Nego Digests Defenses
-
Upload
chuchay-hilado -
Category
Documents
-
view
22 -
download
7
description
Transcript of Nego Digests Defenses
-
CRISOLOGO-JOSE VS CA
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 vice-president, 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. COURT OF APPEALS
GR 101163, January 11, 1993
1ST Division Bellosillo
FACTS:
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on
commission, 2 post-dated Equitable Banking Corporation. Thereafter, the payee negotiated the
checks to the State Investment House Inc. (SIHI). Moulic failed to sell the pieces of jewelry, so
she returned them to the payee before maturity of the checks. The checks, however, could no
longer be retrieved as they had already been negotiated. Consequently, before their maturity
dates, Moulic withdrew her funds from the drawee bank. Upon presentment for payment, the
checks were dishonored for insufficiency of funds. SIHI allegedly notified Moulic of the
dishonor of the checks and requested that it be paid in cash instead, although Moulic avers that
no such notice was given her. SIHI sued to recover the value of the checks. Moulic contends that
she incurred no obligation on the checks because the jewelry was never sold and the checks were
negotiated without her knowledge and consent. She also instituted a Third-Party Complaint
against Corazon Victoriano, who later assumed full responsibility for the checks. The trial court
dismissed the Complaint as well as the Third-Party Complaint. SIHI elevated the order of
dismissal to the Court of Appeals, but the appellate court affirmed the trial court on the ground
that the Notice of Dishonor to Moulic was made beyond the period prescribed by the Negotiable
Instruments Law and that even if SIHI did serve such notice on Moulic within the reglementary
period it would be of no consequence as the checks should never have been presented for
payment. SIHI filed the petition for review.
ISSUE:WON the alleged issuance of the post-dated checks as mere security is a ground for the
discharge of the instrument?
HELD:Section 119 of the Negotiable Instrument Law outlined the grounds in which an
instrument is discharged. The grounds are:
(a) payment by or on behalf of the principal debtor;
(b) payment by accommodated;
(c) intentional cancellation of instrument by the holder;
(d) any act which discharges a contract;
-
(e) reacquisition of principal debtor in his own right.
Section 119 of the NIL is exclusive to its enumerations. Obviously, MOULIC may only invoke
paragraphs (c) and (d) as possible grounds for the discharge of the instrument. But, the
intentional cancellation contemplated under paragraph (c) is that cancellation effected by
destroying the instrument either by tearing it up, burning it, or writing the word "cancelled" on
the instrument. The act of destroying the instrument must also be made by the holder of the
instrument intentionally. Since MOULIC failed to get back possession of the post-dated checks,
the intentional cancellation of the said checks is altogether impossible. On the other hand, the
acts which will discharge a simple contract for the payment of money under paragraph (d) are
determined by other existing legislations since Section 119 does not specify what these acts are,
e.g., Art. 1231 of the Civil Code which enumerates the modes of extinguishing obligations, such
as:
a. Payment or performance;
b. Loss of the thing due;
c. Condonation or remission of debts;
d. Confusion or merger of rights of creditor and debtor;
e. Compensation;
f. Novation
Again, none of the modes outlined therein is applicable in the instant case as Section 119
contemplates of a situation where the holder of the instrument is the creditor while its drawer is
the debtor. Herein, the payee, Corazon Victoriano, was no longer MOULIC's creditor at the time
the jewelry was returned. Correspondingly, MOULIC may not unilaterally discharge herself
from her liability by the 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 checks to a holder in
due course.
PNB VS CA AND CAPITOL
FACTS: A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of
P97,650.00 was issued by the Ministry of Education and Culture payable to F. Abante
Marketing. This check was drawn against Philippine National Bank (herein petitioner). F.
Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the
questioned check in its savings account with said bank. In turn, Capitol deposited the same in its
account with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to
petitioner for clearing.Petitioner cleared the check as good and, thereafter, PBCom credited
Capitols account for the amount stated in the check. However, petitioner PNB returned the
-
check to PBCom and debited PBComs 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 latters account for the same amount. On the other hand,
Capitol could not, in turn, debit F. Abante Marketings account since the latter had already
withdrawn the amount of the check.
ISSUE: WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK
IS A MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW.
HELD: No. 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 Instrument
Law
The case at the bench is unique in the sense that what was altered is the serial number of the
check in question, an item which, it can readily be observed, 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.
If the purpose of the serial number is merely to identify the issuing government office or agency,
its alteration in this case had no material effect whatsoever on the integrity of the check. The
identity of the issuing government office or agency was not changed thereby and the amount of
the check was not charged against the account of another government office or agency which had
no liability under the check. Petitioner, thus cannot refuse to accept the check in question on the
ground that the serial number was altered, the same being an immaterial or innocent one
MWSS VS CA
Lessons Applicable: Forgery (Negotiable Instruments Law)
FACTS:
Metropolitan Waterworks and Sewerage System (MWSS) is a GOCC and successor-in- interest
of the defunct NWSA. The authorized signature for PNB Account No. 6 were those of MWSS
treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor L.
Recio. Specimen signatures were submitted by the MWSS to and on file with the PNB. By
special arrangement with the PNB, the MWSS used personalized checks in drawing from this
account., printed for MWSS by its printer, F. Mesina Enterprises.
-
On March, April and May 1969: 23 checks were prepared, processed, issued and released by
NWSA, all of which were paid and cleared by PNB and debited by PNB against NWSA Account
No. 6. They were deposited by the fictitious payees Raul Dizon, Arturo Sison and Antonio
Mendoza in their respective current accounts with the Philippine Commercial and Industrial
Bank (PCIB) and Philippine Bank of Commerce (PBC).
At the time of their presentation to PNB these checks bear the standard indorsement which reads
'all prior indorsement and/or lack of endorsement guaranteed'. NWSA filed against PNB before
the CFI. PNB also filed a 3rd party complaint against the negotiating banks PBC and PCIB on
the ground that they failed to ascertain the Identity of the payees and their title to the checks
which were deposited in the respective new accounts of the payees with them. February 6, 1976:
CFI favored MWSS; CA: reversed and favored PNB, applied Section 24 of the Negotiable
Instruments Law
ISSUE: W/N MWSS can can claim against PNB
HELD: NO. CA reversed.
Every negotiable instrument is deemed prima facie to have been issued for valuable
consideration and every person whose signature appears thereon to have become a party thereto
for value. A bank is bound to know the signatures of its customers; and if it pays a forged check
it must be considered as making the payment out of its obligation funds, and cannot ordinarily
charge the amount so paid to the account of the depositor whose name was forged. NBI showed
that the MWSS fraud was an "inside job" and that the MWSS' delay in the reconciliation of bank
statements and the laxity and loose records control in the printing of its personalized checks
facilitated the fraud. These reports did not touch on the inherent qualities of the signatures which
are indispensable in the determination of the existence of forgery. There must be conclusive
findings that there is a variance in the inherent characteristics of the signatures and that they were
written by 2 or more different persons. Forgery cannot be presumed. It must be established by
clear, positive, and convincing evidence. This was not done in the present case.
SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or made without
authority of the person whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any
party thereto can be acquired through or under such signature unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority.
Gross negligence in the printing of its personalized checks - MWSS failed to give its printer,
Mesina Enterprises, specific instructions relative to the safekeeping and disposition of excess
forms, check vouchers, and safety papers, retrieve from its printer all spoiled check forms,
provide any control regarding the paper used in the printing of said checks, furnish the
respondent drawee bank with samples of typewriting, cheek writing, and print used by its printer
in the printing of its checks and of the inks and pens used in signing the same; send a
-
representative to the printing office during the printing of said checks, to reconcile the bank
statements with its own records.
MWSS requested the PNB to discontinue the practice of mailing the bank statements, but instead
to deliver it to Mr. Emiliano Zaporteza. However, he was unreasonably delayed in taking prompt
deliveries of the bank statements and credit and debit memos. As a consequence, Mr. Zaporteza
failed to reconcile the bank statements. If Mr. Zaporteza had not been remiss in his duty of
taking the bank statements and reconciling them with the petitioner's records, the fraudulent
encashments of the first checks should have been discovered, and further frauds prevented. This
negligence was, therefore, the proximate cause of the failure to discover the fraud.
One factor which facilitate this fraud was the delay in the reconciliation of PNB statements with
the NAWASA bank accounts. x x x. Had the NAWASA representative come to the PNB early
for the statements and had the bank been advised promptly of the reported bogus check, the
negotiation of practically all of the remaining checks on May, 1969 could have been prevented.
The records likewise show that the petitioner failed to provide appropriate security measures
over its own records thereby laying confidential records open to unauthorized persons. The
petitioner's own Fact Finding Committee, in its report submitted to their General manager
underscored this laxity of records control. It observed that the "office of Mr. Ongtengco (Cashier
No. VI of the Treasury Department at the NAWASA) is quite open to any person known to him
or his staff members and that the check writer is merely on top of his table
Even if the 23 checks in question are considered forgeries, considering the petitioner's gross
negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable
Instruments Law. PNB had taken the necessary measures in the detection of forged checks and
the prevention of their fraudulent encashment. In fact, long before the encashment of the 23
checks in question, the it had issued constant reminders to all Current Account Bookkeepers
informing them of the activities of forgery syndicates.
Under the circumstances, MWSS was in a better position to detect and prevent the fraudulent
encashment of its checks
JAI ALAI VS BPI
FACTS: From April 2, 1959 to May 18, 1959, Jai Alai Corporation of the Philippines
deposited 10 checks in its current account with the Bank of the Philippine Islands (BPI). The
checks which were acquired by Antonio J. Ramirez, a sales agent of the Inter-Island Gas and
regular better of Jai-Alai were all payable to Inter-Island. After the checks had been submitted to
inter-bank clearing, Inter-Island discovered that all the endorsements made on the checks
purportedly by its cashiers (Santiago Amplayo and Vicenta Mucor) were forgeries. Thus, it
-
informed all the parties concerned. Upon the demands on BPI as the collecting bank, BPI debited
the value of the checks against petitioners current account and forwarded to the latter the checks
containing forged endorsements which the petitioner refused to accept. Thereafter, petitioner
tried to issue a check for payment of shares of stocks but such was dishonored for insufficiency
of funds. It filed a complaint against the bank.
ISSUE: Whether or not the BPI had the right to debit from petitioners current account the value
of the checks with the forged endorsements?
HELD: YES. BPI acted within legal bounds when it debited the petitioners account. When the
petitioner deposited the checks to its account, the relationship created was one of agency and not
of creditor-debtor of BPI was to collect from the drawee bank of the checks with the
corresponding proceeds. BPI may have the proceeds already when it debited the account of
petitioner. Nonetheless, theres still no creditor debtor relationship. The payments made by the
drawee bank to respondent were ineffective. Hence, the creditor debtor relationship had not
been validly established
FAR EAST BANK & TRUST COMPANY, vs GOLD PALACE JEWELLERY CO., as
represented by Judy L. Yang, Julie Yang-Go and Kho Soon Huat,
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 materially-altered 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 favour 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 GOLD
PALACE.
HELD: No.RATIO:
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 itspayment 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 oneof
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 ownactions. 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 Lessons Applicable: Alteration (Negotiable Instruments Law)
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 branch in
the province. Mariano V. Ramos worked under him as assistant agent in the bank branch. The
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. On 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. On 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. On 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. On June 10, 1942: the USAFFE forces to which he
was attached surrendered. Ramos was made a prisoner of war until February 12, 1943 and
December, 1944: M. V. Ramos allegedly indorsed the check to Enrique P. Montinola. In
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. The court: dismissed
-
ISSUE: W/N Montinola cannot hold PNB liable because there is "Agent, Phil. National Bank" is
an alteration - YES
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 the Negotiable
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. The
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 vs. VALENCIA
Facts: Sometime in June 1982, A.U. Valencia and Co., Inc. and Felix Pearroyo, filed with the
Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against Myron
C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte. The
complaint alleged that Papa, acting as attorney-in-fact of Angela M. Butte, sold to Pearroyo,
through Valencia, a parcel of land. Prior to the alleged sale, the said property had been
mortgaged by her to the Associated Banking Corporation. After the alleged sale to Valencia and
Penarroyo, but before the title to the subject property had been released, Butte passed away.
Despite representations made by Valencia to the bank to release the title to the property sold to
Pearroyo, the bank refused to release it unless and until all the mortgaged properties of the late
-
Butte were also redeemed. In order to protect his rights and interests over the property,
Pearroyo caused the annotation on the title of an adverse claim. Sometime in April 1977, that
Valencia and Pearroyo discovered that the mortgage rights of the bank had been assigned to
Tomas L. Parpana, as special administrator of the Estate of Ramon Papa. Jr. Since then, Papa had
been collecting monthly rentals in the amount of P800.00 from the tenants of the property,
knowing that said property had already been sold to Valencia and Pearroyo. Despite repeated
demands from said respondents, Papa refused and failed to deliver the title to the
property.Valencia and Pearroyo prayed that Papa be ordered to deliver to Pearroyo the title to
the subject property. RTC rendered a decision, allowing Papa to redeem from the Reyes spouses,
who bought the land at a public auction because of tax delinquency and ordering Papa to execute
a Deed of Absolute Sale in favor of Pearroyo.
Papas defense: The sale was never consummated as he did not encash the check (in the
amount of P40,000.00) given by Valencia and Pearroyo in payment of the full purchase price of
the subject lot. He maintained that what Valencia and Pearroyo had actually paid was only the
amount of P5,000.00 (in cash) as earnest money.
Issue: Was there valid payment although Papa failed to encash the check?
Held: Yes. Valencia and Pearroyo had given Papa the amounts of P5,000.00 in cash on 24 May
1973, and P40,000.00 in check on 15 June 1973, in payment of the purchase price of the subject
lot. Papa himself admits having received said amounts, and having issued receipts therefor.
Papas assertion that he never encashed the aforesaid check is not substantiated and is at odds
with his statement in his answer that he can no longer recall the transaction which is supposed
to have happened 10 years ago. After more than 10 years from the payment in part by cash and
in part by check, the presumption is that the check had been encashed. Granting that Papa had
never encashed the check, his failure to do so for more than 10 years undoubtedly resulted in the
impairment of the check through his unreasonable and unexplained delay. While it is true that the
delivery of a check produces the effect of payment only when it is cashed, pursuant to Article
1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditors
unreasonable delay in presentment. The 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 was given. If no presentment is made at all, the drawer cannot be held liable irrespective of
loss or injury unless presentment is otherwise excused. This is in harmony with Article 1249 of
the Civil Code under which payment by way of check or other negotiable instrument is
conditioned on its being cashed, except when through the fault of the creditor, the instrument is
impaired. The payee of a check would be a creditor under this provision and if its non-payment is
caused by his negligence, payment will be deemed effected and the obligation for which the
check was given as conditional payment will be discharged. Considering that Valencia and
Pearroyo had fulfilled their part of the contract of sale by delivering the payment of the
-
purchase price, they, therefore, had the right to compel Papa to deliver to them the owners
duplicate of TCT 28993 of Angela M. Butte and the peaceful possession and enjoyment of the
lot in question
Gempesaw vs. CA
Facts: Natividad O. Gempesaw owns and operates four grocery stores and that she maintains a
checking account with the Philippine Bank of Communications (drawee Bank) for easier
payment of debts to her suppliers. Her customary practice were as follows: Checks were
prepared by her trusted bookkeeper, Alicia Galang; Checks, together with the invoice receipts
reflecting her obligations with the suppliers, were submitted to her for signature; That she signs
all the checks without bothering to verify the accuracy of the checks against the corresponding
invoices considering the trust and confidence she reposed upon her bookkeeper; Issuance and
delivery of the checks to the payees were left to the bookkeeper; that she did not verify whether
checks were actually delivered to their respective payees. Although the drawee Bank notified her
of all checks presented to and paid by the bank, Gempesaw did not verify the correctness of the
returnedchecks nor if the payees actuallyreceived the checks in payment for the supplies she
received. Gempesaw issued 82 checks in favor of several suppliers for the span of 2 years and
the drawee bank debited the total amount of P1,208,606.89 against her checking account since
all of the issued checks were honored by the drawee bank. These checks were all crossed checks.
It was only after the lapse of more than 2 years that Gempesaw found out about the fraudulent
manipulations of her bookkeeper. Gempesaw made a written demand on respondent drawee
Bank to credit her account with the money value of the 82 checks totallingP1,208,606.89 for
having been wrongfully charged against her account. Drawee Bank refused to grant her demand.
About 30 of the payees whose names were specifically written on the checks testified that they
did not receive nor even see the subject checks and that the indorsements appearing at the back
of the checks were not theirs. It was learned that all the 82 checks with forged signatures of the
payees were brought to Ernest L. Boon,Chief Accountant of drawee who,without authority
therefor, accepted them all for deposit to the credit and/or in the accounts of Alfredo Y.Romero
and Benito Lam. The Regional Trial Court, tried the case and rendered a decision dismissing the
complaint as well as the drawee Bank's counterclaim. On appeal, the Court of Appeals in a
decision affirmed the decision of the RTC on two grounds, namely (1) that Gempesaws gross
negligence in issuing the checks was the proximate cause of the loss and (2)assuming that the
bank was also negligent, the loss must nevertheless be borne by the party whose negligence was
the proximate cause of the loss. Hence, a petition for review was filed before SC.
Issue: Whether or not the petitioner can raise the defense of forgery,therefore the drawee bank
alone shall bear the loss.
Ruling:Gempesaw precluded from using forgery as a defense; Gempesaws negligence was
proximate cause of her loss. Had Gempesaw examined her records more carefully, she would
have noticed discrepancies. Had Gempesaw been more vigilant ingoing over her current account
-
by taking careful note of the daily reports made by the drawee Bank on her issued checks, or at
least made random scrutiny of her cancelled checks returned by drawee Bank at the close of each
month, she could have easily discovered the fraud being perpetrated by Alicia Galang,and could
have reported the matter to the drawee Bank.The drawee Bank then could have taken immediate
steps to prevent further commission of such fraud.Thus, Gempesaw's negligence was the
proximate cause of her loss. And since it was her negligence which caused the drawee Bank to
honor the forged checks or prevented it from recovering the amount it had already paid on the
checks,Gempesaw cannot now complain should the bank refuse to recredit her account with the
amount of such checks. Under Section 23 of the NIL,she is now precluded from using the
forgery to prevent the bank's debiting of her account.Section 23 of the NIL provides that "when a
signature is forged or made without the authority of the person whose signature it purports to be,
itis 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."
Two types of cases of problems arising from forged indorsements of checks
Problems arising from forged indorsements of checks may generally be broken into two types of
cases: (1) where forgery was accomplished by a person not associated with the drawer [for
example a mail robbery]; and (2)where the indorsement was forged by an agent of the drawer.
This difference in situations would determine the effect of the drawer's negligence with respect
to forged indorsements.
Duty of drawer; Effect of negligence
A depositor is under a duty to set up an accounting system and a business procedure as are
reasonably calculated to prevent or render difficult the forgery of indorsements, particularly by
the depositor's own employees. And if the drawer (depositor) learns that a check drawn by him
has been paid under a forged indorsement, the drawer is under duty promptly to report such fact
to the drawee bank.For his negligence or failure either to discover or to report promptly the fact
of such forgery to the drawee,the drawer loses his right against thedrawee who has debited his
account under the forged indorsement. In other words, he is precluded from using forgery as a
basis for his claim for recrediting of his account.
Banking business impressed with public interest; Utmost diligence required
The banking business is so impressed with public interest where the trust and confidence of the
public in general is of paramount importance such that the appropriate standard of diligence must
be a high degree of diligence, if not the utmost diligence. Surely, drawee Bank cannot claim it
exercised such a degree of diligence that is required of it. There is no way that it be allowed to
escape liability for such negligence. Its liability as obligor is not merely vicarious but primary
wherein the defense of exercise of due diligence in the selection and supervision of its employees
-
is of no moment.Premises considered, respondent drawee Bank is adjudged liable to share the
loss with the petitioner on a fifty-fifty ratio in accordance with Article 172 which provides:
Responsibility arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts according to the circumstances.
------
REPUBLIC VS EBRADA Lessons Applicable: Forgery (Negotiable Instruments Law)
FACTS: February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check dated January 15,
1963 for P1,246.08 at Republic Bank . The 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. On
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. On 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.
The drawee of a check can recover from the holder the money paid to him on a forged
instrument; not its duty to ascertain whether the signatures of the payee or indorsers are genuine
or not. The 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.
ASSOCIATED BANK VS CA Lessons Applicable: Forgery (Negotiable Instruments Law)
FACTS: The Province of Tarlac maintains a current account with the Philippine National Bank
(PNB) Tarlac Branch where the provincial funds are deposited. Checks issued by the Province
are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the
Secretary of the Sangguniang Bayan. A portion of the funds of the province is allocated to the
Concepcion Emergency Hospital. Check drawn to the order of "Concepcion Emergency
Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion,
Tarlac." The checks are released by the Office of the Provincial Treasurer and received for the
hospital by its administrative officer and cashier. In January 1981:Upon post-audit by the
Provincial Auditor, it was discovered that the hospital did not receive several allotment checks
and February 19, 1981: After the checks were examined, they learned that 30 checks of
P203,300 were encashed by Fausto Pangilinan, with the Associated Bank acting as collecting
bank. Fausto Pangilinan is the administrative officer and cashier of payee hospital until his
retirement on February 28, 1978, collected the questioned checks from the office of the
-
Provincial Treasurer. He sought to encash the 1st check with Associated Bank. Jesus David,
manager of Associated Bank refused and suggested that Pangilinan deposit the check in his
personal savings account with the same bank. Pangilinan was able to withdraw the money when
the check was cleared and paid by the drawee bank, PNB. PNB did not return the questioned
checks within twenty-four hours, but several days later. After forging the signature of Dr. Adena
Canlas who was chief of the payee hospital, Pangilinan followed the same procedure for the
other checks. All the checks bore the stamp of Associated Bank which reads "All prior
endorsements guaranteed ASSOCIATED BANK. CA affrimed RTC: Associated to reimburse
PNB and ordering PNB to pay Province of Tarlac
ISSUE: W/N PNB and Associated Bank should be held liable
HELD: YES. PARTIALLY GRANTED. The collecting bank, Associated Bank, shall be liable to
PNB for 50% of P203,300
Sec. 23. FORGED SIGNATURE, EFFECT OF. When a signature is forged or made without
authority of the person whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority.
General rule: A forged signature, whether it be that of the drawer or the payee, is wholly
inoperative and no one can gain title to the instrument through it.A person whose signature to an
instrument was forged was never a party and never consented to the contract which allegedly
gave rise to such instrument.
EXCEPTION: where "a party against whom it is sought to enforce a right is precluded from
setting up the forgery or want of authority."
Parties who warrant or admit the genuineness of the signature in question and those who, by their
acts, silence or negligence are estopped from setting up the defense of forgery, are precluded
from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors
of the genuineness of the signatures on the instrument.
In bearer instruments, 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 a holder in due course
In order instruments, the signature of its rightful holder (here, the payee hospital) is essential to
transfer title to the same instrument. When the holder's indorsement is forged all parties prior to
the forgery may raise the real defense of forgery against all parties subsequent thereto. An
indorser of an order instrument warrants "that the instrument is genuine and in all respects what
it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and
-
that the instrument is at the time of his indorsement valid and subsisting. A collecting bank
where a check is deposited and which indorses the check upon presentment with the drawee bank
= indorser. So even if the indorsement on the check deposited by the banks's client 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.
The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay
the check to the order of the payee. The drawer's instructions are reflected on the face and by the
terms of the check. Payment under a forged indorsement is not to the drawer's order. then is that
the drawee bank may not debit the drawer's account and is not entitled to indemnification from
the drawer. 25 The risk of loss must perforce fall on the drawee bank.
GR: drawee bank may not debit the drawer's account and is not entitled to indemnification from
the drawer - risk of loss must perforce fall on the drawee bank
EX: if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that
substantially contributed to the making of the forged signature, the drawer is precluded from
asserting the forgery
If at the same time the drawee bank was also negligent to the point of substantially contributing
to the loss, then such loss from the forgery can be apportioned between the negligent drawer and
the negligent bank. In cases involving a forged check, where the drawer's signature is forged, the
drawer can recover from the drawee bank. In cases involving checks with forged indorsements,
the drawee bank canseek reimbursement or a return of the amount it paid from the presentor
bank or person.
However, a drawee bank has the duty to promptly inform the presentor of the forgery upon
discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving
said presentor of the right to recover from the forger, the former is deemed negligent and can no
longer recover from the presentor
Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be
returned within twenty-Sour (24) hours after discovery of the forgery but in no event beyond the
period fixed or provided by law for filing of a legal action by the returning bank. Section 23 of
the PCHC Rules deleted the requirement that items bearing a forged endorsement should be
returned within twenty-four hours.
Since PNB did not return the questioned checks within twenty-four hours, but several days later,
Associated Bank alleges that PNB should be considered negligent and not entitled to
reimbursement of the amount it paid on the checks.
More importantly, by reason of the statutory warranty of a general indorser in section 66 of the
Negotiable Instruments Law, 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. In this case, the checks were indorsed by the collecting bank (Associated
Bank) to the drawee bank (PNB) . The stamp guaranteeing prior indorsements is not an empty
rubric which a bank must fulfill for the sake of convenience. It is within the bank's discretion to
receive a check for no banking institution would consciously or deliberately accept a check
bearing a forged indorsement. When a check is deposited with the collecting bank, it takes a risk
on its depositor.
* 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.
*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 holders 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 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, 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.
-
WESTMONT BANK v. ONG
SYNOPSIS
Respondent, a current account depositor with petitioner bank, was debited the amount of
P1,754,787.50 representing the face value of two Pacific Banking Corporation's Manager's
checks containing respondent's forged signature. These two checks weredeposited by
respondent's friend, Paciano Tanlimco, in his account with petitioner bank which accepted and
credited both checks without verifying the signature of respondent.Tanlimco immediately
withdrew the money. Respondent sought the help of Tanlimco's family to recover the amount,
but to no avail. Hence, he filed the collection case almost five months from the discovery of the
fraud. The trial court ruled in favor of respondent. It found that petitioner bank was grossly
negligent in encashing the checks without verifying the signature of its own depositor, herein
respondent. It ordered petitioner to pay theamount of the manager's checks with legal interest and
moral and exemplary damages. The Court of Appeals affirmed the trial court's decision. Hence,
the present recourse, petitioner assailing, among others, that respondent was guilty of laches.It
was held that a forged signature or one made without authority is inoperative and ineffectual
under Section 24 of the Negotiable Instruments Law; that a collecting bank has the legal duty to
ascertain that the payee's endorsement was genuine before cashing the check and is liable to the
payee and must bear the loss for payment made on a forged signature; that findings of the trial
court are binding and conclusive on appeal; that there is no laches where a party filed the case
only after exhausting possibilities of settling the case amicably.
FACTS:1.Eugene Ong maintained a current account with the petitioner and sometime in
May1976, he sold certain shares of stocks through Island Securities Corporation. Latter
purchased 2 Pacific Banking Corp. Managers checks with the total face value of P1,754,787.50,
dated May 4, 1976 and issued in the name of Ong.Before Ong could get hold of the said checks,
his friend Faciano Tanlimco got hold of them, forged Ongs signature and deposited such with
the petitioner, where Tanlimco was also a depositor. Even though Ongs 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. Hence, Tanlimco immediately withdrew
the money and absconded. Ong first sought the help Tanlimcos family then reported the incident
to the Central Bank but he was still unable to recover the amount. It was only 5 months from the
discovery of the fraud did Ong demanded in his complaint that the petitioner pay the value of the
2 checks from the bank on whose gross negligence he imputed his loss. He claimed that he did
not deliver, negotiate, endorse or transfer to any person/entity the said checks and that the
signatures on the back were spurious. Petitioner on the other hand claimed that since Ong
admitted to have never received the 2 checks from Island Securities, he never acquired
ownership of these checks.Hence, he had no legal personality to sue as he is not a real party-in-
interest.RTC Manila and the CA ruled in favour of Ong, hence this petition.
-
ISSUE:WON respondent Ong has a cause of action against the petitioner Westmont Bank and
WON Ong is barred to recover the money from Westmont Bank due to laches
[Petitioners Arguments: Under Sec. 51 of the NIL, it is only when a person becomes a holder of
a negotiable instrument can he sue in his own name. This is in relation to the definition of a
holder under Sec. 191, who is a payee or indorsee of a bill or note, who is in possession of the
instrument or the bearer thereof. Petitioner maintains that Ong, even though the named payee but
not having actual or physical possession of the two checks in question,did not become a holder
thereof, hence, he cannot sue in his own name. Art. 1249 of the Civil code also explained that a
check is not a legal tender. Therefore, It is petitioner's position that for all intents and purposes,
Island Securities has not yet tendered payment to respondent. Petitioner also claims that it would
be liable to the drawee bank and not to Ong, since latter has no cause of action.
Respondents arguments: Ong leans on the ruling of the trial court and the CA which held that
the suit of Ong is a desirable shortcut to reach a party who ought in any event to be untimely
liable. Respondent also cited Associated Bank v. Court of Appeals which held that the collecting
bank or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements. The bank is also made liable because it is privy to the
depositor who negotiated the check. The bank knows him, his address and history because he is a
client. Hence, it is in a better position to detect forgery, fraud or irregularity in the indorsement
HELD:SC did not grant the petition. There is a cause of action in here since it is respondent's
right as payee of the manager's checks to receive the amount involved, petitioner's correlative
duty as collecting bank to ensure that the amount gets to the rightful payee or his order, and a
breach of that duty because of a blatant act of negligence on the part of petitioner which violated
respondent's rights. Under Section 23 of the 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 .Since the signature of the payee, in the case at bar, was forged to
make it appear that he had made an endorsement in favor of the forger, such signature should be
deemed as inoperative and ineffectual. Petitioner, as the collecting bank grossly erred in making
payment by virtue of said forged signature. The payee, herein respondent, should therefore be
allowed to recover from the collecting bank. The collecting bank is liable to the payee and must
bear the loss because it is its legal duty toascertain that the payee's endorsement was genuine
before cashing the check. As a genera lrule, a bank or a corporation who has obtained possession
of a check upon an unauthorized or forged indorsement of the payee's 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.The theory for this rule is that the possession of the check on the forged or unauthorized
indorsement is wrongful, and when the money had been collected on the check, the bank or other
-
person or corporation can be held as for moneys had and received, and the proceeds are held for
the rightful owners who may recover them. The position of the bank taking the check on the
forged or unauthorized indorsement is the same as if it had taken the check and collected the
money without indorsement at all and the act of the bank amounts to conversion of the
check.Petitioner relies on the view to the effect that where there is no delivery to the payee and
no title vests in him, he ought not to be allowed to recover on the ground that he lost nothing
because he never became the owner of the check and still retained his claim of debt against the
drawer. However, another view in certain cases holds that even if the absence of delivery is
considered, such consideration is not material. The rationale for this view is that in said cases the
plaintiff uses one action to reach, by a desirable short cut, the person who ought in any event to
be ultimately liable as among the innocent persons involved in the transaction. In other words,
the payee ought to be allowed to recover directly from the collecting bank regardless of whether
the check was delivered to the payee or not.Hence, petitioner could not escape liability for its
negligent acts. 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 client's 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. The bank was held to be grossly negligent in
performing its duties since it apparently failed to make such a verification or, what is worse did
so but, chose to disregard the obvious dissimilarity of the signatures. The first omission makes it
guilty of gross negligence;the second of bad faith. In either case, defendant is liable to plaintiff
for the proceeds of the checks in question.As for the second issue, it cannot be said that Ong sat
on his rights. This can be fairly seen on the remedies he took and exhausted before bringing the
matter to the Central Bank and then the courts. These acts cannot be construed as undue delay in
or abandonment of the assertion of his rights. Moreover, it is petitioner which had the last clear
chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and
followed the proper and regular banking procedures in clearing checks. As we had earlier ruled,
the one who had the last clear opportunity to avoid the impending harm but failed to do so is
chargeable with the consequences thereof.
Petition denied.
*Since the signature of the payee was forged, such signature should be deemed
inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making
payment by virtue of said forged signature. The payee, herein respondent, should therefore be
allowed to collect from the collecting bank. It should be liable for 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 with an
unauthorized or forged indorsement of the payees signature and who collects the amount of the
check other from the drawee, is liable for the proceeds thereof to the payee or the other owner,
-
notwithstanding that the amount has been paid to the person from whom the check was
obtained.
DOCTRINE OF DESIRABLE SHORT CUTplaintiff uses one action to reach, by desirable
short cut, the person who ought to be ultimately liable as among the innocent persons
involved in the transaction. In other words, the payee ought to be allowed to recover directly
from the collecting bank, regardless of whether the check was delivered to the payee or not.
On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of
Tamlincos family to collect the sum of money, and later the Central Bank. Only after
exhausting all the measures to settle the issue amicably did he file the action.
SAMSUNG CONSTRUCTION VS FEBTC
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 Savings and Mortgage Bank v. Equitable Banking Corp. [G.R. No. 74917.
January 20, 1988]
FACTS: Equitable Bank drew six crossed managers check payable to certain member
establishments of Visa Card. Subsequently, the checks were deposited with Banco De Oro
(BDO) to the credit of its depositor. Following normal procedures and after stamping at the back
of the checks the usual endorsements,BDO sent the checks for clearing through the Philippine
Clearing House Corporation (PCHC). Accordingly, Equitable Banking paid the checks; its
clearing account was debited for the value of the checks and BDOs clearing account was
-
credited for the same amount. Thereafter, Equitable Banking discovered that the endorsements
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.Equitable Banking presented
the checks directly to BDO for the purpose of claiming reimbursement from the latter. However,
BDO refused to accept such direct presentation and to reimburse Equitable Banking for the value
of the checks.
ISSUES: (a) Whether or not BDO is estopped from claiming that checks under consideration are
non-negotiable instruments. (b) Whether or not BDO can escape liability by reasons of forgery.
(c) Whether or not only negotiable checks are within the jurisdiction of PCHC.
RULING:
(a) YES. BDO having stamped its guarantee of all prior endorsements and/or lack of
endorsements is now estopped from claiming that the checks under consideration are not
negotiable instruments. The checks were accepted for deposit by the petitioner stamping thereon
its guarantee, in order that it can clear the said checks with the respondent bank. By such
deliberate and positive attitude of the petitioner it has for all legal intents and purposes treated
the said cheeks as negotiable instruments and accordingly assumed the warranty of the endorser
when it stamped its guarantee of prior endorsements at the back of the checks. It led the said
respondent to believe that it was acting as endorser of the checks and 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 instrument.
(b) NO. A commercial bank cannot escape the liability of an endorser of a check and which may
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
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.
(c) NO. PCHCs jurisdiction is not limited to negotiable checks only. The term check as used in
the said Articles of Incorporation of PCHC can only connote checks in general use in
commercial and business activities. Thus, no distinction. Ubi lex non distinguit, nec nos
distinguere debemus. Checks are used between banks and bankers and their customers, and are
designed to facilitate banking operations. It is of the essence to be payable on demand, because
the contract between the banker and the customer is that the money is needed on demand.
-
THE GREAT EASTERN LIFE INSURANCE CO.v.Hsbc
FACTS: 1)May 3, 1920, the plaintiff drew its check for P2,000 on the Hongkong and Shanghai
Banking Corporation with whom it had an account, 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 where
the amount of the check was placed to his credit. After having paid the check, and on the next
day, the Philippine national Bank endorsed the check to the Hongkong and Shanghai Banking
Corporation which paid it and charged the amount of the check to the account of the plaintiff. In
the ordinary course of business, the HSBC rendered a bank statement to the plaintiff showing
that the amount of the check was charged to its account, and no objection was then made to the
statement. About four months after the check was charged to the account of the plaintiff, 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, who presented and deposited it to his
private account in the Philippine National Bank.With this knowledge, the plaintiff promptly
made a demand upon the HSBC that it should be given credit for the amount of the forged check,
which the bank refused to do. The plaintiff commenced this action to recover the P2,000 which
was paid on the forged check. On the petition of the Shanghai Bank, the Philippine National
Bank was made defendant. The Shanghai Bank denies any liability, but prays that, if a judgment
should be rendered against it,in turn, it should have like judgment against the Philippine National
Bank which denies all liability to either party. Judgment was rendered against the plaintiff and in
favor of the defendants, from which the plaintiff appeals, claiming that the court erred in
dismissing the case, notwithstanding its finding of fact,and in not rendering a judgment in its
favor, as prayed for in its complaint.
Issue: Whether the defendant banks should be held responsible for the payment made to Maasim
for the amount of the check
RULING: YES. The SC held that the forgery was that of Melicor, who was the payee of the
check, and the legal presumption is that the bank would not honor the check without the genuine
endorsement of Melicor.In other words, when the plaintiff received its 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 Act No. 2031, known as the Negotiable Instruments Law,
says: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 money was on deposit in the
Shanghai Bank, and it had no legal right to pay it out to anyone except the plaintiff or its order.
Here, the plaintiff ordered the Shanghai Bank to pay the P2,000 to Melicor, and the money was
actually paid to Maasim and was never paid to Melicor, and he never paid to Melicor, and he
never personally endorsed the check, or authorized any one to endorse it for him, and the alleged
-
endorsement was a forgery. Hence, upon the undisputed facts, it must follow that the Shanghai
Bank has no defense to this action.It is admitted that the Philippine National Bank cashed the
check upon a forged signature, and placed the money to the credit of Maasim, who was a forger.
That the Philippine National Bank then endorsed the check and forwarded it to the Shanghai
Bank by whom it was paid. The Philippine National Bank had no license or authority to pay the
money to Maasim or anyone else upon a forge signature. It was its legal duty to know that
Melicor's endorsment was genuine before cashing the check. Its remedy is against Maasim to
whom it paid the money..
..
Great Eastern Life Ins. Co. V. Hongkong Shanghai Bank (1922)
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 forged signature. Its remedy is against Maasim to whom it paid the money.
-
Philippine National Bank vs. Quimpo [GR L-53194, 14 March 1988]
Facts: On 3 July 1973, Francisco S. Gozon II, who was a depositor of the Caloocan City Branch
of the Philippine National Bank (PNB), 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 P5,000.00 should be returned to
his account as his signature on the check was forged but the bank refused. Upon Gozons
complaint on 1 February 1974 Ernesto Santos was apprehended by the police authorities and
upon investigation he admitted that he stole the check of Gozon, forged his signature and
encashed the same with the Bank. Gozon filed the complaint for recovery of the amount of
P5,000.00, plus interest, damages, attorney's fees and costs against the bank in the CFI Rizal
(Branch XIC, Hon. Romulo S. Quimpo presiding). After the issues were joined and the trial on
the merits ensued, a decision was rendered on 4 February 1980, by the Court, ordering the bank
to return the amount of P5,000 which it had unlawfully withheld, with interest at the legal rate
from 22 September 1972 until the amount is fully delivered. The bank was further condemned to
pay Gozon the sum of P2,000.00 as attorney's fees and to pay the costs of the suit. The bank filed
a petition for review on certiorari.
Issue: Whether the act of Gozon in putting his checkbook containing the forged check into the
hands of Santos was the proximate cause of the loss, precluding him from setting up the defense
of forgery.
Held: 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. A bank is bound to know the signatures of its
customers; and if it pays a forged check, it must be considered as making the payment out of its
own funds, and cannot ordinarily change the amount so paid to the account of the depositor
whose name was forged. This rule is absolutely necessary to the circulation of drafts and checks,
and is based upon the presumed negligence of the drawee in failing to meet its obligation to
know the signature of its correspondent. There is nothing inequitable in such a rule. If thepaper
comes to the drawee in the regular course of business, and he, having the opportunity
ascertaining its character, pronounces it to be valid and pays it, it is not only a question of
payment under mistake, but payment in neglect of duty which the commercial law places upon
him, and the result of his negligence must rest upon him. The act of Gozon in leaving