Crisologo-Jose vs Court of Appeals (1989) 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 vicepresident, 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. CA GR No. 101163 Facts: Nora Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, two postdated checks in the amount of fifty thousand each. Thereafter, Victoriano negotiated the checks to State Investment House, Inc. When Moulic failed to sell the jewelry, she returned it to Victoriano before the maturity of the checks. However, the checks cannot be retrieved as they have been negotiated. Before the maturity date Moulic withdrew her funds from the bank contesting that she incurred no obligation on the checks because the jewelry was never sold and

the checks are negotiated without her knowledge and consent. Upon presentment of for payment, the checks were dishonored for insufficiency of funds. Issues: 1. Whether or not State Investment House inc. was a holder of the check in due course 2. Whether or not Moulic can set up against the petitioner the defense that there was failure or absence of consideration Held: Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows that: on the faces of the postdated checks were complete and regular; that State Investment House Inc. bought the checks from Victoriano before the due dates; that it was taken in good faith and for value; and there was no knowledge with regard that the checks were issued as security and not for value. A prima facie presumption exists that a holder of a negotiable instrument is a holder in due course. Moulic failed to prove the contrary. No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose for which they were issued and therefore is not a holder in due course. No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic failed to get back the possession of the checks as provided by paragraph c, intentional cancellation of instrument is impossible. As provided by paragraph d, the acts which will discharge a simple contract of payment of money will discharge the instrument. Correlating Article 1231 of the Civil Code which enumerates the modes of extinguishing obligation, none of those modes outlined therein is applicable in the instant case. Thus, Moulic may not unilaterally discharge herself from her liability by 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 check to a holder in due course. Moreover, the fact that the petitioner failed to give notice of dishonor is of no moment. The need for such notice is not absolute; there are exceptions provided by Sec 114 of NIL.

PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS (material alteration) GR. NO. 107508 FACTS: Ministry of Education Culture issued a check payable to Abante Marketing and drawn against Philippine National Bank (PNB). Abante Marketing, deposited the questioned check in its savings account with Capitol City Development Bank (CAPITOL). In turn, Capitol deposited the same in its account with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to PNB for clearing. PNB cleared the check as good and thereafter, PBCom credited Capitol's account for the amount stated in the check. However, PNB returned the check to PBCom and debited PBCom's 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 latter's account for the same amount, and subsequently, sent the check back to petitioner. PNB, however, returned the check to PBCom. On the other hand, Capitol could not in turn, debit Abante Marketing's account since the latter had already withdrawn the amount of the check. Capitol sought clarification from PBCom and demanded the re-crediting of the amount. PBCom followed suit by requesting an explanation and re-crediting from PNB. Since the demands of Capitol were not heeded, it filed a civil suit

against PBCom which in turn, filed a third-party complaint against PNB for reimbursement/indemnity with respect to the claims of Capitol. PNB, on its part, filed a fourth-party complaint against Abante Marketing. The Trial Court rendered its decision, ordering PBCom to re-credit or reimburse; PNB to reimburse and indemnify PBCom for whatever amount PBCom pays to Capitol; Abante Marketing to reimburse and indemnify PNB for whatever amount PNB pays to PBCom. The court dismissed the counterclaims of PBCom and PNB. The appellate court modified the appealed judgment by ordering PNB to honor the check. After the check shall have been honored by PNB, the court ordered PBCom to re-credit Capitol's account with it the amount. PNB filed the petition for review on certiorari averring that under Section 125 of the NIL, any change that alters the effect of the instrument is a material alteration. ISSUE: WON an alteration of the serial number of a check is a material alteration under the NIL. HELD: NO, alteration of a serial number of a check is not a material alteration contemplated under Sec. 125 of the NIL. 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 Instruments Law. In the present case what was altered is the serial number of the check in question, an item which 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. The check's serial number is not the sole indication of its origin. The name of the government agency which issued the subject check was prominently printed therein. The check's issuer was therefore insufficiently identified, rendering the referral to the serial number redundant and inconsequential.

Metropolitan Waterworks and Sewerage System vs Court of Appeals (Forgery Negligence of Drawer) FACTS: Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB. When it was still called NAWASA, MWSS made a special arrangement with PNB so that it may have personalized checks to be printed Mesina Enterprises. These personalized checks are the ones being used by MWSS in its business transactions. From March to May 1969, MWSS issued 23 checks to various payees in the aggregate amount of P320,636.26. During the same months, another set of 23 checks containing the same check numbers earlier issued were forged. The aggregate amount of the forged checks amounted to P3,457,903.00. This amount was distributed to the bank accounts of three persons: Arturo Sison, Antonio Mendoza, and Raul Dizon. MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused. The trial court ruled in favor of MWSS but the Court of Appeals reversed the trial courts decision. ISSUE: Whether or not PNB should restore the said amount.

HELD: No. MWSS is precluded from setting up the defense of forgery. It has been proven that MWSS has been negligent in supervising the printing of its personalized checks. It failed to provide security measures and coordinate the same with PNB. Further, the signatures in the forged checks appear to be genuine as reported by the National Bureau of Investigation so much so that the MWSS itself cannot tell the difference between the forged signature and the genuine one. The records likewise show that MWSS failed to provide appropriate security measures over its own records thereby laying confidential records open to unauthorized persons. Even if the twenty-three (23) checks in question are considered forgeries, considering the MWSSs gross negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law. The Supreme Court further emphasized that forgery cannot be presumed. It must be established by clear, positive, and convincing evidence. This was not done in the present case.

Jai-Alai Corp vs BPI G.R. No. L-29432 -forgery FACTS: Petitioner deposited 10 checks in its current account with BPI. The checks which were acquired by petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-Island Gas Service, Inc. or order. After the checks had been submitted to Inter-bank clearing, Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers were forgeries. BPI thus debited the value of the checks against petitioner's current account and forwarded to the latter the checks containing the forged indorsements which petitioner refused to accept. ISSUE: Whether BPI had the right to debit from petitioner's current account the value of the checks with the forged indorsements. RULING: BPI acted within legal bounds when it debited the petitioner's account. Having indorsed the checks to respondent bank, petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every single one of those checks "is genuine and in all respects what it purports to be." Respondent which relied upon the petitioner's warranty should not be held liable for the resulting loss. **The depositor of a check as indorser warrants that it is genuine and in all respects what it purports to be. Having indorsed the checks to respondent bank, petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every single one of those checks " is genuine and in all respects what it purports to be."

FAR EAST BANK & TRUST COMPANY vs GOLD PALACE JEWELLERY CO. 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 materiallyaltered 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 favor 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 GOLDPALACE. HELD: No. 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 its payment 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 one of 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 own actions. 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 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 branchin the province. Mariano V. Ramos worked under him as assistant agent in the bank branch 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.

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. 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 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.

June 10, 1942: the USAFFE forces to which he was attached surrendered. Ramos was made a prisoner of war until February 12, 1943 December, 1944: M. V. Ramos allegedly indorsed the check to Enrique P. Montinola.

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

court: dismissed ISSUE: 1. W/N Montinola cannot hold PNB liable because there is "Agent, Phil. National Bank" is an alteration - YES 2. 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 theNegotiable 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. 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 v. AU Valencia (284 SCRA 643) Facts: Myron Papa, acting as attorney-in-fact of Angela Butte, allegedly sold a parcel of land in La Loma, Quezon City to Felix Penarroyo. However, prior to the alleged sale, the land was mortgaged by Butte to Associated Banking Corporation along with other properties and after the alleged sale but prior to the propertys release by delivery, Butte died. The Bank refused to release the property despite Penarroyos unless and until the other mortgaged properties by Butte have been redeemed and because of this Penarroyo settled to having the title of the property annotated. It was later discovered that the mortgage rights of the Bank were transferred to one Tomas Parpana, administrator of the estate of Ramon Papa Jr. and his since then been collecting rents. Despite repeated demands of Penarroyo and Valencia, Papa refused to deliver the property which led to a suit for specific performance. The trial court ruled in favor of Penarroyo and Valencia.

On appeal to the CA, and ultimately in relation to negotiable instruments, Papa averred that the sale of the property was not consummated since the PCIB check issued by Penarroyo for payment worth 40000 pesos was not encashed by him. However, the CA saw the contrary and that Papa in fact encashed the check by means of a receipt. Finally on appeal to the SC, Papa cited that according to Art 1249 of the Civil Code, payment of checks only produce effect once they have been encashed and he insists that he never encashed the check. He further alleged that if check was encashed, it should have been stamped as such or at least a microfilm copy. It must be noted that the check was in possession of Papa for ten (10) years from the time payment was made to him. Issue: Whether or not the check was encashed and can be considered effective as payment Held: YES. The Court held that 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 is given. In this case, granting that check was never encashed, Papas failure to do so for more than ten (10) years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay. After more than ten (10) years from the payment in part by cash and in part by check, the presumption is that the check had been encashed.

Gempesaw vs. CA FACTS: Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of several supplies. Most of the checks for amounts in excess of actual obligations as shown in their corresponding invoices. It was only after the lapse of more than 2 years did she discovered the fraudulent manipulations of her bookkeeper. It was also learned that the indorsements of the payee were forged, and the checks were brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank, Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito Lam. Gempesaw made demand upon the bank to credit the amount charged due the checks. The bank refused. Hence, the present action. ISSUE: Who shall bear the loss resulting from the forged indorsements. HELD: As a rule, 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. An exception to the rule is where the drawer is guilty of such negligence which causes the bank to honor such checks. Gempesaw did not exercise prudence in taking steps that a careful and prudent businessman would take in circumstances to discover discrepancies in her account. Her negligence was the proximate cause of her loss, and under Section 23 of the Negotiable Instruments Law, is precluded from using forgery as a defense. On the other hand, the banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials does not invalidate the instrument; neither does it invalidate the negotiation or transfer of said checks. The only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof, pursuant to Section 36 of the Negotiable Instruments Law.

In light of any case not provided for in the Act that is to be governed by the provisions of existing legislation, pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held liable for damages in accordance with Article 1170 of the Civil Code. The drawee bank, in its failure to discover the fraud committed by its employee and in contravention banking rules in allowing a chief accountant to deposit the checks bearing second indorsements, was adjudged liable to share the loss with Gempesaw on a 50:50 ratio.

Republic v. Ebrada (July 31, 1975) Facts: Mauricia T. Ebrada (defendant) encashed a check at the Republic Bank. The check was issued by the Bureau of Treasury and was indorsed several times before falling into the hands of the defendant. Defendant managed to cash the check (worth around 1200 pesos). It was however discovered that the original payee, Martin Lorenzo, was already dead for more than a decade. Therefore the initial endorsement must have been a forgery. Issues: (1) Whether or not Ebrada is liable to return the amount that she cashed. (2) Whether or not a drawee of a check (bank) can recover from the holder (Ebrada) the money paid from a forged instrument. Held: Sec. 23 of the Negotiable Instruments Law dictates that where the signature on the negotiable instrument is forged then the negotiation of the check is without force or effect. In this specific case the court held that since the check was endorsed multiple times already it was not the responsibility of the bank to ascertain if the signatures of the previous endorsements were genuine or not. It was the responsibility of the holder of the check to satisfy himself that the paper is genuine. The acts of presenting the check for payment or putting it into circulation asserts that the holder has performed his duty to ascertain the validity of the instrument. Everyone with even the le ast experience in business knows that no business man would accept a check in exchange for money or goods unless he is satisfied that the check is genuine. If he is deceived he has suffered a loss of his cash or goods through his own mistake. Ebrada, upon receiving the check in question, was duty bound to ascertain if it was genuine or not before presenting it to plaintiff Bank. The Bank may recover from Ebrada the amount she received for the check.

Associated Bank vs Court of Appeals FACTS: The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks drawn against its account with the Philippine National Bank (PNB). These checks were drawn payable to the order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He used to handle checks issued by the provincial government of Tarlac to the said hospital. However, after his retirement, the provincial government still delivered checks to him until its discovery of this irregularity in 1981. By forging the signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan was able to deposit 30 checks amounting to P203k to his account with the Associated Bank.

When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the said amount. PNB in turn demanded Associated Bank to reimburse said amount. PNB averred that Associated Bank is liable to reimburse because of its indorsement borne on the face of the checks: All prior endorsements guaranteed ASSOCIATED BANK. ISSUE: What are the liabilities of each party? HELD: The checks involved in this case are order instruments. 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 a n 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 pay able 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 in demnification 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.

Westmont Bank vs Ong FACTS: Respondent Eugene Ong maintained a current account the Associated Banking Corporation, but now known as Westmont Bank. 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 petitioner, where Tanlimco was also a depositor. Even though Ongs specimen 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. Tanlimco then immediately withdrew the money and absconded. Instead of going straight to the bank to stop or question the payment, Ong first so ught the help of Tanlimcos family to recover the amount. Later, he reported the incident to the Central Bank, which like the first effort, unfortunately proved futile. It was only about five (5) months from discovery of the fraud, did Ong cry foul and demanded in his complaint that petitioner pay the value of the two checks from the bank on whose gross negligence he imputed his loss. In his suit, he insisted that he did not deliver, negotiate, endorse or transfer to any person or entity the subject che cks issued to him and asserted that the signatures on the back were spurious. The bank did not present evidence to the contrary, but simply contended that since plaintiff Ong claimed to have never received the originals of the two (2) checks in question from Island Securities, much less to have authorized Tanlimco to receive the same, he never acquired ownership of these checks. Thus, he had no legal personality to sue as he is not a real party in interest. ISSUE: Whether or not respondent Ong has a cause of action against petitioner Westmont Bank HELD: The Court held that since Ong never had possession of the checks nor did he authorize anybody, he did not become a holder thereof hence he cannot sue in his own name. 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 As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payees 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

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 clients account meticulous ly and with the highest degree of care, considering the fiduciary nature of their relationship.

Samsung Construction v. Far East Bank (August 15, 2004) 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 VS. EQUITABLE BANKING CORP. FACTS: BDO drew six crossed Managers check payable to certain member establishments of Visa Card. The checks were deposited with Equitable Bank to the credit of its depositor, named Aida Trencio. After stamping at the back of the checks, the usual endorsements: All prior and/or lack of endorsement guaranteed the defendant sent the checks for clearing through the Philippine Clearing House Corp. or PCHC. BDO paid the checks and its clearing account was debited for the value of the checks and Equitable Banks clearing account was credited for the same amount. Thereafter, BDO discovered that the checks 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. BDO presented the checks directly to Equitable Bank for the purpose of claiming reimbursement from the latter. However, defendant refused to accept such direct presentation and to reimburse BDO for the value of the checks. Hence, this case. ISSUE: Whether or not BDO can collect reimbursement from Equitable Bank? RULING: Yes. The petitioner is estopped from claiming the checks under consideration having stamped its guarantee of all prior endorsements and/or lack of endorsements are not negotiable instruments. It led the said respondent to believe that it was acting as endorser of the checks 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 instruments. A commercial bank cannot escape the liability of an endorser4 of a check and which may in 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 that 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. While the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct.

Great Eastern vs. HSBC G.R. No. L-18657 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

ISSUE: 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 forge signature.

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

PNB vs Hon. Quimpo G.R. No. L-53194 Facts: Francisco S. Gozon II, a depositor Philippine National Bank, 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 should be returned to his account as his signature on the check was forged but the bank refused. Upon complaint of Gozon, Santos was apprehended and upon investigation he admitted that he stole the check of Gozon, forged his signature and encashed the same with the Bank. Hence Gozon filed the complaint for recovery of the amount of P5,000. After the issues were joined and the trial on the merits ensued, Judge Quimpo rendered a decision in favor of Gozon. Not satisfied therewith, the bank now filed this petition for review on certiorari in this Court raising the sole legal issue that the act of Gozon in putting his check book containing the check in question into the hands of Santos was the proximate cause of the loss, thereby precluding him from setting up the defense of forgery or want of authority under Sec23 of the NIL. Issue: Who shall bear the loss resulting from the forged check Ruling: The bank should bear the loss. 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. Obviously, petitioner was negligent in encashing said forged check without carefully examining the signature which shows marked variation from the genuine signature of private respondent. The act of Gozon in leaving his checkbook in the car while he went out for a short while cannot be considered negligence sufficient to excuse the defendant bank from its own negligence. Gozon could not have been expected to know that Santos would remove a check from his checkbook. Gozon had trust in his classmate and friend. He had no reason to suspect that the latter would breach that trust.