Bdo V Equitable Banking

TOPIC Form and Interpretation of Negotiable Instruments; General Principles; Effect of
Estoppel / Same; Defenses; Real Defenses; Forgery and Want of Authority;

Persons Precluded from Setting Up Forgery / Checks; Checks Defined
Case Banco De Oro Savings and Mortgage Bank v. Equitable Banking Corporation, et. al.
Name
G.R. L-74917, January 20, 1988
No.
Facts Equitable Banking Corporation (Equitable Bank) drew six crossed Manager’s
checks through its Visa Department having an aggregate amount of P45,982.23
and payable to certain member establishments of Visa Card. Subsequently, the
checks were deposited with Banco De Oro Savings and Mortgage Bank (BDO) 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' BDO sent the checks for clearing through
the Philippine Clearing House Corporation (PCHC). Accordingly, Equitable Bank
paid the Checks; its clearing account was debited for the value of the Checks and
BDO’s clearing account was credited for the same amount. Thereafter, Equitable
Bank 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, Equitable Bank presented the Checks directly to BDO for the purpose
of claiming reimbursement from the latter. However, BDO refused to accept such
direct presentation and to reimburse Equitable Bank for the value of the Checks;
hence Equitable Bank filed this complaint before the Board of Directors (BoD) of
PCHC. In its Complaint, Equitable Bank prays for judgment to require BDO 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. After an
exhaustive investigation and hearing the Arbiter rendered a decision in favor of
the Equitable Bank and against BDO ordering the PCHC to debit the clearing
account of BDO, and to credit the clearing account of Equitable Bank 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 amount of P5,000.00. No pronouncement as
to cost was made. BDO filed a motion for reconsideration, which the BoD of PCHC
denied, affirming the decision of the Arbiter. BDO filed a petition for review
before the Regional Trial Court of Quezon City, Branch XCH, wherein in due course
a decision was rendered affirming in toto the decision of the PCHC. Hence this
petition.
Issue/s 1) Whether the term "check" found in the articles of incorporation of PCHC only
pertains to a negotiable check within the purview of Negotiable Instruments Law;
2) Whether BDO may raise the defense of forgery before reimbursement of a

check it guaranteed; and
3) Whether BDO is estopped from raising the defense of non-negotiability of a

check, and denying its warranty on a check with prior indorsements that were
subsequently discovered as forged.
Ruling 1) No. The Court held the trial court’s decision. As provided in the Articles of
Incorporation of PCHC, its operation extends to “clearing checks and other
clearing items.” No doubt transactions on non-negotiable checks are within the
ambit of its jurisdiction. 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. 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. The PCHC Rules and
Regulations should not be interpreted to be applicable only to checks which are
negotiable instruments but also to non-negotiable instruments.
2) No. A commercial bank cannot escape the liability of an indorser of a check and
which may turn out to be a forged endorsement. The Court made clear in one of
its decision 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 drawer's signature
and his capacity to issue the instrument….”
3) Yes. In presenting the Checks for clearing and for payment, BDO made an express
guarantee on the validity of all prior endorsements. Thus, stamped at the back of
the checks are BDO’s clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF
ENDORSEMENTS GUARANTEED. Without such warranty, Equitable Bank would not
have paid on the checks. No amount of legal jargon can reverse the clear meaning
of BDO's warranty. As the warranty has proven to be false and inaccurate, BDO 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 indorsements by BDO that the
proceeds were credited in its clearing account. BDO is liable for any damage arising
out of the falsity of its representation. The principle of estoppel effectively prevents
BDO from denying liability for any damages sustained by the Equitable Bank which,
relying upon an action or declaration of BDO, paid on the Checks. The same
principle of estoppel effectively prevents BDO 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 indorsement wherein BDO made expressed warranties to induce
payment by the drawer of the Checks; and BDO cannot now refuse liability for
breach of warranty as a consequence of such forged indorsements. BDO has falsely
warranted in favor of Equitable Bank the validity of all indorsements 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 Equitable Bank is irreparable. BDO has
privity with the depositor who is the principal culprit in this case. BDO knows the
depositor; her address and her history. Depositor is BDO'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, BDO is guilty of
negligence; the risk of wrongful payment has to be assumed by BDO.

Bdo V Equitable Banking

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TOPIC Form and Interpretation of Negotiable Instruments; General Principles; Effect of

Estoppel / Same; Defenses; Real Defenses; Forgery and Want of Authority;

2) Whether BDO may raise the defense of forgery before reimbursement of a

3) Whether BDO is estopped from raising the defense of non-negotiability of a

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