BDO V EBC

4/21/2021 SUPREME COURT REPORTS ANNOTATED VOULME 157
188 SUPREME COURT REPORTS ANNOTATED

Banco de Oro Savings and Mortgage Bank vs. Equitable
Banking Corporation
*
No. L-74917. January 20, 1988.
BANCO DE ORO SAVINGS AND MORTGAGE BANK,

petitioner, vs. EQUITABLE BANKING CORPORATION,
PHILIPPINE CLEARING HOUSE CORPORATION, AND
REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH
XCII (92), respondents.
Negotiable Instrument Law; Checks; Transactions on non-

nego-tiable checks within the jurisdiction of PCHC.—As provided
in the aforecited articles of incorporation of PCHC its operation
extend to “clearing checks and other clearing items.” No doubt
transactions on non-negotiable checks are within the ambit of its
jurisdiction.
Same; Same; Check used in the Articles of Incorporation of
PCHC connote checks in general use in commercial and business
activities.—The term, check as used in the said Articles of
Incorporation of PCHC can only connote checks in general use in
commercial and business activities. It cannot be conceived to be
limited to negotiable checks only. Checks are used between banks
and bankers and their customers, and are designed to facilitate
banking operations. It is of the essence to be payable on demand,
because the contract between the banker and the customer is that
the money is needed on demand.
Same; Same; Same; Courts not authorized to distinguish
where the law makes no distinctions.—In a previous case, this
Court had occasion to rule: “Ubi lex non distinguit nec nos
distinguere debemos.” It was enunciated in Loc Cham v. Ocampo,
77 Phil. 636 (1946): “The rule, founded on logic is a corollary of
the principle that general words and
________________
* FIRST DIVISION.
189
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VOL. 157, JANUARY 20, 1988 189
Banco de Oro Savings and Mortgage Bank vs. Equitable Banking

Corporation
phrases in a statute should ordinarily be accorded their natural

and general significance. In other words, there should be no
distinction in the application of a statue where none is indicated.”
There should be no distinction in the application of a statute
where none is indicated for courts are not authorized to
distinguish where the law makes no distinction. They should
instead administer the law not as they think it ought to be but as
they find it and without regard to consequences.
Same; Same; Estopped; By stamping its guarantee at the back
of the checks, petitioner is now estopped from claiming that the
checks under consideration are not negotiable instruments.—The
petitioner by its own acts and representation can not now deny
liability because it assumed the liabilities of an endorser by
stamping its guarantee at the back of the checks. The petitioner
having stamped its guarantee of “all prior endorsements and/or
lack of endorsements” (Exh. A-3 to F-2) is now estopped from
claiming that the checks under consideration are not negotiable
instruments. The checks were accepted for deposit by the
petitioner stamping thereon its guarantee, in order that it can
clear the said checks with the respondent bank. By such
deliberate and positive attitude of the petitioner it has for all legal
intents and purposes treated the said checks as negotiable
instruments and accordingly assumed the warranty of the
endorser when it stamped its guarantee of prior endorsements at
the back of the checks. It led the said respondent to believe that it
was acting as endorser of the checks and on the strength of this
guarantee said respondent cleared the checks in question and
credited the account of the petitioner. Petitioner is now barred
from taking an opposite posture by claiming that the disputed
checks are not negotiable instrument. This Court enunciated in
Philippine National Bank vs. Court of Appeals, a point relevant to
the issue when it stated—“the doctrine of estoppel is based upon
the grounds of public policy, fair dealing, good faith and justice
and its purpose is to forbid one to speak against his own act,
representations or commitments to the injury of one to whom they
were directed and who reasonably relied thereon.”
Same; Same; Same; Same; Repudiating an obligation
voluntarily assumed after accepting benefits therefrom not
countenanced.—Apropos the matter of forgery in endorsements,
this Court has 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
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Corporation
endorsements. This is laid down in the case of PNB vs. National

City Bank. In another case, this Court held that if the drawee-
bank discovers 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.
Same; Same; Endorsement; Forgery; When endorsement is
forged, the collecting bank or lost endorser generally suffers the
loss.—A truism stated by this Court is that—The doctrine of
estoppel precludes a party from repudiating an obligation
voluntarily assumed after having accepted benefits therefrom. To
countenance such repudiation would be contrary to equity and put
premium on fraud or misrepresentation.”
Same; Same; Same; Warrantees of an indorser who indorses
without qualification.—Section 66 of the Negotiable Instruments
ordains that: “Every indorser who indorses without qualification,
warrants to all subsequent holders in due course” (a) that the
instrument is genuine and in all respects what it purports to be;
(b) that he has good title to it; (c) that all prior parties have
capacity to contract; and (d) that the instrument is at the time of
his indorsement valid and subsisting.
Same; Same; Same; Drawer owes no duty of diligence to the
collecting bank but collecting bank bound to scrutinize checks
deposited with it to determine genuineness and regularity.—Thus
We hold that while the drawer generally owes no duty of diligence
to the collecting bank, the law imposes a duty of diligence on the
collecting bank to scrutinize checks deposited with it for the
purpose of determining their genuineness and regularity. The
collecting bank being primarily engaged in banking holds itself
out to the public as the expert and the law holds it to a high
standard of conduct.
Same; Same; Same; Responsibility of petitioner as indorser
remains although the checks are non-negotiable.—And although
the subject checks are non-negotiable the responsibility of
petitioner as indorser thereof remains. To countenance a
repudiation by the petitioner of its obligations would be contrary
to equity and would deal a negative blow to the whole banking
system of this country.
Civil Law; Solutio Indebiti; Payments to person other than the
payees are not valid and give rise to an obligation to return
amounts received.—Considering that neither the defendant’s
depositor nor the defendant is entitled to receive payments for the
Checks, payments to any of them give rise to an obligation to

return the amounts received.
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VOL. 157, JANUARY 20, 1988 191

Corporation
Section 2154 of the New Civil Code mandates that:—Article 2154,

if something is received when there is no right to demand it, and
it was unduly delivered through mistake, the obligation to return
it arises.
PETITION for certiorari to review the decision of the

Regional Trial Court of Quezon City, Br. 92.
The facts are stated in the opinion of the Court.
GANCAYCO, J.:
This is a petition for review on certiorari of a decision of the

Regional Trial Court of Quezon City promulgated on March
24, 1986 in Civil Case No. Q-46517 entitled Banco de Oro
Savings and Mortgage Bank versus Equitable Banking
Corporation and the Philippine Clearing House
Corporation after a review of the Decision of the Board of
Directors of the Philippine Clearing House Corporation
(PCHC) in the case of Equitable Banking Corporation
(EBC) vs. Banco de Oro Savings and Mortgage (BCO),
ARBICOM Case No. 84-033.
The undisputed facts are as follows:
“It appears that some time in March, April, May and August
1983, plaintiff through its Visa Card Department, drew six
crossed Manager’s check (Exhibits ‘A’ to ‘F’, and herein referred to
as Checks) having an aggregate amount of Forty Five Thousand
Nine Hundred and Eighty Two & 23/100 (P45,982.23) Pesos and
payable to certain member establishments of Visa Card.
Subsequently, the Checks were deposited with the defendant to
the credit of its depositor, a certain Aida Trencio. Following
normal procedures, and after stamping at the back of the Checks
the usual endorsements: ‘All prior and/or lack of endorsement
guaranteed’ the defendant sent the checks for clearing through
the Philippine Clearing House Corporation (PCHC). Accordingly,
plaintiff paid the Checks; its clearing account was debited for the
value of the Checks and defendant’s clearing account was credited
for the same amount.
Thereafter, plaintiff discovered that the endorsements
appearing at the back of the Checks and purporting to be that of
the payees were forged and/or unauthorized or otherwise belong

to persons other than the payees.
Pursuant to the PCHC Clearing Rules and Regulations,
plaintiff presented the Checks directly to the defendant for the
purpose of
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Banking Corporation
claiming reimbursement from the latter. However, defendant

refused to accept such direct presentation and to reimburse the
plaintiff for the value of the Checks; hence, this case.
In its Complaint, plaintiff prays for judgment to require the
defendant to pay the plaintiff the sum of P45,982.23 with interest
at the rate of 12% per annum from the date of the complaint plus
attorney’s fees in the amount of P10,000.00 as well as the cost of
the suit.
In accordance with Section 38 of the Clearing House Rules and
Regulations, the dispute was presented for Arbitration; and Atty.
Ceasar Querubin was designated as the Arbitrator.
After an exhaustive investigation and hearing the Arbiter
rendered a decision in favor of the plaintiff and against the
defendant ordering the PCHC to debit the clearing account of the
defendant, and to credit the clearing account of the plaintiff of the
amount of P45,982.23 with interest at the rate of 12% per annum
from date of the complaint and Attorney’s fee in the 1
amount of
P5,000.00. No pronouncement as to cost was made.”
In a motion for reconsideration filed by the petitioner, the

Board of Directors of the PCHC affirmed the decision of the
said Arbiter in this wise:
“‘In view of all the foregoing, the decision of the Arbiter is

confirmed; and the Philippine Clearing House Corporation is
hereby ordered to debit the clearing account of the defendant and
credit the clearing account of plaintiff the amount of Forty Five
Thousand Nine Hundred Eighty Two & 23/100 (P45,982.23) Pesos
with interest at the rate of 12% per annum from date of the
complaint, and the Attorney’s fee in the amount of Five Thousand
(P5,000.00) Pesos.’”
Thus, a petition for review was filed with the Regional

Trial Court of Quezon City, Branch XCII, wherein in due
course a decision was rendered affirming in toto the
decision of the PCHC.
Hence this petition.
The petition is focused on the following issues:
________________
1 Decision, pp. 2-3, pp. 35-36, Rollo. These are the findings of facts in
the said decision of the Philippine Clearing House Corporation (PCHC),
board of directors in Arbitration Case No. 84-033, which are final and
conclusive upon all parties in said arbitration dispute appealable only on
question of law. (Section 13 PCHC-ARR, rules of procedure).
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Banking Corporation
1. Did the PCHC have any jurisdiction to give due

course to and adjudicate Arbicom Case No. 84-033?
2. Were the subject checks non-negotiable and if not,
does it fall under the ambit of the power of the
PCHC?
3. Is the Negotiable Instrument Law, Act No. 2031
applicable in deciding controversies of this nature
by the PCHC?
4. What law should govern in resolving controversies
of this nature?
5. Was the petitioner bank negligent and thus
responsible for any undue payment?
Petitioner maintains that the PCHC is not clothed with

jurisdiction because the Clearing House Rules and
Regulations of PCHC cover and apply only to checks that
are genuinely negotiable. Emphasis is laid on the primary
purpose of the PCHC in the Articles of Incorporation, which
states:
“To provide, maintain and render an effective, convenient,

efficient, economical and relevant exchange and facilitate service
limited to check processing and sorting by way of assisting
member banks, entities in clearing checks and other clearing
items as defined in existing and in future Central Bank of the
Philippines circulars, memoranda, circular letters, rules and
regulations and policies in pursuance to the provisions of Section
107 of R.A. 265. . .”
and Section 107 of R.A. 265 which provides:
“x x x x
The deposit reserves maintained by the banks in the Central
Bank, in accordance with the provisions of Section 1000 shall
serve as a basis for the clearing of checks, and the settlement of
interbank balances X X X.”
Petitioner argues that by law and common sense, the term

check should be interpreted as one that fits the articles of
incorporation of the PCHC, the Central Bank and the

Clearing House Rules stating that it is a negotiable
instrument citing the definition of a “check” as basically a
“bill of exchange” under Section 185 of the NIL and that it
should be payable to “order” or to “bearer” under Section
126 of same law. Petitioner alleges that with the
cancellation of the printed words “or bearer” from the face
of the check, it becomes non-negotiable so the PCHC has no
194

Banking Corporation
jurisdiction over the case.

The Regional Trial Court took exception to this stand
and conclusion put forth by the herein petitioner as it held:
“Petitioner’s theory cannot be maintained. As will be noted, the

PCHC makes no distinction as to the character or nature of the
checks subject of its jurisdiction. The pertinent provisions quoted
in petitioners memorandum simply refer to check(s). Where the
law does not distinguish, we shall not distinguish.
In the case of Reyes vs. Chuanico (CA-G-R. No. 20813-R, Feb.
5, 1962) the Appellate Court categorically stated that there are
four kinds of checks in this jurisdiction; the regular check; the
cashier’s check; the traveller’s check; and the crossed check. The
Court, further elucidated, that while the Negotiable Instruments
Law does not contain any provision on crossed checks, it is
common practice in commercial and banking operations to issue
checks of this character, obviously in accordance with Article 541
of the Code of Commerce. Attention is likewise called to Section
185 of the Negotiable Instruments Law:
‘Sec. 185. Check defined.—A check is a bill of exchange drawn on a bank

payable on demand. Except as herein otherwise provided, the provisions
of this act applicable to a bill of exchange payable on demand apply to a
check.’
and the provisions of Section 61 (supra) that the drawer may

insert in the instrument an express stipulation negating or
limiting his own liability to the holder. Consequently, it appears
that the use of the term ‘check’ in the Articles of Incorporation of
PCHC is to be perceived as not limited to negotiable checks only,
but to checks as is generally known in use in commercial or
business transactions.
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,
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Banking Corporation
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)”
We agree.
As provided in the aforecited articles of incorporation of
PCHC its operation extend to “clearing checks and other
clearing items.” No doubt transactions on non-negotiable
checks are within the ambit of its jurisdiction.
In a previous case, this Court had occasion to rule:
2
“Ubi
lex non distinguit nec nos distinguere debemos.” It was
enunciated in Loc Cham v. Ocampo, 77 Phil. 636 (1946):
“The rule, founded on logic is a corollary of the principle that

general words and phrases in a statute should ordinarily be
accorded their natural and general significance. In other words,
there should be no distinction in the application of a statute
where none is indicated.”
There should be no distinction in the application of a

statute where none is indicated for courts are not
authorized to distinguish where the law makes no
distinction. They should instead administer the law not as
they think it ought to 3be but as they find it and without
regard to consequences.
The term, check as used in the said Articles of
Incorporation of PCHC can only connote checks in general
use in commercial and business activities. It cannot be
conceived to be limited to negotiable checks only.
Checks are used between banks and bankers and their
customers, and are designed to facilitate banking
operations. It is of the essence to be payable on demand,
because the contract between the banker 4
and the customer
is that the money is needed on demand.
________________
2 Phil. Veiriah Assurance Co., Inc. vs. The Honorable Intermediate

Appellate Court, Sycwin Coating and Wires, Inc. and Aminador Cacpal,
Chief Deputy Sheriff of Manila D.R. 72005.
3 Loc Cham vs. Ocampo, supra.
4 Harker v. Anderson, 21 Wend. (N.Y.), 2 Sto. 502, Fed. Case No. 1, 985;
Merchants National Bank v. Bank, 10 Wall (U.S.) 647, 19 L. Ed. 1008;
Wood River Bank v. Bank, 36 Neb. 744 N.W. 239.
196

Banking Corporation
The participation of the two banks, petitioner and private

respondent, in the clearing operations of PCHC is a
manifestation of their submission to its jurisdiction. Sec. 3
and 36.6 of the PCHC-CHRR clearing rules and regulations
provide:
“SEC. 3. AGREEMENT TO THESE RULES.—It is the general

agreement and understanding that any participant in the
Philippine Clearing House Corporation, MICR clearing operations
by the mere fact of their participation, thereby manifests its
agreement to these Rules and Regulations and its subsequent
amendments.”
Sec. 36.6. (ARBITRATION)—The fact that a bank participates
in the clearing operations of the PCHC shall be deemed its
written and subscribed consent to the binding effect of this
arbitration agreement as if it had done so in accordance with
section 4 of (the) Republic Act No. 876, otherwise known as the
Arbitration Law.”
Further Section 2 of the Arbitration Law mandates:
“Two or more persons or parties may submit to the arbitration of

one or more arbitrators any controversy existing between them at
the time of the submission and which may be the subject of an
action, or the parties of any contract may in such contract agree to
settle by arbitration a controversy thereafter arising between
them. Such submission or contract shall be valid and irrevocable,
save upon grounds as exist at law for the revocation of any
contract.
“Such submission or contract may include question arising out
of valuations, appraisals or other controversies which may be
collateral, incidental, precedent or subsequent to any issue
between the parties. x x x”
Sec. 21 of the same rules, says:
“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.” (Italics supplied)
Viewing these provisions the conclusion is clear that the

PCHC Rules and Regulations should not be interpreted to
be applicable only to checks which are negotiable
instruments but
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VOL. 157, JANUARY 20, 1988 197

Banking Corporation
also to non-negotiable instruments, and that the PCHC has

jurisdiction over this case even as the checks subject of this
litigation are admittedly non-negotiable.
Moreover, petitioner is estopped from raising the
defense of non-negotiability of the checks in question. It
stamped its guarantee on the back of the checks and
subsequently presented these checks for clearing and it
was on the basis of these endorsements by the petitioner
that the proceeds were credited in its clearing account.
The petitioner by its own acts and representation can
not now deny liability because it assumed the liabilities of
an endorser by stamping its guarantee at the back of the
checks.
The petitioner having stamped its guarantee of “all prior
endorsements and/or lack of endorsements” (Exh. A-2 to F-
2) is now estopped from claiming that the checks under
consideration are not negotiable instruments. The checks
were accepted for deposit by the petitioner stamping
thereon its guarantee, in order that it can clear the said
checks with the respondent bank. By such deliberate and
positive attitude of the petitioner it has for all legal intents
and purposes treated the said checks as negotiable
instruments and accordingly assumed the warranty of the
endorser when it stamped its guarantee of prior
endorsements at the back of the checks. It led the said
respondent to believe that it was acting as endorser of the
checks and on the strength of this guarantee said
respondent cleared the checks in question and credited the
account of the petitioner. Petitioner is now barred from
taking an opposite posture by claiming that the disputed
checks are not negotiable instrument.
This Court enunciated

6
in Philippine National Bank vs.
Court of Appeals, a point relevant to the issue when it
stated—“the doctrine of estoppel is based upon the grounds
of public policy, fair dealing, good faith and justice and its
purpose is to forbid one to speak against his own act,
representations or commitments to the injury of one to
whom they were directed and who reasonably relied
thereon.”
A commercial bank cannot escape the liability of an
endorser of a check and which may turn out to be a forged
endorsement.
________________
6 94 SCRA 357.
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Banking Corporation
Whenever any bank treats the signature at the back of the

checks as endorsements and thus logically guarantees the
same as such there can be no doubt said bank has
considered the checks as negotiable.
Apropos the matter of forgery in endorsements, this
Court has 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 6laid
down in the case of PNB vs. National City Bank. In
another case, this court held that if the drawee-bank
discovers that the signature of the payee was forged after it
has paid the amount of the check to the holder thereof,
7
it
can recover the amount paid from the collecting bank.
A truism stated by this Court is that—“The doctrine of
estoppel precludes a party from repudiating an obligation
voluntarily assumed after having accepted benefits
therefrom. To countenance such repudiation would be
contrary to equity 8
and put premium on fraud or
misrepresentation.”
We made clear in Our decision in Philippine National
Bank vs. The National City Bank of NY & Motor Service
Co. that:
“Where a check is accepted or certified by the bank on which it is

drawn, the bank is estopped to deny the genuineness of the
drawers signature and his capacity to issue the instrument.

If a drawee bank pays a forged check which “was previously
accepted or certified by the said bank, it can not recover from a
holder who did not participate in the forgery and did not have
actual notice thereof.
The payment of a check does not include or imply its
acceptance in the sense that this
9
word is used in Section 62 of the
Negotiable Instruments Act.”
________________
6 63 Phil. 711.
7 Republic Bank vs. Ebrada, 65 SCRA 680.
8 10 Saura Import & Export Co., 24 SCRA 974.
9 Supra.
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VOL. 157, JANUARY 20, 1988 199

Banking Corporation
The point that comes uppermost is whether the drawee

bank was negligent in failing to discover the alteration or
the forgery.
Very akin to the case at bar is one which involves a suit
filed by the drawer of checks against the collecting
10
bank
and this came about in Farmers State Bank where it was
held:
“A cause of action against the (collecting bank) in favor of the

appellee (the drawer) accrued as a result of the bank breaching its
implied warranty of the genuineness of the indorsements of the
name of the payee by bringing about the presentation of the
checks (to the drawee bank) and collecting the amounts thereof,
the right to enforce that cause of action was not destroyed by the
circumstance that another cause of action for the recovery of the
amounts paid on the checks would have accrued in favor of the
appellee against another or to others than the bank if when the
checks were paid they have been indorsed by the payee.” (United
States vs. National Exchange Bank, 214 US, 302, 29 S CT-665, 53
L. Ed 1006, 16 Am. Cas. 1184; Onondaga County Savings Bank
vs. United States (E.C.A.) 64 F 703)”
Section 66 of the Negotiable Instruments ordains that:
“Every indorser who indorses without qualification, warrants to

all subsequent holders in due course” (a) that the instrument is
genuine and in all respects what it purports to be; (b) that he has
good title to it; (c) that all prior parties have capacity to contract;
and (d) that the11instrument is at the time of his indorsement valid
and subsisting.
It has been enunciated in an American case particularly in 12

American Exchange National Bank vs. Yorkville Bank
that: “the drawer owes no duty of diligence to the collecting
bank (one who had accepted an altered check and had paid
over the proceeds to the depositor) except of seasonably
discovering the alteration by a comparison of its returned
checks and check stubs or other equivalent record, and to
inform the drawee thereof.”
In this case it was further held that:
“The real and underlying reasons why negligence of the drawer
_______________
10 Markel vs. United States, 62 F ed. 178.

11 Ang Tiong vs. Ting, L-16767, Feb. 28, 1968, 22 SCRA 713.
12 204 N.Y.S. 621 101 N.E. 871 Amn. Cas. 1914D, 462, L.R.A. 191D, 74.
200

Banking Corporation
constitutes no defense to the collecting bank are that there is no

privity between the drawer and the collecting bank (Corn
Exchange Bank vs. Nassau Bank, 204 N.Y.S. 80) and the drawer
owes to that bank no duty of vigilance (New York Produce
Exchange Bank vs. Twelfth Ward Bank, 204 N.Y.S. 54) and no act
of the collecting bank is induced by any act or representation or
admission of the drawer (Seaboard National Bank vs. Bank of
America [supra]) and it follows that negligence on the part of the
drawer cannot create any liability from it to the collecting bank,
and the drawer thus is neither a necessary nor a proper party to
an action by the drawee bank against such bank. It is quite true
that depositors in banks are under the obligation of examining
their passbooks and returned vouchers as a protection against the
payment by the depository bank against forged checks, and
negligence in the performance of that obligation may relieve that
bank of liability for the repayment of amounts paid out on forged
checks, which but for such negligence it would be bound to repay.
A leading case on that subject is Morgan vs. United States
Mortgage and Trust Col. 208 N.Y. 218, 101 N.E. 871 Amn. Cas.
1914D, 462, L.R.A. 1915D, 74.”
Thus We hold that while the drawer generally owes no

duty of diligence to the collecting bank, the law imposes a
duty of diligence on the collecting bank to scrutinize checks
deposited with it for the purpose of determining their
genuineness and regularity. The collecting bank being
primarily engaged in banking holds itself out to the public
as the expert and the law holds it to a high standard of

conduct.
And although the subject checks are non-negotiable the
responsibility of petitioner as indorser thereof remains.
To countenance a repudiation by the petitioner of its
obligation would be contrary to equity and would deal a
negative blow to the whole banking system of this country.
The court reproduces with approval the following
disquisition of the PCHC in its decision—
“II. Payments To Persons Other

Than The Payees Are Not Valid
And Give Rise To An Obligation
To Return Amounts Received
Nothing is more clear than that neither the defendant’s

depositor nor the defendant is entitled to receive payment
payable for the Checks.
As the checks are not payable to defendant’s depositor,
payments to
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Banking Corporation
persons other than payees named therein, their successor-

in-interest or any person authorized to receive payment are
not valid. Article 1240, New Civil Code of the Philippines
unequivocably provides that:
‘Art. 1240. Payment shall be made to the person in whose favor

the obligation has been constituted, or his successor-in-interest, or
any person authorized to receive it.’ Considering that neither the
defendant’s depositor nor the defendant is entitled to receive
payments for the Checks, payments to any of them give rise to an
obligation to return the amounts received. Section 2154 of the
New Civil Code mandates that:—
‘Article 2154. If something is received when there is no right to demand

it, and it was unduly delivered through mistake, the obligation to return
it arises.
It is contended that plaintiff should be held responsible for

issuing the Checks notwithstanding that the underlying
transactions were fictitious. This contention has no basis in our
jurisprudence.
The nullity of the underlying transactions does not diminish,
but in fact strengthens, plaintiff’s right to recover from the
defendant. Such nullity clearly emphasizes the obligation of the
payees to return the proceeds of the Checks. If a failure of
consideration is sufficient to warrant a finding that a payee is not
entitled to payment or must return payment already made, with

more reason the defendant, who is neither the payee nor the
person authorized by the payee, should be compelled to surrender
the proceeds of the Checks received by it. Defendant does not
have any title to the Checks; neither can it claim any derivative
title to them.
“III. Having Violated Its Warranty

On Validity Of All Endorsements,
Collecting Bank Cannot Deny
Liability To Those Who Relied
On Its Warranty
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 bank 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.
202

Banking Corporation
The principle of estoppel effectively prevents the defendant

from denying liability for any damages 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.
Whether the Checks have been issued for valuable
considerations or not is of no serious moment to this case.
These Checks have been made the subject of contracts of
endorsement wherein the defendant made expressed
warranties to induce payment by the drawer of the Checks;
and the defendant cannot now refuse liability for breach of
warranty as a consequence of such forged endorsements.
The defendant has falsely warranted in favor of plaintiff
the validity of all endorsements and the genuineness of the
checks in all respects what they purport to be.
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.
On the matter of the award of the interest and
attorney’s fees, the Board of Directors finds no reason to
reverse the decision of the Arbiter. The defendant’s failure
to reimburse the plaintiff has constrained the plaintiff to
hire the services of counsel in order to protect its interest
notwithstanding that plaintiff’s claim is plainly valid, just
and demandable. In addition, defendant’s clear obligation
is to reimburse plaintiff upon direct presentation of the
checks; and it is undenied that up to this time the
defendant has failed to make such reimbursement.”
WHEREFORE, the petition is DISMISSED for lack of
merit without pronouncement as to costs. The decision of
the respondent court of 24 March 1986 and its order of 3
June 1986 are hereby declared to be immediately
executory.
SO ORDERED.
Teehankee (C.J.), Narvasa, Cruz and Paras, JJ.,

concur.
Petition dismissed. Order immediately executory.
Notes.—Checks are not mere contracts, but substitute

for
203
VOL. 157, JANUARY 20, 1988 203

Tancinco vs. Ferrer-Calleja
money. Non-impairment of contract clause applies only to

lawful contracts (Lozano vs. Martinez, 146 SCRA 323.)
There is no sufficient evidence to show that petitioner
forged the counter-signature of the company treasurer to be
able to encash the Treasury Warrant (Rañon vs. CA, 135
SCRA 485.)
——o0o——
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4/21/2021 SUPREME COURT REPORTS ANNOTATED VOULME 157

188 SUPREME COURT REPORTS ANNOTATED

BANCO DE ORO SAVINGS AND MORTGAGE BANK,

Negotiable Instrument Law; Checks; Transactions on non-

VOL. 157, JANUARY 20, 1988 189

Banco de Oro Savings and Mortgage Bank vs. Equitable Banking

phrases in a statute should ordinarily be accorded their natural

190 SUPREME COURT REPORTS ANNOTATED

Banco de Oro Savings and Mortgage Bank vs. Equitable Banking

endorsements. This is laid down in the case of PNB vs. National

Checks, payments to any of them give rise to an obligation to

VOL. 157, JANUARY 20, 1988 191

Banco de Oro Savings and Mortgage Bank vs. Equitable Banking

Section 2154 of the New Civil Code mandates that:—Article 2154,

PETITION for certiorari to review the decision of the

The facts are stated in the opinion of the Court.

This is a petition for review on certiorari of a decision of the

the payees were forged and/or unauthorized or otherwise belong

192 SUPREME COURT REPORTS ANNOTATED

claiming reimbursement from the latter. However, defendant

In a motion for reconsideration filed by the petitioner, the

“‘In view of all the foregoing, the decision of the Arbiter is

Thus, a petition for review was filed with the Regional

VOL. 157, JANUARY 20, 1988 193

1. Did the PCHC have any jurisdiction to give due

Petitioner maintains that the PCHC is not clothed with

“To provide, maintain and render an effective, convenient,

and Section 107 of R.A. 265 which provides:

Petitioner argues that by law and common sense, the term

incorporation of the PCHC, the Central Bank and the

194 SUPREME COURT REPORTS ANNOTATED

jurisdiction over the case.

“Petitioner’s theory cannot be maintained. As will be noted, the

‘Sec. 185. Check defined.—A check is a bill of exchange drawn on a bank

and the provisions of Section 61 (supra) that the drawer may

VOL. 157, JANUARY 20, 1988 195

paid on the Checks. The same principle of estoppel effectively prevents

“The rule, founded on logic is a corollary of the principle that

There should be no distinction in the application of a

2 Phil. Veiriah Assurance Co., Inc. vs. The Honorable Intermediate

196 SUPREME COURT REPORTS ANNOTATED

The participation of the two banks, petitioner and private

“SEC. 3. AGREEMENT TO THESE RULES.—It is the general

Further Section 2 of the Arbitration Law mandates:

“Two or more persons or parties may submit to the arbitration of

Sec. 21 of the same rules, says:

“Items which have been the subject of material alteration or items

Viewing these provisions the conclusion is clear that the

VOL. 157, JANUARY 20, 1988 197

also to non-negotiable instruments, and that the PCHC has

This Court enunciated

198 SUPREME COURT REPORTS ANNOTATED

Whenever any bank treats the signature at the back of the

“Where a check is accepted or certified by the bank on which it is

drawers signature and his capacity to issue the instrument.

VOL. 157, JANUARY 20, 1988 199

The point that comes uppermost is whether the drawee

“A cause of action against the (collecting bank) in favor of the