TRADERS ROYAL BANK VS. CA G.R. No.

93397 March 3, 1997 Lessons Applicable: Requisites of negotiability to antedated and postdated instruments (Negotiable Instrument Law) FACTS: Filriters (assigned) > Philfinance (still under the name of Filriters assigned) > Traders Royal Bank = ? (valid or not)

November 27, 1979: Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness (CBCI) of P500k and having an aggregate value of P3.5M o The Detached Assignment contains an express authorization executed by the transferor intended to complete the assignment through the registration of the transfer in the name of PhilFinance February 4, 1981: Traders Royal Bank (Traders) entered into a Repurchase Agreement w/ PhilFinance whereby in consideration of the sum of P500,000.00, PhilFinance sold, transferred and delivered a CBCI w/ a face value of P500K which CBCI was among those previously acquired by PhilFinance from Filriters PhilFinance failed to repurchase on the agreed date of maturity, April 27, 1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds Philfinance transferred and assigned all, its rights and title in the CBCI to Traders Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing Traders prayed for the registration by the Central Bank of the subject CBCI in its name. CA affirmed RTC: subsequent assignment in favor of Traders Royal Bank null and void and of no force and effect. o Philfinance acquired no title or rights under CBCI which it could assign or transfer to Traders and which it can register with the Central Bank o instrument is payable only to Filriters, the registered owner

assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the BOD Traders, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements.

The fact that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. Traders knew that Philfinance is not registered owner of the CBCI. o The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI. Nemo potest nisi quod de jure potest no man can do anything except what he can do lawfully.

CALTEX VS. CA G.R. No. 97753 August 10, 1992 Lessons Applicable: Requisites of negotiability to antedated and postdated instruments (Negotiable Instrument Law) FACTS:

Security Bank and Trust Company (Security Bank), a commercial banking institution, through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who deposited with Security Bank the total amount of P1,120,000 Angel delivered the CTDs to Caltex for his purchase of fuel products March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he lost all CTDs, submitted the required Affidavit of Loss and received the replacement March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank in the amount of P875,000 and executed a notarized Deed of Assignment of Time Deposit November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to verify the CTDs declared lost by Angel November 26, 1982: Security Bank received a letter from Caltex formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the same. December 8, 1982: Caltex was requested by Security Bank to furnish: o a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz o the details of Mr. Angel's obligation against which Caltex proposed to apply the time deposits Security Bank rejected Caltex demand for payment bec. it failed to furnish a copy of its agreement w/ Angel April 1983, the loan of Angel dela Cruz with Security Bank matured August 5, 1983: CTD were set-off w/ the matured loan Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest CA affirmed RTC to dismiss complaint

ISSUE: W/N the CBCI is a negotiable instrument HELD: NO. Petition is dismissed. CA affirmed.

CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law (Act 2031) certificate of indebtedness o = certificates for the creation and maintenance of a permanent improvement revolving fund o similar to a "bond" properly understood as acknowledgment of an obligation to pay a fixed sum of money usually used for the purpose of long term loans Philfinance merely borrowed the CBCI from Filriters, a sister corporation. o lack of any consideration = assignment is a complete nullity Filriters to Philfinance did not conform to the "Rules and Regulations Governing Central Bank Certificates of Indebtedness" (Central Bank Circular No. 769, series of 1980) under which the note was issued. o Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that any

ISSUE: 1. 2.

W/N the CTDs (Certificate of Time Deposits) are negotiable W/N Caltex as holder in due course can rightfully recover on the CTDs

HELD: Petition is Denied and appealed decision is affirmed. 1. YES. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to become negotiable, viz: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and -check (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

The documents provide that the amounts deposited shall be repayable to the depositor o depositor = bearer If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself

1 All these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2 Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. Eventually, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings. ISSUE: Whether or not the treasury warrants involved in this case are nonnegotiable instruments. HELD: The treasury warrants are non-negotiable instruments. It would appear to the Court that Metrobank was indeed negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it. Without such assurance, Golden Savings would not have allowed the withdrawals.

2. NO.

although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement o CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products o There was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to the extent of his lien. o As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights: Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed. Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument. Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.

PNB VS CONCEPCION MINING A promissory note dated march 12, 1954 was executed by Vicente Legarda, president of Concepcion Mining Company, and Jose Sarte. On the face of the promissory note partially reads: NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National Bank . . . . The promissory note matured and without payment from the makers. PNB sued Concepcion Mining and Sarte. ISSUE: Whether or not the estate of Legarda should be included in the suit. HELD: No. There is no need for pursuant to Section 17 (g) of the Negotiable Instruments Law: SEC. 17. Construction where instrument is ambiguous. Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: xxx xxx xxx (g) Where an instrument containing the word I promise to pay is signed by two or more persons, they are deemed to be jointly and severally liable thereon. In view of the above quoted provisions, and as the promissory note was executed jointly and severally by the same parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of the promissory note had the right to hold any one or any two of the signers of the promissory note responsible for the payment of the amount of the note. This judgment of the lower court should be affirmed. Development Bank of Rizal v. Sima Wei G.R. No. 85419, March 9, 1993 FACTS:

METROPOLITAN BANK VS CA FACTS: Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second indorser.

Sima Wei acquired a loan from Development Bank of Rizal (DBR) where he executed and delivered to DBR a PN, engaging to pay DBR or order the amount of P1,820,000.00 on or before June 24, 1983 with interest at 32% per annum Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02.

Nov 18, 1983 Sima Wei issued 2 crossed checks payable to DBR drawn against China Banking Corporation; 1st check (serial number 384934) for P550,000.00 and 2nd check (serial number 384935) for P500K. The checks were allegedly issued in full settlement of the drawers account evidenced by the PN but the checks were not delivered to DBR For unknown reasons, the checks came into the possession of Lee Kian Huat who deposited the checks without the DBRs indorsement to the account of Plastic Corporation at the Producers Bank Plastic Corporation assured the Producers Bank that the transaction was legal and regular despite the fact that the checks were crossed and payable to DBR and bore no indorsement of the latter Thus, DBR filed the complaint for sum of money against Wei and/or Lee Kian Huat, Uy, Tung, Plastic Corporation and the Producers Bank DBR cause of action was not based on collecting the sum of money evidenced by the NI, but on quasi-delict a claim for damages on the ground of fraudulent acts and evident bad faith of the alternative respondents

HELD: NO Issue means the first delivery of the instrument complete in form to a person who takes it as a holder Holder the payee or indorsee of a note or who is in possession of it or the bearer thereof The issuance and the delivery of the check must be to a person who takes it as a holder. Delivery of the checks signifies transfer of possession (actual or constructive) from one person to another with intent to transfer title thereto; the delivery being the final act essential to its consummation as an obligation. In this case, the collector was not the person who could take the checks as a holder, neither could the collector be deemed an agent of Linton with respect to the checks because he was a mere employee.

Astro Electronics Corp. V. Phil. Export & Foreign Loan G.R. No. 136729, September 23, 2003 (411 SCRA 462) FACTS:

ISSUE: WON DBR has a cause of action against Sima Wei for the undelivered checks HELD: NO An NI must be delivered to the payee in order to evidence its existence as a binding contract. Sec. 16 of the NIL provides that every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument. Without the delivery of said checks to DBR, it did not acquire any right or interest therein and cannot therefore assert any cause of action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank or any respondent. Petitioner, however, has a right of action against Sima Wei for the balance due on the promissory note.

Lim v. CA G.R. No. 107898, December 19, 1995 FACTS:

Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to P3,000,000.00 with interest and secured by 3 promissory notes In each of these promissory notes, Roxas signed twice, as President of Astro and in his personal capacity. Roxas also signed a Continuing Suretyship Agreement in favor of Philtrust Bank, as President of Astro and as surety. Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astros loan, subject to the condition that upon payment by Philguanrantee of said amount, it shall be proportionally subrogated to the rights of Philtrust against Astro As a result of Astros failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with the RTC of Makati Roxas no liability on the instruments because he merely signed the same in blank and the phrases in his personal capacity and in his official capacity were fraudulently inserted without his knowledge The trial court ruled in favor of Philguarantee, stating that if Roxas really intended to sign the instruments merely in his capacity as President of Astro, then he should have signed only once in the promissory note. On appeal, the Court of Appeals affirmed the RTC decision.

ISSUE: WON Roxas should be solidarily liable with Astro HELD: YES Persons who write their names on the face of promissory notes are makers. Thus, even without the phrase personal capacity, a person who signs on the instrument twice will still be primarily liable as a joint and several debtor. Under NIL, persons who write their names on the face of promissory notes are makers, promising that they will pay to the order of the payee or any holder according to its tenor. In this case, signing his name aside from being the President of Astro, Roxas became a co-maker of the PNs and cannot escape any liability arising from it. An instrument which begins with I, We, or Either of us promise to pay, when signed by two or more persons, makes them solidary liable. In this case, having signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to enforce the notes

Spouses Manuel and Rosita Lim are the president and treasurer, respectively, of RIGI Built Industries Inc. (RIGI) RIGI had been transacting business with Linton Commercial Company (Linton) for years, where Linton supplies RIGI with steel plates, steel bars, flat bars, and purlin sticks which RIGI uses in the fabrication, installation, and building of steel structures. The Lims ordered steel plates from Linton, delivering checks to the Lintons collector as payment. The checks were dishonored for insufficiency of funds with the additional notation payment stopped; The Lims claimed that the supplies delivered by Linton were not in accordance with the specifications of purchase orders Despite demands, the Lims refused to make good the checks or to pay value of the deliveries

ISSUE: WON the receipt of the checks by Lintons collector is the issuance and delivery to the payee within the contemplation of the law.

against him alone or jointly with Astro. His intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal.

ISSUE: W/N BPI was bound to inspect the checks and shall therefore be liable in case of forgery HELD: YES. judgment absolving the Bank of the Philippine Islands must therefore be reversed

SAN CARLOS MILLING VS. BPI G.R. No. L-37467 December 11, 1993 Lessons Applicable: Forgery (Negotiable Instruments Law) FACTS:

duty was upon the BPI, and the China Banking Corporation was not bound to inspect and verify all endorsements of the check, even if some of them were also those of depositors in that bank A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged. under section 23 of the Negotiable Instruments Law they are not a charge against San Carlos nor are the checks of any value to the BPI.

San Carlos Milling Co. Ltd. (San Carlos) was in the hands of Alfred D. Cooper, its agent under general power of attorney with authority of substitution The principal employee in the Manila office was Joseph L. Wilson, to whom had been given a general power of attorney but without power of substitution. 1926: Cooper, desiring to go on vacation, gave a general power of attorney to Newland Baldwin and at the same time revoked the power of Wilson relative to the dealings with BPI

proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in honoring and cashing the two forged checks

Wilson, conspiring together with Alfredo Dolores, a messenger-clerk in San Carlos' Manila office, sent a cable gram in code to the company in Honolulu requesting a telegraphic transfer to the China Banking Corporation (China Bank) of Manila of $100,00. The money was transferred by cable, and upon its receipt China Bank sent an exchange contract to San Carlos offering the sum of P201K, which was then the current rate of exchange.

GREAT EASTERN LIFE VS. HSBC G.R. No. L-18657 August 23, 1922 Lessons Applicable: Forgery (Negotiable Instruments Law) 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

September 28, 1927: A manager's check on the China Banking Corporation for P201K payable to San Carlos Milling Company or order was receipted for by Dolores

deposited with the BPI having a fake endorsement (Baldwin forged as drawer)

For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos Milling Co., Ltd. By (Sgd.) NEWLAND BALDWIN For Agent

San Carlos had frequently withdrawn currency for shipment to its mill but never in so large an amount, and never under the sole supervision of Dolores Before delivering the money, the bank asked Dolores for P1 to cover the cost of packing the money, and he left the bank and shortly afterwards returned with another check for P1, purporting to be signed by Newland Baldwin the crime was discovered and San Carlos filed against the BPI and China Bank (after ammendment complaint)

China Bank: as the prior endorsement had in law been guaranteed by the BPI, they are absolved even if the endorsement of Newland Baldwin on the check was a forgery BPI: guilty of no negligence, loss was due to the dishonesty of San Carlos employees and the negligence of San Carlos general agent

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)

RTC: BPI in GF and San Carlos could not recover

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.

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 Philippine National Bank had no license or authority to pay the money to Maasim or anyone else upon a forge signature.

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

Its remedy is against Maasim to whom it paid the money.

REPUBLIC BANK VS. EBRADA G.R. No. L-40796 July 31, 1975 Lessons Applicable: Forgery (Negotiable Instruments Law) FACTS:

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

February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check dated January 15, 1963 for P1,246.08 at Republic Bank o 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 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. 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

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):

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 Section 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.

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. GEMPESAW VS. CA G.R. No. 92244 February 9, 1993 Lessons Applicable: Promissory Notes and Checks (Negotiable Instruments Law) FACTS: Gempesaw owns and operates four grocery stores to pay their debts of her supplies, she draws checks against her account she signed each and every crossed check without bothering to verify the accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper. although the Bank notified her of all checks presented to and paid by the bank, petitioner did not verify he correctness of the returned checks, much less check if the payees actually received the checks in payment for the supplies she received It was only after the lapse of more 2 years that petitioner found out about the fraudulent manipulations of her bookkeeper November 7, 1984: Gempesaw made a written demand on respondent drawee Bank to credit her account with the money value of the 82 checks totalling P1,208.606.89 for having been wrongfully charged against her account

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

January 23, 1985: Gempesaw filed against Philippine Bank of Communications (drawee Bank) for recovery of the money value of 82 checks charged against the Gempesaw's account on the ground that the payees' indorsements were forgeries RTC: dismissed the complaint CA: affirmed Gempesaw gross negligence = promixate cause of the loss ISSUE: W/N Gempesaw has a right to recover the amount attributable to the forgeries HELD: NO. REMANDED to the trial court for the reception of evidence to determine the exact amount of loss suffered by the petitioner, considering that she partly benefited from the issuance of the questioned checks since the obligation for which she issued them were apparently extinguished, such that only the excess amount over and above the total of these actual obligations must be considered as loss of which one half must be paid by respondent drawee bank to herein petitioner. Petitioner completed the checks by signing them as drawer and thereafter authorized her employee Alicia Galang to deliver to payees GR: drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the amount of said check EX: where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof.

printed for MWSS by its printer, F. Mesina Enterprises

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 o 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) o 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 o 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 Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either chanrobles virtual law library (a) Prohibits further negotiation of the instrument; or xxx xxx xxx In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that any subsequent party may be forewarned that ceases to be negotiable. However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so. When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence drawee Bank did not discover the irregularity with respect to the acceptance of checks with second indorsement for deposit even without the approval of the branch manager despite periodic inspection conducted by a team of auditors from the main office constitutes negligence on the part of the bank in carrying out its obligations to its depositors 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.

MWSS VS. CA G.R. No. L-62943 July 14, 1986 Lessons Applicable: Forgery (Negotiable Instruments Law) FACTS: 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.

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. o Specimen signatures were submitted by the MWSS to and on file with the PNB o By special arrangement with the PNB, the MWSS used personalized checks in drawing from this account.

1.

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

2.

3.

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

4.

5.

6.

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.

and his checkbook with blank checks. It was also Eugenio who verified and reconciled the statements of said checking account. Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to encash and deposit to her personal account about seventeen (17) checks drawn against the account of the petitioner at the respondent bank, with an aggregate amount of P119,634.34. Petitioner did not bother to check his statement of account until a business partner apprised him that he saw Eugenio use his credit cards. Petitioner fired Eugenio immediately, and instituted a criminal action against her for estafa thru falsification before the Office of the Provincial Fiscal of Rizal. Private respondent, through an affidavit executed by its employee, Mr. Dante Razon, also lodged a complaint for estafa thru falsification of commercial documents against Eugenio on the basis of petitioners statement that his signatures in the checks were forged Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks which were wrongfully encashed but respondent refused.ndent refused. Finding no sufficient basis for plaintiff's cause against defendant bank, the trial court DISMISSED the case. Aggrieved, petitioner elevated the case to the Court of Appeals by way of a petition for review but without success. The appellate court held that petitioners own negligence was the proximate cause of his loss. issue: (1) whether or not petitioner has a cause of action against private respondent; and (2) whether or not private respondent, in filing an estafa case against petitioners secretary, is barred from raising the defense that the fact of forgery was not established. Held: On the first issue, we find that petitioner has no cause of action against Manila Bank. To be entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his specimen signatures and comparing them with those on the questioned checks. Petitioners failure to examine his bank statements appears as the proximate cause of his own damage. Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. In the instant case, the bank was not shown to be remiss in its duty of sending monthly bank statements to petitioner so that any error or discrepancy in the entries therein could be brought to the banks attention at the earliest opportunity. But, petitioner failed to examine these bank statements not because he was prevented by some cause in not doing so, but because he did not pay sufficient attention to the matter. Had he done so, he could have been alerted to any anomaly committed against him. In other words, petitioner had sufficient opportunity to prevent or detect any misappropriation by his secretary had he only reviewed the status of his accounts based on the bank statements sent to him regularly. In view of Article 2179 of the New Civil Code, when the plaintiffs own negligence was the immediate and proximate cause of his injury, no recovery could be had for damages. Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged check is inoperative, and that Manila Bank had no authority to pay the forged checks. True, it is a rule that when a signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. No right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired through or under such signature. However, the rule does provide for an exception, namely: unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. In the instant case, it is the exception that applies. In our view, petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account. On the second issue, the fact that Manila Bank had filed a case for estafa against Eugenio would not estop it from asserting the fact that forgery has not been clearly established. Petitioner cannot hold private respondent in estoppel for the latter is not the actual party to the criminal action.

ILUSORIO VS CA Facts: Petitioner is a prominent businessman who, at the time material to this case, was the Managing Director of Multinational Investment Bancorporation and the Chairman and/or President of several other corporations. He was a depositor in good standing of respondent bank, the Manila Banking Corporation. As he was then running about 20 corporations, and was going out of the country a number of times, petitioner entrusted to his secretary, Katherine E. Eugenio, his credit cards