Topic: Concept of Negotiable Instruments GOVERNMENT SERVICE INSURANCE SYSTEM V.

COURT OF APPEALS 170 SCRA 533 Facts: Private respondents, Mr. and Mrs. Isabelo R. Racho, together with spouses Mr. an d Mrs Flaviano Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor of petitioner GSIS and subsequently, another deed of mortgage, dated Apri l 14, 1958, in connection with two loans granted by the latter in the sums of P 11,500.00 and P 3,000.00, respectively. A parcel of land covered by Transfer Cer tificate of Title No. 38989 of the Register of Deed of Quezon City, co-owned by said mortgagor spouses, was given as security under the two deeds. They also exe cuted a 'promissory note". On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assump tion of Mortgage," obligating themselves to assume the said obligation to the GS IS and to secure the release of the mortgage covering that portion of the land b elonging to spouses Racho and which was mortgaged to the GSIS. This undertaking was not fulfilled. Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment of the amortizations due, GSIS extraju dicially foreclosed the mortgage and caused the mortgaged property to be sold at public auction on December 3, 1962. For more than two years, the spouses Racho filed a complaint against the spouses Lagasca praying that the extrajudicial foreclosure "made on, their property and all other documents executed in relation thereto in favor of the Government Ser vice Insurance System" be declared null and void. The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to establish a cause of action. However, said decision was reversed by the respondent Court of Appeals, stating that, although formally they are comortgagors, the GSIS required their consent to the mortgage of the entire parcel of land which was covered with only one certificate of title, with full knowled ge that the loans secured were solely for the benefit of the appellant Lagasca s pouses who alone applied for the loan. Issues: Whether the respondent court erred in annulling the mortgage as it affected the share of private respondents in the reconveyance of their property? Whether private respondents benefited from the loan, the mortgage and the extraj udicial foreclosure proceedings are valid? Held: Both parties relied on the provisions of Section 29 of Act No. 2031, otherwise k nown as the Negotiable Instruments Law, which provide that an accommodation part y is one who has signed an instrument as maker, drawer, acceptor of indorser wit hout receiving value therefor, but is held liable on the instrument to a holder for value although the latter knew him to be only an accommodation party. The promissory note, as well as the mortgage deeds subject of this case, are cle arly not negotiable instruments. These documents do not comply with the fourth r equisite to be considered as such under Section 1 of Act No. 2031 because they a re neither payable to order nor to bearer. The note is payable to a specified pa rty, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 wo uld not apply; governance shall be afforded, instead, by the provisions of the C ivil Code and special laws on mortgages. As earlier indicated, the factual findings of respondent court are that private respondents signed the documents "only to give their consent to the mortgage as

required by GSIS", with the latter having full knowledge that the loans secured thereby were solely for the benefit of the Lagasca spouses. Contrary to the holding of the respondent court, it cannot be said that private respondents are without liability under the aforesaid mortgage contracts. The fa ctual context of this case is precisely what is contemplated in the last paragra ph of Article 2085 of the Civil Code to the effect that third persons who are no t parties to the principal obligation may secure the latter by pledging or mortg aging their own property. So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca spouses would not invalidate th e mortgage with respect to private respondents' share in the property. The respondent court, erred in annulling the mortgage insofar as it affected the share of private respondents or in directing reconveyance of their property or the payment of the value. Topic: Treasury Warrants TRADERS ROYAL BANK V. CA 269 SCRA 15 Facts: Filriters through a Detached Agreement transferred ownership to Philfinance a Ce ntral Bank Certificate of Indebtedness. It was only through one of its officer s by which the CBCI was conveyed without authorization from the company. Petit ioner and Philfinance later entered into a Repurchase agreement, on which petitioner bought the CBCI from Philfinance. The latter agreed to repu rchase the CBCI but failed to do so. When the petitioner tried to have it regist ered in its name in the CB, the latter didn't want to recognize the transfer. Issue: Whether or not Central Bank Certificate of Indebtedness is Negotiable Ist rument. Held: The CBCI is not a negotiable instrument. The instrument provides for a promise to pay the registered owner Filriters. Very clearly, the instrument was only payable to Filriters. It lacked the words of negotiability wh ich should have served as an expression of the consent that the instr ument may be transferred by negotiation. The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchstone relating to the pro tection of holders in due course, and the freedom of negotiability is the founda tion for the protection, which the law throws around a holder in due cour se. This freedom in negotiability is totally absent in a certi ficate of indebtedness as it merely acknowledges to pay a sum of mon ey to a specified person or entity for a period of time. The transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments law. The pertin ent question then iswas the transfer of the CBCI from Filriters to Phi lfinance and subsequently from Philfinance to TRB, in accord with exist ing law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank? Clearly shown in the record is the fact that Philfinanc es title over CBCI is defective since it acquired the instrument from F ilriters fictitiously. Although the deed of assignment stated that the transf er was for value received, there was really no consideration involved. W hat happened was Philfinance merely borrowed CBCI from Filriters, a sis ter corporation. Thus, for lack of any consideration, the assignment mad

e is a complete nullity. Furthermore, the transfer wasn't in conformity with the regulations set by the CB. Giving more credence to rule that ther e was no valid transfer or assignment to petitioner. Topic : Postal Money Order PHILIPPINE EDUCATION CO. INC. VS. SORIANO 39 SCRA 587 Facts: On 18 April 1958 Enrique Montinola sought to purchase from the Manila Post Offic e 10 money orders of P200.00each payable to E. P. Montinola with address at Luce na, Quezon. After the postal teller had made out money orders numbered 124685, 1 24687-124695, Montinola offered to pay for them with a private check. As private checks were not generally accepted in payment of money orders, the te ller advised him to see the Chief of the Money Order Division, but instead of do ing so, Montinola managed to leave the building with his own check and the 10 mo ney orders without the knowledge of the teller. On the same date, 18 April 1958, upon discovery of the disappearance of the unpaid money orders, an urgent messa ge was sent to all postmasters, and the following day notice was likewise served upon all banks. Instructing them not to pay anyone of the money orders aforesai d if presented for payment. The Blank of America received a copy of said notice 3 days later. On 23 April 1958 one of the above mentioned money orders numbered124688 was rece ived by Philippine Education Co. as part of its sales receipts. The following da y it deposited the same with the Bank of America, and one day thereafter the lat ter cleared it with the Bureau of Posts and received from the latter its face va lue of P200.00. On 27 September 1961, Mauricio A. Soriano, Chief of the Money Or der Division of the Manila Post Office, acting for and in behalf of Post-master Enrico Palomar, notified the Bank of America that money order 124688attached to his letter had been found to have been irregularly issued and that, in view ther eof, the amount it represented had been deducted from the bank's clearing accoun t. For its part, on August 2 of the same year, the Bank of America debited Phili ppine Education Co.'s account with the same amount and gave it advice thereof by means of a debit memo. On 12 October 1961 Philippine Education Co. requested the Postmaster General to reconsider the action taken by his office deducting the sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So was Phil ippine Education Co.'s subsequent request that the matter be referred to the Sec retary of Justice for advice. Thereafter, Philippine Education Co. elevated the matter to the Secretary of Public Works and Communications, but the latter susta ined the actions taken by the postal officers. In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of Manila (Criminal Case 43866) but after trial he was acquitted on the ground of reasonable doubt. On 8 January 1962 Philippine Education Co. filed an action aga inst Soriano, et al. in the Municipal Court of Manila. On 17 November 1962, after the parties had submitted the stipulation of facts, t he municipal court rendered judgment, ordering Soriano, et al. to countermand th e notice given to the Bank of America on 27September 1961, deducting from said B ank's clearing account the sum of P200.00 representing the amount of postal mone y order 124688, or in the alternative, to indemnify Philippine Education Co. in the said sum of P200.00 with interest thereon at the rate of 8-1/2% per annum fr om 27 September 1961 until fully paid; without any pronouncement as to costs and attorney's fees." The case was appealed to the Court of First Instance of Manil a where, after the parties hadresubmitted the same stipulation of facts, the app ealed decision dismissing the complaints with costs, was rendered. Philippine Ed ucation Co. appealed.

Issue:Whether the postal money order is a negotiable instrument. Held: Philippine postal statutes were patterned after similar statutes in force in the United States. For this reason, Philippine postal statutes are generally constr ued in accordance with the construction given in the United States to their own postal statutes, in the absence of any special reason justifying a departure fro m this policy or practice. The weight of authority in the United Status is that postal money orders are not negotiable instruments, the reason behind this rule being that, in establishing and operating a postal money order system, the gover nment is not engaging in commercial transactions but merely exercises a governme ntal power for the public benefit. Some of the restrictions imposed upon money o rders by postal laws and regulations are inconsistent with the character of nego tiable instruments. For instance,such laws and regulations usually provide for n ot more than one endorsement; payment of money orders may be withheld under a va riety of circumstances. Topic: Cross check BATAAN CIGAR VS. CA 230 SCRA 643 Facts: Petitioner, a corp. involved in the manufacturing of cigarettes, engaged one of its suppliers, King Tim Pua George (herein after, George King), to deliver 2,000 bales of tobacco leaf starting Oct 1978. In consideration thereof, BCCFI, on Ju ly 13, 1978 issued crossed checks post dated sometime in March 1979 in the total ing P820,000. Relying on the King's representation that he would complete delivery w/in 3 mos. from Dec 5, 1978, petitioner agreed to purchase additional. 2,500 bales of toba cco leaves, despite the supplier's failure to deliver in accordance with their e arlier agreement. Again petitioner issued post dated crossed checks in the total amount of P1.1 million payable sometime in September 1979. During these times, King was simultaneously dealing with SIHI. On July 19, 1978, he sold at a discount check TCBT 551826 (P164K), post dated March 31, 1979, dra wn by petitioner, w/ King as payee to SIHI. On December 19 and 26, 1978, he agai n sold to respondent checks TCBT Nos. 608967 & 608968, (both P100K) post dated S eptember 15 & 30, 1979 respectively, drawn by petitioner in favor of King. King failed to deliver the bales of tobacco leaf as agreed despite petitioner's demand. BCCFI issued on March 30, 1979, a stop payment order on all checks payab le to George King, including check TCBT 551826, and subsequently, on checks TCBT Nos. 608967 & 608968 on September 14 & 28, 1979, respectively. Efforts of SIHI to collect from BCCFI having failed, it instituted the present c ase, naming only BCCFI as party defendant. TC pronounced SIHI as having a valid claim being a holder in due course. Issue:WON SIHI, a second indorser, a holder of crossed checks, is a holder in du e course Held: NO. Crossing of checks should put the holder on inquiry and upon him devolves th e duty to ascertain the indorser's title to the check or the nature of his posse ssion. Failing in this respect, the holder is declared guilty of gross negligenc e amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negoti able Instruments Law, and as such the consensus of authority is to the effect th at the holder of the check is not a holder in due course. Reasoning A check is d

efined by law as a bill of exchange drawn on a bank payable on demand. There are a variety of checks, the more popular of which are the memorandum check, cashie r's check, traveler's check and crossed check. Crossed check is one where two pa rallel lines are drawn across its face or across a corner thereof. It may be cro ssed generally or specially. A check is crossed specially when the name of a particular banker or a company i s written between the parallel lines drawn. It is crossed generally when only th e words "and company" are written or nothing is written at all between the paral lel lines. It may be issued so that the presentment can be made only by a bank. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed checks, " although Article 541 of the Code of Commerce refers to such instruments. According to commentators, the negotiability of a check is not affected by its b eing crossed, whether specially or generally. It may legally be negotiated from one person to another as long as the one who encashes the check with the drawee bank is another bank, or if it is specially crossed, by the bank mentioned betwe en the parallel lines. This is specially true in England where the NIL originate d. In the Philippine business setting, however, we used to be beset with bouncing c hecks, forging of checks, and so forth that banks have become quite guarded in e ncashing checks, particularly those which name a specific payee. Unless one is a valued client, a bank will not even accept second indorsements on checks. In order to preserve the credit worthiness of checks, jurisprudence has pronounc ed that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once -to one whohas an account with a bank; (c) and the act of crossing th e check serves as warning to the holder that the check has been issued for a def inite purpose so that he must inquire if he has received the check pursuant to t hat purpose, otherwise, he is not a holder in due course. The facts in the present case are on all fours to the case of State Investment H ouse, Inc. v. IAC. In that case, New Sikatuna Wood Industries, Inc. (NSWI) also sold at a discount to SIHI 3 post dated crossed checks, issued by Anita Pea Chua naming as payee NSWI. The court said: The 3 checks had been crossed generally and issued payable to NSWI w/c could only mean that the drawer had intended the sam e for deposit only by the rightful person, i.e. the payee named therein. Apparen tly, it was not the payee who presented the same for payment and therefore, ther e was no proper presentment, and the liability did not attach to the drawer. Thu s, in the absence of due presentment, the drawer did not become liable. Conseque ntly, no right of recourse is available to petitioner (SIHI) against the drawer of the subject checks, private respondent wife (Anita), considering that petitio ner is not the proper party authorized to make presentment of the checks in ques tion. xxx xxx xxx That the subject checks had been issued subject to the conditio n that private respondents (Anita and her husband) on due date would make the ba ck up deposit for said checks but w/c condition apparently was not made, thus re sulting in the non-consummation of the loan intended to be granted by private re spondents to NSWI, constitutes a good defense against petitioner who is not a ho lder in due course. In the present case, BCCFI's defense in stopping payment is as good to SIHI as i t is to George King. Because, really, the checks were issued with the intention that George King would supply BCCFI with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due course. Consequently, BCCF I cannot be obliged to pay the checks. The foregoing does not mean, however, that respondent could not recover from the checks. The only disadvantage of a holder who is not a holder in due course is

that the instrument is subject to defenses as if it were non-negotiable. Hence, respondent can collect from the immediate indorser, in this case, George King. D isposition Petition granted. RTC decision as affirmed by CA reversed. Topic: Formal requisites of Negotiability/It must be in writing CALTEX PHIL INC. VS. CA 212 SCRA 448 Facts: In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Secu rity Bank and Trust Company for the formers deposit with the said bank amounting to P1,120,000.00. The said CTDs are couched in the following manner: This is to Certify that B E A R E R has deposited in this Bank the sum of _____ __ Pesos, Philippine Currency, repayable to said depositor _____ days. after dat e, upon presentation and surrender of this certificate, with interest at the rat e of ___ % per cent per annum. Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with th e purchase of fuel products from Caltex. In March executed another 5,000.00 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He an affidavit of loss and submitted it to the bank. The bank then issued set of CTDs. In the same month, Angel de la Cruz acquired a loan of P87 and he used his time deposits as collateral.

In November 1982, a representative from Caltex went to Security Bank to present the CTDs (delivered by de la Cruz) for verification. Caltex advised Security Ban k that de la Cruz delivered Caltex the CTDs as security for purchases he made wi th the latter. Security Bank refused to accept the CTDs and instead required Cal tex to present documents proving the agreement made by de la Cruz with Caltex. C altex however failed to produce said documents. In April 1983, de la Cruz loan with Security bank matured and no payment was made by de la Cruz. Security Bank eventually set-off the time deposit to pay off the loan. Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued that the CTDs are not negotiable instruments even though the word bearer is written on their face because the word bearer contained therein refer to deposito r and only the depositor can encash the CTDs and no one else. Issue: Whether or Not Certificate Time Deposit meet the negotiability requireme nts of the law. Held: Section 1 of Act No. 2031, otherwise known as the Negotiable Instruments Law, en umerates the requisites for an instrument to become negotiable, viz: "(a) It mus t be in writing and signed by the maker or drawer; (b) Must contain an unconditi onal promise or order to pay a sum certain in money; (c) Must be payable on dema nd, or at a fixed or determinable future time; (d) Must be payable to order or t o bearer; and (e) Where the instrument is addressed to a drawee, he must be name d or otherwise indicated therein with reasonable certainty." The CTDs in questio n undoubtedly meet the requirements of the law for negotiability. The parties' b one of contention is with regard to requisite (d) set forth above. It is noted t hat Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982, tes tified in open court that the depositor referred to in the CTDs is no other than Mr. Angel de la Cruz. . . . Contrary to what respondent court held, the CTDs ar e negotiable instruments. The documents provide that the amounts deposited shall be repayable to the depositor. And who, according to the document, is the depos

itor? It is the "bearer." The documents do not say that the depositor is Angel d e la Cruz and that the amounts deposited are repayable specifically to him. Rath er, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment; On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the i nstrument itself. In the construction of a bill or note, the intention of the pa rties is to control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstances in order to more perfectly unders tand the intent and meaning of the parties, yet as they have constituted the wri ting to be the only outward and visible expression of their meaning, no other wo rds are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as co ntra distinguished from what their words express, but what is the meaning of the words they have used. What the parties meant must be determined by what they sa id. Topic: Interpretation of Instruments B. Other Rules EQUITABLE BANKING VS. IAC 161 SCRA 518 Facts: In 1975, Liberato Casals, majority stockholder of Casville Enterprises, went to buy two garrett skidders (bulldozers) from Edward J. Nell Company amounting to P 970,000.00. To pay the bulldozers, Casals agreed to open a letter of credit with the Equitable Banking Corporation. Pursuant to this, Nell Company shipped one o f the bulldozers to Casville. Meanwile, Casville advised Nell Company that in or der for the letter of credit to be opened, Casville needs to deposit P427,300.00 with Equitable Bank, and that since Casville is a little short, it requested Ne ll Company to pay the deposit in the meantime. Nell Company agreed and so it eventually sent a check in the amount of P427,300. 00. The check read: Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, I NC. Nell Company sent the check to Casville so that it would be the latter who could send it to Equitable Bank to cover the deposit in lieu of the letter of credit. Casals received the check, he went to Equitable Bank, and the teller received t he check. The teller, instead of applying the amount as deposit in lieu of the l etter of credit, credited the check to Casvilles account with Equitable Bank. Cas als later withdrew all the P427,300.00 and appropriated it to himself. Issue: Whether or not Equitable Bank is liable to cover for the loss. Held: No. The subject check was equivocal and patently ambiguous. Reading on th e wordings of the check, the payee thereon ceased to be indicated with reasonabl e certainty in contravention of Section 8 of the Negotiable Instruments Law. As worded, it could be accepted as deposit to the account of the party named after the symbols A/C, or payable to the Bank as trustee, or as an agent, for Casville E nterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be taken contra proferentem that is, construed against Nell Company who c aused the ambiguity and could have also avoided it by the exercise of a little m ore care. Thus, Article 1377 of the Civil Code, provides: Art. 1377. The interpretation of obscure words or stipulations in a contract sha ll not favor the party who caused the obscurity.

Topic: Holders in Due Course YANG VS CA 409 SCRA 159 Facts: Yang and Chandiramani entered into an agreement whereby the latter was to give Y ang a PCIB managers check in the amount of P4.2M in exchange for two of Yangs mana gers checks each in the amount of P2.087M, both payable to the order of Fernando David. Yang and Chandiramani agreed that the difference of P26,000 in the exchan ge would be their profit to be divided equally between them. Yang and Chandiramani also further agreed that the former would secure from FEBT C a dollar draft in the amount of US$200k payable to PCIB FCDU Account which Cha ndiramani would exchange for another dollar draft in the same amount to be issue d by Hang Seng Bank Ltd. of Hong Kong. Yang gave the checks and dollar drafts to her business associate Albert Liong to be delivered to Chandiramani by Liongs messenger Danilo Rodrigo. Chandiramani al legedly did not appear at the meeting place and Ranigo lost the checks and dolla r drafts. Yang requested FEBTC and Equitable to stop payment on the instruments she believ ed to be lost. However, the checks and drafts were not lost because Chandiramani was able to get hold of them and deliver them to Fernando David in exchange of US$360k. FEBTC and Equitable stopped payment on the instruments. However upon representat ion of PCIB, FEBTC subsequently lifted the stop payment order on the dollar draf t, TF enabling the holder to receive the amount of US$200k. Yang lodged a Complaint for injunction and damages against Equitable, Chandirama ni, and David, with prayer for a TRO, with the RTC. It was subsequently amended to include a prayer for Equitable to return to Yang the amount of P2.087 million with interest Yang filed a separate case for injunction vs. FEBTC, PCIB, Chandi ramani and David with the RTC. It was later amended to include a prayer that def endants therein return to Yang the amount of P2.087million with interest. David moved for dismissal, it was denied. Cases wereconsolidated. RTC rendered judgment in favor of David rationcinating thus: The evidence thus s hows that defendant David was a holder in due course for the reason that the cas hiers checks were complete on their face when they were negotiated to him. They w ere not yet overdue when he became the holder thereof and he had no notice that the said checks were previously dishonored Yangs MR denied. On appeal, CA affirmed RTC. Issue: Whether or not respondent Fernando David was a holder in due course Held: YES.Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises only in favor of a person who i s the payee or indorsee of a bill or note who is in possession of it or the bear er thereof. What is vital to the resolution of the issue is the concurrence of a ll requisites in Section 52 of the Negotiable Instruments Law. What constitutes a holder in due course xxx 1. That it is complete and regular upon its face 2. That he became the holder of it before it was overdue, and without such notic e that it has been previously dishonored, is such was a fact. 3. That he took it in good faith and for value

4. That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect of the title of the person negotiating it Petitioners challenge to Davids status as a holder in due course hinges on the all egation that the last two requisites in Section 52 are missing. Section 24 of the Negotiable Instruments Law creates a presumption that every pa rty to an instrument acquired the same for a consideration of for value. The law creates a presumptio n in favor of David. Also, factual findings of the lower court showed that David gave Chandiramani US$360,000 in exchange of the said instruments. Absent any pr oof from petitioner to the contrary, the presumption imposed the law is to be up held. Petitioner fails to point any circumstances which should have put David on inqui ry as to the why and wherefore of the possession of the checks by Chandiramani. David was not privy to the transaction between petitioner and Chandiramani. Inst ead, Chandiramani and David had a separate dealing in which it was precisely Chandiramanis duty to deliver the checks to David as payee . Court cannot hold David as guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Chandiram anis acquisition or possession of the checks. Topic: Forgery and Want of Authority GEMPESAW VS. PNB 218 SCRA 682 Facts: On January 23, 1985, petitioner filed a Complaint against the private respondent Philippine Bank of Communications (respondent drawee Bank) for recovery of the money value of eighty-two (82) checks charged against the petitioner's account w ith respondent drawee Bank on the ground that the payees' indorsements were forg eries; Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery sto res located at Rizal Avenue Extension and at Second Avenue, both in Caloocan Cit y.;Among these groceries are D.G. Shopper's Mart and D.G. Whole Sale Mart. Petit ioner maintains a checking account numbered 13-00038-1 with the Caloocan City Br anch of the respondent drawee Bank. To facilitate payment of debts to her suppli ers, petitioner draws checks against her checking account with the respondent ba nk as drawee. Issue: Whether or not the drawer loses his right against the drawee who has debi ted his account under the forged indorsement Held: While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed upon him to look for forge ries of his own name, a depositor is under a duty to set up an accounting system and a business procedure as are reasonably calculated to prevent or render diff icult 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 u nder a forged indorsement, the drawer in under duty promptly to report such fact to the drawee bank. (Britton, Bills and Notes, Sec. 143, pp. 663-664); 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 the drawee who has debited his account under the forged indorsement. (City of New York vs. Bro nx County Trust Co., 261 N.Y. 64, 184 N.E. 495 (1933); Detroit Piston Ring Co. v s. Wayne County & Home Savings Bank, 252 Mich. 163, 233 N.W. 185 [1930]; C.E. Er

ickson Co. vs. Iowa Nat. Bank, 211 Iowa 495, 230 N.W. 342 [1930] In other words, he is precluded from using forgery as a basis for his claim for recrediting of his account. Forgery and Want of Authority TITLE OF THE CASE: BPI VS CASA MONTESSORI 430 SCRA 261 Facts: On November 8, 1982, plaintiff CASA Montessori International 5 opened Current Ac count No. 0291-0081-01 with defendant BPI[,] with CASA's President Ms. Ma. Carin a C. Lebron as one of its authorized signatories; It turned out that 'Sonny D. Santos' with account at BPI's Greenbelt Branch [was ] a fictitious name used by third party defendant Leonardo T. Yabut who worked a s external auditor of CASA. Third party defendant voluntarily admitted that he f orged the signature of Ms. Lebron and encashed the checks. Issue: Whether or not the effect that forgery cannot be presumed; that it must be prove d by clear, positive and convincing evidence; and that the burden of proof lies on the party alleging the forgery. Held: Section 23 of the NIL provides:"Section 23. Forged signature; effect of . When a signature is forged or made without the authority of the person whose signatu re it purports to be, it is wholly inoperative, and no right . . . to enforce pa yment thereof against any party thereto, can be acquired through or under such s ignature, unless the party against whom it is sought to enforce such right is pr ecluded from setting up the forgery or want of authority." Under this provision, a forged signature is a real 13 or absolute defense, 14 an d a person whose signature on a negotiable instrument is forged is deemed to hav e never become a party thereto and to have never consented to the contract that allegedly gave rise to it. Topic: Forgery and Want of Authority PNB VS QUIMPO 158 SCRA 582 Facts: On July 3, 1973, Francisco S. Gozon II, who was a depositor of the Caloocan City Branch of the Philippine National Bank, went to the bank in his car accompanied by his friend Ernesto Santos whom he left in the car while he transacted busine ss in the bank. When Santos saw that Gozon left his check book he took a check t herefrom, filled it up for the amount of P5,000.00, forged the signature of Gozo n, 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 sai d amount of P5,000.00 should be returned to his account as his signature on the check was forged but the bank refused. Issue: Whether or not the bank PNB acted their prime duty to check the genuinene ss of the signature of the depositor. 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 reas

onable business prudence in accepting and cashing a check presented to it. In reference to the allegation of the petitioner that it is the negligence of pr ivate respondent that is the cause of the loss which he suffered, the trial cour t held otherwise. Private respondent trusted Ernesto Santos as a classmate and a friend. He brought him along in his car to the bank and he left his personal be longings in the car. Santos however removed and stole a check from his check boo k without the knowledge and consent of private respondent. No doubt private resp ondent cannot be considered negligent under the circumstances of the case.