13) MWSS v. CA

3/12/2015 SUPREMECOURTREPORTSANNOTATEDVOLUME143

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20 SUPREME COURT REPORTS ANNOTATEDMetropolitan Waterworks and Sewerage System vs. Court

of Appeals

No. L62943. July 14, 1986.*

METROPOLITAN WATERWORKS AND SEWERAGESYSTEM, petitioner, vs. COURT OF APPEALS (NowINTERMEDIATE APPELLATE COURT) and THEPHILIPPINE NATIONAL BANK, respondents.

Negotiable Instruments Law Evidence There is no clearevidence in this case that the signatures on the checks areforgeries. The NBI reports indicate that the anomalousencashment of the checks were an inside job or due to negligenceof MWSS.We have carefully reviewed the documents cited bythe petitioner. There is no express and categorical finding in thesedocuments that the twentythree (23) questioned checks wereindeed signed by persons other than the authorized MWSSsignatories. On the contrary, the findings of the National Bureauof Investigation in its Report dated November 2, 1970 show thatthe MWSS fraud was an inside job

__________________

* SECOND DIVISION.

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VOL. 143, JULY 14, 1986 21

Metropolitan Waterworks and Sewerage System vs. Court ofAppeals

and that the petitioners delay in the reconciliation of bank



statements and the laxity and loose records control in the printingof its personalized checks facilitated the fraud. Likewise, thequestioned Documents Report No, 1591074 dated November 21,1974 of the National Bureau of Investigation does not declare orprove that the signatures appearing on the questioned checks areforgeries. The report merely mentions the alleged differences inthe typeface, checkwriting, and printing characteristics appearingin the standard or submitted models and the questionedtypewritings. The NBI Chemistry Report No. C74891 merelydescribes the inks and pens used in writing the alleged forgedsignatures. It is clear that these three (3) NBI Reports relied uponby the petitioner are inadequate to sustain its allegations offorgery. These reports did not touch on the inherent qualities ofthe signatures which are indispensable in the determination ofthe existence of forgery. There must be conclusive findings thatthere is a variance in the inherent characteristics of thesignatures and that they were written by two or more differentpersons.

Same Same MWSS officials admitted that the checks inquestion can be easily passed on as genuine.Considering theabsence of sufficient security in the printing of the checks coupledwith the very close similarities between the genuine signaturesand the alleged forgeries, the twentythree (23) checks in questioncould have been presented to the petitioners signatories withouttheir knowing that they were bogus checks. Indeed, the cashier ofthe petitioner whose signatures were allegedly forged was unableto tell the difference between the allegedly forged signature andhis own genuine signature. On the other hand, the MWSS officialsadmitted that these checks could easily be passed on as genuine.The memorandum of Mr. A. T. Tolentino, Assistant ChiefAccountant of the drawee Philippine National Bank to Mr. E.Villatuya, Executive VicePresident of the petitioner dated June9, 1969 cites an instance where even the concerned NWSAofficials could not tell the differences between the genuine checksand the alleged forged checks.

Same Where a depositor is using its own personalized checks,its failure to provide adequate security measures to preventforgeries of its checks constitutes gross negligence and bars it fromsetting up the defense of forgery.The records show that at thetime the twentythree (23) checks were prepared, negotiated, andencashed, the petitioner was using its own personalized checks,instead of the official

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22 SUPREME COURT REPORTS ANNOTATED

Metropolitan Waterworks and Sewerage System vs. Court ofAppeals

PNB Commercial blank checks. In the exercise of this specialprivilege, however, the petitioner failed to provide the neededsecurity measures. That there was gross negligence in theprinting of its personalized checks is shown by the followinguncontroverted facts, to wit: (1) The petitioner failed to give itsprinter, Mesina Enterprises, specific instructions relative to thesafekeeping and disposition of excess forms, check vouchers, andsafety papers (2) The petitioner failed to retrieve from its printerall spoiled check forms (3) The petitioner failed to provide anycontrol regarding the paper used in the printing of said checks xxxx.

Same Failure of depositor to make prompt reconciliation ofthe monthly bank statements furnished by the bank constitutesnegligence for which the bank cannot be blamed in case depositorschecks are forged.It is accepted banking procedure for thedepository bank to furnish its depositors bank statements anddebt and credit memos through the mail. The records show thatthe petitioner requested the respondent drawee bank todiscontinue the practice of mailing the bank statements, butinstead to deliver the same to a certain Mr. Emiliano Zaporteza.For reasons known only to Mr. Zaporteza however, he wasunreasonably delayed in taking prompt deliveries of the said bankstatements and credit and debit memos. As a consequence, Mr.Zaporteza failed to reconcile the bank statements with thepetitioners records. If Mr. Zaporteza had not been remiss in hisduty of taking the bank statements and reconciling them with thepetitioners records, the fraudulent encashments of the firstchecks should have been discovered, and further fraudsprevented. This negligence was, therefore, the proximate cause ofthe failure to discover the fraud.

Same Depository bank cannot be blamed for not detectingfraudulent encashment of checks where depositor uses its ownpersonalized checks.We cannot fault the respondent draweeBank for not having detected the fraudulent encashment of thechecks because the printing of the petitioners personalized checkswas not done under the supervision and control of the Bank.There is no evidence on record indicating that because of thisprivate printing, the petitioner furnished the respondent Bankwith 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 betterposition to detect and prevent the fraudulent encashment of itschecks.

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VOL. 143, JULY 14, 1986 23Metropolitan Waterworks and Sewerage System vs. Court

of Appeals

PETITION for certiorari to review the decision of theIntermediate Appellate Court.

The facts are stated in the opinion of the CourtJuan J. Diaz and Cesar T. Basa for respondent PNB. San Juan, Africa, Gonzales & San Agustin Law

Offices for respondent PC IB.

GUTIERREZ, JR., J .:

This petition for review asks us to set aside the October 29,1982 decision of the respondent Court of Appeals, nowIntermediate Appellate Court which reversed the decisionof the Court of First Instance of Manila, Branch XL, anddismissed the plaintiffs complaint, the third partycomplaint, as well as the defendants counterclaim.

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

Metropolitan Waterworks and Sewerage System (hereinafterreferred to as MWSS) is a government owned and controlledcorporation created under Republic Act No. 6234 as the successorininterest of the defunct NWSA. The Philippine National Bank(PNB for short), on the other hand, is the depository bank ofMWSS and its predecessorininterest NWSA. Among the severalaccounts of NWSA with PNB is NWSA Account No. 6, otherwiseknown as Account No. 381777 and which is presently allocatedNo. 010500281. The authorized signature for said Account No. 6were those of MWSS treasurer Jose Sanchez, its auditor PedroAguilar, and its acting General Manager Victor L. Recio. Theirrespective specimen signatures were submitted by the MWSS toand 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, CaloocanCity.

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

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of Appeals

Check No. Date Payee Amount Date Paid By PNB

1. 59546 82169 Deogracias Estrella

P3,187.79 4269

2. 59548 33169 Natividad Rosario

2,848.86 42369

3. 59547 33169 Pangilinan Enterprises

195.00 Unreleased

4. 59549 33169 Natividad Rosario

3,239.88 42369

5. 59552 4169 Villarama &Sons

987.59 5669

6. 59554 4169 Gascom Engineering

6,057.60 41669

7. 59558 4269 The Evening News

112.00 Unreleased

8. 59544 32769 Progressive Const.

18,391.20 41869

9. 59564 4269 Ind. Insp. Int. Inc.

594.06 41869

10. 59568 4769 Roberto Marsan

800.00 42269

11. 59570 4769 Paz Andres 200.00 4226912. 59574 4869 Florentino

Santos100,000.00 41169

13. 59578 4869 Mia. Daily Bulletin

95.00 Unreleased

14. 59580 4869 Phil. Herald 100.00 596915. 59582 4869 Galauran

&Pilar7,729.09 5669



16. 59581 4869 Manila Chronicle

110.00 51269

17. 59588 4869 Treago Tunnel

21,583. 00 41169

18. 59587 4869 Del fin Santiago

120,000.00 41169

19. 59589 41069 Deogracias Estrella

1,257.49 41669

20. 59594 41469 Philam Accident Inc.

33.03 42969

21. 59577 4869 Esla 9,429.78 42969

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VOL. 143, JULY 14, 1986 25Metropolitan Waterworks and Sewerage System vs. Court of

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22. 59601 41669 Justine 20,000.00 4186923. 59595 41469 Torres Neris Phil 4,274.00 52069 Inc. P320,636.26

During the same months of March, April and May 1969,twentythree (23) checks bearing the same numbers as theaforementioned NWSA checks were likewise paid and cleared byPNB and debited against NWSA Account No. 6, to wit:

Check No.

Date Issued

Payee Amount Date Paid By PNB

1. 59546 3669 Raul Dizon P 84,401.00 316692. 59548 34169 Raul Dizon 104,790.00 41693. 59547 31469 Arturo Sison 56,903.00 411694. 59549 32069 Arturo Sison 48,903.00 415695. 59552 32469 Arturo Sison 63,845.00 416896. 59544 32669 Arturo Sison 98,450.00 417 697. 59558 32889 Arturo Sison 114,840.00 421698. 59544 31669 Antonio Mendoza 38,490.00 422699. 59564 33169 Arturo Sison 180,900.00 42369



10. 59568 4269 Arturo Sison 134,940.00 4256911. 59570 4169 Arturo Sison 64,550.00 4286912. 59574 4269 Arturo Sison 148,610.00 4298913. 59578 41069 Antonio Mendoza 93,950.00 4296914. 59580 4869 Arturo Sison 160,000.00 526915. 59582 41069 Arturo Sison 155,400.00 556916. 59581 4869 Antonio Mendoza 176,580.00 566917. 59588 41669 Arturo Sison 176,000.00 586918. 59587 41669 Arturo Sison 300,000.00 5126919. 59589 41869 Arturo Sison 280,000.00 515 6 920. 59594 41869 Arturo Sison 122,000.00 5146921. 59577 4 1469 Antonio Mendoza 260,000.00 5166922. 59601 41869 Arturo Sison 400,000.00 5196923. 59595 42869 Arturo Sison 190,800.00 52169 P3,457,903.00

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26 SUPREME COURT REPORTS ANNOTATEDMetropolitan Waterworks and Sewerage System vs. Court of

Appeals

The foregoing checks were deposited by the payees RaulDizon, Arturo Sison and Antonio Mendoza in their respectivecurrent accounts with the Philippine Commercial and IndustrialBank (PCIB) and Philippine Bank of Commerce (PBC) in themonths of March, April and May 1969. Thru the Central BankClearing, these checks were presented for payment by PBC andPCIB to the defendant PNB, and paid, also in the months ofMarch, April and May 1969. At the time of their presentation toPNB these checks bear the standard indorsement which reads allprior indorsement and/or lack of endorsement guaranteed.

Subsequent investigation however, conducted by the NBIshowed that Raul Dizon, Arturo Sison and Antonio Mendoza wereall fictitious persons. The respective balances in their currentaccount with the PBC and/or PCIB stood as follows: Raul DizonP3,455.00 as of April 30, 1969 Antonio Mendoza P18,182.00 as ofMay 23, 1969 and Arturo Sison P1,398.92 as of June 30, 1969.

On June 11, 1969, NWSA addressed a letter to PNBrequesting the immediate restoration to its Account No. 6, of thetotal sum of P3,457,903.00 corresponding to the total amount ofthese twentythree (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 instantcomplaint on November 10, 1972 before the Court of FirstInstance of Manila and docketed thereat as Civil Case No. 88950.

In its answer, PNB contended among others, that the checksin question were regular on its face in all respects, including thegenuineness of the signatures of authorized NWSA signingofficers and there was nothing on its face that could have arousedany suspicion as to its genuineness and due execution and thatNWSA was guilty of negligence which was the proximate cause ofthe loss. PNB also filed a third party complaint against thenegotiating banks PBC and PCIB on the ground that they failedto ascertain the identity of the payees and their title to the checkswhich were deposited in the respective new accounts of the payeeswith them.

xxxxxx

On February 6, 1976, the Court of First Instance of Manilarendered judgment in favor of the MWSS. The dispositiveportion of the decision reads:

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VOL, 143, JULY 14, 1986 27Metropolitan Waterworks and Sewerage System vs. Court

of Appeals

WHEREFORE, on the COMPLAINT by a clear preponderance ofevidence and in accordance with Section 23 of the NegotiableInstruments Law, the Court hereby renders judgment in favor ofthe plaintiff Metropolitan Waterworks and Sewerage System(MWSS) by ordering the defendant Philippine National Bank(PNB) to restore the total sum of THREE MILLION FOURHUNDRED FIFTY SEVEN THOUSAND NINE HUNDREDTHREE PESOS (P3,457,903.00) to plaintiffs Account No. 6,otherwise known as Account No. 010500303, with legal interestthereon computed from the date of the filing of the complaint anduntil restored in the said Account No. 6.

On the THIRD PARTY COMPLAINT, the Court, for lack ofevidence, hereby renders judgment in favor of the third partydefendants Philippine Bank of Commerce (PBC) and PhilippineCommercial and Industrial Bank (PCIB) by dismissing the ThirdParty Complaint.



I.

II.

III.

The counterclaims of the third party defendants are likewisedismissed for lack of evidence.

N o pronouncement as to costs.

As earlier stated, the respondent court reversed thedecision of the Court of First Instance of Manila andrendered judgment in favor of the respondent PhilippineNational Bank.

A motion for reconsideration filed by the petitionerMWSS was denied by the respondent court in a resolutiondated January 3, 1983.

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

IN NOT HOLDING THAT AS THE SIGNATURESON THE CHECKS WERE FORGED, THEDRAWEE BANK WAS LIABLE FOR THE LOSSUNDER SECTION 23 OF THE NEGOTIABLEINSTRUMENTS LAW.IN FAILING TO CONSIDER THE PROXIMATENEGLIGENCE OF PNB IN ACCEPTING THESPURIOUS CHECKS DESPITE THE OBVIOUSIRREGULARITY OF TWO SETS OF CHECKSBEARING IDENTICAL NUMBER BEINGENCASHED WITHIN DAYS OF EACH OTHER.IN NOT HOLDING THAT THE SIGNATURES OF

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of Appeals

THE DRAWEE MWSS BEING CLEARLYFORGED, AND THE CHECKS SPURIOUS, SAMEARE INOPERATIVE AS AGAINST THEALLEGED DRAWEE.

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

Every negotiable instrument is deemed prima facie to have beenissued for valuable consideration and every person whosesignature appears thereon to have become a party thereto forvalue.



The petitioner submits that the above provision does notapply to the facts of the instant case because thequestioned checks were not those of the MWSS and neitherwere they drawn by its authorized signatories. Thepetitioner states that granting that Section 24 of theNegotiable Instruments Law is applicable, the samecreates only a prima facie presumption which wasovercome by the following documents, to wit: (1) the NBIReport of November 2, 1970 (2) the NBI Report ofNovember 21, 1974 (3) the NBI Chemistry Report No. C74891 (4) the Memorandum of Mr. Juan Dino, 3rdAssistant Auditor of the respondent drawee bankaddressed to the Chief Auditor of the petitioner (5) theadmission of the respondent banks counsel in open courtthat the National Bureau of Investigation found thesignature on the twentythree (23) checks in question to beforgeries and (6) the admission of the respondent bankswitness, Mr. Faustino Mesina, Jr. that the checks inquestion were not printed by his printing press. Thepetitioner contends that since the signatures of the checkswere forgeries, the respondent drawee bank must bear theloss under the rulings of this Court.

A bank is bound to know the signatures of its customers and if itpays a forged check it must be considered as making the paymentout of its own funds, and cannot ordinarily charge the amount sopaid to the account of the depositor whose name was forged.

xxxxxxxxxThe signatures to the checks being forged, under Section 23 of

the Negotiable Instruments Law they are not a charge againstplain

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VOL, 143, JULY 14, 1986 29Metropolitan Waterworks and Sewerage System vs. Court of

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tiff 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 inhonoring and cashing the two forged checks. (San Carlos MillingCo. v. Bank of the P. I., 59 Phil. 59)

It is admitted that the Philippine National Bank cashed thecheck upon a forged signature, and placed the money to the credit



of Maasim, who was the forger. That the Philippine NationalBank then endorsed the check and forwarded it to the ShanghaiBank by whom it was paid. The Philippine National Bank had nolicense or authority to pay the money to Maasim or anyone elseupon a forged signature. It was its legal duty to know thatMalicors endorsement was genuine before cashing the check. Itsremedy is against Maasim to whom it paid the money. (GreatEastern Life Ins. Co. v. Hongkong & Shanghai Bank, 43 Phil.678).

We have carefully reviewed the documents cited by thepetitioner. There is no express and categorical finding inthese documents that the twentythree (23) questionedchecks were indeed signed by persons other than theauthorized MWSS signatories. On the contrary, thefindings of the National Bureau of Investigation in itsReport dated November 2, 1970 show that the MWSS fraudwas an inside job and that the petitioners delay in thereconciliation of bank statements and the laxity and looserecords control in the printing of its personalized checksfacilitated the fraud. Likewise, the questioned DocumentsReport No. 1591074 dated November 21, 1974 of theNational Bureau of Investigation does not declare or provethat the signatures appearing on the questioned checks areforgeries. The report merely mentions the allegeddifferences in the typeface, checkwriting, and printingcharacteristics appearing in the standard or submittedmodels and the questioned typewritings. The NBIChemistry Report No. C74891 merely describes the inksand pens used in writing the alleged forged signatures.

It is clear that these three (3) NBI Reports relied uponby the petitioner are inadequate to sustain its allegationsof forgery. These reports did not touch on the inherentqualities

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of the signatures which are indispensable in thedetermination of the existence of forgery. There must beconclusive findings that there is a variance in the inherentcharacteristics 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). Itmust be established by clear, positive, and convincingevidence. This was not done in the present case.

The cases of San Carlos Milling Co, Ltd. v. Bank of thePhilippine Islands, et al. (59 Phil, 59) and Great EasternLife Ins., Co. v. Hongkong and Shanghai Bank (43 Phil.678) relied upon by the petitioner are inapplicable in thiscase because the forgeries in those cases were either clearlyestablished or admitted while in the instant case, theallegations of forgery were not clearly established duringtrial.

Considering the absence of sufficient security in theprinting of the checks coupled with the very closesimilarities between the genuine signatures and thealleged forgeries, the twentythree (23) checks in questioncould have been presented to the petitioners signatorieswithout their knowing that they were bogus checks.Indeed, the cashier of the petitioner whose signatures wereallegedly forged was unable to tell the difference betweenthe allegedly forged signature and his own genuinesignature. On the other hand, the MWSS officials admittedthat these checks could easily be passed on as genuine,

The memorandum of Mr. A. T. Tolentino, AssistantChief Accountant of the drawee Philippine National Bankto Mr. E. Villatuya, Executive VicePresident of thepetitioner dated June 9, 1969 cites an instance where eventhe concerned NWSA officials could not tell the differencesbetween the genuine checks and the alleged forged checks.

At about 12:00 oclock on June 6, 1960, VP Maramag requestedme to see him in his office at the Cashiers Dept. where Messrs.Jose M. Sanchez, treasurer of NAWASA and Romeo Oliva of thesame office were present. Upon my arrival I observed theNAWASA officials questioning the issue of the NAWASA checks

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VOL, 143, JULY 14, 1988 31Metropolitan Waterworks and Sewerage System vs. Court of

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appearing in their own list, xerox copy attached.For verification purposes, therefore, the checks were taken



(1)

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

xxxxxxxxx

Moreover, the petitioner is barred from setting up thedefense of forgery under Section 23 of the NegotiableInstruments Law which provides that:

SEC. 23. FORGED SIGNATURE EFFECT OF.When thesignature is forged or made without authority of the person whosesignature it purports to be, it is wholly inoperative, and no rightto retain the instrument, or to give a discharge therefor, or toenforce payment thereof against any party thereto can beacquired through or under such signature unless the partyagainst whom it is sought to enforce such right is precluded fromsetting up the forgery or want of authority.

because it was guilty of negligence not only before thequestioned checks were negotiated but even after the samehad already been negotiated. (See Republic v. EquitableBanking Corporation. 10 SCRA 8)

The records show that at the time the twentythree (23)checks were prepared, negotiated, and encashed, thepetitioner was using its own personalized checks, instead ofthe official PNB Commercial blank checks. In the exerciseof this special privilege, however, the petitioner failed toprovide the needed security measures. That there wasgross negligence in the printing of its personalized checksis shown by the following uncontroverted facts, to wit:

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The petitioner failed to give its printer, MesinaEnterprises, specific instructions relative to the



(2)

(3)

(4)

(5)

safekeeping and disposition of excess forms, checkvouchers, and safety papersThe petitioner failed to retrieve from its printer allspoiled check formsThe petitioner failed to provide any controlregarding the paper used in the printing of saidchecksThe petitioner failed to furnish the respondentdrawee bank with samples of typewriting, checkwriting, and print used by its printer in theprinting of its checks and of the inks and pens usedin signing the same andThe petitioner failed to send a representative to theprinting office during the printing of said checks.This gross negligence of the petitioner is veryevident from the sworn statement dated June 19,1969 of Faustino Mesina, Jr., the owner of theprinting press which printed the petitionerspersonalized checks:

xxxxxxxxx

7.Q:

Do you have any business transaction with theNational Waterworks and Sewerage Authority(NAWASA)?

A: Yes, sir. I have a contract with the NAWASA inprinting NAWASA Forms such as NAWASA CheckVouchers and Office Forms.

xxxxxxxxx15.Q:

Were you given any instruction by the NAWASA inconnection with the printing of these check vouchers?

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

16.Q:

Were you not advised as to what kind of paper wouldbe used in the check vouchers?

A: Only as per sample, sir. x xxxxxxx x

20.Q:

Where did you buy this Hammermill Safety checkpaper?

A: From Tan Chiong, a paper dealer with store located at



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Juan Luna, Binondo, Manila. (In front of theMetropolitan Bank).

xxxxxxxxx24. 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 excessprinted check vouchers?

A: Approximately four hundred (400) sheets, sir. Icannot determine the proporti on of the excess andspoiled because the final act of perforating thesecheck vouchers has not yet been done and spoilagecan only be determined after this final act ofprinting.

26. Q: What did you do with these excess check vouchers? A: I keep it under lock and key in my filing cabinet. xxxxxxxxx28. 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. xxxxxxxxx32. Q: In the process of printing the check vouchers

ordered by the NAWASA, how many sheets wereactually spoiled?

A: I cannot approximate, sir. But there are spoilagein 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 tosupervise the printing or watch the printing ofthese check vouchers?

A: None, sir. xxxxxxxxx39. Q: During the period of printing after the days work,

what measures do you undertake to safeguard themold and other paraphernalia used in the printingof

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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, wejust leave the mold attached to the machine and theother finished or unfinished work check vouchers areleft in the rack so that the work could be continuedthefollowing day.

The National Bureau of Investigation Report datedNovember 2, 1970 is even more explicit, Thus

xxxxxxxxx60. We observed also that there is some laxity and loose

control in the printing of NAWASA checks. We gathered fromMESINA ENTERPRISES, the printing firm that undertook theprinting of the check vouchers of NAWASA that NAWASA had norepresentative at the printing press during the process of theprinting and no particular security measure instructions adoptedto safeguard the interest of the government in connection withprinting of this accountable form.

Another factor which facilitated the fraudulent encashmentof the twentythree (23) checks in question was the failureof the petitioner to reconcile the bank statements with itsown records.



It is accepted banking procedure for the depository bankto furnish its depositors bank statements and debt andcredit memos through the mail The records show that thepetitioner requested the respondent drawee bank todiscontinue the practice of mailing the bank statements,but instead to deliver the same to a certain Mr. EmilianoZaporteza. For reasons known only to Mr. Zaportezahowever, he was unreasonably delayed in taking promptdeliveries of the said bank statements and credit and debitmemos. As a consequence, Mr. Zaporteza failed to reconcilethe bank statements with the petitioners records. If Mr.Zaporteza had not been remiss in his duty of taking thebank statements and reconciling them with the petitionersrecords, the fraudulent encashments of the first checksshould have been discovered, and further frauds prevented.This negligence was, therefore, the proximate cause

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of the failure to discover the fraud. Thus,

When a person opens a checking account with a bank, he is givenblank checks which he may fill out and use whenever he wishes.Each time he issues a check, he should also fill out the check stubto which the check is usually attached. This stub, if properly kept,will contain the number of the check, the date of its issue, thename of the payee and the amount thereof. The drawer wouldtherefore have a complete record of the checks he issues. It is thecustom of banks to send to its depositors a monthly statement ofthe status of their accounts, together with all the cancelled checkswhich have been cashed by their respective holders. If thedepositor has filled out his check stubs properly, a comparisonbetween them and the cancelled checks will reveal any forgedcheck not taken from his checkbook. It is the duty of a depositor tocarefully examine the banks statement, his cancelled checks, hischeck stubs and other pertinent records within a reasonable time,and to report any errors without unreasonable delay. If hisnegligence should cause the bank to honor a forged check orprevent it from recovering the amount it may have already paidon such check, he cannot later complain should the bank refuse torecredit his account with the amount of such check. (First Nat.



Bank of Richmond v. Richmond Electric Co., 106 Va. 347, 56 SE152, 7 LRA, NS 744 [1907]. See also Leather Manufacturers Bankv. Morgan, 117 US 96, 6 S. Ct. 657 [1886] Deer Island Fish andOyster Co. v. First Nat. Bank of Biloxi, 166 Miss. 162, 146 So. 116[1933]). Campos and Campos, Notes and Selected Cases onNegotiable Instruments Law, 1971, pp. 267268).

This failure of the petitioner to reconcile the bankstatements with its cancelled checks was noted by theNational Bureau of Investigation in its report datedNovember 2, 1970:

58. One factor which facilitated this fraud was the delay in thereconciliation of bank (PNB) statements with the NAWASA bankaccounts, xxx. Had the NAWASA representative come to the PNBearly for the statements and had the bank been advised promptlyof the reported bogus check, the negotiation of practically all ofthe remaining checks on May, 1969, totalling P2,224,736.00 couldhave been prevented.

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The records likewise show that the petitioner failed toprovide appropriate security measures over its own recordsthereby laying confidential records open to unauthorizedpersons. The petitioners own Fact Finding Committee, inits report submitted to their General Manager underscoredthis laxity of records control. It observed that the office ofMr. Ongtengco (Cashier No. VI of the TreasuryDepartment at the NAWASA) is quite open to any personknown to him or his staff members and that the checkwriter is merely on top of his table.

When confronted with this report at the AntiFraudAction Section of the National Bureau of Investigation, Mr.Ongtengco could only state that:

A. Generally my order is not to allow anybody to enter myoffice. Only authorized persons are allowed to enter myoffice. There are some cases, however, where some persons enter my office because they are following up theirchecks. Maybe, these persons may have beenauthorizedby Mr. Pantig. Most of the people entering



my office are changing checks as allowed by theResolution of the Board of Directors of the NAWASAand the Treasurer. The check writer was never placedon my table. There is a place for the checkwriter whichis also under lock and key.

Q. Is Mr. Pantig authorized to allow unauthorizedpersons 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 theNAWASA.

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

A. No, sir. xxxxxxxxx

Q. From the answers that you have given to us weobserved that actually there is laxity and poor controlon your part with regards to the preparations of checkpayments in

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of Appeals

asmuch as you allow unauthorized persons to followuptheir vouchers inside your office which may leakoutconfidential informations or your books of account.After being apprised of all the shortcomings in youroffice, as head of the Cashiers Office of the TreasuryDepartment what remedial measures do you intend toundertake?

A. Time and again the Treasurer has been calling ourattention not to allow interested persons to hand carrytheir voucher checks and we are trying our best and ifI can do it to follow the instructions to the letter, I willdo it but unfortunately the persons who are allowed to



enter my office are my coemployees and persons whohave connections with our higher ups and I can notpossibly antagonize them. Rest assured that eventhough that everybody will get hurt, I will do my bestnot to allow unauthorized persons to enter my office.

xxxxxxxxxQ. Is it not possible inasmuch as your office is in charge of

the posting of check payments in your books thatleakage of payments to the banks came from youroffice?

A. I am not aware of it but it only takes us a couple ofminutes to process the checks. And there are caseswherein every information about the checks may beobtained from the Accounting Department, AuditingDepartment, or the Office of the General Manager.

Relying on the foregoing statement of Mr. Ongtengco, theNational Bureau of Investigation concluded in its Reportdated November 2, 1970 that the fraudulent encashment ofthe twentythree (23) checks in question was an insidejob. Thus

We have all the reasons to believe that this fraudulent act wasan inside job or one pulled with inside connivance at NAWASA.As pointed earlier in this report, the serial numbers of thesechecks in question conform with the numbers in current use ofNAWASA, aside from the fact that these fraudulent checks werefound to be of the same kind and design as that of NAWASAsown checks. While knowledge as to such facts may be obtainedthrough the possession of a NAWASA check of current issue, anoutsider without information from the inside can not possiblypinpoint which of NAWASAs

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38 SUPREME COURT REPORTS ANNOTATEDMetropolitan Waterworks and Sewerage System vs. Court of

Appeals

various accounts has sufficient balance to cover all thesefraudulent checks. None of these checks, it should be noted, wasdishonored for insufficiency of funds. . .

Even if the twentythree (23) checks in question areconsidered forgeries, considering the petitioners gross



negligence, it is barred from setting up the defense offorgery under Section 23 of the Negotiable InstrumentsLaw.

Nonetheless, the petitioner claims that it was thenegligence of the respondent Philippine National Bank thatwas the proximate cause of the loss. The petitioner relieson our ruling in Philippine National Bank v. Court ofAppeals (25 SCRA 693) that.

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

The argument has no merit. The records show that th erespondent drawee bank, had taken the necessarymeasures in the detection of forged checks and theprevention of their fraudulent encashment. In fact, longbefore the encashment of the twentythree (23) checks inquestion, the respondent Bank had issued constantreminders to all Current Account Bookkeepers informingthem of the activities of forgery syndicates. TheMemorandum of the Assistant VicePresident and ChiefAccountant of the Philippine National Bank datedFebruary 17, 1966 reads in part:

SUBJECT: ACTIVITIES OF FORGERY SYNDICATE

From reliable information we have gathered that personalizedchecks of current account depositors are now the target of theforgery syndicate. To protect the interest of the bank, you arehereby enjoined to be more careful in examining said checksespecially those

39

VOL. 143, JULY 14, 1986 39Metropolitan Waterworks and Sewerage System vs. Court of

Appeals

coming from the clearing, mails and window transactions. As areminder please be guided with the following:



1.

2.

3.

4.

5.

6.

Signatures of drawers should be properly scrutinized andcompared with those we have on file.The serial numbers of the checks should be compared withthe serial numbers registered with the Cashiers Dept.The texture of the paper used and the printing of thechecks should be compared with the sample we have onfile with the Cashiers Dept.Checks bearing several indorsements should be givenspecial attention.Alteration in amount both in figures and words should becarefully examined even if signed by the drawer.Checks issued in substantial amounts particularly bydepositors who do not usually issue checks in big amountsshould be brought to the attention of the drawer bytelephone or any fastest means of communication forpurposes of confirmation.

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

We cannot fault the respondent drawee Bank for nothaving detected the fraudulent encashment of the checksbecause the printing of the petitioners personalized checkswas not done under the supervision and control of theBank. There is no evidence on record indicating thatbecause of this private printing, the petitioner furnishedthe respondent Bank with samples of checks, pens, andinks or took other precautionary measures with the PNB tosafeguard its interests.

Under the circumstances, therefore, the petitioner wasin a better position to detect and prevent the fraudulentencashment of its checks.

WHEREFORE, the petition for review on certiorari ishereby DISMISSED for lack of merit. The decision of therespondent Court of Appeals dated October 29, 1982 isAFFIRMED. No pronouncement as to costs.

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40 SUPREME COURT REPORTS ANNOTATEDArsenal vs. Intermediate Appellate Court

SO ORDERED.



Feria (Chairman), Fernan, Alampay and Cruz, JJ.,concur.

Paras **, J., took no part.

Petition dismissed Decision affirmed.

o0o

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