BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. THE HON. COURT OF APPEALS (SEVENTH JUDICIAL), HON. JUDGE REGIONAL TRIAL COURT OF MAKATI, BRANCH 59, CHINA BANKING CORP., AND PHIL…

The present petition asks us to set aside the decision and
resolution of the Court of Appeals in CA­-G.R. SP No. 24306 which affirmed the
earlier decision of the Regional Trial Court of Makati, Branch 59 in Civil Case No. 14911 entitled Bank of the Philippine Islands
v. China Banking Corporation and the
Philippine Clearing House Corporation, the
dispositive portion of which reads:

“WHEREFORE, premises considered,
judgment is hereby rendered dismissing petitioner-appellant’s (BPI’s) appeal
and affirming the appealed order of August 26, 1986 (Annex B of BPI’s Petition)
with modification as follows:

1. Ordering the
petitioner-appellant (BPI) to pay respondent-appellee (CBC):

(a) the amount of One Million Two Hundred Six Thousand, Six Hundred
Seven Pesos and Fifty Eight Centavos (P1,206,607.58) with interest at the legal
rate of twelve percent (12%) per annum starting August 26, 1986, the date when
the order of the PCHC Board of Directors was issued until the full amount is
finally paid; and

(b) the amount of P150,000.00 representing attorney’s fees;

2. BPI shall also bear 75% or P5,437.50
and CBC, 25% or P1,812.50 of the cost of the arbitration proceedings amounting
to P7,250.00;

3. The ownership of respondent-appellee (CBC) of the other sum of
One Million Two Hundred Six Thousand Six Hundred Seven Pesos and Fifty Eight
Centavos (P1,206,607.58) previously
credited to its clearing account on August 12, 1983 per PCHC Stockholders’
Resolution No. 6083 dated April 6, 1983, is hereby confirmed.

4. The PCHC is
hereby directed to immediately debit the clearing account of BPI the sum of One
Million Two Hundred Six Thousand Six Hundred Seven Pesos and Fifty Eight
Centavos (P1,206,607.58) together with its interest as decreed in paragraph
1(a) herein above stated and credit the
same to the clearing account of CBC;

5. The PCHC’s counterclaim and cross-claim are
dismissed for lack of merit; and

6. With costs against, the petitioner­-appellant.”
(Rollo, pp. 161-162)

The controversy in this case arose from the following facts as
found by the Arbitration Committee of respondent Philippine Clearing House
Corporation in Arbicom Case No. 83-029 entitled Bank of the
Philippine Islands vs. China Banking Corporation:

“The story underlying this case began in the afternoon of
October 9, 1981 with a phone call to BPI’s Money Market Department by a woman
who identified herself as Eligia G. Fernando who had a money market placement
as evidenced by a promissory note with a maturity date of November 11, 1981 and a maturity value of P2,462,243.19. The caller wanted to preterminate the
placement, but Reginaldo Eustaquio, Dealer Trainee in BPI’s Money Market
Department, who received the call and who happened to be alone in the trading
room at the time, told her ‘trading time’ was over for the day, which was a
Friday, and suggested that she call again the following week. The promissory note that the caller wanted to preterminate was a roll-over of in earlier
50-day money market placement that had matured on September 24, 1981.

Later that afternoon,
Eustaquio conveyed the request for pretermination to the officer who before had
handled Eligia G. Fernando’s account, Penelope Bulan, but Eustaquio was left to
attend to the pretermination process.

The next Monday, October
12, 1981, in the morning, the caller of the previous Friday followed up with
Eustaquio, merely by phone again, on the pretermination of the placement. Although not familiar with the voice of the
real Eligia G. Fernando, Eustaquio ‘made certain’ that the caller was the real
Eligia G. Fernando by ‘verifying’ that the details the caller gave about the
placement tallied with the details in ‘the ledger/folder’ of the account. Eustaquio knew the real Eligia G. Fernando
to be the Treasurer of Philippine American Life Insurance Company (Philamlife)
since he was handling Philamlife’s corporate money market account. But neither Eustaquio nor Bulan who
originally handled Fernando’s account, nor anybody else at BPI, bothered to
call up Fernando at her Philamlife office to verify the request for
pretermination.

Informed that the placement
would yield less than the maturity value because of its pretermination, the
caller insisted on the pretermination just the same and asked
that two checks be issued for the proceeds, one for P1,800,000.00 and the
second for the balance, and that the checks be deliverd to her office at
Philamlife.

Eustaquio, thus, proceeded
to prepare the ‘purchase order slip’ for the requested pretermination as
required by office procedure, and from his desk, the papers, following the
processing route, passed through the position analyst, securities clerk,
verifier clerk and documentation clerk, before the two cashier’s checks, nos.
021759 and 021760 for P1,800,000.00 and P613,215.16, respectively, both payable
to Eligia G. Fernando, covering the preterminated placement, were
prepared. The two cashier’s checks,
together with the papers consisting of
the purchase order slip indicating that the money market placement was to be
preterminated and the promissory note (no. 35623) to be preterminated, were
sent to Gerlanda E. de Castro and
Celestino Sampiton, Jr., Manager and Administrative Assistant, respectively, in
BPI’s Treasury Operations Department, both authorized signatories for BPI, who
signed the two checks that very morning. Having been signed, the checks now went to the dispatcher for delivery.

‘Later in the same morning,
however, the same caller changed the delivery instructions; instead of the
checks being delivered to her office at Philamlife, she would herself pick up
the checks or send her niece, Rosemarie Fernando, to pick them up. Eustaquio then told her that if it were her
niece who was going to get the checks, her niece would have to bring a written
authorization from her to pick up the checks. This telephone conversation ended with the caller’s statement that
‘definitely’ it would be her niece, Rosemarie Fernando, who would pick up the
checks. Thus, Eustaquio had to
hurriedly go to the dispatcher, Bernardo Laderas, to tell him of the new
delivery instructions for the checks; in fact, he changed the delivery
instruction on the purchase order slip, writing thereon ‘Rosemarie Fernando
release only with authority to pick up.’

It was, in fact, Rosemarie
Fernando who got the two checks from the dispatcher, as shown by the delivery
receipt. Actually, as it turned out, the same impersonated both Eligia G. Fernando and
Rosemarie Fernando. Although the checks
represented the termination proceeds of Eligia G. Fernando’s placement, not
just a roll-over of the placement, the dispatcher failed to get or to require
the surrender of the promissory note evidencing the placement. There is also no showing that Eligia G.
Fernando’s purported signature on the letter requesting the pretermination and
the letter authorizing Rosemarie Fernando to pick up the two checks, both of
which letters were presumably handed to the dispatcher by Rosemarie Fernando,
was compared or verified with Eligia G. Fernando’s signature in BPI’s
file. Such purported signature has been
established to be forged although it has a ‘close similarity’ to the real
signature of Eligia G. Fernando (TSN of January 15, 1985, pp. 24 and 26).

The story’s scene now shifted when, in the afternoon of October 13,
1981, a woman who represented herself to be Eligia G. Fernando applied at CBC’s
Head Office for the opening of a current account.

She was accompanied and introduced to Emily Sylianco Cuaso, Cash
Supervisor, by Antonio Concepcion whom Cuaso knew to have opened, earlier that
year, an account upon the introduction of Valentin Co, a long-standing ‘valued
client’ of CBC. What Cuaso indicated in
the application form, however, was that the new client was introduced by Valentin Co, and with her initials on the
form signifying her approval, she referred the application to the New Accounts
Section for processing. As finally
processed, the application form shows the signature of ‘Eligia G. Fernando’,
‘her’ date of birth, sex, civil status, nationality, occupation (‘business
woman’), tax account number, and initial deposit of P10,000.00. The final approval of the new current
account is indicated on the application form by the initials of Regina G. Dy,
Cashier, who did not interview the new client but affixed her initials on the
application form after reviewing it. The new current account was given the number: 26310-3.

The following day, October
14, 1981, the woman holding herself out as Eligia G. Fernando deposited the two
checks in controversy with Current Account No. 126310-3. Her endorsement on the two checks was found
to conform with the depositor’s specimen signature. CBC’s guaranty of prior endorsements and/or lack of endorsement
was then stamped on the two checks, which CBC forthwith sent to clearing and
which BPI cleared on the same day.

Two days after, withdrawals began on Current Account No.
26310-3: On October 16, 1981, by means
of Check No. 240005 dated the same day for P1,000,000.00, payable to ‘cash’, which
the woman holding herself out as Eligia G. Fernando encashed over the counter,
and Check No. 240003 dated October 15, 1981 for P48,500.00, payable to ‘cash’
which was received through clearing from PNB Pasay Branch; on October 19, 1981,
by means of Check No. 240006 dated the same day for P1,000,000.00, payable to
‘cash,’ which the woman identifying, herself as Eligia G. Fernando encashed
over the counter; on October 22, 1981, by means of Check No. 240007 dated the
same day for P370,000.00, payable to ‘cash’ which the woman herself also
encashed over the counter; and on November 4, 1981, by means of Check No.
240001 dated November 3, 1981 for P4,100.00, payable to ‘cash,’ which was
received through clearing from Far East Bank.

All these withdrawals were allowed on the basis of the verification
of the drawer’s signature with the specimen signature on file and the
sufficiency of the funds in the account. However, the balance shown in the computerized teller terminal when a
withdrawal is serviced at the counter, unlike the ledger or usual statement
prepared at month-end, does not show the account’s historical data such as the
account’s opening date, the amounts and dates of deposits and withdrawals. The last withdrawal on November 4, 1981 left
Current Account No. 26310-3 with a balance of only P571.61.

The day of reckoning came on November 11, 1981, the maturity date
of Eligia G. Fernando’s money market placement with BPI, when the real Eligia
G. Fernando went to BPI for the roll-over of her placement. She disclaimed having preterminated her
placement on October 12, 1981. She
executed an affidavit stating that while she was the payee of the two checks in
controversy, she never received nor endorsed them and that her purported
signature on the back of the checks was not hers but forged. With her surrender of the original of the
promissory note (no. 35623 with maturity value of P2,462,243.19) evidencing the
placement which matured that day, BPI issued her a new promissory note (no.
40314 with maturity date of December 23, 1981 and maturity value of
P2,500,266.77) to evidence a roll-over of the placement.

On November 12, 1981,
supported by Eligia G. Fernando’s affidavit, BPI returned the two checks in
controversy to CBC for the reason ‘Payee’s endorsement forged’. A ping-pong started when CBC, in turn,
returned the checks for reason ‘Beyond Clearing Time’, and the stoppage of this
ping-pong, as we mentioned at the outset, prompted the filing of this case.

Investigation of the fraud by the Presidential Security Command led
to the filing of criminal action for ‘Estafa Thru Falsification of Commercial
Documents’ against four employees of BPI, namely Quirino Victorio, Virgilio
Gayon, Bernardo Laderas and Jorge Atayan, and the woman who impersonated Eligia
G. Fernando, Susan Lopez San Juan. Victorio and Gayon were both bookkeepers in BPI’s Money Market
Operations Department, Laderas was a dispatcher in the same department. x x x” (Rollo, pp. 74-79)

The Arbitration Committee ruled in favor of petitioner BPI. The dispositive portion of the decision
reads:

“WHEREFORE, we adjudge in favor of the Bank of the Philippine
Islands and hereby order China Banking Corporation to pay the former the amount
of P1,206,607.58 with interest thereon
at 12% per annum from August 12, 1983, or the date when PCHC, pursuant to its procedure for compulsory arbitration
of the ping-pong checks under Stockholders’ Resolution No. 6-83 was
implemented, up to the date of
actual payment.

Costs of suit in the total
amount of P7,250.00 are to be assessed the litigant banks in the following
proportion:

a) Plaintiff BPI               25%     – P1,812.50

b) Defendant China      75%     – P5,437.50

Total
Assessment                –     P7,250.00

=========

conformably
with PCHC Resolution Nos. 46-83 dated October 25, 1983 and 4-85 dated February
25, 1985.

The PCHC is hereby directed to effect the corresponding entries to
the litigant banks’ clearing accounts in accordance with the foregoing
decision.” (Rollo, pp. 97-98)

However, upon motion for reconsideration filed by respondent CBC,
the Board of Directors of the PCHC reversed the Arbitration Committee’s
decision in its Order, the dispositive portion of which reads:

“WHEREFORE, the Board hereby reconsiders the Decision of the
Arbitration Committee dated March 24, 1986 in Arbicom Case No. 183- 029 and in
lieu thereof, one is rendered modifying the decision so that the Complaint of
BPI is dismissed, and on the Counterclaim of CBC, BPI is sentenced to pay CBC
the sum of P1,206,607.58. In view of
the facts, no interest nor attorney’s fees are awarded. BPI shall also bear 75% or P5,437.50 and
CBC, 25% or P1,812.50 of the cost of the Arbitration proceedings amounting to
P7,250.00.

The PCHC is hereby directed to debit the clearing account of the
BPI the sum of P1,206,607.58 and credit the same to that of CBC. The cost of Arbitration proceedings are to
be debited from the accounts of the parties in the proportion above
stated.” (Rollo, pp. 112-113)

BPI then filed a petition for review of the abovestated order
with the Regional Trial Court of Makati. The trial court dismissed the petition but modified the order as can be
gleaned from the dispositive portion of its decision quoted earlier.

Not satisfied with the trial court’s decision petitioner BPI
filed with us a petition for review on certiorari under Rule 45 of the
Rules of Court. The case was docketed
as G.R. No. 96376. However, in a
Resolution dated February 6, 1991, we referred the case to the Court of Appeals
for proper determination and disposition. The appellate court affirmed the trial court’s decision.

Hence, this petition.

In a resolution dated May 20, 1992 we gave due course to the
petition.

Petitioner BPI now asseverates:

I

THE DECISION AND RESOLUTION OF THE
RESPONDENT COURT LEAVES THE UNDESIRABLE RESULT OF RENDERING NUGATORY THE VERY
PURPOSE FOR THE UNIFORM BANKING PRACTICE OF REQUIRING THE CLEARING GUARANTEE OF
COLLECTING BANKS.

II

CONTRARY TO THE RULING OF THE RESPONDENT
COURT, THE PROXIMATE CAUSE FOR THE LOSS OF THE PROCEEDS OF THE TWO CHECKS IN
QUESTION WAS THE NEGLIGENCE OF THE EMPLOYEES OF CBC AND NOT BPI; CONSEQUENTLY,
EVEN UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW, BPI WAS NOT PRECLUDED
FROM RAISING THE DEFENSE OF FORGERY.

III

THE RESPONDENT COURT COMMITTED REVERSIBLE
ERROR IN FAILING TO APPRECIATE THE FACT THAT CBC HAD THE “LAST CLEAR
CHANCE” OF AVOIDING THE LOSS OCCASIONED BY THE FRAUDULENT ACTS INVOLVED IN
THE INSTANT CASE.” (Rollo, p. 24)

The main issues raised in the assignment of errors are: When a bank (in this case CBC) presents
checks for clearing and payment, what is the extent of the bank’s warranty of
the validity of all prior endorsements stamped at the back of the checks? In the event that the payee’s signature is forged,
may the drawer/drawee bank (in this case BPI) claim reimbursement from the
collecting bank [CBC]) which earlier paid the proceeds of the checks after the
same checks were cleared by petitioner BPI through the PCHC?

Anent the first issue, petitioner BPI contends that respondent
CBC’s clear warranty, that “all prior endorsements and/or lack of
endorsements guaranteed” stamped at the back of the checks was an
unrestrictive clearing guaranty that all prior endorsements in the checks are
genuine. Under this premise petitioner
BPI asserts that the presenting or collecting bank, respondent CBC, had an
unquestioned liability when it turned out that the payee’s signature on the
checks were forged. With these
circumstances, petitioner BPI maintains that considerations of relative negligence
becomes totally irrelevant.

In sum, petitioner BPI theorizes that    the Negotiable Instruments Law, specifically Section 23 thereof
is not applicable in the light of the absolute liability of the representing or
collecting bank as regards forged endorsements in consonance with the clearing
guarantee requirement imposed upon the presenting or collecting banks “as
it is worded today.”

Petitioner BPI first returned to CBC the two (2) checks on the
ground that “Payee’s endorsement (was) forged” on November 12,
1981. At that time the clearing
regulation then in force under PCHC’s Clearing House Rules and Regulations as
revised on September 19, 1980 provides:

“Items which have been the subject of material alteration or
items bearing a forged endorsement when such endorsement is necessary for
negotiation shall be returned within twenty four (24) hours after discovery of
the alteration or the forgery, but in no event beyond the period prescribed by
law for the filing of a legal action by the returning bank/branch institution
or entity against the bank/branch, institution or entity sending the
same.” (Section 23)

In the case of Banco de Oro Savings and
Mortgage Bank v. Equitable Banking Corporation
(157 SCRA 188 [1988] the clearing regulation (this is the present clearing
regulation) at the time the parties’ dispute occurred was as follows:

“Sec. 21. xxx xxx xxx

Items which have been the
subject of material alteration or items bearing forged endorsement when such
endorsement is necessary for negotiation shall be returned by direct
presentation or demand to the Presenting Bank and not through the regular
clearing house facilities within the period prescribed by law for the filing of
a legal action by the returning bank/branch, institution or entity sending the
same.”

It is to be noted that the above-cited clearing regulations are
substantially the same in that it allows a return of a check “bearing
forged endorsement when such endorsement is necessary for negotiation”
even beyond the next regular clearing although not beyond the prescriptive
period “for the filing of a legal action by the returning bank.”

Bearing in mind this similarity in the clearing regulation in
force at the time the forged checks in the present case and the Banco de
Oro case were dishonored and returned to the presenting or collecting
banks, we can be guided by the principles enunciated in the Banco de
Oro case on the relevance of negligence of the drawee vis-a-vis the
forged checks.

The facts in the Banco de Oro case are as
follows: Sometime in March, April, May
and August 1983 Equitable Banking Corporation through its Visa Card Department
drew six (6) crossed Manager’s check with the total amount of Forty Five
Thousand Nine Hundred and Eighty Two Pesos and Twenty Three Centavos (P45,982.23)
and payable to certain member establishments of Visa Card. Later, the checks were deposited with Banco
de Oro to the credit of its depositor, a certain Aida Trencio. Folowing normal procedures, and after
stamping at the back of the checks the endorsements: “All prior and/or lack of endorsements guaranteed”
Banco de Oro sent the checks for clearing through the PCHC. Accordingly, Equitable Banking Corporation paid
the checks; its clearing amount was debited for the value of the checks and
Banco de Oro’s clearing account was credited for the same amount. When Equitable Banking Corporation
discovered that the endorsements at the back of the checks and purporting to be
that of the payees were forged it presented the checks directly to Banco de Oro
for reimbursement. Banco de Oro refused
to reimburse Equitable Banking Corporation for the value of the checks. Equitable Banking Corporation then filed a
complaint with the Arbitration Committee of the PCHC. The Arbiter, Atty. Ceasar Querubin, ruled in favor of Equitable
Banking Corporation. The Board of
Directors of the PCHC affirmed the Arbiter’s decision. A petition for review of the decision filed
by Banco de Oro with the Regional Trial Court of Quezon City was
dismissed. The decision of the PCHC was
affirmed in toto.

One of the main issues threshed out in this case centered on the
effect of Banco de Oro’s (representing or collecting bank) guarantee of
“all prior endorsements and/or lack of endorsements” at the back of
the checks. A corollary issue was the
effect of the forged endorsements of the payees which were later discovered by
the Equitable Banking Corporation (drawee bank) resulting in the latter’s claim
for reimbursement of the value of checks after it paid the proceeds of the
checks.

We agreed with the following disquisition of the Regional Trial
Court, to wit:

“Anent petitioner’s liability on said instruments, this court
is in full accord with the ruling of the PCHC Board of Directors that:

In presenting the
checks for clearing and for payment, the defendant made an express guarantee on
the validity of ‘all prior endorsements.’ Thus, stamped at the back of the
checks are the defendant’s clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not
have paid on the checks.

No amount of legal
jargon can reverse the clear meaning of
defendant’s warranty. As the warranty
has proven to be false and inaccurate, the defendant is liable for any damage
arising out of the falsity of its representation.

The principle of estoppel, effectively prevents the defendant from
denying liability for any damage sustained by the plaintiff which, relying upon
an action or declaration of the defendant, paid on the checks. The same principle of estoppel effectively
prevents the defendant from denying the existence of the checks. (pp. 10-11,
Decision, pp. 43-44, Rollo)” (at pp. 194-195)

We also ruled:

“Apropos the matter of forgery in endorsements, this Court has
presently succinctly emphasized that the collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness
of all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of the endorsements. This is laid down in the case of PNB v.
National City Bank. (63 Phil. 1711) In
another case, this court held that if the drawee-bank dicovers that the
signature of the payee was forged after it has paid the amount of the check to
the holder thereof, it can recover the amount paid from the collecting bank.

xxx                                   
xxx                              xxx

The point that comes uppermost is whether
the drawee bank was negligent in failing
to discover the alteration or the forgery. (Underlining supplied)

xxx                                   
xxx                              xxx

The court reproduces with approval the following disquisition of
the PCHC in its decision.

xxx                                   
xxx                              xxx

‘III. Having
Violated Its Warranty On Validity Of All Endorsements, Collecting Bank Cannot
Deny Liability To Those Who Relied On Its Warranty.

xxx                                   
xxx                              xxx

‘The damage that will result if
judgment is not rendered for the plaintiff
is irreparable. The
collecting bank has privity with the depositor
who is the principal culprit in this case. The defendant knows the
depositor; her address and her history. Depositor is defendant’s client. It has taken a
risk on its depositor
when it allowed her to collect on
the crossed-checks.

‘Having accepted the crossed checks from persons other
than the payees, the defendant is guilty of negligence;
the risk of wrongful payment has to be assumed
by the defendant.” (Underlining supplied, at pp. 198-202)

As can be gleaned from the decision, one of the main
considerations in affirming the PCHC’s decision was the finding that as between
the drawee bank (Equitable Bank) and the representing or collecting bank (Banco
de Oro) the latter was negligent and thus responsible for undue payment.

Parenthetically, petitioner BPI’s theory that the present
clearing guarantee requirement imposed on the representing or collecting bank
under the PCHC rules and regulations is independent of the Negotiable
Instruments Law is not in order.

Another reason why the petitioner’s theory is uncalled for is the
fact that the Negotiable Instruments Law (Act No. 2031) applies to negotiable
instruments as defined under section one thereof. Undeniably, the present case involves checks as defined by and
under the coverage of the Negotiable Instruments Law. To affirm the theory of the petitioner would, therefore, violate
the rule that rules and regulations implementing the law should conform to the
law, otherwise the rules and regulations are null and void. Thus, we held in Shell Philippines, Inc. vs. Central
Bank of the Philippines (162 SCRA 628 [1988]):

“xxx while it is true that under the same law the Central Bank
was given the authority to promulgate rules and regulations to implement the
statutory provision in question, we reiterate the principle that this authority
is limited only to carrying into effect what the law being implemented
provides.

“In People v. Maceren (79 SCRA 450, 458 and 460), this Court
ruled that:

Administrative regulations adopted under legislative authority by a
particular department must be in harmony with the provisions of the law, and
should be for the sole purpose of carrying into effect its general
provisions. By such regulations, of
course, the law itself cannot be extended. (U.S. v. Tupasi Molina, supra). An administrative agency cannot amend an act of Congress (Santos v.
Estenzo, 109 Phil. 419, 422; Teoxon v. Members of the Board of Administrators,
L-25619, June 30, 1970, 33 SCRA 585; Manuel v. General Auditing Office,
L-28952, December 29, 1971, 42 SCRA 660; Deluao v. Casteel, L-21906, August 29,
1969, 29 SCRA 350).

The rule-making power must be confined to details for regulating
the mode or proceeding to carry into effect the law as it has been
enacted. The power cannot be extended
to amending or expanding the statutory requirements or to embrace matters not
covered by the statute. Rules that
subvert the statute cannot be sanctioned. (University of Santo Tomas v. Board of Tax Appeals, 93 Phil. 376, 382,
citing 12 C.J. 845-46. As to invalid
regulations, see Collector of Internal Revenue Villaflor, 69 Phil. 319; Wise
& Co. v. Meer, 78 Phil. 655, 676; Del Mar v. Phil. Veterans Administration,
L-27299, June 27, 1973, 51 SCRA 340, 349).

x x x                                  x x x                             x x x

“x x x The rule or regulation should
be within the scope of the statutory authority granted by the legislature to
the administrative agency. (Davis,
Administrative Law, p., 194, 197, cited in Victorias Milling Co., Inc. v.
Social Security Commission, 114 Phil. 555, 558).

In case of discrepancy between the basic law and a rule or
regulation issued to implement said law the basic law prevails because said
rule or regulation cannot go beyond the terms and provisions of the basic law
(People v. Lim, 108 Phil. 1091).” (at pp. 633-634)

Section 23 of the Negotiable Instruments Law states:

“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 discharge therefore, or to enforce
payment thereof, against any party thereto, can be acquired through or under
such forged signature, unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or want of authority.”

There are two (2) parts of the provision. The first part states the general rule while
the second part states the exception to the general rule. The general rule is to the effect that a
forged signature is “wholly inoperative”, and payment made
“through or under such signature” is ineffectual or does not
discharge the instrument. The exception
to this rule is when the party relying on the forgery is “precluded from
setting up the forgery or want of authority.” In this jurisdiction we
recognize negligence of the party invoking
forgery as an exception to the general rule. (See Banco de Oro Savings and Mortgage Bank v. Equitable Banking
Corporation supra; Philippine National Bank v. Quimpo,158 SCRA 582
[1988]; Philippine National Bank v. Court of Appeals, 25 SCRA 693 [1968];
Republic v. Equitable Banking Corporation, 10 SCRA 8 [1964]; National Bank v.
National City Bank of New York, 63 Phil. 711 [1936]; San Carlos Milling Co. v.
Bank of P.I., 59 Phil. 59 [1933]). In
these cases we determined the rights and liabilities of the parties under a
forged endorsement by looking at the legal effects of the relative negligence
of the parties thereto.

In the present petition the payee’s names in the two (2) subject
checks were forged. Following the
general rule, the checks are “wholly inoperative” and of no
effect. However, the underlying
circumstances of the case show that the general rule on forgery is not
applicable. The issue as to who between
the parties should bear the loss in the payment of the forged checks
necessitates the determination of the rights and liabilities of the parties
involved in the controversy in relation to the forged checks.

The records show that petitioner BPI as drawee bank and
respondent CBC as representing or collecting bank were both negligent resulting
in the encashment of the forged checks.

The Arbitration Committee in its decision analyzed the negligence
of the employees of petitioner BPI involved in the processing of the
pre-termination of Eligia G. Fernando’s money market placement and in the
issuance and delivery of the subject checks in this wise:

“a) The impostor could have been readily unmasked by a mere
telephone call, which nobody in BPI bothered to make to Eligia G. Fernando, a
vice-president of Philamlife (Annex C, p. 13).

b) It is rather curious,
too, that the officer who used to handle Eligia G. Fernando’s account did not
do anything about the account’s pre-termination (Ibid, p. 13).

c) Again no verification appears to have been
made by (sic) Eligia G. Fernando’s purported signature on the letter requesting
the pre-termination and the letter authorizing her niece to pick-up the checks,
yet, her signature was in BPI’s file (Ibid., p. 13).

d) Another step that could have foiled the
fraud, but which BPI neglected to take, was requiring before the two checks in
controversy were delivered, the surrender of the promissory note evidencing the
money market placement that was supposedly pre-terminated.” (Rollo, p. 13)

The Arbitration Committee, however, belittled petitioner BPI’s
negligence compared to that of respondent CBC which it declared as graver and
the proximate cause of the loss of the subject checks to the impostor who
impersonated Eligia G. Fernando. Petitioner BPI now insists on the adoption of the Arbitration
Committee’s evaluation of the negligence of both parties, to wit:

“a) But what about the
lapses of BPI’s employees who processed the pretermination of Eligia G.
Fernando’s placement and issued the checks? We do not think it was a serious lapse not to confirm the telephone
request for pretermination purportedly made by Eligia G. Fernando, considering
that it is common knowledge that business in the money market is done mostly by
telephone. Then, too, the initial
request of the caller was for the two checks
representing the pretermination proceeds to be delivered to ‘her’ office,
meaning Eligia G. Fernando’s office at Philamlife, this clever ruse must have
put off guard the employee preparing the ‘purchase order slip’, enough at least
for him to do away with having to call Eligia G. Fernando at her office. (Annex C at p. 17)

b) We also do not think it unusual that Penelope
Bulan, who used to handle Eligia G. Fernando’s account, should do nothing about
the request for pretermination and leave it to Eustaquio to process the
pretermination. In a bank the size of
BPI, it would be quite normal for an officer to take over from another the
handling of an account. (Ibid. p. 17)

c) The failure to verify or compare Eligia G.
Fernando’s purported signature on the letter requesting the pretermination and
the letter authorizing the pick-up of the checks in controversy with her
signature in BPI’s file showed lack of care and prudence required by the
circumstances, although it is doubtful that such comparison would have
disclosed the deception considering the ‘close similarity’ between her
purported signature and her signature in BPI’s file. (Ibid., p.17)

d) A significant lapse was, however, committed
when the two checks in controversy were delivered without requiring the
surrender of the promissory note evidencing the placement that was supposedly
preterminated. Although, as we already
said, it is hard to determine whether the failure to require the surrender of
the promissory note was a deliberate act of Laderas, the dispatcher, or
simply because the ‘purchase order slip’ note, (sic) the fact remains that such
failure contributed to the consummation of the fraud. (Ibid., pp. 17-18)

The Arbitration Committee Decision’s conclusion was expressed thus
–

‘Except for Laderas, not one of the BPI personnel tasked with the
pretermination of Eligia G. Fernando’s placement and the issuance of the
pretermination checks colluded in the fraud, although there may have been
lapses of negligence on their part which we shall discuss later. The secreting out of BPI of Fernando’s
specimen signature, which, as admitted by the impostor herself (Exhibit E-2,
page 5), helped her in forging Fernando’s signature was no doubt, an ‘inside
job’ but done by any of the four employees colluding in the fraud, not by the
personnel directly charged with the custody of Fernando’s records.’ (Annex C,
p. 15)

With respect to the negligence of the CBC employees in the payment
of the two (2) BPI cashier’s checks involved in this case, the Arbitration
Committee’s Decision made incontrovertible findings undisputed in
the statement of facts found in the Court of Appeals’ decision of 8 August 1991, the
Regional Trial Court decision of 28 November
1990 and the PCHC Board of Directors’
Order of 26 August 1986 (Annexes A, E, D, respectively). These findings point to negligence of the
CBC employees which led to: (a) the opening of the impostor’s current account
in the name of Eligia G. Fernando; (b) the deposit to said account of the two
(2) checks in controversy and (c) the withdrawal of their proceeds from said
account.

The Arbitration Committee found that –

1. Since the impostor
presented only her tax account number as a means of identification, we feel
that Emily Sylianco Cuaso, Cash Supervisor, approved the opening of her current
account in the name of Eligia G. Fernando on the strength of the introduction of Antonio Concepcion who had
himself opened an account earlier that year. That Mrs. Cuaso was not comfortable with the introduction of Antonio
Concepcion who had himself opened an account earlier that year. That Mrs. Cuaso was not comfortable with the
introduction of the new depositor by Concepcion is betrayed by the fact that
she made it appear in the application form that the new depositor was introduced
by Valentin Co a long­standing valued client of CBC, who had introduced
Concepcion when he opened his account. We find this misrepresentation significant because when she reviewed the
application form she assumed that the new client was introduced by Valentin Co
as indicated in the application form (tsn of March 19, 1985, page 13). Thus we find that the impostor was able to
open with CBC’s current account in the name of Eligia G. Fernando due to the
negligence, if not misrepresentation, of its Cash Supervisor, (Annex C, p. 18).

2. Even with negligence
attending the impostor’s opening of a current account, her encashment of the
two checks in controversy could still have been prevented if only the care and
diligence demanded by the circumstances were exercised. On October 14, 1981, just a day after she
opened her account, the impostor deposited the two checks which had an
aggregate value of P2,413,215.16, which was grossly disproportionate to her
initial deposit of P10,000. The very
date of both checks, October 12, 1981, should have tipped off the real purpose
of the opening of the account on October 13, 1981. But what surely can be characterized only as abandonment of
caution was allowing the withdrawal of the checks’ proceeds which started on
October 16, 1981 only two days after the two checks were deposited; by October
22, 1981, the account had been emptied of the checks’ proceeds. (Annex C, p. 19).

3. We can not accept CBC’s
contention that ‘big withdrawals’ are ‘usual business’ with it. Huge withdrawals might be a matter of course
with an established account but not for a newly opened account, especially
‘since the supposed check proceeds being withdrawn were grossly
disproportionate to the initial cash deposit.’ (Annex C, 19)

As intimated earlier, the foregoing findings of fact were not
materially disputed either by the respondent PCHC Board of Directors or by the
respondent courts (compare statement of facts of respondent court as reproduced
in pp. 9-11 of this petition).

Having seen the negligence of
the employees of both Banks, the relevant question is: which negligence was graver. The Arbitration
Committee’s Decision found and concluded thus –

‘Since there were lapses by both BPI and CBC, the question is: whose negligence was the graver and which
was the proximate cause of the loss? Even viewing BPI’s lapses in the worst light, it can be said that while its negligence may have introduced the
two checks in controversy into the commercial stream, CBC’s lack of care in
approving the opening with it of the impostor’s current account, and its
allowing the withdrawals of the checks’ proceeds, the aggregate value of which
was grossly disproportionate to the initial cash deposit, so soon after such
checks were deposited, caused the ‘payment’ of the checks. Being closest to the event of loss,
therefore, CBC’s negligence must be held to be the proximate cause of the
loss.’” (Annex C, pp. 19-20) (Rollo,
pp. 38-41)

While it is true that the PCHC Board of Directors, and the lower
courts did not dispute the findings of facts of the Arbitration Committee, the
PCHC Board of Directors evaluated the negligence of the parties, to wit:

“The Board finds the ruling that the negligence of the
employees of CBC is graver than
that of the BPI not warranted by the facts because:

1. The acts and omissions of which BPI
employees are guilty are not only negligent but criminal as found by the
decision.

2. The act of BPI’S
dealer-trainee Eustaquio of disclosing information about the money market
placement of its client over the telephone is a violation, if not of Republic
Act 1405, of Sec. 87 (a) of the General Banking Act which penalizes any officer?employee
or agent of any banking institution who discloses to any unauthorized person
any information relative to the funds or properties in the custody of the bank
belonging to private-individual, corporations, or any other entity; and the
bland excuse given by the decision that ‘business in the money market is done
mostly by the telephone’ cannot
be accepted nor tolerated for it is an elementary rule of law that no custom or
usage of business can override what a law specifically provides. (Ang Tek Lian v. CA, 87 Phil. 383).

3. The failure of BPI
employees to verify or compare Eligia G. Fernando’s purported signature on the
letter requesting for pre-termination and the letter authorizing the pick-up of
the checks in controversy with the signatures on file is not even justified but
admitted in the decision as showing lack of care and prudence required by the
circumstances. The conjectural excuse
made in the decision that ‘it is doubtful
that such Comparison would have disclosed the deception’ does not give an
excuse for the omission, by BPI employees of the act of verifying the
signature, a duty which is the basic requirement of all acts in the bank. From the very first time an employee enters
the services of a bank up to the time he becomes the highest officer thereof,
the cautionary rule is drilled on him to always be sure that when he acts on
the basis of any signature presented before him, the signature is to be
verified as genuine and that if the bank acts on the basis of a forgery of such
signature, the bank will be held liable. There can be no excuse therefore for such an omission on the part of BPI
employees.

4. The decision admits that:

‘A significant lapse was however, committed when the two checks in
controversy were delivered without requiring the surrender of the promissory
note evidencing the placement that was supposedly preterminated.’

This omission of the BPI to require the
surrender of the promissory notes evidencing the placement is justified by the
decision by saying that Sec. 74 of the Negotiable Instruments Law is not
violated by this omission of the BPI employees because said provision is
intended for the benefit of the person paying (in this case the BPI) so that
since the omission to surrender having been waived by BPI, so the non-surrender
does not invalidate the payment. The
fallacy of this argument is that the issue in this case is: whether or not such non-surrender is a
necessary ingredient in the cause of the success of the fraud and not whether
or not the payment was valid. This
excuse may perhaps be acceptable if the omission did not cause damage to any
other person. In this case, however, it
did cause tremendous damage. Moreover,
this statement obviously overlooks the provision in Art. 1240 of the Civil Code
requiring the payor (which in this case is the BPI) to be sure he pays to the
right person and as Art. 1242 states, he can claim good faith in paying to the
right person only if he pays to the person in possession of the credit (which
in this case is the promissory note evidencing the money market
placement). Clearly therefore, the
excuse given in the decision for the non-surrender of this promissory note
evidencing the money market placement cannot be accepted.

xxx                                    xxx                               xxx

“The decision, however, discusses in detail the negligent acts
of the CBC in its lapses or certain requirements in the opening of the account
and in allowing withdrawals against the deposited checks soon after the deposit
thereof. As stated by the decision
however, in computerized banks the history of the account is not shown in the
computer terminal whenever a withdrawal is made.

The Board therefore believes that these withdrawals, without any
further showing that the CBC employees ‘had actual knowledge of the infirmity
or defect, or knowledge of such facts’ (Sec. 56, Negotiable Instruments Law)
that their action in accepting their checks for deposit and allowing the
withdrawals against the same ‘amounted to bad faith’ cannot be considered as
basis for holding CBC liable.” (Rollo, pp. 107-111)

Banks handle daily transactions involving
millions of pesos. By the very nature
of their work the degree of responsibility, care and trustworthiness expected
of their employees and officials is far greater than those of ordinary clerks
and employees. For obvious reasons, the
banks are expected to exercise the highest degree of diligence in the selection
and supervision of their employees.

In the present case, there is no question that the banks were
negligent in the selection and supervision of their employees. The Arbitration Committee, the PCHC Board of
Directors and the lower courts, however disagree in the evaluation of the
degree of negligence of the banks. While the Arbitration Committee declared the negligence of respondent
CBC graver, the PCHC Board of Directors and the lower courts declared that
petitioner BPI’s negligence was graver. To the extent that the degree of negligence is equated to the proximate
cause of the loss, we rule that the issue as to whose negligence is graver is
relevant. No matter how many
justifications both banks present to avoid responsibility, they cannot erase
the fact that, they were both guilty in not exercising extraordinary diligence
in the selection and supervision of their employees. The next issue hinges on whose
negligence was the proximate cause of the payment of the forged checks by an
impostor.

Petitioner BPI accuses the Court of Appeals of inconsistency when
it affirmed the PCHC’s Board of Directors’ Order but in the same breath
declared that the negligent acts of the CBC employees occurred immediately
before the actual loss.

In this regard petitioner BPI insists that the doctrine of last
clear chance enunciated in the case of Picart v. Smith (37 Phil. 809 [1918]) should have been applied considering the
circumstances of the case.

In the Picart case, Amado Picart was then riding on his
pony over the Carlatan Bridge at San Fernando, La Union when Frank Smith
approached from the opposite direction in a car. As Smith neared
the bridge he saw Picart and blew his horn to give warning of his
approach. When he was already on the
bridge Picart gave two more successive blasts as it appeared to him that Picart
was not observing the rule of the road. Picart saw the car coming and heard the warning signals. An accident then ensued resulting in the
death of the horse and physical injuries suffered by Picart which caused him
temporary unconsciousness and required medical attention for several days. Thereafter, Picart sued Smith for damages.

We ruled:

“The question presented for decision is whether or not the
defendant in maneuvering his care in the manner above described was guilty of
negligence such as gives rise to a civil obligation to repair the damage done;
and we are of the opinion that he is so liable. As the defendant started across the bridge, he had the right to
assume that the horse and rider would pass over to the proper side; but as he
moved toward the center of the bridge it was demonstrated to his eyes that this
would not be done; and he must in a moment have perceived that it was too
late for the horse to cross with safety in front of the moving vehicle. In the nature of things
this change of situation occurred while
the automobile was yet some distance away;
and from this moment it was no
longer within the power of the plaintiff
to escape being run down by going
to a place of
greater safety. The
control of the situation had then passed
entirely to the defendant; and it was
his duty to either to bring his
car to an immediate
stop or, seeing that
there were no other persons
on the bridge,
to take the other side and pass sufficiently far away from
the horse to avoid
the danger of collision. Instead of doing this, the defendant ran straight on until he was
almost upon the horse. He was, we
think, deceived into doing this by the fact that the horse had not yet exhibited
fright. But in view of the known nature
of horses, there was an appreciable risk that, if the animal in question was
unacquainted with automobiles, he might get excited and jump under the
conditions which here confronted him. When the defendant exposed the horse and rider to this danger he was, in
our opinion, negligent in the eyes of the law.

The test by which to determine the existence of negligence in a
particular case may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable
care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of
negligence.

xxx                                              xxx                                           xxx

It goes without saying that the plaintiff himself was not free from
fault, for he was guilty of antecedent negligence in planting himself on the
wrong side of the road. But as we have
already stated, the defendant was also negligent; and in such case the problem
always is to discover which agent is immediately and directly responsible. It will be noted that the negligent acts of
the two parties were not contemporaneous, since the negligence of the defendant
succeeded the negligence of the plaintiff by an appreciable interval. Under these circumstances the law is that
the person who has the last fair chance to avoid the impending harm and fails
to do so is chargeable with the consequences, without reference to the prior
negligence of the other party.”

Applying these principles; petitioner BPI’s reliance on the
doctrine of last clear chance to clear it from liability is not well-taken. CBC had no prior notice of the
fraud perpetrated by BPI’s employees on the pre-termination of Eligia G.
Fernando’s money market placement. Moreover, Fernando is not a depositor of CBC. Hence, a comparison of the signature of Eligia G. Fernando with
that of the impostor Eligia G. Fernando, which respondent CBC did, could not
have resulted in the discovery of the fraud. Hence, unlike in the Picart case wherein the defendant, had he used
reasonable care and caution, would have recognized the risk he was taking and
would have foreseen harm to the horse and the plaintiff but did not, respondent
CBC had no way to discover the fraud at all. In fact the records fail to show that respondent CBC had knowledge,
actual or implied, of the fraud perpetrated by the impostor and the employees
of BPI.

However, petitioner BPI insists that even if the doctrine of
proximate cause is applied, still, respondent CBC should be held responsible
for the payment to the impostor of the two (2) checks. It argues that the acts and omissions of
respondent CBC are the cause “that set into motion the actual and continuous
sequence of events that produced the injury and without which the
result would not have occurred.” On the
other hand, it asserts that its acts and omissions did not end in a loss. Petitioner BPI anchors its argument on its
stance that there was “a gap, a hiatus, an interval between the issuance
and delivery of said checks by petitioner BPI to the impostor and their actual
payment of CBC to the impostor. Petitioner
BPI points out that the gap of one (1) day that elapsed from its issuance and
delivery of the checks to the impostor is material on the issue of proximate
cause. At this stage, according to
petitioner BPI, there was yet no loss and the impostor could have decided to
desist from completing the same plan and could have held to the checks without
negotiating them.

We are not persuaded.

In the case of Vda. de Bataclan, et al,
v. Medina (102 Phil. 181 [1957]), we had occasion to discuss the
doctrine of proximate cause.

Briefly, the facts of this case are as follows:

At about 2:00 o’clock in the morning of September 13, 1952 a bus
carrying about eighteen (18) passengers on its way to Amadeo, Cavite figured in
an accident. While the bus was running,
one of the front tires burst and the bus began to zigzag until it fell into a
canal on the right side of the road and turned turtle. Some passengers managed to get out from the
overturned bus except for four (4) passengers, among them, Bataclan. The passengers who got out heard shouts for
help from Bataclan and another passenger Lara who said they could not get out
from the bus. After half an hour, about
ten men came, one of them carrying a lighted torch made of bamboo with a wick
on one end fueled with petroleum. These
men approached the overturned bus, and almost immediately, a fierce fire
started burning and all but consuming the bus including the four (4) passengers
trapped inside. It turned out that as
the bus overturned, gasoline began to leak and escape from the gasoline tank on
the side of the chassis spreading over and permeating the body of the bus and
the ground under and around it. The
lighted torch brought by one of the men who answered the call for help set it
on fire. On the same day, the charred
bodies of the trapped passengers were removed and identified. By reason of his death, Juan Bataclan’s wife
and her children filed a suit for damages against Maximo Medina, the operator
and owner of the bus in the then Court of First Instance of Cavite. The trial court ruled in favor of the
defendant. However, we reversed and set
aside the trial court’s decision and said:

“There is no question that under the circumstances, the
defendant carrier is liable. The only
question is to what degree. The trial court
was of the opinion that the proximate cause of the death of Bataclan was not
the overturning of the bus, but rather the fire that burned the bus, including
himself and his co-passengers who were unable to leave it; that at the time the
fire started, Bataclan, though he must have suffered physical injuries, perhaps
serious, was still alive and so damages were awarded, not for his death, but
for the physical injuries suffered by him. We disagree. A satisfactory
definition of proximate cause is found in Volume 38, pages 695-696 of American
Jurisprudence, cited by plaintiffs-appellants in their brief. It is as follows:

‘x x x that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred. And more comprehensively, ‘the proximate legal cause is that acting
first and producing the injury, either immediately or by setting other events
in motion, all constituting a natural and continuous chain of events, each
having a close causal connection with its immediate predecessor, the final
event in the chain immediately effecting the injury as natural and probable
result of the cause which first acted, under such circumstances that the person
responsible for the first event should, as an ordinarily prudent and
intelligent person, have reasonable ground to expect at the moment of his act
or default that an injury to some person might probably result therefrom.’

It may be that ordinarily, when a passenger
bus overturns, and pins down a passenger, merely causing him physical injuries,
if through some event, unexpected and extraordinary, the overturned bus is set
on fire, say, by lightning, or if some highwaymen after looting the vehicle
sets it on fire, and the passenger is burned to death, one might still contend
that the proximate cause of his death was the fire and not the
overturning of the vehicle. But in the present
case and under the
circumstancrs obtaining in the same, we do not hesitate
to hold that the proximate
cause of the death of
Bataclan was the overturning of the bus, this
for the reason that
when the vehicle turned not
only on its side but completely on its back, the leaking of the gasoline from the tank was not unnatural or unexpected; that the coming
of the men with a lighted torch was in response to the call for help,
made not only by the passengers, but most probably, by the driver and the
conductor themselves, and that because it was very dark (about 2:30 in the
morning), the rescuers had to carry a light with them; and coming as they did
from a rural area where lanterns and flashlights were not available, they had
to use a torch, the most handy and available; and what was more natural than
that said rescuers should innocently approach the overturned vehicle to extend
the aid and effect the rescue requested from them. In other words, the
coming of the men with the torch was to be expected
and was natural sequence
of the overturning of the bus, the
trapping of some of its passengers and
the call for outside help.”
(Underlining supplied, at pp. 185-187)

Again, applying the doctrine of proximate cause, petitioner BPI’S
contention that CBC alone should bear the loss must fail. The gap of one (1) day between the issuance
and delivery of the checks bearing the impostor’s name as payee and the
impostor’s negotiating the said forged checks by opening an account and
depositing the same with respondent CBC is not controlling. It is not unnatural or unexpected
that after taking the risk of impersonating Eligia G. Fernando with the
connivance of BPI’s employees, the impostor would complete her deception by
encashing the forged checks. There is,
therefore, greater reason to rule that the proximate cause of the payment of
the forged checks by an impostor was due to the negligence of petitioner
BPI. This finding, notwithstanding, we
are not inclined to rule that petitioner BPI must solely bear
the loss of P2,413,215.16, the total amount of the two (2) forged checks. Due care on the part of CBC could have
prevented any loss.

The Court cannot ignore the fact that the CBC employees closed
their eyes to the suspicious circumstances of huge over-the-counter withdrawals
made immediately after the account was opened. The opening of the account itself was accompanied by inexplicable acts
clearly showing negligence. And while
we do not apply the last clear chance doctrine as controlling in this case,
still the CBC employees had ample opportunity to avoid the harm which befell
both CBC and BPI. They let the
opportunity slip by when the ordinary prudence expected of bank employees would
have sufficed to seize it.

Both banks were negligent in the selection and supervision of
their employees resulting in the encashment of the forged checks by an
impostor. Both banks were not able to
overcome the presumption of negligence in the selection and supervision of
their employees. It was the gross
negligence of the employees of both banks which resulted in the fraud and the subsequent
loss. While it is true that petitioner
BPI’s negligence may have been the proximate cause of the loss, respondent
CBC’s negligence contributed equally to the success of the impostor in
encashing the proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the Civil Code to
the effect that while respondent CBC may recover its losses, such losses are
subject to mitigation by the courts. (See Phoenix Construction, Inc. v. Intermediate Appellate Court, 148
SCRA 353 [1987]).

Considering the comparative negligence of the two (2) banks, we
rule that the demands of substantial justice are satisfied by allocating the
loss of P2,413,215.16 and the costs of the arbitration proceedings in the
amount of P7,250.00 and the costs of litigation on a 60-40 ratio. Conformably with this ruling, no interests
and attorney’s fees can be awarded to either of the parties.

WHEREFORE, the questioned DECISION and RESOLUTION of the
Court of Appeals are MODIFIED as outlined above. Petitioner Bank of the Philippine Islands shall be responsible
for sixty percent (60%) while respondent China Banking Corporation shall share
forty percent (40%) of the loss of TWO MILLION FOUR HUNDRED THIRTEEN THOUSAND,
TWO HUNDRED FIFTEEN PESOS and SIXTEEN CENTAVOS (P2,413,215.16) and the
arbitration costs of SEVEN THOUSAND, TWO HUNDRED FIFTY PESOS (P7,250.00). The Philippine Clearing House Corporation is
hereby directed to effect the corresponding entries to the banks’ clearing accounts
in accordance with this decision. Costs
in the same proportion against the Bank of the Philippine Islands and the China
Banking Corporation.

SO ORDERED.

Bidin, Davide, Jr., Romero, and
Melo, JJ., concur.