Natividad Gempesaw vs Court of

Appeals
218 SCRA 682 – Mercantile Law – Negotiable Instruments Law – Liabilities of Parties –
Forgery – Forged Indorsements
Natividad Gempesaw is a businesswoman who entrusted to her bookkeeper, Alicia Galang,
the preparation of checks about to be issued in the course of her business transactions.
From 1984 to 1986, 82 checks amounting to P1,208,606.89, were prepared and were
supposed to be delivered to Gempesaw’s clients as payees named thereon. However,
through Galang, these checks were never delivered to the supposed payees. Instead, the
checks were fraudulently indorsed to Alfredo Romero and Benito Lam.
ISSUE: Whether or not the bank should refund the money lost by reason of the forged
indorsements.
HELD: No. Gempesaw cannot set up the defense of forgery by reason of her negligence.
As a rule, a drawee bank (in this case the Philippine Bank of Communications) who has
paid a check on which an indorsement has been forged cannot charge the drawer’s
(Gempesaw’s) account for the amount of said check. An exception to this rule is where the
drawer is guilty of such negligence which causes the bank to honor such a check or checks.
If a check is stolen from the payee, it is quite obvious that the drawer cannot possibly
discover the forged indorsement by mere examination of his cancelled check. A different
situation arises where the indorsement was forged by an employee or agent of the drawer,
or done with the active participation of the latter.
The negligence of a depositor which will prevent recovery of an unauthorized payment is
based on failure of the depositor to act as a prudent businessman would under the
circumstances. In the case at bar, Gempesaw relied implicitly upon the honesty and loyalty
of Galang, and did not even verify the accuracy of amounts of the checks she signed
against the invoices attached thereto. Furthermore, although she regularly received her
bank statements, she apparently did not carefully examine the same nor the check stubs
and the returned checks, and did not compare them with the same invoices. Otherwise, she
could have easily discovered the discrepancies between the checks and the documents
serving as bases for the checks. With such discovery, the subsequent forgeries would not
have been accomplished. It was not until two years after Galang commenced her fraudulent
scheme that Gempesaw discovered that eighty-two (82) checks were wrongfully charged to
her account, at which she notified the Philippine Bank of Communications.
 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.