Traders Royal Bank V. Radio Philippines Network Inc.

(2002)
FACTS: Traders (sold 3 managers check)> RPN,IBC,BBC (received by <Mrs. Vera) --(not
received) BIR-- > SBTC (deposited by unknown persons)
April 15, 1985: Bureau of Internal Revenue (BIR) assessed Radio Philippines Network
(RPN), Intercontinental Broadcasting Corporation (IBC), and Banahaw Broadcasting
Corporation (BBC) of their tax obligations for the
taxable years 1978 to 1983.
March 25, 1987: Mrs. Lourdes C. Vera, RPN,IBC,BBC comptroller, sent a letter to the BIR
requesting settlement of their tax obligations which was granted
June 26, 1986: RPN, IBC and BBC purchased from Traders 3 managers checks to be used
as payment for their tax liabilities
Traders, through Aida Nuez, turned over the checks to Mrs. Vera who was supposed to
deliver them to the
BIR in payment
September, 1988: BIR again assessed plaintiffs for their tax liabilities for the years 1979-82.
It was discovered the 3 managers checks were never delivered nor paid to the BIR by Mrs.
Vera. The checks were presented for payment by unknown persons to Security Bank and
Trust Company (SBTC).
BIR issued warrants of levy, distraint and garnishment against them.
They were constrained to enter into a compromise and paid BIR P18,962,225.25 in
settlement
Traders sent letters to RPN and SBTC, demanding that the amounts covered by the checks
be reimbursed or credited to their account

RTC: favored Traders against RPN and SBTC

CA: absolved SBTC and held Traders solely liable
SBTC denies liability on the ground that it had no participation in the negotiation of the
checks

ISSUE: W/N Traders should solely bare the loss for its negligence
HELD: YES. CA affirmed.
if a bank pays a forged check, it must be considered as paying out of its funds and cannot
charge the amount so paid to the account of the depositor
Despite the fraud, Traders paid the 3 checks in the total amount of P9,790,716.87
primary duty of Traders to know that the check was duly indorsed by the original payee and,
where it pays the amount of the check to a third person who has forged the signature of the
payee, the loss falls upon it who cashed the check.
only remedy is against the person to whom it paid the money
It should be noted further that one of the subject checks was crossed.
The crossing of one of the subject checks should have put petitioner on guard
it was duty-bound to ascertain the indorsers title to the check or the nature of his
possession.
effects of a crossed check:
(a) the check may not be encashed but only deposited in the bank; (b) the check may be
negotiated only once to one who has an account with a bank and
(c) the act of crossing the check serves as a warning to the holder that the check has been
issued for a definite
purpose so that he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course
A collecting bank which indorses a check bearing a forged indorsement and presents it to
the drawee bank guarantees all prior indorsements, including the forged indorsement itself,
and ultimately should be held liable therefor. However, it is doubtful if the subject checks
were ever presented to and accepted by SBTC so as to hold it liable as a collecting bank, as
held by the Court of Appeals.

Great Eastern Life Ins. Co. Vs. Hongkong Shanghai Bank

FACTS:
May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on the
Hongkong and Shanghai Banking Corporation (HSBC) payable to the order of Lazaro
Melicor.
E. M. Maasim fraudulently obtained possession of the check, forged Melicor's signature, as
an endorser, and then personally endorsed and presented it to the Philippine National Bank
(PNB) and it was placed to his credit.
Next day: PNB endorsed the check to the HSBC who paid it
HSBC sent a bank statement to the Eastern showing the amount of the check was charged to
its account, and no objection was made
4 months after the check was charged, it developed that Lazaro Melicor, to whom the check
was made payable, had never received it, and that his signature, as an endorser, was forged
by Maasim,
Eastern promptly made a demand upon the HSBC to credit the amount of the forged check
Eastern filed against HSBC and PNB
RTC: dismissed the case
ISSUES: W/N Eastern has the right to recover the amount of the forged check
HELD: YES. lower court is reversed. Eastern against HSBC who can claim against PNB
forgery was that of Melicor (payees and NOT the maker)
Eastern received it banks statement, it had a right to assume that Melicor had personally
endorsed the check, and that, otherwise, the bank would not have paid it
Section 23 of Negotiable Instruments Law:
When a signature is forged or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto, can be acquired
through or under such signature, unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of authority.
The Philippine National Bank had no license or authority to pay the money to Maasim or
anyone else upon a forge signature.
Its remedy is against Maasim to whom it paid the money.

PNB V. CA
FACTS:
January 15, 1962: Augusto Lim deposited in his current account with the PCIB branch at
Padre Faura, Manila a GSIS Check of P57,415.00 drawn against the PNB
PCIB stamped the following on the back of the check: "All prior indorsements and/or Lack
of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura
Branch, Manila
Same date: following an established banking practice in the Philippines, the check was
forwarded for clearing through the Central Bank to the PNB
did not return said check the next day, or at any other time, but retained it and paid its
amount to the PCIB, as well as debited it against the account of the GSIS in the PNB
PNB received a formal notice from the GSIS that the check had been lost, with the request
that payment thereof be stopped
January 31, 1962: Upon demand from the GSIS, the P57,415.00 was re-credited to them
bec. the signatures of its officers on the check were forged
signatures of the General Manager and the Auditor of the GSIS on the check, as drawer, are
forged
payee Mariano D. Pulido indorsed it to Manuel Go and then indorsed by Manuel Go to
Augusto Lim
February 2, 1962: PNB demanded from the PCIB the refund PNB filed against the PCIB
CA affirmed CFI: dismissed
ISSUE: W/N PCIB as indorser is liable despite the fact that the check is forged when PNB
is also negligent
HELD: NO. Affirmed
PCIB stamped on the back of the check: "All prior indorsements and/or Lack of
Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura
Branch, Manila
indorsements falsified is immaterial to the PNB's liability as a drawee, or to its right to
recover from the PCIB, for, as against the drawee, the indorsement of an intermediate bank
does not guarantee the signature of the drawer, since the forgery of the indorsement is not
the cause of the loss.
Guaranteed not the authenticity of the signatures of the officers of the GSIS who signed
because the GSIS is not an indorser of the check, but its drawer
warranty is irrelevant to the PNB's alleged right to recover from the PCIB
in general, "acceptance" is not required for checks since they are payable on demand
acceptance
promise to perform an act
the acceptance of a bill is the signification by the drawee of his assent to the order of the
drawer
payment
actual performance
compliance with obligation
PNB had been guilty of a greater degree of negligence, because it had a previous and formal
notice from the GSIS that the check had been lost, with the request that payment thereof be
stopped
PNB's negligence was the main or proximate cause for the corresponding loss
PNB did not return the check
when 1 of 2 innocent persons must suffer by the wrongful act of a third person, the loss
must be borne by the one whose negligence was the proximate cause of the loss or who put
it into the power of the third person to perpetrate the wrong
where the collecting (PCIB) and the drawee (PNB) banks are equally at fault, the court will
leave the parties where it finds them
applies in the case of a drawee who pays a bill without having previously accepted it
Section 62 of Act No. 2031 provides
The acceptor by accepting the instrument engages that he will pay it according to the tenor
of hisacceptance; and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity and
authority to
draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
Republic Of The Phils. V. BPI
FACTS:
July to December 1952: Corporacion de los Padres Dominicos acquired the 24 treasury
warrants by accommodating Jacinto Carranza who asked the Corporacion to cash the
warrants
provided: deposited first with BPI Bank, and that actual payment of the value of the
warrants would be made only after the same had been duly accepted and cleared by the
Treasurer
BPI accepted them w/ "subject to collection only"
each bore the indorsement of the payees and that of the Corporation
BPI Bank credited the proceeds
December 23, 1952: 3 warrants returned - forged December 27, 1952: 2 warrants returned -
forged January 16, 1953: 19 warrants returned - forged
January 15, 1958: Treasurer notified the Equitable Bank of the 4 forged warrants deposited
to it by and demanded reimbursement
Republic of the Philippines seeks to recover from the Equitable Banking Corporation
P17,100, representing 4 treasury warrants and BPI Bank P342,767.63 24 paid to them by the
Treasurer of the Philippines
genuine forms but signature of the drawing office and that of the representative of the
Auditor General in that office are forged
CFI: dismissed the case
ISSUE: W/N Republic has the right to recover from the banks
HELD: YES. Affirmed
All items cleared at 11:00 o'clock a.m. shall be returned not later than 2:00 o'clock p.m. on
the same day and all items cleared at 3:00 o'clock p.m. shall be returned not later than 8:30
a.m. of the following business day, except for items cleared on Saturday which may be
returned not later than 3:30 a.m. of the following day
irregularity of warrants was apparent the face from the viewpoint of the Treasury
each over P5,000 - beyond the authority of the auditor of the Treasury
it also did not advise the loss of genuine forms of its warrants
did not inform the irregularity until after December 23, 1952 - not giving notice of forgery
until December 5
Where a loss, which must be borne by one of two parties alike innocent of forgery, can be
traced to the neglect or fault of either, it is reasonable that it would be borne by him, even if
innocent of any intentional fraud, through whose means it has succeeded
Republic V. Ebrada
FACTS:
February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check dated January 15, 1963
for P1,246.08 at Republic Bank
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
W/N: Ebrada should be held liable.
HELD: YES. Affirmed in toto.
under Section 65 of the Negotiable Instruments Law:
Every person negotiating an instrument by delivery or by qualified indorsement, warrants:
(a) That the instrument is genuine and in all respects what it purports to be.
(b) That she has good title to it.
xxx xxx xxx
Every indorser who indorses without qualification warrants to all subsequent holders in due
course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding
sections;
(b) That the instrument is at the time of his indorsement valid and subsisting.
Under action 23 of the Negotiable Instruments Law (Act 2031):
When a signature is forged or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the instruments, or to give a
discharge thereof against any party thereto, can be acquired through or under such signature
unless the party against whom it is sought to enforce such right is precluded from setting up
the forgery or want of authority.
Martin Lorenzo (forged as original payee) > Ramon R. Lorenzo (2nd indorser) = NO
EFFECT
Ramon R. Lorenzo(2nd indorser)> Adelaida Dominguez (third indorser)>Adelaida
Dominguez to Ebrada who did not know of the forgery = valid and enforceable barring any
claim of forgery
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
indorser is supposed to warrant to the drawee that the signatures of the payee and previous
indorsers (NOT only holders in due course) are genuine
RATIONALE: . indorsers own credulity or recklessness, or misplaced confidence was the
sole cause of the loss. Why should he be permitted to shift the loss due to his own fault in
assuming the risk, upon the drawee, simply because of the accidental circumstance that the
drawee afterwards failed to detect the forgery when the check was presented
Ebrada , upon receiving the check in question from Adelaida Dominguez, was duty-bound
to ascertain whether the check in question was genuine before presenting it to plaintiff Bank
for payment
Based on the doctrine from Great Eastern Life Ins. Co. v. Hongkong Shanghai Bank (1922) ,
bank should suffer the loss when it paid the amount of the check in question to Ebrada, but
it has the remedy to recover from the Ebrada the amount it paid
Ebrada immediately turning over to Adelaida Dominguez (Third-Party defendant and the
Fourth-Party plaintiff) who in turn handed the amount to Justina Tinio on the same date
would not exempt her from liability because by doing so, she acted as an accommodation
party in the check for which she is also liable under Section 29 of the Negotiable
Instruments Law (Act 2031):
An accommodation party is one who has signed the instrument as maker, drawer, acceptor,
or indorser, without receiving value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew him to be only an
accommodation party.

Ilusorio vs CA
FACTS:
Ilusorio was a businessman who was in charge of 20 or so corporations. He was a depositor
in good standing of Manila Banking Corporation. As he was in charge of a big number of
corporations, he was usually out of the country for business. He then entrusted his credit
cards, checkbook, blank checks, passbooks, etc to his secretary, Katherine Eugenio. Eugenio
was also in charge of verifying and reconciling the statements of Ilusorios checking
account.
Eugenio was able to encash and deposit to her personal account checks drawn against
Ilusorios account with an aggregate amount of 119K. Ilusorio didnt bother to check his
statement of account until a business partner informed him that he saw Eugenio using his
credit cards. Ilusorio then fired her and instituted criminal case of Estafa thru falsification
against Eugenio. Manila Banking Corp. also instituted a complaint of estafa against Eugenio
based on the affidavit of Dante Razon, an employee. Razon stated that he personally
examined and scrutinized the encashed checks in accordance with their verification
procedures.
Manila Bank sought the expertise of NBI in determining the genuineness of the checks but
Ilusorio failed to submit specimen signatures and thus, NBI could not conduct the
examination.
Issue: W/N Manila Bank is liable for damages for failing to detect a forged check
Held:
No. To be entitled to damages, Ilusorio has the burden of poving that the bank was negligent
in failing to detect the discrepancy in the signatures on the checks. Ilusorio had to establish
the fact of forgery which he failed to do by failing to submit his specimen signatures for
NBI to conclusively establish forgery.
Furthermore, the Bank was not negligent in verifying the checks as they verified the
drawers signatures against their specimen signatures and in doubt, referred to more
experienced verifier for further verification.
On the contrary, it was Ilusorio who was found to be negligent. He accorded his secretary
with an unusual degree of trust and unrestricted access to his finances. Furthermore, despite
the fact that the bank was regularly sending statements of account, he failed to check them
until he found out that his secretary was using his credit cards.
Sec. 23 of the Negotiable Instruments law provides that a forged check is inoperative,
meaning there was no right to enforce payment against any party. But it also provides an
exception: unless the party against whom it is sought enforce such right is precluded from
setting up the forgery or want of authority. This case falls under the exception since
Ilusorio is precluded from setting up forgery due to his own negligence considering that he
allowed his secretary access to his credit cards, checkbook, and allowed his secretary to
verify his statements of account.

Associated Bank vs Court of Appeals

252 SCRA 620 Mercantile Law Negotiable Instruments Law Liabilities of Parties
Forgery Collecting Bank vs Drawee Bank
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 an indorser and cannot set up the defense of forgery as
against the PNB.
EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in
notifying the collecting bank (Associated Bank) of the fact of the forgery so much so that
the latter can no longer collect reimbursement from the depositor-forger.
Liability of PNB
The bank on which a check is drawn, known as the drawee bank (PNB), is under strict
liability to pay the check to the order of the payee (Provincial Government of Tarlac).
Payment under a forged indorsement is not to the drawers order. When the drawee bank
pays a person other than the payee, it does not comply with the terms of the check and
violates its duty to charge its customers (the drawer) account only for properly payable
items. Since the drawee bank did not pay a holder or other person entitled to receive
payment, it has no right to reimbursement from the drawer. The general rule then is that the
drawee bank may not debit the drawers account and is not entitled to indemnification from
the drawer. The risk of loss must perforce fall on the drawee bank.
EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/ drawer
(Tarlac Province) to exercise ordinary care that substantially contributed to the making of
the forged signature, the drawer is precluded from asserting the forgery.
In sum, by reason of Associated Banks indorsement and warranties of prior indorsements as
a party after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can
ask reimbursement from PNB because the Province is a party prior to the forgery. Hence,
the instrument is inoperative. HOWEVER, it has been proven that the Provincial
Government of Tarlac has been negligent in issuing the checks especially when it continued
to deliver the checks to Pangilinan even when he already retired. Due to this contributory
negligence, PNB is only ordered to pay 50% of the amount or half of P203 K.
BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of
Associated Banks warranties), PNB can ask the 50% reimbursement from Associated Bank.
Associated Bank can ask reimbursement from Pangilinan but unfortunately in this case, the
court did not acquire jurisdiction over him.

Yang V. CA
FACTS:
December 22, 1987: Cely Yang and Prem Chandiramani entered into an agreement whereby
Yang was to give
2 P2.087M PCIB managers check in the amount of P4.2 million both payable to the order of
Fernando David. Yang and Chandiramani agreed that the difference of P26K in the
exchange would be their profit to be divided equally between them.
Yang and Chandiramani also further agreed that the Yang would secure from FEBTC a
dollar draft in the amount of US $200K, payable to PCIB FCDU Account No.
4195-01165-2, which Chandiramani would exchange for another dollar draft in the same
amount to be issued by Hang Seng Bank Ltd. of Hong Kong.
December 22, 1987, Yang procured the ff:
a) Equitable Cashiers Check No. CCPS 14-009467 in the sum
of P2,087,000.00, dated December 22, 1987, payable to the order of Fernando David;
b) FEBTC Cashiers Check No. 287078, in the amount
of P2,087,000.00, dated December 22, 1987, likewise payable to the order of Fernando
David; and
c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the amount of
US$200,000.00, dated December 22, 1987, payable to PCIB FCDU Account No.
4195-01165-2.
December 22, 1987 1 p.m.: Yang gave the cashiers checks and dollar drafts to her business
associate, Albert Liong, to be delivered to Chandiramani by Liongs messenger, Danilo
Ranigo
Ranigo was to meet Chandiramani at 2 p.m. at Philippine Trust Bank, Ayala Avenue, Makati
where he would turn over Yangs cashiers checks and dollar draft to Chandiramani who, in
turn, would deliver to Ranigo a PCIB managers check in the sum of P4.2 million and a
Hang Seng Bank dollar draft for US$200K in exchange but Chandiramani did not appear
December 22, 1987 4 p.m.: Ranigo reported the alleged loss of the checks and the dollar
draft to Liong. Liong, in turn, informed Yang, and the loss was then reported to the police.
Chandiramani was able to get hold of the instruments
Chandiramani delivered the 2 cashiers checks to Fernando David at China Banking
Corporation branch in San Fernando City, Pampanga
In exchange, he got US$360K from David, which he deposited in the savings account of his
wife, Pushpa; and his mother, Rani Reynandas, who held FCDU Account No. 124 with the
United Coconut Planters Bank branch in Greenhills
He also deposited FEBTC Dollar Draft No. 4771, dated December 22, 1987, drawn upon
the Chemical Bank, New York for US$200K in PCIB FCDU Account No. 4195-01165-2 on
the same date.
Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be
lost
Both banks complied with her request Yang filed against David and Chandiramani CA
affirms RTC: in favor of David
ISSUE: W/N David is a holder in due course
HELD:
Although negotiable instruments do not constitute legal tender, they often take the place of
money as a means of payment
checks were crossed
Section 24 of the Negotiable Instruments Law creates a presumption that every party to an
instrument acquired the same for a consideration or for value
David took the step of asking the manager of his bank to verify from FEBTC and Equitable
as to the genuineness of the checks and only accepted the same after being assured that there
was nothing wrong with said checks
David did not close his eyes deliberately to the nature or the particulars of a fraud allegedly
committed by Chandiramani upon the petitioner, absent any knowledge on his part that the
action in taking the instruments amounted to bad faith