FACTS:

The case involves a dispute between Samsung Construction Company Philippines, Inc. (Samsung Construction) and Far East Bank and Trust Company (FEBTC) regarding the payment of a forged check. Samsung Construction had a current account with FEBTC and a check payable to cash was presented for payment. FEBTC teller and other bank employees verified the signature on the check and confirmed its authenticity. The check was encashed, but the next day, it was discovered that the signature on the check was forged. Samsung Construction demanded reimbursement from FEBTC, but the bank claimed it was still investigating. Samsung Construction filed a complaint alleging violation of the Negotiable Instruments Law. During trial, conflicting expert testimony regarding the forgery of the signature was presented. The RTC ruled in favor of Samsung Construction, but the Court of Appeals reversed the decision, finding doubt due to the conflicting expert opinions and attributing negligence to Samsung Construction's accountant for not properly safeguarding the checks.

The Supreme Court reversed the decision of the Court of Appeals. They held that under the Negotiable Instruments Law, a forged signature is "wholly inoperative" and the drawee cannot charge it to the drawer's account. The Court emphasized that a bank is bound to know its depositors' signatures and should not pay a forged check out of the depositor's account. The Court cited various authorities and cases supporting this principle.

In a separate case involving FEBTC and a depositor named Feliciano O. Balampang, a check deposited by Balampang was subsequently discharged and credited to another account at FEBTC. Balampang claimed that his signature on the check was forged, while FEBTC argued that it exercised due diligence and should not be held liable. The Court of Appeals doubted the finding of forgery due to conflicting conclusions made by handwriting experts from the NBI and PNP. The RTC, on the other hand, found the testimony of the NBI expert more credible and observed differences in the questioned signature compared to the standard specimen signature. The Court of Appeals' reliance on conflicting expert opinions was criticized, and the RTC's evaluation of the evidence was noted to be more thorough and reasonable.

ISSUES:

1. Whether the testimony of the NBI expert or the PNP expert should be given more weight and credibility.

2. Whether the differences between the questioned signature and the genuine samples are mere variations or significant disparities.

3. Whether the findings of the Philippine National Police (PNP) or the National Bureau of Investigation (NBI) regarding the authenticity of the signature on the check should be given more weight.

4. Whether FEBTC is required to prove that the check was not forged and that it was not negligent in order to avoid liability.

5. Whether Samsung Construction was negligent in the safekeeping of its checks, and if so, whether its negligence bars it from setting up the defense of forgery.

6. Whether or not FEBTC exercised extraordinary diligence in verifying the validity of the check and the authority of the payee to collect payment.

7. Whether or not FEBTC can be held liable for paying out a forged check.

RULING:

1. The testimony of the NBI expert should be given more weight and credibility. The RTC found the testimony of the NBI expert to be more credible and explained its reasons for this conclusion. The NBI expert had extensive experience and qualifications in document examination, whereas the PNP expert admitted to having only examined around five hundred documents. The RTC had the opportunity to personally observe the expert witnesses and found the testimony of the PNP expert unconvincing. Therefore, the appellate court erred in upholding the findings of the PNP expert.

2. The differences between the questioned signature and the genuine samples are significant disparities. The NBI expert utilized a scientific comparative examination method and found significant differences in the handwriting characteristics between the questioned and sample signatures. The PNP expert downplayed these differences as mere variations, but the RTC and the Court found them to be glaring inconsistencies. The difference in the final upward stroke of the signature, marked as "point no. 6," was particularly notable. The PNP examiner admitted that there were no standard signatures with a similar upward stroke. Therefore, the differences are not mere variations but significant disparities.

3. The Court of Appeals failed to convincingly demonstrate why the PNP's findings were more credible than those of the NBI expert. The distinction between the PNP and the NBI having the opportunity to examine the specimen signature card is irrelevant in establishing forgery. Forgery can be established by comparing the contested signatures with any sample signature duly established as that of the person whose signature was forged. Jong's testimony that the signature on the check was not his, supported by the findings of the NBI examiner and the factual circumstances, supports the conclusion that the check was indeed forged.

4. FEBTC is not required to prove that the check was not forged. The burden of proving negligence lies on the party asserting it, which in this case is Samsung Construction. While the payee may not have personal knowledge of the standard procedures observed by the drawer, it has the means to dispute the presumption of regularity. FEBTC failed to dispute the presumption of ordinary care exercised by Samsung Construction, therefore the Court cannot agree with the finding of negligence by the Court of Appeals.

5. Samsung Construction was not negligent in the safekeeping of its checks. The mere fact that the depositor leaves his check book lying around does not constitute negligence on the part of the depositor. Moreover, Samsung Construction reported the forgery almost immediately upon discovery. The exception to the general rule that the drawee who paid upon the forged signature bears the loss arises only when negligence can be traced on the part of the drawer whose signature was forged. In this case, there is no basis to conclude that Samsung Construction was negligent.

6. The bank failed to exercise extraordinary diligence in verifying the validity of the check and the authority of the payee to collect payment. The bank relied solely on the say-so of the payee and did not undertake further efforts to verify the check. Even if the payee had a history of transacting with the bank, the irregular circumstances surrounding the check should have raised the highest degree of alert for the bank. Therefore, the bank cannot escape liability for its failure to verify the authenticity of the check.

7. The bank is liable for paying out a forged check, regardless of its good faith. Section 23 of the Negotiable Instruments Law provides that no right to enforce payment can arise from a forged signature. The account holder, Samsung Construction, is not precluded from setting up the defense of forgery due to its negligence. Thus, the bank cannot charge the amount paid to the account of the account holder and must be considered as paying out of its own funds.

PRINCIPLES:

• The credibility and weight given to expert testimony depend on the qualifications, experience, and methodology of the expert witness.

• Significant differences in handwriting characteristics can be considered as evidence of forgery or tampering.

• A court's evaluation of expert testimony should be supported by cogent reasons and actual observation of the expert witness.

• Forgery can be established by comparing the contested signatures with any sample signature duly established as that of the person whose signature was forged.

• In determining the authenticity of a signature, the court may consider the testimony of the person whose signature is in question, especially if they are in the best position to know whether or not the signature on the document is theirs.

• The presumption remains that every person takes ordinary care of their concerns and follows the ordinary course of business. Negligence must be proven and cannot be presumed.

• The drawee bank is generally liable to its depositor in paying a check that bears a forgery of the drawer's signature or a forged indorsement.

• A drawee bank may recover back the money paid on a check bearing a forged indorsement, but it does not have the same right with reference to a check bearing a forgery of the drawer's signature.

• The burden of proving negligence lies on the party asserting it.

• The mere fact that the depositor leaves his check book lying around does not constitute negligence on the part of the depositor.

• The exception to the general rule that the drawee who paid upon the forged signature bears the loss arises when negligence can be traced on the part of the drawer whose signature was forged.

• The drawee bank is in a position to verify the drawer's signature by comparison with one in its hands, but has ordinarily no opportunity to verify an indorsement.

• Banks have the duty to protect their clients and depositors by treating their accounts with the highest degree of care and diligence.

• The extraordinary diligence required of banks is more than that of a good father of a family.

• If a bank pays a forged check, it cannot charge the amount paid to the account of the depositor and is liable, regardless of its good faith.