:
Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead
it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.
Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party
knowingly received something of value to which he was not entitled and that the state of affairs are such that it
would be unjust for the person to keep the benefit. Unjust enrichment is a term used to depict result or effect of failure
to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable
obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or
request. Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the doctrine
of restitution.35 (emphasis ours)
Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he received payments out of money
secured by fraud from PCIB. To hold Ramos accountable, it is necessary to prove that he received the money from
Balmaceda, knowing that he (Ramos) was not entitled to it. PCIB must also prove that Ramos, at the time that he received
the money from Balmaceda, knew that the money was acquired through fraud. Knowledge of the fraud is the link between
Ramos and PCIB that would obligate Ramos to return the money based on the principle of unjust enrichment.
However, as the evidence on record indicates, Ramos accepted the deposits that Balmaceda made directly into his bank
account, believing that these deposits were payments for the fighting cocks that Balmaceda had purchased. Significantly,
PCIB has not presented any evidence proving that Ramos participated in, or that he even knew of, the fraudulent sources
of Balmaceda’s funds.
PCIB illegally froze and debited Ramos’ assets
We also find that PCIB acted illegally in freezing and debiting Ramos’ bank account. In BPI Family Bank v. Franco, 36 we
cautioned against the unilateral freezing of bank accounts by banks, noting that:
More importantly, [BPI Family Bank] does not have a unilateral right to freeze the accounts of Franco based on its mere
suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant
[BPI Family Bank], or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes
are derived from shady transactions, would open the floodgates of public distrust in the banking industry. 37
We see no legal merit in PCIB’s claim that legal compensation took place between it and Ramos, thereby warranting the
automatic deduction from Ramos’ bank account. For legal compensation to take place, two persons, in their own right,
must first be creditors and debtors of each other. 38 While PCIB, as the depositary bank, is Ramos’ debtor in the amount
of his deposits, Ramos is not PCIB’s debtor under the evidence the PCIB adduced. PCIB thus had no basis, in fact or in
law, to automatically debit from Ramos’ bank account.
On the award of damages
Although PCIB’s act of freezing and debiting Ramos’ account is unlawful, we cannot hold PCIB liable for moral and
exemplary damages. Since a contractual relationship existed between Ramos and PCIB as the depositor and the depositary
bank, respectively, the award of moral damages depends on the applicability of Article 2220 of the Civil Code, which
provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith. [emphasis ours]
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity
and conscious commission of a wrong; it partakes of the nature of fraud. 39
As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos’ bank account and
subsequently debited the amount of ₱251,910.96 therefrom. While PCIB may have acted hastily and without regard to its
primary duty to treat the accounts of its depositors with meticulous care and utmost fidelity,40 we find that its actions were
propelled more by the need to protect itself, and not out of malevolence or ill will. One may err, but error alone is not a
ground for granting moral damages.41
We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a party to first prove that he is
entitled to moral, temperate or compensatory damages before he can be awarded exemplary damages.1âwphi1 Since no
reason exists to award moral damages, so too can there be no reason to award exemplary damages.
We deem it just and equitable, however, to uphold the award of attorney’s fees in Ramos’ favor. Taking into consideration
the time and efforts involved that went into this case, we increase the award of attorney’s fees from ₱20,000.00 to
₱75,000.00.
WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the Court of Appeals dated
April 29, 2003 in CA-G.R. CV No. 69955 with the MODIFICATION that the award of moral and exemplary damages
in favor of Rolando N. Ramos is DELETED, while the award of attorney’s fees is INCREASED to ₱75,000.00. Costs
against the Philippine Commercial International Bank.