NEI Chapter 2 Digested

7/31/2019 NEI Chapter 2 Digested

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12. Caltex vs. Court of Appeals

Facts: Security Bank Sucat Branch issued 280 certificates of time deposit (CTDs) in favor ofone Angel dela Cruz who deposited with herein defendant the aggregate amount ofP1,120,000.00. He delivered the said certificates of time (CTDs) to Caltex in connection withhis purchase of fuel products.

Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat BranchManger, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised saiddepositor to execute and submit a notarized Affidavit of Loss, as required by defendant bank'sprocedure, if he desired replacement of said lost CTDs, to which he complied. On the basis ofsaid affidavit of loss, 280 replacement CTDs were issued in favor of said depositor.

On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from Security bank in theamount of P875,000.00. On the same date, said depositor executed a notarized Deed ofAssignment of Time Deposit which stated, among others, that he surrenders to defendantbank "full control of the indicated time deposits from and after date" of the assignment andfurther authorizes said bank to pre-terminate, set-off and "apply the said time deposits to thepayment of whatever amount or amounts may be due" on the loan upon its maturity.

Sometime in November, 1982, Mr. Aranas, Credit Manager of Caltex (Phils.) Inc., went to thedefendant bank's Sucat branch and presented for verification the CTDs declared lost by Angeldela Cruz alleging that the same were delivered to them "as security for purchases made.

On November 26, 1982, Security Bank received a letter from Caltex formally informing it of itspossession of the CTDs in question and of its decision to pre-terminate the same.

On December 8, 1982, Caltex was requested by Security Bank to furnish the former "a copy ofthe document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "thedetails of Mr. Angel dela Cruz" obligation against which Caltex proposed to apply the timedeposits

No copy of the requested documents was furnished Security Bank.

Accordingly, Security bank rejected Caltexs demand and claim for payment of the value ofthe CTDs in a letter dated February 7, 1983

In April 1983, the loan of Angel dela Cruz with Security bank matured and fell due and onAugust 5, 1983, the latter set-off and applied the time deposits in question to the payment ofthe matured loan

In view of the foregoing, Caltex filed the instant complaint, praying that Security bank beordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plusaccrued interest and compounded interest therein at 16% per annum, moral and exemplarydamages as well as attorney's fees.

Issue: Whether or not the CTDs were negotiable instrumentsHeld: YES. The CTDs in question undoubtedly meet the requirements of the law fornegotiability. The parties' bone of contention is with regard to requisite (d) set forth above. Itis noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982,testified in open court that the depositor reffered to in the CTDs is no other than Mr. Angel dela Cruz.


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On this score, the accepted rule is that the negotiability or non-negotiability of an instrumentis determined from the writing, that is, from the face of the instrument itself. 9 In theconstruction of a bill or note, the intention of the parties is to control, if it can be legallyascertained. 10 While the writing may be read in the light of surrounding circumstances inorder to more perfectly understand the intent and meaning of the parties, yet as they haveconstituted the writing to be the only outward and visible expression of their meaning, noother words are to be added to it or substituted in its stead. The duty of the court in such caseis to ascertain, not what the parties may have secretly intended as contradistinguished fromwhat their words express, but what is the meaning of the words they have used. What the

parties meant must be determined by what they said. 11


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13. RPB v. Court of Appeals

Facts: Shozo Yamaguchi and private respondent Fermin Canlas were President/ChiefOperating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. Byvirtue of Board Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi andprivate respondent Fermin Canlas were authorized to apply for credit facilities with thepetitioner Republic Planters Bank in the forms of export advances and letters of credit/trustreceipts accommodations. Petitioner bank issued nine promissory notes which were uniformlyworded.

In the promissory notes marked as Exhibits C, D and F, the name Worldwide GarmentManufacturing, Inc. was apparently rubber stamped above the signatures of defendant andprivate respondent.

On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporatename to Pinch Manufacturing Corporation.

On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of moneycovered among others, by the nine promissory notes with interest thereon, plus attorney'sfees and penalty charges. The complainant was originally brought against Worldwide GarmentManufacturing, Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc.

as defendant and substitute Pinch Manufacturing Corporation it its place. Defendants PinchManufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer and failedto appear at the scheduled pre-trial conference despite due notice.

Only private respondent Fermin Canlas filed an Amended Answer wherein he, denied havingissued the promissory notes in question since according to him, he was not an officer of PinchManufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc., and thatwhen he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., thesame were in blank, the typewritten entries not appearing therein prior to the time he affixedhis signature.

Issue: Whether or not Fermin Canlas is solidarily liable with the other defendants, namelyPinch Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes.

Held: YES. The promissory motes are negotiable instruments and must be governed by theNegotiable Instruments Law.2

Under the Negotiable lnstruments Law, persons who write their names on the face ofpromissory notes are makers and are liable as such. 3 By signing the notes, the makerpromises to pay to the order of the payee or any holder 4 according to the tenorthereof. 5 Based on the above provisions of law, there is no denying that private respondentFermin Canlas is one of the co-makers of the promissory notes. As such, he cannot escapeliability arising therefrom.

The solidary liability of private respondent Fermin Canlas is made clearer and certain, withoutreason for ambiguity, by the presence of the phrase "joint and several" as describing the

unconditional promise to pay to the order of Republic Planters Bank


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14. Associated Bank vs. Court of Appeals

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 Provinceare signed by the Provincial Treasurer and countersigned by the Provincial Auditor or theSecretary of the Sangguniang Bayan.

A portion of the funds of the province is allocated to the Concepcion EmergencyHospital. 2 The allotment checks for said government hospital are drawn to the order of"Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion EmergencyHospital, 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, the books of account of the Provincial Treasurer were post-audited by theProvincial Auditor. It was then discovered that the hospital did not receive several allotmentchecks drawn by the Province.

On February 19, 1981, the Provincial Treasurer requested the manager of the PNB to return allof its cleared checks which were issued from 1977 to 1980 in order to verify the regularity oftheir encashment. After the checks were examined, the Provincial Treasurer learned that 30

checks amounting to P203,300.00 were encashed by one Fausto Pangilinan, with theAssociated Bank acting as collecting bank.

It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payeehospital until his retirement on February 28, 1978, collected the questioned checks from theoffice of the Provincial Treasurer. He claimed to be assisting or helping the hospital follow upthe release of the checks and had official receipts.3 Pangilinan sought to encash the firstcheck 4 with Associated Bank. However, the manager of Associated Bank refused andsuggested that Pangilinan deposit the check in his personal savings account with the samebank. Pangilinan was able to withdraw the money when the check was cleared and paid by thedrawee bank, PNB.

After forging the signature of Dr. Adena Canlas who was chief of the payee hospital,

Pangilinan followed the same procedure for the second check, in the amount of P5,000.00 anddated April 20, 1978, 5 as well as for twenty-eight other checks of various amounts and onvarious dates. The last check negotiated by Pangilinan was for f8,000.00 and dated February10, 1981. 6 All the checks bore the stamp of Associated Bank which reads "All priorendorsements guaranteed ASSOCIATED BANK."

Jesus David, the manager of Associated Bank testified that Pangilinan made it appear that thechecks were paid to him for certain projects with the hospital. 7 He did not find as irregular thefact that the checks were not payable to Pangilinan but to the Concepcion EmergencyHospital. While he admitted that his wife and Pangilinan's wife are first cousins, the managerdenied having given Pangilinan preferential treatment on this account. 8

On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB seeking the

restoration of the various amounts debited from the current account of the Province.9

In turn, the PNB manager demanded reimbursement from the Associated Bank on May 15,1981. 10

As both banks resisted payment, the Province of Tarlac brought suit against PNB which, inturn, impleaded Associated Bank as third-party defendant. The latter then filed a fourth-partycomplaint against Adena Canlas and Fausto Pangilinan.11
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Issue: Whether or not the Province of Tarlac was negligentHeld: YES. Checks having forged indorsements should be differentiated from forged checks orchecks bearing the forged signature of the drawer.Section 23 of the Negotiable Instruments Law (NIL) provides:Sec. 23. FORGED SIGNATURE, EFFECT OF. When a signature is forged or made withoutauthority of the person whose signature it purports to be, it is wholly inoperative, and no rightto retain the instrument, or to give a discharge therefor, or to enforce payment thereofagainst any party thereto, can be acquired through or under such signature unless the partyagainst whom it is sought to enforce such right is precluded from setting up the forgery orwant of authority.

A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and noone can gain title to the instrument through it. A person whose signature to an instrument wasforged was never a party and never consented to the contract which allegedly gave rise tosuch instrument. 18Section 23 does not avoid the instrument but only the forgedsignature. 19 Thus, a forged indorsement does not operate as the payee's indorsement.

The exception to the general rule in Section 23 is where "a party against whom it is sought toenforce a right is precluded from setting up the forgery or want of authority." Parties whowarrant 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 fromusing this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors ofthe genuineness of the signatures on the instrument. 20

In bearer instruments, the signature of the payee or holder is unnecessary to pass title to theinstrument. Hence, when the indorsement is a forgery, only the person whose signature isforged can raise the defense of forgery against a holder in due course. 21
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15. Great Eastern Life Insurance Co. vs. HSBC

Facts: The plaintiff drew its check for P2,000 on the Hongkong and Shanghai BankingCorporation 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 anendorser, and then personally endorsed and presented it to the Philippine National Bankwhere the amount of the check was placed to his credit. After having paid the check, and onthe next day, the Philippine national Bank endorsed the check to the Hongkong and ShanghaiBanking Corporation which paid it and charged the amount of the check to the account of theplaintiff. In the ordinary course of business, the Hongkong Shanghai Banking Corporationrendered a bank statement to the plaintiff showing that the amount of the check was chargedto its account, and no objection was then made to the statement. About four months after thecheck was charged to the account of the plaintiff, it developed that Lazaro Melicor, to whomthe 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 PhilippineNational Bank. With this knowledge , the plaintiff promptly made a demand upon theHongkong and Shanghai Banking Corporation that it should be given credit for the amount ofthe forged check, which the bank refused to do, and the plaintiff commenced this action torecover 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, butprays 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.

Issue: The court erred in dismissing the case, notwithstanding its finding of fact, and in notrendering a judgment in its favor, as prayed for in its complaint.

Held: 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 itpurports to be, it is wholly inoperative, and no right to retain the instrument, or to give adischarge therefor, or to enforce payment thereof against any party thereto, can be acquiredthrough or under such signature, unless the party against whom it is sought to enforce suchright is precluded from setting up the forgery or want of authority.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 Bankthen 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.


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16. Samsung Construction Corp. vs. FEBTC

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. . The sole signatory to Samsung Constructions account was Jong Kyu Lee("Jong"), its Project Manager,3 while the checks remained in the custody of the companysaccountant, Kyu Yong Lee ("Kyu").4 a certain Roberto Gonzaga presented for payment FEBTCCheck No. 432100 to the banks branch in Bel-Air, Makati. The check, payable to cash anddrawn against Samsung Constructions current account, was in the amount of Nine HundredNinety Nine Thousand Five Hundred Pesos (P999,500.00). The bank teller, Cleofe Justiani, firstchecked the balance of Samsung Constructions account. After ascertaining there wereenough funds to cover the check,5 she compared the signature appearing on the check withthe 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 thesignature appearing on the check. She then asked Gonzaga to submit proof of his identity, andthe latter presented three (3) identification cards.6 Justiani forwarded the check to the branchSenior Assistant Cashier Gemma Velez, as it was bank policy that two bank branch officersapprove checks exceeding One Hundred Thousand Pesos, for payment or encashment. Velezlikewise counterchecked the signature on the check as against that on the signature card. He

too concluded that the check was indeed signed by Jong. Velez then forwarded the check andsignature card to Shirley Syfu, another bank officer, for approval. Syfu then noticed that JoseSempio III ("Sempio"), the assistant accountant of Samsung Construction, was also in thebank. Sempio was well-known to Syfu and the other bank officers, he being the assistantaccountant of Samsung Construction. Syfu showed the check to Sempio, who vouched for thegenuineness of Jongs signature. Confirming the identity of Gonzaga, Sempio said that thecheck was for the purchase of equipment for Samsung Construction. Satisfied with thegenuineness of the signature of Jong, Syfu authorized the banks encashment of the check toGonzaga. , the accountant of Samsung Construction, Kyu, examined the balance of the bankaccount and discovered that a check in the amount of Nine Hundred Ninety Nine ThousandFive Hundred Pesos (P999,500.00) had been encashed. Aware that he had not prepared sucha check for Jongs signature, Kyu perused the checkbook and found that the last blank checkwas missing.7 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. The BankManager reputedly told Jong that he would be reimbursed for the amount of the check.8 Jongproceeded to the police station and consulted with his lawyers.9 Subsequently, a criminal casefor qualified theft was filed against Sempio before the Laguna court.10 Samsung Construction,through counsel, demanded that FEBTC credit to it the amount of Nine Hundred Ninety Nine

Thousand Five Hundred Pesos (P999,500.00), with interest.11 In response, FEBTC said that itwas still conducting an investigation on the matter. Unsatisfied, Samsung Construction filedaComplainton 10 June 1992 for violation of Section 23 of the Negotiable Instruments Law, andprayed for the payment of the amount debited as a result of the questioned check plusinterest, and attorneys fees.12

During the trial, both sides presented their respective expert witnesses to testify on the claimthat Jongs signature was forged. Samsung Corporation, which had referred the check for

investigation to the NBI, presented Senior NBI Document Examiner Roda B. Flores. Shetestified that based on her examination, she concluded that Jongs signature had been forgedon the check. On the other hand, FEBTC, which had sought the assistance of the PhilippineNational Police (PNP),14 presented Rosario C. Perez, a document examiner from the PNP CrimeLaboratory. She testified that her findings showed that Jongs signature on the check wasgenuine.15 The RTC chose to believe the findings of the NBI expert.

Issue: Whether or not there was forgery and the bank is liable.
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Held: Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolutedefense by the party whose signature is forged.26 On the premise that Jongs signature wasindeed forged, FEBTC is liable for the loss since it authorized the discharge of the forgedcheck. Such liability attaches even if the bank exerts due diligence and care in preventingsuch faulty discharge. Forgeries often deceive the eye of the most cautious experts; and whena bank has been so deceived, it is a harsh rule which compels it to suffer although no one hassuffered by its being deceived.27 The forgery may be so near like the genuine as to defydetection by the depositor himself, and yet the bank is liable to the depositor if it pays thecheck.28

Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf ofSamsung Construction, the irregular circumstances attending the presentment of the forgedcheck should have put the bank on the highest degree of alert. The Court recently emphasizedthat the highest degree of care and diligence is required of banks.

Given the circumstances, extraordinary diligence dictates that FEBTC should have ascertainedfrom Jong personally that the signature in the questionable check was his.

Still, even if the bank performed with utmost diligence, the drawer whose signature wasforged may still recover from the bank as long as he or she is not precluded from setting upthe defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly statesthat no right to enforce the payment of a check can arise out of a forged signature. Since thedrawer, 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 beconsidered as paying out of its funds and cannot charge the amount so paid to the account ofthe depositor.77 A bank is liable, irrespective of its good faith, in paying a forged check. 78
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17. Traders Royal Bank vs. RPN

Facts: The Bureau of Internal Revenue assessed RPN, IBC, and BBC of their tax obligations forthe taxable years 1978 to 1983.

On March 25, 1987, Mrs. Lourdes C. Vera, plaintiffs comptroller, sent a letter to the BIRrequesting settlement of plaintiffs tax obligations.

The BIR granted the request and accordingly, on June 26, 1986, plaintiffs purchased fromdefendant Traders Royal Bank (TRB) three (3) managers checks to be used as payment fortheir tax liabilities.

Defendant TRB, through Aida Nuez, TRB Branch Manager at Broadcast City Branch, turnedover the checks to Mrs. Vera who was supposed to deliver the same to the BIR in payment ofplaintiffs taxes.Sometime in September, 1988, the BIR again assessed plaintiffs for their tax liabilities for theyears 1979-82. It was then they discovered that the three (3) managers checks intended aspayment for their taxes were never delivered nor paid to the BIR by Mrs. Vera. Instead, thechecks were presented for payment by unknown persons to defendant Security Bank and

Trust Company (SBTC), Taytay Branch.

Meanwhile, for failure of the plaintiffs to settle their obligations, the BIR issued warrants oflevy, distraint and garnishment against them. Thus, they were constrained to enter into acompromise and paid BIR P18,962,225.25 in settlement of their unpaid deficiency taxes.

Thereafter, plaintiffs sent letters to both defendants, demanding that the amounts covered bythe checks be reimbursed or credited to their account. The defendants refused, hence, theinstant suit.3

Issue: Whether or not TRB should be held solely liable when it paid the amount of the checksin question to a person other than the payee indicated on the face of the check, the Bureau ofInternal Revenue.

Held: "When a signature is forged or made without the authority of the person whosesignature it purports to be, it is wholly inoperative, and no right to retain the instrument, or togive a discharge therefor, or to enforce payment thereof against any party thereto, can beacquired through or under such signature."5 Consequently, if a bank pays a forged check, itmust be considered as paying out of its funds and cannot charge the amount so paid to theaccount of the depositor.

Petitioner ought to have known that, where a check is drawn payable to the order of oneperson and is presented for payment by another and purports upon its face to have been dulyindorsed by the payee of the check, it is the primary duty of petitioner to know that the checkwas duly indorsed by the original payee and, where it pays the amount of the check to a thirdperson who has forged the signature of the payee, the loss falls upon petitioner who cashed

the check. Its only remedy is against the person to whom it paid the money.6It should be noted further that one of the subject checks was crossed. The crossing of one ofthe subject checks should have put petitioner on guard; it was duty-bound to ascertain theindorsers title to the check or the nature of his possession. Petitioner should have known theeffects of a crossed check: (a) the check may not be encashed but only deposited in the bank;(b) the check may be negotiated only once to one who has an account with a bank and (c) theact of crossing the check serves as a warning to the holder that the check has been issued fora definite purpose so that he must inquire if he has received the check pursuant to thatpurpose, otherwise, he is not a holder in due course.7


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A bank is engaged in a business impressed with public interest and it is its duty to protect itsmany clients and depositors who transact business with it. It is under the obligation to treatthe accounts of the depositors and clients with meticulous care, whether such accountsconsist only of a few hundreds or millions of pesos.9


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18. BDO-SMB vs. Equitable Banking Corp.

Facts: It appears that some time in March, April, May and August 1983, plaintiff through itsVisa Card Department, drew six crossed Manager's check having an aggregate amount ofP45,982.23 Pesos and payable to certain member establishments of Visa Card. Subsequently,the Checks were deposited with the defendant to the credit of its depositor, a certain Aida

Trencio.

Following normal procedures, and after stamping at the back of the Checks the usualendorsements. All prior and/or lack of endorsement guaranteed the defendant sent the checksfor clearing through the Philippine Clearing House Corporation (PCHC). Accordingly, plaintiffpaid the Checks; its clearing account was debited for the value of the Checks and defendant'sclearing account was credited for the same amount.

Thereafter, plaintiff discovered that the endorsements appearing at the back of the Checksand purporting to be that of the payees were forged and/or unauthorized or otherwise belongto persons other than the payees.

Pursuant to the PCHC Clearing Rules and Regulations, plaintiff presented the Checks directlyto the defendant for the purpose of claiming reimbursement from the latter. However,defendant refused to accept such direct presentation and to reimburse the plaintiff for thevalue of the Checks; hence, this case.

Issue: Whether or not collecting bank is liable

Held: YES. A commercial bank cannot escape the liability of an endorser of a check and whichmay turn out to be a forged endorsement. Whenever any bank treats the signature at theback of the checks as endorsements and thus logically guarantees the same as such there canbe no doubt said bank has considered the checks as negotiable.Apropos the matter of forgery in endorsements, this Court has succinctly emphasized that thecollecting bank or last endorser generally suffers the loss because it has the duty to ascertainthe 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 itsduty to ascertain the genuineness of the endorsements. This is laid down in the case ofPNBvs. National City Bank. 6 In another case, this court held that if the drawee-bank discovers thatthe signature of the payee was forged after it has paid the amount of the check to the holderthereof, it can recover the amount paid from the collecting bank. 7


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19. PNB vs. National City Bank of New York

Facts: On April 7 and 9, 1933, an unknown person or persons negotiated with defendant Motor

Service Company, Inc., checks which are made parts of the stipulation, in payment for

automobile tires purchased from said defendant's stores, purporting to have been issued by

the "Pangasinan Transportation Co., Inc. by J. L. Klar, Manager and Treasurer", against the

Philippine National Bank and in favor of the International Auto Repair Shop, for P144.50 andP215.75; and said checks were indorsed by said unknown persons in the manner indicated at

the back thereof, the Motor Service Co., Inc., believing at the time that the signature of J. L.

Klar, Manager and Treasurer of the Pangasinan Transportation Co., Inc., on both checks were

genuine.

The checks were then indorsed for deposit by the defendant Motor Service Company, Inc, at

the National City Bank of New York and the former was accordingly credited with the amounts

thereof, or P144.50 and P215.75.

On April 8 and 10, 1933, the said checks were cleared at the clearing house and the Philippine

National Bank credited the National City Bank of New York for the amounts thereof, believing

at the time that the signatures of the drawer were genuine, that the payee is an existingentity and the endorsement at the back thereof regular and genuine.

The Philippine National Bank then found out that the purported signatures of J. L. Klar, as

Manager and Treasurer of the Pangasinan Transportation Company, Inc. were forged when so

informed by the said Company, and it accordingly demanded from the defendants the

reimbursement of the amounts for which it credited the National City Bank of New York at the

clearing house and for which the latter credited the Motor Service Co., but the defendants

refused, and continue to refuse, to make such reimbursements.

The Pangasinan Transportation Co., Inc., objected to have the proceeds of said check

deducted from their deposit.

Issue: Whether or not recovery can be had on the forged checks

Held: 1. Where a check is accepted or certified by the bank on which it is drawn, the bank isestopped to deny the genuineness of the drawer's signature and his capacity to issue theinstrument;2. if a drawee bank pays a forged check which was previously accepted or certified by the saidbank it cannot recover from a holder who did not participate in the forgery and did not haveactual notice thereof;3. the payment of a check does not include or imply its acceptance in the sense that this wordis used in section 62 of the Negotiable Instruments Law;4. in the case of the payment of a forged check, even without former acceptance, the draweecan not recover from a holder in due course not chargeable with any act of negligence or

disregard of duty5. to entitle the holder of a forged check to retain the money obtained thereon, there must bea showing that the duty to ascertain the genuineness of the signature rested entirely upon thedrawee, and that the constructive negligence of such drawee in failing to detect the forgerywas not affected by any disregard of duty on the part of the holder, or by failure of anyprecaution which, from his implied assertion in presenting the check as a sufficient voucher,the drawee had the right to believe he had taken;6. in the absence of actual fault on the part of the drawee, his constructive fault in notknowing the signature of the drawer and detecting the forgery will nor preclude his recovery


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from one who took the check under circumstances of suspicion and without proper precaution,or whose conduct has been such as to mislead the drawee or induce him to pay the checkwithout the usual scrutiny or other precautions against mistake or fraud;


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20. Bank of America vs. Associated Citizens Bank

Facts: On 6 October 1978, BA-Finance entered into a transaction with Miller Offset Press, Inc.,through the latters authorized representatives, Uy Kiat Chung, Ching Uy Seng, and Uy ChungGuan Seng. BA-Finance granted Miller a credit line facility through which the latter couldassign or discount its trade receivables with the former.

On 20 October 1978, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng executed aContinuing Suretyship Agreement with BA-Finance whereby they jointly and severallyguaranteed the full and prompt payment of any and all indebtedness which Miller may incurwith BA-Finance.Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds ofAssignment in favor of the latter. In consideration of the assignment, BA-Finance issued fourchecks payable to the Order of Miller Offset Press, Inc. with the notation For PayeesAccount Only. These checks were drawn against Bank of America.

The four checks were deposited by Ching Uy Seng (a.k.a. Robert Ching), then the corporatesecretary of Miller, in Account No. 989 in Associated Citizens Bank. Account No. 989 is a jointbank account under the names of Ching Uy Seng and Uy Chung Guan Seng. Associated Bankstamped the checks with the notation all prior endorsements and/or lack of endorsementsguaranteed, and sent them through clearing. Later, the drawee bank, Bank of America,honored the checks and paid the proceeds to Associated Bank as the collecting bank.Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables.Consequently, BA-Finance filed a Complaint against Miller for collection of the amountof P731,329.63 which BA-Finance allegedly paid in consideration of the assignment, plusinterest at the rate of 16% per annum and penalty charges.[4] Likewise impleaded as partydefendants in the collection case were Uy Kiat Chung, Ching Uy Seng, and Uy Chung GuanSeng.

Issue: Whether or not Bank of America liable to pay BA-Finance the amount of the four checks

Held: YES. The bank on which a check is drawn, known as the drawee bank, is under strictliability, based on the contract between the bank and its customer (drawer), to pay the checkonly to the payee or the payees order. The drawers instructions are reflected on the face andby the terms of the check. When the drawee bank pays a person other than the payee namedon the check, it does not comply with the terms of the check and violates its duty to chargethe drawers account only for properly payable items.[9] Thus, we ruled in Philippine NationalBank v. Rodriguez[10] that a drawee should charge to the drawers accounts only the payablesauthorized by the latter; otherwise, the drawee will be violating the instructions of the drawerand shall be liable for the amount charged to the drawers account.

A collecting bank where a check is deposited, and which endorses the check uponpresentment with the drawee bank, is an endorser.[18] Under Section 66 of the Negotiable

Instruments Law, an endorser warrants that the instrument is genuine and in all respectswhat it purports to be; that he has good title to it; that all prior parties had capacity tocontract; and that the instrument is at the time of his endorsement valid and subsisting. ThisCourt has repeatedly held that in check transactions, the collecting bank or last endorsergenerally suffers the loss because it has the duty to ascertain the genuineness of all priorendorsements considering that the act of presenting the check for payment to the drawee isan assertion that the party making the presentment has done its duty to ascertain thegenuineness of the endorsements.[19]
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When Associated Bank stamped the back of the four checks with the phrase all priorendorsements and/or lack of endorsement guaranteed, that bank had for all intents andpurposes treated the checks as negotiable instruments and, accordingly, assumed thewarranty of an endorser. Being so, Associated Bank cannot deny liability on the checks.


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21. PNB vs. Rodriguez

Facts: Respondents-Spouses Rodriguez were clients of petitioner Philippine National Bank,Amelia Avenue Branch, Cebu City. They maintained savings and demand/checking accounts,namely, PNBig Demand Deposits, and PNBig Demand Deposit.

The spouses were engaged in the informal lending business. In line with their business, theyhad a discounting3 arrangement with the Philnabank Employees Savings and Loan Association,an association of PNB employees. Naturally, PEMSLA was likewise a client of PNB AmeliaAvenue Branch. The association maintained current and savings accounts with petitionerbank.

PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount thepostdated checks issued to members whenever the association was short of funds. As wascustomary, the spouses would replace the postdated checks with their own checks issued inthe name of the members.

It was PEMSLAs policy not to approve applications for loans of members with outstandingdebts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additionalloans despite their outstanding loan accounts. They took out loans in the names of unknowing

members, without the knowledge or consent of the latter. The PEMSLA checks issued for theseloans were then given to the spouses for rediscounting. The officers carried this out by forgingthe indorsement of the named payees in the checks.

In return, the spouses issued their personal checks (Rodriguez checks) in the name of themembers and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the otherhand, were deposited by the spouses to their account.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings accountwithout any indorsement from the named payees. This was an irregular procedure madepossible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank tellerin the PNB Branch. It appears that this became the usual practice for the parties.

For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, inthe total amount of P2,345,804.00. These were payable to forty seven (47) individual payeeswho were all members of PEMSLA.4

Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme,PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by thespouses were returned or dishonored for the reason "Account Closed." The correspondingRodriguez checks, however, were deposited as usual to the PEMSLA savings account. Theamounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checksgiven as payment were returned, spouses Rodriguez incurred losses from the rediscountingtransactions.Issue: Whether or not bank is liable

Held: YES. The distinction between bearer and order instruments lies in their manner ofnegotiation. Under Section 30 of the NIL, an order instrument requires an indorsement fromthe payee or holder before it may be validly negotiated. A bearer instrument, on the otherhand, does not require an indorsement to be validly negotiated. It is negotiable by meredelivery.

A bank that has been remiss in its duty must suffer the consequences of its negligence. Beingissued to named payees, PNB was duty-bound by law and by banking rules and procedure to
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require that the checks be properly indorsed before accepting them for deposit and payment.In fine, PNB should be held liable for the amounts of the checks.


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22. Jai-Alai Corp. vs. BPI

Facts: From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58

were deposited by the petitioner in its current account with the respondent bank.

All the foregoing checks, which were acquired by the petitioner from one Antonio J. Ramirez, a

sales agent of the Inter-Island Gas and a regular bettor at jai-alai games, were, upon deposit,

temporarily credited to the petitioner's account in accordance with the clause printed on thedeposit slips issued by the respondent and which reads:

"Any credit allowed the depositor on the books of the Bank for checks or drafts hereby

received for deposit, is provisional only, until such time as the proceeds thereof, in current

funds or solvent credits, shall have been actually received by the Bank and the latter reserves

to itself the right to charge back the item to the account of its depositor, at any time before

that event, regardless of whether or not the item itself can be returned."

About the latter part of July 1959, after Ramirez had resigned from the Inter-Island Gas and

after the checks had been submitted to inter-bank clearing, the Inter-Island Gas discovered

that all the indorsements made on the checks purportedly by its cashiers, Santiago Amplayo

and Vicenta Mucor (who were merely authorized to deposit checks issued payable to the said

company) as well as the rubber stamp impression thereon reading "Inter-Island Gas Service,

Inc.," were forgeries. In due time, the Inter-Island Gas advised the petitioner, the respondent,

the drawers and the drawee-banks of the said checks about the forgeries, and filed a criminal

complaint against Ramirez with the Office of the City Fiscal of Manila. 1

The respondent's cashier, Ramon Sarthou, upon receipt of the latter of Inter-Island Gas dated

August 31, 1959, called up the petitioner's cashier, Manuel Garcia, and advised the latter that

in view of the circumstances he would debit the value of the checks against the petitioner's

account as soon as they were returned by the respective drawee-banks.

Meanwhile, the drawers of the checks, having been notified of the forgeries, demandedreimbursement to their respective accounts from the drawee-banks, which in turn demanded

from the respondent, as collecting bank, the return of the amounts they had paid on account

thereof. When the drawee-banks returned the checks to the respondent, the latter paid their

value which the former in turn paid to the Inter-Island Gas. The respondent, for its part,

debited the petitioner's current account and forwarded to the latter the checks containing the

forged indorsements, which the petitioner, however, refused to accept.

On October 8, 1959 the petitioner drew against its current account with the respondent a

check for P135,000 payable to the order of the Mariano Olondriz y Cia. in payment of certain

shares of stock. The check was, however, dishonored by the respondent as its records showed

that as of October 8, 1959 the current account of the petitioner, after netting out the value of

the checks P8,030.58) with the forged indorsements, had a balance of only P128,257.65.

Issue: Whether or not the debit was improper

Held: YES. Since under the foregoing provision, a forged signature in a negotiable instrument

is wholly inoperative and no right to discharge it or enforce its payment can be acquired

through or under the forged signature except against a party who cannot invoke the forgery, it


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23.MBTC vs. BA Finance

Facts: Bitanga obtained from respondent BA Finance a P329,280[1] loan to secure which, hemortgaged his car to respondent BA Finance.[2]

Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc.(Malayan Insurance)[4] which issued a policy stipulating that, inter alia,

Loss, if any shall be payable to BA FINANCE CORP. as its interest may appear. It is herebyexpressly understood that this policy or any renewal thereof, shall not be cancelled withoutprior notification and conformity by BA FINANCE CORPORATION.[5] (emphasis andunderscoring supplied)

The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to theorder of B.A. Finance Corporation andLamberto Bitanga for P224,500, drawn against ChinaBanking Corporation. The check was crossed with the notation For Deposit PayeesAccount Only.[6]

Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the checkto his account with the Asianbank, now merged with herein petitioner Metropolitan Bank and

Trust Company (Metrobank). Bitanga subsequently withdrew the entire proceeds of thecheck.

In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it.

BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of acrossed check payable to it and Bitanga, and of Bitangas depositing it in his account atAsianbank and withdrawing the entire proceeds thereof.

BA Finance thereupon demanded the payment of the value of the check from Asianbank[7] but

to no avail, prompting it to file a complaint before the Regional Trial Court (RTC) of Makati forsum of money and damages against Asianbank and Bitanga,[8] alleging that, inter alia, it isentitled to the entire proceeds of the check.

Issue: Whether or not collecting bank was liableHeld: YES. The provisions of the Negotiable Instruments Law and underlying jurisprudentialteachings on the black-letter law provide definitive justification for petitioners full liability onthe value of the check.

To be sure, a collecting bank, Asianbank in this case, where a check is deposited and whichindorses the check upon presentment with the drawee bank, is an indorser. [31] This is becausein indorsing a check to the drawee bank, a collecting bank stamps the back of the check withthe phrase all prior endorsements and/or lack of endorsement guaranteed[32]and, for all

intents and purposes, treats the check as a negotiable instrument, hence, assumes thewarranty of an indorser.[33] Without Asianbanks warranty, the drawee bank (China Bank inthis case) would not have paid the value of the subject check.

Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has theduty to ascertain the genuineness of all prior indorsements considering that the act ofpresenting the check for payment to the drawee is an assertion that the party making thepresentment has done its duty to ascertain the genuineness of prior indorsements.[34]
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24. Allied Bank vs. Lim Sio Wan

Facts: On November 14, 1983, respondent Lim Sio Wan deposited with petitioner AlliedBanking Corporation (Allied) at its Quintin Paredes Branch in Manila a money marketplacement of PhP 1,152,597.35 for a term of 31 days to mature on December 15, 1983,3asevidenced by Provisional Receipt No. 1356 dated November 14, 1983.4

On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer ofAllied, and instructed the latter to pre-terminate Lim Sio Wans money market placement, toissue a managers check representing the proceeds of the placement, and to give the check toone Deborah Dee Santos who would pick up the check.5 Lim Sio Wan described theappearance of Santos so that So could easily identify her.6

Later, Santos arrived at the bank and signed the application form for a managers check to beissued.7 The bank issued Managers Check No. 035669 for PhP 1,158,648.49, representing theproceeds of Lim Sio Wans money market placement in the name of Lim Sio Wan, aspayee.8 The check was cross-checked "For Payees Account Only" and given to Santos.9

Thereafter, the managers check was deposited in the account of Filipinas Cement Corporation(FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank),10with the forged signature

of Lim Sio Wan as indorser.11

Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2million with respondent Producers Bank. Santos was the money market trader assigned tohandle FCCs account.12 Such deposit is evidenced by Official Receipt No. 31756813and aLetter dated September 21, 1983 of Santos addressed to Angie Lazo of FCC, acknowledgingreceipt of the placement.14 The placement matured on October 25, 1983 and was rolled-overuntil December 5, 1983 as evidenced by a Letter dated October 25, 1983.15 When theplacement matured, FCC demanded the payment of the proceeds of the placement. 16 OnDecember 5, 1983, the same date that So received the phone call instructing her to pre-terminate Lim Sio Wans placement, the managers check in the name of Lim Sio Wan wasdeposited in the account of FCC, purportedly representing the proceeds of FCCs moneymarket placement with Producers Bank.17 In other words, the Allied check was deposited with

Metrobank in the account of FCC as Producers Banks payment of its obligation to FCC.

To clear the check and in compliance with the requirements of the Philippine Clearing HouseCorporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on the check,which reads: "All prior endorsements and/or lack of endorsement guaranteed."18

The check was sent to Allied through the PCHC. Upon the presentment of the check, Alliedfunded the check even without checking the authenticity of Lim Sio Wans purportedindorsement. Thus, the amount on the face of the check was credited to the account of FCC.19

On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placementto mature on January 9, 1984.20

On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio

Wan went to Allied to withdraw it.21 She was then informed that the placement had been pre-terminated upon her instructions. She denied giving any instructions and receiving theproceeds thereof. She desisted from further complaints when she was assured by the banksmanager that her money would be recovered.22

When Lim Sio Wans second placement matured on January 9, 1984, So called Lim Sio Wan toask for the latters instructions on the second placement. Lim Sio Wan instructed So to roll-over the placement for another 30 days.23 On January 24, 1984, Lim Sio Wan, realizing that thepromise that her money would be recovered would not materialize, sent a demand letter to
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Allied asking for the payment of the first placement.24Allied refused to pay Lim Sio Wan,claiming that the latter had authorized the pre-termination of the placement and itssubsequent release to Santos.25

Issue: Whether or not collecting bank was liable

Held: NO. Allied avers that even if it had not issued the check payment, the moneyrepresented by the check would still be lost because of Metrobanks negligence in indorsingthe check without verifying the genuineness of the indorsement thereon.Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:Section 66. Liability of general indorser.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 precedingsection; andb) That the instrument is at the time of his indorsement valid and subsisting;And in addition, he engages that on due presentment, it shall be accepted or paid, or both, asthe case may be according to its tenor, and that if it be dishonored, and the necessaryproceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to anysubsequent indorser who may be compelled to pay it.Section 65. Warranty where negotiation by delivery, so forth.Every person negotiating aninstrument by delivery or by a qualified indorsement, warrants:a) That the instrument is genuine and in all respects what it purports to be;b) That he has a good title of it;c) That all prior parties had capacity to contract;d) That he has no knowledge of any fact which would impair the validity of the instrument orrender it valueless.But when the negotiation is by delivery only, the warranty extends in favor of no holder otherthan the immediate transferee.

The provisions of subdivision (c) of this section do not apply to persons negotiating public orcorporation securities, other than bills and notes. (Emphasis supplied.)

The warranty "that the instrument is genuine and in all respects what it purports to be" coversall the defects in the instrument affecting the validity thereof, including a forged indorsement.

Thus, the last indorser will be liable for the amount indicated in the negotiable instrumenteven if a previous indorsement was forged. We held in a line of cases that "a collecting bankwhich indorses a check bearing a forged indorsement and presents it to the drawee bank

guarantees all prior indorsements, including the forged indorsement itself, and ultimatelyshould be held liable therefor."48

However, this general rule is subject to exceptions. One such exception is when the issuanceof the check itself was attended with negligence. Thus, in the cases cited above where thecollecting bank is generally held liable, in two of the cases where the checks were negligentlyissued, this Court held the institution issuing the check just as liable as or more liable than thecollecting bank.In isolated cases where the checks were deposited in an account other than that of the payees

on the strength of forged indorsements, we held the collecting bank solely liable for the whole

amount of the checks involved for having indorsed the same. In Republic Bank v. Ebrada,49the

check was properly issued by the Bureau of Treasury. While in Banco de Oro Savings and

Mortgage Bank (Banco de Oro) v. Equitable Banking Corporation,50 Banco de Oro admittedly

issued the checks in the name of the correct payees. And in Traders Royal Bank v. RadioPhilippines Network, Inc.,51the checks were issued at the request of Radio Philippines

Network, Inc. from Traders Royal Bank.

However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank is

liable for 60% of the amount on the face of the negotiable instrument and the collecting bank

is liable for 40%. We also noted the relative negligence exhibited by two banks, to wit:
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Both banks were negligent in the selection and supervision of their employees resulting in the

encashment of the forged checks by an impostor. Both banks were not able to overcome the

presumption of negligence in the selection and supervision of their employees. It was the

gross negligence of the employees of both banks which resulted in the fraud and the

subsequent loss. While it is true that petitioner BPIs negligence may have been the proximate

cause of the loss, respondent CBCs negligence contributed equally to the success of the

impostor in encashing the proceeds of the forged checks. Under these circumstances, we

apply Article 2179 of the Civil Code to the effect that while respondent CBC may recover its

losses, such losses are subject to mitigation by the courts. (See Phoenix Construction Inc. v.

Intermediate Appellate Courts, 148 SCRA 353 [1987]).

Considering the comparative negligence of the two (2) banks, we rule that the demands of

substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs of the

arbitration proceeding in the amount of P7,250.00 and the cost of litigation on a 60-40 ratio.52

Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the

collecting bank should equally share the liability for the loss of amount represented by the

checks concerned due to the negligence of both parties:

The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-

50%). Due to the negligence of the Province of Tarlac in releasing the checks to anunauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the

checks for the payee hospital for a period close to three years and in not properly ascertaining

why the retired hospital cashier was collecting checks for the payee hospital in addition to the

hospitals real cashier, respondent Province contributed to the loss amounting to P203,300.00

and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac

can only recover fifty percent (50%) of P203,300.00 from PNB.

The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of

P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by

Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including

that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in

its duty to ascertain the genuineness of the payees indorsement.53

A reading of the facts of the two immediately preceding cases would reveal that the reason

why the bank or institution which issued the check was held partially liable for the amount of

the check was because of the negligence of these parties which resulted in the issuance of the

checks.

In the instant case, the trial court correctly found Allied negligent in issuing the managers

check and in transmitting it to Santos without even a written authorization.54 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
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Regulations55 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,56 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.

FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio

Wans indorsement, can raise the real defense of forgery as against both banks.57

As to Producers Bank, Allied Banks argument that Producers Bank must be held liable as

employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180 pertains to the

vicarious liability of an employer for quasi-delicts that an employee has committed. Such

provision of law does not apply to civil liability arising from delict.

One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal Code

in the instant case. Such liability on the part of the employer for the civil aspect of the criminal

act of the employee is based on the conviction of the employee for a crime. Here, there has

been no conviction for any crime.

As to the claim that there was unjust enrichment on the part of Producers Bank, the same iscorrect. Allied correctly claims in its petition that Producers Bank should reimburse Allied for

whatever judgment that may be rendered against it pursuant to Art. 22 of the Civil Code,

which provides: "Every person who through an act of performance by another, or any other

means, acquires or comes into possession of something at the expense of the latter without

just cause or legal ground, shall return the same to him."1avvphi1

The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here is unjust

enrichment when a person unjustly retains a benefit to the loss of another, or when a person

retains money or property of another against the fundamental principles of justice, equity and

good conscience."58

In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under Article22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and

(2) such benefit is derived at the expense of or with damages to another."59

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.lavvphil 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.

It cannot be validly claimed that FCC, and not Producers Bank, should be considered as having

been unjustly enriched. It must be remembered that FCCs money market placement with

Producers Bank was already due and demandable; thus, Producers Banks payment thereof

was justified. FCC was entitled to such payment. As earlier stated, the fact that the
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indorsement on the check was forged cannot be raised against FCC which was not a part in

any stage of the negotiation of the check. FCC was not unjustly enriched.


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25. Phoenix Corp. vs. IAC

Facts: Private respondent was on his way home from a dinner-cocktail party hosted by his

boss, where he admitted that he had a shot or two. As he was driving, he alleged that his

headlights went out and as he turned them to bright he was caught off-guard by the truck of

petitioner company parked by petitioner Carbonel. The said truck was parked in a manner that

it was protruding and that there were no early warning device to warn passers-by of theimpending danger posed by the truck. Petitioners claim that it was the private respondents

drunkenness that was the proximate cause of the injuries he sustained.

Issue: Whether or not the private respondent was solely responsible for his injuries.

Held: No. The petitioner was also negligent in the selection and supervision of its employees.

Their contention that Dionisio was the one solely liable for his injuries and that his

drunkenness was the proximate cause of the accident is untenable and would result in

injustice. Article 2179 of the Civil Code is applicable in this case. It is the duty of the courts to

mitigate the award of damages where the injured party was also negligent.


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26. Republic Bank vs. Ebrada

Facts: On or about February 27, 1963 defendant Mauricia T. Ebrada, encashed Back PayCheck No. 508060 dated January 15, 1963 for P1,246.08 at the main office of the plaintiffRepublic Bank at Escolta, Manila. The check was issued by the Bureau of Treasury. 1PlaintiffBank was later advised by the said bureau that the alleged indorsement on the reverse side ofthe aforesaid check by the payee, "Martin Lorenzo" was a forgery 2since the latter hadallegedly died as of July 14, 1952. 3Plaintiff Bank was then requested by the Bureau of

Treasury to refund the amount of P1,246.08. 4To recover what it had refunded to the Bureau ofTreasury, plaintiff Bank made verbal and formal demands upon defendant Ebrada to accountfor the sum of P1,246.08, but said defendant refused to do so. So plaintiff Bank sueddefendant Ebrada before the City Court of Manila.

On July 11, 1966, defendant Ebrada filed her answer denying the material allegations of thecomplaint and as affirmative defenses alleged that she was a holder in due course of thecheck in question, or at the very least, has acquired her rights from a holder in due course andtherefore entitled to the proceeds thereof. She also alleged that the plaintiff Bank has nocause of action against her; that it is in estoppel, or so negligent as not to be entitled torecover anything from her. 5

Issue: Whether or not collecting bank was liable

Held: YES. Upon receiving the check in question from Adelaida Dominguez, was duty-bound toascertain whether the check in question was genuine before presenting it to plaintiff Bank forpayment. Her failure to do so makes her liable for the loss and the plaintiff Bank may recoverfrom her the money she received for the check. As reasoned out above, had she performedthe duty of ascertaining the genuineness of the check, in all probability the forgery wouldhave been detected and the fraud defeated.

Where a check is drawn payable to the order of one person and is presented to a bank byanother and purports upon its face to have been duly indorsed by the payee of the check, it isthe duty of the bank to know that the check was duly indorsed by the original payee, andwhere the bank pays the amount of the check to a third person, who has forged the signatureof the payee, the loss falls upon the bank who cashed the check, and its only remedy isagainst the person to whom it paid the money.


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27. Gempesaw vs. Court of Appeals

Facts: The usual practice of Gempesaw in making check payments was that her trustedbookkeeper, Alicia Galang, prepared and filled up as to all material particulars of the check.

Then the said checks would be submitted to the petitioner for her signature, which she wouldsign without any verification of the checks. The delivery of the checks were also left to thebookkeeper.

In the course of her business, petitioner issued a total of 82 checks in favor of her suppliers.Said checks were all presented by the indorsees as holders thereof, to and honoured byPBCOM. The bank debited the amouts against petitioners checking account. Most of thechecks were crossed checks. It was only after 2 years that petitioner discovered themanipulations of her trusted bookkeeper. Thirty of the suppliers testified that they did notreceive the check payments.

Petitioner demanded from PBCOM to credit to her account the value of the checks wrongfullycharged against her account.

Issue: W/N PBCOM cannot be held liable for charging the account of petitioner

Held: Yes. As a rule, a drawee bank who has paid a check on which an indorsement has beenforged cannot charge the drawers account for the amount of said check. An exception to therule is where the drawee is guilty of such negligence which causes the bank to honor suchcheck. For his negligence or failure either to discover or to report promptly the fact of suchforgery t the drawee bank, the drawer waives his right against the drawee who had debitedhis account under such forged instrument.

Petitioner, in this case, relied upon the honesty and loyalty of her bookkeeper and did noteven verify the accuracy of the amounts of the checks signed against the invoices attachedthereto.


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28. Granada vs. PNB

Facts: It appears that in the original complaint filed by the plaintiff bank, it was alleged thatthe defendants Dolores, Estrella, Feliza, and Corazon, all surnamed Granada, secured sugarcrop loans for the crop year 1940-41 and 1941-42 from the plaintiff and received the moneyas evidenced by various promissory notes.

Solely on the strength of the phrase "as representatives of their parents, etc." inserted in theamended complaint, the petitioners contended, and that trial court sustained the contention,that they are not liable personally as they merely acted as agents of a disclosed principal.

Issue: W/N petitioners can claim non-liability due to the phrase in representation of theirparents

Held: No. As alleged in the original complaint, Dolores, Estrella, Feliza and Corazon werepersonally, jointly and severally liable to the plaintiff for the payment of the amount of theloans, as that is what appears in the promissory notes and the borrowers did not inform thebank when they applied for and secured the loan that they were acting as agents for and inbehalf of their parents.


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29. Gonzales vs. PCIB

Facts: PCIB granted a credit line to Gonzales through the execution of a Credit-On-Hand LoanAgreement[3] (COHLA).

At the institution of the instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD8,715.72 with PCIB.

On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000. Subsequently,on December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained twoadditional loans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively.

These three loans amounting to PhP 1,800,000 were covered by three promissory notes.[4]To secure the loans, a real estate mortgage (REM) over a parcel of was executed by Gonzalesand the spouses Panlilio. Notably, the promissory notes specified, among others, the solidaryliability of Gonzales and the spouses Panlilio for the payment of the loans. However, it wasthe spouses Panlilio who received the loan proceeds of PhP 1,800,000.

The monthly interest dues of the loans were paid by the spouses Panlilio through theautomatic debiting of their account with PCIB. But the spouses Panlilio, from the month of July1998, defaulted in the payment of the periodic interest dues from their PCIB account whichapparently was not maintained with enough deposits. PCIB allegedly called the attention ofGonzales regarding the July 1998 defaults and the subsequent accumulating periodic interestdues which were left still left unpaid.

In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene Unson(Unson) for PhP 250,000 drawn against the credit line (COHLA). However, on October 13,1998, upon presentment for payment by Unson of said check, it was dishonored by PCIB dueto the termination by PCIB of the credit line under COHLA on October 7, 1998 for the unpaidperiodic interest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise frozethe FCD account of Gonzales.

With his FCD account that PCIB froze, Gonzales was forced to source out and pay the PhP250,000 he owed to Unson in cash.

Issue: W/N Gonzales was not liable being only an accommodation partyHeld: No. Clearly, Gonzales is liable for the loans covered by the above promissory notes. First,Gonzales admitted that he is an accommodation party which PCIB did not dispute.

Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife as borrowers,while the two subsequent notes showed the spouses Panlilio sign as borrowers with Gonzales.It is, thus, evident that Gonzales signed, as borrower, the promissory notes covering the PhP1,800,000 loan despite not receiving any of the proceeds.


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30. Alvarez vs. Vargas

Facts: It appears that on the 16th of February, 1914, the appellee, through his clerk Ti Jiaco,delivered the following letter or order to the appellant:

February 5, 1914.

Mr. D. ANGEL VARGAS, Iloilo.DEAR UNCLE: Be good enough to pay to the bearer, the Chinaman Juan Alvarez, one thousand

pesos, Philippine currency, value received, twelve days after sight.I ask you to pay said sum on the day it is due and charge the same to my account.

Your nephew,V. ALVAREZ.

The appellant, upon the request of said Ti Jiaco, indorsed the order as follows:Accepted this 16th day of February, 1914.

ANGEL VARGAS

The order was presented to the appellant for collection on the 5th of March, 1914. Paymentwas not made in accordance with the terms thereof, but the appellant wrote the followingindorsement thereon:

The acceptance of the foregoing mandatory letter is postponed until the 30th day of March,

1914, in view of the telegram of the drawer, Mr. Vicente Alvarez, asking for suchpostponement.Iloilo, 5th of March, 1914.

ANGEL VARGAS

Note. Without prejudice to the payment of the interest during the postponement at the rateof one peso amonth on each hundred pesos.

The appellant having refused to pay the order of the 5th of February, 1914, in accordance withhis acceptance of the 16th of the same month, or in accordance with the postponement madeon the 5th of March, 1914, this

NEI Chapter 2 Digested

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