Banking, Mercantile Law

BPI vs. CASA MONTESSORI G.R. No. 149454 May 28, 2004 Negotiable Instruments Law, Forgery, Public Interest in Banking Business


CASA Montessori International opened a Current Account with BPI with CASA’s President Ms. Lebron as one of its authorized signatories.

In 1991, CASA discovered that 9 of its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of ₱782,000.00

It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt Branch [was] a fictitious name used by Leonardo T. Yabut who worked as external auditor of CASA. Yabut voluntarily admitted that he forged the signature of Ms. Lebron and encashed the checks.

A Complaint for Collection with Damages against BPI to reinstate the amount of ₱782,500.00 in the current and savings accounts of  CASA with interest at 6% per annum.

The RTC rendered a decision in favor of the CASA.

Modifying the Decision of the RTC, the CA apportioned the loss between BPI and CASA. The appellate court took into account CASA’s contributory negligence that resulted in the undetected forgery.

Hence, these Petitions.


Whether or not CASA is precluded from setting up forgery as a defense.

Whether or not BPI was negligent and therefore liable


Forged Signature Wholly Inoperative

Section 23 of the NIL provides:

“Section 23. Forged signature; effect of. — 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 x x x 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.”

Under this provision, a forged signature is a real or absolute defense, and a person whose signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the contract that allegedly gave rise to it.

The counterfeiting of any writing, consisting in the signing of another’s name with intent to defraud, is forgery.

In the present case, we hold that there was forgery of the drawer’s signature on the check.

Forgery “cannot be presumed.” It must be established by clear, positive and convincing evidence.

Having established the forgery of the drawer’s signature, BPI — the drawee — erred in making payments by virtue thereof. The forged signatures are wholly inoperative, and CASA — the drawer whose authorized signatures do not appear on the negotiable instruments — cannot be held liable thereon.

In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception to the general rule that a forged signature is wholly inoperative. Contrary to BPI’s claim, however, we do not find CASA negligent in handling its financial affairs. CASA, we stress, is not precluded from setting up forgery as a real defense.

Clear Negligence in Allowing Payment Under a Forged Signature

We have repeatedly emphasized that, since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required, of it. By the nature of its functions, a bank is “under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.”

BPI’s negligence consisted in the omission of that degree of diligence required of a bank. It cannot now feign ignorance, for very early on we have already ruled that a bank is “bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.”

Loss Borne by Proximate Source of Negligence

For allowing payment on the checks to a wrongful and fictitious payee, BPI — the drawee bank — becomes liable to its depositor-drawer. It “may not debit the drawer’s account and is not entitled to indemnification from the drawer.” In both law and equity, when one of two innocent persons “must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong.”

Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on checks being encashed, BPI is “expected to use reasonable business prudence.” Unfortunately, it failed in that regard.

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