Ilusorio vs. Court of Appeals

A depositor who fails to examine his bank statements and entrusts his checkbook, credit cards, and account reconciliation to a secretary cannot recover damages from the bank for checks encashed by the secretary, because the depositor's own negligence is the proximate cause of the loss. The bank is not liable where its employees exercised due diligence in verifying signatures against specimen signature cards, and the depositor is precluded from setting up forgery under Section 23 of the Negotiable Instruments Law due to his own negligence.

The petitioner was a prominent businessman and Managing Director of Multinational Investment Bancorporation, as well as Chairman and/or President of several other corporations. He was a depositor in good standing of respondent Manila Banking Corporation under Current Checking Account No. 06-09037-0. Because he was running about 20 corporations and frequently traveled abroad, he entrusted his credit cards and checkbook with blank checks to his secretary, Katherine E. Eugenio, who also verified and reconciled the statements of his checking account.

Petitioner Ramon K. Ilusorio was a depositor of respondent Manila Banking Corporation under Current Checking Account No. 06-09037-0. Because he managed about 20 corporations and traveled abroad frequently, he entrusted his secretary, Katherine E. Eugenio, with his credit cards and his checkbook containing blank checks. Eugenio was also responsible for verifying and reconciling the statements of his checking account.

Between September 5, 1980 and January 23, 1981, Eugenio encashed and deposited to her personal account approximately seventeen checks drawn against the petitioner's account, totaling ₱119,634.34. The petitioner did not examine his statement of account until a business partner informed him that he had seen Eugenio using his credit cards. The petitioner immediately fired Eugenio and instituted a criminal action for estafa through falsification before the Office of the Provincial Fiscal of Rizal. The respondent bank, through an affidavit executed by its employee Dante Razon, also lodged a complaint for estafa through falsification of commercial documents against Eugenio, based on the petitioner's statement that his signatures on the checks were forged. The petitioner then requested the bank to credit back the value of the wrongfully encashed checks, but the bank refused, prompting the petitioner to file the instant case for damages.

At trial, the petitioner testified on his own behalf. Several bank employees testified as hostile witnesses, stating that the bank's standard operating procedure was to verify the signature on a check against the specimen signature cards on file before encashment. The bank sought the assistance of the National Bureau of Investigation (NBI) to determine the genuineness of the signatures. However, in a letter dated March 25, 1987, the NBI informed the trial court that it could not conduct the examination because the standard specimens submitted were insufficient for a definitive opinion. The NBI suggested that the petitioner submit seven or more additional standard signatures executed before, about, or immediately after the dates of the questioned checks, but the petitioner failed to comply.

The trial court dismissed the complaint, finding no sufficient basis for the petitioner's cause of action. The Court of Appeals affirmed, holding that the petitioner's own negligence was the proximate cause of his loss. The appellate court noted that the petitioner had introduced his secretary to the bank for account reconciliation through a letter dated July 14, 1980, making her a familiar figure at the bank, and that she even answered phone calls from bank verifiers confirming checks. The petitioner had entrusted her with his credit cards, checkbook with blank checks, and the verification and reconciliation of his account, and he failed to personally check his monthly statements of account despite having the opportunity to do so.

• Bank's Negligence: Petitioner contended that Manila Bank was liable for damages for its negligence in failing to detect the discrepant checks, and that as a general rule, a bank that obtains possession of a check upon an unauthorized or forged endorsement of the payee's signature and collects the amount from the drawee is liable for the proceeds to the payee.
• Estoppel: Petitioner invoked the doctrine of estoppel, arguing that having itself instituted a forgery case against Eugenio, Manila Bank was now estopped from asserting that the fact of forgery was never proven.
• Section 23, Negotiable Instruments Law: Petitioner argued that under Section 23 of the Negotiable Instruments Law, a forged check is wholly inoperative, and Manila Bank had no authority to pay the forged checks.
• Burden of Proof: Petitioner argued that the burden of proof was with the respondent bank to prove due diligence in preventing damage and that it was not negligent in the selection and supervision of its employees.
• Reliance on Precedent: Petitioner relied on Associated Bank vs. Court of Appeals and Philippine Bank of Commerce vs. CA, arguing that the collecting or last endorser bank generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements.

• No Reversible Error: Manila Bank contended that the appellate court did not depart from the accepted and usual course of judicial proceedings, hence there was no reason for reversal of its ruling.
• Inapplicability of Section 23: Manila Bank argued that Section 23 of the Negotiable Instruments Law was inapplicable because the fact of forgery was never proven.
• No Estoppel: The bank negated the petitioner's claim of estoppel.

• Cause of Action: Whether the petitioner has a cause of action against the respondent bank for damages arising from the encashment of allegedly forged checks.
• Estoppel: Whether the respondent bank, in filing an estafa case against petitioner's secretary, is barred from raising the defense that the fact of forgery was not established.

• Cause of Action: No. The petitioner has no cause of action against Manila Bank because he failed to prove the fact of forgery and failed to establish negligence on the part of the bank. The petitioner's own negligence was the immediate and proximate cause of his injury, barring recovery under Article 2179 of the New Civil Code.
• Estoppel: No. The bank is not estopped from asserting that forgery was not clearly established, because the bank is not the actual party to the criminal action — the State is the plaintiff in a criminal case, and the complaint is brought in the name of the "People of the Philippines."

• Cause of Action: To be entitled to damages, the petitioner had the burden of proving negligence on the part of the bank for failing to detect the discrepancy in the signatures on the checks. It was incumbent upon the petitioner to establish the fact of forgery by submitting his specimen signatures and comparing them with those on the questioned checks. The petitioner failed to submit additional specimen signatures as requested by the NBI, and aside from his own testimony, he presented no other evidence to prove forgery. The bank, on the other hand, presented specimen signature cards of the petitioner taken in 1976, 1979, and 1981, showing variances in his unquestioned signatures. The bank also sought to borrow the questioned checks for analysis, but the petitioner denied the request. The Court of Appeals and the trial court both found that the bank's employees exercised due diligence in cashing the checks, verifying signatures against specimen cards, referring doubtful signatures to more experienced verifiers, and even confirming by phone with the depositor. The petitioner, by contrast, was negligent in entrusting his secretary with his credit cards, checkbook with blank checks, and the verification and reconciliation of his account, and in failing to examine his monthly bank statements. The Court applied the rule that factual findings of a trial court, especially when affirmed by the appellate court, are binding upon the reviewing court and entitled to utmost respect. The petitioner's failure to examine his bank statements was the proximate cause of his own damage, and under Article 2179 of the New Civil Code, when the plaintiff's own negligence was the immediate and proximate cause of his injury, no recovery could be had for damages.
• Section 23, Negotiable Instruments Law: The Court acknowledged the general rule that when a signature is forged or made without authority, the check is wholly inoperative, and no right to retain the instrument, give a discharge therefor, or enforce payment can be acquired through or under such signature. However, the rule provides an exception: "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." The Court held that the exception applied in this case — the petitioner was precluded from setting up the forgery, assuming there was forgery, due to his own negligence in entrusting his secretary with his credit cards and checkbook, including the verification of his statements of account. The Court distinguished Associated Bank vs. Court of Appeals and Philippine Bank of Commerce vs. CA, noting that in those cases the fact of forgery was not in issue, the collecting banks were held negligent for failing to observe precautionary measures, and the fact of forgery was established. In the present case, the fact of forgery was not established with certainty, and both lower courts uniformly found that Manila Bank's personnel diligently performed their duties.
• Estoppel: The fact that Manila Bank filed a case for estafa against Eugenio did not estop it from asserting that forgery had not been clearly established. The bank was not the actual party to the criminal action — in a criminal action, the State is the plaintiff, for the commission of a felony is an offense against the State. Under Section 2, Rule 110 of the Rules of Court, the complaint or information filed in court is required to be brought in the name of the "People of the Philippines." Furthermore, the bank filed the estafa case on the basis of the petitioner's own affidavit, without admitting that it had personal knowledge of the alleged forgery. The filing of the estafa case by the bank was a "last ditch effort to salvage its ties with the petitioner as a valuable client."

• Proximate Cause — 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. The Court applied this doctrine to hold that the petitioner's failure to examine his bank statements was the proximate cause of his own damage, and the bank was not shown to be remiss in its duty of sending monthly bank statements.
• Negligence — Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would not do. The Court applied this definition to find that the petitioner, not the bank, was negligent, having accorded his secretary an unusual degree of trust and unrestricted access to his credit cards, passbooks, checkbooks, bank statements, and account reconciliation.
• Estoppel in Criminal Actions — A private complainant in a criminal action cannot be estopped from asserting a defense in a civil case because the State, not the private complainant, is the real party in a criminal action. The Court applied this principle to hold that the bank's filing of an estafa case against the secretary did not estop it from denying that forgery was established.
• Binding Effect of Factual Findings — The factual findings of a trial court, especially when affirmed by the appellate court, are binding upon the reviewing court and entitled to utmost respect and even finality. The Court applied this rule in declining to reverse the lower courts' assessment of facts, absent any palpable error.

• "We cannot fault the court a quo for such declaration, considering that the plaintiff's evidence on the alleged forgery is not convincing enough. The burden to prove forgery was upon the plaintiff, which burden he failed to discharge. Aside from his own testimony, the appellant presented no other evidence to prove the fact of forgery. He did not even submit his own specimen signatures, taken on or about the date of the questioned checks, for examination and comparison with those of the subject checks." — This passage, quoted from the Court of Appeals, states the basis for the Court's holding that the petitioner failed to discharge his burden of proving forgery, which was essential to his claim for damages.
• "The evidence on both sides indicates that TMBC's employees exercised due diligence before encashing the checks. Its verifiers first verified the drawer's signatures thereon as against his specimen signature cards, and when in doubt, the verifier went further, such as by referring to a more experienced verifier for further verification. In some instances the verifier made a confirmation by calling the depositor by phone. It is only after taking such precautionary measures that the subject checks were given to the teller for payment." — This passage, quoted from the Court of Appeals, establishes the factual finding that the bank exercised due diligence, which was central to the Court's conclusion that the bank was not negligent.
• "The trouble is, the appellant had put so much trust and confidence in the said secretary, by entrusting not only his credit cards with her but also his checkbook with blank checks. He also entrusted to her the verification and reconciliation of his account. Further adding to his injury was the fact that while the bank was sending him the monthly Statements of Accounts, he was not personally checking the same." — This passage, quoted from the Court of Appeals, identifies the petitioner's own negligence as the proximate cause of his loss, which the Supreme Court adopted as its own reasoning.
• "However, the rule does provide for an exception, namely: 'unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.' In the instant case, it is the exception that applies. In our view, petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account." — This passage articulates the Court's application of the exception under Section 23 of the Negotiable Instruments Law, holding that the petitioner's negligence precluded him from setting up forgery.

• Bank of the Philippine Islands vs. Court of Appeals, 326 SCRA 641, 657 (2000) — Cited as authority for the definition of negligence and proximate cause. The Court relied on this case for the standard of what constitutes negligence and the definition of proximate cause.
• Lorenzana vs. People, 353 SCRA 396, 403 (2001) — Cited for the rule that factual findings of a trial court, especially when affirmed by the appellate court, are binding upon the reviewing court.
• Ong vs. CA, 272 SCRA 725, 730 (1997) — Cited for the rule that factual findings of the trial court, when affirmed by the appellate court, are entitled to utmost respect and even finality.
• Associated Bank vs. Court of Appeals, 252 SCRA 620, 633 (1996) — Distinguished by the Court. In that case, the fact of forgery was not in issue and the collecting bank was held negligent for failing to observe precautionary measures. The Court found this case inapplicable because the fact of forgery was not established in the present case and the bank was found to have exercised due diligence.
• Philippine Bank of Commerce vs. CA, 269 SCRA 695, 703-710 (1997) — Distinguished on the same grounds as Associated Bank, because the fact of forgery was not in issue and the collecting bank was held negligent.
• Binay vs. Sandiganbayan, 316 SCRA 65, 100 (1999) — Cited for the principle that in a criminal action, the State is the plaintiff, for the commission of a felony is an offense against the State.

• Section 23, Negotiable Instruments Law — Provides that 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. The Court applied the exception to this rule, holding that the petitioner was precluded from setting up forgery due to his own negligence.
• Article 2179, New Civil Code — Provides that when the plaintiff's own negligence was the immediate and proximate cause of his injury, he cannot recover damages. The Court applied this provision to bar the petitioner's recovery because his failure to examine his bank statements was the proximate cause of his loss.
• Section 2, Rule 110, Rules of Court — Requires that the complaint or information be in writing, in the name of the People of the Philippines, and against all persons who appear to be responsible for the offense involved. The Court cited this provision to support its holding that the bank was not the actual party to the criminal action and therefore could not be estopped.

Bellosillo, Acting C.J. (Chairman), Mendoza, Austria-Martinez, and Callejo, Sr., JJ., concurred.