15) San Carlos Milling v. BPI

3/12/2015 PHILIPPINE REPORTS ANNOTATED VOLUME 059

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[No. 37467. December 11, 1933]

SAN CARLOS MILLING Co., LTD., plaintiff andappellant, vs. BANK OF THE PHILIPPINE ISLANDS andCHINA BANKING CORPORATION, defendants andappellees.

BANKS AND BANKING; PAYMENT OF FORGEDCHECKS.—It is an elementary principle of banking that"A bank is bound to know the signatures of its customers;and if it pays a forged check, it must be considered asmaking the payment out of its own funds, and cannotordinarily charge the amount so paid to the account of thedepositor whose name was forged." (7 C. J., 683.) There isno act of the plaintiff that led the Bank of the PhilippineIslands astray. If it was in fact lulled into a false sense ofsecurity, it was by the effrontery of D, the messenger towhom it entrusted the large sum of money in question.

ID.; ID.; PROXIMATE CAUSE OF LOSS.—The signaturesof the checks in question being forged, under section 23 ofthe Negotiable Instruments Law they are not a chargeagainst plaintiff nor are the checks of any value to thedefendant. The proximate cause of loss was due to thenegligence of the Bank of the Philippine Islands inhonoring and cashing the two forged checks.

ID.; DEPOSITOR AND BANKER; CREDITOR ANDDEBTOR.—It is very clear that the relation of plaintiffwith the Bank of the Philippine Islands in regard to thechecks in question, was that of depositor and banker,creditor and debtor. The contention of the bank that it wasa gratuitous bailee is without merit, and absolutelycontrary to what the bank did. It did not take it up as aseparate account but it transferred the credit to plaintiff'scurrent account as a depositor of the bank. Banks are notgratuitous bailees of the funds deposited with them bytheir customers.



4. ID.; ID.; ID.—As the money in question was in fact paid tothe plaintiff corporation the China Banking Corporationwas in

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60 PHILIPPINE REPORTS ANNOTATED

San Carlos Milling Co. vs. Bank of the P. I.

debted neither to the plaintiff nor to the Bank of thePhilippine Islands and consequently was properlyabsolved from any responsibility.

APPEAL from a judgment of the Court of First Instance ofManila. Sison, J.

The facts are stated in the opinion of the court.Gibbs & McDonough and Roman Ozaeta for appellant.Araneta, De Joya, Zaragoza & Araneta for appellee

Bank of the Philippine Islands.Marcelo Nubla and Guevara, Francisco & Recto for

appellee China Banking Corporation.

HULL, J.:

Plaintiff corporation, organized under the laws of theTerritory of Hawaii, is authorized to engage in business inthe Philippine Islands, and maintains its main office inthese Islands in the City of Manila.

The business in the Philippine Islands was in the handsof Alfred D. Cooper, its agent under general power ofattorney with authority of substitution. The principalemployee in the Manila office was one Joseph L. Wilson, towhom had been given a general power of attorney butwithout power of substitution. In 1926 Cooper, desiring togo on vacation, gave a general power of attorney toNewland Baldwin and at the same time revoked the powerof Wilson relative to the dealings with the Bank of thePhilippine Islands, one of the banks in Manila in whichplaintiff maintained a deposit.

About a year thereafter Wilson, conspiring together withone Alfredo Dolores, a messengerclerk in plaintiff's Manilaoffice, sent a cablegram in code to the company in Honolulurequesting a telegraphic transfer to the China BankingCorporation of Manila of $100,000. The money was



transferred by cable, and upon its receipt the ChinaBanking Corporation, likewise a bank in which plaintiffmaintained a deposit, sent an exchange contract to plaintiff.

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VOL. 59, DECEMBER 11, 1933 61San Carlos Milling Co. vs. Bank of the P. I.

corporation offering the sum of P201,000, which was thenthe current rate of exchange. On this contract was forgedthe name of Newland Baldwin and typed on the body of thecontract was a note:

"Please send us certified check in our favor when transfer isreceived."

A manager's check on the China Banking Corporation forP201,000. payable to San Carlos Milling Company or orderwas receipted for by Dolores. On the same date, September28, 1927, the manager's check was deposited with the Bankof the Philippine Islands by the following endorsement:

"For deposit only with Bank of the Philippine Islands, to credit ofaccount of San Carlos Milling Co., Ltd.

"By (Sgd.) NEWLAND BALDWIN "For Agent"

The endorsement to which the name of Newland Baldwinwas affixed was spurious.

The Bank of the Philippine Islands thereupon creditedthe current account of plaintiff in the sum of P201,000 andpassed the cashier's check in the ordinary course ofbusiness through the clearing house, where it was paid bythe China Banking Corporation.

On the same day the cashier of the Bank of thePhilippine Islands received a letter, purporting to be signedby Newland Baldwin, directing that P200,000 in bills ofvarious denominations, named in the letter, be packed forshipment and delivery the next day. The next day, Doloreswitnessed the counting and packing of the money, andshortly afterwards returned with the check for the sum ofP200,000, purporting to be signed by Newland Baldwin asagent.

Plaintiff had frequently withdrawn currency for



shipment to its mill from the Bank of the PhilippineIslands but never in so large an amount, and according tothe record, never under the sole supervision of Dolores asthe representative of plaintiff.

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62 PHILIPPINE REPORTS ANNOTATEDSan Carlos Milling Co. vs. Bank of the P. I.

Before delivering the money, the bank asked Dolores for P1to cover the cost of packing the money, and he left the bankand shortly afterwards returned with another check for P1,purporting to be signed by Newland Baldwin. Whereuponthe money was turned over to Dolores, who took it toplaintiff's office, where he turned the money over to Wilsonand received as his share, ?10,000.

Shortly thereafter the crime was discovered, and uponthe defendant bank refusing to credit plaintiff with theamount withdrawn by the two forged checks of P200,000and P1, suit was brought against the Bank of thePhilippine Islands, and finally on the suggestion of thedefendant bank, an amended complaint was filed byplaintiff against both the Bank of the Philippine Islandsand the China Banking Corporation.

At the trial the China Banking Corporation contendedthat they had drawn a check to the credit of the plaintiffcompany, that the check had been endorsed for deposit, andthat as the prior endorsement had in law been guaranteedby the Bank of the Philippine Islands, when they presentedthe cashier's check to it for payment, the China BankingCorporation was absolved even if the endorsement ofNewland Baldwin on the check was a forgery,

The Bank of the Philippine Islands presented manyspecial defenses, but in the main their contentions werethat they had been guilty of no negligence, that they haddealt with the accredited representatives of the company inthe due course of business, and that the loss was due to thedishonesty of plaintiff's employees and the negligence ofplaintiff's general agent.

In plaintiff's Manila office, besides the general agent,Wilson, and Dolores, most of the time there was employed awoman stenographer and cashier. The agent did not keepin his personal possession either the codebook or the blankchecks of either the Bank of the Philippine Islands or the



China Banking Corporation. Baldwin was authorized todraw checks on either of the depositaries. Wilson could

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VOL. 59, DECEMBER 11, 1933 63San Carlos Milling Co. vs. Bank of the P. I.

draw checks in the name of the plaintiff on the ChinaBanking Corporation.

After trial in which much testimony was taken, the trialcourt held that the deposit of P201,000 in the Bank of thePhilippine Islands being the result of a forgedendorsement, the relation of depositor and banker did notexist, but the bank was only a gratuitous bailee; that theBank of the Philippine Islands acted in good faith in theordinary course of its business, was not guilty ofnegligence, and therefore under article 1902 of the CivilCode which should control the case, plaintiff could notrecover; and that as the cause of loss was the criminalactions of Wilson and Dolores, employees of plaintiff, andas Newland Baldwin, the agent, had not exercisedadequate supervision over plaintiff's Manila office,therefore plaintiff was guilty of negligence, which groundwould likewise defeat recovery.

From the decision of the trial court absolving thedefendants, plaintiff brings this appeal and makes nineassignments of error which we do not deem it necessary todiscuss in detail.

There is a mild assertion on the part of the defendant.bank that the disputed signatures of Newland Baldwinwere genuine and that he had been in the habit of signingchecks in blank and turning the checks so signed over toWilson.

The proof as to the falsity of the questioned signatures ofBaldwin places the matter beyond reasonable doubt, nor isit believed that Baldwin signed checks in blank and turnedthem over to Wilson.

As to the China Banking Corporation, it will be seenthat it drew its check payable to the order of plaintiff anddelivered it to plaintiff's agent who was authorized toreceive it. A bank that cashes a check must know to whomit pays. In connection with the cashier's check, this dutywas therefore upon the Bank of the Philippine Islands, andthe China Banking Corporation was not bound to inspect



and verify all endorsements of the check, even if some of

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them were also those of depositors in that bank. It had aright to rely upon the endorsement of the Bank of thePhilippine Islands when it gave the latter bank credit forits own cashier's check. Even if we would treat the ChinaBanking Corporation's cashier's check the same as thecheck of a depositor and attempt to apply the doctrines ofthe Great Eastern Life Insurance Co. vs. Hongkong &Shanghai Banking Corporation and National Bank (43Phil., 678), and hold the China Banking Corporationindebted to plaintiff, we would at 'the same time have tohold that the Bank of the Philippine Islands was indebtedto the China Banking Corporation in the same amount. As,however, the money was in fact paid to plaintiffcorporation, we must hold that the China BankingCorporation is indebted neither to plaintiff nor to the Bankof the Philippine Islands, and the judgment of the lowercourt so far as it absolves the China Banking Corporationfrom responsibility is affirmed.

Returning to the relation between plaintiff and the Bankof the Philippine Islands, we will now consider the effect ofthe deposit of P201,000. It must be noted that this was nota presenting of the check for cash payment but for depositonly. It is a matter of general knowledge that mostendorsements for deposit only, are informal. Most are bymeans of a rubber stamp. The bank would have beenjustified in accepting the check for deposit even with only atyped endorsement. It accepted the check and duly creditedplaintiff's account with the amount on the face of the check.Plaintiff was not harmed by the transaction as the onlyresult was the removal of that sum of money from a bankfrom which Wilson could have drawn it out in his ownname to a bank where Wilson would not have authority todraw checks and where funds could only be drawn out bythe check of Baldwin.

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San Carlos Milling Co. vs. Bank of the P. I.

Plaintiff in its letter of December 23, 1928, to the Bank ofthe Philippine Islands said in part:

"* * * we now beg leave to demand that you pay over tous the entire amount of said manager's check of twohundred one thousand (P201,000) pesos, together withinterest thereon at the agreed rate of 3½ per cent perannum on daily balances of our credit in account currentwith your bank to this date. In the event of your refusal topay, we shall claim interest at the legal rate of 6 per centfrom and after the date of this demand inasmuch as wedesire to withdraw and make use of the money." Suchlanguage might well be treated as a ratification of thedeposit.

The contention of the bank that it was a gratuitousbailee is without merit. In the first place, it is absolutelycontrary to what the bank did. It did not take it up as aseparate account but it transferred the credit to plaintiff'scurrent account as a depositor of that bank. Furthermore,banks are not gratuitous bailees of the funds depositedwith them by their customers. Banks are run for gain, andthey solicit deposits in order that they can use the moneyfor that very purpose. In this case the action was neithergratuitous nor was it a bailment.

On the other hand, we cannot agree with the theory ofplaintiff that the Bank of the Philippine Islands was anintermeddling bank. In the many cases cited by plaintiffwhere the bank that cashed the forged endorsement washeld as an intermeddler, in none was the claimant aregular depositor of the bank, nor in any of the cases cited,was the endorsement for deposit only. It is therefore clearthat the relation of plaintiff with the Bank of thePhilippine Islands in regard to this item of P201,000 wasthat of depositor and banker, creditor and debtor.

We now come to consider the legal effect of payment bythe bank to Dolores of the sum of P200,001, on two checks

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on which the name of Baldwin was forged as drawer. As



above stated, the fact that these signatures were forged isbeyond question. It is an elementary principle both ofbanking and of the Negotiable Instruments Law that—

"A bank is bound to know the signatures of itscustomers; and if it pays a forged check, it must beconsidered as making the payment out of its own funds,and cannot ordinarily charge the amount so paid to theaccount of the depositor whose name was forged." (7 C. J.,683.)

There is no act of the plaintiff that led the Bank of thePhilippine Islands astray. If it was ,in fact lulled into afalse sense of security, it was by the effrontery of Dolores,the messenger to whom it entrusted this large sum ofmoney.

The bank paid out its money because it relied upon thegenuineness of the purported signatures of Baldwin. These,they never questioned at the time its employees shouldhave used care. In fact, even today the bank representsthat it has a belief that they are genuine signatures.

The signatures to the checks being forged, under section23 of the Negotiable Instruments Law they are not acharge against plaintiff nor are the checks of any value tothe defendant.

It must therefore be held that the proximate cause ofloss was due to the negligence of the Bank of the PhilippineIslands in honoring and cashing the two forged checks.

The judgment absolving the Bank of the PhilippineIslands must therefore be reversed, and a judgmententered in favor of plaintiffappellant and against the Bankof the Philippine Islands, defendantappellee, for the sumof P200,001, with legal interest thereon from December 23,1928, until payment, together with costs in both instances.So ordered.

Malcolm, VillaReal, Vickers, and Imperial, JJ.,concur.

Judgment reversed.

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VOL. 59, DECEMBER 11, 1933 67Estiva and Reyes vs. Cawil



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15) San Carlos Milling v. BPI