negotiable instruments cases sec 23

Judge Caldona DIZON | LORESCA | LUMINARIAS | SANTOS, K. | SY | TY | VILCHES 2-D || Ateneo Law School

1 Ad astra per alia fideles

Negotiable Instruments Case Digests Section 23

Forged signature of drawer

San Carlos Mining v. BPI (12/11/33) D: A bank is bound to know the signatures of its customers; and if it pays

a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the

account of the depositor whose name was forged. With negligence of the bank as the proximate cause of its loss, it cannot hold the depositor liable Facts:

1. Mr. Alfred Cooper manages the business of San Carlos Mining (Hawaii-based company) in its Manila Office. He is under the general power of attorney with power of substitution. Joseph L. Wilson is its principal employee who was given a general power of attorney but WITHOUT power of substitution.

2. Cooper wanted to go on a vacation so he GAVE a general power of attorney to Newland Baldwin and REVOKED the power of Wilson relative to dealing with BPI, which is one of the banks where the company maintained a deposit account.

3. A year later, Wilson conspired with Alfredo Dolores, a messenger-clerk at San Carlos’s Manila office, and sent a cable gram in code to the company in Honolulu requesting for the telegraphic transfer to China Banking Corp. in Manila of $100,000

4. The money was transferred to the account maintained by the company with China Bank. China bank then sent an exchange contract to San Carlos offering P201,000. On this contract was forged the name of Baldwin and a note requesting China Bank to issue a certified check in favor of San Carlos Mining when the transfer is received

5. The following events happened on the same day (September 27, 1927) a) The requested manager’s check was issued by China Bank

payable to San Carlos Mining or order was received by Dolores

b) The check was deposited with BPI with the SPURIOUS endorsement under the name of Baldwin as agent

c) BPI credited the P201,000 to San Carlos’ deposit account

and passed the cashier’s check in the ordinary course of business through the clearing house where it was paid by China Bank.

d) BPI’s cashier received a letter purportedly signed by Baldwin directing the former to pack and deliver the next day P200,000 in various denominations, named in the letter.

6. The next day, Dolores, witnessed the counting and packing of the money and gave BPI a check for the sum of P200,000 purporting to have been signed by Baldwin as agent. San Carlos has NEVER withdrawn such a large amount and NEVER under the sole supervision of Dolores as its representative

7. Dolores also issued a check for P1 purportedly signed by Baldwin as payment for the cost of packing the money. Dolores turned over the money to Wilson and then received his share.

8. When their crime was discovered and upon BPI’s refusal to credit San Carlos Mining for the P200,000 and P1 forged checks, the latter filed a suit against BPI. BPI suggested to include China Bank as a defendant

9. BPI argues that it is not guilty of any negligence and that the loss was due to the dishonesty of San Carlo’s own employees.

10. Trial Court: The deposit of P201,000 in BPI being the result of a forged endorsement only made BPI a gratuitous bailee. BPI was not also guilty of negligence. The court also absolved China Bank from any liability

Issu Issues: WON China Bank should also be liable for drawing the check payable to San Carlos

WON BPI was a gratuitous bailee WON BPI should bear the loss of its payment on the forged notes

Held: NO, NO and Yeeeeeees Ratio:

1. China Bank is not obliged to inspect and verify all the endorsements of the check. BPI has the obligation to know to whom it should have made payment.

2. BPI, like all other banks, is not a gratuitous bailee of the funds deposited with them by their customers, because the relationship between a bank and its depositor is one of a debtor-creditor



relationship with the banks being the debtors who use the money of their customers (creditors) to gain profit.

3. A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged. With negligence of the bank as the proximate cause of its loss, it cannot hold the depositor liable

4. San Carlos did not do any act to mislead BPI into making the payment. BPI allowed itself to be misled by Dolores due to its own negligence. As a consequence, under Sec. 23 of the NIL, when the signatures to the checks being forged, neither should the vale of the checks be charged against the depositor nor the checks be considered of any value to the bank

Philippine National Bank v Quimpo (03/14/1988)

D: The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the depositor on the check being encashed. It is expected to use reasonable business prudence in accepting and cashing a

check presented to it

Facts: 1. Francisco S. Gozon II, was a depositor of the Philippine National Bank

(PNB or the Bank). In his car, Gozon left his friend Ernesto Santos while he transacted business in the bank. Santos noticed that Gozon left his checkbook in the car. Thereafter, Santos took a blank check from such checkbook. Santos then filled up the check for the amount of PhP5,000.00, forged the signature of Gozon, and then encashed the check on the same day

2. Gozon asked that the said amount be returned to his account because his signature was forged, but the bank refused

3. Gozon filed a complaint for recovery of the amount 4. The RTC ruled in favor of Gozon and ordered the bank to return the

amount 5. The bank filed a petition for review on certiorari before the Supreme

Court Issue: WON the act of Gozon in putting his checkbook containing the check in question into the hands of Santos was indeed the proximate cause of the

loss, thereby precluding him from setting up the defense of forgery or want of authority under Section 23 of the Negotiable Instruments Law Held: No Ratio:

1. The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the depositor on the check being encashed. It is expected to use reasonable business prudence in accepting and cashing a check presented to it

2. PNB was negligent in encashing said forged check without carefully examining the signature which shows marked variation from the genuine signature of Gozon

3. Gozon trusted Santos as a classmate and a friend. He brought him along in his car to the bank and left his personal belongings in the car. Santos however removed and stole a check from his checkbook without the knowledge and consent of Gozon. No doubt Gozon cannot be considered negligent under the circumstances of the case

PNB v C.A.

D: When one of two innocent persons must suffer by the wrongful act of the third person, the loss must be borne by the one whose negligence was

the proximate cause of the loss or who put it into the power of the third person to perpetrate wrong

Facts:

1. Augusto Lim deposited in his account in PCIB a GSIS check worth 57k drawn against PNB. Upon receipt PCIB stamped the following on the back of the check: “All prior indorsements and or lack of Endorsement Guaranteed.”

2. Following banking practice, PCIB forwarded the check for clearing to PNB through Central Bank

3. Despite being informed 2 months prior by GSIS that said check was lost and that payment should be stopped, PNB did not return check but kept the same, paid the amount and debited it against GSIS account

4. Subsequently, payment of 57k was re-credited in GSIS account for the reason that the signatures of GSIS officers on the checks as drawers were forged



5. PNB filed a complaint to recover the 57k sum from PCIB which refused.

6. RTC: dismissed complaint 7. C.A.: affirmed

Issue: WON indorsements at the back of the check were forged Held/ratio: No

1. Question of whether or not the indorsements have been falsified is immaterial to PNB’s liability as drawee or its right to recover from PCIB. This is so for as against the drawee, the indorsement of an intermediate bank does not guarantee the signature of the drawer, since forgery of the indorsement is not the cause of loss

Issue: WON PCIB is liable by virtue of the warranty at the back of the check Held/ratio: NO

1. PCIB guaranteed “all prior indorsements,” not the auntheticty of the signatures of the officers of GSIS who signed on behalf because GSIS is not the indorser of the check. Such warranty Iis irrelevant to PNB’s alleged right to recover

Issue: WON “acceptance” is equal to “payment” Held/ratio: NO

1. Under NIL, “acceptance” is not required for checks for they are payable on demand

2. Acceptance is the promise to perform. Payment means actual performance of the promise

3. Acceptance of a bill is the signification of the drawee of his assent to the order of the drawer which in the case of checks is the payment on demand, of a given money

4. Actual payment of the amount of the check implies not only assent to the order of the drawer and recognition of the drawee’s obligation to pay the aforementioned sum but also compliance to said obligation

Issue: WON PCIB is guilty of negligence Held/ratio: NO

1. Undeniable that PNB had been guilty of greater negligence because it had previous and formal notice form GSIS that checks were lost with the payment that payments be stopped

2. In fact, when PCIB sent the check to Central Bank for clearing, PNB did not return check which, under banking practice, implies that PNB considered the check as good. By not returning the check, PNB

Induced PCIB to believe that the check was good and genuine in every respect. PNB was the proximate cause of the loss hence, it cannot recover from PCIB

MWSS v CA

Facts:

1. The Metropolitan Waterworks and Sewerage System (MWSS) is a government owned and controlled corporation created under RA 6234 as the successor-in-interest of the defunct NWSA.

2. The Philippine National Bank (PNB), on the other hand, is the depository bank of MWSS and its predecessor-in-interest NWSA.

3. Among the several accounts of NWSA with PNB is NWSA Account 6, otherwise known as Account 381-777 and which is presently allocated 010-500281. The authorized signature for said Account 6 were those of MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor L. Recio. Their respective specimen signatures were submitted by the MWSS to and on file with the PNB.

4. By special arrangement with the PNB, the MWSS used personalized checks in drawing from this account.

5. These checks were printed for MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal Extension, Caloocan City.

6. During the months of March, April and May 1969, 23 checks were prepared, processed, issued and released by NWSA, all of which were paid and cleared by PNB and debited by PNB against NWSA Account 6.

7. During the same months of March, April and May 1969, 23 checks bearing the same numbers as the NWSA checks were likewise paid and cleared by PNB and debited against NWSA Account 6. The checks were deposited by the payees Raul Dizon, Arturo Sison and Antonio Mendoza in their respective current accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC) in the months of March, April and May 1969. Thru the Central Bank Clearing, these checks were presented for payment by PBC and PCIB to the PNB, and paid, also in the months of March, April and May 1969.



8. At the time of their presentation to PNB these checks bear the standard indorsement which reads “all prior indorsement and/or lack of endorsement guaranteed.”

9. Subsequent investigation however, conducted by the NBI showed that Dizon, Sison and Mendoza were all fictitious persons.

10. On 11 June 1969, NWSA addressed a letter to PNB requesting the immediate restoration to its Account 6, of the total sum of P3,457,903.00 corresponding to the total amount of the 23 checks claimed by NWSA to be forged and/or spurious checks.

11. PNB refused to credit back the said total sum of P3,457,903.00.

12. MWSS filed the present complaint on 10 November 1972 before the CFI Manila.

CFI’s Decision:

On 6 February 1976, the CFI Manila rendered judgment in favor of the MWSS, ordering the PNB to restore the total sum of (P3,457,903.00) to MWSS's Account 6 with legal interest thereon computed from the date of the filing of the complaint and until as restored in the said account.

CA’s Decision: On appeal and on 29 October 1982, the Court of Appeals reversed the decision of the CFI Manila and rendered judgment in favor of the respondent Philippine National Bank. ISSUE: A.WON MWSS can assert forgery as a defense? B. WON MWSS was negligent? HELD: A. No, there were no evidence that checks were forged.

Forgery cannot be presumed. It must be established by clear, positive, and convincing evidence. This was not done in the present case.

There is no express and categorical finding in these documents that the 23 questioned checks were indeed signed by persons other than the authorized MWSS signatories.

On the contrary, NBI reports show that MWSS fraud was an "inside job" and that MWSS's delay in the reconciliation of bank statements and the laxity and loose records control in the printing of its personalized checks facilitated the fraud.

Likewise, the questioned Documents Report 159-1074 dated 21 November 1974 of the NBI does not declare or prove that the signatures appearing on the questioned checks are forgeries. The report merely mentions the alleged differences in the typeface, check writing, and printing characteristics appearing in the standard or submitted models and the questioned type writings. The NBI Chemistry Report C-74-891 merely describes the inks and pens used in writing the alleged forged signatures.

The 3 NBI Reports relied upon by MWSS are inadequate to sustain its allegations of forgery. These reports did not touch on the inherent qualities of the signatures which are indispensable in the determination of the existence of forgery. There must be conclusive findings that there is a variance in the inherent characteristics of the signatures and that they were written by two or more different persons.

B. Yes, MWSS was negligent and this was the proximate cause of its loss.

MWSS committed gross negligence in the printing of its personalized checks. The records show that at the time the 23 checks were prepared, negotiated, and encashed, MWSS was using its own personalized checks, instead of the official PNB Commercial blank checks. In the exercise of this special privilege, however, MWSS failed to provide the needed security measures. That there was gross negligence in the printing of its personalized checks is shown by the following uncontroverted facts, that MWSS failed to:

(1) Give its printer, Mesina Enterprises, specific instructions relative to the safekeeping and disposition of excess forms, check vouchers, and safety papers (2) Retrieve from its printer all spoiled check forms (3) Provide any control regarding the paper used in the

printing of said checks



(4) Furnish the respondent drawee bank with samples of typewriting, check writing, and print used by its printer in the printing of its checks and of the inks and pens used in signing the same (5) Send a representative to the printing office during the

printing of said checks.

Another factor which facilitated the fraudulent encashment of the 23 checks was the failure of MWSS to reconcile the bank statements with its own records. It is accepted banking procedure for the depository bank to furnish its depositors bank statements and debt and credit memos through the mail. MWSS requested the drawee bank to discontinue the practice of mailing the bank statements, but instead to deliver the same to a certain Mr. Emiliano Zaporteza. For reasons known only to Mr. Zaporteza however, he was unreasonably delayed in taking prompt deliveries of the said bank statements and credit and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the bank statements with MWSS's records. If Mr. Zaporteza had not been remiss in his duty of taking the bank statements and reconciling them with MWSS's records, the fraudulent encashments of the first checks should have been discovered, and further frauds prevented. This negligence was, therefore, the proximate cause of the failure to discover the fraud.

Republic v. Equitable Banking Corporation (1/30/1964)

D: Generally, where a drawee bank otherwise would have a right of recovery against a collecting or indorsing bank for its payment of a forged

check, its action will be barred if it is guilty of an unreasonable delay in discovering the forgery and in giving notice thereof

D: “Where a loss, which must be borne by one of two parties alike

innocent of forgery, can be traced to the neglect or fault of either, it is reasonable that it would be borne by him, even if innocent of any

intentional fraud, through whose means it has succeeded.” Facts: Government (Treasurer): drawee -> the warrants are cleared thru Clearing Office

Government (Auditor): drawer

1. 28 treasury warrants were executed on genuine government forms but the signature thereon of the Auditor in General was alleged to be forged

2. 24 of the treasury warrants amounting to P342, 767.63 were deposited by the Corporacion to BPI. BPI then presented the warrants for payment to the drawee (government) thru the Clearing Office of CB and after being cleared, the warrants were paid by the Treasurer. Hence, BPI credited the proceeds of warrants to Corporacion. However, Treasurer later returned all warrants and demanded that value of the warrants be charged against BPI on the ground that they had been forged and be credited back to Treasury. The demand for reimbursement was ignored by BPI.

3. On the other hand, 4 of the treasury warrants amounting to P17,100 were deposited by Wong, Kau and Ching to Equitable Bank which cleared said warrants thru the Clearing Office and then collected the corresponding amounts from the Treasurer. Later on, Treasurer notified Equitable of alleged defect of warrants and demanded reimbursement of the amounts. This demand was rejected by Equitable.

4. Now, the government instituted an action for recovery against BPI of P342, 767.63 and Equitable of P17,100

5. Both RTC and CA dismissed the case. Issues: (1st issue)WON Treasurer is bound by the 24-hour clearing house rule of Clearing Office (2nd issue)WON Treasurer may recover value of warrants from BPI and Equitable Held: Yes. Treasurer is bound by the 24-hour clearing house rule of Clearing Office No. Treasurer may not recover from both BPI and Equitable Ratio: (1st issue)

1. The clearing of the 28 warrants thru the Clearing Office was made pursuant to the “24-hour clearing house rule”, which had been adopted by CB in a conference with representatives and officials of different banking institutions in the Philippines.



2. The rule is embodied in Sec 4, subsection (c) of Circular No. 9 of CB. The contention of Treasurer that it is not bound by this rule because the Treasury is not a bank and that it had objected to this rule is untenable because admittedly, the Treasury is a member of the Clearing office which shows that the latter is subject to the rules and regulations of CB. Besides, the rule applies not only to bank but also to institutions.

3. The opposition (that it is physically impossible for Treasury to verify the treasury warrants within 24 hrs because of limited personnel and voluminous treasure warrants to be cleared)of the Treasurer to the rule is not sufficient to exempt the Treasury from operation thereof.

Note: Because of this rule, the drawee bank should give notice of forgery on time. However, in this case, Treasury was delayed in informing BPI and Equitable of the forgery (2nd issue)

4. Treasury was not only negligent in clearing the warrants but also induced the BPI and Equitable to pay the amounts of treasury warrants. The gross nature of the negligence becomes more evident because the warrants involved was over P5,000 and hence, beyond the authority of the auditor of the Treasury whose signature thereon had been forged. Moreover, they did not advertise the loss of the genuine forms of its warrants.

5. Neither BPI nor Equitable had been informed of any irregularity in connection with the warrants but they were only informed of such when the warrants had already been cleared and honored. As a consequence, the loss of amounts thereof is imputable to acts and omissions of Treasury for which BPI and Equitable cannot be penalized.

6. SC cited case of PNB v. National City Bank of New York – “Where a loss, which must be borne by one of two parties alike innocent of forgery, can be traced to the neglect or fault of either, it is reasonable that it would be borne by him, even if innocent of any intentional fraud, through whose means it has succeeded.”Hence, because Treasury was negligent, loss shall be borne by it

7. Rule: “Generally, where a drawee bank otherwise would have a right of recovery against a collecting or indorsing bank for its payment of a forged check, its action will be barred if it is guilty of an

unreasonable delay in discovering the forgery and in giving notice thereof”

National Bank v. National City Bank of New York (10/31/1936)

D: Based on sec. 23 of the NIL, where a drawee accepts or certifies a check, it is estopped to deny the genuineness of the drawer’s signature

and his capacity to issue the instrument; but in the absence of the drawee’s actual fault, his constructive fault in not knowing the signature

of the drawer and detecting the forgery, he is not precluded from recovering from one who took the check under suspicious circumstances and without proper precaution, or whose conduct misled or induced the

drawee to pay the check without usual scrutiny or other precautions against mistake or fraud

Facts:

1. On separate dates, some unknown persons negotiated with Motor Service Company, Inc. (MTCI, one of the defendants) two checks for payment of automobile tires, which purported to have been issued by Pangasinan Transportation, Inc. against National Bank (PNB) and in favor of International Auto Repair Shop.

2. One of the checks, which had a prior number, was issued on a later date than the date of issuance of the other check with a later number (check 1: 637020-D; check 2: 637023-D)

3. MTCI accepted these checks from the unknown persons. One of the checks (check 2) was indorsed by a subagent of the agent of the payee (International Auto Repair Shop)

4. MTCI then indorsed said checks for deposit at the National City Bank of New York (NY)

5. MTCI was then credited with the amounts of the checks. 6. After the checks were cleared, PNB credited the amounts in favor of

NY 7. Later, however, PNB found out from the drawer that appeared on the

checks that his signatures were forged so PNB demanded from defendants reimbursements of the amounts credited NY and for which NY credited MTCI. The defendants refused

8. The drawer also refused to deduct the proceeds of the checks from its deposit

9. RTC: Reimburse PNB



Issue: WON PNB, as drawee bank, may recover from defendants Held: Yeeeeeees Ratio:

1. As a rule, PNB became estopped when it accepted the checks 2. Exceptions:

a) If the holder of the instrument was negligent when he accepted the checks without ascertaining that the signatures therein aren’t forged

– MTCI accepted the checks from unknown persons

– The dates of issuance of the checks were suspicious

– The indorsements on the checks were only made by a subagent of the agent of the drawer

b) If the holder’s position would not become worse than if the drawee had refused the payment of the checks upon their presentation

c) If the drawee, by its acceptance of the checks, did not warrant to the holder the genuineness of the checks and if it did not perform any act which would have induced the holder of the check to believe in the genuineness of the checks before the latter purchased them for value

d) If the drawee’s fault is not actual, but only constructive, because it did not know the signature of the drawer only

Ilusorio v. CA (11/27/2002) D: When a signature is forged, it is wholly inoperative unless the party

against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority

Facts:

1. Ramon K. Ilusorio is a prominent businessman who serves as the Managing Director of the Multinational Investment Bancorporation at the time when this case was first instituted. He is also the chairman and president of other corporations

2. As he was running about 20 corporations at a time and is often out of the country. As such, he has entrusted his credit cards and his checkbook with blank checks to his secretary, Katherine E. Eugenio

3. It was Eugenio who verified and reconciled the statements of the checking accounts

4. Between September 1980 to January 1981, Eugenio was able to encash and deposit to her personal account 17 checks drawn against Ilusorio’s account with the Manila Banking Corporation. The aggregate amount was PHP 119,634.34

5. Petitioner did not bother to check this until a business partner told him that he was Eugenio using his credit cards

6. As a result, Ilusorio fired Eugenio and instituted a criminal action against her for estafa thru falsification. Manila Banking Corporation also filed a complaint against Eugenio on the basis of Ilusorio’s complaint that his signatures in the checks were forged

7. In his statement, Mr. Razon (who works for Manila Bank) claimed that he has examined the checks with utmost care in accordance to the bank’s SOP by comparing the signatures on the check and specimen of Ilusorio’s signature. Further, he testified that Eugenio personally enchased the checks at their office

8. Ilusorio then requested the bank to credit back and restore to his account the value of the checks which were wrongfully encashed. Manila Bank refused (duh). Petitioner then filed a case against Manila Bank, alleging that they were negligent in checking the authenticity of the signature appearing on the checks

9. The NBI asked petitioner to submit at least 7 standard signatures for verification. However, Ilusorio failed to comply with the request.

10. RTC: Dismissed complaint for lack of sufficient basis. 11. CA: Affirmed RTC decision, stating that it was petitioner’s own

negligence that was the proximate cause of his loss Issue:

1. WON Manila Bank is liable for damages for its negligence in failing to detect the discrepancy in the signatures on the checks

2. WON the forged check is inoperative under Sec. 23 of the NIL, thus Manila Bank had no authority to pay for the forged checks

Held: No Ratio:

1. FIRST ISSUE: Ilusorio contends that Manila Bank is liable for damages since as a general rule, a bank which has obtained possession of



check upon an unauthorized or forged endorsement of the payee’s signature and which collects the amount of the check from the drawee is liable for the proceeds thereof to the payee. Further, Manila Bank is stopped from asserting the fact that forgery was not proven because they themselves instituted a case against Eugenio

2. But Manila Bank raises the defense that Sec. 23 of the NIL is inapplicable since forgery was never proven

3. The Supreme Court held that it was Ilusorio who has the burden of proving negligence on the part of the bank. It is incumbent upon him to establish the fact of forgery by submitting his specimen signatures and comparing them with those on the questioned check. However, Ilusorio failed to submit specimen of signatures to the NBI

4. SC affirmed RTC and CA’s decision that the bank employees exercised due diligence in cashing the checks. They did not doubt Eugenio since she was a regular customer of the bank, having been designated by Ilusorio as his agent to transact with them on his behalf. For the Court, it was Ilusorio and not the bank who’s negligent since he gave Eugenio unrestricted access on his various accounts

5. Proximate cause of damage = petitioner’s failure to examine his bank statements. Bank sent him monthly bank statements, but he did not check on any error or discrepancy in the entries

6. SECOND ISSUE: Ilusorio contends that under Sec 23 of the NIL, a forged check is inoperative thus Manila Bank had no authority to pay the checks.

a. General rule: When a signature is forged, the check is wholly inoperative. No right to retain the instrument or enforce payment against any party can be acquired under such signature

b. Exception: Unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority

7. In the current case, the exception applies since Ilusorio is precluded from setting up forgery due to his own negligence.

BPI v. Casa Montessori Internationale (5/28/04) D: A bank’s prime duty is to ascertain well the genuineness of the signatures of its client-depositors on checks being encashed and is “expected to use reasonable business prudence.” In the

performance of that obligation, it is bound by the internal banking rules and regulations that form part of the contract it enters into with its depositors. Failure to do so would amount to negligence, which will make the bank bear the loss on its

encashment of a forged instrument Facts:

1. Casa Montessori maintains an account with BPI with Casa’s President Ms. Lebron as one of its authorized signatories.

2. In 1999, BPI conducted an investigation and discovered that a Sonny D. Santos enchased 9 checks with a total amount of P782,000. “Sonny D. Santos” is the fictitious name used by Leonardo Yabut, external auditor of Casa. Yabut admitted to forging Lebron’s signature in order to encash the checks. Yabut, later on, destroyed the checks to cover up his crime

3. With the signatures being confirmed by the police as forgeries, Casa field a complaint against BPI for damages and reinstatement of the amount P782,500 with 6% interest. Yabut confessed of his crime

4. Since the checks were destroyed, both the RTC and CA admitted microfilm copies of the checks destroyed as well as testimonial and other documentary evidence

5. RTC: ruled in favor of Casa 6. CA: modified the decision of the RTC by apportioning the loss

between BPI and Casa, taking into consideration Casa’s contributory negligence which resulted to the forgery

Issu Issues: WON there was forgery under the Sec. 23 of NIL which makes the instrument wholly inoperative WON BPI was negligent thus making it liable for damages WON moral and exemplary damages and attorney’s fees and interest should be awarded Held: Yeeeeeees, No and partly NO and partly Yeeeeeees Ratio:

1. Forgery under Sec. 23 of the NIL was committed as shown by the admission of Yabut and the confirmation by the PNP Crime



Laboratory of the forgery. Counterfeiting of any writing, consisting in the signing of another’s name with the intent to defraud is FORGERY. Under the NIL, a forged signature is a real or absolute defense, and a person whose signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the contract that allegedly gave rise to it.

2. The banking business is impressed with public interest, of paramount importance thereto it the trust and confidence of the public in general. Consequently, the highest degree of diligence and high standards of integrity and performance are required of it. Banks are under the obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship

A bank’s prime duty is to ascertain well the genuineness of the signatures of its client-depositors on checks being encashed and is “expected to use reasonable business prudence.” In the performance of that obligation, it is bound by the internal banking rules and regulations that form part of the contract it enters into with its depositors. However, BPI failed to observe such prudence as seen in the following instances:

a) Yabut was able to open an account with BPI even withput the proper verification of his corresponding identification papers (privity)

b) BPI was not able to identify early on the marked difference of the signatures on the checks and those on the signature card

c) The Central Verification Unit of BPI passed off the forged signatures as genuine ones

Having contributed to the perpetration of fraud due to its negligence, BPI then must bear the loss Casa cannot likewise be faulted for not responding to the simple confirmation or “circularization” policy of BPI as Casa merely

committed an innocent mistake (for being ignorant of the policy); therefore, estoppel will not arise

3. Casa was not granted any moral and exemplary damages for failure to prove bad faith on the part of BPI. BPI was only negligent in performing its duties to Casa. Casa was also granted the attorney’s fee and 6% interest on the amount due

Citibank, N.A. v Cabamongan (05/02/2006)

D: A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its

own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.

Facts: (1) Luis and Carmelita Cabamongan opened a joint “and/or” foreign

currency time deposit in trust for their sons Luis, Jr and Lito at Citibank (the Bank), in the amount of $55,216.69 for a term of 182 days, at 2.5625 percent interest per annum. Prior to maturity, a person claiming to be Carmelita went to the bank and pre-terminated the said foreign currency time deposit by presenting a passport, a Bank of America Versatele Card, and ATM card and a Mabuhay Credit Card. Said person failed to surrender the original Certificate of Deposit, she had to execute a notarized release and waiver document, pursuant to the bank’s internal procedure, before the money was released to her. The document was not notarized, but the money was nonetheless released and given to her.

(2) San Pedro (Account Officer of the Bank) called up Carmelita’s listed address. Marites, the wife of Lito, received San Pedro’s call and was stunned by the news that Carmelita pre-terminated her foreign currency time deposit because Carmelita was in the US at that time. Marites made an overseas call to inform Carmelita about what happened. The spouses Cabamongan were shocked to hear the news. It seems that an unidentified person broke into their house in the US. They initially reported that only Carmelita’s jewelry box was missing, but later on, they discovered that other items, such as passports, bank deposit certificates, including the subject foreign currency deposit, and identification cards were also missing.



(3) The spouses Cabamongan informed the bank that Carmelita was in the US and did not pre-terminate their deposit, and that the person who did it was an impostor.

(4) San Pedro told the spouses to submit necessary documents to support their claim, but the bank concluded nonetheless that Carmelita indeed pre-terminated her deposit.

(5) The spouses made a formal demand, but the bank refused such demand. The spouses then filed a complaint against the bank for specific performance with damages.

(6) The RTC rendered a decision in favor of the spouses Cabamongan, ordering the bank to pay the principal amount, plus moral damages and attorney’s fees.

(7) The CA affirmed the decision of the RTC, but reduced the amount for moral damages and deleted the awards for exemplary damages and litigation expenses.

Issue: WON the bank was negligent in allowing the pre-termination of the account. Held: Yeeeeees Ratio:

(1) In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pre-termination of deposits are forgeries. Citibank, with its signature verification procedure, failed to detect the forgery. Its negligence consisted in the omission of that degree of diligence required of banks. A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.

(2) The bank, through San Pedro, did not observe the degree of diligence required of banking institutions when despite noticing discrepancies in the signature and photograph of the person claiming to be Carmelita and the failure to surrender the original certificate of time deposit, the pre-termination of the account was allowed. Even the waiver document was not notarized, a procedure meant to protect the bank. Citibank is therefore liable for damages.

(3) The time deposit in this case is a simple loan. Thus, in a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum counted from the time of demand. The stipulated rate of 2.562% per annum shall apply for the 182-day contract. From the time of

demand until full payment, the interest rate shall be at 12%. As for the period between the expiration of the 182-day contract and the extrajudicial demand, the interest will be at rate then prevailing granted by Citibank

Forged indorsement

Great Eastern Life Ins. Co. v. HongKong Shanghai Bank D: The only remedy of a bank paying a check to a person who has forged

the name of the payee is against the forger.

FACTS: 1. Great Eastern Life Ins. Co (GELIC) is an insurance company which

drew a check worth 2k payable to the order of Lazaro Melicor from drawee bank HSBC.

2. Check fraudulently got into the possession of E.M. Maasim who forged Melicor’s signature as endorser and personally indorsed the and presented said check to PNB where the amount was placed in his credit.

3. After paying for the check, PNB endorsed the same to HSBC which paid the amount charged in the account of GELIC. A bank statement was then forwarded to GELIC which made no objection.

4. After four months, GELIC learned that Melicor never received any check and that the latter’s signature was forged by Maasim

5. Subsequently, GELIC demanded from HSBC the credit for the amount of the forged check but the bank refused to do so. Thus, a complaint was filed.

6. RTC: dismissed 7. C.A.: affirmed

ISSUE: Who is responsible for the refund of the drawer of the amount of the check drawn and payable to order when its value was collected by a third person by means of forgery of the signature of the payee? HELD/RATIO: forger

1. GELIC ordered the money to be paid to Melicor and not to Massim. That the money was paid to Maasim and not to Melicor who dod s not endorse or authorize Maasim to indorse it for him. HSBC has no



defense against the recovery of money. When GELIC received bank statement from HSBC, the former had the right to assume that Melicor personally endorsed the check and that otherwise, the bank would not have paid the amount.

2. HSBC’s remedy is to recover from PNB 3. PNB had no license or authority to pay the money to Maasim or

anyone else upon a forged signature. It was its legal duty to knoe that Melicor’s endorsement was genuine before cashing the check.

4. PNB’s remedy is to recover from Maasim

Gempesaw vs. CA

Facts:

1. Gempesaw owns and operates four grocery stores located in Caloocan City. She also maintains a checking account with PBCOM Caloocan City Branch.

2. Alicia Galang, her trusted bookkeeper who worked for her for 8 years, prepares and fills up all the material particulars of all her checks. After which the completed checks are submitted to Gempesaw for her signature, together with corresponding invoice receipts which indicate the correct obligations due and payable to the suppliers. She signed every check without bothering to verify the accuracy of the checks against the corresponding invoices.

3. The issuance and delivery of the checks to the payees were left to Galang. Gempesaw did not make any verification as to whether the checks were actually delivered to their respective payees.

4. PBCOM notified Gempesaw of all her checks presented to and paid by the bank. It also furnished her with a monthly statement of her bank transactions, attaching thereto all the cancelled checks she had issued and which were debited against her current account.

5. For the span of 2 years, Gempesaw issued 82 checks in favour of several suppliers. These checks were all presented by the indorsees as holders thereof to, and honoured by PBCOM.

6. PBCOM debited the amounts of the checks against Gempesaw’s checking account. Most of the checks were for amounts in excess of her actual obligations. All the checks issued were crossed checks.

7. All 82 checks were brought to Ernest Boon, Chief Accountant of PBCOM Buendia Branch, who without authority accepted the all for

deposit to the credit and/or in the accounts of Alfredo Romero and Benito Lam. According to bank rules, only the Branch Manager may accept a second indorsement on a check for deposit.

8. It was only after 2 years when she found out about the fraudulent manipulations of her bookkeeper.

9. The auditors of PBCOM which conducted periodical inspection of the branches’ operations failed to discover, check or stop the unauthorized acts of Boon.

10. 30 of the payees testified that they did not receive nor see the subject checks and the indorsement appearing on the back were not theirs.

11. On November 7, 1984, Gempesaw made a written demand on PBCOM to credit her account with the money value of the 82 checks totalling P 1, 208, 606. 89 for having wrongfully charged against her account.

12. PBCOM refused to grant Gempesaw’s demand. On January 23, 1985, Gempesaw filed a complaint with the RTC.

ISSUE:

A. WON Gempesaw can assert forgery as a defense? B. WON Gempesaw is entitled to damages?

HELD:

A. No, Gempasaw’s negligence was the proximate cause her loss.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the amount of said check. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks.

The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the depositor to act as a prudent businessman would under the circumstances. In the present case, Gempesaw relied implicitly upon the honesty and loyalty of her bookkeeper, and did not even verify the accuracy of the amounts of the checks she signed against the invoices attached thereto. Furthermore, although she regularly received her bank statements, she apparently did not carefully examine the same nor the check



stubs and the returned checks, and did not compare them with the sales invoices. Otherwise, she could have easily discovered the discrepancies between the checks and the documents serving as bases for the checks. With such discovery, the subsequent forgeries would not have been accomplished. It was not until two years after the bookkeeper commenced her fraudulent scheme that Gempesaw discovered that 82 checks were wrongfully charged to her account, at which time she notified the drawee Bank.

B. Yes, Gempasaw is entitled to damages because PBCOM is liable under Article 1170 of the Civil Code, and not Article 2179.

There is a contractual relation between Gempesaw as depositor (obligee) and the drawee bank as the obligor. In the performance of its obligation, the drawee bank is bound by its internal banking rules and regulations which form part of any contract it enters into with any of its depositors. When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence

Banco de Oro Savings and Mortgage Bank v. Equitable Banking

Corporation (1/20/1988) D: 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 Facts: Equitable Bank (Visa Card Dept.): drawer Equitable Bank: drawee Members of VCD: payee BDO: Collecting bank Aida Trencio: depositor

1. Equitable Bank, through its Visa Card Dept, drew 6 crossed Manager’s check for P45,982.23. The checks were deposited with BDO to the credit of its depositor, a certain Aida Trencio

2. BDO stamped at the back of the check its usual endorsement: “All prior and/or lack of endorsement guaranteed”. Then, it sent the checks for clearing through Phil. 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.

3. Thereafter, Equitable discovered that the endorsement 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.

4. Pursuant to PCHC Clearing Rules and Regulations, Equitable presented checks directly to BDO for reimbursement. BDO refused to reimburse Equitable for the value of the checks.

5. Hence plaintiff complained to Arbiter in accordance with Section 38 of Clearing House Rules and Regulations.

6. Arbiter rendered judgment in favor of Equitable and ordered BDO to reimburse Equitable of the amount of P45,982.23 with 12% interest

7. MFR filed by BDO was denied and Board of Directors also affirmed decision of Arbiter

8. BDO then filed a petition for review under RTC which also affirmed the decision of PCHC. Hence, this petition to SC.

Issues: WON PCHC have jurisdiction even if check is non-negotiable WON BDO is negligent and thus responsible for any undue payment Held: YES to both Ratio:

1. The Articles of Incorporation of PCHC extend its operation to clearing checks and other clearing items. No doubt transactions on non-negotiable checks are within the ambit of its jurisdiction. 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 because settled is the rule that when the law does not distinguish, the court should not distinguish.

2. SC also added that BDO is estopped from claiming that the checks are non-negotiable due to its own act. 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 that the proceeds were credited in its clearing account. It assumed the liabilities of an endorser by stamping its guarantee at the back of the checks. Hence, because of such action, it treated the checks, for all intents and purposes, to be negotiable.

Note: The RULE is: 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

3. Because of BDO’s actions, it led Equitable to believe that it was acting as endorser of the checks and on the strength of this guarantee, Equitable cleared the checks in question and credited the account of BDO. (doctrine of estoppel)

4. A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged indorsement.

5. RULE: 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. (PNB v. National City Bank)

6. RULE: When 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.

Note: In the present case, the 2 previous rules I have just mentioned applies. BDO (collecting bank) is liable to Equitable because it was estopped by its own act (see ratio no. 2 and 3). Equitable (drawee bank) discovered the forgery and can recover amount paid from collecting bank (BDO)

BPI v CA (11/26/1992) D: Generally, payment made through a forged signature is ineffective or does not discharge the instrument. The exception to this rule is when the

party who relied on the forgery is precluded from setting up the forgery or want of authority due to its negligence

Facts:

1. Eligia Fernando was an employee of Philamlife who had money in a money market placement in BPI. This was evidenced by a promissory note and hasn’t matured yet

2. One day, someone called up BPI to preterminate the placement but was unable to due to time constraints. She said that she was Eligia Fernando

3. Three days after, the same caller called and followed up on the pretermination. The BPI employee who answered the phone verified the identity of the caller, but failed to complete the verification when it did not call up Philamlife to ascertain if h was really speaking with the real Fernando

4. A delivery of the checks (in payment of the preterminated money market placement) were made by BPI when the niece of the caller (who pretended to be Fernando’s niece and who is actually the same person as the caller) picked up the two checks from BPI’s dispatcher

5. The dispatcher failed to require the surrender of the promissory note that was supposed to evidence the placement and it was not shown also that a verification of the identity of the signature of Fernando was made in the supposed authorization letter that the niece brought with her when she picked up the checks

6. Later, impostor Fernando opened an account with China Banking Corp. (CBC) and deposited therein the two checks that were paid to her by BPI after the pretermination of the placement; these were cleared by BPI on the same day

7. Two days after the deposit, large amounts of money were withdrawn by the impostor from the CBC account

8. When the maturity of the placement came, the real Fernando appeared and disclaimed that she preterminated her money market placement with BPI

9. BPI, then, returned the two checks to CBC for the reason “Payee’s endorsement forged”, but CBC gave these back for reason of “Beyond clearing time”



10. The Arbitration Committee ruled in favor of BPI and ordered CBC to pay the former

11. The Board of Directors of the Philippine Clearing House Corp. (PCHC), upon CBC’s appeal, ruled in favor of CBC

12. The RTC and CA dismissed the petition for review of BPI Issue: WON BPI was precluded from raising the defense of forgery Held: Yeeeeeees Ratio:

1. Since the instruments involved here are checks, which, under sec. 1 of the NIL, are negotiable instruments, sec. 23 of NIL definitely covers the issue at hand

2. Sec. 23 of the NIL provides for the general rule and exception in case forgery attends a negotiable instrument

3. The negligence of the party invoking forgery is an exception to the general rule that payment made in reliance of a forged signature in an instrument is ineffective

4. In this case, it doesn’t matter who was more negligent between BPI and CBC because they are both banks and as banks, they are presumed to exercise a higher standard of diligence

5. Fernando and BPI had more privity because Fernando was BPI’s client first, while CBC did not have any way of discovering the fraud because their client was only an impostor of Fernando

6. Although the proximate cause of the success of forgery was BPI’s negligence, CBC was also negligent when it failed to act on the suspicious circumstances that surrounded the transactions of the impostor (huge over-the-counter withdrawals made immediately after the account was opened)

Jai-Alai Corp v. BPI (8/6/1975) D: Where check is deposited with a collecting bank, the relationship is that

of agency. Same rule follows where after the drawee-bank paid the collecting bank, it was found that the signature of payee was forged by

one who previously encashed them. Facts:

1. From April 1959 to May 1959, 10 checks with a total value of PHP 8,030.58 were deposited by Jai-Alai Corp of the Philippines in its BPI account

2. The particulars of the 10 checks are as follows: a. 5 checks were drawn by Delta Engineering Service upon the

Pacific Banking Corporation and payable to Inter-Island Gas Service

b. 2 checks drawn by Enrique Cortiz & Co. upon the Pacific Banking Corp and payable to Inter-Island Gas Service, Inc or bearer

c. 1 check drawn by Luzon Tinsmith & Company upon the China Banking Corporation and payable to Inter-Island Gas Service, Inc or bearer

d. 2 checks drawn by Roxas Manufacturing Inc upon the PNB and payable to Inter-Island Gas Service Inc or order * Please see page 32 of the case for the complete breakdown. Kthnxbai.

3. All the checks were acquired from Ramirez who is a sales agent of the Inter-Island Gas and a regular bettor at jai-alai games

4. The checks were credited to the petitioner’s account in accordance with the clause printed on the deposit slips issued by BPI. The clause states that:

i. “Any credit allowed to the depositor…is provisional only, until such time as the proceeds thereof…shall have been actually received by the bank and the latter reserves to itself the right to charge back the item to the account of its depositor…regardless of WON the item itself can be returned”

5. July 1959 – Ramirez resigned from Inter-Island Gas. After the checks were submitted for clearing, they discovered that all the indorsements made on the check (by the cashiers) as well as the rubber stamp impression reading the company name were forgeries



6. Inter-Island gas informed Jai Alai, BPI, and the drawers and drawee-banks of the said checks about the forgeries. They also filed a criminal case against Ramirez

7. Upon receipt of the letter from Inter-Island, BPI’s cashier (Sarthou) called Jai Alai’s cashier (Garcia) and advised him that in view of the present circumstance, he would debit the value of the checks against Jai Alai’s account as soon as they were returned by the respective drawee-banks

8. The drawers of the check (Delta, Enrique, Luzon Tinsmith, Roxas) demanded reimbursement from their respective accounts from drawee-banks (Pacific Banking, PNB, Chinabank) who then demanded from BPI (collecting bank) the return of the amounts they paid thereof

9. When drawee-banks returned the checks to BPI, the latter paid their value which the former paid to Inter-Island gas

10. BPI debited Jai Alai’s current account and forwarded the checks containing forged indorsements. Jai Alai refused to accept the checks

11. October 8, 1959 – Jai Alai issued a check for PHP 135,000 payable to Mariano Olondriz in payment of certain shares of stock. Check was dishonored by BPI since the account only contains PHP 128,257.65. BPI deducted PHP 8,030.58 (total amount of the 10 forged checks) from the account. Thus, petitioner filed a complaint against BPI

12. RTC dismissed the case. CA affirmed. Issues:

1. WON BPI had the right to debit the petitioner’s current account in the amount corresponding to the total value of the checks in question

2. WON BPO is estopped from claiming that the amount of PHP 8,030.58 (total value of the checks with forged indorsements) had not been properly credited to petitioner’s account since the same had been paid by the drawee-banks and received in due course by BPI

3. WON Jai Alai is entitled to damages from BPI since they had improperly debited the checks to petitioner’s account

Held: No to all Ratio:

1. SC: BPI acted within legal bounds when it debited the petitioner’s account.

2. When Jai Alai deposited the checks with BPO, the nature of the relation was that of agency. BPI was to collect from the drawees of checks. Not a creditor-debtor relationship.

3. Sec 23 of NIL a forged signature in a negotiable instrument is wholly inoperative. In the current case, BPI as collecting bank which indorsed the checks to drawee-banks for clearing should be liable to the latter for reimbursement since the indorsements on the checks had been forged prior to delivery to Jai Alai.

4. Payments made by drawee-banks to BPI were ineffective = relationship of creditor-debtor not established.

5. Great Eastern Life Ins v. HSBC: a. “…it is the obligation of the collecting bank to reimburse the

drawee-bank the value of the checks found to contain a forged indorsement of the payee. The reason is that the bank with which the check was deposited has no right to pay the sum stated therein to the forger…it was its duty to know that the indorsement was genuine before cashing the check”

6. Thus, petitioner must shoulder the loss of the amounts BPI had to reimburse to drawee-banks

7. Also, under Sec.66 of the NIL, BPI cannot be expected to ascertain the genuineness of all prior indorsements on the said check.

8. Jai Alai should have conducted a background investigation on Ramirez before they accepted the check. The payee was a corporation (Inter-Island Gas Services) and not Ramirez. They should have asked for his authority to exchange checks belonging to the payee-corporation.

9. Under Art 67 of NIL, “where a person places his indorsement on an instrument negotiable by delivery he incurs all the liability of an indorser”. Since Jai Ali indorsed the said forged checks, it is therefore guaranteed to BPI the genuineness of all prior indorsement thereon. Thus, BPI is not responsible for the resulting loss (see Sec 66 of NIL)

10. There was no valid payment of money made by the drawee-banks to BPI on account of the questioned checks



Republic Bank v. Ebrada (7/31/75) D: The indorsement and delivery of the negotiable instrument gives rise to

the presumption that the indorsee warrants the genuineness of the instrument and at he has good title over the instrument. As a consequence

of such warranty, an indorsee may be held liable to pay the amount erroneously paid to her

D: Only the negotiation predicated on the forged indorsement should be declared inoperative. The others with genuine signatures should be

considered valid and enforceable

Facts: 1. Ebrada wanted to enchashed a Back Pay Check issued by the

Bureau of Treasury payable to the order of Martin Lorenzo dated January 15, 1963 for P1,246.08 and drawn by Republic Bank

2. The following signatures/ indorsements were found at the back of the check:

a. Martin Lorenzo (forged) b. Ramon R. Lorenzo c. Delia Dominguez d. Mauricia Ebrada

3. The check was delivered by Adelaida Dominguez to Ebrada for encashment and Ebrada affixed her signature on the back of the check when she encashed it with Republic

4. Ebrada turned over the cash proceeds to Dominguez who later on turned over the cash to Tinio. This shows that Ebrada acted as an accommodation party

5. The Bureau of Treasury later on advised Republic that the indorsement “Martin Lorenzo” on the reverse side of the check is a forgery since such person ha already died for 11 years

6. Republic requested that the Bureau refund the value of the check. Republic also made verbal and formal demands on Ebrada to account for the said amount, but the latter refused. Republic then filed a suit against her

7. Ebrada argues that she is a holder in due course and that Republic has no caused of action against her as the latter is estopped from recovering from her

8. Ebrada also filed a Third-Party complaint against Adelaida Dominguez. Dominguez, in turn, also filed a Fouth-Party complaint against Justina Tinio

9. Trial Court: Ordered Ebrada to pay P1,246.08 plus interest Issues: WON Ebrada warranted that she had good title over the said check WON the existence of one forged signature will render void all the other negotiations wherein the signatures were genuine WON Republic can recover from the one who encashed the check Held: Yeeeeeees, No and Yeeeeeees Ratio:

1. By express provision of Sec. 65 of the NIL, Ebrada is presumed to have warranted (a) that the instrument is genuine and in all respects what it purports to be and (b) the she has good title to it since Ebrada has delivered the note to Republic for encashment

2. Under Sec. 23 of the NIL, when the signature on the negotiable instrument is forged, the negotiation of the check is without force or effect. However, only the negotiation based on the forged or unauthorized signature should be in operative. As regards the other indorsements with genuine signatures, they should be considered valid and enforceable, barring any claim of forgery

3. Although Republic should suffer the loss when it paid the face value of the check, it is not precluded form recovering from Ebrada the amount it paid her. Even if Ebrada was not the proven to be the author of the forgery, she is liable to Republic because as the last indorsee, she warranted that she had good title to the instrument. Also, by express provision of Sec. 29 of the NIL, Ebrada cannot be exempt from liability just because she is an accommodation party



Manila Lighter Transportation, Inc. v Court of Appeals (02/15/1990) D: Since the company was not a client of the bank, that is, it did not

maintain an account in said bank, the latter had no way of ascertaining the authenticity of its indorsements on the checks which were deposited in the accounts of the third-party defendants in said bank. The bank was not

negligent because, in accordance with banking practice, it caused the checks to pass through the clearing house before it allowed their proceeds

to be withdrawn by the depositors.

Facts:

(1) Manila Lighter Transportation, Inc. (the Company) filed a complaint against China Banking Corporation (Chinabank). The complaint was for the recovery of the value of 49 checks with alleged forged indorsements of the payee (the Company) of which 26 were paid to said company or order and 23 to said company or bearer.

(2) The complaint also alleged that the checks were issued by customers of the company in payment of brokerage/lighterage services and were all delivered, without the company’s knowledge, to its collector, Augusto Perez.

(3) The indorsement of the payee (the Company), by its general manager, Luis Gaskell, appear on the checks. The company disclaimed such signatures and presented a handwriting expert who gave the opinion that the signatures were indeed forgeries. The checks were negotiated by Wilfredo Lagamon, an accountant of the company and a relative of Gaskell, with Cao Pek and Co., an electronic store, whose treasurer is Ko Lit.

(4) The bank denied any liability and pointed out that the company’s loss was due to its own negligence.

(5) The bank filed a third-party complaint against Cao Pek & Co. and Ko Lit who has deposited the checks in question and had thereafter withdrawn the proceeds.

(6) The RTC found both parties equally negligent and ordered the bank to pay the company an amount equal to 50% of the total amount of the checks.

(7) The CA dismissed the complaint and freed the bank from any liability to the company.

Issue: WON the company was negligent for allowing a state of affairs in which its employees could appropriate the checks and falsify the indorsement of its manager.

Held: Yeeeeees

Ratio:

(1) The main issue of the company’s negligence had already been determined by the trial court against the company and affirmed by the CA after examining the evidence in the records.

(2) Since the company was not a client of the bank, that is, it did not maintain an account in said bank, the latter had no way of ascertaining the authenticity of its indorsements on the checks which were deposited in the accounts of the third-party defendants in said bank. The bank was not negligent because, in accordance with banking practice, it caused the checks to pass through the clearing house before it allowed their proceeds to be withdrawn by the depositors

Associated Bank v. C.A. (1992)

D: Crossing a check is done by writing two parallel lines diagonally on the left top portion the check. This signifies that check is only to be

deposited and not encashed. FACTS:

1. Private respondent is engaged in the business of ready to wear garments under the firm name “Meliss RTW.”

2. Her customers Robinson’s Dept., Payless, Rempson and Corona Bar issued in payment of their respective accounts crossed checks payable to Melissa RTW and drawn from Solid Bank, FEBTC, TRB and RCBC.

3. When she went to these companies to collect, she was informed that the checks have been deposited with Associated Bank and subsequently paid to one Rafael Sayson. Sayson, however, was not authorized to deposit and encash such checks by private respondent.

4. Private respondent sued the petitioners for the recovery of the total value of the checks plus damages.

5. RTC: judgment was rendered in favor of private respondent



6. C.A.: affirmed RTC. It said that the cause of action of the private respondent was the illegal, anomalous and irregular acts of the petitioner in violating common banking practices by allowing checks to be deposited and cashed as well as paying to improper parties without the consent/knowledge/endorsement of private respondent who was the payee of the “crossed checks.”

ISSUE: WON private respondent has a cause of action against the petitioners for their encashment and payment to another person of crossed checks issue in favor of the former HELD/RATIO: YES

1. Accepted banking practice: crossing a check is done by writing two parallel lines diagonally on the left portion of the checks. A.) Crossing is special when the name/business institution is written in between the two parallel lines which means that drawee should pay only with the intervention of the company. B.) Crossing is general where the words written between the two parallel lines are “and Co.” or “for payees account only.” This means that the drawee bank should not encash the check but merely accept for deposit.

2. Effects of crossing a check are: a) the check may not be encashed, merely deposited b) check may be negotiated only once – to the one who has an account with the bank c)crossing a check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to the purpose.

3. CASE AT BAR, the six checks had been crossed and issued “for payee’s account only” which signifies that the checks were intended only for deposit by Melissa RTW.

4. That the bank accepted checks to be deposited in account if Sayson was a deliberate and positive act that the bank treated the checks as if they were negotiable and, for all intents and purposes, assumed the warranty of the endorser.

5. When bank paid the checks so endorsed notwithstanding that title has not passed to the endorser, it did so at its peril and became liable to the payee whether or not bank was aware of the unauthorized/forged endorsement.

6. This is so because the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited for purpose of determining their genuineness and regularity

That payee is allowed to directly recover from the collecting bank responsible for such encashment is approved by the court

Associated Bank vs. CA Facts:

1. The Province of Tarlac maintains a current account with PNB Tarlac Branch.

2. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan.

3. A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. The allotment checks for said government hospital are drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac." The checks are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and cashier.

4. In January 1981, the books of account of the Provincial Treasurer were post-audited by the Provincial Auditor. It was then discovered that the hospital did not receive several allotment checks drawn by the Province.

5. On 19 February 1981, the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued from 1977 to 1980 in order to verify the regularity of their encashment.

6. After the checks were examined, the Provincial Treasurer learned that 30 checks amounting to P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank. It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital until his retirement on 28 February 1978, collected the checks from the office of the Provincial Treasurer. He claimed to be assisting or helping the hospital follow up the release of the checks and had official receipts. Pangilinan sought to encash the first check with Associated Bank. However, the manager of Associated Bank refused and suggested that Pangilinan deposit the check in his personal savings account with the same bank.



7. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank, PNB.

8. After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same procedure for the second check, in the amount of P5,000.00 and dated 20 April 1978, as well as for 28 other checks of various amounts and on various dates. The last check negotiated by Pangilinan was for P8,000.00 and dated 10 February 1981.

9. All the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed Associated Bank."

10. Jesus David, the manager of Associated Bank, alleged that Pangilinan made it appear that the checks were paid to him for certain projects with the hospital. He did not find as irregular the fact that the checks were not payable to Pangilinan but to the Concepcion Emergency Hospital. While he admitted that his wife and Pangilinan's wife are first cousins, the manager denied having given Pangilinan preferential treatment on this account.

11. On 26 February 1981, the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited from the current account of the Province. In turn, the PNB manager demanded reimbursement from the Associated Bank on 15 May 1981.

12. As both banks resisted payment, the Province brought suit against PNB which, in turn, impleaded Associated Bank as third-party defendant. The latter then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan.

RTC’s Decision:

After trial on the merits, the lower court rendered its decision on 21 March 1988, on the basic complaint, in favor of the Province and against PNB, ordering the latter to pay to the former, the sum of P203,300.00 with legal interest thereon from 20 March 1981 until fully paid

on the third-party complaint, in favor of PNB and against Associated Bank ordering the latter to reimburse to the former the amount of

P203,300.00 with legal interests thereon from 20 March 20, 1981 until fully paid

on the fourth-party complaint, the same was ordered dismissed for lack of cause of action as against Adena Canlas and lack of jurisdiction over the person of Fausto Pangilinan as against the latter.

The court also dismissed the counterclaims on the complaint, third-party complaint and fourth-party complaint, for lack of merit.

CA’s decision: Affirmed Trial Court’s decision ISSUE: WON Province of Tarlac was negligent and thus liable for its loss? HELD: Yes, the Province of Tarlac, together with PNB and Associated Bank, was negligent. All three parties should bear the loss.

PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province were negligent, the loss should be properly apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to bear the loss.

The Province of Tarlac is equally negligent as PNB. It permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer connected with the hospital.

PNB also breached its duty to pay only according to the terms of the check which is payable to order of "Concepcion Emergency Hospital,



Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac." . Hence, it cannot escape liability and should also bear part of the loss. Nonetheless, PNB can recover from the collecting bank, Associated Bank.

Even if PNB did not return the questioned checks to Associated Bank within 24 hours, as mandated by the rule, PNB did not commit negligent delay. Under the circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after Fausto Pangilinan.

PNB can still recover from Associated Bank. PNB's duty was to verify the genuineness of the drawer's signature and not the genuineness of payee's indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify the genuineness of the payee's indorsement. The drawer-Province is a client or customer of the PNB, not of Associated Bank. There is no privity of contract between the drawer and the collecting bank

Westmont Bank v. Ong(1/30/2002)

D: The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payee’s endorsement was

genuine before cashing the check

D: As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payee’s

signature and who collects the amount of the check other from the drawee, is liable for the proceeds thereof to the payee or other owner,

notwithstanding that the amount has been paid to the person from whom the check was obtained

Eugene Ong: payee Westmont Bank: collecting bank Facts:

1. Eugene Ong maintained a currect account with Westmont Bank. Sometime in May 1976, he sold his shares of stocks through Island Securities Corporation (ISC)

2. To pay Ong, ISC purchased 2 Pacific Banking Corporation manager’s checks worth P1, 753,787.50 issued in the name of Ong as payee.

3. Before Ong could get hold of these checks, his friend Paciano Tanlimco got hold of them, forged Ong’s signature, and deposited the said checks on his own account with Westmont Bank

4. Westmont Bank accepted and credited both checks without verifying the signature indorsement even though they have Ong’s specimen signature

5. Tamlico immediately withdrew the money and absconded 6. Instead of going straight to the bank, Ong first sought help of

Tanlimco’s family to recover amount. Later, he reported the incident to CB which also proved futile.

7. It was only after 5 mos. That Ong filed a suit and demanded that Westmont Bank pay the value of checks.

8. RTC ordered Westmont Bank to pay the value of the checks. CA affirmed decision

Issues: WON Ong has cause of action against petitioner Westmont Bank WON Ong is barred to recover the money from Westmont Bank due to laches Held: Yes. Ong has cause of action against WB No. Ong is not barred to recover money from WB Ratio:

1. WB based his allegation on the fact that the note was not actually delivered to Ong and hence he was not a holder thereof hence he cannot sue in his own name. The court did not recognize this allegation claiming that another view in certain cases applies in the present case: That payee ought to be allowed to recover directly from collecting bank regardless of whether the check was delivered to the payee or not.

2. SC applied Sec 23 of NIL : Since the signature of the payee in this case was forged to make it appear that he had made an indorsement in favor of the forger, such signature should be deemed as inoperative and ineffectual. Petitioner as the collecting bank, grossly erred in making payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to recover from the collecting bank

3. The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payee’s endorsement



was genuine before cashing the check, which WB failed to do (see fact no. 4)

4. General rule: a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payee’s signature and who collects the amount of the check other from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained.

5. On 2nd issue, SC found that there was no undue delay of Ong in asserting his rights. The fact that he has exhausted all remedies (see fact no. 6) before filing in RTC cannot be construed as undue delay or abandonment of the assertion of his rights

6. One last note of SC: it is WB who has the last clear chance to stop the fraudulent encashment of the subject checks had it only exercised due diligence and followed the proper and regular banking procedures in clearing checks.

7. Rule: One who had the last clear opportunity to avoid the impending harm but failed to do so is chargeable with the consequences thereof

Philippine Commercial and International Bank v CA (1/29/2001)

D: T he mere fact that the forgery was committed by a drawer-payor's confidential employee or agent, who by virtue of his position had unusual

facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in

the absence of some circumstance raising estoppel against the drawer. This rule likewise applies to the checks fraudulently negotiated or diverted

by the confidential employees who hold them in their possession

Facts: G.R. Nos. 121413 and 121479 1. Ford drew and issued a Citibank check, which was crossed and had

“Payees account only” on its face, in favor of the Commission on Internal Revenue (CIR) as payment of Ford’s manufacturer’s sales taxes (1977)

2. This check was deposited with PCIB, cleared by the Central Bank, and PCIB then collected from Citibank the amount corresponding to the check

3. The proceeds were never paid to or received by the payee, CIR, so the it demanded payment and Ford was forced to make a second payment

4. Months later, the check whose proceeds weren’t paid to the CIR was deposited at PCIB-Ermita together with a tax receipt; it had “all prior indorsements and/or lack of indorsements guaranteed” on its face

5. PCIB accepted this after the Central Clearing House cleared it and the Citibank then paid the amount on the check; this amount was debited in Ford’s account with the Citibank

6. Later, Ford discovered that the first check it drew was not paid to the payee so it claimed reimbursement from Citibank and PCIB

7. The investigation showed that the general ledger accountant of Ford held back the check due to computational errors so PCIB replaced it with two manager checks

8. Alleged members of a syndicate later deposited the manager checks with PCIB

9. RTC: PCIB and Citibank should pay Ford and PCIB should reimburse Citibank thereafter

10. CA: Only PCIB should pay Ford Facts: G.R. No. 128604

1. Ford drew other checks for the same purpose that it did in the first case and these never reached the payee

2. Here, it was shown how the embezzlement of the funds of the said checks were carried out by the syndicate

3. One of the perpetrator’s opened an account with PCIB-Meralco where at first, worthless checks were deposited and were then replaced by the checks from Ford while it was en route for clearing

4. The perpetrators were able to accomplish their criminal act by using their capacity and authority in the positions that they held in Ford and PCIB

5. RTC: Citibank is liable 6. CA: Affirmed the RTC

Issues1: G.R. Nos. 121413 and 121479 WON Ford has the right to recover from the drawee bank (Citibank) and the collecting bank (PCIB) WON PCIB was negligent in preparing two manager’s checks to replace the check in the first case on orders of persons besides the CIR

1 Berne Guerrero, Summary: Philippine Commercial International Bank vs. Court of

Appeals (GR 121413, 29 January 2001), available at

http://berneguerrero.com/node/281 (last accessed June 22, 2011).

http://berneguerrero.com/node/281



Held2: No and yeeeeeees Ratio3:

1. The mere fact that the forgery was committed by a drawer-payor's confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer. This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession

a) The Board of Directors of Ford did not confirm the request of Godofredo Rivera to recall Citibank Check SN-04867

b) Rivera's instruction to replace the said check with PCIB's Manager's Check was not in the ordinary course of business which could have prompted PCIB to validate the same

c) As to the preparation of Citibank Checks SN-10597 and 16508, it was established that these checks were made payable to the CIR. Both were crossed checks. These checks were apparently turned around by Ford's employees, who were acting on their own personal capacity

2. PCIB was an authorized collector of the CIR as to the payment of taxes, hence, it was duty bound to consult the CIR when someone who was not PCIB’s client gave instructions as to the checks (when Ford accountant recalled the checks)

a) PCIB failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIB employees to verify whether his letter requesting for the replacement of the Citibank Check SN-04867 was duly authorized, showed lack of care and prudence required in the circumstances

b) PCIB should receive instructions only from its principal BIR and not from any other person especially so when that person is not known to IBAA/PCIB. It is very imprudent on the part of IBAA/PCIB to just rely on the alleged telephone call of one (Rivera) and in his signature to the authenticity of such

2 Id.

3 Id.

signature considering that the Ford is not a client of IBAA/PCIB

Issues4: G.R. No. 128604 WON Citibank can raise the defenses that it has no knowledge of any infirmity in the issuance of the checks in question and that the endorsement of the Payee or lack thereof was guaranteed by PCIB and thus, it has the obligation to honor and pay the same, among others WON PCIB is liable for fraud (embezzlement) committed by PCIB employees while the checks were in transit for clearing Held5: No and yeeeeeees Ratio6:

1. Citibank as drawee bank was likewise negligent in the performance of its duties. Citibank failed to establish that its payment of Ford's checks were made in due course and legally in order

– Citibank should have scrutinized the two Citibank checks before paying the amount of the proceeds thereof to the collecting bank of the BIR. The clearing stamps at the back of Citibank checks did not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the switching of the worthless checks to the Citibank checks would have been discovered in time

2. As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment

4 Id.

5 Id.

6 Id.