CRISOLOGO-JOSE VS CA

Facts: Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge

of marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares.

Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued check

against Traders Royal Bank, payable to defendant Ernestina Crisologo-Jose. Since the check was

under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty.

Oscar Z. Benares, and the treasurer of the said corporation. However, since at that time, the

treasurer of Mover Enterprises was not available, Atty. Benares prevailed upon the plaintiff,

Ricardo S. Santos, Jr., to sign the aforesaid check. The check was issued to defendant Ernestina

Crisologo-Jose in consideration of the waiver or quitclaim by said defendant over a certain

property which the Government Service Insurance System (GSIS) agreed to sell to the spouses

Jaime and Clarita Ong, with the understanding that upon approval by the GSIS of the

compromise agreement with the spouses Ong, the check will be encashed accordingly. Since the

compromise agreement was not approved within the expected period of time, the aforesaid check

was replaced by Atty. Benares. This replacement check was also signed by Atty. Oscar Z.

Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant deposited this replacement

check with her account at Family Savings Bank, Mayon Branch, it was dishonored for

insufficiency of funds. The petitioner filed an action against the corporation for accommodation

party.

Issue: WON the corporation can be held liable as accommodation party?

Held: No. Accommodation party liable on the instrument to a holder for value, although such

holder at the time of taking the instrument knew him to be only an accommodation party, does

not include nor apply to corporations which are accommodation parties. This is because the

issue or indorsement of negotiable paper by a corporation without consideration and for the

accommodation of another is ultra vires. Hence, one who has taken the instrument with

knowledge of the accommodation nature thereof cannot recover against a corporation where it is

only an accommodation party. If the form of the instrument, or the nature of the transaction, is

such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by

the corporation is for the accommodation of another, he cannot recover against the corporation

thereon. By way of exception, an officer or agent of a corporation shall have the power to

execute or indorse a negotiable paper in the name of the corporation for the accommodation of a

third person only if specifically authorized to do so. Corollarily, corporate officers, such as the

president and vice-president, have no power to execute for mere accommodation a negotiable

instrument of the corporation for their individual debts or transactions arising from or in relation

to matters in which the corporation has no legitimate concern. Since such accommodation paper

cannot thus be enforced against the corporation, especially since it is not involved in any aspect

of the corporate business or operations, the inescapable conclusion in law and in logic is that the

signatories thereof shall be personally liable therefor, as well as the consequences arising from

their acts in connection therewith

STATE INVESTMENT HOUSE, INC. VS. COURT OF APPEALS

GR 101163, January 11, 1993

1ST Division Bellosillo

FACTS:

Nora Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on

commission, 2 post-dated Equitable Banking Corporation. Thereafter, the payee negotiated the

checks to the State Investment House Inc. (SIHI). Moulic failed to sell the pieces of jewelry, so

she returned them to the payee before maturity of the checks. The checks, however, could no

longer be retrieved as they had already been negotiated. Consequently, before their maturity

dates, Moulic withdrew her funds from the drawee bank. Upon presentment for payment, the

checks were dishonored for insufficiency of funds. SIHI allegedly notified Moulic of the

dishonor of the checks and requested that it be paid in cash instead, although Moulic avers that

no such notice was given her. SIHI sued to recover the value of the checks. Moulic contends that

she incurred no obligation on the checks because the jewelry was never sold and the checks were

negotiated without her knowledge and consent. She also instituted a Third-Party Complaint

against Corazon Victoriano, who later assumed full responsibility for the checks. The trial court

dismissed the Complaint as well as the Third-Party Complaint. SIHI elevated the order of

dismissal to the Court of Appeals, but the appellate court affirmed the trial court on the ground

that the Notice of Dishonor to Moulic was made beyond the period prescribed by the Negotiable

Instruments Law and that even if SIHI did serve such notice on Moulic within the reglementary

period it would be of no consequence as the checks should never have been presented for

payment. SIHI filed the petition for review.

ISSUE:WON the alleged issuance of the post-dated checks as mere security is a ground for the

discharge of the instrument?

HELD:Section 119 of the Negotiable Instrument Law outlined the grounds in which an

instrument is discharged. The grounds are:

(a) payment by or on behalf of the principal debtor;

(b) payment by accommodated;

(c) intentional cancellation of instrument by the holder;

(d) any act which discharges a contract;

(e) reacquisition of principal debtor in his own right.

Section 119 of the NIL is exclusive to its enumerations. Obviously, MOULIC may only invoke

paragraphs (c) and (d) as possible grounds for the discharge of the instrument. But, the

intentional cancellation contemplated under paragraph (c) is that cancellation effected by

destroying the instrument either by tearing it up, burning it, or writing the word "cancelled" on

the instrument. The act of destroying the instrument must also be made by the holder of the

instrument intentionally. Since MOULIC failed to get back possession of the post-dated checks,

the intentional cancellation of the said checks is altogether impossible. On the other hand, the

acts which will discharge a simple contract for the payment of money under paragraph (d) are

determined by other existing legislations since Section 119 does not specify what these acts are,

e.g., Art. 1231 of the Civil Code which enumerates the modes of extinguishing obligations, such

as:

a. Payment or performance;

b. Loss of the thing due;

c. Condonation or remission of debts;

d. Confusion or merger of rights of creditor and debtor;

e. Compensation;

f. Novation

Again, none of the modes outlined therein is applicable in the instant case as Section 119

contemplates of a situation where the holder of the instrument is the creditor while its drawer is

the debtor. Herein, the payee, Corazon Victoriano, was no longer MOULIC's creditor at the time

the jewelry was returned. Correspondingly, MOULIC may not unilaterally discharge herself

from her liability by the mere expediency of withdrawing her funds from the drawee bank. She is

thus liable as she has no legal basis to excuse herself from liability on her checks to a holder in

due course.

PNB VS CA AND CAPITOL

FACTS: A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of

P97,650.00 was issued by the Ministry of Education and Culture payable to F. Abante

Marketing. This check was drawn against Philippine National Bank (herein petitioner). F.

Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the

questioned check in its savings account with said bank. In turn, Capitol deposited the same in its

account with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to

petitioner for clearing.Petitioner cleared the check as good and, thereafter, PBCom credited

Capitols account for the amount stated in the check. However, petitioner PNB returned the

check to PBCom and debited PBComs account for the amount covered by the check, the reason

being that there was a material alteration of the check number. PBCom, as collecting agent of

Capitol, then proceeded to debit the latters account for the same amount. On the other hand,

Capitol could not, in turn, debit F. Abante Marketings account since the latter had already

withdrawn the amount of the check.

ISSUE: WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK

IS A MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW.

HELD: No. An alteration is said to be material if it alters the effect of the instrument. It means an

unauthorized change in an instrument that purports to modify in any respect the obligation of a

party or an unauthorized addition of words or numbers or other change to an incomplete

instrument relating to the obligation of a party.In other words, a material alteration is one which

changes the items which are required to be stated under Section 1 of the Negotiable Instrument

Law

The case at the bench is unique in the sense that what was altered is the serial number of the

check in question, an item which, it can readily be observed, is not an essential requisite for

negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration

did not change the relations between the parties. The name of the drawer and the drawee were

not altered. The intended payee was the same. The sum of money due to the payee remained the

same.

If the purpose of the serial number is merely to identify the issuing government office or agency,

its alteration in this case had no material effect whatsoever on the integrity of the check. The

identity of the issuing government office or agency was not changed thereby and the amount of

the check was not charged against the account of another government office or agency which had

no liability under the check. Petitioner, thus cannot refuse to accept the check in question on the

ground that the serial number was altered, the same being an immaterial or innocent one

MWSS VS CA

Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:

Metropolitan Waterworks and Sewerage System (MWSS) is a GOCC and successor-in- interest

of the defunct NWSA. The authorized signature for PNB Account No. 6 were those of MWSS

treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor L.

Recio. Specimen signatures were submitted by the MWSS to and on file with the PNB. By

special arrangement with the PNB, the MWSS used personalized checks in drawing from this

account., printed for MWSS by its printer, F. Mesina Enterprises.

On 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

No. 6. They were deposited by the fictitious 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).

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'. NWSA filed against PNB before

the CFI. PNB also filed a 3rd party complaint against the negotiating banks PBC and PCIB on

the ground that they failed to ascertain the Identity of the payees and their title to the checks

which were deposited in the respective new accounts of the payees with them. February 6, 1976:

CFI favored MWSS; CA: reversed and favored PNB, applied Section 24 of the Negotiable

Instruments Law

ISSUE: W/N MWSS can can claim against PNB

HELD: NO. CA reversed.

Every negotiable instrument is deemed prima facie to have been issued for valuable

consideration and every person whose signature appears thereon to have become a party thereto

for value. 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 obligation funds, and cannot ordinarily

charge the amount so paid to the account of the depositor whose name was forged. NBI showed

that the MWSS fraud was an "inside job" and that the MWSS' delay in the reconciliation of bank

statements and the laxity and loose records control in the printing of its personalized checks

facilitated the fraud. 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 2 or more different persons. Forgery cannot be presumed. It must be established by

clear, positive, and convincing evidence. This was not done in the present case.

SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or made without

authority of the person whose signature it purports to be, it is wholly inoperative, and no right to

retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any

party thereto can be acquired through or under such signature unless the party against whom it is

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

Gross negligence in the printing of its personalized checks - MWSS failed to give its printer,

Mesina Enterprises, specific instructions relative to the safekeeping and disposition of excess

forms, check vouchers, and safety papers, retrieve from its printer all spoiled check forms,

provide any control regarding the paper used in the printing of said checks, furnish the

respondent drawee bank with samples of typewriting, cheek writing, and print used by its printer

in the printing of its checks and of the inks and pens used in signing the same; send a

representative to the printing office during the printing of said checks, to reconcile the bank

statements with its own records.

MWSS requested the PNB to discontinue the practice of mailing the bank statements, but instead

to deliver it to Mr. Emiliano Zaporteza. However, he was unreasonably delayed in taking prompt

deliveries of the bank statements and credit and debit memos. As a consequence, Mr. Zaporteza

failed to reconcile the bank statements. If Mr. Zaporteza had not been remiss in his duty of

taking the bank statements and reconciling them with the petitioner'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.

One factor which facilitate this fraud was the delay in the reconciliation of PNB statements with

the NAWASA bank accounts. x x x. Had the NAWASA representative come to the PNB early

for the statements and had the bank been advised promptly of the reported bogus check, the

negotiation of practically all of the remaining checks on May, 1969 could have been prevented.

The records likewise show that the petitioner failed to provide appropriate security measures

over its own records thereby laying confidential records open to unauthorized persons. The

petitioner's own Fact Finding Committee, in its report submitted to their General manager

underscored this laxity of records control. It observed that the "office of Mr. Ongtengco (Cashier

No. VI of the Treasury Department at the NAWASA) is quite open to any person known to him

or his staff members and that the check writer is merely on top of his table

Even if the 23 checks in question are considered forgeries, considering the petitioner's gross

negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable

Instruments Law. PNB had taken the necessary measures in the detection of forged checks and

the prevention of their fraudulent encashment. In fact, long before the encashment of the 23

checks in question, the it had issued constant reminders to all Current Account Bookkeepers

informing them of the activities of forgery syndicates.

Under the circumstances, MWSS was in a better position to detect and prevent the fraudulent

encashment of its checks

JAI ALAI VS BPI

FACTS: From April 2, 1959 to May 18, 1959, Jai Alai Corporation of the Philippines

deposited 10 checks in its current account with the Bank of the Philippine Islands (BPI). The

checks which were acquired by Antonio J. Ramirez, a sales agent of the Inter-Island Gas and

regular better of Jai-Alai were all payable to Inter-Island. After the checks had been submitted to

inter-bank clearing, Inter-Island discovered that all the endorsements made on the checks

purportedly by its cashiers (Santiago Amplayo and Vicenta Mucor) were forgeries. Thus, it

informed all the parties concerned. Upon the demands on BPI as the collecting bank, BPI debited

the value of the checks against petitioners current account and forwarded to the latter the checks

containing forged endorsements which the petitioner refused to accept. Thereafter, petitioner

tried to issue a check for payment of shares of stocks but such was dishonored for insufficiency

of funds. It filed a complaint against the bank.

ISSUE: Whether or not the BPI had the right to debit from petitioners current account the value

of the checks with the forged endorsements?

HELD: YES. BPI acted within legal bounds when it debited the petitioners account. When the

petitioner deposited the checks to its account, the relationship created was one of agency and not

of creditor-debtor of BPI was to collect from the drawee bank of the checks with the

corresponding proceeds. BPI may have the proceeds already when it debited the account of

petitioner. Nonetheless, theres still no creditor debtor relationship. The payments made by the

drawee bank to respondent were ineffective. Hence, the creditor debtor relationship had not

been validly established

FAR EAST BANK & TRUST COMPANY, vs GOLD PALACE JEWELLERY CO., as

represented by Judy L. Yang, Julie Yang-Go and Kho Soon Huat,

FACTS: Samuel Tagoe, a foreigner, purchased from Gold Palace (SM North) jewelries worth

PHP 258,000.00. As payment, he offered a foreign draft issued by the United Overseas Bank of

Malaysia addressed to Land Bank, and payable to Gold Palace for PHP 380,000.00. Judy Yang,

the assistant GM of Gold Palace inquired from Far East Bank (SM North) regarding the drafts

nature. The teller told her that it was similar to a managers check but advised her to not release

the jewelry until the draft has been cleared. Following the advice, Yang Issued a cash invoice to

Tagoe & told him that the jewelries would be released when the draft had been cleared. Julie

Yang-Go, the manager of Gold Palace, deposited the draft in the companys account with Far

East Bank SM North. The latter presented it for clearing to LBP,the drawee bank, who cleared

the same. United Overseas account with LBP was debited and Gold Palaces account with Far

East was credited with the amount stated in the draft. The pieces of jewelry were then released to

Tagoe and because the amount in the draft was more than the value of the goods, a check for

PHP 122,000 was issued to him. It was encashed by Tagoe.3 weeks after, LBP informed Far East

that the amount in the foreign draft had been materially-altered from PHP 300.00 to PHP

380,000.00 and that they will be returning it. Far East thus refunded the amount paid by LBP.

Thus, Far East had to seek reimbursement from Gold Palace but they were only able to debit

PHP 168,053.37, which was done without a prior written notice to Gold Palace as they only

informed them by phone. They thus demanded the difference of PHP 211,946.64 from Gold

Palace. As the latter did not respond favorably, Far East instituted a civil case for sum of money

and damages. Gold Palace denies the allegations in the complaint and claims as their defense that

the subject foreign draft has been cleared and it was not they who caused the alteration. The RTC

ruled in favour of Far East but this was reversed by the CA as Far East failed to undergo the

proceedings on the protest and thus, Far East could not charge Gold Palace on its secondary

liability as an indorser. It further said that the drawee bank had cleared the check and its remedy

should be against the part responsible for the alteration.

ISSUE: WHETHER OR NOT FAR EAST BANK COULD PROCEED AGAINST GOLD

PALACE.

HELD: No.RATIO:

The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of

his acceptance. This provision applies with equal force in case the drawee pays a bill without

having previously accepted it. His actual payment of the amount in the check implies not only

his assent to the order of the drawer and a recognition of his corresponding obligation to pay the

aforementioned sum, but also, his clear compliance with that obligation.

Actual payment by the drawee is greater than his acceptance, which is merely a promise in

writing to pay. The payment of a check includes its acceptance. Unmistakable herein is the fact

that the drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof

to the collecting bank. LBP was liable on itspayment of the check according to the tenor of the

check at the time of payment, which was the raised amount. Thus, LBP could no longer

repudiate the payment it erroneously made to a due course holder. Gold Palace was not a

participant in the alteration of the draft, was not negligent, and was a holder in due courseit

received the draft complete and regular on its face, before it became overdue and without notice

of any dishonor, in good faith and for value, and absent any knowledge of any infirmity in the

instrument or defect in the title of the person negotiating it.

This construction and application of the law is in line with the sound principle that where oneof

two innocent parties must suffer a loss, the law will leave the loss where it finds it. It further

reasserts the usefulness, stability and currency of negotiable paper without seriously endangering

accepted banking practices. Banking institutions can readily protect themselves against liability

on altered instruments either by qualifying their acceptance or certification, or by relying on

forgery insurance and special paper which will make alterations obvious. The drawee bank, in

most cases, is in a better position, compared to the holder, to verify with the drawer the matters

stated in the instrument. Thus, considering that, in this case, Gold Palace is protected by Section

62 of the NIL, its collecting agent, Far East, should not have debited the money paid by the

drawee bank from respondent companys account. When Gold Palace deposited the check with

Far East, the latter, under the terms of the deposit and the provisions of the NIL, became an agent

of the former for the collection of the amount in the draft. The subsequent payment by the

drawee bank and the collection of the amount by the collecting bank closed the transaction

insofar as the drawee and the holder of the check or his agent are concerned, converted the check

into a mere voucher, and, as already discussed, foreclosed the recovery by the drawee of the

amount paid. This closure of the transaction is a matter of course. As the transaction in this case

had been closed and the principal-agent relationship between the payee and the collecting bank

had already ceased, the latter in returning the amount to the drawee bank was already acting on

its own and should now be responsible for its ownactions. Neither can petitioner be considered to

have acted as the representative of the drawee bank when it debited respondents account,

because, as already explained, the drawee bank had no right to recover what it paid. Likewise,

Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for

collection to shift the burden it brought upon itself. This is precisely because the said

indorsement is only for purposes of collection which, under Section 36 of the NIL, is a restrictive

indorsement. It did not in any way transfer the title of the instrument to the collecting bank.CA

ruling is affirmed to the extent that Far East could not debit Gold Palaces account. Its remedy is

not against Gold Palace but against the drawee-bank or the person responsible for the alteration.

MONTINOLA VS PNB Lessons Applicable: Alteration (Negotiable Instruments Law)

FACTS: April-May, 1942: Ubaldo D. Laya was the Provincial Treasurer of Misamis Oriental.

As such Provincial Treasurer he was ex officio agent of the Philippine National Bank branch in

the province. Mariano V. Ramos worked under him as assistant agent in the bank branch. The

currency being used in Mindanao, particularly Misamis Oriental and Lanao which had not yet

been occupied by the Japanese invading forces, was the emergency currency which had been

issued since January, 1942 by the Mindanao Emergency Currency Board by authority of the late

President Quezon. On April 26, 1942: thru the recommendation of Provincial Treasurer Laya, his

assistant agent M. V. Ramos was inducted into the United States Armed Forces in the Far East

(USAFFE) as disbursing officer of an army division. On April 30, 1942: M. V.

Ramos,disbursing officer, went to Province Lanao to procure a cash advance in the amount of

P800K for the use of the USAFFE . Pedro Encarnacion, Provincial Treasurer of Lanao did not

have that amount in cash so he gave Ramos P300,000 in emergency notes and a check for

P500,000. Ramos had no opportunity to cash the check because in the evening, the Japanese

forces entered the capital. On May 2, 1942: Ramos went to the office of Provincial Treasurer

Laya at Misamis Oriental to encash the check for P500,000 which he had received from the

Provincial Treasurer of Lanao. Laya did not have enough cash to cover the check so he gave

Ramos P400,000 in emergency notes and a check No. 1382 for P100,000 drawn on the

Philippine National Bank. According to Laya he had previously deposited P500,000 emergency

notes in the Philippine National Bank branch in Cebu and he expected to have the check issued

by him cashed in Cebu against said deposit. On June 10, 1942: the USAFFE forces to which he

was attached surrendered. Ramos was made a prisoner of war until February 12, 1943 and

December, 1944: M. V. Ramos allegedly indorsed the check to Enrique P. Montinola. In

August, 1947: Enrique P. Montinola filed a complaint to collect the sum of P100,000, the

amount of Check issued by the Provincial Treasurer of Misamis Oriental to Mariano V. Ramos

and supposedly indorsed to Montinola. The court: dismissed

ISSUE: W/N Montinola cannot hold PNB liable because there is "Agent, Phil. National Bank" is

an alteration - YES

W/N Montinola is a holder in due course - NO

Montinola's Version

June, 1944: Ramos, needing money with which to buy foodstuffs and medicine, offered to sell

him the check; to be sure that it was genuine and negotiable, Montinola, accompanied by his

agents and by Ramos himself, went to see President Carmona of the Philippine National Bank in

Manila about said check, agreed to the sale of the check for P850,000 Japanese military notes,

payable in installments; that of this amount, P450,000 was paid to Ramos in Japanese military

notes in 5 installments, and the balance of P400,000 was paid in kind, that upon payment of the

full price, M. V. Ramos duly indorsed the check to him.

"Agent, Phil. National Bank" now appearing under the signature of the Provincial Treasurer on

the face of the original check - converts the bank from a mere drawee to a drawer and therefore

changes its liability, constitutes a material alteration of the instrument without the consent of the

parties liable thereon, and so discharges the instrument. (Section 124 of the Negotiable

Instruments Law). - doesn't make sense so alteration

Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere

assignee of the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to

all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos.

Neither can Montinola be considered as a holder in due course because section 52 of said law

defines a holder in due course as a holder who has taken the instrument under certain conditions,

one of which is that he became the holder before it was overdue. When Montinola received the

check, it was long overdue. Neither could it be said that he took it in good faith. He has not paid

the full amount of P90,000 for which Ramos sold him P30,000 of the value of the check. The

check was issued to M. V. Ramos not as a person but M. V. Ramos as the disbursing officer of

the USAFFE. Therefore, he had no right to indorse it personally to plaintiff

PAPA vs. VALENCIA

Facts: Sometime in June 1982, A.U. Valencia and Co., Inc. and Felix Pearroyo, filed with the

Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against Myron

C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte. The

complaint alleged that Papa, acting as attorney-in-fact of Angela M. Butte, sold to Pearroyo,

through Valencia, a parcel of land. Prior to the alleged sale, the said property had been

mortgaged by her to the Associated Banking Corporation. After the alleged sale to Valencia and

Penarroyo, but before the title to the subject property had been released, Butte passed away.

Despite representations made by Valencia to the bank to release the title to the property sold to

Pearroyo, the bank refused to release it unless and until all the mortgaged properties of the late

Butte were also redeemed. In order to protect his rights and interests over the property,

Pearroyo caused the annotation on the title of an adverse claim. Sometime in April 1977, that

Valencia and Pearroyo discovered that the mortgage rights of the bank had been assigned to

Tomas L. Parpana, as special administrator of the Estate of Ramon Papa. Jr. Since then, Papa had

been collecting monthly rentals in the amount of P800.00 from the tenants of the property,

knowing that said property had already been sold to Valencia and Pearroyo. Despite repeated

demands from said respondents, Papa refused and failed to deliver the title to the

property.Valencia and Pearroyo prayed that Papa be ordered to deliver to Pearroyo the title to

the subject property. RTC rendered a decision, allowing Papa to redeem from the Reyes spouses,

who bought the land at a public auction because of tax delinquency and ordering Papa to execute

a Deed of Absolute Sale in favor of Pearroyo.

Papas defense: The sale was never consummated as he did not encash the check (in the

amount of P40,000.00) given by Valencia and Pearroyo in payment of the full purchase price of

the subject lot. He maintained that what Valencia and Pearroyo had actually paid was only the

amount of P5,000.00 (in cash) as earnest money.

Issue: Was there valid payment although Papa failed to encash the check?

Held: Yes. Valencia and Pearroyo had given Papa the amounts of P5,000.00 in cash on 24 May

1973, and P40,000.00 in check on 15 June 1973, in payment of the purchase price of the subject

lot. Papa himself admits having received said amounts, and having issued receipts therefor.

Papas assertion that he never encashed the aforesaid check is not substantiated and is at odds

with his statement in his answer that he can no longer recall the transaction which is supposed

to have happened 10 years ago. After more than 10 years from the payment in part by cash and

in part by check, the presumption is that the check had been encashed. Granting that Papa had

never encashed the check, his failure to do so for more than 10 years undoubtedly resulted in the

impairment of the check through his unreasonable and unexplained delay. While it is true that the

delivery of a check produces the effect of payment only when it is cashed, pursuant to Article

1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditors

unreasonable delay in presentment. The acceptance of a check implies an undertaking of due

diligence in presenting it for payment, and if he from whom it is received sustains loss by want

of such diligence, it will be held to operate as actual payment of the debt or obligation for which

it was given. If no presentment is made at all, the drawer cannot be held liable irrespective of

loss or injury unless presentment is otherwise excused. This is in harmony with Article 1249 of

the Civil Code under which payment by way of check or other negotiable instrument is

conditioned on its being cashed, except when through the fault of the creditor, the instrument is

impaired. The payee of a check would be a creditor under this provision and if its non-payment is

caused by his negligence, payment will be deemed effected and the obligation for which the

check was given as conditional payment will be discharged. Considering that Valencia and

Pearroyo had fulfilled their part of the contract of sale by delivering the payment of the

purchase price, they, therefore, had the right to compel Papa to deliver to them the owners

duplicate of TCT 28993 of Angela M. Butte and the peaceful possession and enjoyment of the

lot in question

Gempesaw vs. CA

Facts: Natividad O. Gempesaw owns and operates four grocery stores and that she maintains a

checking account with the Philippine Bank of Communications (drawee Bank) for easier

payment of debts to her suppliers. Her customary practice were as follows: Checks were

prepared by her trusted bookkeeper, Alicia Galang; Checks, together with the invoice receipts

reflecting her obligations with the suppliers, were submitted to her for signature; That she signs

all the checks without bothering to verify the accuracy of the checks against the corresponding

invoices considering the trust and confidence she reposed upon her bookkeeper; Issuance and

delivery of the checks to the payees were left to the bookkeeper; that she did not verify whether

checks were actually delivered to their respective payees. Although the drawee Bank notified her

of all checks presented to and paid by the bank, Gempesaw did not verify the correctness of the

returnedchecks nor if the payees actuallyreceived the checks in payment for the supplies she

received. Gempesaw issued 82 checks in favor of several suppliers for the span of 2 years and

the drawee bank debited the total amount of P1,208,606.89 against her checking account since

all of the issued checks were honored by the drawee bank. These checks were all crossed checks.

It was only after the lapse of more than 2 years that Gempesaw found out about the fraudulent

manipulations of her bookkeeper. Gempesaw made a written demand on respondent drawee

Bank to credit her account with the money value of the 82 checks totallingP1,208,606.89 for

having been wrongfully charged against her account. Drawee Bank refused to grant her demand.

About 30 of the payees whose names were specifically written on the checks testified that they

did not receive nor even see the subject checks and that the indorsements appearing at the back

of the checks were not theirs. It was learned that all the 82 checks with forged signatures of the

payees were brought to Ernest L. Boon,Chief Accountant of drawee who,without authority

therefor, accepted them all for deposit to the credit and/or in the accounts of Alfredo Y.Romero

and Benito Lam. The Regional Trial Court, tried the case and rendered a decision dismissing the

complaint as well as the drawee Bank's counterclaim. On appeal, the Court of Appeals in a

decision affirmed the decision of the RTC on two grounds, namely (1) that Gempesaws gross

negligence in issuing the checks was the proximate cause of the loss and (2)assuming that the

bank was also negligent, the loss must nevertheless be borne by the party whose negligence was

the proximate cause of the loss. Hence, a petition for review was filed before SC.

Issue: Whether or not the petitioner can raise the defense of forgery,therefore the drawee bank

alone shall bear the loss.

Ruling:Gempesaw precluded from using forgery as a defense; Gempesaws negligence was

proximate cause of her loss. Had Gempesaw examined her records more carefully, she would

have noticed discrepancies. Had Gempesaw been more vigilant ingoing over her current account

by taking careful note of the daily reports made by the drawee Bank on her issued checks, or at

least made random scrutiny of her cancelled checks returned by drawee Bank at the close of each

month, she could have easily discovered the fraud being perpetrated by Alicia Galang,and could

have reported the matter to the drawee Bank.The drawee Bank then could have taken immediate

steps to prevent further commission of such fraud.Thus, Gempesaw's negligence was the

proximate cause of her loss. And since it was her negligence which caused the drawee Bank to

honor the forged checks or prevented it from recovering the amount it had already paid on the

checks,Gempesaw cannot now complain should the bank refuse to recredit her account with the

amount of such checks. Under Section 23 of the NIL,she is now precluded from using the

forgery to prevent the bank's debiting of her account.Section 23 of the NIL provides that "when a

signature is forged or made without the authority of the person whose signature it purports to be,

itis wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to

enforce payment thereof against any party thereto, can be acquired through or under such

signature, unless the party against whom it is sought to enforce such right is precluded from

setting up the forgery or want of authority."

Two types of cases of problems arising from forged indorsements of checks

Problems arising from forged indorsements of checks may generally be broken into two types of

cases: (1) where forgery was accomplished by a person not associated with the drawer [for

example a mail robbery]; and (2)where the indorsement was forged by an agent of the drawer.

This difference in situations would determine the effect of the drawer's negligence with respect

to forged indorsements.

Duty of drawer; Effect of negligence

A depositor is under a duty to set up an accounting system and a business procedure as are

reasonably calculated to prevent or render difficult the forgery of indorsements, particularly by

the depositor's own employees. And if the drawer (depositor) learns that a check drawn by him

has been paid under a forged indorsement, the drawer is under duty promptly to report such fact

to the drawee bank.For his negligence or failure either to discover or to report promptly the fact

of such forgery to the drawee,the drawer loses his right against thedrawee who has debited his

account under the forged indorsement. In other words, he is precluded from using forgery as a

basis for his claim for recrediting of his account.

Banking business impressed with public interest; Utmost diligence required

The banking business is so impressed with public interest where the trust and confidence of the

public in general is of paramount importance such that the appropriate standard of diligence must

be a high degree of diligence, if not the utmost diligence. Surely, drawee Bank cannot claim it

exercised such a degree of diligence that is required of it. There is no way that it be allowed to

escape liability for such negligence. Its liability as obligor is not merely vicarious but primary

wherein the defense of exercise of due diligence in the selection and supervision of its employees

is of no moment.Premises considered, respondent drawee Bank is adjudged liable to share the

loss with the petitioner on a fifty-fifty ratio in accordance with Article 172 which provides:

Responsibility arising from negligence in the performance of every kind of obligation is also

demandable, but such liability may be regulated by the courts according to the circumstances.

------

REPUBLIC VS EBRADA Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS: February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check dated January 15,

1963 for P1,246.08 at Republic Bank . The check was issued by the Bureau of Treasury; Bureau

advised Republic Bank that the indorsement on the reverse side of the check by the payee,

"Martin Lorenzo" was a forgery because he died as of July 14, 1952 and requested a refund. On

July 11, 1966: Ebrada filed a Third-Party complaint against Adelaida Dominguez who, in turn,

filed on September 14, 1966 a Fourth-Party complaint against Justina Tinio. On March 21, 1967:

City Court of Manila favored Republic against Ebrada, for Third-Party plaintiff against Adelaida

Dominguez, and for Fourth-Party plaintiff against Justina Tinio. CA: reversed Mauricia T.

Ebrada claim against Adelaida Dominguez and Domiguez against Justina Tinio

W/N: Ebrada should be held liable.

HELD: YES. Affirmed in toto. Under Section 65 of the Negotiable Instruments Law:

Every person negotiating an instrument by delivery or by qualified indorsement, warrants:

(a) That the instrument is genuine and in all respects what it purports to be.

(b) That she has good title to it.

xxx xxx xxx

Every indorser who indorses without qualification warrants to all subsequent holders in due

course:

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding

sections;

(b) That the instrument is at the time of his indorsement valid and subsisting.

Under action 23 of the Negotiable Instruments Law (Act 2031):

When a signature is forged or made without the authority of the person whose signature it

purports to be, it is wholly inoperative, and no right to retain the instruments, or to give a

discharge thereof against any party thereto, can be acquired through or under such signature

unless the party against whom it is sought to enforce such right is precluded from setting up the

forgery or want of authority.

Martin Lorenzo (forged as original payee) > Ramon R. Lorenzo (2nd indorser) = NO EFFECT

Ramon R. Lorenzo(2nd indorser)> Adelaida Dominguez (third indorser)>Adelaida Dominguez

to Ebrada who did not know of the forgery = valid and enforceable barring any claim of forgery.

The drawee of a check can recover from the holder the money paid to him on a forged

instrument; not its duty to ascertain whether the signatures of the payee or indorsers are genuine

or not. The indorser is supposed to warrant to the drawee that the signatures of the payee and

previous indorsers (NOT only holders in due course) are genuine

RATIONALE: . indorsers own credulity or recklessness, or misplaced confidence was the sole

cause of the loss. Why should he be permitted to shift the loss due to his own fault in assuming

the risk, upon the drawee, simply because of the accidental circumstance that the drawee

afterwards failed to detect the forgery when the check was presented. Ebrada , upon receiving the

check in question from Adelaida Dominguez, was duty-bound to ascertain whether the check in

question was genuine before presenting it to plaintiff Bank for payment. Based on the doctrine

from Great Eastern Life Ins. Co. v. Hongkong Shanghai Bank (1922) , bank should suffer the

loss when it paid the amount of the check in question to Ebrada, but it has the remedy to recover

from the Ebrada the amount it paid. Ebrada immediately turning over to Adelaida Dominguez

(Third-Party defendant and the Fourth-Party plaintiff) who in turn handed the amount to Justina

Tinio on the same date would not exempt her from liability because by doing so, she acted as an

accommodation party in the check for which she is also liable under Section 29 of the Negotiable

Instruments Law (Act 2031): An accommodation party is one who has signed the instrument as

maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of

lending his name to some other person. Such a person is liable on the instrument to a holder for

value, notwithstanding such holder at the time of taking the instrument knew him to be only an

accommodation party.

ASSOCIATED BANK VS CA Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS: The Province of Tarlac maintains a current account with the Philippine National Bank

(PNB) Tarlac Branch where the provincial funds are deposited. Checks issued by the Province

are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the

Secretary of the Sangguniang Bayan. A portion of the funds of the province is allocated to the

Concepcion Emergency Hospital. Check 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. In January 1981:Upon post-audit by the

Provincial Auditor, it was discovered that the hospital did not receive several allotment checks

and February 19, 1981: After the checks were examined, they learned that 30 checks of

P203,300 were encashed by Fausto Pangilinan, with the Associated Bank acting as collecting

bank. Fausto Pangilinan is the administrative officer and cashier of payee hospital until his

retirement on February 28, 1978, collected the questioned checks from the office of the

Provincial Treasurer. He sought to encash the 1st check with Associated Bank. Jesus David,

manager of Associated Bank refused and suggested that Pangilinan deposit the check in his

personal savings account with the same bank. Pangilinan was able to withdraw the money when

the check was cleared and paid by the drawee bank, PNB. PNB did not return the questioned

checks within twenty-four hours, but several days later. After forging the signature of Dr. Adena

Canlas who was chief of the payee hospital, Pangilinan followed the same procedure for the

other checks. All the checks bore the stamp of Associated Bank which reads "All prior

endorsements guaranteed ASSOCIATED BANK. CA affrimed RTC: Associated to reimburse

PNB and ordering PNB to pay Province of Tarlac

ISSUE: W/N PNB and Associated Bank should be held liable

HELD: YES. PARTIALLY GRANTED. The collecting bank, Associated Bank, shall be liable to

PNB for 50% of P203,300

Sec. 23. FORGED SIGNATURE, EFFECT OF. When a signature is forged or made without

authority of the person whose signature it purports to be, it is wholly inoperative, and no right to

retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any

party thereto, can be acquired through or under such signature unless the party against whom it is

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

General rule: A forged signature, whether it be that of the drawer or the payee, is wholly

inoperative and no one can gain title to the instrument through it.A person whose signature to an

instrument was forged was never a party and never consented to the contract which allegedly

gave rise to such instrument.

EXCEPTION: where "a party against whom it is sought to enforce a right is precluded from

setting up the forgery or want of authority."

Parties who warrant or admit the genuineness of the signature in question and those who, by their

acts, silence or negligence are estopped from setting up the defense of forgery, are precluded

from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors

of the genuineness of the signatures on the instrument.

In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the

instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged

can raise the defense of forgery against a holder in due course

In order instruments, the signature of its rightful holder (here, the payee hospital) is essential to

transfer title to the same instrument. When the holder's indorsement is forged all parties prior to

the forgery may raise the real defense of forgery against all parties subsequent thereto. An

indorser of an order instrument warrants "that the instrument is genuine and in all respects what

it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and

that the instrument is at the time of his indorsement valid and subsisting. A collecting bank

where a check is deposited and which indorses the check upon presentment with the drawee bank

= indorser. So even if the indorsement on the check deposited by the banks's client is forged, the

collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery

as against the drawee bank.

The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay

the check to the order of the payee. The drawer's instructions are reflected on the face and by the

terms of the check. Payment under a forged indorsement is not to the drawer's order. then is that

the drawee bank may not debit the drawer's account and is not entitled to indemnification from

the drawer. 25 The risk of loss must perforce fall on the drawee bank.

GR: drawee bank may not debit the drawer's account and is not entitled to indemnification from

the drawer - risk of loss must perforce fall on the drawee bank

EX: if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that

substantially contributed to the making of the forged signature, the drawer is precluded from

asserting the forgery

If at the same time the drawee bank was also negligent to the point of substantially contributing

to the loss, then such loss from the forgery can be apportioned between the negligent drawer and

the negligent bank. In cases involving a forged check, where the drawer's signature is forged, the

drawer can recover from the drawee bank. In cases involving checks with forged indorsements,

the drawee bank canseek reimbursement or a return of the amount it paid from the presentor

bank or person.

However, a drawee bank has the duty to promptly inform the presentor of the forgery upon

discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving

said presentor of the right to recover from the forger, the former is deemed negligent and can no

longer recover from the presentor

Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be

returned within twenty-Sour (24) hours after discovery of the forgery but in no event beyond the

period fixed or provided by law for filing of a legal action by the returning bank. Section 23 of

the PCHC Rules deleted the requirement that items bearing a forged endorsement should be

returned within twenty-four hours.

Since PNB did not return the questioned checks within twenty-four hours, but several days later,

Associated Bank alleges that PNB should be considered negligent and not entitled to

reimbursement of the amount it paid on the checks.

More importantly, by reason of the statutory warranty of a general indorser in section 66 of the

Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged

indorsement and presents it to the drawee bank guarantees all prior indorsements, including the

forged indorsement. In this case, the checks were indorsed by the collecting bank (Associated

Bank) to the drawee bank (PNB) . The stamp guaranteeing prior indorsements is not an empty

rubric which a bank must fulfill for the sake of convenience. It is within the bank's discretion to

receive a check for no banking institution would consciously or deliberately accept a check

bearing a forged indorsement. When a check is deposited with the collecting bank, it takes a risk

on its depositor.

* Liability of Associated Bank

Where the instrument is payable to order at the time of the forgery, such as the checks in this

case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to

the same instrument. When the holders indorsement is forged, all parties prior to the forgery

may raise the real defense of forgery against all parties subsequent thereto.

A collecting bank (in this case Associated Bank) where a check is deposited and which indorses

the check upon presentment with the drawee bank (PNB), is such an indorser. So even if the

indorsement on the check deposited by the bankss client is forged, Associated Bank is bound by

its warranties as an indorser and cannot set up the defense of forgery as against the PNB.

EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in notifying

the collecting bank (Associated Bank) of the fact of the forgery so much so that the latter can no

longer collect reimbursement from the depositor-forger.

Liability of PNB

The bank on which a check is drawn, known as the drawee bank (PNB), is under strict liability to

pay the check to the order of the payee (Provincial Government of Tarlac). Payment under a

forged indorsement is not to the drawers order. When the drawee bank pays a person other than

the payee, it does not comply with the terms of the check and violates its duty to charge its

customers (the drawer) account only for properly payable items. Since the drawee bank did not

pay a holder or other person entitled to receive payment, it has no right to reimbursement from

the drawer. The general rule then is that the drawee bank may not debit the drawers account and

is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the

drawee bank.

EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer (Tarlac

Province) to exercise ordinary care that substantially contributed to the making of the forged

signature, the drawer is precluded from asserting the forgery.

In sum, by reason of Associated Banks indorsement and warranties of prior indorsements as a

party after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask

reimbursement from PNB because the Province is a party prior to the forgery. Hence, the

instrument is inoperative. HOWEVER, it has been proven that the Provincial Government of

Tarlac has been negligent in issuing the checks especially when it continued to deliver the checks

to Pangilinan even when he already retired. Due to this contributory negligence, PNB is only

ordered to pay 50% of the amount or half of P203 K.

BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated

Banks warranties), PNB can ask the 50% reimbursement from Associated Bank. Associated

Bank can ask reimbursement from Pangilinan but unfortunately in this case, the court did not

acquire jurisdiction over him.

*There is a distinction on forged indorsements with regard bearer instruments and

instruments payable to order.

With instruments payable to bearer, the signature of the payee or holder is unnecessary to pass

title to the instrument. Hence, when the indorsement is a forgery, only the person whose

signature is forged can raise the defense of forgery against holder in due course.

In instruments payable to order, the signature of the rightful holder is essential to transfer

title to the same instrument. When the holders signature is forged, all parties prior to

the forgery may raise the real defense of forgery against all parties subsequent thereto. In

connection to this, an indorser warrants that the instrument is genuine. A collecting bank

is such an indorser. So even if the indorsement is forged, the collecting bank is bound by

his warranties as an indorser and cannot set up the defense of forgery as against the drawee

bank. Furthermore, in cases involving checks with forged indorsements, such as the case at

bar, the chain of liability doesn't end with the drawee bank. The drawee bank may not

debit the account of the drawer but may generally pass liability back through the collection

chain to the party who took from the forger and of course, the forger himself, if available.

In other words, the drawee bank can seek reimbursement or a return of the amount it paid from

the collecting bank or person. The collecting bank generally suffers the loss because it

has te 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 indorsements.

With regard the issue of delay, a delay in informing the bank of the forgery, which

deprives it of the opportunity to go after the forger, signifies negligence on the part of the

drawee bank and will preclude it from claiming reimbursement. In this case, PNB wasn't

guilty of any negligent delay. Its delay hasn't prejudiced Associated Bank in any way

because even if there wasn't delay, the fact that there was nothing left of the account of

Pangilinan, there couldn't be anymore reimbursement.

WESTMONT BANK v. ONG

SYNOPSIS

Respondent, a current account depositor with petitioner bank, was debited the amount of

P1,754,787.50 representing the face value of two Pacific Banking Corporation's Manager's

checks containing respondent's forged signature. These two checks weredeposited by

respondent's friend, Paciano Tanlimco, in his account with petitioner bank which accepted and

credited both checks without verifying the signature of respondent.Tanlimco immediately

withdrew the money. Respondent sought the help of Tanlimco's family to recover the amount,

but to no avail. Hence, he filed the collection case almost five months from the discovery of the

fraud. The trial court ruled in favor of respondent. It found that petitioner bank was grossly

negligent in encashing the checks without verifying the signature of its own depositor, herein

respondent. It ordered petitioner to pay theamount of the manager's checks with legal interest and

moral and exemplary damages. The Court of Appeals affirmed the trial court's decision. Hence,

the present recourse, petitioner assailing, among others, that respondent was guilty of laches.It

was held that a forged signature or one made without authority is inoperative and ineffectual

under Section 24 of the Negotiable Instruments Law; that a collecting bank has the legal duty to

ascertain that the payee's endorsement was genuine before cashing the check and is liable to the

payee and must bear the loss for payment made on a forged signature; that findings of the trial

court are binding and conclusive on appeal; that there is no laches where a party filed the case

only after exhausting possibilities of settling the case amicably.

FACTS:1.Eugene Ong maintained a current account with the petitioner and sometime in

May1976, he sold certain shares of stocks through Island Securities Corporation. Latter

purchased 2 Pacific Banking Corp. Managers checks with the total face value of P1,754,787.50,

dated May 4, 1976 and issued in the name of Ong.Before Ong could get hold of the said checks,

his friend Faciano Tanlimco got hold of them, forged Ongs signature and deposited such with

the petitioner, where Tanlimco was also a depositor. Even though Ongs signature was on file,

petitioner accepted and credited both checks to the account of Tanlimco, without verifying the

signature indorsements appearing at the back thereof. Hence, Tanlimco immediately withdrew

the money and absconded. Ong first sought the help Tanlimcos family then reported the incident

to the Central Bank but he was still unable to recover the amount. It was only 5 months from the

discovery of the fraud did Ong demanded in his complaint that the petitioner pay the value of the

2 checks from the bank on whose gross negligence he imputed his loss. He claimed that he did

not deliver, negotiate, endorse or transfer to any person/entity the said checks and that the

signatures on the back were spurious. Petitioner on the other hand claimed that since Ong

admitted to have never received the 2 checks from Island Securities, he never acquired

ownership of these checks.Hence, he had no legal personality to sue as he is not a real party-in-

interest.RTC Manila and the CA ruled in favour of Ong, hence this petition.

ISSUE:WON respondent Ong has a cause of action against the petitioner Westmont Bank and

WON Ong is barred to recover the money from Westmont Bank due to laches

[Petitioners Arguments: Under Sec. 51 of the NIL, it is only when a person becomes a holder of

a negotiable instrument can he sue in his own name. This is in relation to the definition of a

holder under Sec. 191, who is a payee or indorsee of a bill or note, who is in possession of the

instrument or the bearer thereof. Petitioner maintains that Ong, even though the named payee but

not having actual or physical possession of the two checks in question,did not become a holder

thereof, hence, he cannot sue in his own name. Art. 1249 of the Civil code also explained that a

check is not a legal tender. Therefore, It is petitioner's position that for all intents and purposes,

Island Securities has not yet tendered payment to respondent. Petitioner also claims that it would

be liable to the drawee bank and not to Ong, since latter has no cause of action.

Respondents arguments: Ong leans on the ruling of the trial court and the CA which held that

the suit of Ong is a desirable shortcut to reach a party who ought in any event to be untimely

liable. Respondent also cited Associated Bank v. Court of Appeals which held that the collecting

bank or last endorser generally suffers the loss because it has the duty to ascertain the

genuineness of all prior endorsements. The bank is also made liable because it is privy to the

depositor who negotiated the check. The bank knows him, his address and history because he is a

client. Hence, it is in a better position to detect forgery, fraud or irregularity in the indorsement

HELD:SC did not grant the petition. There is a cause of action in here since it is respondent's

right as payee of the manager's checks to receive the amount involved, petitioner's correlative

duty as collecting bank to ensure that the amount gets to the rightful payee or his order, and a

breach of that duty because of a blatant act of negligence on the part of petitioner which violated

respondent's rights. Under Section 23 of the Negotiable Instruments Law: When a signature is

forged or made without the authority of the person whose signature it purports to be, it is wholly

inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce

payment thereof against any party thereto, can be acquired through or under such signature,

unless the party against whom it is sought to enforce such right is precluded from setting up the

forgery or want of authority .Since the signature of the payee, in the case at bar, was forged to

make it appear that he had made an endorsement 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. The collecting bank is liable to the payee and must

bear the loss because it is its legal duty toascertain that the payee's endorsement was genuine

before cashing the check. As a genera lrule, a bank or a 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 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.The theory for this rule is that the possession of the check on the forged or unauthorized

indorsement is wrongful, and when the money had been collected on the check, the bank or other

person or corporation can be held as for moneys had and received, and the proceeds are held for

the rightful owners who may recover them. The position of the bank taking the check on the

forged or unauthorized indorsement is the same as if it had taken the check and collected the

money without indorsement at all and the act of the bank amounts to conversion of the

check.Petitioner relies on the view to the effect that where there is no delivery to the payee and

no title vests in him, he ought not to be allowed to recover on the ground that he lost nothing

because he never became the owner of the check and still retained his claim of debt against the

drawer. However, another view in certain cases holds that even if the absence of delivery is

considered, such consideration is not material. The rationale for this view is that in said cases the

plaintiff uses one action to reach, by a desirable short cut, the person who ought in any event to

be ultimately liable as among the innocent persons involved in the transaction. In other words,

the payee ought to be allowed to recover directly from the collecting bank regardless of whether

the check was delivered to the payee or not.Hence, petitioner could not escape liability for its

negligent acts. Banks are engaged in a business impressed with public interest, and it is their duty

to protect in return their many clients and depositors who transact business with them. They have

the obligation to treat their client's account meticulously and with the highest degree of care,

considering the fiduciary nature of their relationship. The diligence required of banks, therefore,

is more than that of a good father of a family. The bank was held to be grossly negligent in

performing its duties since it apparently failed to make such a verification or, what is worse did

so but, chose to disregard the obvious dissimilarity of the signatures. The first omission makes it

guilty of gross negligence;the second of bad faith. In either case, defendant is liable to plaintiff

for the proceeds of the checks in question.As for the second issue, it cannot be said that Ong sat

on his rights. This can be fairly seen on the remedies he took and exhausted before bringing the

matter to the Central Bank and then the courts. These acts cannot be construed as undue delay in

or abandonment of the assertion of his rights. Moreover, it is petitioner which had the last clear

chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and

followed the proper and regular banking procedures in clearing checks. As we had earlier ruled,

the one who had the last clear opportunity to avoid the impending harm but failed to do so is

chargeable with the consequences thereof.

Petition denied.

*Since the signature of the payee was forged, such signature should be deemed

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 collect from the collecting bank. It should be liable for the loss because it is its legal

duty to ascertain that the payees endorsement was genuine before cashing the check. As

a general rule, a bank or corporation who has obtained possession of a check with an

unauthorized or forged indorsement of the payees signature and who collects the amount of the

check other from the drawee, is liable for the proceeds thereof to the payee or the other owner,

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

obtained.

DOCTRINE OF DESIRABLE SHORT CUTplaintiff uses one action to reach, by desirable

short cut, the person who ought to be ultimately liable as among the innocent persons

involved in the transaction. In other words, the payee ought to be allowed to recover directly

from the collecting bank, regardless of whether the check was delivered to the payee or not.

On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of

Tamlincos family to collect the sum of money, and later the Central Bank. Only after

exhausting all the measures to settle the issue amicably did he file the action.

SAMSUNG CONSTRUCTION VS FEBTC

Facts: Samsung Construction held an account with Far East Bank. One day a check worth

900,000, payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far

East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of

Samsung, who was also present during the time the check was cashed. Later however it was

discovered that no such check was ever approved by the Samsungs head accountant, the

president of the company also never signed any such check.

Issue: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged

check, which was drawn from the account of Samsung

Held: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states

that a forged signature makes the instrument wholly inoperative. If payment is made the

drawee (Far East) cannot charge it to the drawers account (Samsung). The fact that the forgery

is clever is immaterial. The forged signature may so closely resemble the genuine as to defy

detection by the depositor himself. And yet, if the bank pays the check, it is paying out with its

own money and not of the depositors. This rule of liability can be stated briefly in these words:

A bank is bound to know its depositors signature. The accusation of negligence on the part of

Samsung was not clearly proven. Absence of proof to the contrary, the presumption is that the

ordinary course of business was followed.

Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp. [G.R. No. 74917.

January 20, 1988]

FACTS: Equitable Bank drew six crossed managers check payable to certain member

establishments of Visa Card. Subsequently, the checks were deposited with Banco De Oro

(BDO) to the credit of its depositor. Following normal procedures and after stamping at the back

of the checks the usual endorsements,BDO sent the checks for clearing through the Philippine

Clearing House Corporation (PCHC). Accordingly, Equitable Banking paid the checks; its

clearing account was debited for the value of the checks and BDOs clearing account was

credited for the same amount. Thereafter, Equitable Banking discovered that the endorsements

appearing at the back of the checks and purporting to be that of the payees were forged and/or

unauthorized or otherwise belong to persons other than the payees.Equitable Banking presented

the checks directly to BDO for the purpose of claiming reimbursement from the latter. However,

BDO refused to accept such direct presentation and to reimburse Equitable Banking for the value

of the checks.

ISSUES: (a) Whether or not BDO is estopped from claiming that checks under consideration are

non-negotiable instruments. (b) Whether or not BDO can escape liability by reasons of forgery.

(c) Whether or not only negotiable checks are within the jurisdiction of PCHC.

RULING:

(a) YES. BDO having stamped its guarantee of all prior endorsements and/or lack of

endorsements is now estopped from claiming that the checks under consideration are not

negotiable instruments. The checks were accepted for deposit by the petitioner stamping thereon

its guarantee, in order that it can clear the said checks with the respondent bank. By such

deliberate and positive attitude of the petitioner it has for all legal intents and purposes treated

the said cheeks as negotiable instruments and accordingly assumed the warranty of the endorser

when it stamped its guarantee of prior endorsements at the back of the checks. It led the said

respondent to believe that it was acting as endorser of the checks and on the strength of this

guarantee said respondent cleared the checks in question and credited the account of the

petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed

checks are not negotiable instrument.

(b) NO. A commercial bank cannot escape the liability of an endorser of a check and which may

turn out to be a forged endorsement. 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.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.

(c) NO. PCHCs jurisdiction is not limited to negotiable checks only. 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. Thus, no distinction. Ubi lex non distinguit, nec nos

distinguere debemus. Checks are used between banks and bankers and their customers, and are

designed to facilitate banking operations. It is of the essence to be payable on demand, because

the contract between the banker and the customer is that the money is needed on demand.

THE GREAT EASTERN LIFE INSURANCE CO.v.Hsbc

FACTS: 1)May 3, 1920, the plaintiff drew its check for P2,000 on the Hongkong and Shanghai

Banking Corporation with whom it had an account, payable to the order of Lazaro Melicor. E.

M. Maasim fraudulently obtained possession of the check, forged Melicor's signature, as an

endorser, and then personally endorsed and presented it to the Philippine National Bank where

the amount of the check was placed to his credit. After having paid the check, and on the next

day, the Philippine national Bank endorsed the check to the Hongkong and Shanghai Banking

Corporation which paid it and charged the amount of the check to the account of the plaintiff. In

the ordinary course of business, the HSBC rendered a bank statement to the plaintiff showing

that the amount of the check was charged to its account, and no objection was then made to the

statement. About four months after the check was charged to the account of the plaintiff, it

developed that Lazaro Melicor, to whom the check was made payable, had never received it, and

that his signature, as an endorser, was forged by Maasim, who presented and deposited it to his

private account in the Philippine National Bank.With this knowledge, the plaintiff promptly

made a demand upon the HSBC that it should be given credit for the amount of the forged check,

which the bank refused to do. The plaintiff commenced this action to recover the P2,000 which

was paid on the forged check. On the petition of the Shanghai Bank, the Philippine National

Bank was made defendant. The Shanghai Bank denies any liability, but prays that, if a judgment

should be rendered against it,in turn, it should have like judgment against the Philippine National

Bank which denies all liability to either party. Judgment was rendered against the plaintiff and in

favor of the defendants, from which the plaintiff appeals, claiming that the court erred in

dismissing the case, notwithstanding its finding of fact,and in not rendering a judgment in its

favor, as prayed for in its complaint.

Issue: Whether the defendant banks should be held responsible for the payment made to Maasim

for the amount of the check

RULING: YES. The SC held that the forgery was that of Melicor, who was the payee of the

check, and the legal presumption is that the bank would not honor the check without the genuine

endorsement of Melicor.In other words, when the plaintiff received its banks statement, it had a

right to assume that Melicor had personally endorsed the check, and that, otherwise, the bank

would not have paid it.Section 23 of Act No. 2031, known as the Negotiable Instruments Law,

says:When a signature is forged or made without the authority of the person whose signature it

purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a

discharge therefor,or to enforce payment thereof against any party thereto, can be acquired

through or under such signature, unless the party against whom it is sought to enforce such right

is precluded from setting up the forgery or want of authority. The money was on deposit in the

Shanghai Bank, and it had no legal right to pay it out to anyone except the plaintiff or its order.

Here, the plaintiff ordered the Shanghai Bank to pay the P2,000 to Melicor, and the money was

actually paid to Maasim and was never paid to Melicor, and he never paid to Melicor, and he

never personally endorsed the check, or authorized any one to endorse it for him, and the alleged

endorsement was a forgery. Hence, upon the undisputed facts, it must follow that the Shanghai

Bank has no defense to this action.It is admitted that the Philippine National Bank cashed the

check upon a forged signature, and placed the money to the credit of Maasim, who was a forger.

That the Philippine National Bank then endorsed the check and forwarded it to the Shanghai

Bank by whom it was paid. The Philippine National Bank had no license or authority to pay the

money to Maasim or anyone else upon a forge signature. It was its legal duty to know that

Melicor's endorsment was genuine before cashing the check. Its remedy is against Maasim to

whom it paid the money..

..

Great Eastern Life Ins. Co. V. Hongkong Shanghai Bank (1922)

FACTS: May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on the

Hongkong and Shanghai Banking Corporation (HSBC) payable to the order of Lazaro Melicor.

E. M. Maasim fraudulently obtained possession of the check, forged Melicor's signature, as an

endorser, and then personally endorsed and presented it to the Philippine National Bank (PNB)

and it was placed to his credit. Next day: PNB endorsed the check to the HSBC who paid it.

HSBC sent a bank statement to the Eastern showing the amount of the check was charged to its

account, and no objection was made. 4 months after the check was charged, it developed that

Lazaro Melicor, to whom the check was made payable, had never received it, and that his

signature, as an endorser, was forged by Maasim. Eastern promptly made a demand upon the

HSBC to credit the amount of the forged check. Eastern filed against HSBC and PNB. RTC:

dismissed the case

ISSUES: W/N Eastern has the right to recover the amount of the forged check

HELD: YES. lower court is reversed. Eastern against HSBC who can claim against PNB.

forgery was that of Melicor (payees and NOT the maker). Eastern received it banks statement, it

had a right to assume that Melicor had personally endorsed the check, and that, otherwise, the

bank would not have paid it.

Section 23 of Negotiable Instruments Law:

When a signature is forged or made without the authority of the person whose signature it

purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a

discharge therefor, or to enforce payment thereof against any party thereto, can be acquired

through or under such signature, unless the party against whom it is sought to enforce such right

is precluded from setting up the forgery or want of authority.

The Philippine National Bank had no license or authority to pay the money to Maasim or anyone

else upon a forged signature. Its remedy is against Maasim to whom it paid the money.

Philippine National Bank vs. Quimpo [GR L-53194, 14 March 1988]

Facts: On 3 July 1973, Francisco S. Gozon II, who was a depositor of the Caloocan City Branch

of the Philippine National Bank (PNB), went to the bank in his car accompanied by his friend

Ernesto Santos whom he left in the car while he transacted business in the bank. When Santos

saw that Gozon left his check book he took a check therefrom, filled it up for the amount of

P5,000.00, forged the signature of Gozon, and thereafter he encashed the check in the bank on

the same day. The account of Gozon was debited the said amount. Upon receipt of the statement

of account from the bank, Gozon asked that the said amount of P5,000.00 should be returned to

his account as his signature on the check was forged but the bank refused. Upon Gozons

complaint on 1 February 1974 Ernesto Santos was apprehended by the police authorities and

upon investigation he admitted that he stole the check of Gozon, forged his signature and

encashed the same with the Bank. Gozon filed the complaint for recovery of the amount of

P5,000.00, plus interest, damages, attorney's fees and costs against the bank in the CFI Rizal

(Branch XIC, Hon. Romulo S. Quimpo presiding). After the issues were joined and the trial on

the merits ensued, a decision was rendered on 4 February 1980, by the Court, ordering the bank

to return the amount of P5,000 which it had unlawfully withheld, with interest at the legal rate

from 22 September 1972 until the amount is fully delivered. The bank was further condemned to

pay Gozon the sum of P2,000.00 as attorney's fees and to pay the costs of the suit. The bank filed

a petition for review on certiorari.

Issue: Whether the act of Gozon in putting his checkbook containing the forged check into the

hands of Santos was the proximate cause of the loss, precluding him from setting up the defense

of forgery.

Held: 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. 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 change the amount so paid to the account of the depositor

whose name was forged. This rule is absolutely necessary to the circulation of drafts and checks,

and is based upon the presumed negligence of the drawee in failing to meet its obligation to

know the signature of its correspondent. There is nothing inequitable in such a rule. If thepaper

comes to the drawee in the regular course of business, and he, having the opportunity

ascertaining its character, pronounces it to be valid and pays it, it is not only a question of

payment under mistake, but payment in neglect of duty which the commercial law places upon

him, and the result of his negligence must rest upon him. The act of Gozon in leaving