G.R. No. 92244 February 9, 1993
Natividad Gempesaw, petitioner, vs. The Honorable Court of Appeals and Philippine Bank of Communications, respondents.

FACTS

Petitioner Natividad Gempesaw maintained a checking account with respondent Philippine Bank of Communications. Her bookkeeper, Alicia Galang, prepared checks for her signature to pay suppliers. Petitioner signed the checks without verifying them against the corresponding invoices and left their issuance and delivery to the bookkeeper. Over two years, 82 checks were issued, honored by the bank, and debited against her account. Most checks were for amounts exceeding her actual obligations to the payees. The payees testified they did not receive or endorse the checks; the endorsements were forgeries. The checks were deposited by Ernest L. Boon, the bank’s Chief Accountant at its Buendia branch, without proper authority, into the accounts of Alfredo Y. Romero and Benito Lam at various branches. Petitioner discovered the fraud and demanded the bank re-credit her account. The bank refused. The Regional Trial Court dismissed her complaint, and the Court of Appeals affirmed, ruling her negligence was the proximate cause of the loss.

ISSUE

Whether the drawee bank (Philippine Bank of Communications) is liable to the drawer (Natividad Gempesaw) for the amount of checks paid out on forged endorsements of the payees.

RULING

Yes, but liability is to be apportioned. The Supreme Court held that under Section 23 of the Negotiable Instruments Law, a forged endorsement is wholly inoperative, and the drawee bank cannot charge the amount of a check with a forged endorsement against the drawer’s account. The drawee bank’s duty is to pay only to persons entitled to the check, and it bears the loss when it pays a check bearing a forged endorsement. However, the drawer’s negligence can preclude recovery if it is the proximate cause of the loss. The Court found both parties negligent. Petitioner was negligent in signing checks without verifying them and in not examining her bank statements, which facilitated the forgeries. The bank was also negligent as its employee, Boon, facilitated the irregular deposits, and its internal controls (requiring only a Branch Manager to accept second endorsements) were violated without detection. The Court ruled that where both parties are negligent, the loss shall be borne equally. The case was remanded to the trial court to determine the exact loss, considering petitioner’s obligations were partly extinguished, and to order the bank to pay one-half of the excess amounts over her actual obligations.