C.

Forgery
GR: Drawee liable in case it accepted a forged instrument
XPN: negligence by the drawer
In case there is a collecting bank
GR: drawee bank however it is not prejudicial on the part of the drawee bank to ask for
reimbursement to the collecting bank.
XPN: negligence by the drawer
1. Associated Bank v. CA (si cashier ginamit niya pera ng hospital)
FACTS: The province of Tarlac maintains an account with PNB-Tarlac. Part of its
funds is appropriated for the benefit of Concepcion Emergency Hospital. During a post-audit
done by the province, it was found out that 30 of its checks weren’t received by the
hospital. Upon further investigation, it was found out that the checks were encased by
Pangilinan who was a former cashier and administrative officer of the hospital through
forged indorsements.
This prompted the provincial treasurer to ask for reimbursement from PNB and thereaf
ter, PNB from Associated Bank. As the two banks didn't want to reimburse, an action was
filed against them.
ISSUE: Whether or not the province of Tarlac can ask for reimbursement to PNB
HELD:
There is a distinction on forged indorsements with regard bearer instruments
and instruments payable to order.

With instruments payable to bearer, the signature of the payee or holder is unnecessary to
pass title to the instrument. Hence, when the indorsement
is a forgery, only the person whose signature is forged can raise the defense of
forgery against holder in due course.

In instruments payable to order, the signature of the rightful holder is

essential to transfer title to the same instrument. When the holder’s
signature is forged, all parties prior to the forgery may raise the real defense of
forgery against all parties subsequent thereto. In connection to
this, an indorser warrants that the instrument is genuine. A collecting
bank is such an indorser. So even if the indorsement is forged, the collecting bank
is bound by his warranties as an indorser and cannot set up
the defense of forgery as against the drawee bank.

Furthermore, in cases involving checks with forged indorsements, such as

the case at bar, the chain of liability doesn't end with the drawee bank. The drawee ban
k 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, the forger himself, if available. In other words, the
drawee bank can seek reimbursement or a return of the
amount it paid from the collecting bank or person. The collecting bank
generally suffers the loss because it has te 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 indorsements.

With regard the issue of delay, a delay in informing the bank of the forgery, which
deprives it of the opportunity to go after the forger, signifies
negligence on the part of the drawee bank and will preclude it from claiming
reimbursement. In this case, PNB wasn't guilty of any negligent
delay. Its delay hasn't prejudiced Associated Bank in any way because
even if there wasn't delay, the fact that there was nothing left of the account of
Pangilinan, there couldn't be anymore reimbursement.

2. WESTMONT BANK v EUGENE ONG (si tanlimco forged ong’s check and deposited it
to petitioners bank)
FACTS: Respondent Eugene Ong maintained a current account with petitioner, formerly 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, both dated
May 4, 1976, 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 sought 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 on October 7, 1977, 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 checks issued to him
and asserted that the signatures on the back were spurious
Westmont bank - Respondent admitted that he was never in actual or physical possession of the
two (2) checks of the Island Securities nor did he authorize Tanlimco or any of the latters
representative to demand, accept and receive the same. For this reason, petitioner argues,
respondent cannot sue petitioner because under Section 51 of the Negotiable Instruments Law it
is only when a person becomes a holder of a negotiable instrument can he sue in his own name.
Trial Court – plaintiff and against the defendant
ISSUE:
(1) whether or not respondent Ong has a cause of action against petitioner Westmont Bank; and
(2) whether or not Ong is barred to recover the money from Westmont Bank due to laches.
HELD:
1. The collecting bank is liable to the payee and must bear the loss because it is its legal
duty to ascertain that the payees endorsement was genuine before cashing the check. 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.
Considering the circumstances in this case, in our view, petitioner could not escape liability for
its negligent acts. Admittedly, respondent Eugene Ong at the time the fraudulent transaction took
place was a depositor of petitioner bank. 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 meticulously and with
the highest degree of care, considering the fiduciary nature of their relationship. The diligence
required of banks, therefore, is more than that of a good father of a family. In the present case,
petitioner was held to be grossly negligent in performing its duties.
2. Laches may be defined as the failure or neglect for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence, could or should have been
done earlier. It is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled thereto has either abandoned or declined
to assert it. It concerns itself with whether or not by reason of long inaction or inexcusable
neglect, a person claiming a right should be barred from asserting the same, because to
allow him to do so would be unjust to the person against whom such right is sought to be
enforced.
In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted
after knowing of the forgery by proceeding to seek help from the Tanlimco family and later
the Central Bank, to remedy the situation and recover his money from the forger, Paciano
Tanlimco. Only after he had exhausted possibilities of settling the matter amicably with the
family of Tanlimco and through the CB, about five months after the unlawful transaction took
place, did he resort to making the demand upon the petitioner and eventually before the court for
recovery of the money value of the two checks. These acts cannot be construed as undue delay in
or abandonment of the assertion of his rights.
3. ALLIED BANK CORP v. LIM SIO WAN, METROBANK AND PRODUCERS BANK
(NAWALA MOOLAH NG PARANG BULA, may nag pangap na siya si lim sio wan)
FACTS: On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied
Banking Corporation (Allied) at its Quintin Paredes Branch in Manila a money market
placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15, 1983, as
evidenced by Provisional Receipt No. 1356 dated November 14, 1983.
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer
of Allied, and instructed the latter to pre-terminate Lim Sio Wans money market
placement, to issue a managers check representing the proceeds of the placement, and to
give the check to one Deborah Dee Santos who would pick up the check. Lim Sio Wan
described the appearance of Santos so that So could easily identify her.
Later, Santos arrived at the bank and signed the application form for a managers check to
be issued. The bank issued Managers Check No. 035669 for PhP 1,158,648.49, representing
the proceeds of Lim Sio Wans money market placement in the name of Lim Sio Wan, as
payee. The check was cross-checked For Payees Account Only and given to Santos.
Thereafter, the managers check was deposited in the account of Filipinas Cement
Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank), with the
forged signature of Lim Sio Wan as indorser.
Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million
with respondent Producers Bank. Santos was the money market trader assigned to handle FCCs
account.
On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio
Wan went to Allied to withdraw it. She was then informed that the placement had been pre-
terminated upon her instructions. She denied giving any instructions and receiving the proceeds
thereof. She desisted from further complaints when she was assured by the banks manager that
her money would be recovered.
On January 24, 1984, Lim Sio Wan, realizing that the promise that her money would be
recovered would not materialize, sent a demand letter to Allied asking for the payment of the
first placement. Allied refused to pay Lim Sio Wan, claiming that the latter had authorized the
pre-termination of the placement and its subsequent release to Santos.
Allied filed a third party complaint against Metrobank and Santos. In turn, Metrobank filed a
fourth party complaint against FCC. FCC for its part filed a fifth party complaint against
Producers Bank. Summonses were duly served upon all the parties except for Santos, who was
no longer connected with Producers Bank.
ISSUE:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not
authorize [Allied] to pre-terminate the initial placement and to deliver the check to
Deborah Santos.
 The Honorable Court of Appeals erred in absolving Producers Bank of any
liability for the reimbursement of amount adjudged demandable.

The Honorable Court of Appeals erred in holding [Allied] liable to the

extent of 60% of amount adjudged demandable in clear disregard to the ultimate
liability of Metrobank as guarantor of all endorsement on the check, it being the
collecting bank.

HELD:
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental
and familiar is the doctrine that the relationship between a bank and a client is one of debtor-
creditor.
Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon
her request, or upon maturity of the placement, or until the bank is released from its obligation as
debtor.

Since there was no effective payment of Lim Sio Wans money market placement, the bank
still has an obligation to pay her at six percent (6%) interest from March 16, 1984 until the
payment thereof.

In fact, Allied did not even ask for the certificate evidencing the money market placement or
call up Lim Sio Wan at her residence or office to confirm her instructions. Both actions could
have prevented the whole fraudulent transaction from unfolding. Allieds negligence must be
considered as the proximate cause of the resulting loss.

To reiterate, had Allied exercised the diligence due from a financial institution, the check would
not have been issued and no loss of funds would have resulted. In fact, there would have been no
issuance of indorsement had there been no check in the first place.

The liability of Allied, however, is concurrent with that of Metrobank as the last indorser
of the check. When Metrobank indorsed the check in compliance with the PCHC Rules and
Regulations without verifying the authenticity of Lim Sio Wans indorsement and when it
accepted the check despite the fact that it was cross-checked payable to payees account
only, its negligent and cavalier indorsement contributed to the easier release of Lim Sio
Wans money and perpetuation of the fraud. Given the relative participation of Allied and
Metrobank to the instant case, both banks cannot be adjudged as equally liable. Hence, the 60:40
ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.
In the instant case, Lim Sio Wans money market placement in Allied Bank was pre-
terminated and withdrawn without her consent. Moreover, the proceeds of the placement
were deposited in Producers Banks account in Metrobank without any justification. In
other words, there is no reason that the proceeds of Lim Sio Wans placement should be deposited
in FCCs account purportedly as payment for FCCs money market placement and interest in
Producers Bank. With such payment, Producers Banks indebtedness to FCC was extinguished,
thereby benefitting the former. Clearly, Producers Bank was unjustly enriched at the expense of
Lim Sio Wan. Based on the facts and circumstances of the case, Producers Bank should
reimburse Allied and Metrobank for the amounts the two latter banks are ordered to pay Lim Sio
Wan.
4. SAMSUNG CONSTRUCTION CO. PHIL. v. FAR EAST BANK (FEBT HINDI
NAGIINGAT NAWALAN PERA SI OPPA)
FACTS: Plaintiff Samsung Construction Company Philippines, Inc. (Samsung
Construction), while based in Bian, Laguna, maintained a current account with defendant
Far East Bank and Trust Company (FEBTC) at the latters Bel-Air, Makati branch. The
sole signatory to Samsung Constructions account was Jong Kyu Lee(Jong), its Project
Manager, while the checks remained in the custody of the company’s accountant, KyuYong
Lee (Kyu).A certain Roberto Gonzaga presented for payment FEBTC Check to the bank’s
branch in Bel-Air, Makati. The check, payable to cash and drawn against Samsung Constructions
current account, was in the amount of P999,500.00. The bank teller, Cleofe Justiani, first
checked the balance of Samsung Constructions account. After ascertaining there were
enough funds to cover the check, she compared the signature appearing on the check with
the specimen signature of Jong as contained in the specimen signature card with the bank.
After comparing the two signatures, Justiani was satisfied as to the authenticity of the
signature appearing on the check. She then asked Gonzaga to submit proof of his identity,
and the latter presented three (3) identification cards. The teller and the bank officers were
satisfied with the genuineness of the signature in the check and confirmed the identity of
Gonzaga with the assistant accountant of Samsung Construction who was also familiar and
known to them, the latter being present at the bank premises at that time. In the end, the check
was authorized to be encashed. The following day, the accountant of Samsung Construction,
Kyu, examined the balance of the bank account and discovered that a check in the amount
of P999,500.00 had been encashed. Aware that he had not prepared such a check for Jong’s
signature, Kyu perused the checkbook and found that the last blank check was missing. He
reported the matter to Jong, who then proceeded to the bank. Jong learned of the encashment of
the check and realized that his signature had been forged.
ISSUE: Is bank liable to reimburse the amount encashed through forgery
HELD: Yes, the bank is liable to pay Samsung Construction. Therefore, the decision of CA is
set aside.
Under Sec. 23 of Negotiable Instruments Law, forgery is a real or absolute defense by the party
whose signature is forged. The general rule remains that the drawee who has paid upon the
forged signature bears the loss. The exception to this rule arises only when negligence can be
traced on the part of the drawer whose signature was forged, and the need arises to weigh
the comparative negligence between the drawer and the drawee to determine who should
bear the burden of loss. The Court finds no basis to conclude that Samsung Construction was
negligent in the safekeeping of its checks especially that Samsung Construction reported the
forgery almost immediately upon discovery. The general rule imputing liability on the drawee
who paid out on the forgery holds in this case.
The circumstances should have aroused the suspicion of the bank, as it is not ordinary business
practice for a check for such large amount to be made payable to cash or to bearer, instead of to
the order of a specified person. Extraordinary diligence dictates that FEBTC should have
ascertained from Jong personally that the signature in the questionable check was his. Still,
even if the bank performed with utmost diligence, the drawer whose signature was forged
may still recover from the bank as long as he or she is not precluded from setting up the
defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly states
that no right to enforce the payment of a check can arise out of a forged signature. Since
the drawer, Samsung Construction, is not precluded by negligence from setting up the
forgery, the general rule should apply. Consequently, 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. A bank is liable, irrespective of its good faith, in paying a forged check.
5. PHL. COMMERCIAL INTERNATIONAL BANK v. BALMACEDA (manager na
forger si balmaceda)
FACTS: On September 10, 1993, PCIB filed an action for recovery of sum of money with
damages before the RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz,
Manila branch. In its complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by
taking advantage of his position as branch manager, fraudulently obtained and encashed
31 Managers checks in the total amount P10,782,150.00.
On February 28, 1994, PCIB moved to be allowed to file an amended complaint to implead
Rolando Ramos as one of the recipients of a portion of the proceeds from Balmacedas
alleged fraud. PCIB also increased the number of fraudulently obtained and encashed
Managers checks to 34, in the total amount P11,937,150.00.
Since Balmaceda did not file an Answer, he was declared in default. On the other hand, Ramos
filed an Answer denying any knowledge of Balmacedas scheme. According to Ramos, he is a
reputable businessman engaged in the business of buying and selling fighting cocks, and
Balmaceda was one of his clients. Ramos admitted receiving money from Balmaceda as
payment for the fighting cocks that he sold to Balmaceda, but maintained that he had no
knowledge of the source of Balmacedas money.
RTC - Balmaceda, by taking undue advantage of his position and authority as branch
manager of the Sta. Cruz, Manila branch of PCIB, successfully obtained and
misappropriated the banks funds by falsifying several commercial documents. He
accomplished this by claiming that he had been instructed by one of the Banks corporate clients
to purchase Managers checks on its behalf, with the value of the checks to be debited from
the clients corporate bank account. First, he would instruct the Bank staff to prepare the
application forms for the purchase of Managers checks, payable to several persons. Then,
he would forge the signature of the clients authorized representative on these forms and
sign the forms as PCIBs approving officer. Finally, he would have an authorized officer of
PCIB issue the Managers checks. Balmaceda would subsequently ask his subordinates to
release the Managers checks to him, claiming that the client had requested that he deliver
the checks.

Balmaceda misappropriated from PCIB, P895,000.00 actually went to Ramos. Since the RTC
disbelieved Ramos allegation that the sum of money deposited into his Savings Account (PCIB,
Pasig branch) were proceeds from the sale of fighting cocks, it held Ramos liable to pay PCIB the
amount of P895,000.00.

CA - According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the
Managers checks does not suffice to prove that Ramos was complicit in Balmacedas fraudulent
scheme. It observed that other persons were also named as payees in the checks that Balmaceda
acquired and encashed, and PCIB only chose to go after Ramos. With PCIBs failure to prove
Ramos actual participation in Balmacedas fraud, no legal and factual basis exists to hold him liable.

ISSUE: Whether or not Balmaceda should be held liable for forgery

HELD: Mrs. Nilda Laforteza, the Commercial Account Officer of PCIBs Sta. Cruz, Manila
branch at the time the events of this case occurred, confirmed Mrs. Costes testimony by stating
that it was Balmaceda who forged Ramos signature on the Managers checks where Ramos
was the payee, so as to encash the amounts indicated on the checks. Mrs. Laforteza also
testified that Ramos never went to the PCIB, Sta. Cruz, Manila branch to encash the checks
since Balmaceda was the one who deposited the checks into Ramos bank account.
We also find no reason to doubt Ramos claim that Balmaceda deposited these large sums of
money into his bank account as payment for the fighting cocks that Balmaceda purchased
from him. Ramos presented two witnesses Vicente Cosculluela and Crispin Gadapan who
testified that Ramos previously engaged in the business of buying and selling fighting cocks, and
that Balmaceda was one of Ramos biggest clients.
PCIB itself at fault as employer

In considering this case, one point that cannot be disregarded is the significant role that PCIB
played which contributed to the perpetration of the fraud. We cannot ignore that Balmaceda
managed to carry out his fraudulent scheme primarily because other PCIB employees failed to
carry out their assigned tasks flaws imputable to PCIB itself as the employer.
Another telling indicator of PCIBs negligence is the fact that it allowed Balmaceda to encash
the Managers checks that were plainly crossed checks. A crossed check is one where two
parallel lines are drawn across its face or across its corner. Based on jurisprudence, the crossing
of a check has the following effects: (a) the check may not be encashed but only deposited in
the bank; (b) the check may be negotiated only once to the one who has an account with the
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 and he must inquire if he received the check
pursuant to this purpose; otherwise, he is not a holder in due course.
In other words, the crossing of a check is a warning that the check should be deposited only in
the account of the payee. When a check is crossed, it is the duty of the collecting bank to
ascertain that the check is only deposited to the payees account. In complete disregard of this
duty, PCIBs systems allowed Balmaceda to encash 26 Managers checks which were all crossed
checks or checks payable to the payees account only.