Security Bank & Trust Company vs. Triumph Lumber and Construction Corporation

A bank is not liable for honoring checks payable to cash that appear regular on their face where the depositor fails to prove forgery through the original checks and duly authenticated handwriting standards, and where the depositor’s own negligence in failing to examine its checkbook or notify the bank after a burglary substantially contributed to the loss.

Triumph Lumber and Construction Corporation maintained a current checking account with Security Bank & Trust Company’s Sucat, Parañaque branch. Under the account arrangement, the bank was authorized to honor withdrawals on the basis of any two of three specimen signatures—those of Dee Kong, Co Yok Teng, and Chun Yun Kit—and an automatic transfer agreement allowed transfers from the savings account to the current account when funds were insufficient or below the minimum balance. The dispute concerns the bank’s honoring of checks drawn on that account and the evidentiary standards for proving forgery and allocating negligence.

Triumph Lumber and Construction Corporation maintained a current checking account with Security Bank & Trust Company’s Sucat, Parañaque branch. Upon opening its accounts, Triumph Lumber provided specimen signature cards authorizing the bank to honor withdrawals on the basis of any two of three signatures—those of Dee Kong, Co Yok Teng, and Chun Yun Kit, its president, treasurer, and general manager, respectively. It also executed an automatic transfer agreement allowing the bank to transfer cleared funds from its savings account to its current account whenever the current account was insufficient or below the stipulated minimum balance. The savings passbook and check booklets were kept in Triumph Lumber’s filing cabinet.

On March 23 and 24, 1987, three checks payable to cash and drawn against the current account were presented for encashment at the Sucat branch: check nos. 466779 and 466777, both dated March 23, 1987, for P150,000 and P130,000, respectively, and check no. 466780 dated March 24, 1987, for P20,000. The bank encashed them after standard verification. Triumph Lumber claimed that the signatures of Co Yok Teng and Yu Chun Kit were forged, as found by the PC Crime Laboratory, and demanded that the bank credit back the P300,000; the bank refused.

According to Security Bank, on March 23, 1987, Triumph Lumber discovered that the door of its office and the filing cabinet containing its check booklets and bank documents had been forced open, with documents in disarray. Triumph Lumber did not report the incident to the police or advise the bank. On the same day, it made three deposits totaling P374,554.10. Immediately thereafter, the three checks payable to cash were successively presented and encashed after passing standard bank verification. The bank maintained that the checks appeared regular on their face and that Triumph Lumber usually issued large checks payable to cash, to a particular person, or to a company. Felicidad Dimaano denied Chun Yun Kit’s claim of an agreement to inform Triumph Lumber of checks over P10,000; she testified that the agreement requiring a signatory to accompany over-the-counter encashments of P10,000 or more was made only on March 31, 1987, after the encashments.

The trial court found that Triumph Lumber failed to prove forgery: it did not present the original checks, did not compare the signatures with the specimen signature cards, and did not present Co Yok Teng to deny the signatures. The trial court also found the bank exercised due care and that Triumph Lumber was negligent in the custody of its checks and in failing to report the burglary or advise the bank, so Triumph Lumber should bear the loss. The Court of Appeals, by contrast, found forgery established based on alleged admissions in the bank’s answer, the expert testimony, and Chun Yun Kit’s testimony, and found the bank negligent for not observing the claimed arrangement and for not asking the payee for identification. The Supreme Court reviewed the conflicting factual findings.

• Forgery Not Established / Best Evidence Rule: Petitioner argued that the signatures on the checks were not proven forged; the original checks were the best evidence, but private respondent offered only photocopies. The failure to produce the originals was fatal and gave rise to a presumption of willful suppression, and the failure to call Co Yok Teng as a witness warranted an unfavorable inference.
• Unreliable Expert Opinion: Petitioner maintained that the expert witness’s opinion deserved no weight because she did not use the specimen signature cards as standards, relied on signatures not authenticated by the signatories, and used standards not shown to be genuine or contemporaneous; signatures on long bond paper made post litem motam could not be accepted as standards.
• No Admission of Forgery: Petitioner contended that its Answer contained a specific denial of forgery and that it could plead affirmative and negative defenses alternatively even if inconsistent.
• Due Care and Respondent’s Negligence: Petitioner asserted that it exercised due care and diligence by verifying the genuineness of signatures and endorsements under standard bank practices; private respondent was negligent in managing its business and in failing to advise the bank of the burglary or reconcile its account.
• No Reimbursement / Attorney’s Fees: Petitioner argued that it could not be obliged to pay P300,000 plus interest; instead, it was entitled to attorney’s fees because the complaint was insincere, baseless, and intended to harass, annoy, and defame it.

• Proper Mode of Appeal: Respondent claimed that petitioner should have filed a petition for review by certiorari, not merely a petition for review.
• Question of Fact: Respondent argued that the Court of Appeals’ determination of negligence is a question of fact that cannot be disturbed on appeal.
• Forgery Proven by Preponderance: Respondent maintained that, even assuming the case fell within an exception to the rule limiting the Supreme Court’s appellate jurisdiction to errors of law, the issue of forgery was adequately proved by preponderance of evidence.

• Forgery and Admission: Whether the Court of Appeals erred in holding that the signatures on the questioned checks were forged and that petitioner admitted forgery in its Answer.
• Best Evidence and Handwriting Standards: Whether forgery was established despite the failure to produce the original checks and to authenticate the handwriting standards used for comparison.
• Negligence and Allocation of Loss: Whether petitioner bank was negligent and should bear the loss for the encashed checks, or whether private respondent’s own negligence caused the loss.
• Reimbursement and Attorney’s Fees: Whether private respondent is entitled to reimbursement of P300,000 plus interest and attorney’s fees.

• Forgery and Admission: No. The Court of Appeals erred; petitioner’s Answer contained a categorical denial of forgery and only an alternative affirmative defense, so no admission of forgery existed.
• Best Evidence and Handwriting Standards: No. Forgery was not established; Section 3, Rule 130 required the original checks absent any exception, and Section 22, Rule 132 required the handwriting standards to be proved genuine.
• Negligence and Allocation of Loss: No. The bank was not negligent; private respondent’s failure to examine its checkbook or notify the bank after the burglary made it bear the loss.
• Reimbursement and Attorney’s Fees: No. Private respondent is not entitled to reimbursement, interest, or attorney’s fees; the trial court’s dismissal was reinstated.

• Forgery and Admission: The Court first addressed the conflict between trial and appellate factual findings, noting that Court of Appeals findings are generally conclusive but not when conflicting with the trial court. It found the Court of Appeals erred in treating the bank’s Answer as an admission. The Answer categorically denied forgery and pleaded, alternatively, that even if the signatures were forged, the bank exercised reasonable diligence and the checks were complete and regular on their face. Such alternative defenses do not amount to an admission. Thus, forgery remained an issue requiring proof.

• Best Evidence and Handwriting Standards: The Court held forgery not established. Under Section 3, Rule 130, when the subject of inquiry is the contents of a document, no evidence is admissible other than the original, except in specified cases. None of the exceptions was shown. The original checks were not produced; only photocopies marked Exhibits A, B, and C were offered. Although the photocopies were admitted because petitioner failed to make a timely objection, their probative value was nil. The expert Tabo admitted the originals were taken by investigating policeman Glenn Ticson, who was not presented. The proper procedure for disputed handwriting also was not followed. The genuine handwriting of the person charged must first be introduced as a standard, and the standard must be proved genuine. Under Section 22, Rule 132 and BA Finance vs. Court of Appeals, genuineness may be established by admission, by witnesses who saw the writing, or by evidence of acquiescence, recognition, or adoption. Here, only photocopies of the long bond papers containing specimen signatures were in the records; no one proved they were affixed by Yu Chun Kit and Co Yok Teng. Yu Chun Kit did not identify or authenticate his signatures on the photocopy. The specimen signatures were not directly turned over to Tabo by the purported writers; they passed through the PC Crime Laboratory. Tabo never saw the parties write and merely presumed the specimens genuine. She also admitted that out of about 300 testimonies, her findings were sustained in only about 10 cases. She lacked adequate knowledge of genuine signatures under any of the recognized modes: ex visu scriptionis, ex scriptis olim visis, or ex comparatione scriptorum. The third mode requires that the specimens were seen and considered by her and were genuinely written by the person in question; neither was satisfied, and the specimens were insufficient in number. Thus, reliance on her opinion was error.

• Negligence and Allocation of Loss: The Court rejected the Court of Appeals’ finding that the bank was less than prudent. The Court of Appeals relied on Chun Yun Kit’s testimony that the bank agreed to inform Triumph Lumber whenever a check over P10,000 was presented, and that Dimaano did not controvert it. But Dimaano denied such agreement; she testified that the agreement was that over-the-counter encashments of P10,000 or more be accompanied by a signatory, and that this agreement was made only on March 31, 1987, after the checks were encashed. Since the questioned checks were payable to cash, appeared regular on their face, and the bank found nothing unusual—Triumph Lumber usually issued large checks payable to cash or to a person or company—the bank could not be faulted for paying them. The depositor was the one to blame. Chun Yun Kit testified that on the morning of March 23, 1987, he and employees found the office doors and filing cabinets containing the check booklet forcibly opened and documents in disarray. A prudent person would have examined the check booklet to see if a check was missing. Triumph Lumber did not do so; it did not report the incident to the police or advise the bank so the bank could adopt preventive measures. Thus, as the trial court held, Triumph Lumber must bear the loss.

• Reimbursement and Attorney’s Fees: Because forgery was not established and the bank was not negligent, the Court of Appeals’ award of P300,000 plus interest and attorney’s fees had no basis. The trial court’s dismissal of the complaint was reinstated. The dispositive portion granted the petition, reversed the Court of Appeals, and reinstated the RTC decision; it did not award the attorney’s fees petitioner sought.

• Best Evidence Rule — Under Section 3, Rule 130, when the subject of inquiry is the contents of a document, no evidence is admissible other than the original document itself, except when the original is lost or destroyed without bad faith, is in the custody or control of the adverse party who fails to produce it after reasonable notice, consists of numerous accounts or documents whose examination would cause great loss of time and only the general result is sought, or is a public record in the custody of a public officer or recorded in a public office. The Court applied the rule to the checks: because the original checks were not produced and no exception was shown, the photocopies, though admitted for lack of timely objection, had no probative value to prove forgery.

• Proof of Genuineness of Handwriting and Standards of Comparison — Section 22, Rule 132 allows handwriting to be proved by a witness who believes it to be the handwriting of a person because he saw the person write, or saw writing purporting to be his upon which the witness acted or was charged, and thus acquired knowledge; or by comparison with writings admitted or treated as genuine by the party against whom the evidence is offered, or proved genuine to the satisfaction of the judge. The standard or exemplar must itself be proved genuine. BA Finance vs. Court of Appeals lists the modes: admission of the person charged, witnesses who saw the standards written or heard acknowledgment, or evidence of acquiescence, recognition, or adoption in business. The Court found non-compliance because the specimen signatures were only photocopies and were not authenticated by the purported signatories.

• Expert Opinion on Disputed Handwriting — The relative weight of an expert’s opinion depends on the value of assistance and guidance it furnishes the court. An expert must have adequate knowledge of the genuine signatures, which may be acquired by (a) seeing the person write (ex visu scriptionis); (b) seeing documents known to have been written by the person (ex scriptis olim visis); or (c) examining, in or out of court, documents said to have been written by the person for the express purpose of obtaining such knowledge (ex comparatione scriptorum). The third mode requires that the specimens were seen and considered by the expert and were genuinely written by the person in question. The Court found the expert’s testimony unreliable because she merely presumed the specimens genuine and had no adequate basis for comparison.

• Negligence and Allocation of Loss in Bank Deposits — A bank may honor checks that are regular on their face and payable to cash where it follows standard verification procedures and has no notice of irregularity. A depositor that fails to exercise ordinary care over its checkbook and fails to notify the bank of a burglary or forced opening of its office and filing cabinet cannot shift the resulting loss to the bank. The Court applied this by finding the depositor’s failure to examine its checkbook or report the burglary to the police or bank made it bear the loss.

• Conflicting Factual Findings Exception — Although the factual findings of the Court of Appeals are generally conclusive and binding on the Supreme Court, review is warranted when the factual findings of the trial court and the appellate court conflict. The Court applied this exception because the trial court found no forgery and no bank negligence, while the Court of Appeals found forgery and bank negligence.

• "Well settled is the rule that in the exercise of our power of review the findings of facts of the Court of Appeals are conclusive and binding on this Court. However, there are recognized exceptions, among which is when the factual findings of the trial court and the appellate court are conflicting." — This passage states the standard of review and the exception that justified the Supreme Court’s examination of the conflicting findings on forgery and negligence.
• "First, Section 3, Rule 130 of the Rules of Court was not complied with by private respondent. The Section explicitly provides that when the subject of inquiry is the contents of a document, no evidence shall be admissible other than the original document itself. This is what is known as the best evidence rule." — This is the Court’s ratio on why the photocopies of the checks could not establish forgery.
• "The standard or the exemplar must therefore be proved to be genuine." — This states the controlling requirement for handwriting comparison, which the private respondent failed to satisfy.
• "Contrary to the finding of the Court of Appeals, the private respondent is the one which stands to be blamed for its predicament." — This passage encapsulates the Court’s allocation of loss to the depositor because of its own negligence.

• BA Finance vs. Court of Appeals, 161 SCRA 608, 618 [1998] — The Court cited this case for the guidelines on establishing the genuineness of a standard writing used in handwriting comparison; non-compliance was fatal to the claim of forgery because the specimen signatures were not authenticated.
• Borillo vs. Court of Appeals, 209 SCRA 130, 140 [1992]; Salvador vs. Court of Appeals, 243 SCRA 239, 253 [1995] — Cited to support the exception to the conclusiveness of the Court of Appeals’ factual findings when they conflict with those of the trial court, which justified the Supreme Court’s review.
• Borje vs. Sandiganbayan, 125 SCRA 763, 780 [1983] — Cited for the principle that photocopies, even if admitted, may have no probative value; the Court used this to hold that the photocopies of the checks could not establish forgery.
• Geromo vs. Comelec, 118 SCRA 165, 175 [1982]; People vs. Aldana, 175 SCRA 635, 650 [1989]; Espiritu vs. Court of Appeals, 242 SCRA 362, 371 [1995]; Eduarte vs. Court of Appeals, 253 SCRA 391, 399 [1996] — Cited for the rule that the relative weight of expert opinions depends on the value of assistance and guidance they furnish the court; applied to reject reliance on the document examiner’s opinion.

• Section 3, Rule 130, Rules of Court — The best evidence rule; requires the original document when the subject of inquiry is its contents, subject to specified exceptions. Applied because the original checks were not produced and no exception was shown, so the photocopies had no probative value to prove forgery.
• Section 22, Rule 132, Rules of Court — Governs how genuineness of handwriting is proved, including by witnesses who saw the person write or by comparison with writings admitted, treated, or proved genuine. Applied because the specimen signatures used for comparison were not authenticated as genuine.

Melo, Kapunan, Martinez, and Pardo, JJ., concur.