SECOND DIVISION

[G.R. No. L-62943. July 14, 1986.]

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM , petitioner,

vs. COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT)
and THE PHILIPPINE NATIONAL BANK , respondents.

Juan J. Diaz and Cesar T. Basa for respondent PNB.

San Juan, Africa, Gonzales & San Agustin Law Offices for respondent PCIB.

DECISION

GUTIERREZ, JR. , J : p

This petition for review asks us to set aside the October 29, 1982 decision of the
respondent Court of Appeals, now Intermediate Appellate Court which reversed the
decision of the Court of First Instance of Manila, Branch XL, and dismissed the plaintiff's
complaint, the third party complaint, as well as the defendant's counterclaim.
The background facts which led to the filing of the instant petition are summarized in the
decision of the respondent Court of Appeals:
"Metropolitan Waterworks and Sewerage System (hereinafter referred to as
MWSS) is a government owned and controlled corporation created under
Republic Act No. 6234 as the successor-in-interest of the defunct NWSA. The
Philippine National Bank (PNB for short), 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 No. 6, otherwise known as
Account No. 381-777 and which is presently allocated No. 010-500281. The
authorized signature for said Account No. 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, twenty-three (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 No. 6, to wit:
"Check No. Date Payee Amount Date Paid
By PNB

1. 59546 8-21-69 Deogracias Estrella P3,187.79 4-2-69

2. 59548 3-31-69 Natividad Rosario 2,848.86 4-23-69
3. 59547 3-31-69 Pangilinan Enterprises 195.00 Unreleased
4. 59549 3-31-69 Natividad Rosario 3,239.88 4-23-69
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 5. 59552 4-1-69 Villarama & Sons 987.59 5-6-69
6. 59554 4-1-69 Gascom Engineering 6,057.60 4-16-69
7. 59558 4-2-69 The Evening News 112.00 Unreleased
8. 59544 3-27-69 Progressive Const. 18,391.20 4-18-69
9. 59564 4-2-69 Ind. Insp. Int. Inc. 594.06 4-18-69
10. 59568 4-7-69 Roberto Marsan 800.00 4-22-69
11. 59570 4-7-69 Paz Andres 200.00 4-22-69
12. 59574 4-8-69 Florentino Santos 100,000.00 4-11-69
13. 59578 4-8-69 Mla. Daily Bulletin 95.00 Unreleased
14. 59580 4-8-69 Phil. Herald 100.00 5-9-69
15. 59582 4-8-69 Galauran & Pilar 7,729.09 5-6-69
16. 59581 4-8-69 Manila Chronicle 110.00 5-12-69
17. 59588 4-8-69 Treago Tunnel 21,583.00 4-11-69
18. 59587 4-8-69 Delfin Santiago 120,000.00 4-11-69
19. 59589 4-10-69 Deogracias Estrella 1,257.49 4-16-69
20. 59594 4-14-69 Philam Accident Inc. 33.03 4-29-69
21. 59577 4-8-69 Esla 9,429.78 4-29-69
22. 59601 4-16-69 Justino Torres 20,000.00 4-18-69
23. 59595 4-14-69 Neris Phil. Inc. 4,274.00 5-20-69
————
P320,636.26"

"During the same months of March, April and May 1969, twenty-three (23) checks
bearing the same numbers as the aforementioned NWSA checks were likewise
paid and cleared by PNB and debited against NWSA Account No. 6, to wit:

"Check Date Payee Amount Date Paid

No. Issued By PNB
1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69
2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69
3. 59547 3-14-69 Arturo Sison 56,903.00 4-1169
4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69
5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69
6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69
7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69
8. 59544 3-16-69 Antonio Mendoza 38,490.00 4-22-69
9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69
10. 59568 4-2-69 Arturo Sison 134,940.00 4-25-69
11. 59570 4-1-69 Arturo Sison 64,550.00 4-28-69
12. 59574 4-2-69 Arturo Sison 148,610.00 4-29-69
13. 59578 4-10-69 Antonio Mendoza 93,950.00 4-29-69
14. 59580 4-8-69 Arturo Sison 160,000.00 5-2-69
15. 59582 4-10-69 Arturo Sison 155,400.00 5-5-69
16. 59581 4-8-69 Antonio Mendoza 176,580.00 5-6-69
17. 59588 4-16-69 Arturo Sison 176,000.00 5-8-69
18. 59587 4-16-69 Arturo Sison 300,000.00 5-12-69
19. 59589 4-18-69 Arturo Sison 122,000.00 5-14-69
20. 59594 4-18-69 Arturo Sison 280,000.00 5-15-69
21. 59577 4-14-69 Antonio Mendoza 260,000.00 5-16-69
22. 59601 4-18-69 Arturo Sison 400,000.00 5-19-69
23. 59595 4-28-69 Arturo Sison 190,800.00 5-21-69
————
P3,457,903.00

"The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and
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 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 defendant 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 Raul

Dizon, Arturo Sison and Antonio Mendoza were all fictitious persons. The
respective balances in their current account with the PBC and/or PCIB stood as
follows: Raul Dizon P3,455.00 as of April 30, 1969; Antonio Mendoza P18,182.00
as of May 23, 1969; and Arturo Sison P1,398.92 as of June 30, 1969.

"On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate
restoration to its Account No. 6, of the total sum of P3,457,903.00 corresponding
to the total amount of these twenty-three (23) checks claimed by NWSA to be
forged and/or spurious checks.

"In view of the refusal of PNB to credit back to Account No. 6 the said total sum of
P3,457,903.00 MWSS filed the instant 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 NWSA signing officers and there was nothing on its face that could
have aroused any suspicion as to its genuineness and due execution and; that
NWSA was guilty of negligence which was the proximate cause of the loss.

"PNB also filed a third party complaint against the negotiating banks PBC and
PCIB on the ground that they failed to ascertain the identity of the payees and
their title to the checks which were deposited in the respective new accounts of
the payees with them."

xxx xxx xxx

On February 6, 1976, the Court of First Instance of Manila rendered judgment in favor of
the MWSS. The dispositive portion of the decision reads:
"WHEREFORE, on the COMPLAINT by a clear preponderance of evidence and in
accordance with Section 23 of the Negotiable Instruments Law, the Court hereby
renders judgment in favor of the plaintiff Metropolitan Waterworks and Sewerage
System (MWSS) by ordering the defendant Philippine National Bank (PNB) to
restore the total sum of THREE MILLION FOUR HUNDRED FIFTY SEVEN
THOUSAND NINE HUNDRED THREE PESOS (P3,457,903.00) to plaintiff's Account
No. 6, otherwise known as Account No. 010-50030-3, with legal interest thereon
computed from the date of the filing of the complaint and until as restored in the
said Account No. 6.

"On the THIRD PARTY COMPLAINT, the Court, for lack of evidence, hereby renders
judgment in favor of the third party defendants Philippine Bank of Commerce
(PBC) and Philippine Commercial and Industrial Bank (PCIB) by dismissing the
Third Party Complaint.
"The counterclaims of the third party defendants are likewise dismissed for lack
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 of evidence.
"No pronouncement as to costs."

As earlier stated, the respondent court reversed the decision of the Court of First Instance
of Manila and rendered judgment in favor of the respondent Philippine National Bank.
A motion for reconsideration filed by the petitioner MWSS was denied by the respondent
court in a resolution dated January 3, 1983.
The petitioner now raises the following assignments of errors for the grant of this petition:
I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS WERE FORGED, THE
DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE
INSTRUMENTS LAW.
II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB IN ACCEPTING
THE SPURIOUS CHECKS DESPITE THE OBVIOUS IRREGULARITY OF TWO SETS OF
CHECKS BEARING IDENTICAL NUMBER BEING ENCASHED WITHIN DAYS OF EACH
OTHER.
III IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE MWSS BEING CLEARLY
FORGED, AND THE CHECKS SPURIOUS, SAME ARE INOPERATIVE AS AGAINST THE
ALLEGED DRAWEE.
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."

The petitioner submits that the above provision does not apply to the facts of the instant
case because the questioned checks were not those of the MWSS and neither were they
drawn by its authorized signatories. The petitioner states that granting that Section 24 of
the Negotiable Instruments Law is applicable, the same creates only a prima facie
presumption which was overcome by the following documents, to wit: (1) the NBI Report
of November 2, 1970; (2) the NBI Report of November 21, 1974; (3) the NBI Chemistry
Report No. C-74-891; (4) the Memorandum of Mr. Juan Diño, 3rd Assistant Auditor of the
respondent drawee bank addressed to the Chief Auditor of the petitioner; (5) the
admission of the respondent bank's counsel in open court that the National Bureau of
Investigation found the signature on the twenty-three (23) checks in question to be
forgeries; and (6) the admission of the respondent bank's witness, Mr. Faustino Mesina, Jr.
that the checks in question were not printed by his printing press. The petitioner contends
that since the signatures of the checks were forgeries, the respondent drawee bank must
bear the loss under the rulings of this Court.

"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."

xxx xxx xxx

"The signatures to the checks being forged, under Section 23 of the Negotiable
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 Instruments Law they are not a charge against plaintiff nor are the checks of any
value to the defendant.
"It must therefore be held that the proximate cause of loss was due to the
negligence of the Bank of the Philippine Islands in honoring and cashing the two
forged checks." (San Carlos Milling Co. v. Bank of the P.I., 59 Phil. 59)

"It is admitted that the Philippine National Bank cashed the check upon a forged
signature, and placed the money to the credit of Maasim, who was the forger.
That the Philippine National Bank then endorsed the check and forwarded it to the
Shanghai Bank by whom it was paid. The Philippine National Bank had no
license or authority to pay the money to Maasim or anyone else upon a forged
signature. It was its legal duty to know that Malicor's endorsement was genuine
before cashing the check. Its remedy is against Maasim to whom it paid the
money." (Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, 43 Phil. 678)

We have carefully reviewed the documents cited by the petitioner. There is no express and
categorical finding in these documents that the twenty-three (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 in its Report dated November 2, 1970
show that the MWSS fraud was an "inside job" and that the petitioner'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
No. 159-1074 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 in the typeface, checkwriting, and printing
characteristics appearing in the standard or submitted models and the questioned
typewritings. The NBI Chemistry Report No. C-74-891 merely describes the inks and pens
used in writing the alleged forged signatures.
It is clear that these three (3) NBI Reports relied upon by the petitioner 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.
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.
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 instant case, the allegations of forgery
were not clearly established during trial.
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
twenty-three (23) checks in question could have been presented to the petitioner's
signatories without their knowing that they were bogus checks. Indeed, the cashier of the
petitioner 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.

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 The memorandum of Mr. A. T. Tolentino, Assistant Chief Accountant of the drawee
Philippine National Bank to Mr. E. Villatuya, Executive Vice-President of the petitioner
dated June 9, 1969 cites an instance where even the concerned NWSA officials could not
tell the differences between the genuine checks and the alleged forged checks.
"At about 12:00 o'clock on June 6, 1969, VP Maramag requested me to see him in
his office at the Cashier's Dept. where Messrs. Jose M. Sanchez, treasurer of
NAWASA and Romeo Oliva of the same office were present. Upon my arrival I
observed the NAWASA officials questioning the issue of the NAWASA checks
appearing in their own list, xerox copy attached.
"For verification purposes, therefore, the checks were taken from our file. To
everybody there present namely VIP Maramag, the two abovementioned NAWASA
officials, AVP, Buhain, Asst. Cashier Castelo, Asst. Cashier Tejada and Messrs. A.
Lopez and L. Lechuga, both C/A bookkeepers, no one was able to point out any
difference on the signatures of the NAWASA officials appearing on the checks
compared to their official signatures on file. In fact 3 checks, one of those under
question, were presented to the NAWASA treasurer for verification but he could
not point out which was his genuine signature. After intent comparison, he
pointed on the questioned check as bearing his correct signature."
xxx xxx xxx

Moreover, the petitioner is barred from setting up the defense of forgery under
Section 23 of the Negotiable Instruments Law which provides that:
"SEC. 23. FORGED SIGNATURE; EFFECT OF . — 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)
The records show that at the time the twenty-three (23) checks were prepared, negotiated,
and encashed, the petitioner was using its own personalized checks, instead of the official
PNB Commercial blank checks. 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 following
uncontroverted facts, to wit:
(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions
relative to the safekeeping and disposition of excess forms, check vouchers, and safety
papers;
(2) The petitioner failed to retrieve from its printer all spoiled check forms;
(3) The petitioner failed to provide any control regarding the paper used in the printing
of said checks;
(4) The petitioner failed to 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
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 (5) The petitioner failed to send a representative to the printing office during the
printing of said checks.
This gross negligence of the petitioner is very evident from the sworn statement dated
June 19, 1969 of Faustino Mesina, Jr., the owner of the printing press which printed the
petitioner's personalized checks:
xxx xxx xxx
"7. Q: Do you have any business transaction with the National
Waterworks and Sewerage Authority (NAWASA)?
A: Yes, sir. I have a contract with the NAWASA in printing NAWASA Forms
such as NAWASA Check Vouchers and Office Forms.
xxx xxx xxx
"15. Q: Were you given any instruction by the NAWASA in connection with
the printing of these check vouchers?
A: There is none, sir. No instruction whatsoever was given to me.

"16. Q: Were you not advised as to what kind of paper would be used in
the check vouchers?

A: Only as per sample, sir.

xxx xxx xxx
"20. Q: Where did you buy this Hammermill Safety check paper?
A: From Tan Chiong, a paper dealer with store located at Juan Luna, Binondo,
Manila. (In front of the Metropolitan Bank).
xxx xxx xxx
"24. Q: Were all these check vouchers printed by you submitted to
NAWASA?
A: Not all, sir, Because we have to make reservations or allowances for
spoilage.
"25. Q: Out of these vouchers printed by you, how many were spoiled and
how many were the excess printed check vouchers?
A: Approximately four hundred (400) sheets, sir. I cannot determine the
proportion of the excess and spoiled because the final act of perforating
these check vouchers has not yet been done and spoilage can only be
determined after this final act of printing.

"26. Q: What did you do with these excess check vouchers?

A: I keep it under lock and key in my filing cabinet.
xxx xxx xxx
"28. Q: Were you not instructed by the NAWASA authorities to burn these
excess check vouchers?
A: No, sir. I was not instructed.
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 "29. Q: What do you intend to do with these excess printed check
vouchers?
A: I intend to use them for future orders from the NAWASA.
xxx xxx xxx

"32. Q: In the process of printing the check vouchers ordered by the

NAWASA, how many sheets were actually spoiled?
A: I cannot approximate, sir. But there are spoilage in the process of printing
and perforating.
"33. Q: What did you do with these spoilages?

A: Spoiled printed materials are usually thrown out, in the garbage can.

"34. Q: Was there any representative of the NAWASA to supervise the

printing or watch the printing of these check vouchers?
A: None, sir.
xxx xxx xxx
"39. Q: During the period of printing after the days work, what measures
do you undertake to safeguard the mold and other paraphernalia used in
the printing of these particular orders of NAWASA?
A: Inasmuch as I have an employee who sleeps in the printing shop and at
the same time do the guarding, we just leave the mold attached to the
machine and the other finished or unfinished work check vouchers are left
in the rack so that the work could be continued the following day."

The National Bureau of Investigation Report dated November 2, 1970 is even more explicit.
Thus —
xxx xxx xxx

"60. We observed also that there is some laxity and loose control in the
printing of NAWASA checks. We gathered from MESINA ENTERPRISES, the
printing firm that undertook the printing of the check vouchers of NAWASA that
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."

Another factor which facilitated the fraudulent encashment of the twenty-three (23)
checks in question was the failure of the petitioner 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. The records show that the
petitioner requested the respondent 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 the petitioner's
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 records. If Mr. Zaporteza had not been remiss in his duty of taking the bank statements
and reconciling them with the petitioner'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. Thus,
"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).

This failure of the petitioner to reconcile the bank statements with its cancelled checks
was noted by the National Bureau of Investigation in its report dated November 2, 1970:
"58. One factor which facilitate this fraud was the delay in the reconciliation
of bank (PNB) statements with the NAWASA bank accounts. . . . 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."

The records likewise show that the petitioner failed to provide appropriate security
measures over its own records thereby laying confidential records open to unauthorized
persons. The petitioner'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 No. 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."
When confronted with this report at the Anti-Fraud Action Section of the National Bureau of
Investigation, Mr. Ongtengco could only state that:
"A. Generally my order is not to allow anybody to enter my office. Only
authorized persons are allowed to enter my office. There are some cases,
however, where some persons enter my office because they are following
up their checks. Maybe, these persons may have been authorized by Mr.
Pantig. Most of the people entering my office are changing checks as
allowed by the Resolution of the Board of Directors of the NAWASA and
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 the Treasurer. The check writer was never placed on my table. There is a
place for the checkwriter which is also under lock and key.

"Q. Is Mr. Pantig authorized to allow unauthorized persons to enter your

office?

"A. No, sir.

"Q. Why are you tolerating Mr. Pantig admitting unauthorized persons in your
office?
"A. I do not want to embarrass Mr. Pantig. Most of the people following up
checks are employees of the NAWASA.
"Q. Was the authority given by the Board of Directors and the approval by the
Treasurer for employees, and other persons to encash their checks carry
with it their authority to enter your office?
"A. No, sir.

xxx xxx xxx

"Q. From the answers that you have given to us we observed that actually
there is laxity and poor control on your part with regards to the
preparations of check payments inasmuch as you allow unauthorized
persons to follow up their vouchers inside your office which may leakout
confidential informations or your books of account. After being apprised of
all the shortcomings in your office, as head of the Cashiers' Office of the
Treasury Department what remedial measures do you intend to undertake?
"A. Time and again the Treasurer has been calling our attention not to allow
interested persons to hand carry their voucher checks and we are trying our
best and if I can do it to follow the instructions to the letter, I will do it but
unfortunately the persons who are allowed to enter my office are my co-
employees and persons who have connections with our higher ups and I
can not possibly antagonize them. Rest assured that even though that
everybody will get hurt, I will do my best not to allow unauthorized persons
to enter my office.

xxx xxx xxx

"Q. Is it not possible inasmuch as your office is in charge of the posting of
check payments in your books that leakage of payments to the banks
came from your office?
"A. I am not aware of it but it only takes us a couple of minutes to process the
checks. And there are cases wherein every information about the checks
may be obtained from the Accounting Department, Auditing Department, or
the Office of the General Manager."

Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of Investigation
concluded in its Report dated November 2, 1970 that the fraudulent encashment of the
twenty-three (23) checks in question was an "inside job". Thus —
"We have all the reasons to believe that this fraudulent act was an inside job or
one pulled with inside connivance at NAWASA. As pointed earlier in this report, the
serial numbers of these checks in question conform with the numbers in current
use of NAWASA, aside from the fact that these fraudulent checks were found to
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 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."

Even if the twenty three (23) checks in question are considered forgeries, considering the
petitioner's gross negligence, it is barred from setting up the defense of forgery under
Section 23 of the Negotiable Instruments Law.
Nonetheless, the petitioner claims that it was the negligence of the respondent Philippine
National Bank that was the proximate cause of the loss. The petitioner relies on our ruling
in Philippine National Bank v. Court of Appeals (25. SCRA 693) that.
"Thus, by not returning the check to the PCIB, by thereby indicating that the PNB
had found nothing wrong with the check and would honor the same, and by
actually paying its amount to the PCIB, the PNB induced the latter, not only to
believe that the check was genuine and good in every respect, but, also, to pay its
amount to Augusto Lim. In other words, the PNB was the primary or proximate
cause of the loss, and, hence, may not recover from the PCIB."

The argument has no merit. The records show that the respondent drawee bank, had taken
the necessary measures in the detection of forged checks and the prevention of their
fraudulent encashment. In fact, long before the encashment of the twenty-three (23)
checks in 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 Vice-President and Chief Accountant of the Philippine
National Bank dated February 17, 1966 reads in part:

"SUBJECT: ACTIVITIES OF FORGERY SYNDICATE.

"From reliable information we have gathered that personalized checks of current

account depositors are now the target of the forgery syndicate. To protect the
interest of the bank, you are hereby enjoined to be more careful in examining said
checks especially those coming from the clearing, mails and window
transactions. As a reminder please be guided with the following:

"1. Signatures of drawers should be properly scrutinized and compared with

those we have 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 we have 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
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 confirmation.

and your attention is also invited to keep abreast of previous circulars and memo
instructions issued to bookkeepers."

We cannot fault the respondent drawee Bank for not having detected the fraudulent
encashment of the checks because the printing of the petitioner's personalized checks
was not done under the supervision and control of the Bank. There is no evidence on
record indicating that because of this private printing, the petitioner furnished the
respondent 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 was in a better position to detect and
prevent the fraudulent encashment of its checks.
WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of merit.
The decision of the respondent Court of Appeals dated October 29, 1982 is AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.
Paras, **J., took no part.

Footnotes

** Justice Paras took no part. Justice Cruz was designated to sit in the Second Division.

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