Negotiable Instruments Law

Associated Bank vs. Court of Appeals

Facts: the province of Tarlac maintains a current savings account with the PNB Tarlac
branch where the public funds are deposited.
A portion of the provincial funds is allocated to the Conception Emergency Hospital.
The books of account of the provincial treasurer were post-audited by the provincial
auditor. It was then discovered that the hospital did not receive several allotment checks
drawn by the province.
It turned out that Faustino Pangilinan, who was the administrative officer and cashier of
the payee hospital collected the questioned checks from the office of the provincial
treasurer.
The last check negotiated by Pangilinan was dated Feb. 10, 1981. It was shown in the
records that Pangilinan was retired on Feb. 28, 1978. All the checks bore the stamp of
Associated Bank which reads all prior endorsement guaranteed associated bank.
The provincial treasurer wrote the manager of PNB seeking restoration of the various
amounts debited from the current account of the province. In turn, PNB demanded
reimbursement from Associated Bank.
Both banks resisted payment, the province of Tarlac brought a suit against PNB which,
in turn, impleaded Associated Bank as third-party defendant.
Issue: who bears the loss arising from the forgery?
Held: 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.
The loss falls on the party who took the check from the forger, or on the forger himself.
PNB, the drawee bank, cannot debit the current account of the province of Tarlac
because it paid checks which bore forged indorsements. However, the province of
Tarlac was negligent to the point that it contributed to the loss. The province of Tarlac
permitted Faustino Pangilinan to collect the checks when he already retired from the
government service.

The court finds as reasonable, the proportionate sharing of 50% - 50%. Due to the
negligence of allowing Pangilinan checks to Pangilinan even when he already retired
PNB is only ordered to pay 50% of the amount or half of P203 K.

Philippine National Bank vs. Quimpo

158 SCRA 582, March 14, 1988
FACTS:
Francisco Gozon II was a depositor of Philippine National Bank Caloocan City Branch.
On July 3, 1973 he went to the bank accompanied by his friend Ernesto Santos whom
he left inside the car while he transacted business in the bank.
Gozon left his checkbook inside the car and when Santos saw it, he took a check, filled
it up for the amount of Php 5,000.00 forged the signature of Gozon, and thereafter
encashed the check in the bank on the same day wherein the account of Gozon was
debited the said amount.
Gozon filed the complaint for recovery of the amount plus interest, damages, attorneys
fees and costs against the Bank. After the issues were joined and trial on the merits
ensued, a decision was rendered in favor of plaintiff, hence the bank now files this
petition.
ISSUE:
Was the act of Francisco Gozon II in putting or leaving the check book in his car is his
own negligence which was the proximate cause of the loss thereby precluding him from
setting up the defense of forgery or want of authority?
RULING:
The petition is dismissed for lack of merit because the act of respondent Gozon in
leaving his checkbook in the car cannot be considered negligence sufficient to excuse
the defendant bank from its own negligence.
The prime duty of the bank is to ascertain the genuineness of the signature of the
drawer or the depositor on the check being encashed. It is expected to use reasonable
business prudence in accepting and cashing a check presented to it. A bank is bound to
know the signatures of its customers, and if it pays a forged check, it must be
considered as making the payment out of its own funds.
Obviously the petitioner was negligent in encashing a forged check without carefully
examining the signature on the check which shows marked variation from the genuine
signature of private respondent.

Violago vs. BA Finance Corporation

559 SCRA 69, July 21, 2008
FACTS:
This is a Petition for Review on Certiorari. Petitioners-spouses Pedro and Florencia
Violago pray for the reversal of the appellate courts ruling which held them liable to
respondent BA Finance Corporation under a promissory note and a chattel mortgage.
Petitioners likewise pray that respondent Avelino Violago be adjudged directly liable to
BA Finance.
Sometime in 1983, Avelino Violago, President of Violago Motor Sales Corporation
(VMSC), offered to sell the car to his cousin Pedro F. Violago and the latters wife,
Florencia and that the spouses would just have to pay a down payment of Php
60,500.00 while the balance would be financed by BA Finance.
On August 4, 1983, the spouses and Avelino signed a promissory note under which
they bound themselves to pay jointly and severally to the order of VMSC the amount of
Php 209,601 in 36 monthly installments of Php 5,822.25 a month. The spouses were
unaware that the same car had already been sold in 1982 to Esmeraldo Violago and
was registered in LTO-San Rafael Branch. Despite the spouses demand for the car and
Avelinos repeated reassurances, there was no delivery of the vehicle. Since VMSC
failed to deliver the car, Pedro did not pay any monthly amortization to BA Finance.
ISSUE:
Whether or not the holder of an invalid negotiable promissory note may be considered a
holder in due course?
Whether or not a chattel mortgage should be considered valid despite vitiation of
consent of and the fraud committed on the mortgagors and the clear absence of the
object certain?
RULING:
The ruling of the appellate court is set aside. Avelino committed fraud in selling the
vehicle to petitioners, a vehicle that was previously sold to another person. Avelino
knowing fully well that the vehicle was already sold, and with abuse of his relationship
with the spouses, still proceeded with the sale and collected the down payment from
petitioners. His actions were the proximate cause of petitioners loss. He cannot now
hide behind the separate corporate personality of VMSC to escape from liability.

The promissory note is clearly negotiable because it complies with all the requisites of a
negotiable instrument. In the hands of one other than a holder in due course, a
negotiable instrument is subject to the same defenses as if it were non-negotiable.
Since BA Finance Corporation is a holder in due course petitioners cannot raise the
defense of non-delivery of the object and nullity of the sale against the corporation.