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G.R. No. L-40796 July 31, 1975 REPUBLIC BANK, plaintiff-appellee, vs. MAURICIA T. EBRADA, defendant-appellant. MARTIN, J.

:
Appeal on a question of law of the decision of the Court of First Instance of Manila, Branch XXIII in Civil Case No. 69288, entitled "Republic Bank vs. Mauricia T. Ebrada."
On or about February 27, 1963 defendant Mauricia T. Ebrada, encashed Back Pay Check No. 508060 dated January 15, 1963 for P1,246.08 at the main office of the plaintiff Republic Bank at Escolta, Manila. The check was issued by the Bureau of Treasury.1 Plaintiff Bank was later advised by the said bureau that the alleged indorsement on the reverse side of the
aforesaid check by the payee, "Martin Lorenzo" was a forgery2 since the latter had allegedly died as of July 14, 1952.3 Plaintiff Bank was then requested by the Bureau of Treasury to refund the amount of P1,246.08.4 To recover what it had refunded to the Bureau of Treasury, plaintiff Bank made verbal and formal demands upon defendant Ebrada to account for the
sum of P1,246.08, but said defendant refused to do so. So plaintiff Bank sued defendant Ebrada before the City Court of Manila.
On July 11, 1966, defendant Ebrada filed her answer denying the material allegations of the complaint and as affirmative defenses alleged that she was a holder in due course of the check in question, or at the very least, has acquired her rights from a holder in due course and therefore entitled to the proceeds thereof. She also alleged that the plaintiff Bank has no
cause of action against her; that it is in estoppel, or so negligent as not to be entitled to recover anything from her.5
About the same day, July 11, 1966 defendant Ebrada filed a Third-Party complaint against Adelaida Dominguez who, in turn, filed on September 14, 1966 a Fourth-Party complaint against Justina Tinio.
On March 21, 1967, the City Court of Manila rendered judgment for the plaintiff Bank against defendant Ebrada; for Third-Party plaintiff against Third-Party defendant, Adelaida Dominguez, and for Fourth-Party plaintiff against Fourth-Party defendant, Justina Tinio.
From the judgment of the City Court, defendant Ebrada took an appeal to the Court of First Instance of Manila where the parties submitted a partial stipulation of facts as follows:
COME NOW the undersigned counsel for the plaintiff, defendant, Third-Party defendant and Fourth-Party plaintiff and unto this Honorable Court most respectfully submit the following:
PARTIAL STIPULATION OF FACTS
1. That they admit their respective capacities to sue and be sued;
2. That on January 15, 1963 the Treasury of the Philippines issued its Check No. BP-508060, payable to the order of one MARTIN LORENZO, in the sum of P1,246.08, and drawn on the Republic Bank, plaintiff herein, which check will be marked as Exhibit "A" for the plaintiff;
3. That the back side of aforementioned check bears the following signatures, in this order:
1) MARTIN LORENZO;
2) RAMON R. LORENZO;
3) DELIA DOMINGUEZ; and
4) MAURICIA T. EBRADA;
4. That the aforementioned check was delivered to the defendant MAURICIA T. EBRADA by the Third-Party defendant and Fourth-Party plaintiff ADELAIDA DOMINGUEZ, for the purpose of encashment;
5. That the signature of defendant MAURICIA T. EBRADA was affixed on said check on February 27, 1963 when she encashed it with the plaintiff Bank;
6. That immediately after defendant MAURICIA T. EBRADA received the cash proceeds of said check in the sum of P1,246.08 from the plaintiff Bank, she immediately turned over the said amount to the third-party defendant and fourth-party plaintiff ADELAIDA DOMINGUEZ, who in turn handed the said amount to the fourth-party
defendant JUSTINA TINIO on the same date, as evidenced by the receipt signed by her which will be marked as Exhibit "1-Dominguez"; and
7. That the parties hereto reserve the right to present evidence on any other fact not covered by the foregoing stipulations,
Manila, Philippines, June 6, 1969.
Based on the foregoing stipulation of facts and the documentary evidence presented, the trial court rendered a decision, the dispositive portion of which reads as follows:
WHEREFORE, the Court renders judgment ordering the defendant Mauricia T. Ebrada to pay the plaintiff the amount of ONE THOUSAND TWO FORTY-SIX 08/100 (P1,246.08), with interest at the legal rate from the filing of the complaint on June 16, 1966, until fully paid, plus the costs in both instances against Mauricia T. Ebrada.
The right of Mauricia T. Ebrada to file whatever claim she may have against Adelaida Dominguez in connection with this case is hereby reserved. The right of the estate of Dominguez to file the fourth-party complaint against Justina Tinio is also reserved.
SO ORDERED.
In her appeal, defendant-appellant presses that the lower court erred:
IN ORDERING THE APPELLANT TO PAY THE APPELLEE THE FACE VALUE OF THE SUBJECT CHECK AFTER FINDING THAT THE DRAWER ISSUED THE SUBJECT CHECK TO A PERSON ALREADY DECEASED FOR 11-½ YEARS AND THAT THE APPELLANT DID NOT BENEFIT FROM ENCASHING SAID CHECK.
From the stipulation of facts it is admitted that the check in question was delivered to defendant-appellant by Adelaida Dominguez for the purpose of encashment and that her signature was affixed on said check when she cashed it with the plaintiff Bank. Likewise it is admitted that defendant-appellant was the last indorser of the said check. As such indorser, she
was supposed to have warranted that she has good title to said check; for under Section 65 of the Negotiable Instruments Law:6
Every person negotiating an instrument by delivery or by qualified indorsement, warrants:
(a) That the instrument is genuine and in all respects what it purports to be.
(b) That she has good title to it.
xxx xxx xxx
and under Section 65 of the same Act:
Every indorser who indorses without qualification warrants to all subsequent holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding sections;
(b) That the instrument is at the time of his indorsement valid and subsisting.
It turned out, however, that the signature of the original payee of the check, Martin Lorenzo was a forgery because he was already dead 7 almost 11 years before the check in question was issued by the Bureau of Treasury. Under action 23 of the Negotiable Instruments Law (Act 2031):
When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instruments, or to give a discharge thereof against any party thereto, can be acquired through or under such signature unless the party against whom it is sought to enforce such right
is precluded from setting up the forgery or want of authority.
It is clear from the provision that where the signature on a negotiable instrument if forged, the negotiation of the check is without force or effect. But does this mean that the existence of one forged signature therein will render void all the other negotiations of the check with respect to the other parties whose signature are genuine?
In the case of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590, where a check has several indorsements on it, it was held that it is only the negotiation based on the forged or unauthorized signature which is inoperative. Applying this principle to the case before Us, it can be safely concluded that it is only the negotiation predicated on the forged indorsement that should
be declared inoperative. This means that the negotiation of the check in question from Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the second indorser, should be declared of no affect, but the negotiation of the aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, the third indorser, and from Adelaida Dominguez to the defendant-appellant
who did not know of the forgery, should be considered valid and enforceable, barring any claim of forgery.
What happens then, if, after the drawee bank has paid the amount of the check to the holder thereof, it was discovered that the signature of the payee was forged? Can the drawee bank recover from the one who encashed the check?
In the case of State v. Broadway Mut. Bank, 282 S.W. 196, 197, it was held that the drawee of a check can recover from the holder the money paid to him on a forged instrument. It is not supposed to be its duty to ascertain whether the signatures of the payee or indorsers are genuine or not. This is because the indorser is supposed to warrant to the drawee that the
signatures of the payee and previous indorsers are genuine, warranty not extending only to holders in due course. One who purchases a check or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the
drawee who has paid the forged check, without actual negligence on his part, may recover the money paid from such negligent purchasers. In such cases the recovery is permitted because although the drawee was in a way negligent in failing to detect the forgery, yet if the encasher of the check had performed his duty, the forgery would in all probability, have been
detected and the fraud defeated. The reason for allowing the drawee bank to recover from the encasher is:
Every one with even the least experience in business knows that no business man would accept a check in exchange for money or goods unless he is satisfied that the check is genuine. He accepts it only because he has proof that it is genuine, or because he has sufficient confidence in the honesty and financial responsibility of the
person who vouches for it. If he is deceived he has suffered a loss of his cash or goods through his own mistake. His own credulity or recklessness, or misplaced confidence was the sole cause of the loss. Why should he be permitted to shift the loss due to his own fault in assuming the risk, upon the drawee, simply because of the
accidental circumstance that the drawee afterwards failed to detect the forgery when the check was presented?8
Similarly, in the case before Us, the defendant-appellant, upon receiving the check in question from Adelaida Dominguez, was duty-bound to ascertain whether the check in question was genuine before presenting it to plaintiff Bank for payment. Her failure to do so makes her liable for the loss and the plaintiff Bank may recover from her the money she received for
the check. As reasoned out above, had she performed the duty of ascertaining the genuineness of the check, in all probability the forgery would have been detected and the fraud defeated.
In our jurisdiction We have a case of similar import. 9 The Great Eastern Life Insurance Company drew its check for P2000.00 on the Hongkong and Shanghai Banking Corporation payable to the order of Lazaro Melicor. A certain E. M. Maasin fraudulently obtained the check and forged the signature of Melicor, as an indorser, and then personally indorsed and
presented the check to the Philippine National Bank where the amount of the check was placed to his (Maasin's) credit. On the next day, the Philippine National Bank indorsed the cheek to the Hongkong and Shanghai Banking Corporation which paid it and charged the amount of the check to the insurance company. The Court held that the Hongkong and Shanghai
Banking Corporation was liable to the insurance company for the amount of the check and that the Philippine National Bank was in turn liable to the Hongkong and Shanghai Banking Corporation. Said the Court:
Where a check is drawn payable to the order of one person and is presented to a bank by another and purports upon its face to have been duly indorsed by the payee of the check, it is the duty of the bank to know that the check was duly indorsed by the original payee, and where the bank pays the amount of the check to a third
person, who has forged the signature of the payee, the loss falls upon the bank who cashed the check, and its only remedy is against the person to whom it paid the money.
With the foregoing doctrine We are to concede that the plaintiff Bank should suffer the loss when it paid the amount of the check in question to defendant-appellant, but it has the remedy to recover from the latter the amount it paid to her. Although the defendant-appellant to whom the plaintiff Bank paid the check was not proven to be the author of the supposed
forgery, yet as last indorser of the check, she has warranted that she has good title to it 10 even if in fact she did not have it because the payee of the check was already dead 11 years before the check was issued. The fact that immediately after receiving title cash proceeds of the check in question in the amount of P1,246.08 from the plaintiff Bank, defendant-
appellant immediately turned over said amount to Adelaida Dominguez (Third-Party defendant and the Fourth-Party plaintiff) who in turn handed the amount to Justina Tinio on the same date would not exempt her from liability because by doing so, she acted as an accommodation party in the check for which she is also liable under Section 29 of the Negotiable
Instruments Law (Act 2031), thus: .An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument
knew him to be only an accommodation party.
IN VIEW OF THE FOREGOING, the judgment appealed from is hereby affirmed in toto with costs against defendant-appellant.
SO ORDERED.
Republic Bank vs. Ebrada
GR L-40796, 31 July 1975
-forgery

FACTS:
Respondent Ebrada encashed a back pay check dated January 15, 1963 at Republic Bank. The Bureau of Treasury, which issued the check advised the bank that the alleged indorsement of the check by one “Martin
Lorenzo” was a forgery as the latter has been dead since 14 July 1952; and requested that it be refunded he sum deducted from its account. The bank refunded the amount to the Bureau and demanded upon Ebrada
the sum in question, who refused.

ISSUES:
1) Whether the bank can recover from Ebrada who was the last indorser of the check with the forged indorsement.
2) Whether the existence of one forged signature in the check will render void all the other negotiations of the check with respect to the other parties whose signature are genuine.

RULING:
1) Republic Bank should suffer the loss when it paid the amount of the check in question to Ebrada but it has the remedy to recover from the latter the amount it paid to her because as last indorser of the
check, she has warranted that she has good title to it even if in fact she did not because the payee of the check was already dead 11 years before the check was issued.
2) The negotiation of the check in question from Martin Lorenzo, the original payee whose indorsement was forged, to the second indorser, should be declared of no affect, but the negotiation of the aforesaid
check from the second indorser to the third indorser, and from the third indorser to Ebrada who did not know of the forgery, should be considered valid and enforceable, barring any claim of forgery.

**The existence of one forged signature in the check will not render void all the other negotiations of the check with respect to the other parties whose signature are genuine. As last indorser of the check, petitioner warranted that she has
good title to it even if in fact she did not because the payee of the check was already dead 11 years before the check was issued.

Ebrada encashed a “Back Pay Check” issued by the Bureau of Treasury at the Republic Bank in Escolta Manila. The Bureau of Treasury advised the Republic Bank that the instrument was forged. It
informed the bank that the original payee of the check died 11 years before the check was issued. Therefore, there was a forgery of his signature.

This is the sequence:


Martin Lorenzo
The deceased person, original
“payee”, where the forgery
happened
Ramon Lorenzo

Delia Dominguez

Mauricia Ebrada
Defendant-appelant

Ebrada refuses to return the proceeds of the check claiming that she already gave it to Delia Dominguez. She also claims that she is a HDC (holder in due course) and that the bank is already
estopped.

HELD:

Ebrada should return the proceeds of the check to Republic Bank. As an indorser of the check, she was supposed to have warranted that she has good title to said check. See Section 65.

Section 23: When the signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instruments, or to give a discharge thereof
against any party thereto, can be acquired through or under such signature unless the party against whom it is sought to enforce such right is PRECLUDED from setting up the forgery or want of authority.
PNB V. NATIONAL CITY BANK OF NY
63 PHIL 711

FACTS:
Unknown persons negotiated with Motor Services Company checks, which were part of the stipulation in payment of automobile tires purchased from the latter’s store. It purported to have been issued by Pangasinan Transportation Company. The said checks were indorsed at the
back by said unknown persons, the Motor company believing at that time that the signatures contained therein were genuine. The checks were later deposited with the company’s account in National City Bank of NY. The said checks were consequently cleared and PNB credited
National City Bank with the amounts. Thereafter, PNB discovered that the signatures were forged and it demanded the reimbursement of the amounts for which it credited the other bank.

HELD:
A check is a bill of exchange payable on demand and only the rules governing bills of exchanges payable on demand are applicable to it. in view of the fact that acceptance is a step necessary insofar as negotiable instruments are concerned, it follows that the provisions
relative to acceptance are without application to checks. Acceptance implies subsequent negotiation of the instrument, which is not true in the case of checks because from the moment it is paid, it is withdrawn from circulation. When the drawee banks cashes or pays a check, the
cycle of negotiation is terminated and it is illogical thereafter to speak of subsequent holders who can invoke the warrant against the drawee.

Further, in determining the relative rights of a drawee who under a mistake of fact, has paid, a holder who has received such payment, upon a check to which the name of the drawer has been forged, it is only fair to consider the question of diligence and negligence of the parties in respect thereto.
The responsibility of the drawee who pays a forged check, for the genuineness of the drawer’s signature is absolute only in favor of one who has not, by his own fault or negligence, contributed to the success of the
fraud or to mislead the drawee.

According to the undisputed facts, National City Bank in purchasing the papers in question from unknown persons without making any inquiry as to the identity and authority of said persons negotiating and indorsing them, acted negligently and contributed to the constructive loss of PNB in
failing to detect the forgery. Under the circumstances of the case, if the appellee bank is allowed to recover, there will be no change in position as to the injury or prejudice of the appellant.

Negotiable Instruments Case Digest: PNB v. National City Bank New York (1936)

G.R. No. L-43596 October 31, 1936


Lessons Applicable: Forgery (Negotiable Instruments)

FACTS:

 April 7 & 9, 1933: unknown person or persons purchased tires and paid Motor Service Company, Inc.(MSCI) checks purporting to have been issued by the "Pangasinan Transportation Co., Inc. (Pantranco) by J. L. Klar, Manager and Treasurer" against PNB and in favor of International
Auto Repair Shop.
 MSCI indorsed for deposit at the National City Bank of New York and MSCI was accordingly credited with the amounts thereof, or P144.50 and P215.75
 April 8 & 10, 1933: Checks were cleared and PNB credited the National City Bank
 PNB found out that the signatures of J. L. Klar, Manager and Treasurer were forged and demanded from MSCI and National City Bank New York
 PNB filed the case in the municipal court of Manila against National City Bank and MSCI.
 Pantranco objected to have the proceeds of said check deducted from their deposit.
 RTC: Favored PNB
 MSCI appealed

ISSUES:

1. W/N acceptance = payment


2. W/N law or business practice prevents the presentation of checks for acceptance before they are paid.
3. W/N MSCI was negligent and therefore PNB should recover
4. W/N the drawee bank should be allowed recovery, as MSCI's position would not become worse than if the drawee had refused the payment of these checks upon their presentation.

HELD: Affirmed

1. NO.

 A check is a bill of exchange payable on demand and only the rules governing bills of exchange payable on demand are applicable to it, according to section 185 of the Negotiable Instruments Law
o Acceptance is a step unnecessary for bills of exchange payable on demand (sec. 143)
o Acceptance implies, subsequent negotiation of the instrument
 From the moment a check is paid it is withdrawn from circulation.
 That the payment of a check does not include or imply its acceptance in the sense that this word is used in section 62 of the Negotiable Instruments Law
o Payment (in checks) - final act which extinguishes a bill.
o Acceptance (in certified checks) - a promise to pay in the future and continues the life of the bill.

2. NO

 section 187, which provides that "where a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance", and it is then that the warranty under section 62 exists
 That if a drawee bank pays a forged check which was previously accepted or certified by the said bank it cannot recover from a holder who did not participate in the forgery and did not have actual notice thereof

3. YES.

 Circumstances:
o check number 637023-D was dated April 6, 1933, whereas check number 637020-D and is dated April 7, 1933. (later check had prior number)
o accepted the 2 checks from unknown persons
o check 637023-D was indorsed by a subagent of the agent of the payee, International Auto Repair Shop and cross generally
o Section 23 of the Negotiable Instruments Act provides that "when a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.
 PNB did not warrant to MCSI the genuineness of the checks in question, by its acceptance thereof, nor did it perform any act which would have induced MSCI to believe in the genuineness
 PNB is NOT precluded from setting up the forgery

4. NO.

 A drawee of a check, who is deceived by a forgery of the drawer's signature may recover the payment back, unless his mistake has placed an innocent holder of the paper in a worse position than he would have been in if the discover of the forgery had been made on presentation.
 MSCI has lost nothing by anything which the drawee has done. It had in its hands some forged worthless papers. It did not purchase or acquire these papers because of any representation made to it by the drawee

Court concluded:

1. That where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the genuineness of the drawer's signature and his capacity to issue the instrument;
2. That if a drawee bank pays a forged check which was previously accepted or certified by the said bank it cannot recover from a holder who did not participate in the forgery and did not have actual notice thereof;
3. That the payment of a check does not include or imply its acceptance in the sense that this word is used in section 62 of the Negotiable Instruments Law;
4. That in the case of the payment of a forged check, even without former acceptance, the drawee can not recover from a holder in due course not chargeable with any act of negligence or disregard of duty;
5. That to entitle the holder of a forged check to retain the money obtained thereon, there must be a showing that the duty to ascertain the genuineness of the signature rested entirely upon the drawee, and that the constructive negligence of such drawee in failing to detect the forgery was not
affected by any disregard of duty on the part of the holder, or by failure of any precaution which, from his implied assertion in presenting the check as a sufficient voucher, the drawee had the right to believe he had taken;
6. That in the absence of actual fault on the part of the drawee, his constructive fault in not knowing the signature of the drawer and detecting the forgery will nor preclude his recovery 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 check without the usual scrutiny or other precautions against mistake or fraud;
7. That on who purchases a check or draft is bound to satisfy himself that the paper is genuine, and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he performed his duty;
8. That while the foregoing rule, chosen from a welter of decisions on the issue as the correct one, will not hinder the circulation of two recognized mediums of exchange by which the great bulk of business is carried on, namely, drafts and checks, on the other hand, it will encourage and demand
prudent business methods on the part of those receiving such mediums of exchange;
9. That it being a matter of record in the present case, that the appellee bank in no more chargeable with the knowledge of the drawer's signature than the appellant is, as the drawer was as much the customer of the appellant as of the appellee, the presumption that a drawee bank is bound to
know more than any indorser the signature of its depositor does not hold;
10. That according to the undisputed facts of the case the appellant in purchasing the papers in question from unknown persons without making any inquiry as to the identity and authority of the said persons negotiating and indorsing them, acted negligently and contributed to the appellee's
constructive negligence in failing to detect the forgery;
11. That under the circumstances of the case, if the appellee bank is allowed to recover, there will be no change of position as to the injury or prejudice of the appellant.
saN CARLOS MINING V. BPI
59 PHIL 59
(FORGED SIGNATURE OF DRAWER)
FACTS:
Wilson, a principal employee of petitioner, together with Wilson, a messenger-clerk, conspired to withdraw cash from the petitioner’s account through forgery of a check, in the name of the agent authorized to sign the check.

While the authorized agent of petitioner was on vacation, Wilson and Dolores sent a cablegram to China Banking for the transfer of $100,000. On the contract, the name of Baldwin was forged and it was indicated therein that a certified check be issued. Thereafter, this was
received and
deposited with the BPI. Upon deposit, an indorsement in the name of Baldwin was placed. The bank account was credited. Later, a letter was sent to the bank, purporting to be signed by Baldwin asking that it be withdrawn. This was done in supervision of Dolores. Dolores and
Wilson then was able to get the money. This eventually came to the knowledge of plaintiff who filed an action against China Banking and BPI. The trial court dismissed the case.
HELD:
A bank is bound to know the signatures of its customers and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.

There is no act of the plaintiff that led the bank astray. If it was in fact lulled into the false sense of security, it was by the effrontery of Dolores, the messenger to whom it entrusted this large sum of money.

The proximate cause of the loss must therefore be due to the negligence of the bank in honoring and cashing the two forged checks.
Negotiable Instruments Case Digest: San Carlos Milling Co. Ltd v. BPI (1993)
G.R. No. L-37467 December 11, 1993
Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:

 San Carlos Milling Co. Ltd. (San Carlos) was in the hands of Alfred D. Cooper, its agent under general power of attorney with authority of substitution
 The principal employee in the Manila office was Joseph L. Wilson, to whom had been given a general power of attorney but without power of substitution.
 1926: Cooper, desiring to go on vacation, gave a general power of attorney to Newland Baldwin and at the same time revoked the power of Wilson relative to the dealings with BPI
 Wilson, conspiring together with Alfredo Dolores, a messenger-clerk in San Carlos' Manila office, sent a cable gram in code to the company in Honolulu requesting a telegraphic transfer to the China Banking Corporation (China Bank) of Manila of $100,00.
 The money was transferred by cable, and upon its receipt China Bank sent an exchange contract to San Carlos offering the sum of P201K, which was then the current rate of exchange.
 September 28, 1927: A manager's check on the China Banking Corporation for P201K payable to San Carlos Milling Company or order was receipted for by Dolores
 deposited with the BPI having a fake endorsement (Baldwin forged as drawer)
 For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos Milling Co., Ltd.
 By (Sgd.) NEWLAND BALDWIN
 For Agent
 San Carlos had frequently withdrawn currency for shipment to its mill but never in so large an amount, and never under the sole supervision of Dolores
 Before delivering the money, the bank asked Dolores for P1 to cover the cost of packing the money, and he left the bank and shortly afterwards returned with another check for P1, purporting to be signed by Newland Baldwin
 the crime was discovered and San Carlos filed against the BPI and China Bank (after ammendment complaint)
 China Bank: as the prior endorsement had in law been guaranteed by the BPI, they are absolved even if the endorsement of Newland Baldwin on the check was a forgery
 BPI: guilty of no negligence, loss was due to the dishonesty of San Carlos employees and the negligence of San Carlos general agent

RTC: BPI in GF and San Carlos could not recover

ISSUE: W/N BPI was bound to inspect the checks and shall therefore be liable in case of forgery

HELD: YES. judgment absolving the Bank of the Philippine Islands must therefore be reversed

duty was upon the BPI, and the China Banking Corporation was not bound to inspect and verify all endorsements of the check, even if some of them were also those of depositors in that bank

A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.

under section 23 of the Negotiable Instruments Law they are not a charge against San Carlos nor are the checks of any value to the BPI.

proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in honoring and cashing the two forged checks
BANKS AND BANKING; PAYMENT OF FORGED CHECKS. — It is an elementary
principle of banking that "A bank is bound to know the signatures of its customers; and if it pays
a forged check, it must be considered as making the payment out of its own funds, and cannot
ordinarily charge the amount so paid to the account of the depositor whose name was forges." (7.
C. J., 683.) There is no act of the plaintiff that led the Bank of the Philippine Islands astray. If it
was in fact lulled into a false sense of security, it was by the effrontery of D, the messenger to
whom it entrusted the large sum of money in question.

2. ID.; ID.; PROXIMATE CAUSE OF LOSS. — The signatures of the checks in question being
forged, under section 23 of the Negotiable Instruments Law they are not a charge against
plaintiff nor are the checks of any value to the defendant. The proximate cause of loss was due to
the negligence of the Bank of the Philippine Islands in honoring and cashing the two forged
checks.

3. ID.; DEPOSITOR AND BANKER; CREDITOR AND DEBTOR. — It is very clear that the
relation of plaintiff with the Bank of the Philippine Islands in regard to the checks in question,
was that of depositor and banker, creditor and debtor. The contention of the bank that it was a
gratuitous bailee is without merit, and absolutely contrary to what the bank did. It did not take it
up as a separate account but it transferred the credit to plaintiff’s current account as a depositor
of the bank. Banks are not gratuitous bailees of the funds deposited with them by their
customers.

4. ID.; ID.; ID. — As the money in question was in fact paid to the plaintiff corporation the
China Banking Corporation was indebted neither to the plaintiff nor to the Bank of the Philippine
Islands and consequently was properly absolved from any responsibility.
PHILIPPINE NATIONAL BANK petitioner,
vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of First Instance of Rizal, Branch XIV, and FRANCISCO S. GOZON II, respondents.
GANCAYCO, J.:
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 business in the bank. When Santos saw that Gozon left his
check book he took a check therefrom, filled it up for the amount of P5,000.00, forged the signature of Gozon, and thereafter he encashed the check in the bank on the same day. The account of Gozon was debited the said amount. Upon receipt of the statement of account from the bank, Gozon
asked that the said amount of P5,000.00 should be returned to his account as his signature on the check was forged but the bank refused.
Upon complaint of private respondent on February 1, 1974 Ernesto Santos was apprehended by the police authorities and upon investigation he admitted that he stole the check of Gozon, forged his signature and encashed the same with the Bank.
Hence Gozon filed the complaint for recovery of the amount of P5,000.00, plus interest, damages, attorney's fees and costs against the bank in the Court of First Instance of Rizal. After the issues were joined and the trial on the merits ensued, a decision was rendered on February 4, 1980, the
dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff. The defendant is hereby condemned to return to plaintiff the amount of P5,000.00 which it had unlawfully withheld from the latter, with interest at the legal rate from September 22, 1972 until the amount is
fully delivered. The defendant is further condemned to pay plaintiff the sum of P2,000.00 as attorney's fees and to pay the costs of this suit.
Not satisfied therewith, the bank now filed this petition for review on certiorari in this Court raising the sole legal issue that —
THE ACT OF RESPONDENT FRANCISCO GOZON, II IN PUTTING HIS CHECK BOOK CONTAINING THE CHECK IN QUESTION INTO THE HANDS OF ERNESTO SANTOS WAS INDEED THE PROXIMATE CAUSE OF THE LOSS, THEREBY PRECLUDING HIM
FROM SETTING UP THE DEFENSE OF FORGERY OR WANT 0F AUTHORITY UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW, ACT NO. 3201
The petition is devoid of merit.
This Court reproduces with approval the disquisition of the court a quo as follows:
A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily change the amount so paid to the account of the depositor whose name was forged' (San Carlos
Milling Co. vs. Bank of the P.I., 59 Phil. 59).
This rule is absolutely necessary to the circulation of drafts and checks, and is based upon the presumed negligence of the drawee in failing to meet its obligation to know the signature of its correspondent. ... There is nothing inequitable in such a rule. If the paper comes to
the drawee in the regular course of business, and he, having the opportunity ascertaining its character, pronounces it to be valid and pays it, it is not only a question of payment under mistake, but payment in neglect of duty which the commercial law places upon him, and
the result of his negligence must rest upon him (12 ALR 1901, citing many cases found in I Agbayani, supra).
Defendant, however, interposed the defense that it exercised diligence in accordance with the accepted norms of banking practice when it accepted and paid Exhibit "A". It presented evidence that the check had to pass scrutiny by a signature verifier as well as an officer of
the bank.
A comparison of the signature (Exhibit "A-l") on the forged check (Exhibit "A") with plaintiffs exemplar signatures (Exhibits "5-N" and "5-B") found in the PNB Form 35-A would immediately show the negligence of the employees of the defendant bank. Even a not too careful
comparison would immediately arrest one's attention and direct it to the graceful lines of plaintiffs exemplar signatures found in Exhibits "5-A" and "5-B". The formation of the first letter "F" in the exemplars, which could be regarded as artistic, is completely different from the
way the same letter is formed in Exhibit "A-l". That alone should have alerted a more careful and prudent signature verifier.
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. 1 It is expected to use reasonable business prudence in accepting and cashing a check presented to it.
In this case the findings of facts of the court a quo are conclusive. The trial court found that a comparison of the signature on the forged check and the sample signatures of private respondent show marked differences as the graceful lines in the sample signature which is completely different from
those of the signature on the forged check. Indeed the NBI handwriting expert Estelita Santiago Agnes whom the trial court considered to be an "unbiased scientific expert" indicated the marked differences between the signature of private respondent on the sample signatures and the questioned
signature. Notwithstanding the testimony of Col. Fernandez, witness for petitioner, advancing the opinion that the questioned signature appears to be genuine, the trial court by merely examining the pictorial report presented by said witness, found a marked difference in the second "c" in Francisco
as written on the questioned signature as compared to the sample signatures, and the separation between the "s" and the "c" in the questioned signature while they are connected in the sample signatures.2
Obviously, petitioner was negligent in encashing said forged check without carefully examining the signature which shows marked variation from the genuine signature of private respondent.
In reference to the allegation of the petitioner that it is the negligence of private respondent that is the cause of the loss which he suffered, the trial court held:
The act of plaintiff in leaving his checkbook in the car while he went out for a short while can not be considered negligence sufficient to excuse the defendant bank from its own negligence. It should be home in mind that when defendant left his car, Ernesto Santos, a long
time classmate and friend remained in the same. Defendant could not have been expected to know that the said Ernesto Santos would remove a check from his checkbook. Defendant had trust in his classmate and friend. He had no reason to suspect that the latter would
breach that trust .
We agree.
Private respondent trustee Ernesto Santos as a classmate and a friend. He brought him along in his car to the bank and he left his personal belongings in the car. Santos however removed and stole a check from his cheek book without the knowledge and consent of private respondent. No doubt
private respondent cannot be considered negligent under the circumstances of the case.
WHEREFORE, the petition is DISMISSED for lack of merit with costs against petitioner.
SO ORDERED.

While Gozon was in the bank with Santos left in the car, the latter stole a check and forged the signature of the former. He was able to encash the check. He was later
apprehended by the police authorities and he admitted to stealing the check. The court decided in favor of Gozon. The bank now posed the issue on whether Gozon’s act of
leaving his checkbook in the car the proximate cause of the loss.
HELD:

Where the private respondent’s check was removed and stolen without his knowledge and consent, he cannot be considered negligent in this case.
MWSS V. CA
143 SCRA 20

FACTS:
MWSS had an account from PNB. Its treasurer, auditor, and General Manager are the ones authorized to sign checks. During a period of time, 23 checks were drawn and debited against the account of petitioner. Bearing the same check numbers, the amounts stated therein were
again
debited from the account of petitioner. The amounts drawn were deposited in the accounts of the payees in PCIB. It was found out though that the names stated in the drawn checks were all fictitious. Petitioner demanded the return of the amounts debited but the bank refused to do so. Thus, it
filed a complaint.

HELD:
There was no categorical finding that the 23 checks were signed by persons other than those authorized to sign. On the contrary, the NBI reports shows that the fraud was an “inside job” and that the delay in the reconciliation of the bank statements and the laxity and loss of
records
control in the printing of the personalized checks facilitated the fraud. It further doesn’t provide that the signatures were forgeries.
G.R. No. L-62943 July 14, 1986
Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:

 Metropolitan Waterworks and Sewerage System (MWSS) is a GOCC and successor-in- interest of the defunct NWSA.

 The authorized signature for PNB Account No. 6 were those of MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor L. Recio.

o Specimen signatures were submitted by the MWSS to and on file with the PNB

o By special arrangement with the PNB, the MWSS used personalized checks in drawing from this account.

 printed for MWSS by its printer, F. Mesina Enterprises

 March, April and May 1969: 23 checks were prepared, processed, issued and released by NWSA, all of which were paid and cleared by PNB and debited by PNB against NWSA Account No. 6

o deposited by the fictitious payees Raul Dizon, Arturo Sison and Antonio Mendoza in their respective current accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC)

o At the time of their presentation to PNB these checks bear the standard indorsement which reads 'all prior indorsement and/or lack of endorsement guaranteed'

 NWSA filed against PNB before the CFI

o PNB also filed a 3rd party complaint against the negotiating banks PBC and PCIB on the ground that they failed to ascertain the Identity of the payees and their title to the checks which were deposited in the respective new accounts of the payees with them

 February 6, 1976: CFI favored MWSS

 CA: reversed and favored PNB

o applied Section 24 of the Negotiable Instruments Law

ISSUE: W/N MWSS can can claim against PNB

HELD: NO. CA reversed.

Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party thereto for value

 A bank is bound to know the signatures of its customers; and if it pays a forged check it must be considered as making the payment out of its obligation funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.

 NBI showed that the MWSS fraud was an "inside job" and that the MWSS' delay in the reconciliation of bank statements and the laxity and loose records control in the printing of its personalized checks facilitated the fraud. These reports did not touch on the inherent qualities of the signatures which are indispensable in the determination of the existence of forgery. There must be conclusive findings that there is a variance in the inherent characteristics of
the signatures and that they were written by 2 or more different persons.

 Forgery cannot be presumed. It must be established by clear, positive, and convincing evidence. This was not done in the present case.

SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or made without authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.

 Gross negligence in the printing of its personalized checks - MWSS failed to

1. give its printer, Mesina Enterprises, specific instructions relative to the safekeeping and disposition of excess forms, check vouchers, and safety papers

2. retrieve from its printer all spoiled check forms

3. provide any control regarding the paper used in the printing of said checks

4. furnish the respondent drawee bank with samples of typewriting, cheek writing, and print used by its printer in the printing of its checks and of the inks and pens used in signing the same

5. send a representative to the printing office during the printing of said checks

6. to reconcile the bank statements with its own records

 MWSS requested the PNB to discontinue the practice of mailing the bank statements, but instead to deliver it to Mr. Emiliano Zaporteza. However, he was unreasonably delayed in taking prompt deliveries of the bank statements and credit and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the bank statements. If Mr. Zaporteza had not been remiss in his duty of taking the bank statements and reconciling them with the petitioner's
records, the fraudulent encashments of the first checks should have been discovered, and further frauds prevented. This negligence was, therefore, the proximate cause of the failure to discover the fraud.

 One factor which facilitate this fraud was the delay in the reconciliation of PNB statements with the NAWASA bank accounts. x x x. Had the NAWASA representative come to the PNB early for the statements and had the bank been advised promptly of the reported bogus check, the negotiation of practically all of the remaining checks on May, 1969 could have been prevented.

 The records likewise show that the petitioner failed to provide appropriate security measures over its own records thereby laying confidential records open to unauthorized persons. The petitioner's own Fact Finding Committee, in its report submitted to their General manager underscored this laxity of records control. It observed that the "office of Mr. Ongtengco (Cashier No. VI of the Treasury Department at the NAWASA) is quite open to any person
known to him or his staff members and that the check writer is merely on top of his table

 Even if the 23 checks in question are considered forgeries, considering the petitioner's gross negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law

 PNB had taken the necessary measures in the detection of forged checks and the prevention of their fraudulent encashment. In fact, long before the encashment of the 23 checks in question, the it had issued constant reminders to all Current Account Bookkeepers informing them of the activities of forgery syndicates.

 Under the circumstances, MWSS was in a better position to detect and prevent the fraudulent encashment of its checks.
GEMPESAW V. CA
218 SCRA 682

FACTS:
Gempensaw was the owner of many grocery stores. She paid her suppliers through the issuance of checks drawn against her checking account with respondent bank. The checks were prepared by her bookkeeper Galang. In the signing of the checks prepared by Galang,
Gempensaw didn't bother
herself in verifying to whom the checks were being paid and if the issuances were necessary. She didn't even verify the returned checks of the bank when the latter notifies her of the same. During her two years in business, there were incidents shown that the amounts paid for
were in excess of what should have been paid. It was also shown that even if the checks were crossed, the intended payees didn't receive the amount of the checks. This prompted Gempensaw to demand the bank to credit her account for the amount of the forged checks. The bank
refused to do so and this prompted her to file the case against the bank.

HELD:
Forgery is a real defense by the party whose signature was forged. A party whose signature was forged was never a party and never gave his consent to the instrument. Since his signature doesn’t appear in the instrument, the same cannot be enforced against him even by a holder in due
course. The drawee bank cannot charge the account of the drawer whose signature was forged because he never gave the bank the order to pay.

In the case at bar the checks were filled up by petitioner’s employee Galang and were later given to her for signature. Her signing the checks made the negotiable instruments complete. Prior to signing of the checks, there was no valid contract yet. Petitioner completed the checks
by signing them and thereafter authorized Galang to deliver the same to their respective payees. The checks were then indorsed, forged indorsements thereon.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot debit the account of a drawer for the amount of said check. An exception to this rule is when the drawer is guilty of negligence which causes the bank to honor such checks.
Petitioner in this case has relied solely on the honesty and loyalty of her bookkeeper and never bothered to verify the accuracy of the amounts of the checks she signed the invoices attached thereto. And though she received her bank statements, she didn't carefully
examine the same to double-check her
payments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition of her bookkeeper’s fraudulent schemes.

Negotiable Instruments Case Digest: Gempesaw v. CA (1993)


G.R. No. 92244 February 9, 1993
Lessons Applicable: Promissory Notes and Checks (Negotiable Instruments Law)

FACTS:

Gempesaw owns and operates four grocery stores


to pay their debts of her supplies, she draws checks against her account
she signed each and every crossed check without bothering to verify the accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper.
although the Bank notified her of all checks presented to and paid by the bank, petitioner did not verify he correctness of the returned checks, much less check if the payees actually received the checks in payment for the supplies she received
It was only after the lapse of more 2 years that petitioner found out about the fraudulent manipulations of her bookkeeper
November 7, 1984: Gempesaw made a written demand on respondent drawee Bank to credit her account with the money value of the 82 checks totalling P1,208.606.89 for having been wrongfully charged against her account
January 23, 1985: Gempesaw filed against Philippine Bank of Communications (drawee Bank) for recovery of the money value of 82 checks charged against the Gempesaw's account on the ground that the payees' indorsements were forgeries
RTC: dismissed the complaint
CA: affirmed
Gempesaw gross negligence = promixate cause of the loss

ISSUE: W/N Gempesaw has a right to recover the amount attributable to the forgeries

HELD: NO. REMANDED to the trial court for the reception of evidence to determine the exact amount of loss suffered by the petitioner, considering that she partly benefited from the issuance of the questioned checks since the obligation for which she issued them were apparently extinguished,
such that only the excess amount over and above the total of these actual obligations must be considered as loss of which one half must be paid by respondent drawee bank to herein petitioner.

Petitioner completed the checks by signing them as drawer and thereafter authorized her employee Alicia Galang to deliver to payees
GR: drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the amount of said check
EX: where the drawer is guilty of such negligence which causes the bank to honor such a check or checks.
Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof.

Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either chanrobles virtual law library
(a) Prohibits further negotiation of the instrument; or
xxx xxx xxx

In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that any subsequent party may be forewarned that ceases to be negotiable.
However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so.
When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of
fraud or negligence
drawee Bank did not discover the irregularity with respect to the acceptance of checks with second indorsement for deposit even without the approval of the branch manager despite periodic inspection conducted by a team of auditors from the main office constitutes negligence on the part of the
bank in carrying out its obligations to its depositors

NATIVIDAD GEMPESAW vs. CA and PHILIPPINE BANK OF COMMUNICATIONS


G.R. No. 92244 February 9, 1993

Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of several supplies. Most of the checks for amounts in excess of actual obligations as shown
in their corresponding invoices. It was only after the lapse of more than 2 years did she discovered the fraudulent manipulations of her bookkeeper. It was also learned that the indorsements of the
payee were forged, and the checks were brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank, Buendia Branch) who deposited them in the accounts of Alfredo
Romero and Benito Lam. Gempesaw made demand upon the bank to credit the amount charged due the checks. The bank refused. Hence, the present action.

Issue: Who shall bear the loss resulting from the forged indorsements.

Held: As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer’s account for the amount of said check. An exception to the rule is where
the drawer is guilty of such negligence which causes the bank to honor such checks. Gempesaw did not exercise prudence in taking steps that a careful and prudent businessman would take in
circumstances to discover discrepancies in her account. Her negligence was the proximate cause of her loss, and under Section 23 of the Negotiable Instruments Law, is precluded from using
forgery as a defense. On the other hand, the banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials does not
invalidate the instrument; neither does it invalidate the negotiation or transfer of said checks. The only kind of indorsement which stops the further negotiation of an instrument is a restrictive
indorsement which prohibits the further negotiation thereof, pursuant to Section 36 of the Negotiable Instruments Law. In light of any case not provided for in the Act that is to be governed by the
provisions of existing legislation, pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held liable for damages in accordance with Article 1170 of the Civil Code. The
drawee bank, in its failure to discover the fraud committed by its employee and in contravention banking rules in allowing a chief accountant to deposit the checks bearing second indorsements,
was adjudged liable to share the loss with Gempesaw on a 50:50 ratio.
BPI V. CA
216 SCRA 51

FACTS:
Someone who identified herself to be Fernando called up BPI, requesting for the pre-termination of her money market placement with the bank. The person who took the call didn't bother to verify with Fernando’s office if whether or not she really intended to preterminate her
money market
placement. Instead, he relied on the verification stated by the caller. He proceeded with the processing of the termination. Thereafter, the caller gave delivery instructions that instead of delivering the checks to her office, it would be picked up by her niece and it indeed happen as
such. It was found out later on that the person impersonated Fernando and her alleged niece in getting the checks. The dispatcher also didn't bother to get the promissory note evincing the placement when he gave the checks to the impersonated niece. This was aggravated
by the fact that this impersonator opened an account with the bank and deposited the subject checks. It then withdrew the amounts.

The day of the maturity of the money market placement happened and the real Fernando surfaced herself. She denied preterminating the money market placements and though she was the payee of the checks in issue, she didn't receive any of its proceeds. This prompted the bank
to surrender to CBC the checks and asking for reimbursement on alleged forgery of payee’s indorsements.

HELD:
The general rule shall apply in this case. Since the payee’s indorsement has been forged, the instrument is wholly inoperative. However, underlying circumstances of the case show that the general rule on forgery isn’t applicable. The issue as to who between the parties should
bear the loss in the payment of the forged checks necessitates the determination of the rights and liabilities of the parties involved in the controversy in relation to the forged checks.

The acts of the employees of BPI were tainted with more negligence if not criminal than the acts of CBC. First, the act of disclosing information about the money market placement over the phone is a violation of the General Banking Law. Second, there was failure on the bank’s part to
even compare the signatures during the termination of the placement, opening of a new account with the specimen signature in file of Fernando. And third, there was failure to ask the surrender of the promissory note evidencing the placement.

The acts of BPI employees was the proximate cause to the loss. Nevertheless, the negligence of the employees of CBC should be taken also into consideration. They closed their eyes to the suspicious large amount withdrawals made over the counter as well as the opening of the account.
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866 February, 18, 1991
Cruz, J.:

Facts:
Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They were sent for
clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later, however, “exasperated” over Floria repeated inquiries and also as an accommodation for a “valued” client Metrobank decided to allow Golden Savings to withdraw from proceeds of the warrants. In turn, Golden
Savings subsequently allowed Gomez to make withdrawals from his own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the
deficit in its account. The demand was rejected. Metrobank then sued Golden Savings.

Issue:
1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the amount withdraws to make up with the deficit as a result of the dishonored treasury warrants.
2. Whether or not treasury warrants are negotiable instruments

Held:
No. Metrobank is negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw. Without such assurance, Golden Savings would not have allowed the withdrawals. Indeed, Golden Savings
might even have incurred liability for its refusal to return the money that all appearances belonged to the depositor, who could therefore withdraw it anytime and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds
of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit.
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were genuine and in all respects what they purport to be,” in accordance with Sec. 66 of NIL. The simple reason that NIL is not applicable to non negotiable instruments, treasury warrants.

No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the word: non negotiable.” Moreover, and this is equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must
contain an unconditional promise or orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order or promise to pay is unconditional though coupled with: 1st, an indication of a particular fund out of which reimbursement is to be made or a particular account to be debited
with the amount; or 2nd, a statement of the transaction which give rise to the instrument. But an order to promise to pay out of particular fund is not unconditional. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay “not
conditional” and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of NIL is applicable in the case at bar.
FACTS:
Gomez opened an account with Golden Savings bank and deposited 38 treasury warrants. All these warrants were indorsed by the cashier of Golden Savings, and deposited it to the savings account in a Metrobank branch. They were sent later on for clearing by the
branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. On persistent inquiries on whether the warrants have been cleared, the branch manager allowed withdrawal of the warrants, only to find out later on that the
treasury warrants have been
dishonored.

HELD:
The treasury warrants were not negotiable instruments. Clearly, it is indicated that it was non-negotiable and of equal significance is the indication that they are payable from a particular fund, Fund 501. This indication as the source of payment to be made on the
treasury warrant
makes the promise to pay conditional and the warrants themselves non-negotiable.
Metrobank then cannot contend that by indorsing the warrants in general, GS assumed that they were genuine and in all respects what they purport it to be, in accordance to Section 66 of the NIL. The simple reason is that the law isn’t applicable to the non-negotiable treasury warrants. The
indorsement was made for the purpose of merely depositing them with Metrobank for clearing. It was in fact Metrobank which stamped on the back of the warrants: “All prior indorsements and/or lack of endorsements guaranteed…”
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even abroad. Golden Savings and Loan Association was, at the time these events happened, operating in Calapan, Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager
and countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second indorser.1
On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office
to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing.2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's
repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal was P968.000.00.4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro.5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower
court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was made including the amount of P812,033.37 in favor of defendant Golden Savings and Loan
Association, Inc. and thereafter, to allow defendant Golden Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and expenses of litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and expenses of litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court,6 the decision was affirmed, prompting Metrobank to file this petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and conditions on the deposit slips allowing Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which cannot be held liable for its failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay for warrants already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.
Without such assurance, Golden Savings would not have allowed the withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that to all appearances belonged to the depositor,
who could therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the
warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit.7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in checking the personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who was entrusting the warrants, not Golden Savings that was extending him a loan; and
moreover, the treasury warrants were subject to clearing, pending which the depositor could not withdraw its proceeds. There was no question of Gomez's identity or of the genuineness of his signature as checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly
because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling — more than one and a half million pesos (and this was 1979). There was no reason why it should not have waited until the treasury warrants had been cleared; it would not have lost a single centavo
by waiting. Yet, despite the lack of such clearance — and notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses — it allowed Golden Savings to withdraw — not once, not twice, but thrice — from the uncleared treasury
warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of "the lapse of one week."8 For a bank with its long experience, this
explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the deposit slips through which the treasury warrants were deposited by Golden Savings with its Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting agent, assuming no responsibility beyond care in selecting correspondents, and until such time as actual payment shall have come into possession of this bank, the right is reserved to charge
back to the depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks drawn on local banks and bankers and their branches as well as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft or any
other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden Savings and give it the right to "charge back to the depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks ". . . which are
unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said conditions are in the nature of contractual stipulations and became binding on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could be argued that the depositor, in signing the deposit slip, does so only to identify himself and not to
agree to the conditions set forth in the given permit at the back of the deposit slip. We do not have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the light of
the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code clearly provides that —
Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall be judged 'with more or less rigor by the courts, according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There
may have been no express clearance, as Metrobank insists (although this is refuted by Golden Savings) but in any case that clearance could be implied from its allowing Golden Savings to withdraw from its account not only once or even twice but three times. The total withdrawal was in excess of
its original balance before the treasury warrants were deposited, which only added to its belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There
would have been no need for it to wait until the warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not binding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it is
considered that the supposed dishonor of the warrants was not communicated to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor of the drawer corporation, has not been established.9 This was the finding of the lower courts which we see no reason to disturb. And as we said in MWSS v. Court of Appeals:10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear, positive and convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance that the treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund
501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:
Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with —
(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of the Negotiable Instruments Law is
applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General11 where the Court held:
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is entitled to the rights and privileges of a holder in due course, free from defenses. But this treasury warrant is not within the scope of the negotiable instrument law. For one thing, the document
bearing on its face the words "payable from the appropriation for food administration, is actually an Order for payment out of "a particular fund," and is not unconditional and does not fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of the
Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were "genuine and in all respects what they purport to be," in accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-
negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the warrants:
"All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands,12 but we feel this case is inapplicable to the present controversy.1âwphi1 That case involved checks whereas this case involves treasury warrants. Golden Savings never represented that the warrants were
negotiable but signed them only for the purpose of depositing them for clearance. Also, the fact of forgery was proved in that case but not in the case before us. Finally, the Court found the Jai Alai Corporation negligent in accepting the checks without question from one Antonio Ramirez
notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it. No similar negligence can be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs the petitioner to credit Golden Savings with the full amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance
to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has already been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive portion of the judgment of the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant Golden Savings & Loan Association, Inc. to withdraw the amount outstanding thereon, if any, after the debit. SO ORDERED.
FACTS
Manager’s checks were procured by respondents payable to Bureau of Internal Revenue. These checks were crossed and deposited to a collecting bank by persons other than the payee.
ISSUE
Whether or not a collecting bank is precluded from setting up the forgery against the drawee bank.
RULING
YES. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the bank’s client is forged, the collecting bank is bound by his
warranties as an indorser and cannot set up the defense of forgery as against the drawee bank.

Negotiable Instruments Case Digest: Traders Royal Bank v. Radio Philippines Network Inc. (2002)
G.R. No. 138510 October 10, 2002

FACTS: Traders (sold 3 managers check)> RPN,IBC,BBC (received by <Mrs. Vera) --(not received) BIR-- > SBTC (deposited by unknown persons)
April 15, 1985: Bureau of Internal Revenue (BIR) assessed Radio Philippines Network (RPN), Intercontinental Broadcasting Corporation (IBC), and Banahaw Broadcasting Corporation (BBC) of their tax obligations for the taxable years 1978 to 1983.
March 25, 1987: Mrs. Lourdes C. Vera, RPN,IBC,BBC comptroller, sent a letter to the BIR requesting settlement of their tax obligations which was granted
June 26, 1986: RPN, IBC and BBC purchased from Traders 3 manager’s checks to be used as payment for their tax liabilities
Traders, through Aida Nuñez, turned over the checks to Mrs. Vera who was supposed to deliver them to the BIR in payment
September, 1988: BIR again assessed plaintiffs for their tax liabilities for the years 1979-82. It was discovered the 3 managers checks were never delivered nor paid to the BIR by Mrs. Vera. The checks were presented for payment by unknown persons to Security Bank and Trust Company
(SBTC).
BIR issued warrants of levy, distraint and garnishment against them.
They were constrained to enter into a compromise and paid BIR P18,962,225.25 in settlement
Traders sent letters to RPN and SBTC, demanding that the amounts covered by the checks be reimbursed or credited to their account
RTC: favored Traders against RPN and SBTC
CA: absolved SBTC and held Traders solely liable
SBTC denies liability on the ground that it had no participation in the negotiation of the checks

ISSUE: W/N Traders should solely bare the loss for its negligence

HELD: YES. CA affirmed.


if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor
Despite the fraud, Traders paid the 3 checks in the total amount of P9,790,716.87
primary duty of Traders to know that the check was duly indorsed by the original payee and, where it pays the amount of the check to a third person who has forged the signature of the payee, the loss falls upon it who cashed the check.
only remedy is against the person to whom it paid the money
It should be noted further that one of the subject checks was crossed.
The crossing of one of the subject checks should have put petitioner on guard
it was duty-bound to ascertain the indorser’s title to the check or the nature of his possession.
effects of a crossed check:
(a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to one who has an account with a bank and

(c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course

A collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement itself, and ultimately should be held liable therefor. However, it is doubtful if the subject checks were ever presented to
and accepted by SBTC so as to hold it liable as a collecting bank, as held by the Court of Appeals.
PCIB V. CA
350 SCRA 446

FACTS:
Ford Philippines filed actions to recover from the drawee bank Citibank and collecting bank PCIB the value of several checks payable to the Commissioner of Internal Revenue which were embezzled allegedly by an organized syndicate. What prompted this action was the
drawing of a check by Ford, which it deposited to PCIB as payment and was debited from their Citibank account. It later on found out that the payment wasn’t received by the Commissioner. Meanwhile, according to the NBI report, one of the checks issued by petitioner was
withdrawn from PCIB for alleged mistake in the amount to be paid. This was replaced with manager’s check by PCIB, which were allegedly stolen by the syndicate and deposited in their own account.

The trial court decided in favor of Ford.

ISSUE:
Has Ford the right to recover the value of the checks intended as payment to CIR?

HELD:
The checks were drawn against the drawee bank but the title of the person negotiating the same was allegedly defective because the instrument was obtained by fraud and unlawful means, and the proceeds of the checks were not remitted to the payee. It was established that instead
paying the
Commissioner, the checks were diverted and encashed for the eventual distribution among members of the syndicate.

Pursuant to this, it is vital to show that the negotiation is made by the perpetrator in breach of faith amounting to fraud. The person negotiating the checks must have gone beyond the authority given by his principal. If the principal could prove that there was no negligence in the
performance of his duties, he may set up the personal defense to escape liability and recover from other parties who, through their own negligence, allowed the commission of the crime.

It should be resolved if Ford is guilty of the imputed contributory negligence that would defeat its claim for reimbursement, bearing in mind that its employees were among the members of the syndicate. It appears although the employees of Ford initiated the transactions attributable to
the organized syndicate, their actions were not the proximate cause of encashing the checks payable to CIR. The degree of Ford’s negligence couldn’t be characterized as the proximate cause of the injury to parties. The mere fact that the forgery was committed by a
drawer-payor’s confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, doesn’t entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the
drawer.

Note: not only PCIB but also Citibank is responsible for negligence. Citibank was negligent in the performance of its duties as a drawee bank. It failed to establish its payments of Ford’s checks were made in due course and legally in order.
Negotiable Instruments Case Digest: Philippine Commercial International Bank v CA (2001)
G.R. No. 121413,121479,128604 January 29, 2001
Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law)

FACTS:

These consolidated petitions involve several fraudulently negotiated checks


October 19, 1977: Ford drew and issued its Citibank Check of P4,746,114.41, in favor of the Commissioner of Internal Revenue (CIR) as payment of percentage or manufacturer's sales taxes for the third quarter of 1977
check was deposited with the IBAA (now PCIBank) and was subsequently cleared at the Central Bank
Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific Banking Corporation (PBC) and Godofredo Rivera, as third party defendants
dismissed the complaint against PBC for lack of cause of action
dismissed the third-party complaint against Godofredo Rivera because he could not be served with summons as a "fugitive from justice"
trial court: Citibank and IBAA (now PCI Bank), jointly and severally, to pay the Ford

April 20, 1979, Ford drew another Citibank Check of P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979 payable to the CIR
Both checks were "crossed checks" and contain two diagonal lines on its upper corner between, which were written the words "payable to the payee's account only."
The checks never reached the payee, CIR
As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered "fake and spurious".
forced Ford to pay the BIR anew, while an action was filed against Citibank and PCIBank for recovery
RTC: Mr. Godofredo Rivera was employed by FORD as its General Ledger Accountant. He prepared the check for payment to the BIR. Instead, of delivering to the payee, he gave it to Remberto Castro, a co-conspirator who was a pro-manager of PCIB. Castro opened a Checking Account in
the name of a fictitious person "Reynaldo Reyes" with connivance of Dulay, assistant manager of PCIB
After an initial deposit of P100 to validate the account, Castro deposited a worthless Bank of America Check in exactly the same amount as the first FORD check while this worthless check was coursed through PCIB's main office enroute to the Central Bank for clearing, replaced this worthless
check with Ford's and accordingly tampered the accompanying documents to cover the replacement. As a result, Ford's check was cleared by CITIBANK, and the fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB
December 9, 1988: RTC Citibank (drawee bank) liable for the value of the 2 checks while absolving PCIBank (collecting bank) from any liability
ISSUE: W/N Ford can hold both PCIB and Citibank liable

HELD: YES. CA AFFIRMED. PCIBank, know formerly as Insular Bank of Asia and America, id declared solely responsible for the loss of the proceeds of Citibank Check in the amount P4,746,114.41. However, MODIFIED as follows: PCIBank and Citibank are
adjudged liable for and must share the loss, concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 on a 50-50 ratio to pay Ford

GR: if the master is injured by the negligence of a third person and by the concuring contributory negligence of his own servant or agent, the latter's negligence is imputed to his superior and will defeat the superior's action against the third person, asuming, of
course that the contributory negligence was the proximate cause of the injury of which complaint is made.
although the employees of Ford initiated the transactions attributable to an organized syndicate, in our view, their actions were not the proximate cause of encashing the checks payable to the CIR
degree of Ford's negligence, if any, could not be characterized as the proximate cause of the injury to the parties
Rivera's instruction to replace the check with PCIBank's Manager's Check was not in the ordinary course of business which could have prompted PCIBank to validate the same.
checks were made payable to the CIR
Both were crossed checks
These checks were apparently turned around by Ford's emploees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-payor's confidential employee or agent, who by virtue of his position had unusual facilities for perpertrating the fraud and imposing the forged paper upon the bank, does not
entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer.
This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession.
Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR.
As an agent of BIR, PCIBank is duty bound to consult its principal regarding the unwarranted instructions given by the payor or its agent
Otherwise stated, the diversion can be justified only by proof of authority from the drawer, or that the drawer has clothed his agent with apparent authority to receive the proceeds of such check.
it is the duty of the collecting bank PCIBank to ascertain that the check be deposited in payee's account only. Therefore, it is the collecting bank (PCIBank) which is bound to scruninize the check and to know its depositors before it could make the clearing
indorsement "all prior indorsements and/or lack of indorsement guaranteed".
PCIBank did not actually receive nor hold the 2 Ford checks at all. Neither is there any proof that defendant PCIBank contributed any official or conscious participation in the process of the embezzlement.
the switching operation (involving the checks while in transit for "clearing") were the clandestine or hidden actuations performed by the members of the syndicate in their own personl, covert and private capacity and done without the knowledge of the defendant
PCIBank…
clearing stamps at the back of Citibank Check do not bear any initials
Citibank failed to notice and verify the absence of the clearing stamps
For this reason, Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably, in our
view, consitutes negligence in carrying out the bank's duty to its depositors.
invoking the doctrine of comparative negligence, both PCIBank and Citibank failed in their respective obligations and both were negligent in the selection and supervision of their employees resulting in the encashment
hold them equally liable for the loss of the proceeds of the checks issued by Ford in favor of the CIR
The statute of limitations begins to run when the bank gives the depositor notice of the payment, which is ordinarily when the check is returned to the alleged drawer as a voucher with a statement of his account, and an action upon a check is ordinarily governed
by the statutory period applicable to instruments in writing.
Our laws on the matter provide that the action upon a written contract must be brought within ten year from the time the right of action accrues hence, the reckoning time for the prescriptive period begins when the instrument was issued and the corresponding
check was returned by the bank to its depositor (normally a month thereafter).
Applying the same rule, the cause of action for the recovery of the proceeds of Citibank Check No. SN 04867 would normally be a month after December 19, 1977, when Citibank paid the face value of the check in the amount of P4,746,114.41. Since the
original complaint for the cause of action was filed on January 20, 1984, barely six years had lapsed. Thus, we conclude that Ford's cause of action to recover the amount of Citibank Check No. SN 04867 was seasonably filed within the period provided by law.
Failure on the part of the FORD depositor to examine its passbook, statements of account, and cancelled checks and to give notice within a reasonable time (or as required by statute) of any discrepancy which it may in the exercise of due care and diligence find
therein, serves to mitigate the banks' liability by reducing the award of interest from twelve percent (12%) to six percent (6%) per annum.
Article 1172 of the Civil Code of the Philippines, respondibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. In quasi-delicts, the
contributory negligence of the plaintiff shall reduce the damages that he may recover.
CENTRAL BANK OF THE PHILIPPINES v. CITYTRUST BANKING CORPORATION 578 SCRA 27 (2009)

If the plaintiff’s negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages, but
the courts shall mitigate the damages to be awarded.
The Citytrust Banking Corporation (Citytrust) gave Central Bank of the Philippines a list of signatures of five of its officers authorized to sign checks and serve as drawers and
indorsers for its account, and also the list of the roving tellers authorized to perform other transactions on its behalf, one of whom was Rounceval Flores (Flores). Flores presented
two checks to the Central Bank’s Senior Teller Iluminada dela Cruz (Dela Cruz) and was subsequently approved. Dela Cruz prepared the cash transfer slip where Flores should
sign but instead he sign as one Rosauro C. Cayabyab. This fact was missed by Dela Cruz. It was given to Cash Department and the signatures were examined and later on paid
Flores for the checks. After one year and nine months, the Citytrust demanded that the checks be cancelled and the funds taken out be returned because the check was stolen
before. Central Bank did not heed such call. Citytrust filed a complaint to collect the sum of money with damages against Central Bank to the Regional Trial Court (RTC). RTC
found both parties negligent and held them equally liable for the loss. Court of Appeals affirmed the decision.

ISSUE:

Whether or not Citytrust can collect sum of money as damages from the Central Bank.

HELD:

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 (R.A. 8791), which took effect on 13 June 2000, declares
that the State recognizes the “fiduciary nature of banking that requires high standards of integrity and performance.”
This fiduciary relationship means that the bank’s obligation to observe “high standards of integrity and performance” is deemed written into every deposit agreement between a
bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code
states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. Section 2
of R.A. 8791 prescribes the statutory diligence required from banks – that banks must observe “high standards of integrity and performance” in servicing their
depositors. Citytrust’s failure to timely examine its account, cancel the checks and notify petitioner of their alleged loss/theft should mitigate petitioner’s liability, in accordance
with Article 2179 of the Civil Code which provides that if the plaintiff’s negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s
lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.
CENTRAL BANK OF THE PHILIPPINES, Petitioner, v. CITYTRUST BANKING CORPORATION, Respondent.
CARPIO MORALES, J.:
Pursuant to Republic Act No. 625, the old Central Bank Law, respondent Citytrust Banking Corporation (Citytrust), formerly Feati Bank, maintained a demand deposit account with petitioner Central Bank of the Philippines, now Bangko Sentral ng Pilipinas.
As required, Citytrust furnished petitioner with the names and corresponding signatures of five of its officers authorized to sign checks and serve as drawers and indorsers for its account. And it provided petitioner with the list and corresponding signatures of its roving tellers
authorized to withdraw, sign receipts and perform other transactions on its behalf. Petitioner later issued security identification cards to the roving tellers one of whom was "Rounceval Flores" (Flores).
On July 15, 1977, Flores presented for payment to petitioner's Senior Teller Iluminada dela Cruz (Iluminada) two Citytrust checks of even date, payable to Citytrust, one in the amount of P850,000 and the other in the amount of P900,000, both of which were signed and indorsed by
Citytrust's authorized signatory-drawers.
After the checks were certified by petitioner's Accounting Department, Iluminada verified them, prepared the cash transfer slip on which she affixed her signature, stamped the checks with the notation "Received Payment" and asked Flores to, as he did, sign on the space above
such notation. Instead of signing his name, however, Flores signed as "Rosauro C. Cayabyab" - a fact Iluminada failed to notice.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Iluminada thereupon sent the cash transfer slip and checks to petitioner's Cash Department where an officer verified and compared the drawers' signatures on the checks against their specimen signatures provided by Citytrust, and finding the same in order, approved the cash
transfer slip and paid the corresponding amounts to Flores. Petitioner then debited the amount of the checks totaling P1,750,000 from Citytrust's demand deposit account.
More than a year and nine months later, Citytrust, by letter dated April 23, 1979, alleging that the checks were already cancelled because they were stolen, demanded petitioner to restore the amounts covered thereby to its demand deposit account. Petitioner did not heed the
demand, however.
Citytrust later filed a complaint for estafa, with reservation on the filing of a separate civil action, against Flores. Flores was convicted.
Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint for recovery of sum of money with damages against petitioner which it alleged erred in encashing the checks and in charging the proceeds thereof to its account, despite the lack of authority of
"Rosauro C. Cayabyab."
By Decision1 of November 13, 1991, Branch 32 of the RTC of Manila found both Citytrust and petitioner negligent and accordingly held them equally liable for the loss. Both parties appealed to the Court of Appeals which, by Decision2 dated July 16, 1999, affirmed the trial court's
decision, it holding that both parties contributed equally to the fraudulent encashment of the checks, hence, they should equally share the loss in consonance with Article 21793 vis a vis Article 11724 of the Civil Code.
In arriving at its Decision, the appellate court noted that while "Citytrust failed to take adequate precautionary measures to prevent the fraudulent encashment of its checks," petitioner was not entirely blame-free in light of its failure to verify the signature of Citytrust's agent
authorized to receive payment.
Brushing aside petitioner's contention that it cannot be sued, the appellate court held that petitioner's Charter specifically clothes it with the power to sue and be sued.
Also brushing aside petitioner's assertion that Citytrust's reservation of the filing of a separate civil action against Flores precluded Citytrust from filing the civil action against it, the appellate court held that the "action for the recovery of sum of money is separate and distinct and is
grounded on a separate cause of action from that of the criminal case for estafa."
Hence, the present appeal, petitioner maintaining that Flores having been an authorized roving teller, Citytrust is bound by his acts. Also maintaining that it was not negligent in releasing the proceeds of the checks to Flores, the failure of its teller to properly verify his signature
notwithstanding, petitioner contends that verification could be dispensed with, Flores having been known to be an authorized roving teller of Citytrust who had had numerous transactions with it (petitioner) on its (Citytrust's) behalf for five years prior to the questioned transaction.
Attributing negligence solely to Citytrust, petitioner harps on Citytrust's allowing Flores to steal the checks and failing to timely cancel them; allowing Flores to wear the issued identification card issued by it (petitioner); failing to report Flores' absence from work on the day of the
incident; and failing to explain the circumstances surrounding the supposed theft and cancellation of the checks.
Drawing attention to Citytrust's considerable delay in demanding the restoration of the proceeds of the checks, petitioners argue that, assuming arguendo that its teller was negligent, Citytrust's negligence, which preceded that committed by the teller, was the proximate cause of
the loss or fraud.
The petition is bereft of merit.
Petitioner's teller Iluminada did not verify Flores' signature on the flimsy excuse that Flores had had previous transactions with it for a number of years. That circumstance did not excuse the teller from focusing attention to or at least glancing at Flores as he was signing, and to
satisfy herself that the signature he had just affixed matched that of his specimen signature. Had she done that, she would have readily been put on notice that Flores was affixing, not his but a fictitious signature.
Given that petitioner is the government body mandated to supervise and regulate banking and other financial institutions, this Court's ruling in Consolidated Bank and Trust Corporation v. Court of Appeals5 illumines:
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that "x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan." There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement
between the bank and the depositor is the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 ("RA 8791"), which took effect on 13 June 2000, declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and
performance." This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding that "the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their relationship."
This fiduciary relationship means that the bank's obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence
higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791 prescribes the
statutory diligence required from banks - that banks must observe "high standards of integrity and performance" in servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diaz's savings account,
jurisprudence at the time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. 8791. (Emphasis supplied)cralawlibrary
Citytrust's failure to timely examine its account, cancel the checks and notify petitioner of their alleged loss/theft should mitigate petitioner's liability, in accordance with Article 2179 of the Civil Code which provides that if the plaintiff's negligence was only contributory, the immediate
and proximate cause of the injury being the defendant's lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. For had Citytrust timely discovered the loss/theft and/or subsequent encashment, their proceeds or part thereof
could have been recovered.
In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the loss between petitioner and Citytrust on a 60-40 ratio.
WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby AFFIRMED with MODIFICATION, in that petitioner and Citytrust should bear the loss on a 60-40 ratio. SO ORDERED.