20 SUPREMECOURTREPORTSANNOTATED

MetropolitanWaterworksandSewerageSystemvs.
CourtofAppeals

No.L62943.July14,1986.*

METROPOLITAN WATERWORKS AND SEWERAGE

SYSTEM, petitioner, vs. COURT OF APPEALS (Now
INTERMEDIATE APPELLATE COURT) and THE
PHILIPPINENATIONALBANK,respondents.

Negotiable Instruments Law? Evidence? There is no clear

evidence in this case that the signatures on the checks are
forgeries. The NBI reports indicate that the anomalous
encashment of the checks were an inside job or due to
negligence of MWSS.We have carefully reviewed the
documents cited by the petitioner. There is no express and
categoricalfindinginthesedocumentsthatthetwentythree
(23) questioned checks were indeed signed by persons other
thantheauthorizedMWSSsignatories.Onthecontrary,the
findingsoftheNationalBureauofInvestigationinitsReport
datedNovember2,1970showthattheMWSSfraudwasan
insidejob

__________________

* SECONDDIVISION.

21

VOL.143,JULY14,1986 21
MetropolitanWaterworksandSewerageSystemvs.Courtof
Appeals
and that the petitioners delay in the reconciliation of bank
statements and the laxity and loose records control in the
printing of its personalized checks facilitated the fraud.
Likewise,thequestionedDocumentsReportNo,1591074dated
November 21, 1974 of the National Bureau of Investigation
doesnotdeclareorprovethatthesignaturesappearingonthe
questioned checks are forgeries. The report merely mentions
the alleged differences in the typeface, checkwriting, and
printingcharacteristicsappearinginthestandardorsubmitted
modelsandthequestionedtypewritings.TheNBIChemistry
ReportNo.C74891merelydescribestheinksandpensusedin
writing the alleged forged signatures. It is clear that these
three (3) NBI Reports relied upon by the petitioner are
inadequatetosustainitsallegationsofforgery.Thesereports
didnottouchontheinherentqualitiesofthesignatureswhich
are indispensable in the determination of the existence of
forgery. There must be conclusive findings that there is a
varianceintheinherentcharacteristicsofthesignaturesand
thattheywerewrittenbytwoormoredifferentpersons.

Same?Same?MWSSofficialsadmittedthatthechecksin
questioncanbeeasilypassedonasgenuine.Consideringthe
absence of sufficient security in the printing of the checks
coupled withthe very closesimilarities between thegenuine
signatures and the alleged forgeries, the twentythree (23)
checksinquestioncouldhavebeenpresentedtothepetitioners
signatorieswithouttheirknowingthattheywereboguschecks.
Indeed, the cashier of the petitioner whose signatures were
allegedlyforgedwasunabletotellthedifferencebetweenthe
allegedlyforgedsignatureandhisowngenuinesignature.On
theotherhand,theMWSSofficialsadmittedthatthesechecks
couldeasilybepassedonasgenuine.ThememorandumofMr.
A. T. Tolentino, Assistant Chief Accountant of the drawee
PhilippineNationalBanktoMr.E.Villatuya,ExecutiveVice
PresidentofthepetitionerdatedJune9,1969citesaninstance
where even the concerned NWSA officials could not tell the
differencesbetweenthegenuinechecksandtheallegedforged
checks.
Same? Where a depositor is using its own personalized
checks, its failure to provide adequate security measures to
preventforgeriesofitschecksconstitutesgrossnegligenceand
bars it from setting up the defense of forgery.The records
show that at the time the twentythree (23) checks were
prepared,negotiated,andencashed,thepetitionerwasusing
itsownpersonalizedchecks,insteadoftheofficial

22

22 SUPREMECOURTREPORTSANNOTATED

MetropolitanWaterworksandSewerageSystemvs.Courtof
Appeals

PNBCommercialblankchecks.Intheexerciseofthisspecial
privilege,however,thepetitionerfailedtoprovidetheneeded
security measures. That there was gross negligence in the
printing of itspersonalizedchecks is shown by thefollowing
uncontrovertedfacts,towit:(1)Thepetitionerfailedtogiveits
printer,MesinaEnterprises,specificinstructionsrelativetothe
safekeeping and disposition of excess forms, check vouchers,
andsafetypapers?(2)Thepetitionerfailedtoretrievefromits
printer all spoiled check forms? (3) The petitioner failed to
provideanycontrolregardingthepaperusedintheprintingof
saidchecks?xxxx.
Same?Failureofdepositortomakepromptreconciliationof
themonthlybankstatementsfurnishedbythebankconstitutes
negligence for which the bank cannot be blamed in case
depositorschecksareforged.Itisacceptedbankingprocedure
for the depository bank to furnish its depositors bank
statementsanddebtandcreditmemosthroughthemail.The
records show that the petitioner requested the respondent
draweebanktodiscontinuethepracticeofmailing thebank
statements,but insteadtodeliverthesameto acertainMr.
EmilianoZaporteza.ForreasonsknownonlytoMr.Zaporteza
however, he was unreasonably delayed in taking prompt
deliveries of the said bank statements and credit and debit
memos.Asaconsequence,Mr.Zaportezafailedtoreconcilethe
bankstatementswiththepetitionersrecords.IfMr.Zaporteza
hadnotbeenremissinhisdutyoftakingthebankstatements
and reconciling them with the petitioners records, the
fraudulent encashmentsofthefirstchecksshouldhavebeen
discovered,andfurtherfraudsprevented.Thisnegligencewas,
therefore, the proximate cause of the failure to discover the
fraud.
 Same?Depositorybankcannotbeblamedfornotdetecting
fraudulentencashmentofcheckswheredepositorusesitsown
personalizedchecks.Wecannotfaulttherespondentdrawee
Bankfornothavingdetectedthefraudulentencashmentofthe
checks because the printing of the petitioners personalized
checkswasnotdoneunderthesupervisionandcontrolofthe
Bank.Thereisnoevidenceonrecordindicatingthatbecauseof
thisprivateprinting,thepetitionerfurnishedtherespondent
Bank with samples of checks, pens, and inks or took other
precautionary measures with the PNB to safeguard its
interests. Under the circumstances, therefore, the petitioner
wasinabetterpositiontodetectandpreventthefraudulent
encashmentofitschecks.

23

VOL.143,JULY14,1986 23
MetropolitanWaterworksandSewerageSystemvs.
CourtofAppeals

PETITIONforcertioraritoreviewthedecisionofthe
IntermediateAppellateCourt.

ThefactsarestatedintheopinionoftheCourt
JuanJ.DiazandCesarT.Basaforrespondent
PNB.
SanJuan,Africa,Gonzales&SanAgustinLaw
OfficesforrespondentPCIB.

GUTIERREZ,JR.,J.:

ThispetitionforreviewasksustosetasidetheOctober
29, 1982 decision of the respondent Court of Appeals,
now Intermediate Appellate Court which reversed the
decisionoftheCourtofFirstInstanceofManila,Branch
XL, and dismissed the plaintiffs complaint, the third
party complaint, as well as the defendants
counterclaim.
Thebackgroundfactswhichledtothefilingofthe
instantpetitionaresummarizedinthedecisionofthe
respondentCourtofAppeals:
MetropolitanWaterworksandSewerageSystem(hereinafter
referredtoasMWSS)isagovernment ownedandcontrolled
corporation 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
depositorybankofMWSSanditspredecessorininterest
NWSA. Among the several accounts of NWSA with PNB is
NWSAAccountNo.6,otherwiseknownasAccountNo.381777
and which is presently allocated No. 010500281. The
authorized signature for said Account No. 6 were those of
MWSStreasurerJoseSanchez,itsauditorPedroAguilar,and
its acting General Manager Victor L. Recio. Their respective
specimensignaturesweresubmittedbytheMWSStoandon
filewiththePNB.ByspecialarrangementwiththePNB,the
MWSSusedpersonalizedchecksindrawingfromthisaccount.
ThesecheckswereprintedforMWSSbyitsprinter,F.Mesina
Enterprises,locatedat1775RizalExtension,CaloocanCity.

DuringthemonthsofMarch,AprilandMay1969,twenty
three(23)checkswereprepared,processed,issuedandreleased
by NWSA, all of which were paid and cleared by PNB and
debitedbyPNBagainstNWSAAccountNo.6,towit:

24

24 SUPREMECOURTREPORTSANNOTATED

MetropolitanWaterworksandSewerageSystemvs.
CourtofAppeals

CheckNo. Date Payee Amount DatePaid

ByPNB
1.59546 82169 Deogracias P3,187.79 4269
Estrella
2.59548 33169 Natividad 2,848.86 42369
Rosario
3.59547 33169 Pangilinan 195.00 Unreleased
Enterprises
4.59549 33169 Natividad 3,239.88 42369
Rosario
5.59552 4169 Villarama 987.59 5669
&Sons
6.59554 4169 Gascom 6,057.60 41669
Engineering
7.59558 4269 TheEvening 112.00 Unreleased
News
8.59544 32769 Progressive 18,391.20 41869
Const.
9.59564 4269 Ind.Insp. 594.06 41869
Int.Inc.
10.59568 4769 Roberto 800.00 42269
 Marsan
11.59570 4769 PazAndres 200.00 42269
12.59574 4869 Florentino 100,000.00 41169
Santos
13.59578 4869 Mia.Daily 95.00 Unreleased
Bulletin
14.59580 4869 Phil.Herald 100.00 5969
15.59582 4869 Galauran 7,729.09 5669
&Pilar
16.59581 4869 Manila 110.00 51269
Chronicle
17.59588 4869 Treago 21,583. 0041169
Tunnel
18.59587 4869 Delfin 120,000.00 41169
Santiago
19.59589 41069 Deogracias 1,257.49 41669
Estrella
20.59594 41469 PhilamAc 33.03 42969
cidentInc.
21.59577 4869 Esla 9,429.78 42969

25

VOL.143,JULY14,1986 25
MetropolitanWaterworksandSewerageSystemvs.Courtof
Appeals

22.59601 41669
Justine 20,000.00 41869
23.59595 41469 Torres
NerisPhil 4,274.00 52069
Inc.
P320,636.26

During the same months of March, April andMay 1969,

twentythree (23) checks bearing the same numbers as the
aforementionedNWSAcheckswerelikewisepaidandcleared
byPNBanddebitedagainstNWSAAccountNo.6,towit:
N
Chec Date Payee Amount
o.
k Issued
DatePaid
By PNB
1.59546 3669 RaulDizon P84,401.00 31669
2.59548 34169 RaulDizon 104,790.00 4169
3.59547 31469 ArturoSison 56,903.00 41169
4.59549 32069 ArturoSison 48,903.00 41569
5.59552 32469 ArturoSison 63,845.00 41689
6.59544 32669 ArturoSison 98,450.00 41769
7.59558 32889 ArturoSison 114,840.00 42169
8.59544 31669 Antonio 38,490.00 42269
Mendoza
9.59564 33169 ArturoSison 180,900.00 42369
10. 4269 ArturoSison 134,940.00 42569
59568
11. 4169 ArturoSison 64,550.00 42869
59570
12. 4269 ArturoSison 148,610.00 42989
59574
13. 41069 Antonio 93,950.00 42969
59578 Mendoza
14. 4869 ArturoSison 160,000.00 5269
59580
15. 41069 ArturoSison 155,400.00 5569
59582
16. 4869 Antonio 176,580.00 5669
59581 Mendoza
17. 41669 ArturoSison 176,000.00 5869
59588
18. 41669 ArturoSison 300,000.00 51269
59587
19. 41869 ArturoSison 280,000.00 51569
59589
20. 41869 ArturoSison 122,000.00 51469
59594
21. 414 Antonio 260,000.00 51669
59577 69 Mendoza
22. 41869 ArturoSison 400,000.00 51969
59601
23. 42869 ArturoSison 190,800.00 52169
59595
P3,457,903.00

26
26 SUPREMECOURTREPORTSANNOTATED

MetropolitanWaterworksandSewerageSystemvs.Courtof
Appeals

The foregoing checks were deposited by the payees Raul

Dizon,ArturoSisonandAntonioMendozaintheirrespective
current accounts with the Philippine Commercial and
Industrial Bank (PCIB) and Philippine Bank of Commerce
(PBC)inthemonthsofMarch,AprilandMay1969.Thruthe
Central Bank Clearing, these checks were presented for
paymentbyPBCandPCIBtothedefendantPNB,andpaid,
alsointhemonthsofMarch,AprilandMay1969.Atthetime
oftheirpresentationtoPNB thesechecks bearthestandard
indorsementwhichreadsallpriorindorsementand/orlackof
endorsementguaranteed.
Subsequent investigation however, conducted by the NBI
showedthat Raul Dizon, ArturoSisonandAntonioMendoza
were all fictitious persons. The respective balances in their
current account with the PBC and/or PCIB stood as follows:
RaulDizonP3,455.00asofApril30,1969?AntonioMendoza
P18,182.00asofMay23,1969?andArturoSisonP1,398.92as
ofJune30,1969.
On June 11, 1969, NWSA addressed a letter to PNB
requestingtheimmediaterestorationtoitsAccountNo.6,of
the total sum of P3,457,903.00 corresponding to the total
amountofthesetwentythree(23)checksclaimedbyNWSAto
beforgedand/orspuriouschecks.
InviewoftherefusalofPNBtocreditbacktoAccountNo.
6thesaidtotalsumofP3,457,903.00MWSSfiledtheinstant
complaint on November 10, 1972 before the Court of First
Instance of Manila and docketed thereat as Civil Case No.
88950.
In its answer, PNB contended among others, that the
checks in question were regular on its face in all respects,
including the genuineness of the signatures of authorized
NWSAsigningofficersandtherewasnothingonitsfacethat
couldhavearousedanysuspicionastoitsgenuinenessanddue
executionand?thatNWSAwasguiltyofnegligencewhichwas
theproximatecauseoftheloss. PNBalsofiledathirdparty
complaintagainstthenegotiatingbanksPBCandPCIBonthe
groundthattheyfailedtoascertaintheidentityofthepayees
and their title to the checks which were deposited in the
respectivenewaccountsofthepayeeswiththem.

xxx xxx
On February 6, 1976, the Court of First Instance of
ManilarenderedjudgmentinfavoroftheMWSS.The
dispositiveportionofthedecisionreads:

27

VOL,143,JULY14,1986 27
MetropolitanWaterworksandSewerageSystemvs.
CourtofAppeals

WHEREFORE,ontheCOMPLAINTbyaclearpreponderance
ofevidenceandinaccordancewithSection23oftheNegotiable
InstrumentsLaw,theCourtherebyrendersjudgmentinfavor
oftheplaintiffMetropolitanWaterworksandSewerageSystem
(MWSS)byorderingthedefendantPhilippineNationalBank
(PNB)torestorethetotalsumof
THREE MILLION FOUR HUNDRED FIFTY SEVEN
THOUSAND NINE HUNDRED THREE PESOS
(P3,457,903.00)toplaintiffsAccountNo.6,otherwiseknown
as Account No. 010500303, with legal interest thereon
computedfromthedateofthefilingofthecomplaintanduntil
restoredinthesaidAccountNo.6.
OntheTHIRDPARTYCOMPLAINT,theCourt,forlackof
evidence,herebyrendersjudgmentinfavorofthethirdparty
defendantsPhilippineBankofCommerce(PBC)andPhilippine
Commercial and Industrial Bank (PCIB) by dismissing the
ThirdPartyComplaint.
The counterclaims of the third party defendants are
likewisedismissedforlackofevidence.
Nopronouncementastocosts.

As earlier stated, the respondent court reversed the

decision of the Court of First Instance of Manila and
renderedjudgmentinfavoroftherespondentPhilippine
NationalBank.
Amotionforreconsiderationfiledbythepetitioner
MWSS was denied by the respondent court in a
resolutiondatedJanuary3,1983.
Thepetitionernowraisesthefollowingassignments
oferrorsforthegrantofthispetition:

I. IN NOT HOLDING THAT AS THE

SIGNATURES ON THE CHECKS WERE
FORGED,THEDRAWEEBANKWASLIABLE
FORTHELOSSUNDERSECTION23OFTHE
 NEGOTIABLEINSTRUMENTSLAW.
II.IN FAILINGTOCONSIDERTHEPROXIMATE
NEGLIGENCEOFPNBINACCEPTINGTHE
SPURIOUS CHECKS DESPITE THE
OBVIOUSIRREGULARITYOFTWOSETSOF
CHECKS BEARING IDENTICAL NUMBER
BEINGENCASHEDWITHINDAYSOFEACH
OTHER.
III. INNOTHOLDINGTHATTHESIGNATURES
OF

28

28 SUPREMECOURTREPORTSANNOTATED

MetropolitanWaterworksandSewerageSystemvs.
CourtofAppeals

THE DRAWEE MWSS BEING CLEARLY

FORGED, AND THE CHECKS SPURIOUS,
SAMEAREINOPERATIVEASAGAINSTTHE
ALLEGEDDRAWEE.

TheappellatecourtappliedSection24oftheNegotiable
InstrumentsLawwhichprovides:
Every negotiable instrument is deemed prima facie to have
beenissuedforvaluableconsiderationandeverypersonwhose
signatureappearsthereontohavebecomeapartytheretofor
value.

Thepetitionersubmitsthattheaboveprovisiondoesnot
apply to the facts of the instant case because the
questioned checks were not those of the MWSS and
neitherweretheydrawnbyitsauthorizedsignatories.
The petitioner states that granting that Section 24 of
theNegotiableInstrumentsLawisapplicable,thesame
creates only a prima facie presumption which was
overcomebythefollowingdocuments,towit:(1)theNBI
Report of November 2, 1970? (2) the NBI Report of
November21,1974?(3)theNBIChemistryReportNo.
C74891? (4) the Memorandum of Mr. Juan Dino, 3rd
Assistant Auditor of the respondent drawee bank
addressedtotheChiefAuditorofthepetitioner?(5)the
admissionoftherespondentbankscounselinopen
courtthattheNationalBureauofInvestigationfound
thesignatureonthetwentythree(23)checksinquestion
tobeforgeries?and(6)theadmissionoftherespondent
banks witness, Mr. Faustino Mesina, Jr. that the
checks in question were not printed by his printing
press.Thepetitionercontendsthatsincethesignatures
of the checks were forgeries, the respondent drawee
bankmustbearthelossundertherulingsofthisCourt.
Abankisboundtoknowthesignaturesofitscustomers?and
ifitpaysaforgedcheckitmustbeconsideredasmakingthe
paymentoutofitsownfunds,andcannotordinarilychargethe
amountsopaidtotheaccountofthedepositorwhosenamewas
forged.
xxx xxx xxx
Thesignaturestothechecksbeingforged,underSection23
of the Negotiable Instruments Law they are not a charge
againstplain

29

VOL,143,JULY14,1986 29
MetropolitanWaterworksandSewerageSystemvs.Courtof
Appeals

tiffnorarethechecksofanyvaluetothedefendant.
Itmustthereforebeheldthattheproximatecauseofloss
wasduetothenegligenceoftheBankofthePhilippineIslands
inhonoringandcashingthetwoforgedchecks. (SanCarlos
MillingCo.v.BankoftheP.I.,59Phil.59)
ItisadmittedthatthePhilippineNationalBankcashedthe
check upon a forged signature, and placed the money to the
credit of Maasim, who was the forger. That the Philippine
NationalBankthenendorsedthecheckandforwardedittothe
ShanghaiBankbywhomitwaspaid.ThePhilippineNational
BankhadnolicenseorauthoritytopaythemoneytoMaasim
oranyoneelseuponaforgedsignature.Itwasitslegaldutyto
knowthatMalicorsendorsementwasgenuinebeforecashing
thecheck.ItsremedyisagainstMaasimtowhomitpaidthe
money.(GreatEasternLifeIns.Co.v.Hongkong&Shanghai
Bank,43Phil.678).
Wehavecarefullyreviewedthedocumentscitedbythe
petitioner.Thereisnoexpressandcategoricalfinding
inthesedocumentsthatthetwentythree(23)questioned
checks were indeed signed by persons other than the
authorized MWSS signatories. On the contrary, the
findingsoftheNationalBureauofInvestigationinits
ReportdatedNovember2,1970showthattheMWSS
fraudwasaninsidejobandthatthepetitionersdelay
inthereconciliationofbankstatementsandthelaxity
and loose records control in the printing of its
personalizedchecksfacilitatedthefraud. Likewise,the
questioned Documents Report No. 1591074 dated
November 21, 1974 of the National Bureau of
Investigation does not declare or prove that the
signatures appearing on the questioned checks are
forgeries. The report merely mentions the alleged
differences inthetypeface, checkwriting,and printing
characteristicsappearinginthestandardorsubmitted
models and the questioned typewritings. The NBI
ChemistryReportNo.C74891merelydescribestheinks
andpensusedinwritingtheallegedforgedsignatures.
It is clear that these three (3) NBI Reports relied
upon by the petitioner are inadequate to sustain its
allegationsofforgery.Thesereportsdidnottouchonthe
inherentqualities
30

30 SUPREMECOURTREPORTSANNOTATED

MetropolitanWaterworksandSewerageSystemvs.
CourtofAppeals

of the signatures which are indispensable in the

determinationoftheexistenceofforgery.Theremustbe
conclusive findings that there is a variance in the
inherentcharacteristicsofthesignaturesandthatthey
werewrittenbytwoormoredifferentpersons.
Forgery cannot be presumed (Siasat, et al. v.
IntermediateAppellateCourt,etal,139SCRA238).It
must be established by clear, positive, and convincing
evidence.Thiswasnotdoneinthepresentcase.
Thecasesof SanCarlosMillingCo,Ltd.v.Bankof
the Philippine Islands, et al. (59 Phil, 59) and Great
EasternLifeIns.,Co.v.HongkongandShanghaiBank
(43Phil.678)relieduponbythepetitionerare
inapplicableinthiscasebecausetheforgeriesinthose
caseswereeitherclearlyestablishedoradmittedwhile
intheinstantcase,theallegationsofforgerywerenot
clearlyestablishedduringtrial.
Consideringtheabsenceofsufficientsecurityinthe
printing of the checks coupled with the very close
similarities between the genuine signatures and the
alleged forgeries, the twentythree (23) checks in
questioncouldhavebeenpresentedtothepetitioners
signatorieswithouttheirknowingthattheywerebogus
checks. Indeed, the cashier of the petitioner whose
signatureswereallegedlyforgedwasunabletotellthe
difference between the allegedly forged signature and
his own genuine signature. On the other hand, the
MWSSofficialsadmittedthatthesecheckscouldeasily
bepassedonasgenuine,
ThememorandumofMr.A.T.Tolentino,Assistant
Chief Accountant of the drawee Philippine National
Bank to Mr. E. Villatuya, Executive VicePresident of
the petitioner dated June 9, 1969 cites an instance
whereeventheconcernedNWSAofficialscouldnottell
the differences between the genuine checks and the
allegedforgedchecks.
At about 12:00 oclock on June 6, 1960, VP Maramag
requested me to see him in his office at the Cashiers Dept.
where Messrs. Jose M. Sanchez, treasurer of NAWASA and
RomeoOlivaofthesameofficewerepresent.UponmyarrivalI
observed the NAWASA officials questioning the issue of the
NAWASAchecks

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VOL,143,JULY14,1988 31
MetropolitanWaterworksandSewerageSystemvs.Courtof
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appearingintheirownlist,xeroxcopyattached.
Forverificationpurposes,therefore,thechecksweretaken
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.LopezandL.Lechuga,bothC/Abookkeepers,noone
wasabletopointoutanydifferenceonthesignaturesofthe
NAWASAofficialsappearingonthecheckscomparedto
theirofficialsignaturesonfile. Infact3checks,oneofthose
underquestion,werepresentedtotheNAWASAtreasurerfor
verificationbuthecouldnotpointoutwhichwashisgenuine
signature. After intent comparison, he pointed on the
questionedcheckasbearinghiscorrectsignature.
xxx xxx xxx

Moreover,thepetitionerisbarredfromsettingupthe
defense of forgery under Section 23 of the Negotiable
InstrumentsLawwhichprovidesthat:

SEC. 23. FORGED SIGNATURE? EFFECT OF.When the

signature is forged or made without authority of the person
whosesignatureitpurportstobe,itiswhollyinoperative,and
no right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party
theretocanbeacquiredthroughorundersuchsignatureunless
thepartyagainst whomitissought toenforcesuchright is
precludedfromsettinguptheforgeryorwantofauthority.

becauseitwasguiltyofnegligencenotonlybeforethe
questioned checks were negotiated but even after the
same had already been negotiated. (See Republic v.
EquitableBankingCorporation.10SCRA8)
Therecordsshowthatatthetimethetwentythree
(23) checks were prepared, negotiated, and encashed,
the petitioner was using its own personalized checks,
insteadoftheofficialPNBCommercialblankchecks.In
the exercise of this special privilege, however, the
petitioner failed to provide the needed security
measures. That there was gross negligence in the
printing of its personalized checks is shown by the
followinguncontrovertedfacts,towit:
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32 SUPREMECOURTREPORTSANNOTATED

MetropolitanWaterworksandSewerageSystemvs.
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(1) Thepetitionerfailedtogiveitsprinter,Mesina
Enterprises,specificinstructionsrelativetothe
safekeeping and disposition of excess forms,
checkvouchers,andsafetypapers?
 Thepetitionerfailedtoretrievefromitsprinter
(2) allspoiledcheckforms?
(3) The petitioner failed to provide any control
regardingthepaperusedintheprintingofsaid
checks?
(4) Thepetitionerfailedtofurnishtherespondent
drawee bank with samples of typewriting,
checkwriting,andprintusedbyitsprinterin
the printing of its checks and of the inks and
pensusedinsigningthesame?and
(5) Thepetitionerfailedtosendarepresentativeto
the printing office during the printing of said
checks.Thisgrossnegligenceofthepetitioneris
very evident from the sworn statement dated
June 19, 1969 of Faustino Mesina, Jr., the
owner of the printing press which printed the
petitionerspersonalizedchecks:

xxx xxxxxx

7. Doyouhaveanybusinesstransactionwiththe
Q: NationalWaterworksandSewerage
Authority(NAWASA)?
A: Yes,sir.IhaveacontractwiththeNAWASA
inprintingNAWASAFormssuchasNAWASA
CheckVouchersandOfficeForms.
xxxxxxxxx
15. WereyougivenanyinstructionbytheNAWASA
Q: inconnectionwiththeprintingofthese
checkvouchers?
A: Thereisnone,sir.Noinstructionwhatsoever
wasgiventome.
16. Wereyounotadvisedastowhatkindofpaper
Q: wouldbeusedinthecheckvouchers?
A: Onlyaspersample,sir.
xxx xxx xxx
20. WheredidyoubuythisHammermillSafetycheck
Q: paper?
A: FromTanChiong,apaperdealerwith
storelocatedat
33
 VOL.143,JULY14,1986 33
MetropolitanWaterworksandSewerageSystemvs.
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JuanLuna,Binondo,Manila.(Infrontof
theMetropolitanBank).
xxx xxx xxx
24. Q:Wereallthesecheckvouchersprintedbyyou
submittedtoNAWASA?
A: Notall,sir.Becausewehavetomake
reservationsorallowancesforspoilage.
25. Q:Outofthesevouchersprintedbyyou,how
many were spoiled and how many were the
excessprintedcheckvouchers?
A: Approximatelyfourhundred(400)sheets,sir.
Icannotdeterminetheproportionofthe
excessandspoiledbecausethefinalactof
perforatingthesecheckvouchershasnotyet
beendoneandspoilagecanonlybe
determinedafterthisfinalactofprinting.
26. Q:Whatdidyoudowiththeseexcesscheck
vouchers?
A: Ikeepitunderlockandkeyinmy
filingcabinet.
xxxxxxxxx
28. Q:WereyounotinstructedbytheNAWASA
authoritiestoburntheseexcesscheck
vouchers?
A:No,sir.Iwasnotinstructed.
29. Q:Whatdoyouintendtodowiththeseexcess
printedcheckvouchers?
A: Iintendtousethemforfutureordersfromthe
NAWASA.
xxx xxx xxx
32. Q:Intheprocessofprintingthecheckvouchers
orderedbytheNAWASA,howmanysheets
wereactuallyspoiled?
A: Icannotapproximate,sir.Butthere
arespoilageintheprocessofprinting
andperforating.
 33. Q:Whatdidyoudowiththesespoilages?
A: Spoiledprintedmaterialsareusually
thrownout,inthegarbagecan.
34. Q:WasthereanyrepresentativeoftheNAWASA
tosupervisetheprintingorwatchtheprintingof
thesecheckvouchers?
A: None,sir.
xxxxxxxxx
39. Q:Duringtheperiodofprintingafterthedays
work,whatmeasuresdoyouundertaketo
safeguardthemoldandotherparaphernalia
usedintheprintingof

34

34 SUPREMECOURTREPORTSANNOTATED

MetropolitanWaterworksandSewerageSystemvs.
CourtofAppeals

theseparticularordersofNAWASA?
A: InasmuchasIhaveanemployeewhosleepsinthe
printingshopandatthesametimedothe
guarding,wejustleavethemoldattachedtothe
machineandtheotherfinishedorunfinishedwork
checkvouchersareleftintheracksothatthework
couldbecontinuedthefollowingday.

The National Bureau of Investigation Report dated

November2,1970isevenmoreexplicit,Thus
xxx xxx xxx
60. Weobservedalsothat thereis some laxityandloose
controlintheprintingofNAWASAchecks.Wegatheredfrom
MESINAENTERPRISES,theprintingfirmthatundertookthe
printingofthecheckvouchersofNAWASAthatNAWASAhad
norepresentativeattheprintingpressduringtheprocessof
the printing and no particular security measure instructions
adopted to safeguard the interest of the government in
connectionwithprintingofthisaccountableform.
Anotherfactorwhichfacilitatedthefraudulent
encashmentofthetwentythree(23)checksinquestion
wasthefailureofthepetitionertoreconcilethebank
statementswithitsownrecords.
It is accepted banking procedure for the depository
banktofurnishitsdepositorsbankstatementsanddebt
andcreditmemosthroughthemailTherecordsshow
that the petitioner requested the respondent drawee
bank to discontinue the practice of mailing the bank
statements,butinsteadtodeliverthesametoacertain
Mr.EmilianoZaporteza.ForreasonsknownonlytoMr.
Zaporteza however, he was unreasonably delayed in
taking prompt deliveries of the said bank statements
and credit and debit memos. As a consequence, Mr.
Zaportezafailedtoreconcilethebankstatementswith
thepetitionersrecords.IfMr.Zaportezahadnotbeen
remissinhisdutyoftakingthebank statementsand
reconciling them with the petitioners records, the
fraudulentencashmentsofthefirstchecksshouldhave
been discovered, and further frauds prevented. This
negligencewas,therefore,theproximatecause

35

VOL.143,JULY14,1986 35
MetropolitanWaterworksandSewerageSystemvs.
CourtofAppeals

ofthefailuretodiscoverthefraud.Thus,

Whenapersonopensacheckingaccountwithabank,heis
givenblankcheckswhichhemayfilloutandusewheneverhe
wishes.Eachtimeheissuesacheck,heshouldalsofilloutthe
checkstubtowhichthecheckisusuallyattached.Thisstub,if
properlykept,willcontainthenumberofthecheck,thedateof
itsissue,thenameofthepayeeandtheamountthereof.The
drawerwouldthereforehaveacompleterecordofthecheckshe
issues. It is the custom of banks to send to its depositors a
monthly statement of the status of their accounts, together
withallthecancelledcheckswhichhavebeencashedbytheir
respective holders. If the depositor has filled out his check
stubsproperly,acomparisonbetweenthemandthecancelled
checks will reveal any forged check not taken from his
checkbook.Itisthedutyofadepositortocarefullyexaminethe
banks statement, his cancelled checks, his check stubs and
otherpertinentrecordswithinareasonabletime,andtoreport
anyerrorswithout
unreasonabledelay.Ifhisnegligenceshouldcausethebankto
honoraforgedcheckorpreventitfromrecoveringtheamount
it may have already paid on such check, he cannot later
complainshouldthebankrefusetorecredithisaccountwith
the amount of such check. (First Nat. Bank of Richmond v.
RichmondElectricCo.,106Va.347,56SE152,7LRA,NS744
[1907].SeealsoLeatherManufacturersBankv.Morgan,117
US96,6S.Ct.657[1886]?DeerIslandFishandOysterCo.v.
FirstNat.BankofBiloxi,166Miss.162,146So.116[1933]).
CamposandCampos,NotesandSelectedCasesonNegotiable
InstrumentsLaw,1971,pp.267268).

This failure of the petitioner to reconcile the bank

statementswithitscancelledcheckswasnotedbythe
National Bureau of Investigation in its report dated
November2,1970:
58.Onefactorwhichfacilitatedthisfraudwasthedelayinthe
reconciliation of bank (PNB) statements with the NAWASA
bankaccounts,xxx.HadtheNAWASArepresentativecometo
the PNB early for the statements and had the bank been
advisedpromptlyofthereportedboguscheck,thenegotiation
of practically all of the remaining checks on May, 1969,
totallingP2,224,736.00couldhavebeenprevented.

36

36 SUPREMECOURTREPORTSANNOTATED

MetropolitanWaterworksandSewerageSystemvs.
CourtofAppeals

Therecordslikewiseshowthatthepetitionerfailedto
provide appropriate security measures over its own
records thereby laying confidential records open to
unauthorized persons. The petitioners own Fact
Finding Committee, in its report submitted to their
General Manager underscored this laxity of records
control. It observed that the office of Mr. Ongtengco
(Cashier No. VI of the Treasury Department at the
NAWASA)isquiteopentoanypersonknowntohimor
hisstaffmembersandthatthecheckwriterismerelyon
topofhistable.
 WhenconfrontedwiththisreportattheAntiFraud
ActionSectionoftheNationalBureauofInvestigation,
Mr.Ongtengcocouldonlystatethat:

A. Generallymyorderisnottoallowanybodytoenter
myoffice.Onlyauthorizedpersonsareallowedto
entermyoffice.Therearesomecases,however,
wheresomepersonsentermyofficebecausethey
arefollowinguptheirchecks.Maybe,these
personsmayhavebeenauthorizedbyMr.Pantig.
Mostofthepeopleenteringmyofficearechanging
checksasallowedbytheResolutionoftheBoardof
DirectorsoftheNAWASAandtheTreasurer.The
checkwriterwasneverplacedonmytable.There
isaplaceforthecheckwriterwhichisalsounder
lockandkey.
Q. IsMr.Pantigauthorizedtoallowunauthorized
personstoenteryouroffice?
A. No,sir.
Q. WhyareyoutoleratingMr.Pantigadmitting
unauthorizedpersonsinyouroffice?
A, IdonotwanttoembarrassMr.Pantig.Mostofthe
peoplefollowingupchecksareemployeesofthe
NAWASA.
Q. WastheauthoritygivenbytheBoardofDirectors
andtheapprovalbytheTreasurerforemployees,
andotherpersonstoencashtheircheckscarrywith
ittheirauthoritytoenteryouroffice?
A. No,sir.
xxx xxx xxx
Q. Fromtheanswersthatyouhavegiventous
weobservedthatactuallythereislaxityand
poorcontrolonyourpartwithregardstothe
preparationsofcheckpaymentsin

37

VOL.143,JULY14,1986 37
MetropolitanWaterworksandSewerageSystemvs.
CourtofAppeals

asmuchasyouallowunauthorizedpersonsto
followuptheirvouchersinsideyourofficewhich
mayleakoutconfidentialinformationsoryour
booksofaccount.Afterbeingapprisedofallthe
 shortcomingsinyouroffice,asheadoftheCashiers
OfficeoftheTreasuryDepartmentwhatremedial
measuresdoyouintendtoundertake?
A. TimeandagaintheTreasurerhasbeencallingour
attentionnottoallowinterestedpersonstohand
carrytheirvoucherchecksandwearetryingour
bestandifIcandoittofollowtheinstructionsto
theletter,Iwilldoitbutunfortunatelythe
personswhoareallowedtoentermyofficearemy
coemployeesandpersonswhohaveconnections
withourhigherupsandIcannotpossibly
antagonizethem.Restassuredthateventhough
thateverybodywillgethurt,Iwilldomybestnot
toallowunauthorizedpersonstoentermyoffice.
xxx xxx xxx
Q. Isitnotpossibleinasmuchasyourofficeisin
chargeofthepostingofcheckpaymentsinyour
booksthatleakageofpaymentstothebanks
camefromyouroffice?
A. Iamnotawareofitbutitonlytakesusacoupleof
minutestoprocessthechecks.Andtherearecases
whereineveryinformationaboutthechecksmay
beobtainedfromtheAccountingDepartment,
AuditingDepartment,ortheOfficeoftheGeneral
Manager.

Relyingonthe foregoing statement of Mr. Ongtengco,

the National Bureau of Investigation concluded in its
Report dated November 2, 1970 that the fraudulent
encashmentofthetwentythree(23)checksinquestion
wasaninsidejob.Thus
Wehaveallthereasonstobelievethatthisfraudulentactwas
aninsidejoboronepulledwithinsideconnivanceatNAWASA.
Aspointedearlierinthisreport, theserialnumbersofthese
checksinquestionconformwiththenumbersincurrentuseof
NAWASA, aside from the fact that these fraudulent checks
were found to be of the same kind and design as that of
NAWASAsownchecks.Whileknowledgeastosuchfactsmay
be obtained through the possession of a NAWASA check of
currentissue,anoutsiderwithoutinformationfromtheinside
cannotpossiblypinpointwhichofNAWASAs
38
38 SUPREMECOURTREPORTSANNOTATED

MetropolitanWaterworksandSewerageSystemvs.Courtof
Appeals

various accounts has sufficient balance to cover all these

fraudulent checks. None of these checks, it should be noted,
wasdishonoredforinsufficiencyoffunds...

Even if the twentythree (23) checks in question are

considered forgeries, considering the petitioners gross
negligence,itisbarredfromsettingupthedefenseof
forgeryunderSection23oftheNegotiableInstruments
Law.
Nonetheless, the petitioner claims that it was the
negligenceoftherespondentPhilippineNationalBank
thatwastheproximatecauseoftheloss.Thepetitioner
relies on our ruling in Philippine National Bank v.
CourtofAppeals(25SCRA693)that.
Thus, by not returning the check to the PCIB, by thereby
indicating that the PNB had found nothing wrong with the
checkandwouldhonorthesame,andbyactuallypayingits
amounttothePCIB,thePNBinducedthelatter,notonlyto
believethatthecheckwasgenuineandgoodineveryrespect,
but,also,topayitsamounttoAugustoLim.Inotherwords,
thePNBwastheprimaryorproximatecauseoftheloss,and,
hence,maynotrecoverfromthePCIB.

Theargumenthasnomerit.Therecordsshowthatthe
respondent drawee bank, had taken the necessary
measures in the detection of forged checks and the
preventionoftheirfraudulentencashment.Infact,long
beforetheencashmentofthetwentythree(23)checksin
question, the respondent Bank had issued constant
reminders to all Current Account Bookkeepers
informing them of the activities of forgery syndicates.
The Memorandum of the Assistant VicePresident and
ChiefAccountantofthePhilippineNationalBankdated
February17,1966readsinpart:
SUBJECT: ACTIVITIES OF FORGERY
SYNDICATE
Fromreliableinformationwehavegatheredthatpersonalized
checksofcurrentaccountdepositorsarenowthetargetofthe
forgerysyndicate.Toprotecttheinterestofthebank,youare
herebyenjoinedtobemorecarefulinexamining
saidchecksespeciallythose

39

VOL.143,JULY14,1986 39
MetropolitanWaterworksandSewerageSystemvs.Courtof
Appeals

comingfromtheclearing,mailsandwindowtransactions.Asa
reminderpleasebeguidedwiththefollowing:

1. Signatures of drawers should be properly scrutinized

andcomparedwiththosewehaveonfile.
2.Theserialnumbersofthechecksshouldbecompared
withtheserialnumbersregisteredwiththeCashiers
Dept.
3.Thetextureofthepaperusedandtheprintingofthe
checksshouldbecomparedwiththesamplewehaveon
filewiththeCashiersDept.
4.Checksbearingseveral indorsements shouldbegiven
specialattention.
5.Alterationinamountbothinfiguresandwordsshould
becarefullyexaminedevenifsignedbythedrawer.
6. Checks issued insubstantial amounts particularly by
depositors who do not usually issue checks in big
amounts should be brought to the attention of the
drawer by telephone or any fastest means of
communicationforpurposesofconfirmation.

andyourattentionisalsoinvitedtokeepabreastofprevious
circularsandmemoinstructionsissuedtobookkeepers.

We cannot fault the respondent drawee Bank for not

having detected the fraudulent encashment of the
checks because the printing of the petitioners
personalizedcheckswasnotdoneunderthesupervision
andcontroloftheBank.Thereisnoevidenceonrecord
indicating that because of this private printing, the
petitionerfurnishedtherespondentBankwithsamples
of checks, pens, and inks or took other precautionary
measureswiththePNBtosafeguarditsinterests.
 Under the circumstances, therefore, the petitioner
wasinabetterpositiontodetectandpreventthe
 fraudulentencashmentofitschecks.
WHEREFORE,thepetitionforreviewoncertiorariis
hereby DISMISSED for lack of merit. The decision of
therespondentCourtofAppealsdatedOctober29,1982
isAFFIRMED.Nopronouncementastocosts.
40

40 SUPREMECOURTREPORTSANNOTATED

Arsenalvs.IntermediateAppellateCourt

SOORDERED.

Feria(Chairman),Fernan,AlampayandCruz,
JJ.,concur.
Paras**,J.,tooknopart.

PetitiondismissedDecisionaffirmed.

o0o

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