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Fictitious Persons Payee Rule PNB v. Spouses Rodriguez G.R. No.

170325 September 26, 2008

FACTS: Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had a discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees The association maintained current and savings accounts with Philippine National Bank (PNB)PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the association was short of funds. As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the members. It was PEMSLA’s policy not to approve applications for loans of members with outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the latter. The officers carried this out by forging the indorsement of the named payees in the checks Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch and became the usual practice for the parties. From November 1998-February 1999: spouses issued a total of 69 checks in the amount of P2,345,804. These were payable to 47 individual payees who were all members of PEMSLA PNB eventually found out about these fraudulent acts

PNB credited the checks to the PEMSLA account even without indorsements = PNB violated its contractual obligation to them as depositors . The distinction between bearer and order instruments lies in their manner of negotiation order instrument . will work to strip it of this defense. As a result. The exception will cause it to bear the loss.requires an indorsement from the payee or holder before it may be validly negotiated bearer instrument .checks were obviously meant by the spouses to be really paid to PEMSLA = payable to order ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby dismissing PNB from liability HELD: NO. actually did not intend for the named payees to receive the proceeds of the checks = fictitious payees (under the Negotiable Instruments Law) = negotiable by mere delivery CA: Affirmed .so PNB should bear the losses RTC: favored Rodriguez makers.‖ The amounts were duly debited from the Rodriguez account Spouses filed a civil complaint for damages against PEMSLA. there is a commercial bad faith exception to the fictitious-payee rule. the Multi-Purpose Cooperative of Philnabankers (MCP). or any transferee of the check for that matter. and PNB.To put a stop to this scheme. GR: when the payee is fictitious or not intended to be the true recipient of the proceeds. A showing of commercial bad faith on the part of the drawee bank. the PEMSLA checks deposited by the spouses were returned or dishonored for the reason ―Account Closed.mere delivery US jurisprudence: ―fictitious‖ if the maker of the check did not intend for the payee to in fact receive the proceeds of the check . PNB closed the current account of PEMSLA. the check is considered as a bearer instrument (Sections 8 and 9 of the NIL) EX: However.

Security Bank and Trust Co. It was negligent in the selection and supervision of its employees Caltex (Philippines) Inc. The documents provided that the amounts . Caltex filed the complaint. the drawee bank is absolved from liability and the drawer bears the loss When faced with a check payable to a fictitious payee. but which was dismissed. (SEBTC). Held [1]: The CTDs in question meet the requirements of the law for negotiability. De la Cruz was able to obtain a loan of P875. 10 August 1992 Facts: On various dates.In a fictitious-payee situation. it is treated as a bearer instrument that can be negotiated by delivery underlying theory: one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon lack of knowledge on the part of the payees. however. the CTDs are negotiable instruments (Section 1). etc. he executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Caltex presented for verification the CTDs (which were declared lost by de la Cruz) with the bank. Subsequently. Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate the same. and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs.e. Anger de la Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter.000 from the bank. The bank rejected Caltex’ claim and demand. Thereafter. de la Cruz’ loan matured and the bank set-off and applied the time deposits as payment for the loan. Negotiability or non-negotiability of an instrument is determined from the writing. and in turn. forged or otherwise.12 million. was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks’ proceeds PNB did not obey the instructions of the drawers when it accepted absent indorsement. dela Cruz informed the bank that he lost all the CTDs. vs. from the face of the instrument itself. Contrary to the lower court’s findings. Issue [1]: Whether the Certificates of Time Deposit (CTDs) are negotiable instruments. through its Sucat branch. issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P1. i. after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement. In 1983. CA GR 97753.

Herein. so she returned them to the payee before maturity of the checks. although Moulic avers that no such notice was given her. as the CTDs were delivered to it as security for dela Cruz’ purchases of its fuel products.deposited shall be repayable to the depositor. The amounts are to be repayable to the bearer of the documents. Consequently. The delivery thereof as security for the fuel purchases at most constitutes Caltex as a holder for value by reason of his lien.e. and not for payment. 2 post-dated Equitable Banking Corporation. in the event of non-payment of the principal obligation. or legal title. i. Moulic withdrew her funds from the drawee bank. Accordingly. She also instituted a Third-Party Complaint against Corazon Victoriano. a negotiation for such purpose cannot be effected by mere delivery of the instrument since the terms thereof and the subsequent disposition of such security. as security for pieces of jewelry to be sold on commission. must be contractually provided for. INC. (SIHI). a valid negotiation thereof for the true purpose and agreement between it (Caltex) and de la Cruz requires both delivery and indorsement. Moulic failed to sell the pieces of jewelry. the payee negotiated the checks to the State Investment House Inc. SIHI elevated the order of dismissal to the Court of Appeals. but the . the checks were dishonored for insufficiency of funds. The trial court dismissed the Complaint as well as the Third-Party Complaint. STATE INVESTMENT HOUSE. could no longer be retrieved as they had already been negotiated. VS. SIHI sued to recover the value of the checks. January 11. SIHI allegedly notified Moulic of the dishonor of the checks and requested that it be paid in cash instead. before their maturity dates. however. COURT OF APPEALS GR 101163. Held [2]: Although the CTDs are bearer instruments. Moulic contends that she incurred no obligation on the checks because the jewelry was never sold and the checks were negotiated without her knowledge and consent. The checks. Thereafter. Upon presentment for payment. to the CTDs in which situation mere delivery of the bearer CTDs would have sufficed. whosoever may be the bearer at the time of presentment. there was no negotiation in the sense of a transfer of title. who later assumed full responsibility for the checks. Issue [2]: Whether the CTDs’ negotiation require delivery only. 1993 1ST Division Bellosillo FATS: Nora Moulic issued to Corazon Victoriano.

. e. Since MOULIC failed to get back possession of the post-dated checks. c. ISSUE: WON the alleged issuance of the post-dated checks as mere security is a ground for the discharge of the instrument? HELD Section 119 of the Negotiable Instrument Law outlined the grounds in which an instrument is discharged. Art. Condonation or remission of debts. Loss of the thing due. (d) any act which discharges a contract. MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument. the intentional cancellation contemplated under paragraph (c) is that cancellation effected by destroying the instrument either by tearing it up. the acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by other existing legislations since Section 119 does not specify what these acts are. the intentional cancellation of the said checks is altogether impossible. (c) intentional cancellation of instrument by the holder. SIHI filed the petition for review. b. f. But.appellate court affirmed the trial court on the ground that the Notice of Dishonor to Moulic was made beyond the period prescribed by the Negotiable Instruments Law and that even if SIHI did serve such notice on Moulic within the reglementary period it would be of no consequence as the checks should never have been presented for payment. Payment or performance. such as: a. (b) payment by accommodated. Obviously. d. Novation . The act of destroying the instrument must also be made by the holder of the instrument intentionally. or writing the word "cancelled" on the instrument. The grounds are: (a) payment by or on behalf of the principal debtor. Compensation. (e) reacquisition of principal debtor in his own right. e. burning it. On the other hand. Section 119 of the NIL is exclusive to its enumerations.g. 1231 of the Civil Code which enumerates the modes of extinguishing obligations. Confusion or merger of rights of creditor and debtor.

Without the indorsement or authority of his co.A. 179952.. now merged with herein petitioner Metropolitan Bank and Trust Company (Metrobank). MOULIC may not unilaterally discharge herself from her liability by the mere expediency of withdrawing her funds from the drawee bank. No. Bitanga deposited the check to his account with the Asianbank Corporation (Asianbank). Bitanga subsequently withdrew the entire proceeds of the check. but despite demands.. and of Bitanga’s depositing it in his account at Asianbank and withdrawing the entire proceeds thereof. She is thus liable as she has no legal basis to excuse herself from liability on her checks to a holder in due course. Court of Appeals. The trial court. Herein. The check was crossed with the notation ―For Deposit Payees’ Account Only.[16] found Asianbank and Bitanga jointly and severally liable to BA Finance following Section 41 of the Negotiable Instruments Law andAssociated Bank v. Malayan Insurance issued a check payable to the order of ―B. inter alia.Again. the payee. drawn against China Banking Corporation (China Bank). Inc. (Malayan Insurance). 2009. Finance Corporationand Lamberto Bitanga‖ for P224.500. Corazon Victoriano. was no longer MOULIC's creditor at the time the jewelry was returned. Correspondingly. vs. Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co.[8]alleging that. December 4. holding that Asianbank was negligent in allowing Bitanga to deposit the check to his account and to withdraw the proceeds thereof. BA Finance thereupon demanded the payment of the value of the check from Asianbank but to no avail. BA Finance Corporation and Malayan Insurance Co. In the meantime.280 loan to secure which.R. Facts: Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance) a P329. BA Finance eventually learned of the loss of the car and of Malayan Insurance’s issuance of a crossed check payable to it and Bitanga. it is entitled to the entire proceeds of the check. prompting it to file a complaint before the Regional Trial Court (RTC) of Makati for sum of money and damages against Asianbank and Bitanga. Issue: Is petitioner liable for the full amount of the check? . none of the modes outlined therein is applicable in the instant case as Section 119 contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor. without his co-payee BA Finance having either indorsed it or authorized him to indorse it in its behalf. he mortgaged his car to respondent BA Finance. Metropolitan Bank and Trust Company. The car was stolen. etc.payee BA Finance. he failed to settle it. Bitanga’s loan became past due. Inc. On Bitanga’s claim. G.

assumes the warranty of an indorser. for all intents and purposes. hence.R.Held :Petitioner. where a check is deposited and which indorses the check upon presentment with the drawee bank. Lim Sio Wan. For ―gross negligence‖ implies a want or absence of or failure to exercise even slight care or diligence. No. the drawee bank (China Bank in this case) would not have paid the value of the subject check. Asianbank in this case. 133179 March 27.[33] Without Asianbank’s warranty. thus applies.[34] Accordingly. a collecting bank stamps the back of the check with the phrase ―all prior endorsements and/or lack of endorsement guaranteed‖[32] and. . To be sure. 2008 Facts: placement. exemplary damages may be granted if the defendant acted with gross negligence. METROPOLITAN BANK AND TRUST CO. at all events.[41] evincing a thoughtless disregard of consequences without exerting any effort to avoid them. Petitioner. argue that its liability to BA Finance should only be onehalf of the amount covered by the check as there is no indication in the check that Bitanga and BA Finance are solidary creditors to thus make them presumptively joint creditors. Allied Banking Corporation v. as the collecting bank or last indorser. and PRODUCERS BANK G. To reiterate. one who credits the proceeds of a check to the account of the indorsing payee is liable in conversion to the non-indorsing payee for the entire amount of the check. is an indorser. which provides that in quasi-delict.. generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements 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 prior indorsements. treats the check as a negotiable instrument.[31] This is because in indorsing a check to the drawee bank. or the entire absence of care. a collecting bank. petitioner’s liability is based not on contract or quasi-contract but on quasi-delict since there is no pre-existing contractual relation between the parties. Argument is flaweed.[40] Article 2231 of the Civil Code. The provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on the black-letter law provide definitive justification for petitioner’s full liability on the value of the check.

Lim Sio Wan filed the instant case. with the forged signature of Lim Sio Wan as indorser. as creditor of the bank for her money market placement. or upon maturity of the placement. Until any such event. is entitled to payment upon her request. Bank's payment of its obligation to FCC when the latter demanded the payment of the proceeds of its placement with Producers Bank." Allied funded the check even without checking the authenticity of Lim Sio Wan's purported indorsement. pre-termination of the placement and its subsequent release to Santos. Lim Sio Wan. Issue: What are the liabilities of the parties? Ruling: Producers Bank must be held liable to Allied and Metrobank for the amount of the check which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a proportion of 60:40. Thus. Metrobank.-terminate the money market placement and to issue a manager's check representing the proceeds of the placement. . prior endorsements and/or lack of endorsement guaranteed. the amount on the face of the check was credited to the account of FCC. the obligation of Allied to Lim Sio Wan remains unextinguished. same was cross-checked "For Payee's Account Only" and given to a certain Deborah Dee Santos. or until the bank is released from its obligation as debtor.

thereby benefitting the former. Considering however that Producers Bank was unjustly enriched at the expense of Lim Sio Wan. When Metrobank indorsed the check in compliance with the PCHC Rules and Regulations without verifying the authenticity of Lim Sio Wan's indorsement and when it accepted the check despite the fact that it was cross-checked payable to payee's account only. 1961 the fees and expenses for the hospitalization of his wife amounting to P441. Gatchalian.In the instant case. L-15126. Both actions could have prevented the whole fraudulent transaction from unfolding. Given the relative participation of Allied and Metrobank to the instant case. . Clearly. Allied did not even ask for the certificate evidencing the money market placement or call up Lim Sio Wan at her residence or office to confirm her instructions. The liability of Allied. ested in looking for a car. In fact. as ruled by the CA. defendant issued a „Stop Payment Order‟. Allied's negligence must be considered as the proximate cause of the resulting loss. Hence.75. and expenses of hospitalization and the release of his wife. v. issued a crossed check payable to bearer in the amount of P600.00 and the same was handed to Gonzales for safekeeping for the sole purpose of presenting it to De Ocampo to show his intention to purchase the said car. the 60:40 ratio of the liabilities of Allied and Metrobank. however. both banks cannot be adjudged as equally liable. Producers Bank was unjustly enriched at the expense of Lim Sio. With the payment of FCC ‟s money market placement and interest in Producers Bank. its negligent and cavalier indorsement contributed to the easier release of Lim Sio Wan's money and perpetuation of the fraud. Producers Bank's indebtedness to FCC was extinguished. ure to Gonzales to appear the day following with the car and its certificate of registration. is concurrent with that of Metrobank as the last indorser of the check. Vicente De Ocampo & Co. November 30. must be upheld. the trial court correctly found Allied negligent in issuing the manager's check and in transmitting it to Santos without even a written authorization. authorized agent of Plaintiff for the sale of the latter‟s car. Producers Bank should reimburse Allied and Metrobank for the amounts the two latter banks are ordered to pay Lim Sio Wan.

therefore. The burden was. because the instrument is not payable to him or to bearer. and that the check had two parallel lines in the upper left hand corner. and why he used it to pay his wife's account. Plaintiff has not proved that it acquired the check in good faith and may not be deemed a holder in due course thereof. that the amount of the check did not correspond exactly with the obligation of Gonzales to De Ocampo. However. therefore. it acquired the check in actual good faith. It is true that plaintiff was not aware of the circumstances under which the check was delivered to Gonzales. the fact that appellants had no obligation or liability to the Ocampo Clinic. Having failed to ascertain the nature of the title of Gonzales to the check. Therefore plaintiff could not collect on the check as it subject to the defense of lack of delivery as the checks delivery was for safekeeping merely and. Liabilities of Parties – 252 SCRA 620 – Forgery – Collecting Bank vs Drawee Bank .thus filed an action for recovery on the check drawn by defendant. Ruling: No. there was no delivery required by law. GR No. plaintiff was not in good faith. 107382. and it may not be considered as a holder of the check in good faith. Issue: Whether the plaintiff could be considered a holder in due course and thus could collect on the said check. which practice means that the check could only be deposited but may not be converted into cash —should have put the plaintiff to inquiry as to the why of the possession of the check by Manuel Gonzales. Forgery Associated Bank vs CA. placed upon it to show that notwithstanding the suspicious circumstances. The rule that a possessor of the instrument is prima facie a holder in due course does not apply because there was a defect in the title of the holder (Gonzales).

is such an indorser. the signature of its rightful holder (here. Fausto Pangilinan was the cashier of Concepcion Emergency Hospital in Tarlac until his retirement in 1978. such as the checks in this case. These checks were drawn payable to the order of Concepcion Emergency Hospital.Associated Bank is bound by its warranties as an indorser and cannot set up the defense of forgery as against the PNB.Facts: The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks drawn against its account with the Philippine National Bank (PNB). PNB in turn demandedAssociated Bank to reimburse said amount. A collecting bank (in this case Associated Bank) where a check is deposited and which indorses the check upon presentment with the drawee bank (PNB). He used to handle checksissued by the provincial government of Tarlac to the said hospital.‖ ISSUE: What are the liabilities of each party? HELD: The checks involved in this case are order instruments. known as the drawee bank (PNB). all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. it demanded PNB to reimburse the said amount. the payee hospital) is essential to transfer title to the same instrument. is under strict liability to pay the check to the order of the payee (Provincial Government of . When the holder’s indorsement is forged. Liability of PNB The bank on which a check is drawn. However. PNB averred that Associated Bank is liable to reimburse because of its indorsement borne on the face of the checks: ―All prior endorsements guaranteed ASSOCIATED BANK. the provincial government still delivered checks to him until its discovery of this irregularity in 1981. When the province of Tarlac discovered this irregularity. Liability of Associated Bank Where the instrument is payable to order at the time of the forgery. EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in notifying the collecting bank (Associated Bank) of the fact of the forgery so much so that the latter can no longer collect reimbursement from the depositor-forger. Pangilinan was able to deposit 30 checks amounting to P203k to his account with the Associated Bank. after his retirement. By forging the signature of the chief payee of the hospital(Dr. So even if the indorsement on the check deposited by the banks’s client is forged. Adena Canlas).

The general rule then is that the drawee bank may not debit the drawer’s account and is not entitled to indemnification from the drawer. 1975 Liability of Accommodation Party On January 15. HOWEVER. 1963. it has no right to reimbursement from the drawer. by reason of Associated Bank’s indorsement and warranties of prior indorsements as a party after the forgery. BUT THEN AGAIN. the Bureau of Treasury issued a back pay check to Martin Lorenzo in the amount of P1. The bankthen demanded Ebrada to refund them. Republic Bank paid the amount of the check to Ebrada. . Associated Bank can ask reimbursement from Pangilinan but unfortunately in this case. Ebrada. PNB can ask the 50% reimbursement from Associated Bank. then to Delia Dominguez and then to Mauricia Ebrada. In sum. The Province of Tarlac can ask reimbursement from PNB because the Province is a party prior to the forgery. The risk of loss must perforce fall on the drawee bank. EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer (Tarlac Province) to exercise ordinary care that substantially contributed to the making of the forged signature. the instrument is inoperative. Republic Bank vs. since PNB can pass its loss to Associated Bank (by reason of Associated Bank’s warranties). Later. upon receiving the cash. Mauricia Ebrada G. L-40796 July 31. Hence.R. it has been proven that the Provincial Government of Tarlac has been negligent in issuing the checks especially when it continued to deliver the checks to Pangilinan even when he already retired. it does not comply with the terms of the check and violates its duty to charge its customer’s (the drawer) account only for properly payable items. Dominguez in turn gave the cash to Ramon Lorenzo.08. Payment under a forged indorsement is not to the drawer’s order. Ebrada encashed the check with the Republic Bank. Since the drawee bank did not pay a holder or other person entitled to receive payment.Tarlac). PNB is only ordered to pay 50% of the amount or half of P203 K. When the drawee bank pays a person other than the payee.246. the Bureau of Treasury notified that the check was a forgery because the payee named therein (Martin Lorenzo) was actually dead 11 years ago before the check was issued. The check was subsequently indorsed to Ramon Lorenzo. Republic Bank refunded the amount to the Bureau of Treasury. Due to this contributory negligence. The drawee named therein is Republic Bank. No. the drawer is precluded from asserting the forgery. it is liable to refund the amount to PNB. gave it to Dominguez. the court did not acquire jurisdiction over him.

But Ebrada did not profit from this because she. warranted the genuineness of the signatures of the payee and the previous indorsers. An accommodation party is one who has signed the instrument as maker. 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. gave the same to Dominguez? She is still liable because she is considered as an accommodation party – pursuant to Section 29 of the Negotiable InstrumentsLaw. being the last indorser. notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. without actual negligence on his part.ISSUE: Whether or not Republic Bank may recover from Ebrada. HELD: Yes. upon receiving the encashment. Ebrada. drawer. acceptor. The drawee bank is not duty bound to ascertain whether or not the signatures of the payee and the indorsers are genuine. 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 forpayment or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the drawee (in this case Republic Bank) who has paid the forged check. may recover the money paid from such negligent purchasers. or indorser. without receiving value therefor. .