Samsung Construction Company Philippines, Inc. vs. Far East Bank and Trust Company and Court of Appeals

A drawee bank that pays a forged check pays out of its own funds and cannot charge the amount to the drawer’s account; the drawer may be precluded from setting up the forgery only if its own negligence is proven, and negligence is not presumed.

Samsung Construction, a Philippine corporation based in Biñan, Laguna, maintained a current account with FEBTC at the latter’s Bel-Air, Makati branch. Jong Kyu Lee was the sole signatory to the account, while the company’s accountant, Kyu Yong Lee, had custody of the checks. The account relationship is governed by the Negotiable Instruments Law, particularly Section 23, which makes a forged signature wholly inoperative unless the party against whom enforcement is sought is precluded from setting up the forgery.

Samsung Construction Company Philippines, Inc., while based in Biñan, Laguna, maintained a current account with Far East Bank and Trust Company at the latter’s Bel-Air, Makati branch. The sole signatory to the account was Jong Kyu Lee, its Project Manager, while the checks remained in the custody of the company’s accountant, Kyu Yong Lee. On 19 March 1992, Roberto Gonzaga presented FEBTC Check No. 432100 for payment at the Bel-Air, Makati branch. The check, payable to cash and drawn against Samsung Construction’s current account, was in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00).

Bank teller Cleofe Justiani first checked the account balance and, after ascertaining sufficient funds, compared the signature on the check with Jong’s specimen signature card. Satisfied as to authenticity, she asked Gonzaga for proof of identity, and he presented three identification cards. Because bank policy required two branch officers to approve checks exceeding One Hundred Thousand Pesos, Justiani forwarded the check to Senior Assistant Cashier Gemma Velez. Velez likewise counterchecked the signature against the signature card and concluded that Jong had signed it. Velez then forwarded the check and signature card to Shirley Syfu for approval. Syfu noticed Jose Sempio III, the assistant accountant of Samsung Construction, in the bank; Sempio was well-known to Syfu and the other bank officers. Syfu showed the check to Sempio, who vouched for the genuineness of Jong’s signature and said the check was for the purchase of equipment for Samsung Construction. Satisfied, Syfu authorized the bank’s encashment of the check to Gonzaga.

The following day, Kyu examined the balance of the bank account and discovered that a check for P999,500.00 had been encashed. Aware that he had not prepared such a check for Jong’s signature, Kyu perused the checkbook and found that the last blank check was missing. He reported the matter to Jong, who proceeded to the bank. Jong learned of the encashment and realized that his signature had been forged. The Bank Manager reputedly told Jong that he would be reimbursed for the amount of the check. Jong proceeded to the police station and consulted with his lawyers. Subsequently, a criminal case for qualified theft was filed against Sempio before the Laguna court. In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that FEBTC credit to it P999,500.00 with interest. FEBTC responded that it was still conducting an investigation. Unsatisfied, Samsung Construction filed a Complaint on 10 June 1992 for violation of Section 23 of the Negotiable Instruments Law, praying for payment of the amount debited as a result of the questioned check plus interest and attorney’s fees. The case was docketed as Civil Case No. 92-61506 before the Regional Trial Court of Manila, Branch 9.

During trial, both sides presented expert witnesses on the forgery claim. Samsung Construction, which had referred the check to the NBI, presented Senior NBI Document Examiner Roda B. Flores, who concluded that Jong’s signature had been forged on the check. FEBTC, which had sought the assistance of the PNP, presented Rosario C. Perez, a document examiner from the PNP Crime Laboratory, who testified that her findings showed Jong’s signature on the check was genuine. Confronted with conflicting expert testimony, the RTC chose to believe the NBI expert and found that Jong’s signature on the check was forged. The RTC explained that the PNP examiner’s testimony revealed many differences between the questioned signature and the standard specimen signatures, and that the NBI expert described the standard signatures as free, rapid, continuous execution while the questioned signature was a hesitating, slow, drawn execution. The Court of Appeals, on the other hand, found that the contradictory findings of the NBI and the PNP created doubt as to whether there was forgery and that, assuming forgery, it occurred due to the negligence of Samsung Construction, particularly its accountant Kyu, in keeping the checks.

• Misapprehension of Facts: Petitioner argued that the Court of Appeals seriously misapprehended the facts when it overturned the RTC’s finding of forgery.
• Negligence and Equity Principle: Petitioner contended that the appellate court erred in finding that it had been negligent in safekeeping the check, and in applying the equity principle enunciated in PNB vs. National City Bank of New York.

• Due Diligence and Internal Procedures: Respondent FEBTC maintained that it complied with its internal rules and exercised care before paying the check, and put into issue the degree of care it exercised.
• Reliance on Sempio: FEBTC alleged that Sempio was well-known to the bank officers and had regularly transacted with the bank in behalf of Samsung Construction, and that it relied on his confirmation that the signature was genuine and that the check was for the purchase of equipment.
• Verification Attempt: FEBTC claimed that it tried but failed to contact Jong by phone to verify the check, although calling the issuer or drawer was not part of its standard procedure but an "extra effort."
• PNP Expert Comparison: FEBTC emphasized that the PNP examiner compared the questioned signature against the bank signature cards.

• Forgery: Whether the check bore the forged signature of Jong Kyu Lee, notwithstanding the conflicting findings of the NBI and PNP expert witnesses.
• Preclusion by Negligence: Whether Samsung Construction was precluded from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law by reason of its alleged negligence in safekeeping the blank checks.
• Drawee Bank Liability: Whether FEBTC, as drawee bank, is liable to reimburse or credit Samsung Construction for the amount paid on the forged check, and whether the equity principle in PNB vs. National City Bank of New York applies.
• Bank Diligence: Whether FEBTC exercised the degree of care required of banks in accepting and paying the check.

• Forgery: Yes. The RTC’s finding of forgery was more credible, supported by the NBI expert’s testimony and Jong’s own testimony; the PNP expert’s contrary conclusion did not create sufficient doubt.
• Preclusion by Negligence: No. Samsung Construction was not precluded from setting up forgery; negligence is not presumed and FEBTC failed to prove any negligence in the safekeeping of the checks.
• Drawee Bank Liability: Yes. Under Section 23 of the Negotiable Instruments Law, a forged signature is wholly inoperative; a bank paying on it pays out of its own funds and cannot charge the drawer’s account, unless the drawer is precluded by negligence.
• Bank Diligence: No. FEBTC was remiss; the suspicious circumstances required the highest degree of care, and mere compliance with internal procedures and reliance on Sempio did not suffice.

• Forgery: A document formally presented is presumed genuine until proved fraudulent, and forgery must be proved by clear, positive, and convincing evidence. The Court rejected the CA’s reasoning that the mere existence of conflicting NBI and PNP expert opinions created doubt; the trier of fact must decide which expert to believe and explain why. The RTC found the NBI examiner more credible because the PNP examiner admitted many differences between the questioned and standard signatures, and the NBI expert testified that the standard signatures showed free, rapid, continuous execution while the questioned signature showed hesitating, slow, drawn execution. The Supreme Court examined the signatures and likewise found the PNP expert unconvincing, particularly as to the final upward stroke in the questioned signature, which differed from the genuine samples; the PNP examiner dismissed the differences as mere "variations" without sufficiently cogent reasons. The NBI expert’s qualifications—fifteen years as a document examiner, twelve years as Senior Document Examiner, training, and examination of more than fifty to fifty-five thousand questioned documents—further supported the RTC’s reliance, as against the PNP examiner’s approximately five hundred documents examined. Jong’s testimony that the signature was not his, his immediate report of the forgery, and the filing of criminal charges against Sempio supported the finding of forgery. Thus, the check was forged.

• Preclusion by Negligence: Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty of negligence. However, negligence is not presumed; it must be proved by the party alleging it. The presumptions that every person takes ordinary care of his concerns and that the ordinary course of business has been followed remained. FEBTC had the burden to prove that Samsung Construction was negligent. The CA’s finding of negligence was not supported: it failed to explain how the Korean accountant was negligent or how more care would have prevented the forgery. The bare fact that the forgery was committed by an employee of the drawer did not imply the drawer’s negligence; employers do not possess cognition of the evil in their employees’ hearts. PCI Bank vs. Court of Appeals held that the mere fact that forgery was committed by a drawer-payor’s confidential employee does not entitle the bank to shift the loss absent estoppel. Although Jong testified that the checks were kept in a safety box, that testimony was hearsay as to Kyu’s custody, but no contrary evidence was presented. Samsung Construction also reported the forgery almost immediately upon discovery. The PNB vs. National City Bank of New York and PNB vs. Court of Appeals cases cited by the CA involved forged signatures of indorsers, not the drawer, and were therefore not controlling. Thus, Samsung Construction was not precluded from setting up forgery.

• Drawee Bank Liability: Under Section 23, a forged signature is wholly inoperative, and no right to retain the instrument, give a discharge, or enforce payment can be acquired through it, unless the party against whom enforcement is sought is precluded from setting up the forgery. If payment is made on a forged signature, the drawee cannot charge it to the drawer’s account. The drawee bank is in a superior position to detect a forgery because it has the maker’s signature and is expected to know and compare it; the rule encourages care and allows the bank to insure and spread the risk. A bank is bound to know its depositor’s signature. Even a clever forgery does not excuse the bank, and liability attaches even if the bank exercises due diligence. The exception arises only when the drawer’s own negligence is traced and comparative negligence must be weighed. Because Samsung Construction was not negligent, the general rule applied: FEBTC paid out of its own funds and could not charge the amount to Samsung Construction’s account. The bank is liable irrespective of good faith.

• Bank Diligence: Although the bank’s diligence would be irrelevant if the drawer were not precluded, the Court commented on FEBTC’s performance because FEBTC put its care in issue. The check was for nearly one million pesos and payable to cash, circumstances that should have aroused suspicion and required a higher degree of caution. It was presented by Roberto Gonzaga, a stranger to the bank who was not the payee, not an employee of Samsung Construction, and had no written proof of authority to encash it. FEBTC’s internal procedure required two officers for checks exceeding one hundred thousand pesos, but compliance with internal rules was not sufficient given the suspicious circumstances. The bank tried but failed to contact Jong by phone; personal verification was not standard procedure but an "extra effort." FEBTC relied heavily on Sempio’s say-so; Velez’s testimony that Sempio was well-known was hearsay because she did not know him personally and met him for the first time on the day of encashment. Banks are engaged in a business impressed with public interest and must treat clients’ accounts with the highest degree of care; the diligence required is more than that of a good father of a family. Extraordinary diligence dictated that FEBTC ascertain from Jong personally that the signature was his. Nonetheless, even if the bank had performed with utmost diligence, the drawer could still recover because it was not precluded from setting up forgery.

• Forged Signature Under Section 23, Negotiable Instruments Law — A forged signature is wholly inoperative, and no right to retain the instrument, give a discharge, or enforce payment can be acquired through it, unless the party against whom enforcement is sought is precluded from setting up the forgery. The Court applied this rule because Jong’s signature was forged and Samsung Construction was not precluded by negligence, so FEBTC could not charge the payment to Samsung’s account.
• Drawee Bank’s Liability for Forged Check — A drawee bank that pays a forged check pays out of its own funds and cannot charge the amount to the drawer’s account; the bank is liable irrespective of good faith and even if the forgery is clever. The rationale is that the drawee is in a superior position to detect forgery, has the depositor’s signature on file, and can insure and spread the risk. The Court applied this because FEBTC paid on the forged check.
• Preclusion by Negligence and Presumption of Ordinary Care — A drawer may be precluded from setting up forgery if it was negligent, but negligence is not presumed and must be proved by the party alleging it; the presumptions of ordinary care and ordinary course of business apply. The Court found FEBTC failed to prove Samsung Construction’s negligence, especially since the forgery was committed by an employee and Samsung reported it immediately.
• Distinction Between Forged Drawer’s Signature and Forged Indorsement — A drawee bank is generally liable to its depositor for paying a check bearing either a forged drawer’s signature or a forged indorsement, but it may generally recover money paid on a forged indorsement, whereas it has no such right to the same extent for a forged drawer’s signature. The distinction exists because the drawee can verify the drawer’s signature against the signature card but ordinarily has no opportunity to verify an indorsement. The Court used this to distinguish PNB vs. National City Bank of New York and PNB vs. Court of Appeals, which involved forged indorsements.
• Highest Degree of Care Required of Banks — Banks are engaged in a business impressed with public interest and must treat their clients’ accounts with the highest degree of care, more than that of a good father of a family. The Court found FEBTC remiss because the suspicious circumstances surrounding the check required extraordinary diligence, including personal verification with Jong.
• Conflicting Expert Opinions in Forgery Cases — The mere existence of conflicting expert opinions does not automatically create doubt as to forgery; the trier of fact must decide which expert to believe and explain why. The Court rejected the CA’s reliance on the NBI-PNP conflict and upheld the RTC’s reasoned preference for the NBI expert.

• "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." — This is the Court’s quotation of Section 23 of the Negotiable Instruments Law; it states the controlling rule that a forged signature is inoperative and cannot support payment unless the party is precluded from setting up forgery.
• "A bank is bound to know its depositors’ signature." — The Court uses this formulation to summarize the drawee bank’s duty and the basis for its liability when it pays on a forged check.
• "The general rule remains that the drawee who has paid upon the forged signature bears the loss. The exception to this rule arises only when negligence can be traced on the part of the drawer whose signature was forged, and the need arises to weigh the comparative negligence between the drawer and the drawee to determine who should bear the burden of loss." — This passage states the ratio decidendi on liability: the bank bears the loss unless the drawer’s own negligence is established and comparative negligence must be weighed.
• "A bank is liable, irrespective of its good faith, in paying a forged check." — This closing formulation confirms that the drawee bank’s liability does not depend on bad faith once the signature is forged and the drawer is not precluded from setting up the forgery.

• Philippine National Bank vs. National City Bank of New York, 63 Phil. 711 (1936) — Cited by the Court of Appeals for the equity principle that a loss must be borne by the negligent party; the Supreme Court distinguished it because the forged signatures there were of indorsers, not the drawer, and reaffirmed the general rule that the drawee paying on a forged signature bears the loss unless the drawer is negligent.
• Philippine National Bank vs. Court of Appeals, 134 Phil. 829 (1968) — Also cited by the Court of Appeals for the equity principle; distinguished on the same ground that it involved forged indorsements.
• PCI Bank vs. Court of Appeals, G.R. Nos. 121413, 121479 and 128604, 29 January 2001, 350 SCRA 446 — Followed for the rule that the mere fact that forgery was committed by the drawer-payor’s confidential employee or agent does not entitle the bank to shift the loss to the drawer absent estoppel.
• Gempesaw vs. Court of Appeals, G.R. No. 92244, 9 February 1993, 218 SCRA 682 — Cited for the rule that forgery is a real or absolute defense by the party whose signature is forged and for the effect of failure to report forgery promptly.
• Westmont Bank vs. Ong, G.R. No. 132560, 30 January 2002, 375 SCRA 212 — Cited for the highest degree of care and diligence required of banks, more than that of a good father of a family.
• Traders Royal Bank vs. Radio Philippines Network, Inc., G.R. No. 138510, 10 October 2002, 390 SCRA 608 — Cited for the rule that if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount to the depositor’s account.
• Bank of Philippine Islands vs. Court of Appeals, G.R. No. 102383, 26 November 1992, 216 SCRA 51 — Cited for the rule that a forged signature is wholly inoperative and payment made through it is ineffectual or does not discharge the instrument.
• MWSS vs. Court of Appeals, G.R. No. L-62943, 14 July 1986, 143 SCRA 20 — Cited for the proposition that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty of negligence.
• Taylor vs. Manila Electric Railroad, 16 Phil. 8 (1910) — Cited for the rule that negligence is not presumed but must be proven by him who alleges it.
• Tenio-Obsequio vs. Court of Appeals, 230 SCRA 550 — Cited by the Court of Appeals for the rule that forgery cannot be presumed and must be proved by clear, positive, and convincing evidence; the Supreme Court rejected the CA’s use of it to resolve the conflicting expert opinions.

• Section 23, Negotiable Instruments Law (Act No. 2031) — Provides that a forged signature is wholly inoperative and no right to retain the instrument, give a discharge, or enforce payment can be acquired through it, unless the party against whom enforcement is sought is precluded from setting up the forgery. Applied: because Jong’s signature was forged and Samsung Construction was not precluded by negligence, FEBTC could not charge the payment to Samsung’s account.
• Section 8, Negotiable Instruments Law (Act No. 2031) — Provides that when an instrument is payable to order, the payee must be named or otherwise indicated with reasonable certainty. Cited in relation to the Court’s observation that the check was payable to cash or bearer, an unusual circumstance that should have aroused the bank’s suspicion.
• Section 3(d), Rule 131, Rules of Court — Establishes the presumption that a person takes ordinary care of his concerns. Applied in favor of Samsung Construction because FEBTC failed to prove negligence.
• Section 3(q), Rule 131, Rules of Court — Establishes the presumption that the ordinary course of business has been followed. Applied in favor of Samsung Construction on the issue of negligence.

Puno (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.