1. ALLIED BANKING CORPORATION vs.
LIM SIO WAN
FACTS:
• Lim Sio Wan deposited with petitioner Allied Banking Corporation
(Allied) at its Quintin Paredes Branch in Manila a money market
placement of PhP 1,152,597.35 for a term of 31 days to mature on 15
December 1983 as evidenced by Provisional Receipt No. 1356 dated
14 November 1983
• A person claiming to be Lim Sio Wan called up Cristina So, an officer
of Allied, and instructed the latter to pre-terminate Lim Sio Wan's
money market placement, to issue a manager's check representing
the proceeds of the placement, and to give the check to one Deborah
Dee Santos who would pick up the check
• The bank issued Manager's Check No. 035669 for PhP 1,158,648.49,
representing the proceeds of Lim Sio Wan's money market placement
in the name of Lim Sio Wan, as payee. The check was cross-checked
"For Payee's Account Only" and given to Santos.
• Manager's check was deposited in the account of Filipinas Cement
Corporation (FCC) at respondent Metropolitan Bank and Trust Co.
(Metrobank), with the forged signature of Lim Sio Wan as indorser.
• Earlier, FCC had deposited a money market placement for PhP 2
million with respondent Producers Bank. Santos was the money
market trader assigned to handle FCC's account.
• On the same date that So received the phone call instructing her to
pre-terminate Lim Sio Wan's placement, the manager's check in the
name of Lim Sio Wan was deposited in the account of FCC,
purportedly representing the proceeds of FCC's money market
placement with Producers Bank.
• Metrobank stamped a guaranty on the check, which reads: "All prior
endorsements and/or lack of endorsement guaranteed."
• The check was sent to Allied through the PCHC. Upon the
presentment of the check, Allied funded the check even without
checking the authenticity of Lim Sio Wan's purported indorsement.
Thus, the amount on the face of the check was credited to the account
of FCC.
• 9 December 1983: Lim Sio Wan deposited with Allied a second money
market placement to mature on January 9, 1984
• 14 December 1983: upon the maturity date of the first money market
placement, Lim Sio Wan went to Allied to withdraw it. She was then
informed that the placement had been pre-terminated upon her
instructions which she denied
• Lim Sio Wan filed with the RTC against Allied to recover the proceeds
of her first money market placement Allied filed a third party complaint
against Metrobank and Santos
• Metrobank filed a fourth party complainagainst FCC
• FCC for its part filed a fifth party complaint against Producers Bank.
• 15 May 1984: Allied informed Metrobank that the signature on the
check was forged
• Metrobank withheld the amount represented by the check from FCC.
• Metrobank agreed to release the amount to FCC after the FCC
executed an undertaking, promising to indemnify Metrobank in case it
was made to reimburse the amount.
• Lim Sio Wan thereafter filed an amended complaint to include
Metrobank as a party- defendant, along with Allied.
RTC: Allied Bank to pay Lim Sio Wan plus damages and atty. Fees
• Allied Bank’s cross-claim against Metrobank is DISMISSED.
• Metrobank’s third-party complaint as against Filipinas Cement
Corporation is DISMISSED
• Filipinas Cement Corporation’s fourth-party complaint against
Producer’s Bank is DISMISSED
CA: Modified. Allied Banking Corporation to pay 60% and Metropolitan Bank
and Trust Company 40%
ISSUE: W/N Allied should be solely liable to Lim Sio Wan. YES.
RATIO:
Articles 1953 and 1980 of the Civil Code:
Art. 1953. A person who receive a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.

Art. 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan. Bank
deposit is in the nature of a simple loan or mutuum Money market is a market
dealing in standardized short-term credit instruments (involving large amounts)
where lenders and borrowers do not deal directly with each other but through
a middle man or dealer in open market. In a money market transaction, the
investor is a lender who loans his money to a borrower through a middleman
or dealer.
Lim Sio Wan, as creditor of the bank for her money market placement, is
entitled to payment upon her request, or upon maturity of the placement,
or until the bank is released from its obligation as debtor
GENERAL RULE: 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.
EXCEPTION: when the issuance of the check itself was attended with
negligence.
2. BPI vs. CA
FACTS:
• October 9, 1981 afternoon: Eligia G. Fernando who had a money
market placement as evidenced by a promissory note with a maturity
date of November 11, 1981 amounting to
P2,462,243.19 called Reginaldo Eustaquio, Dealer Trainee in BPI's
Money Market Department to preterminate the placement but she was
told "trading time" was over for that Friday, and suggested that she
call again the following week.
• The promissory note the caller wanted to preterminate was a roll-over
of an earlier 50-day money market placement that had matured on
September 24, 1981
• Later that afternoon, Eustaquio conveyed the request for
pretermination to Penelope Bulan, but Eustaquio was left to attend to
the pretermination process
• October 12, 1981 morning: Eligia followed up with Eustaquio.
• Eustaquio knew the real Eligia G. Fernando to be the Treasurer of
Philippine American Life Insurance Company (Philamlife) since he
was handling Philamlife's corporate money market account.
• But neither Eustaquio nor Bulan who originally handled Fernando's
account, nor anybody else at BPI, bothered to call up Fernando at her
Philamlife office to verify the request for pretermination
• Despite being informed that the placement would yield less than the
maturity value, Eligia still insisted
• Eustaquio proceeded to prepare the "purchase order slip" for the
requested pretermination as required by office procedure.
• The 2 cashier's checks, together with the papers consisting of the
money market placement was to be preterminated and the promissory
note to be preterminated, were sent to Gerlanda E. de Castro
(Manager) and Celestino Sampiton, Jr., (Administrative Assistant) in
both signatories from BPI's Treasury Operations Department.
• Having been singed, the checks now went to the dispatcher for
delivery
• Later in the same morning, the same caller changed the delivery
instructions that she will personally pick them up the checks or send
her niece.
• Eustaquio told her that if were her niece, a written authorization is
required.
• The signature has been established to be forged although it has a
"close similarity" to the real signature of Eligia G. Fernando
• October 13, 1981 afternoon: a woman who represented herself to be
Eligia G. Fernando applied for a current account
• She was accompanied and introduced to Emily Sylianco Cuaso, Cash
Supervisor, by Antonio Concepcion whom Cuaso knew to have
opened, earlier that year, an account upon the introduction of Valentin
Co, a long-standing "valued client" of China Banking Corp. (CBC)
• However, Cuaso indicated that she was introduced by Valentin Co
• The final approval of the new current account is indicated on the
application form by the initials of Regina G. Dy, Cashier, who did not
 interview the new client but affixed her initials on the application form
after reviewing it.
• October 14, 1981: the woman deposited the 2 checks in controversy.
• Her endorsement was found to conform with the depositor's specimen
signature.
• CBC's guaranty of prior endorsements and/or lack of endorsement
was then stamped withdrawals on Current Account was made through
Checks payable to "cash"
o October 16, 1981 - P1M
o October 15, 1981- P48.5K through clearing from PNB
o October 19, 1981 - P370K
o November 4, 1981 - P4,100.00 through clearing from Far East
Bank
• All these withdrawals were allowed on the basis of the verification of
the drawer's signature with the specimen signature on file and the
sufficiency of the funds in the account.
• However, the balance shown in the computerized teller terminal when
a withdrawal is serviced at the counter, unlike the ledger or usual
statement prepared at month-end, does not show the account's
opening date, the amounts and dates of deposits and withdrawals.
• The last withdrawal on November 4, 1981 with remaining balance of
only P571.61
• November 11, 1981 (maturity date of Eligia G. Fernado's money
market placement with BPI): the real Eligia G. Fernando went to BPI
for the roll-over of her placement
• She disclaimed having preterminated her placement on October 12,
1981.
• She executed an affidavit stating that while she was the payee of the
two checks in controversy, she never received nor endorsed them and
that her purported signature on the back of the checks was not hers
but forged.
• With her surrender of the original of the promissory note evidencing
the placement which matured that day, BPI issued her a new
promissory note to evidence a roll-over of the placement
• November 12, 1981: Eligia supported w/ affidavit
• BPI returned the 2 checks in controversy to CBC for the reason
"Payee's endorsement forged"
• CBC returned the checks for reason "Beyond Clearing Time"
CA afformed RTC: favored BPI
• BPI: present clearing guarantee requirement imposed on the
representing or collecting bank under the PCHC rules and regulations
is independent of the Negotiable Instruments Law
ISSUE: W/N BPI should be liable for the forged check because of the
doctrine of last clear chance.
HELD: NO. Modified. BPI 60% CBC 40% of the loss
• Section 23 of the Negotiable Instruments Law thereof is not applicable
in the light of the absolute liability of the representing or collecting bank
as regards forged endorsements in consonance with the clearing
guarantee requirement imposed upon the presenting or collecting
banks "as it is worded today."
• Administrative regulations adopted under legislative authority by a
particular department must be in harmony with the provisions of the
law, and should be for the sole purpose of carrying into effect its
general provisions. By such regulations, of course, the law itself
cannot be extended. (U.S. v. Tupasi Molina, supra)
• In case of discrepancy between the basic law and a rule or regulation
issued to implement said law the basic law prevails because said rule
or regulation cannot go beyond the terms and provisions of the basic
law (People v. Lim)
Section 23 of the Negotiable Instruments Law
When 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 discharge therefore, or to enforce payment thereof,
against any party thereto, can be acquired through or under such forged
signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.
• 2 parts of the provision
1. GENERAL RULE: forged signature = "wholly inoperative"
and payment made "through or under such signature" =
ineffectual or does not discharge the instrument
2. EXCEPTION: when the party relying in the forgery is
"precluded from setting up the forgery or want of authority
- negligence of the party invoking forgery
• BPI as drawee bank and CBC as representing/collecting bank were
both negligent resulting in the encashment of the forged checks
• BPI
o Not verifying the phone call
o officer who used to handle Eligia G. Fernando's account did
not do anything about the account's pre-termination
o No verification on Eligia'ssignature on the letter requesting the
pre-termination and the letter authorizing her niece to pick-up
the checks, yet, her signature was in BPI's file
o Failure to ask for the surrender of the promissory note
evidencing the money market placement that was supposedly
pre-terminated
• CBC
o the opening of the impostor's current account in the name of
Eligia G. Fernando
o the deposit of account of the 2 checks in controversy
o the withdrawal of their proceeds
• Doctrine of Last Clear Chance: negligent acts of the 2 parties were not
contemporaneous, since the negligence of the one succeeded the
negligence of the another by an appreciable interval. Under these
circumstances the law is that the person who has the last fair chance
to avoid the impending harm and fails to do so is chargeable with the
consequences, without reference to the prior negligence of the other
party
• It is not unnatural or unexpected that after taking the risk of
impersonating Eligia G. Fernando with the connivance of BPI's
employees, the impostor would complete her deception by encashing
the forged checks. There is therefore, greater reason to rule that the
proximate cause of the payment of the forged checks by an impostor
was due to the negligence of petitioner BPI.
• Due care on the part of CBC could have prevented any loss. The Court
cannot ignore the fact that the CBC employees closed their eyes to
the suspicious circumstances of huge over-the-counter withdrawals
made immediately after the account was opened. The opening of the
account itself was accompanied by inexplicable acts clearly showing
negligence.
• While we do not apply the last clear chance doctrine as controlling in
this case, still the CBC employees had ample opportunity to avoid the
harm which befell both CBC and BPI. They let the opportunity slip by
when the ordinary prudence expected of bank employees would have
sufficed to seize it
• While it is true that petitioner BPI's negligence may have been the
proximate cause of the loss, CBC's negligence contributed equally to
the success of the impostor in encashing the proceeds of the forged
checks
• Article 2179 of the Civil Code to the effect that while CBC may recover
its losses, such losses are subject to mitigation by the court
• Both banks were negligent in the selection and supervision of
their employees resulting in the encashment of the forged
checks by an impostor.
BPI vs. CA (Digested Digest)
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 pre-terminate 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 pre-terminating 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 were 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.
3. METROPOLITAN WATERWORKS VS. CA
FACTS:
• Metropolitan Waterworks and Sewerage System (MWSS) is a GOCC
and successor-in- interest of the defunct NWSA.
• The authorized signature for PNB Account No. 6 were those of MWSS
treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting
General Manager Victor L. Recio.
• Specimen signatures were submitted by the MWSS to and on file with
the PNB
• By special arrangement with the PNB, the MWSS used personalized
checks in drawing from this account.
• Printed for MWSS by its printer, F. Mesina Enterprises
• 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
• Deposited by the fictitious payees Raul Dizon, Arturo Sison and
Antonio Mendoza in their respective current accounts with the
Philippine Commercial and Industrial Bank (PCIB) and Philippine
Bank of Commerce (PBC)
• At the time of their presentation to PNB these checks bear the
standard indorsement which reads 'all prior indorsement and/or lack
of endorsement guaranteed'
• NWSA filed against PNB before the CFI
• PNB also filed a 3rd party complaint against the negotiating banks
PBC and PCIB on the ground that they failed to ascertain the Identity
of the payees and their title to the checks which were deposited in the
respective new accounts of the payees with them
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
FACTS:
• 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.
4. PNB vs. CA
• January 15, 1962: Augusto Lim deposited in his current account with
the PCIB branch at Padre Faura, Manila a GSIS Check of P57,415.00
drawn against the PNB
o PCIB stamped the following on the back of the check: "All prior
indorsements and/or Lack of Endorsement Guaranteed,
 Philippine Commercial and Industrial Bank," Padre Faura
Branch, Manila
• Same date: following an established banking practice in the
Philippines, the check was forwarded for clearing through the Central
Bank to the PNB
o did not return said check the next day, or at any other time,
but retained it and paid its amount to the PCIB, as well as
debited it against the account of the GSIS in the PNB
o PNB received a formal notice from the GSIS that the check
had been lost, with the request that payment thereof be
stopped
• January 31, 1962: Upon demand from the GSIS, the P57,415.00 was
re-credited to them bec. the signatures of its officers on the check were
forged
o signatures of the General Manager and the Auditor of the
GSIS on the check, as drawer, are forged
o payee Mariano D. Pulido indorsed it to Manuel Go and then
indorsed by Manuel Go to Augusto Lim
• February 2, 1962: PNB demanded from the PCIB the refund
• PNB filed against the PCIB
CA affirmed CFI: dismissed
ISSUE: W/N PCIB as indorser is liable despite the fact that the check is
forged when PNB is also negligent
HELD: NO. Affirmed
• PCIB stamped on the back of the check: "All prior indorsements and/or
Lack of Endorsement Guaranteed, Philippine Commercial and
Industrial Bank," Padre Faura Branch, Manila
o indorsements falsified is immaterial to the PNB's liability as a
drawee, or to its right to recover from the PCIB, for, as against
the drawee, the indorsement of an intermediate bank does not
guarantee the signature of the drawer, since the forgery of the
indorsement is not the cause of the loss.
• Guaranteed not the authenticity of the signatures of the officers of the
GSIS who signed because the GSIS is not an indorser of the check,
but its drawer
• Warranty is irrelevant to the PNB's alleged right to recover from the
PCIB
• In general, "acceptance" is not required for checks since they are
payable on demand
o acceptance
▪ promise to perform an act
▪ the acceptance of a bill is the signification by the
drawee of his assent to the order of the drawer
o payment
▪ actual performance
▪ compliance with obligation
• PNB had been guilty of a greater degree of negligence, because it had
a previous and formal notice from the GSIS that the check had been
lost, with the request that payment thereof be stopped
o PNB's negligence was the main or proximate cause for the
corresponding loss
• PNB did not return the check
• when 1 of 2 innocent persons must suffer by the wrongful act of a third
person, the loss must be borne by the one whose negligence was the
proximate cause of the loss or who put it into the power of the third
person to perpetrate the wrong
• where the collecting (PCIB) and the drawee (PNB) banks are equally
at fault, the court will leave the parties where it finds them
o applies in the case of a drawee who pays a bill without having
previously accepted it
Section 62 of Act No. 2031 provides
The acceptor by accepting the instrument engages that he will pay it according
to the tenor of his acceptance; and admits:
 (a) The existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
5. SAN CARLOS MINING vs. BPI
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
o 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.
o 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
o 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)
o 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
o 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.
o proximate cause of loss was due to the negligence of the Bank
of the Philippine Islands in honoring and cashing the two
forged checks
 6. GEMPESAW vs. CA
FACTS:
• Gempesaw owns and operates four grocery stores
o to pay their debts of her supplies, she draws checks against
her account
o 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.
o although the Bank notified her of all checks presented to and
paid by the bank, petitioner did not verify the correctness of
the returned checks, much less check if the payees actually
received the checks in payment for the supplies she received
o 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:
(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.
o 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
7. REPUBLIC vs. EQUITABLE BANK
FACTS:
• July to December 1952: Corporacion de los Padres
Dominicos acquired the 24 treasury warrants by
accommodating Jacinto Carranza who asked the Corporacion to cash
the warrants
o provided: deposited first with BPI Bank, and that actual
payment of the value of the warrants would be made only after
the same had been duly accepted and cleared by the
Treasurer
o BPI accepted them w/ "subject to collection only"

o each bore the indorsement of the payees and that of the
Corporation
o BPI Bank credited the proceeds
o December 23, 1952: 3 warrants returned - forged
o December 27, 1952: 2 warrants returned - forged
o January 16, 1953: 19 warrants returned - forged
• January 15, 1958: Treasurer notified the Equitable Bank of the 4
forged warrants deposited to it by and demanded reimbursement
• Republic of the Philippines seeks to recover from the Equitable
Banking Corporation P17,100, representing 4 treasury warrants and
BPI Bank P342,767.63 24 paid to them by the Treasurer of the
Philippines
o genuine forms but signature of the drawing office and that of
the representative of the Auditor General in that office are
forged
CFI: dismissed the case
ISSUE: W/N Republic has the right to recover from the banks
HELD: YES. Affirmed
• All items cleared at 11:00 o'clock a.m. shall be returned not later than
2:00 o'clock p.m. on the same day and all items cleared at 3:00 o'clock
p.m. shall be returned not later than 8:30 a.m. of the following business
day, except for items cleared on Saturday which may be returned not
later than 3:30 a.m. of the following day
• irregularity of warrants was apparent the face from the viewpoint of the
Treasury
o each over P5,000 - beyond the authority of the auditor of the
Treasury
o it also did not advise the loss of genuine forms of its warrants
o did not inform the irregularity until after December 23, 1952
- not giving notice of forgery until December 5
• Where a loss, which must be borne by one of two parties alike
innocent of forgery, can be traced to the neglect or fault of either, it is
reasonable that it would be borne by him, even if innocent of any
intentional fraud, through whose means it has succeeded
8. BANCO DE ORO vs. EQUITABLE BANKING CORPORATION
FACTS:
Equitable Bank drew six crossed manager’s check payable to certain member
establishments of Visa Card. Subsequently, the checks were deposited with
Banco De Oro (BDO) to the credit of its depositor. Following normal
procedures and after stamping at the back of the checks the usual
endorsements, BDO sent the checks for clearing through the Philippine
Clearing House Corporation (PCHC). Accordingly, Equitable Banking paid the
checks; its clearing account was debited for the value of the checks and BDO’s
clearing account was credited for the same amount. Thereafter, Equitable
Banking discovered that the endorsements appearing at the back of the
checks and purporting to be that of the payees were forged and/or
unauthorized or otherwise belong to persons other than the payees. Equitable
Banking presented the checks directly to BDO for the purpose of claiming
reimbursement from the latter. However, BDO refused to accept such direct
presentation and to reimburse Equitable Banking for the value of the checks.
ISSUES
(a) Whether or not BDO is estopped from claiming that checks under
consideration are non-negotiable instruments.
(b) Whether or not BDO can escape liability by reasons of forgery.
(c) Whether or not only negotiable checks are within the jurisdiction of
PCHC.
RULING
(a) YES. BDO having stamped its guarantee of “all prior endorsements
and/or lack of endorsements” is now estopped from claiming that the
checks under consideration are not negotiable instruments. The
checks were accepted for deposit by the petitioner stamping thereon
its guarantee, in order that it can clear the said checks with the
respondent bank. By such deliberate and positive attitude of the
petitioner it has for all legal intents and purposes treated the said
cheeks as negotiable instruments and accordingly assumed the
warranty of the endorser when it stamped its guarantee of prior
endorsements at the back of the checks. It led the said respondent to
believe that it was acting as endorser of the checks and on the
 strength of this guarantee said respondent cleared the checks in
question and credited the account of the petitioner. Petitioner is now
barred from taking an opposite posture by claiming that the disputed
checks are not negotiable instrument.
(b) NO. A commercial bank cannot escape the liability of an endorser of
a check and which may turn out to be a forged endorsement.
Whenever any bank treats the signature at the back of the checks as
endorsements and thus logically guarantees the same as such there
can be no doubt said bank has considered the checks
as negotiable.The collecting bank or last endorser generally suffers
the loss because it has the duty to ascertain the genuineness of all
prior endorsements considering that the act of presenting the check
for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the
endorsements.
(c) NO. PCHC’s jurisdiction is not limited to negotiable checks only. The
term check as used in the said Articles of Incorporation of PCHC can
only connote checks in general use in commercial and business
activities. Thus, no distinction. Ubi lex non distinguit, nec nos
distinguere debemus. Checks are used between banks and bankers
and their customers, and are designed to facilitate banking operations.
It is of the essence to be payable on demand, because the contract
between the banker and the customer is that the money is needed on
demand.
9. REPUBLIC vs. EBRADA
FACTS:
• February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check
dated January 15, 1963 for P1,246.08 at Republic Bank
o check was issued by the Bureau of Treasury
• Bureau advised Republic Bank that the indorsement on the reverse
side of the check by the payee, "Martin Lorenzo" was a
forgery because he died as of July 14, 1952 and requested a refund
• July 11, 1966: Ebrada filed a Third-Party complaint against Adelaida
Dominguez who, in turn, filed on September 14, 1966 a Fourth-Party
complaint against Justina Tinio.
• March 21, 1967: City Court of Manila favored Republic against
Ebrada, for Third-Party plaintiff against Adelaida Dominguez, and for
Fourth-Party plaintiff against Justina Tinio
CA: reversed Mauricia T. Ebrada claim against Adelaida Dominguez and
Domiguez against Justina Tinio
W/N: Ebrada should be held liable.
HELD: YES. Affirmed in toto.
▪ under Section 65 of the Negotiable Instruments Law:
Every person negotiating an instrument by delivery or by qualified
indorsement, warrants:
(a) That the instrument is genuine and in all respects what it purports to be.
(b) That she has good title to it.
xxx xxx xxx
Every indorser who indorses without qualification warrants to all subsequent
holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the
next preceding sections;
(b) That the instrument is at the time of his indorsement valid and subsisting.
• Under action 23 of the Negotiable Instruments Law (Act 2031):
When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instruments, or to give a discharge thereof against any party thereto, can be
acquired through or under such signature unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want
of authority.
• Martin Lorenzo (forged as original payee) > Ramon R. Lorenzo (2nd
indorser) = NO EFFECT
• Ramon R. Lorenzo (2nd indorser) ➜ Adelaida Dominguez (third
indorser) ➜ Adelaida Dominguez to Ebrada who did not know of the
forgery = valid and enforceable barring any claim of forgery
• drawee of a check can recover from the holder the money paid to him
on a forged instrument
 • not its duty to ascertain whether the signatures of the payee or
indorsers are genuine or not
• Indorser is supposed to warrant to the drawee that the signatures of
the payee and previous indorsers (NOT only holders in due course)
are genuine
RATIONALE: Indorsers own credulity or recklessness, or misplaced
confidence was the sole cause of the loss. Why should he be permitted to shift
the loss due to his own fault in assuming the risk, upon the drawee, simply
because of the accidental circumstance that the drawee afterwards failed to
detect the forgery when the check was presented
• Ebrada upon receiving the check in question from Adelaida
Dominguez, was duty-bound to ascertain whether the check in
question was genuine before presenting it to plaintiff Bank for payment
• Based on the doctrine from Great Eastern Life Ins. Co. v. Hongkong
Shanghai Bank (1922) , bank should suffer the loss when it paid the
amount of the check in question to Ebrada, but it has the remedy to
recover from the Ebrada the amount it paid
• Ebrada immediately turning over to Adelaida Dominguez (Third-Party
defendant and the Fourth-Party plaintiff) who in turn handed the
amount to Justina Tinio on the same date would not exempt her from
liability because by doing so, she acted as an accommodation party
in the check for which she is also liable under Section 29 of the
Negotiable Instruments Law (Act 2031):
An accommodation party is one who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is liable on
the instrument to a holder for value, notwithstanding such holder at the time of
taking the instrument knew him to be only an accommodation party.
10. ASSOCIATED BANK vs. CA
FACTS:
• The Province of Tarlac maintains a current account with the Philippine
National Bank (PNB) Tarlac Branch where the provincial funds are
deposited.
o Checks issued by the Province are signed by the Provincial
Treasurer and countersigned by the Provincial Auditor or the
Secretary of the Sangguniang Bayan.
• A portion of the funds of the province is allocated to the Concepcion
Emergency Hospital
o drawn to the order of "Concepcion Emergency Hospital,
Concepcion, Tarlac" or "The Chief, Concepcion Emergency
Hospital, Concepcion, Tarlac."
o The checks are released by the Office of the Provincial
Treasurer and received for the hospital by its administrative
officer and cashier.
• January 1981:Upon post-audit by the Provincial Auditor, it was
discovered that the hospital did not receive several allotment checks
• February 19, 1981: After the checks were examined, they learned that
30 checks of P203,300 were encashed by Fausto Pangilinan, with the
Associated Bank acting as collecting bank.
o Fausto Pangilinan
▪ administrative officer and cashier of payee hospital
until his retirement on February 28, 1978, collected
the questioned checks from the office of the
Provincial Treasurer
▪ sought to encash the 1st check with Associated Bank
• Jesus David, manager of Associated Bank refused and suggested
that Pangilinan deposit the check in his personal savings account with
the same bank
o Pangilinan was able to withdraw the money when the check
was cleared and paid by the drawee bank, PNB.
▪ PNB did not return the questioned checks within
twenty-four hours, but several days later
o After forging the signature of Dr. Adena Canlas who was chief
of the payee hospital, Pangilinan followed the same
procedure for the other checks.
 o All the checks bore the stamp of Associated Bank which reads
"All prior endorsements guaranteed ASSOCIATED BANK.
CA affrimed RTC: Associated to reimburse PNB and ordering PNB to pay
Province of Tarlac
ISSUE: W/N PNB and Associated Bank should be held liable
HELD: YES. PARTIALLY GRANTED. The collecting bank, Associated Bank,
shall be liable to PNB for 50% of P203,300
Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a signature is forged
or made without authority of the person whose signature it purports to be, it is
wholly inoperative, and no right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want
of authority.
• GENERAL RULE:
o A forged signature, whether it be that of the drawer or the
payee, is wholly inoperative and no one can gain title to the
instrument through it.
o A person whose signature to an instrument was forged was
never a party and never consented to the contract which
allegedly gave rise to such instrument.
• EXCEPTION: where "a party against whom it is sought to enforce a
right is precluded from setting up the forgery or want of authority."
o Parties who warrant or admit the genuineness of the signature
in question and those who, by their acts, silence or negligence
are estopped from setting up the defense of forgery, are
precluded from using this defense.
▪ Indorsers, persons negotiating by delivery and
acceptors are warrantors of the genuineness of the
signatures on the instrument
• In bearer instruments, the signature of the payee or holder is
unnecessary to pass title to the instrument. Hence, when the
indorsement is a forgery, only the person whose signature is forged
can raise the defense of forgery against a holder in due course
• In order instruments, the signature of its rightful holder (here, the
payee hospital) is essential to transfer title to the same instrument.
When the holder's indorsement is forged all parties prior to the forgery
may raise the real defense of forgery against all parties subsequent
thereto.
o An indorser of an order instrument warrants "that the
instrument is genuine and in all respects what it purports to
be; that he has a good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of
his indorsement valid and subsisting
▪ A collecting bank where a check is deposited and
which indorses the check upon presentment with the
drawee bank = indorser
• So even if the indorsement on the check
deposited by the banks's client is forged, the
collecting bank is bound by his warranties as
an indorser and cannot set up the defense of
forgery as against the drawee bank.
• The bank on which a check is drawn, known as the drawee bank, is
under strict liability to pay the check to the order of the payee.
o The drawer's instructions are reflected on the face and by the
terms of the check.
▪ Payment under a forged indorsement is not to the
drawer's order. then is that the drawee bank may not
debit the drawer's account and is not entitled to
indemnification from the drawer. 25 The risk of loss
must perforce fall on the drawee bank.
• GENERAL RULE: drawee bank may not debit the drawer's account
and is not entitled to indemnification from the drawer - risk of loss must
perforce fall on the drawee bank
• EXCEPTION:
o if the drawee bank can prove a failure by the customer/drawer
to exercise ordinary care that substantially contributed to the
 making of the forged signature, the drawer is precluded from
asserting the forgery
o If at the same time the drawee bank was also negligent to the
point of substantially contributing to the loss, then such loss
from the forgery can be apportioned between the negligent
drawer and the negligent bank
• In cases involving a forged check, where the drawer's signature is
forged, the drawer can recover from the drawee bank.
• In cases involving checks with forged indorsements, the drawee bank
canseek reimbursement or a return of the amount it paid from the
presentor bank or person
o However, a drawee bank has the duty to promptly inform the
presentor of the forgery upon discovery. If the drawee bank
delays in informing the presentor of the forgery, thereby
depriving said presentor of the right to recover from the forger,
the former is deemed negligent and can no longer recover
from the presentor
▪ Under Section 4(c) of CB Circular No. 580, items
bearing a forged endorsement shall be returned
within twenty-Sour (24) hours after discovery of the
forgery but in no event beyond the period fixed or
provided by law for filing of a legal action by the
returning bank. Section 23 of the PCHC Rules
deleted the requirement that items bearing a forged
endorsement should be returned within twenty-four
hours.
• Since PNB did not return the questioned
checks within twenty-four hours, but several
days later, Associated Bank alleges that PNB
should be considered negligent and not
entitled to reimbursement of the amount it
paid on the checks.
• More importantly, by reason of the statutory warranty of a general
indorser in section 66 of the Negotiable Instruments Law, a collecting
bank which indorses a check bearing a forged indorsement and
presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement
o In this case, the checks were indorsed by the collecting bank
(Associated Bank) to the drawee bank (PNB)
▪ The stamp guaranteeing prior indorsements is not an
empty rubric which a bank must fulfill for the sake of
convenience
• It is within the bank's discretion to receive a
check for no banking institution would
consciously or deliberately accept a check
bearing a forged indorsement. When a check
is deposited with the collecting bank, it takes
a risk on its depositor.
11. GREAT EASTERN LIFE INSURANCE vs. HSBC
FACTS:
• May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for
P2,000 on the Hongkong and Shanghai Banking Corporation (HSBC)
payable to the order of Lazaro Melicor.
• E. M. Maasim fraudulently obtained possession of the check, forged
Melicor's signature, as an endorser, and then personally endorsed and
presented it to the Philippine National Bank (PNB) and it was placed
to his credit.
• Next day: PNB endorsed the check to the HSBC who paid it
• HSBC sent a bank statement to the Eastern showing the amount of
the check was charged to its account, and no objection was made
• 4 months after the check was charged, it developed that Lazaro
Melicor, to whom the check was made payable, had never received it,
and that his signature, as an endorser, was forged by Maasim,
• Eastern promptly made a demand upon the HSBC to credit the
amount of the forged check
• Eastern filed against HSBC and PNB
RTC: dismissed the case
ISSUES: W/N Eastern has the right to recover the amount of the forged
check
HELD: YES. lower court is reversed. Eastern against HSBC who can claim
against PNB
• forgery was that of Melicor (payees and NOT the maker)
o Eastern received it banks statement, it had a right to assume
that Melicor had personally endorsed the check, and that,
otherwise, the bank would not have paid it
• Section 23 of Negotiable Instruments Law:
When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority.
• The Philippine National Bank had no license or authority to pay the
money to Maasim or anyone else upon a forge signature.
o Its remedy is against Maasim to whom it paid the money.
12. METROBANK vs. FCNB
FACTS:
• August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable
to CASH, drawn by Joaquin Cunanan & Company on First National
City Bank (FNCB) was deposited with Metropolitan Bank and Trust
Company (Metro Bank) by Salvador Sales.
o Earlier that day, Sales had opened a current account with
Metro Bank depositing P500.00 in cash
o Metro Bank immediately sent the cash check to the Clearing
House of the Central Bank with the following words stamped
at the back of the check:
▪ Metropolitan Bank and Trust Company Cleared
(illegible) office All prior endorsements and/or Lack of
endorsements Guaranteed.
o The check was cleared the same day. Private respondent
paid petitioner through clearing the amount of P50,000.00,
and Sales was credited with the said amount in his deposit
with Metro Bank.
• August 26, 1964: Sales made his 1st withdrawal of P480.00 from his
current account
• August 28, 1964: he withdrew P32,100.00
• August 31, 1964: he withdrew the balance of P17,920 and closed his
account with Metro Bank
• September 3, 1964: FNCB returned cancelled Check to drawer
Joaquin Cunanan & Company, together with the monthly statement of
the company's account with FNCB.
o notified FNCB that the check had been altered
▪ actual amount of P50.00 was raised to P50,000.00
▪ name of the payee, Manila Polo Club, was
superimposed the word CASH.
• September 10, 1964: FNCB wrote Metro Bank asking for
reimbursement
• June 29, 1965: FNCB filed for recovery
CA affirmed Trial Court: Metro Bank to reimburse FNCB
ISSUE: W/N Metrobank should reimsburse FNCB for the altered amount
as indorser
HELD: NO. FNCB liable.
• Under the procedure prescribed, the drawee bank receiving the check
for clearing from the Central Bank Clearing House must return the
 check to the collecting bank within the 24-hour period if the check is
defective for any reason. - FNCB failed to do so
o indorsement must be read together with the 24-hour
regulation on clearing House Operations of the Central Bank
• Metro Bank can not be held liable for the payment of the altered check.
• Moreover, FNCB did not deny the allegation of Metro Bank that before
it allowed the withdrawal of the balance of P17,920.00 by Salvador
Sales, Metro Bank withheld payment and first verified, through its
Assistant Cashier Federico Uy, the regularity and genuineness of the
check deposit from Marcelo Mirasol, Department Officer of FNCB,
because its (Metro Bank) attention was called by the fast movement
of the account
13. REPUBLIC BANK vs. CA
FACTS:
San Miguel Corporation drew a dividend check worth P240 on its account in
First National City Bank in favor of J. Roberto Delgado, a stock holder. The
amount on its face was fraudulently and without authority of the drawer, altered
by increasing it from P240 to P9, 240. The check was indorsed and deposited
by Delgado to his account with Republic bank. Republic endorsed the check
to FNCB and presented I for payment through the Central Bank Clearing
House. FNCB paid P9, 240 to the Republic through the Central Bank Clearing
House. SMC notified FNCB of the material alteration in the check in question.
FNCB informed Republic with regard to the alteration and forgery of the
endorsement of Delgado. By the, Delgado had already withdrawn his account
from the republic. FNCB demanded that Republic refund the P9, 240. Trial
court rendered judgment in favor of FNCB and it was affirmed by the Court of
Appeals.
ISSUE:
Whether Republic, as the collecting bank, is protected, by 24-hour
clearing house rule, found in CB circular No. 9, as amended, from liability
to refund the amount paid by FNCB, as drawee of the SMC dividend
check.
HELD:
NO. The 24-hour clearing house rule is valid rule applicable to commercial
banks. It is true that when an indorsement is forged, the collecting bank or last
endorser, as general rule, bears the loss. But the unqualified endorsement of
the collecting bank on the check should be read together with the 24-hour
regulation on the clearing house operation. Thus, when the drawee bank fails
to return a forged or altered check to the collecting bank is absolved from
liability. Unless an alteration is attributable to the fault or negligence of the
drawer himself, such as when he leaves spaces on the check which would
allow the fraudulent insertion of additional numerals in the amount appearing
thereon, the remedy of the drawee bank that negligently clears a forged and/or
honor altered check for payment is against the party responsible for the forgery
or alteration, otherwise, it bears the loss. It may not charge the amount so paid
to the account of the drawer, if the latter was free from blame, nor recover it
from the collecting bank is the latter made payment after proper clearance from
the drawee.
[[The drawee bank, FNCB, should bear the loss for the payment of the altered
check for its failure to detect and warn Republic Bank of the fraudulent
character of the check within the 24-hour clearing house rule. Republic Bank,
as the collecting bank, is protected by the 24-hour clearing house rule found
in Central Bank Circular No. 9. When an indorsement is forged, the collecting
bank or last indorser, as a general rule, bears the loss. But the unqualified
indorsement of the collecting bank on the check should be read together with
the 24-hour regulation on clearing house operation. Hence, when a drawee
bank fails to return a forged or altered check to the collecting bank within the
24-hour clearing period, the collecting bank is absolved from liability.]]
14. ILLUSORIO vs. CA
FACTS:
Ramon Ilusorio entrusted his credit cards and checkbooks and blank checks
to his secretary. Apparently, his secretary was able to encash and deposit to
her personal account 17 checks drawn against his account.
Ilusorio requested to restore to his account the value of the checks that were
wrongfully encashed but the bank refused, hence the case.
In court, the bank testified that they make sure that the sign on the check is
verified. When asked by the NBI to submit standard signs to compare, Ilusorio
failed to comply. The lower held held in favor of defendant.
ISSUE: Whether the bank was negligent in receiving the checks.
RULING:
NO. The SC affirmed the lower court's decision. Ilusorio failed to prove that the
bank was negligent on their part as he has the burden of proof. The bank's
employees did not know the secretary's modus operandi as she was always
transacting in behalf of Ilusorio.
The SC even held that it was Ilusorio who was negligent as he trusted his
secretary of unusual degree.
Ilusorio also cites Sec. 23 of the NIL that a forged check is inoperative and that
he bank has no authority to pay. While true, the case at bar falls under the
exception stated in the section. The SC held that Ilusorio is precluded from
setting up the forgery, assuming there is forgery, due to his own negligence in
entrusting his secretary.
RULING:
The petitioner doesn’t have a course of action against the bank. To be entitled
to damages, petitioner has the burden of proving negligence on the part of the
bank for failure to detect the discrepancy in the signatures on the checks. It is
incumbent upon petitioner to establish the fact of forgery. Curiously though,
petitioner failed to supply additional signature specimens as requested by the
NBI. The bank was not also remiss in performance of its duties, it practices
due diligence in encashing checks. The bank didn’t have any hint of the modus
operandi of Eugenio as she was a regular customer, designated by the
petitioner himself to transact on his behalf.
It was petitioner who was negligent in this case. He failed to examine his bank
statements and this was the proximate cause of his own damage. Because of
this negligence, he is precluded from setting up the defense of forgery with
regard the checks.
[[He is precluded from setting up the forgery due to his own negligence in
entrusting to his secretary his credit cards and check book including the
verification of his statements of account.]]
15. PCI BANK vs. CA
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
o 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
o dismissed the complaint against PBC for lack of cause of
action
o 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".
o 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
o 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.
o checks were made payable to the CIR
o 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.
o 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.
o As an agent of BIR, PCIBank is duty bound to consult its
principal regarding the unwarranted instructions given by the
payor or its agent
o 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.
o 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.
o 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
o Citibank failed to notice and verify the absence of the clearing
stamps
o 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
o 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.
o 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.
o Article 1172 of the Civil Code of the Philippines, responsibility
arising from negligence in the performance of every kind of
obligation is also demandable, but such liability may be
regulated by the courts, according to the circumstances. In
quasi-delicts, the contributory negligence of the plaintiff shall
reduce the damages that he may recover.
16. WESTMONT BANK vs. ONG
DOCTRINE:
Since the signature of the payee was forged to make it appear that he had
made an indorsement in favor of the forger, such signature should be deemed
as inoperative and ineffectual. The position of the bank taking the check on
the forged and unauthorized indorsement is the same as if it had taken the
check and collected the money without indorsement at all and the act of the
bank amounts to conversion of the check.
FACTS:
Respondent maintained a current account with petitioner. He sold certain
shares of stocks to Island Securities Corporations. To pay Ong, Island
Securities purchased 2 Pacific Banking Corporation mangers checks, issued
in the name of respondent.
Ong’s friend Paciano Tanlimco got hold of the checks. Tanlimco forged Ong’s
signature and deposited said checks with petitioner bank. Even though Ong’s
specimen signature was on file, petitioner bank accepted and credited both
checks to the account of Tanlimco, without verifying the signature
indorsements appearing at the back thereof. Tanlimco, immediately withdrew
the money and absconded.
Ong first sought the help of Tanlimcos family to recover the amount and
reported the incident to the Central Bank, which were both proved futile. It was
only about five months from discovery of fraud, did Ong demanded in his
complaint that petitioner pay the value of the checks from the bank on whose
gross negligence he imputed his loss. In his suit he insisted that he did not
deliver, negotiate, endorse or transfer to any person or entity the subject
checks.
The petitioner bank contended that Ong never acquired ownership over the
checks because he never received them, hence, he had no legal personality
to sue.
The trial court rendered a decision, ordering the defendant to pay the plaintiff.
Petitioner elevated the case to the Court of Appeals without success.
ISSUE:
1. W/N RESPONDENT HAS A CAUSE OF ACTION?
2. W/N RESPONDENT IS BARRED TO RECOVER THE MONEY DUE
TO LACHES?
HELD:
Petitioner argues that since Ong never had the possession of the checks nor
did he authorize anybody, he did not become a holder thereof hence he cannot
sue in his own.
Respondent leans on the ruling of the trial court and the Court of Appeals
against the petitioner bank is a desirable shortcut to reach the party who ought
in any event to be ultimately liable. The Court find no reversible error in the
assailed decisions of the appellate and trial courts, hence, there is no justifiable
reason to grant the petition.
1. Yes, respondent has a cause of action. 2. No, he is not barred.

The complaint filed before the trial court expressly alleged
respondents right as payee of the managers checks to receive the
amount involved, petitioners correlative duty as collecting bank to
ensure that the amount gets to the rightful payee or his order, and a
breach of that duty because of a blatant ac of negligence on the part
of petitioner which violated respondents rights.
Under Section 23 of the Negotiable Instruments Law:
Sec. 23. Forged signature; effect of. - 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.
It cannot be said that respondent sat on his rights. He immediately
acted after knowing the forgery by proceeding to seek help from the
Tanlimco family and later the Central Bank, to remedy the situation
and recover his money from the forger. Only after he had exhausted
possibilities of settling the matter amicably did he resort to making the
demand upon the petitioner and eventually before the court for
recovery of the money value of the two checks.
These acts cannot be construed as undue delay in or abandonment
of the assertion of his rights.

Since the signature of the payee was forged to make it appear that he
had made an indorsement in favor of the forger, such signature should
be deemed as inoperative and ineffectual. Petitioner grossly erred in
making payment by virtue of said forged signature. The payee should
therefore be allowed to recover from collecting from bank. The position
of the bank taking the check on the forged and unauthorized
indorsement is the same as if it had taken the check and collected the
money without indorsement at all and the act of the bank amounts to
conversion of the check.

Petitioner’s claim that since there was no delivery yet and respondent
has never acquired possession of the checks, respondent’s remedy is
with the drawer and not with petitioner bank. However, another view
in certain cases holds that even if the absence of delivery is
considered, such consideration is not material. The rational for this is
that in said cases the plaintiff uses one action to reach the person who
ought to be ultimately liable as among the innocent persons involved
in the transaction. In other words, the payee ought to be allowed to
recover directly from the collecting bank, regardless of whether the
check was delivered to the payee or not.

Petitioner could not escape liability for its negligent acts. Banks are
engaged in a business impressed with public interest, and it is their
duty to protect in return their many clients and depositors who transact
business with them. The diligence required of banks is more than that
of a good father of a family. In the present case, petitioner was held to
be grossly negligent in performing his duties.