DEFENSES

F
O R G E R

AND EQUITIES Y Effect of Payment under Forged Indorsements

Facts Doctrine(s)/Reasoning
NEGLIGENCE OF DRAWER AND COLLECTING BANK AS EXCEPTION TO SEC. 23 The general rule is that a forged signature is wholly inoperative and payment made through or under signature is ineffectual or does NOT discharge the instrument. The exception to this rule is when the party relying on the forgery is precluded from setting up the forgery or want of authority. In this jurisdiction, we recognize negligence of the party invoking forgery as an exception to the general rule. LAST CLEAR CHANCE INAPPLICABLE The doctrine of last clear chance in Picart v. Smith invoked by BPI against CBC is inapplicable as the latter had NO prior notice of the fraud perpetrated by BPIs employees on the pretermination. Moreover, Fernando is not a depositor of CBC. CONTRIBUTORY NEGLIGENCE Both banks, however, were negligent in the selection and supervision of their employees (ART. 2180, CC). BPIs employees did not bother to make a phone call to Fernando to verify the pretermination. They did not compare Fernandos purported signature on the letter requesting the pretermination and the letter authorizing her niece Rosemarie Fernando to get the two checks with Fernandos signature in BPIs file. They also neglected to require the surrender of the promissory note evidencing the placement before the two checks were delivered. On the other hand, CBCs employees closed their eyes to the suspicious circumstances of huge over-the-counter withdrawals made immediately after the account was opened.

Disposition
Because CBC was contributorily negligent, the recovery of its losses was made subject to mitigation by the courts (Art. 1172, CC). BPI and CBC were ordered to share in the damages due Fernando in a 60-40 ratio.

BPI v. CA (1992)

DRAWEE bank BPI failed to detect the impersonation of the DRAWER Fernando which caused the pretermination of her money market placement. The checks representing the placement were successfully encashed from the COLLECTING BANK CBC with whom the impersonator opened an account and deposited the checks. A woman who identified herself as Eligia Fernando phoned BPIs Money Market Department in order to preterminate her money market placement. Eustaquio, the dealer trainee who spoke with the caller, verified the details of the placement on the phone. But no one from BPI bothered to call Fernando, a Treasurer at Philamlife, at her office to verify the request for pretermination. Two checks representing the proceeds of the placement were prepared. BPIs dispatcher Laderas did not require the surrender of the promissory note evidencing the placement when the checks were picked up. The woman pretending to be Fernando opened an account at China Bank with an initial deposit of P10,000. The following day, she deposited the two checks. Two days later, withdrawals in huge amounts began on the account by means of checks which she encashed over the counter. The fraud was discovered when the money market placement matured and the real Fernando went to BPI for the roll-over of her placement. This is a suit between a DRAWEE (PBCom) and a DRAWER (Gempesaw) whose signature on the checks is genuine but those of the payees were forged. Natividad Gempesaw, a proprietor operating a chain of supermarkets, drew checks against her checking account with PBCom to facilitate payment of debts to her suppliers. The checks were filled up as to all material particulars by her bookkeeper Alicia Galang. Natividad signed these checks without bothering to verify their accuracy against the corresponding invoices because she reposed full trust on Galang. Eighty-two (82) checks with forged signatures of

GEMPESA W v. CA (1993)

DUTY OF DEPOSITOR/DRAWER While there is no duty resting on the DRAWER to look for forged indorsements on his cancelled checks, a DRAWER is under duty to set up an accounting system and business procedure calculated to prevent the forgery of indorsements, particularly by his own employees. And if the DRAWER learns that a check drawn by him has been paid under a forged indorsement, he is under duty prompty to report such fact to the DRAWEE bank. NEGLIGENCE OF THE DRAWER AS EXCEPTION to SEC. 23 By the DRAWERs negligence or failure to report promply the fact of forgery to the drawee, he loses the right against the DRAWEE who has debited his account under the forged indorsement. In other words, he is precluded from setting up the defense of forgery under SEC. 23. A DRAWEE bank who has paid a check on which an indorsement has been forged CANNOT charge the drawers account for the amount of said check.

PBCom was adjudged liable to share the loss of Gempesaw on a 50-50 ratio, pursunt to ART. 1172, CC.

Facts
the payees were brought to Ernesto Boon, Chief Accountant of PBCom Buendia branch, who, without authority therefor, accepted them all for deposit in the accounts of Alfredo Romero and Benito Lam. About 30 of the payees later testified that they did not receive nor even see the subject checks.

Doctrine(s)/Reasoning
This is because under SEC. 23, payment made under a forged signature is ineffectual. An exception to this rule is where the DRAWER is guilty of such negligence which causes the bank to honor such a check. In the case at bar, Gempesaw relied on the honesty of Galang, and did not even verify the accuracy of the amounts of the checks. Furthermore, although she regularly received her bank statements, she did not carefully examine them and the check stubs, and did not compare them with the sales invoices. Otherwise, she could have discovered the discrepancies and thwarted subsequent forgeries. GREAT EASTERN DOCTRINE INAPPLICABLE In said case, the check was fraudulently taken and the signature of the payee was forged not by an agent or employee of the drawer. The DRAWER was NOT found to be negligent in the handling of its business affairs. Since the DRAWER was NOT negligent, the DRAWEE was duty-bound to restore to the DRAWERs account the amount paid under the check. BANKING RULE CANNOT DESTROY NEGOTIABILITY The banking rule banning acceptance of checks for deposit with more than one indorsement unless cleared by some banking officials does NOT invalidate the instrument; neither does it invalidate the negotiation of the said check. Under the NIL, the only kind of indorsement which stops further negotiation is a restrictive indorsement under SEC. 36. In this kind of indorsement, the prohibition to negotiate must be written in express words. Although the HOLDER of a check CANNOT compel a DRAWEE bank to honor it because there is NO privity between them, such bank may NOT legally refuse to honor a check drawn against it with more than one indorsement if there is nothing irregular and the DRAWER has sufficient funds. This is because under SEC. 62, he incurs NO liability on the check UNLESS he accepts it. But the DRAWEE will make itself liable to a suit for damages at the instance of the DRAWER for wrongful dishonor. PBCom STILL LIABLE FOR DAMAGES By virtue of SEC. 196, the Civil Code comes into operation, particularly: 1) ART. 1170, which provides that those in the performance of their obligations contravene the tenor thereof are liable for damages; and 2) ART. 1173, which provides that the fault or negligence of obligor consists in the omission of that diligence required by the nature of the obligation.. When PBCom violated its internal rule that second indorsements are not to be accepted without the approval of its branch managers, it contravened the tenor of its obligation. Furthermore, the fact the PBCom did not discover the irregularity despite periodic inspection conducted by a team of auditors constitutes negligence. It failed to exercise the degree of diligence required of it as a business impressed with public interest. PAYEE ALLOWED TO RECOVER FROM COLLECTING BANK ON INEFFECTUAL PAYMENT Since the signature of the PAYEE, in the case at bar, 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 (SEC. 23). Westmont, as the COLLECTING BANK, grossly erred in making payment by virtue of said forged signature. The PAYEE Ong should therefore be allowed to recover from the collecting bank. COLLECTING BANK BEARS LOSS FOR WRONGFUL POSSESSION The

Disposition

WESTMON T BANK v. ONG (2002)

A friend of PAYEE (Ong) took the checks payable to the latter before he could get hold of them, forges his signature and deposits them with COLLECTING BANK (Westmont). Payee is now recovering the value of the checks from collecting bank. Eugene Ong maintained a current account with Westmont Bank, formerly the Associated Banking

Westmonts petition was denied for lack of merit.

Facts
Corporation. Sometime in May 1976, he sold certain shares of stocks through Island Securities Corporation. To pay Ong, Island Securities purchased two (2) Pacific Banking Corporation managers checks issued in the name of Eugene Ong as payee. Before Ong could get hold of the checks, his friend Paciano Tanlimco got hold of them, forged Ongs signature and deposited these with Westmont, where Tanlimco was also a depositor. Even though Ongs specimen signature was on file, Westmont accepted and credited both checks to the account of Tanlimco, without verifying the signature indorsements appearing at the back thereof. Tanlimco then immediately withdrew the money and absconded. Instead of going straight to the bank to stop or question the payment, Ong first sought the help of Tanlimcos family to recover the amount. Later, he reported the incident to the Central Bank, which unfortunately proved futile. About five (5) months from discovery of the fraud, did Ong cry foul and demanded in his complaint that Westmont pay the value of the two checks.

Doctrine(s)/Reasoning
COLLECTING BANK is liable to the payee and must bear the loss because it is its legal duty to ascertain that the PAYEEs endorsement was genuine before cashing the check. The theory of the 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. DESIRABLE SHORTCUT; PAYEEs REMEDY WITH THE COLLECTING BANK Westmont argues 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 delivery is immaterial. 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. ONGs ACTION NOT BARRED BY LACHES Ong did not sit on his rights. He immediately acted after knowing of the forgery by proceeding to seek help from the Tanlimco family and later the Central Bank, to remedy the situation and recover his money from the forger. Only after he had exhausted possibilities of settling the matter amicably, about five months after the unlawful transaction took place, did he resort to making the demand upon the Westmont and eventually before the court. These acts cannot be construed as undue delay in or abandonment of the assertion of his rights.

Disposition

PNB v. CA (1996)

Checks drawn against DRAWEE PNB payable to the order of Concepcion Emergency Hospital or its Chief (PAYEE) were properly issued and bore the genuine signatures of the DRAWER, the Province of Tarlac. A retired administrative officer (Pangilinan) forged PAYEEs indorsements and deposited the checks with the COLLECTING BANK Associated Bank. In January 1981, the books of account of the Provincial Treasurer of Tarlac were post-audited by the Provincial Auditor. It was discovered that the government hospital Concepcion Emergency Hospital did not receive several allotment checks drawn by the Province. The Provincial Treasurer learned that 30 checks were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank. Fausto Pangilinan, 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.

CHAIN OF LIABILITY

1. A COLLECTING BANK where a check is deposited and which indorses the

check upon presentment with the DRAWEE bank, is an 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 (SECs. 65 and 66) and CANNOT set up the defense of forgery as against the DRAWEE bank

DRAWER DRAWEE COLLECTING BANK Since both the Province of Tarlac and PNB negligent, the loss should be apportioned between them. The Province was adjudged to be liable to PNB for 50% of the amount of the checks so that in effect, it could only recover 50% from PNB. PNB, in turn, could recover from Associated Bank 50% of the value of the checks on the latters warranties as indorser and its failure to ascertain the genuineness of the payee's indorsement.

2. The DRAWEE bank is under strict liability to pay the check to the order of
the PAYEE. Payment under a forged indorsement is NOT to the DRAWER's order. 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 DRAWER's account and is NOT entitled to indemnification from the DRAWER. EXCEPTION: If the DRAWEE bank can prove a failure by the DRAWER to exercise ordinary care that substantially contributed to the making of the forged signature, the DRAWER is precluded from asserting the forgery. MODIFICATION: 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

Facts
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. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank, PNB. After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same procedure for the other checks. 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. As both banks resisted payment, the Province of Tarlac 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.

Doctrine(s)/Reasoning
forgery can be apportioned between the negligent drawer and the negligent bank. 3. In cases involving a forged check, where the DRAWER's signature is forged, the DRAWER can recover from the DRAWEE bank. NO DRAWEE bank has a right to pay a forged check (SEC. 23). If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the DRAWEE bank whose responsibility it is to know the DRAWERs signature since the latter is its customer. RIGHT OF DRAWEE TO GO AGAINST FORGER AND SUBSEQUENT PARTIES In cases involving checks with forged indorsements, the chain of liability does NOT 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, to the forger himself, if available. The loss falls on the party who took the check from the forger, or on the forger himself. In this case, the checks were indorsed by the COLLECTING BANK to the DRAWEE bank. The former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery is that of the PAYEE's or HOLDER's indorsement, the COLLECTING BANK is held liable, without prejudice to the latter proceeding against the forger. >> COLLECTING BANK, LOSER; STILL LIABLE EVEN IF NOT NEGLIGENT By reason of the statutory warranty of a general indorser in SEC. 66, 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. Because the indorsement is a forgery, the COLLECTING BANK commits a breach of this warranty and will be accountable to the DRAWEE bank. This liability scheme operates without regard to fault on the part of the COLLECTING BANK. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement. 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. >> DRAWEE NOT SIMILARLY SITUATED The DRAWEE bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness. of any indorsement. The DRAWEE bank's duty is but to verify the genuineness of the drawer's signature and not of the indorsement because the drawer is its client. Moreover, the COLLECTING BANK is 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. It has taken a risk on his deposit. THUS, DRAWEE CAN RECOVER FROM COLLECTING BANK 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. APPLYING THE RULES

Disposition

Facts

Doctrine(s)/Reasoning

Disposition

1. DRAWEE PNB CANNOT debit the current account of the Province of Tarlac
because it paid checks which bore forged indorsements. If both DRAWEE bank-PNB and DRAWER-Province of Tarlac were negligent, the loss should be properly apportioned between them. It appears that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss. The Province of Tarlac permitted Pangilinan to collect the checks when the latter, having already retired from government service, was no longer connected with the hospital. With the exception of the first check, all the checks were issued and released after Pangilinan's retirement.

2. 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, Pangilinan, liable.

3. 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. Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be returned within 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 24 hours. Since PNB did not return the questioned checks within 24 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. But even if PNB did NOT return the questioned checks to Associated Bank within 24 hours, PNB did NOT commit negligent delay. PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect the checks and conduct its own investigation.

TRADERS ROYAL BANK v. RPN (2002)

Three managers checks drawn by DRAWERS RPN, IBC and BBC against DRAWEE TRB were never delivered to PAYEE BIR as payment for the drawers tax liabilities. Unknown persons presented the checks to COLLECTING BANK SBTC. The DRAWERS sued both DRAWEE and COLLECTING BANK. The BIR assessed plaintiffs RPN, IBC and BBC of their tax obligations for the taxable years 1978 to 1983. Mrs. Lourdes C. Vera, plaintiffs comptroller, sent a letter to the BIR requesting settlement of plaintiffs tax obligations. The BIR granted the request and accordingly, plaintiffs purchased from defendant Traders Royal Bank (TRB) three (3) managers checks to be used as payment for their tax liabilities. TRB turned over the checks to Mrs. Vera who was supposed to deliver the same to the BIR in payment of plaintiffs taxes. Sometime in September 1988, the BIR again assessed plaintiffs for their tax liabilities for the

DUTY OF DRAWEE TRB Where a check is drawn payable to the order of one person and is presented for payment by another and purports upon its face to have been duly indorsed by the payee of the check, it is the primary duty of TRB to know that the check was duly indorsed by the original PAYEE and, where it pays the amount of the check to a third person who has forged the signature of the payee, the loss falls upon DRAWEE who cashed the check. Its only remedy is against the person to whom it paid the money. CROSSED CHECK SHOULD HAVE PUT DRAWEE ON GUARD DRAWEE TRB was duty-bound to ascertain the INDORSERs title to the check or the nature of his possession. TRB should have known the effects of a crossed check: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to one who has an account with a bank and (c) the act of crossing the 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 that purpose, otherwise, he is NOT a holder in due course. By encashing in favor of unknown persons checks which were on their face payable to the BIR, a government agency which can only act only through its agents, TRB did so at its peril and must suffer the consequences of the unauthorized or wrongful endorsement. In this light, TRB CANNOT exculpate

The appealed decision is was modified by deleting the award of exemplary damages since the TRBs wrongful act was not done in bad faith. The networks were granted the amount of P100,000 as attorneys fees..

Facts
years 1979-82. It was then they discovered that the three (3) managers checks intended as payment for their taxes were never delivered nor paid to the BIR by Mrs. Vera. Instead, the checks were presented for payment by unknown persons to defendant Security Bank and Trust Company (SBTC), Taytay Branch. Meanwhile, for failure of the plaintiffs to settle their obligations, the BIR issued warrants of levy, distraint and garnishment against them. Thus, they were constrained to enter into a compromise and paid BIR P18,962,225.25 in settlement. Thereafter, plaintiffs sent letters to TRB and SBTC, demanding that the amounts covered by the checks be reimbursed or credited to their account. The banks refused.

Doctrine(s)/Reasoning
itself from liability by claiming that the networks were themselves negligent. Since TRB did NOT pay the rightful holder or other person or entity entitled to receive payment, it has NO right to reimbursement. TRB was remiss in its duty and obligation, and must therefore suffer the consequences of its own negligence and disregard of established banking rules and procedures. COLLECTING BANK SBTC NOT LIABLE 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 itself, and ultimately should be held liable therefor. However, NOT one of the disputed checks bears the requisite endorsement of SBTC. What appears to be a guarantee stamped at the back of the checks is that of the PNB, Buendia Branch, thereby indicating that it was the latter Bank which received the same. It was likewise established during the trial that whenever SBTC receives a check for deposit, its practice is to stamp on its face the words, "non-negotiable". But the words "non-negotiable" do not appear on the face of either of the three (3) disputed checks. Moreover, the aggregate amount of the checks is not reflected in the clearing documents of SBTC as required by Section 19 of the Rules of the PCHC. ALLIED LIABLE TO LIM SIO WAN By virtue of their debtor-creditor relationship, Lim Sio Wan, is entitled to payment upon her request, or upon maturity of the placement, or until the bank is released from its obligation as debtor. Lim Sio Wan did not authorize the release of her money market placement to Santos and the bank had been negligent in so doing, there is no question that the obligation of Allied to pay Lim Sio Wan had NOT been extinguished. Art. 1240 of the Code states that "payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." SECs. 65 AND 66 SUBJECT TO EXCEPTIONS The warranty "that the instrument is genuine and in all respects what it purports to be" covers all the defects in the instrument affecting the validity thereof, including a forged indorsement. Thus, the last INDORSER will be liable for the amount indicated in the negotiable instrument even if a previous indorsement was forged. 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 itself, and ultimately should be held liable therefor. However, this general rule is subject to exceptions. One such exception is when the issuance of the check itself was attended with negligence. ISOLATED CASES In isolated cases where the checks were deposited in an account other than that of the PAYEES on the strength of forged indorsements, the Court held the COLLECTING BANK solely liable for the whole amount of the checks involved for having indorsed the same. In Republic Bank v. Ebrada, the check was properly issued by the Bureau of Treasury. While in BDO v. Equitable Banking Corporation, Banco de Oro admittedly issued the checks in the name of the correct payees. And in Traders Royal Bank v. Radio Philippines Network, the checks were issued at the request of RPN from Traders Royal Bank. However, in BPI v. CA and Associated Bank v. CA, the Court apportioned the liability between the DRAWEE bank and the COLLECTING BANK who both exhibited negligence. The bank or institution which issued the check was held partially liable for the amount of the check because of the negligence of these

Disposition

ALLIED BANKING v. LIM SIO WAN (2008)

An impostor was able to pre-terminate DRAWER Lim Sio Wans money market placement with DRAWEE Allied and deposit the check representing the proceeds of the placement to the account of Filipinas Cement Corporation at COLLECTING BANK Metrobank. The check was misrepresented as the payment to the FCC by Producers Bank on its money market placement. Lim Sio Wans money market placement with Allied was pre-terminated on the phone by a person claiming to be her. Allied was instructed by the caller to issue a manager's check representing the proceeds of the placement and to give the check to one Deborah Dee Santos who would pick up the check. The bank issued a managers check, which was cross-checked "For Payee's Account Only" and given to Santos. The manager's check was deposited in the account of Filipinas Cement Corporation (FCC) at Metrobank with the forged signature of Lim Sio Wan as indorser. The check was made to appear as the payment by Producers Bank on FCCs money market placement that had matured. The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied funded the check even without checking the authenticity of Lim Sio Wan's purported indorsement. Thus, the amount on the face of the check was credited to the account of FCC.

Producers Bank was held to be liable to Allied and Metrobank for the amount of the check plus 12% interest per annum, moral damages, attorney's fees, and costs of suit which Allied and Metrobank were adjudged to pay Lim Sio Wan based on a proportion of 60:40.

Facts
Upon the maturity date of the first money market placement, Lim Sio Wan went to Allied to withdraw it. She was then informed that the placement had been pre-terminated upon her instructions. She denied giving any instructions and receiving the proceeds thereof. Later, she sent a demand letter to Allied asking for the payment of the first placement. Allied refused to pay Lim Sio Wan.

Doctrine(s)/Reasoning
parties which resulted in the issuance of the checks. ALLIED WAS NEGLIGENT Allied was negligent in issuing the manager's check and in transmitting it to Santos without even a written authorization. In fact, Allied did not even ask for the certificate evidencing the money market placement or call up Lim Sio Wan at her residence or office to confirm her instructions. Both actions could have prevented the whole fraudulent transaction from unfolding. Allied's negligence must be considered as the proximate cause of the resulting loss. METROBANK CONCURRENTLY LIABLE AS LAST INDORSER When Metrobank indorsed the check in compliance with the PCHC Rules and Regulations without verifying the authenticity of Lim Sio Wan's indorsement and when it accepted the check despite the fact that it was cross-checked payable to PAYEE's account only, its negligent and cavalier indorsement contributed to the easier release of Lim Sio Wan's money and perpetuation of the fraud. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld. FCC NOT LIABLE FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio Wan's indorsement, can raise the real defense of forgery as against both banks. In the instant case, Lim Sio Wan's money market placement in Allied Bank was pre-terminated and withdrawn without her consent. Moreover, the proceeds of the placement were deposited in Producers Bank's account in Metrobank without any justification. In other words, there is no reason that the proceeds of Lim Sio Wans' placement should be deposited in FCC's account purportedly as payment for FCC's money market placement and interest in Producers Bank. With such payment, Producers Bank's indebtedness to FCC was extinguished, thereby benefitting the former. Clearly, Producers Bank was unjustly enriched at the expense of Lim Sio Wan. Based on the facts and circumstances of the case, Producers Bank should reimburse Allied and Metrobank for the amounts the two latter banks are ordered to pay Lim Sio Wan. PRODUCERS BANK WAS UNJUSTLY ENRICHED Allied correctly claims in its petition that Producers Bank should reimburse Allied for whatever judgment that may be rendered against it pursuant to Art. 22 of the Civil Code, which provides: "Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just cause or legal ground, shall return the same to him." FCC's money market placement with Producers Bank was already due and demandable; thus, Producers Bank's payment thereof was justified. FCC was entitled to such payment. As earlier stated, the fact that the indorsement on the check was forged cannot be raised against FCC which was not a part in any stage of the negotiation of the check. FCC was not unjustly enriched. NO JUDGMENT AGAINST SANTOS Santos could be the architect of the entire controversy. Unfortunately, since summons had not been served on Santos, the courts have not acquired jurisdiction over her. NO liability could therefore be ascribed to her.

Disposition

BANK OF AMERICA v. PHIL. RACING

PRCIs authorized joint signatories with respect to its current account with Bank of America were its President (Antonia Reyes) and Vice President for

DRAWEE REQUIRED TO EXERCISE EXTRAORDINARY DILIGENCE It is wellsettled that 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

Bank of America was ordered to pay PRCI 60% of the amount of the

Facts
CLUB (2009) Finance (Gregorio Reyes). They were scheduled to go out of the country in connection with the corporations business. In order not to disrupt operations in their absence, they pre-signed several checks to insure continuity of PRCIs operations by making available cash/money especially to settle obligations that might become due. These checks were entrusted to the accountant. In the event there was need to make use of the checks, the accountant would prepare the corresponding voucher and thereafter complete the entries on the pre-signed checks. A John Doe presented to BA for encashment a couple of PRCIs checks which the Reyeses had pre-signed. The two (2) checks had similar entries with similar infirmities and irregularities. On the space where the name of the payee should be indicated the following 2-line entries were instead typewritten: on the upper line was the word CASH while the lower line had the following typewritten words, viz: ONE HUNDRED TEN THOUSAND PESOS ONLY. Despite the highly irregular entries on the face of the checks, BA, without as much as verifying the legitimacy of the checks, encashed them. The checks appeared to have come into the hands of an employee of PRCI who eventually completed without authority the entries on the pre-signed checks.

Doctrine(s)/Reasoning
transact business with them. They have the obligation to treat their clients account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. BANK OF AMERICA NEGLIGENT Extraordinary diligence demands that Bank of America should have ascertained from PRCI the authenticity of the subject checks or the accuracy of the entries therein NOT only because of the presence of highly irregular entries on the face of the checks but also of the decidedly unusual circumstances surrounding their encashment. PRCIs witness testified that for checks in amounts greater than P20,000.00, it is the companys practice to ensure that the PAYEE is indicated by name in the check. Indeed, it is highly uncommon for a corporation to make out checks payable to CASH for substantial amounts such as in this case. Although not in the strict sense material alterations, the misplacement of the typewritten entries for the payee and the amount on the same blank and the repetition of the amount using a check writer were glaringly obvious irregularities on the face of the check. Clearly, someone made a mistake in filling up the checks and the repetition of the entries was possibly an attempt to rectify the mistake. This should have alerted the bank to the possibility that the holder or the person who is attempting to encash the checks did NOT have proper title to the checks or did not have authority to fill up and encash the same. As noted by the CA, Bank of America could have made a simple phone call to its client to clarify the irregularities. CHECKS WERE INCOMPLETE AND UNDELIVERED Bank of America argues that there was indeed delivery in this case because, following American jurisprudence, the gross negligence of PRCIs accountant in safekeeping the subject checks which resulted in their theft should be treated as a voluntary delivery by the maker who is estopped from claiming non-delivery of the instrument. This contention would have been correct if the subject checks were correctly and properly filled out by the thief and presented to the bank in good order. However, the undisputed facts plainly show that there were circumstances that should have alerted the bank to the likelihood that the checks were not properly delivered to the person who encashed the same. LAST CLEAR CHANCE DOCTRINE APPLICABLE PRCIs practice of pre-signing of blank checks should be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation of businesses. Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, Bank of America will still emerge as the party foremost liable because it had the last clear chance to avoid the loss. The Banks own operations manager admitted that they could have called up the client for verification or confirmation before honoring the dubious checks. But in the interest of fairness, the Court deemed it proper to mitigate the Banks liability by PRCIs contributory negligence under ART. 2179, CC.

Disposition
checks.