METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner, vs.

COURT
OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE PHILIPPINE
NATIONAL BANK, respondents.
1986-07-14 | G.R. No. L-62943
DECISION

GUTIERREZ, JR., J:
This petition for review asks us to set aside the October 29, 1982 decision of the respondent Court of Appeals,
now Intermediate Appellate Court which reversed the decision of the Court of First Instance of Manila, Branch
XL, and dismissed the plaintiff's complaint, the third party complaint, as well as the defendant's counterclaim.
The background facts which led to the filing of the instant petition are summarized in the decision of the
respondent Court of Appeals:
"Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is a government
owned and controlled corporation created under Republic Act No. 6234 as the successor-in-interest of
the defunct NWSA. The Philippine National Bank (PNB for short), on the other hand, is the depository
bank of MWSS and its predecessor-in-interest NWSA. Among the several accounts of NWSA with PNB
is NWSA Account No. 6, otherwise known as Account No. 381-777 and which is presently allocated No.
010-500281. The authorized signature for said Account No. 6 were those of MWSS treasurer Jose
Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor L. Recio. Their respective
specimen signatures were submitted by the MWSS to and on file with the PNB. By special
arrangement with the PNB, the MWSS used personalized checks in drawing from this account. These
checks were printed for MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal Extension,
Caloocan City.
"During the months of March, April and May 1969, twenty-three (23) checks were prepared, processed,
issued and released by NWSA, all of which were paid and cleared by PNB and debited by PNB against
NWSA Account No. 6, to wit:
Check No.

Date

Payee

Amount

Date Paid By PNB

1. 59546

8-21-69

Deogracias Estrella

P 3,187.79

4-2-69

2. 59548

3-31-69

Natividad Rosario

2,848.86

4-23-69

3. 59547

3-31-69

Pangilinan Enterprises

195.00

Unreleased

4. 59549

3-31-69

Natividad Rosario

3,239.88

4-23-69

5. 59552

4 -1-69

Villarama & Sons

987.59

5 -6-69

6. 59554

4 -1-69

Gascom Engineering

6,057.60

4-16-69

7. 59558

4 -2-69

The Evening News

112.00

Unreleased

8. 59544

3-27-69

Progressive Const.

18,391.20

4-18-69

9. 59564

4 -2-69

Ind. Insp. Int. Inc.

594.06

4-18-69

| Page 1 of 11

10. 59568

4 -7-69

Roberto Marsan

800.00

4-22-69

11. 59570

4 -7-69

Paz Andres

200.00

4-22-69

12. 59574

4 -8-69

Florentino Santos

100,000.00

4-11-69

13. 59578

4 -8-69

Mla. Daily Bulletin

P 95.00

Unreleased

14. 59580

4 -8-69

Phil. Herald

100.00

5 -9-69

15. 59582

4 -8-69

Galauran & Pilar

7,729.09

5 -6-69

16. 59581

4 -8-69

Manila Chronicle

110.00

5-12-69

17. 59588

4 -8-69

Treago Tunnel

21,583.00

4-11-69

18. 59587

4-8-69

Delfin Santiago

120,000.00

4-11-69

19. 59589

4-10-69

Deogracias Estrella

1,257.49

4-16-69

20. 59594

4-14-69

Philam Accident Inc.

33.03

4-29-69

21. 59577

4- 8-69

Esla

9,429.78

4-29-69

22. 59601

4-16-69

Justino Torres

20,000.00

4-18-69

23. 59595

4-14-69

Neris Phil. Inc.

4,274.00

5-20-69

P320,636.26"

"During the same months of March, April and May 1969, twenty-three (23) checks bearing the same numbers
as the aforementioned NWSA checks were likewise paid and cleared by PNB and debited against NWSA
Account No. 6, to wit:
"Check Date Payee Amount Date Paid
No. Issued By PNB
1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69
2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69
3. 59547 3-14-69 Arturo Sison 56,903.00 4-1169
4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69
5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69
6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69
7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69
8. 59544 3-16-69 Antonio Mendoza 38,490.00 4-22-69
9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69
10. 59568 4-2-69 Arturo Sison 134,940.00 4-25-69
11. 59570 4-1-69 Arturo Sison 64,550.00 4-28-69
12. 59574 4-2-69 Arturo Sison 148,610.00 4-29-69
13. 59578 4-10-69 Antonio Mendoza 93,950.00 4-29-69
14. 59580 4-8-69 Arturo Sison 160,000.0 5-2-69
15. 59582 4-10-69 Arturo Sison 155,400.00 5-5-69
16. 59581 4-8-69 Antonio Mendoza 176,580.00 5-6-69
17. 59588 4-16-69 Arturo Sison 176,000.00 5-8-69
18. 59587 4-16-69 Arturo Sison 300,000.00 5-12-69
19. 59589 4-18-69 Arturo Sison 122,000.00 5-14-69
20. 59594 4-18-69 Arturo Sison 280,000.0 5-15-69
21. 59577 4-14-69 Antonio Mendoza 260,000. 5-16-69
22. 59601 4-18-69 Arturo Sison 400,000.00 5-19-69

| Page 2 of 11

23. 59595 4-28-69 Arturo Sison 190,800.00 5-21-69

---------------------P3,457,903.00
"The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and Antonio Mendoza in their
respective current accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of
Commerce (PBC) in the months of March, April and May 1969. Thru the Central Bank Clearing, these checks
were presented for payment by PBC and PCIB to the defendant PNB, and paid, also in the months of March,
April and May 1969. At the time of their presentation to PNB these checks bear the standard indorsement
which reads 'all prior indorsement and/or lack of endorsement guaranteed.'
"Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo Sison and Antonio
Mendoza were all fictitious persons. The respective balances in their current account with the PBC and/or
PCIB stood as follows: Raul Dizon P3,455.00 as of April 30, 1969; Antonio Mendoza P18,182.00 as of May
23, 1969; and Arturo Sison P1,398.92 as of June 30, 1969.
"On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate restoration to its Account No.
6, of the total sum of P3,457,903.00 corresponding to the total amount of these twenty-three (23) checks
claimed by NWSA to be forged and/or spurious checks.
"In view of the refusal of PNB to credit back to Account No. 6 the said total sum of P3,457,903.00 MWSS filed
the instant complaint on November 10, 1972 before the Court of First Instance of Manila and docketed thereat
as Civil Case No. 88950.
"In its answer, PNB contended among others, that the checks in question were regular on its face in all
respects, including the genuineness of the signatures of authorized NWSA signing officers and there was
nothing on its face that could have aroused any suspicion as to its genuineness and due execution and; that
NWSA was guilty of negligence which was the proximate cause of the loss.
"PNB also filed a third party complaint against the negotiating banks PBC and PCIB on the ground that they
failed to ascertain the identity of the payees and their title to the checks which were deposited in the
respective new accounts of the payees with them."
xxx xxx xxx
On February 6, 1976, the Court of First Instance of Manila rendered judgment in favor of the MWSS. The
dispositive portion of the decision reads:
"WHEREFORE, on the COMPLAINT by a clear preponderance of evidence and in accordance with
Section 23 of the Negotiable Instruments Law, the Court hereby renders judgment in favor of the
plaintiff Metropolitan Waterworks and Sewerage System (MWSS) by ordering the defendant Philippine
National Bank (PNB) to restore the total sum of THREE MILLION FOUR HUNDRED FIFTY SEVEN
THOUSAND NINE HUNDRED THREE PESOS (P3,457,903.00) to plaintiff's Account No. 6, otherwise
known as Account No. 010-50030-3, with legal interest thereon computed from the date of the filing of
the complaint and until as restored in the said Account No. 6.
"On the THIRD PARTY COMPLAINT, the Court, for lack of evidence, hereby renders judgment in favor
of the third party defendants Philippine Bank of Commerce (PBC) and Philippine Commercial and
Industrial Bank (PCIB) by dismissing the Third Party Complaint.
"The counterclaims of the third party defendants are likewise dismissed for lack of evidence.
"No pronouncement as to costs."

| Page 3 of 11

As earlier stated, the respondent court reversed the decision of the Court of First Instance of Manila and
rendered judgment in favor of the respondent Philippine National Bank.
A motion for reconsideration filed by the petitioner MWSS was denied by the respondent court in a resolution
dated January 3, 1983.
The petitioner now raises the following assignments of errors for the grant of this petition:
I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS WERE FORGED, THE
DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE
INSTRUMENTS LAW.
II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB IN ACCEPTING THE
SPURIOUS CHECKS DESPITE THE OBVIOUS IRREGULARITY OF TWO SETS OF CHECKS
BEARING IDENTICAL NUMBER BEING ENCASHED WITHIN DAYS OF EACH OTHER.
III IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE MWSS BEING CLEARLY
FORGED, AND THE CHECKS SPURIOUS, SAME ARE INOPERATIVE AS AGAINST THE ALLEGED
DRAWEE.
The appellate court applied Section 24 of the Negotiable Instruments Law which provides:
"Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and
every person whose signature appears thereon to have become a party thereto for value."
The petitioner submits that the above provision does not apply to the facts of the instant case because the
questioned checks were not those of the MWSS and neither were they drawn by its authorized signatories.
The petitioner states that granting that Section 24 of the Negotiable Instruments Law is applicable, the same
creates only a prima facie presumption which was overcome by the following documents, to wit: (1) the NBI
Report of November 2, 1970; (2) the NBI Report of November 21, 1974; (3) the NBI Chemistry Report No.
C-74-891; (4) the Memorandum of Mr. Juan Dio, 3rd Assistant Auditor of the respondent drawee bank
addressed to the Chief Auditor of the petitioner; (5) the admission of the respondent bank's counsel in open
court that the National Bureau of Investigation found the signature on the twenty-three (23) checks in question
to be forgeries; and (6) the admission of the respondent bank's witness, Mr. Faustino Mesina, Jr. that the
checks in question were not printed by his printing press. The petitioner contends that since the signatures of
the checks were forgeries, the respondent drawee bank must bear the loss under the rulings of this Court.
"A bank is bound to know the signatures of its customers; and if it pays a forged check it must be considered
as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account
of the depositor whose name was forged."
xxx xxx xxx
"The signatures to the checks being forged, under Section 23 of the Negotiable Instruments Law they are not
a charge against plaintiff nor are the checks of any value to the defendant.
"It must therefore be held that the proximate cause of loss was due to the negligence of the Bank of the
Philippine Islands in honoring and cashing the two forged checks." (San Carlos Milling Co. v. Bank of the P.I.,
59 Phil. 59)
"It is admitted that the Philippine National Bank cashed the check upon a forged signature, and placed the
money to the credit of Maasim, who was the forger. That the Philippine National Bank then endorsed the
check and forwarded it to the Shanghai Bank by whom it was paid. The Philippine National Bank had no
| Page 4 of 11

license or authority to pay the money to Maasim or anyone else upon a forged signature. It was its legal duty
to know that Malicor's endorsement was genuine before cashing the check. Its remedy is against Maasim to
whom it paid the money." (Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, 43 Phil. 678)
We have carefully reviewed the documents cited by the petitioner. There is no express and categorical finding
in these documents that the twenty-three (23) questioned checks were indeed signed by persons other than
the authorized MWSS signatories. On the contrary, the findings of the National Bureau of Investigation in its
Report dated November 2, 1970 show that the MWSS fraud was an "inside job" and that the petitioner's delay
in the reconciliation of bank statements and the laxity and loose records control in the printing of its
personalized checks facilitated the fraud. Likewise, the questioned Documents Report No. 159-1074 dated
November 21, 1974 of the National Bureau of Investigation does not declare or prove that the signatures
appearing on the questioned checks are forgeries. The report merely mentions the alleged differences in the
typeface, checkwriting, and printing characteristics appearing in the standard or submitted models and the
questioned typewritings. The NBI Chemistry Report No. C-74-891 merely describes the inks and pens used in
writing the alleged forged signatures.
It is clear that these three (3) NBI Reports relied upon by the petitioner are inadequate to sustain its
allegations of forgery. These reports did not touch on the inherent qualities of the signatures which are
indispensable in the determination of the existence of forgery. There must be conclusive findings that there is
a variance in the inherent characteristics of the signatures and that they were written by two or more different
persons.
Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139 SCRA 238). It must be
established by clear, positive, and convincing evidence. This was not done in the present case.
The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59 Phil. 59) and Great
Eastern Life Ins., Co. v. Hongkong and Shanghai Bank (43 Phil. 678) relied upon by the petitioner are
inapplicable in this case because the forgeries in those cases were either clearly established or admitted
while in the instant case, the allegations of forgery were not clearly established during trial.
Considering the absence of sufficient security in the printing of the checks coupled with the very close
similarities between the genuine signatures and the alleged forgeries, the twenty-three (23) checks in
question could have been presented to the petitioner's signatories without their knowing that they were bogus
checks. Indeed, the cashier of the petitioner whose signatures were allegedly forged was unable to tell the
difference between the allegedly forged signature and his own genuine signature. On the other hand, the
MWSS officials admitted that these checks could easily be passed on as genuine.
The memorandum of Mr. A. T. Tolentino, Assistant Chief Accountant of the drawee Philippine National Bank
to Mr. E. Villatuya, Executive Vice-President of the petitioner dated June 9, 1969 cites an instance where
even the concerned NWSA officials could not tell the differences between the genuine checks and the alleged
forged checks.
"At about 12:00 o'clock on June 6, 1969, VP Maramag requested me to see him in his office at the Cashier's
Dept. where Messrs. Jose M. Sanchez, treasurer of NAWASA and Romeo Oliva of the same office were
present. Upon my arrival I observed the NAWASA officials questioning the issue of the NAWASA checks
appearing in their own list, xerox copy attached.
"For verification purposes, therefore, the checks were taken from our file. To everybody there present namely
VIP Maramag, the two abovementioned NAWASA officials, AVP, Buhain, Asst. Cashier Castelo, Asst.
Cashier Tejada and Messrs. A. Lopez and L. Lechuga, both C/A bookkeepers, no one was able to point out
any difference on the signatures of the NAWASA officials appearing on the checks compared to their official
signatures on file. In fact 3 checks, one of those under question, were presented to the NAWASA treasurer for
verification but he could not point out which was his genuine signature. After intent comparison, he pointed on

| Page 5 of 11

the questioned check as bearing his correct signature."

xxx xxx xxx
Moreover, the petitioner is barred from setting up the defense of forgery under Section 23 of the Negotiable
Instruments Law which provides that:
"SEC. 23. FORGED SIGNATURE; EFFECT OF . When the signature is forged or made without
authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain
the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto
can be acquired through or under such signature unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or want of authority."
because it was guilty of negligence not only before the questioned checks were negotiated but even after the
same had already been negotiated. (See Republic v. Equitable Banking Corporation, 10 SCRA 8)
The records show that at the time the twenty-three (23) checks were prepared, negotiated, and encashed, the
petitioner was using its own personalized checks, instead of the official PNB Commercial blank checks. In the
exercise of this special privilege, however, the petitioner failed to provide the needed security measures. That
there was gross negligence in the printing of its personalized checks is shown by the following uncontroverted
facts, to wit:
(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions relative to the
safekeeping and disposition of excess forms, check vouchers, and safety papers;
(2) The petitioner failed to retrieve from its printer all spoiled check forms;
(3) The petitioner failed to provide any control regarding the paper used in the printing of said checks;
(4) The petitioner failed to furnish the respondent drawee bank with samples of typewriting, check
writing, and print used by its printer in the printing of its checks and of the inks and pens used in signing
the same; and
(5) The petitioner failed to send a representative to the printing office during the printing of said checks.
This gross negligence of the petitioner is very evident from the sworn statement dated June 19, 1969 of
Faustino Mesina, Jr., the owner of the printing press which printed the petitioner's personalized checks:
xxx xxx xxx
"7. Q: Do you have any business transaction with the National Waterworks and Sewerage Authority
(NAWASA)?
A: Yes, sir. I have a contract with the NAWASA in printing NAWASA Forms such as NAWASA Check
Vouchers and Office Forms.
xxx xxx xxx
"15. Q: Were you given any instruction by the NAWASA in connection with the printing of these check
vouchers?
A: There is none, sir. No instruction whatsoever was given to me.
"16. Q: Were you not advised as to what kind of paper would be used in the check vouchers?

| Page 6 of 11

A: Only as per sample, sir.

xxx xxx xxx
"20. Q: Where did you buy this Hammermill Safety check paper?
A: From Tan Chiong, a paper dealer with store located at Juan Luna, Binondo, Manila. (In front of the
Metropolitan Bank).
xxx xxx xxx
"24. Q: Were all these check vouchers printed by you submitted to NAWASA?
A: Not all, sir, Because we have to make reservations or allowances for spoilage.
"25. Q: Out of these vouchers printed by you, how many were spoiled and how many were the excess
printed check vouchers?
A: Approximately four hundred (400) sheets, sir. I cannot determine the proportion of the excess and
spoiled because the final act of perforating these check vouchers has not yet been done and spoilage
can only be determined after this final act of printing.
"26. Q: What did you do with these excess check vouchers?
A: I keep it under lock and key in my filing cabinet.
xxx xxx xxx
"28. Q: Were you not instructed by the NAWASA authorities to burn these excess check vouchers?
A: No, sir. I was not instructed.
"29. Q: What do you intend to do with these excess printed check vouchers?
A: I intend to use them for future orders from the NAWASA.
xxx xxx xxx
"32. Q: In the process of printing the check vouchers ordered by the NAWASA, how many sheets were
actually spoiled?
A: I cannot approximate, sir. But there are spoilage in the process of printing and perforating.
"33. Q: What did you do with these spoilages?
A: Spoiled printed materials are usually thrown out, in the garbage can.
"34. Q: Was there any representative of the NAWASA to supervise the printing or watch the printing of
these check vouchers?
A: None, sir.
xxx xxx xxx
"39. Q: During the period of printing after the days work, what measures do you undertake to safeguard
the mold and other paraphernalia used in the printing of these particular orders of NAWASA?
A: Inasmuch as I have an employee who sleeps in the printing shop and at the same time do the
guarding, we just leave the mold attached to the machine and the other finished or unfinished work
check vouchers are left in the rack so that the work could be continued the following day."
The National Bureau of Investigation Report dated November 2, 1970 is even more explicit. Thus

| Page 7 of 11

xxx xxx xxx

"60. We observed also that there is some laxity and loose control in the printing of NAWASA checks.
We gathered from MESINA ENTERPRISES, the printing firm that undertook the printing of the check
vouchers of NAWASA that NAWASA had no representative at the printing press during the process of
the printing and no particular security measure instructions adopted to safeguard the interest of the
government in connection with printing of this accountable form."
Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks in question was the
failure of the petitioner to reconcile the bank statements with its own records.
It is accepted banking procedure for the depository bank to furnish its depositors bank statements and debt
and credit memos through the mail. The records show that the petitioner requested the respondent drawee
bank to discontinue the practice of mailing the bank statements, but instead to deliver the same to a certain
Mr. Emiliano Zaporteza. For reasons known only to Mr. Zaporteza however, he was unreasonably delayed in
taking prompt deliveries of the said bank statements and credit and debit memos. As a consequence, Mr.
Zaporteza failed to reconcile the bank statements with the petitioner's records. If Mr. Zaporteza had not been
remiss in his duty of taking the bank statements and reconciling them with the petitioner's records, the
fraudulent encashments of the first checks should have been discovered, and further frauds prevented. This
negligence was, therefore, the proximate cause of the failure to discover the fraud. Thus,
"When a person opens a checking account with a bank, he is given blank checks which he may fill out
and use whenever he wishes. Each time he issues a check, he should also fill out the check stub to
which the check is usually attached. This stub, if properly kept, will contain the number of the check,
the date of its issue, the name of the payee and the amount thereof. The drawer would therefore have
a complete record of the checks he issues. It is the custom of banks to send to its depositors a monthly
statement of the status of their accounts, together with all the cancelled checks which have been
cashed by their respective holders. If the depositor has filled out his check stubs properly, a
comparison between them and the cancelled checks will reveal any forged check not taken from his
checkbook. It is the duty of a depositor to carefully examine the bank's statement, his cancelled checks,
his check stubs and other pertinent records within a reasonable time, and to report any errors without
unreasonable delay. If his negligence should cause the bank to honor a forged check or prevent it from
recovering the amount it may have already paid on such check, he cannot later complain should the
bank refuse to recredit his account with the amount of such check. (First Nat. Bank of Richmond v.
Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA, NS 744 [1907]. See also Leather
Manufacturers' Bank v. Morgan, 117 US 96, 6 S. Ct. 657 [1886]; Deer Island Fish and Oyster Co. v.
First Nat. Bank of Biloxi, 166 Miss. 162, 146 So. 116 [1933]). Campos and Campos, Notes and
Selected Cases on Negotiable Instruments Law, 1971, pp. 267-268).
This failure of the petitioner to reconcile the bank statements with its cancelled checks was noted by the
National Bureau of Investigation in its report dated November 2, 1970:
"58. One factor which facilitate this fraud was the delay in the reconciliation of bank (PNB) statements
with the NAWASA bank accounts. . . . Had the NAWASA representative come to the PNB early for the
statements and had the bank been advised promptly of the reported bogus check, the negotiation of
practically all of the remaining checks on May, 1969, totalling P2,224,736.00 could have been
prevented."
The records likewise show that the petitioner failed to provide appropriate security measures over its own
records thereby laying confidential records open to unauthorized persons. The petitioner's own Fact Finding
Committee, in its report submitted to their General Manager underscored this laxity of records control. It
observed that the "office of Mr. Ongtengco (Cashier No. VI of the Treasury Department at the NAWASA) is
quite open to any person known to him or his staff members and that the check writer is merely on top of his

| Page 8 of 11

table."
When confronted with this report at the Anti-Fraud Action Section of the National Bureau of Investigation, Mr.
Ongtengco could only state that:
"A. Generally my order is not to allow anybody to enter my office. Only authorized persons are allowed
to enter my office. There are some cases, however, where some persons enter my office because they
are following up their checks. Maybe, these persons may have been authorized by Mr. Pantig. Most of
the people entering my office are changing checks as allowed by the Resolution of the Board of
Directors of the NAWASA and the Treasurer. The check writer was never placed on my table. There is
a place for the checkwriter which is also under lock and key.
"Q. Is Mr. Pantig authorized to allow unauthorized persons to enter your office?
"A. No, sir.
"Q. Why are you tolerating Mr. Pantig admitting unauthorized persons in your office?
"A. I do not want to embarrass Mr. Pantig. Most of the people following up checks are employees of the
NAWASA.
"Q. Was the authority given by the Board of Directors and the approval by the Treasurer for employees,
and other persons to encash their checks carry with it their authority to enter your office?
"A. No, sir.
xxx xxx xxx
"Q. From the answers that you have given to us we observed that actually there is laxity and poor
control on your part with regards to the preparations of check payments inasmuch as you allow
unauthorized persons to follow up their vouchers inside your office which may leakout confidential
informations or your books of account. After being apprised of all the shortcomings in your office, as
head of the Cashiers' Office of the Treasury Department what remedial measures do you intend to
undertake?
"A. Time and again the Treasurer has been calling our attention not to allow interested persons to hand
carry their voucher checks and we are trying our best and if I can do it to follow the instructions to the
letter, I will do it but unfortunately the persons who are allowed to enter my office are my co-employees
and persons who have connections with our higher ups and I can not possibly antagonize them. Rest
assured that even though that everybody will get hurt, I will do my best not to allow unauthorized
persons to enter my office.
xxx xxx xxx
"Q. Is it not possible inasmuch as your office is in charge of the posting of check payments in your
books that leakage of payments to the banks came from your office?
"A. I am not aware of it but it only takes us a couple of minutes to process the checks. And there are
cases wherein every information about the checks may be obtained from the Accounting Department,
Auditing Department, or the Office of the General Manager."
Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of Investigation concluded in its
Report dated November 2, 1970 that the fraudulent encashment of the twenty-three (23) checks in question
was an "inside job". Thus
"We have all the reasons to believe that this fraudulent act was an inside job or one pulled with inside
connivance at NAWASA. As pointed earlier in this report, the serial numbers of these checks in
question conform with the numbers in current use of NAWASA, aside from the fact that these
| Page 9 of 11

fraudulent checks were found to be of the same kind and design as that of NAWASA's own checks.
While knowledge as to such facts may be obtained through the possession of a NAWASA check of
current issue, an outsider without information from the inside can not possibly pinpoint which of
NAWASA's various accounts has sufficient balance to cover all these fraudulent checks. None of these
checks, it should be noted, was dishonored for insufficiency of funds."
Even if the twenty three (23) checks in question are considered forgeries, considering the petitioner's gross
negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments
Law.
Nonetheless, the petitioner claims that it was the negligence of the respondent Philippine National Bank that
was the proximate cause of the loss. The petitioner relies on our ruling in Philippine National Bank v. Court of
Appeals (25. SCRA 693) that.
"Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found nothing wrong
with the check and would honor the same, and by actually paying its amount to the PCIB, the PNB induced
the latter, not only to believe that the check was genuine and good in every respect, but, also, to pay its
amount to Augusto Lim. In other words, the PNB was the primary or proximate cause of the loss, and, hence,
may not recover from the PCIB."
The argument has no merit. The records show that the respondent drawee bank, had taken the necessary
measures in the detection of forged checks and the prevention of their fraudulent encashment. In fact, long
before the encashment of the twenty-three (23) checks in question, the respondent Bank had issued constant
reminders to all Current Account Bookkeepers informing them of the activities of forgery syndicates. The
Memorandum of the Assistant Vice-President and Chief Accountant of the Philippine National Bank dated
February 17, 1966 reads in part:
"SUBJECT: ACTIVITIES OF FORGERY SYNDICATE.
"From reliable information we have gathered that personalized checks of current account depositors are now
the target of the forgery syndicate. To protect the interest of the bank, you are hereby enjoined to be more
careful in examining said checks especially those coming from the clearing, mails and window transactions.
As a reminder please be guided with the following:
"1. Signatures of drawers should be properly scrutinized and compared with those we have on file.
"2. The serial numbers of the checks should be compared with the serial numbers registered with the
Cashier's Dept.
"3. The texture of the paper used and the printing of the checks should be compared with the sample
we have on file with the Cashier's Dept.
"4. Checks bearing several indorsements should be given a special attention.
"5. Alteration in amount both in figures and words should be carefully examined even if signed by the
drawer.
"6. Checks issued in substantial amounts particularly by depositors who do not usually issue checks in
big amounts should be brought to the attention of the drawer by telephone or any fastest means of
communication for purposes of confirmation.
and your attention is also invited to keep abreast of previous circulars and memo instructions issued to
bookkeepers."
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We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the
checks because the printing of the petitioner's personalized checks was not done under the supervision and
control of the Bank. There is no evidence on record indicating that because of this private printing, the
petitioner furnished the respondent Bank with samples of checks, pens, and inks or took other precautionary
measures with the PNB to safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent
encashment of its checks.
WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of merit. The decision of the
respondent Court of Appeals dated October 29, 1982 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.
Paras, **J., took no part.

Footnotes
** Justice Paras took no part. Justice Cruz was designated to sit in the Second Division.

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