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Westmont Bank V. Ong

1) Respondent Ong maintained a bank account with Petitioner Westmont Bank. Two checks totaling 1.7 million pesos with Ong's forged signature were deposited by Ong's friend and the money was withdrawn. 2) Westmont Bank accepted and credited the checks without verifying Ong's signature. The trial court found Westmont Bank grossly negligent and ordered it to pay Ong. 3) The Supreme Court upheld this decision, finding that Westmont Bank had a duty to verify signatures as the collecting bank and is liable for payments made on a forged signature. Ong's lawsuit was also not barred by laches as he reasonably exhausted other remedies first.

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43 views

Westmont Bank V. Ong

1) Respondent Ong maintained a bank account with Petitioner Westmont Bank. Two checks totaling 1.7 million pesos with Ong's forged signature were deposited by Ong's friend and the money was withdrawn. 2) Westmont Bank accepted and credited the checks without verifying Ong's signature. The trial court found Westmont Bank grossly negligent and ordered it to pay Ong. 3) The Supreme Court upheld this decision, finding that Westmont Bank had a duty to verify signatures as the collecting bank and is liable for payments made on a forged signature. Ong's lawsuit was also not barred by laches as he reasonably exhausted other remedies first.

Uploaded by

James William
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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WESTMONT BANK v.

ONG
[G.R. No. 132560. January 30, 2002.]

Respondent, a current account depositor with petitioner bank, was debited


the amount of P1,754,787.50 representing the face value of two Pacific Banking
Corporation's Manager's checks containing respondent's forged signature. These
two checks were deposited by respondent's friend, Paciano Tanlimco, in his
account with petitioner bank which accepted and credited both checks without
verifying the signature of respondent. Tanlimco immediately withdrew the
money. Respondent sought the help of Tanlimco's family to recover the amount,
but to no avail. Hence, he filed the collection case almost five months from the
discovery of the fraud. The trial court ruled in favor of respondent. It found that
petitioner bank was grossly negligent in encashing the checks without verifying
the signature of its own depositor, herein respondent. It ordered petitioner to pay
the amount of the manager's checks with legal interest and moral and
exemplary damages. The Court of Appeals affirmed the trial court's decision.
Hence, the present recourse, petitioner assailing, among others, that respondent
was guilty of laches.
It was held that a forged signature or one made without authority is
inoperative and ineffectual under Section 24 of the Negotiable Instruments Law;
that a collecting bank has the legal duty to ascertain that the payee's
endorsement was genuine before cashing the check and is liable to the payee
and must bear the loss for payment made on a forged signature; that findings of
the trial court are binding and conclusive on appeal; that there is no laches
where a party filed the case only after exhausting possibilities of settling the
case amicably.
FACTS:
1

2
3

4
5

Eugene Ong maintained a current account with the petitioner and sometime
in May 1976, he sold certain shares of stocks through Island Securities
Corporation. Latter purchased 2 Pacific Banking Corp. Managers checks with
the total face value of P1,754,787.50, dated May 4, 1976 and issued in the
name of Ong.
Before Ong could get hold of the said checks, his friend Faciano Tanlimco got
hold of them, forged Ongs signature and deposited such with the petitioner,
where Tanlimco was also a depositor.
Even though Ongs signature was on file, petitioner accepted and credited
both checks to the account of Tanlimco, without verifying the signature
indorsements appearing at the back thereof. Hence, Tanlimco immediately
withdrew the money and absconded.
Ong first sought the help Tanlimcos family then reported the incident to the
Central Bank but he was still unable to recover the amount.
It was only 5 months from the discovery of the fraud did Ong demanded in his
complaint that the petitioner pay the value of the 2 checks from the bank on
whose gross negligence he imputed his loss. He claimed that he did not

deliver, negotiate, endorse or transfer to any person/entity the said checks


and that the signatures on the back were spurious.
Petitioner on the other hand claimed that since Ong admitted to have never
received the 2 checks from Island Securities, he never acquired ownership of
these checks. Hence, he had no legal personality to sue as he is not a real
party-in-interest.
RTC Manila and the CA ruled in favour of Ong, hence this petition.

ISSUE:
1
2

WON respondent Ong has a cause of action against the petitioner


Westmont Bank
WON Ong is barred to recover the money from Westmont Bank due to
laches

HELD:
SC did not grant the petition. There is a cause of action in here since it is
respondent's right as payee of the manager's checks to receive the amount
involved, petitioner's correlative duty as collecting bank to ensure that the amount
gets to the rightful payee or his order, and a breach of that duty because of a
blatant act of negligence on the part of petitioner which violated respondent's rights
Under Section 23 of the Negotiable Instruments Law:
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 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.
Since the signature of the payee, in the case at bar, was forged to make it appear
that he had made an endorsement in favor of the forger, such signature should be
deemed as inoperative and ineffectual. Petitioner, as the collecting bank grossly
erred in making payment by virtue of said forged signature. The payee, herein
respondent, should therefore be allowed to recover from the collecting bank.
The collecting bank is liable to the payee and must bear the loss because it is its
legal duty to ascertain that the payee's endorsement was genuine before cashing
the check. As a general rule, a bank or a corporation who has obtained possession
of a check upon an unauthorized or forged indorsement of the payee's signature
and who collects the amount of the check from the drawee, is liable for the
proceeds thereof to the payee or other owner, notwithstanding that the amount has
been paid to the person from whom the check was obtained.
The theory for this rule is that the possession of the check on the forged or
unauthorized indorsement is wrongful, and when the money had been collected on
the check, the bank or other person or corporation can be held as for moneys had

and received, and the proceeds are held for the rightful owners who may recover
them. The position of the bank taking the check on the forged or unauthorized
indorsement is the same as if it had taken the check and collected the money
without indorsement at all and the act of the bank amounts to conversion of the
check.
Petitioner relies on the view to the effect that where there is no delivery to the
payee and no title vests in him, he ought not to be allowed to recover on the ground
that he lost nothing because he never became the owner of the check and still
retained his claim of debt against the drawer. However, another view in certain
cases holds that even if the absence of delivery is considered, such consideration is
not material. The rationale for this view is that in said cases the plaintiff uses one
action to reach, by a desirable short cut, the person who ought in any event to be
ultimately liable as among the innocent persons involved in the transaction. In other
words, the payee ought to be allowed to recover directly from the collecting bank
regardless of whether the check was delivered to the payee or not.
Hence, petitioner could not escape liability for its negligent acts. Banks are engaged
in a business impressed with public interest, and it is their duty to protect in return
their many clients and depositors who transact business with them. They have the
obligation to treat their client's account meticulously and with the highest degree of
care, considering the fiduciary nature of their relationship. The diligence required of
banks, therefore, is more than that of a good father of a family. The bank was held
to be grossly negligent in performing its duties since it apparently failed to make
such a verification or, what is worse did so but, chose to disregard the obvious
dissimilarity of the signatures. The first omission makes it guilty of gross negligence;
the second of bad faith. In either case, defendant is liable to plaintiff for the
proceeds of the checks in question.
As for the second issue, it cannot be said that Ong sat on his rights. This can be
fairly seen on the remedies he took and exhausted before bringing the matter to the
Central Bank and then the courts. These acts cannot be construed as undue delay in
or abandonment of the assertion of his rights. Moreover, it is petitioner which had
the last clear chance to stop the fraudulent encashment of the subject checks had it
exercised due diligence and followed the proper and regular banking procedures in
clearing checks. As we had earlier ruled, the one who had the last clear opportunity
to avoid the impending harm but failed to do so is chargeable with the
consequences thereof.

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