UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW

Class
J 2026

Case Name Westmont Bank v Ong

Topic Defenses and Liabilities
GR No. | Date G.R. No. 132560 January 30, 2002
Ponente Quisumbing, J
Summary Ong, a current account depositor with petitioner bank, was debited the amount of P1,754,787.50
representing the face value of two Pacific Banking Corporation's Manager's checks containing Ong's
forged signature. These two checks were deposited by Ong's friend, Paciano Tanlimco, in his account
with petitioner bank which accepted and credited both checks without verifying the signature of Ong.
Tanlimco immediately withdrew the money. Respondent sought the help of Tanlimco's family to recover
the amount, but to no avail. Hence, he filed the collection case almost five months from the discovery of
the fraud.
The trial court ruled in favor of respondent. It found that petitioner bank was grossly negligent in
encashing the checks without verifying the signature of its own depositor, herein respondent. It ordered
petitioner to pay the amount of the manager's checks with legal interest and moral and exemplary
damages. The Court of Appeals affirmed the trial court's decision. Hence, the present recourse.

The SC held that a forged signature or one made without authority is inoperative and ineffectual under
Section 24 of the Negotiable Instruments Law; that a collecting bank has the legal duty to ascertain that
the payee's endorsement was genuine before cashing the check and is liable to the payee and must bear
the loss for payment made on a forged signature; that findings of the trial court are binding and
conclusive on appeal; that there is no laches where a party filed the case only after exhausting
possibilities of settling the case amicably.
Doctrine NEGOTIABLE INSTRUMENTS LAW; CHECKS; FORGED INDORSEMENT; COLLECTING BANK LIABLE
TO PAYEE. — Since the signature of the payee, in the case at bar, was forged to make it appear that he
had made an indorsement in favor of the forger, such signature should be deemed as inoperative and
ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said forged
signature. The payee, herein respondent, should therefore be allowed to recover from the collecting
bank. The collecting bank is liable to the payee and must bear the loss because it is its legal duty to
ascertain that the payee's endorsement was genuine before cashing the check. As a general rule, a bank
or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of
the payee's signature and who collects the amount of the check from the drawee, is liable for the
proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the
person from whom the check was obtained.
Provisions Section 23 of the Negotiable Instruments Law:
When a signature is forged or made without the authority of the person whose signature it purports to
be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from setting up the forgery
or want of authority.

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

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Ong first sought the help of Tanlimco's family to recover the amount. Later, he reported the incident to the Central Bank,
which like the first effort, unfortunately proved futile.

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

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

RTC and CA ruled in favor of Ong. Hence, this present petition.

Issue Ratio
Issue 1: W/N Ong Respondent admitted that he was never in actual or physical possession of the two (2) checks of the
has a cause of Island Securities nor did he authorize Tanlimco or any of the latter's representative to demand, accept
action against and receive the same.
petitioner  For this reason, petitioner argues, respondent cannot sue petitioner because under Section 51
Westmont Bank of the Negotiable Instruments Law it is only when a person becomes a holder of a negotiable
instrument can he sue in his own name.
 Conversely, prior to his becoming a holder, he had no right or cause of action under such
negotiable instrument.
 Petitioner further argues that since Section 191 of the Negotiable Instruments Law defines a
"holder" as the 'payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof,' in order to be a holder, it is a requirement that he be in possession of the instrument or
the bearer thereof.
 Simply stated, since Ong never had possession of the checks nor did he authorize anybody, he
did not become a holder thereof hence he cannot sue in his own name.

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

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

Under Section 23 of the Negotiable Instruments Law:

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

 Since the signature of the payee, in the case at bar, was forged to make it appear that he had
made an endorsement in favor of the forger, such signature should be deemed as inoperative
and ineffectual.

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 Petitioner, as the collecting bank, grossly erred in making payment by virtue of said forged
signature. The payee, herein respondent, should therefore be allowed to recover from the
collecting bank.
 The collecting bank is liable to the payee and must bear the loss because it is its legal duty to
ascertain that the payee's endorsement was genuine before cashing the check.
 As a general rule, a bank or corporation who has obtained possession of a check upon an
unauthorized or forged indorsement of the payee's signature and who collects the amount of
the check from the drawee, is liable for the proceeds thereof to the payee or other owner,
notwithstanding that the amount has been paid to the person from whom the check was
obtained.
 The theory of the rule is that the possession of the check on the forged or unauthorized
indorsement is wrongful, and when the money had been collected on the check, the bank or
other person or corporation can be held as for moneys had and received, and the proceeds are
held for the rightful owners who may recover them. The position of the bank taking the check
on the forged or unauthorized indorsement is the same as if it had taken the check and collected
the money without indorsement at all and the act of the bank amounts to conversion of the
check.
 Petitioner could not escape liability for its negligent acts. Admittedly, respondent Eugene Ong
at the time the fraudulent transaction took place was a depositor of petitioner bank.
 Banks are engaged in a business impressed with public interest, and it is their duty to protect in
return their many clients and depositors who transact business with them. 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. In the present case, petitioner was held to be
grossly negligent in performing its duties.

Laches may be defined as the failure or neglect for an unreasonable and unexplained length of time, to
Issue 2: W/N Ong is do that which, by exercising due diligence, could or should have been done earlier. It is negligence or
barred to recover omission to assert a right within a reasonable time, warranting a presumption that the party entitled
the money from thereto has either abandoned or declined to assert it. It concerns itself with whether or not by reason of
Westmont Bank long inaction or inexcusable neglect, a person claiming a right should be barred from asserting the same,
due to laches. because to allow him to do so would be unjust to the person against whom such right is sought to be
enforced.

ITCAB: It cannot be said that respondent sat on his rights. He immediately acted after knowing of the
forgery by proceeding to seek help from the Tanlimco family and later the Central Bank, to remedy the
situation and recover his money from the forger, Paciano Tanlimco. Only after he had exhausted
possibilities of settling the matter amicably with the family of Tanlimco and through the CB, about five
months after the unlawful transaction took place, did he resort to making the demand upon the
petitioner and eventually before the court for recovery of the money value of the two checks. These
acts cannot be construed as undue delay in or abandonment of the assertion of his rights.
Moreover, the claim of petitioner that respondent should be barred by laches is
clearly a vain attempt to deflect responsibility for its negligent act.

Disposition
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals, sustaining the
judgment of the Regional Trial Court of Manila, is AFFIRMED.
Costs against petitioner.
SO ORDERED.

Separate Opinions

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Name, concurring/dissenting