Haystack: MWSS vs. Court of Appeals (GR L-62943, 14 July 1986)

MWSS vs. CA
[G.R. No. L-62943. July 14, 1986.]
Second Division, Gutierrez Jr. (J): 3 concurring, 1 took no part

Facts: The Metropolitan Waterworks and Sewerage System (MWSS) is a government owned and controlled corporation created under RA 6234 as the successor-in-interest of the defunct NWSA. The Philippine National Bank (PNB), on the other hand, is the depository bank of MWSS and its predecessor-in-interest NWSA. Among the several accounts of NWSA with PNB is NWSA Account 6, otherwise known as Account 381-777 and which is presently allocated 010-500281. The authorized signature for said Account 6 were those of MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor L. Recio. Their respective specimen signatures were submitted by the MWSS to and on file with the PNB. By special arrangement with the PNB, the MWSS used personalized checks in drawing from this account. These checks were printed for MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal Extension, Caloocan City. During the months of March, April and May 1969, 23 checks were prepared, processed, issued and released by NWSA, all of which were paid and cleared by PNB and debited by PNB against NWSA Account 6. During the same months of March, April and May 1969, 23 checks bearing the same numbers as the NWSA checks were likewise paid and cleared by PNB and debited against NWSA Account 6. The checks were deposited by the payees Raul Dizon, Arturo Sison and Antonio Mendoza in their respective current accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC) in the months of March, April and May 1969. Thru the Central Bank Clearing, these checks were presented for payment by PBC and PCIB to the PNB, and paid, also in the months of March, April and May 1969. At the time of their presentation to PNB these checks bear the standard indorsement which reads “all prior indorsement and/or lack of endorsement guaranteed.” Subsequent investigation however, conducted by the NBI showed that Dizon, Sison and Mendoza were all fictitious persons. The respective balances in their current account with the PBC and/or PCIB stood as follows: Dizon P3,455.00 as of 30 April 1969; Mendoza P18,182.00 as of 23 May 1969; and Sison P1,398.92 as of 30 June 1969. On 11 June 1969, NWSA addressed a letter to PNB requesting the immediate restoration to its Account 6, of the total sum of P3,457,903.00 corresponding to the total amount of the 23 checks claimed by NWSA to be forged and/or spurious checks.

In view of the refusal of PNB to credit back to Account 6 the said total sum of P3,457,903.00 MWSS filed the present complaint on 10 November 1972 before the CFI Manila (Civil Case 88950). On 6 February 1976, the CFI Manila rendered judgment in favor of the MWSS, ordering the PNB to restore the total sum of (P3,457,903.00) to MWSS's Account 6 with legal interest thereon computed from the date of the filing of the complaint and until as restored in the said account, dismissing the third-party complaint, and dismissing the counterclaims of the third party defendants for lack of evidence; without pronouncement as to costs.

On appeal and on 29 October 1982, the Court of Appeals reversed the decision of the CFI Manila and rendered judgment in favor of the respondent Philippine National Bank. A motion for reconsideration filed by the MWSS was denied by the appellate court in a resolution dated 3 January 1983. Hence, the petition for review on certiorari.

The Supreme Court dismissed the petition for lack of merit, and affirmed the decision of the Court of Appeals; without pronouncement as to costs.

1. Section 24 of the Negotiable Instruments Law
The appellate court applied Section 24 of the Negotiable Instruments Law which provides "Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party thereto for value."

2. No evidence that checks were forged
There is no express and categorical finding in these documents that the 23 questioned checks were indeed signed by persons other than the authorized MWSS signatories. On the contrary, the findings of the National Bureau of Investigation (NBI) in its Report dated 2 November 1970 show that the MWSS fraud was an "inside job" and that MWSS's 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, the questioned Documents Report 159-1074 dated 21 November 1974 of the NBI does not declare or prove that the signatures appearing on the questioned checks are forgeries. The report merely mentions the alleged differences in the typeface, checkwriting, and printing characteristics appearing in the standard or submitted models and the questioned typewritings. The NBI Chemistry Report C-74-891 merely describes the inks and pens used in writing the alleged forged signatures. The 3 NBI Reports relied upon by MWSS are inadequate to sustain its allegations of forgery. These reports did not touch on the inherent qualities of the signatures which are indispensable in the determination of the existence of forgery. There must be conclusive findings that there is a variance in the inherent characteristics of the signatures and that they were written by two or more different persons.

3. Forgery is not presumed
Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139 SCRA 238). It must be established by clear, positive, and convincing evidence. This was not done in the present case.

4. Carlos Milling vs. BPI, Great Eastern Life Insurance vs. Hongkong & Shanghai Bank not applicable
The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59 Phil. 59) and Great Eastern Life Ins., Co. v. Hongkong and Shanghai Bank (43 Phil. 678) relied upon by the petitioner are inapplicable in this case because the forgeries in those cases were either clearly established or admitted while in the present case, the allegations of forgery were not clearly established during trial.

5. Checks could easily be passed on as genuine
Considering the absence of sufficient security in the printing of the checks coupled with the very close similarities between the genuine signatures and the alleged forgeries, the 23 checks in question could have been presented to the MWSS's signatories without their knowing that they were bogus checks. Indeed, the MWSS cashier whose signatures were allegedly forged was unable to tell the difference between the allegedly forged signature and his own genuine signature. On the other hand, the MWSS officials admitted that these checks could easily be passed on as genuine. The memorandum of Mr. A. T. Tolentino, Assistant Chief Accountant of the drawee PNB to Mr. E. Villatuya, Executive Vice-President of MWSS dated 9 June 1969 cites an instance where even the concerned NWSA officials could not tell the differences between the genuine checks and the alleged forged checks.

6. MWSS barred from setting up defense of forgery under Section 23 NIL
MWS is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law which provides that "when the signature is forged or made without 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." because it was guilty of negligence not only before the questioned checks were negotiated but even after the same had already been negotiated. (See Republic v. Equitable Banking Corporation, 10 SCRA 8)

7. MWSS committed gross negligence in the printing of its personalized checks
The records show that at the time the 23 checks were prepared, negotiated, and encashed, MWSS was using its own personalized checks, instead of the official PNB Commercial blank checks. In the exercise of this special privilege, however, MWSS failed to provide the needed security measures. That there was gross negligence in the printing of its personalized checks is shown by the following uncontroverted facts, that MWSS failed to (1) give its printer, Mesina Enterprises, specific instructions relative to the safekeeping and disposition of excess forms, check vouchers, and safety papers; (2) retrieve from its printer all spoiled check forms; (3) provide any control regarding the paper used in the printing of said checks; (4) furnish the respondent drawee bank with samples of typewriting, check writing, and print used by its printer in the printing of its checks and of the inks and pens used in signing the same; and (5) send a representative to the printing office during the printing of said checks. This gross negligence of MWSS is very evident from the sworn statement dated 19 June 1969 of Faustino Mesina Jr., the owner of the printing press which printed MWSS's personalized checks. The NBI Report dated 2 November 1970 was more explicit in stating that laxity exists as NAWASA had no representative at the printing press during the process of the printing and no particular security measure instructions adopted to safeguard the interest of the government in connection with printing of this accountable form.

8. Failure of MWSS to reconcile the bank statements with its own records proximate cause of failure to discover the fraud
Another factor which facilitated the fraudulent encashment of the 23 checks was the failure of MWSS to reconcile the bank statements with its own records. It is accepted banking procedure for the depository bank to furnish its depositors bank statements and debt and credit memos through the mail. MWSS requested the drawee bank to discontinue the practice of mailing the bank statements, but instead to deliver the same to a certain Mr. Emiliano Zaporteza. For reasons known only to Mr. Zaporteza however, he was unreasonably delayed in taking prompt deliveries of the said bank statements and credit and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the bank statements with MWSS's records. If Mr. Zaporteza had not been remiss in his duty of taking the bank statements and reconciling them with MWSS's records, the fraudulent encashments of the first checks should have been discovered, and further frauds prevented. This negligence was, therefore, the proximate cause of the failure to discover the fraud. The NBI Report dated 2 November 1970 stated that had the NAWASA representative come to the PNB early for the statements and had the bank been advised promptly of the reported bogus check, the negotiation of practically all of the remaining checks on May, 1969 totalling P2,224,736.00 could have been prevented.

9. Duty of depositor to examine bank statements, cancelled checks, check stubs within reasonable time and to report any error without unreasonable delay
When a person opens a checking account with a bank, he is given blank checks which he may fill out and use whenever he wishes. Each time he issues a check, he should also fill out the check stub to which the check is usually attached. This stub, if properly kept, will contain the number of the check, the date of its issue, the name of the payee and the amount thereof. The drawer would therefore have a complete record of the checks he issues. It is the custom of banks to send to its depositors a monthly statement of the status of their accounts, together with all the cancelled checks which have been cashed by their respective holders. If the depositor has filled out his check stubs properly, a comparison between them and the cancelled checks will reveal any forged check not taken from his checkbook. It is the duty of a depositor to carefully examine the bank's statement, his cancelled checks, his check stubs and other pertinent records within a reasonable time, and to report any errors without unreasonable delay. If his negligence should cause the bank to honor a forged check or prevent it from recovering the amount it may have already paid on such check, he cannot later complain should the bank refuse to recredit his account with the amount of such check. (First Nat. Bank of Richmond v. Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA, NS 744 [1907]. See also Leather Manufacturers' Bank v. Morgan, 117 US 96, 6 S. Ct. 657 [1886]; Deer Island Fish and Oyster Co. v. First Nat. Bank of Biloxi, 166 Miss. 162, 146 So. 116 [1933]). Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law, 1971, pp. 267-268).

10. MWSS failed to provide appropriate security measures over its own records; Circumstances led NBI to believe that the fraudulent encashment as an “inside job”
The records likewise show that MWSS failed to provide appropriate security measures over its own records thereby laying confidential records open to unauthorized persons. MWSS's 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 VI of the Treasury Department at the NAWASA) is quite open to any person known to him or his staff members and that the check writer is merely on top of his table. Relying on the foregoing statement of Mr. Ongtengco, the NBI concluded in its Report dated 2 November 1970 that the fraudulent encashment of the 23 checks in question was an "inside job". Thus the NBI believe that the fraudulent act was an inside job or one pulled with inside connivance at NAWASA. The serial numbers of the checks in question conform with the numbers in current use of NAWASA, aside from the fact that these fraudulent checks were found to be of the same kind and design as that of NAWASA's own checks. While knowledge as to such facts may be obtained through the possession of a NAWASA check of current issue, an outsider without information from the inside can not possibly pinpoint which of NAWASA's various accounts has sufficient balance to cover all these fraudulent checks. None of these checks, it should be noted, was dishonored for insufficiency of funds.

11. Even if the checks are forgeries, MWSS barred from setting up defense of forgery
Even if the 23 checks in question are considered forgeries, considering MWSS's gross negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law.

12. Drawee bank had taken necessary measures in detection of forged checks and prevention of their fraudulent encashment
The drawee bank had taken the necessary measures in the detection of forged checks and the prevention of their fraudulent encashment. Long before the encashment of the 23 checks in question, the Bank had issued constant reminders to all Current Account Bookkeepers informing them of the activities of forgery syndicates. An example of this was the Memorandum of the Assistant Vice-President and Chief Accountant of the PNB dated 17 February 1966 enjoining all current account depositors to be more careful in examining said checks especially those coming from the clearing, mails and window transactions. As a reminder, the bank gave guidelines to its depositors, to wit: (1) Signatures of drawers should be properly scrutinized and compared with those the bank has on file; (2) The serial numbers of the checks should be compared with the serial numbers registered with the Cashier's Dept.; (3) The texture of the paper used and the printing of the checks should be compared with the sample the bank has on file with the Cashier's Dept.; (4) Checks bearing several indorsements should be given a special attention; (5) Alteration in amount both in figures and words should be carefully examined even if signed by the drawer; (6) Checks issued in substantial 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 communication for purposes of confirmation; and attention of depositors were also invited to keep abreast of previous circulars and memo instructions issued to bookkeepers.

13. Drawee bank cannot be faulted for not detecting the fraudulent encashment of the checks
The drawee Bank for not having detected the fraudulent encashment of the checks because the printing of MWSS's personalized checks was not done under the supervision and control of the Bank. There is no evidence on record indicating that because of the private printing, MWSS furnished the Bank with samples of checks, pens, and inks or took other precautionary measures with the PNB to safeguard its interests. Under the circumstances, therefore, MWSS was in a better position to detect and prevent the fraudulent encashment of its checks.

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