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CORPORATIONG.R. No. L-37467December 11, 1933
G.R. No. 116320 November 29, 1999
San Carlos milling,organized under the laws of the Territory of Hawaii was authorized
FACTS: toengage in business in the Philippines. Thebusiness in the Philippines was in the hands of
Alfred Cooper, its agent under general power of attorney with authority of substitution.
A. Francisco Realty & Development Corporation (AFRDC), of which petitioner Francisco is the
Theprincipal employee in the Manila Office was Joseph Wilson who had a general power of
president, entered into a Land Development and Construction Contract with private
attorney but without power of substitution.Cooper went on a vacation and gave a
respondent Herby Commercial & Construction Corporation (HCCC), represented by its
generalpower of attorney to Newland Baldwin andrevoked the power of Wilson relative to
President and General Manager private respondent Ong. Under the contract, HCCC was to
thedealings with BPI.After a year, Wilson conspired with Dolores, amessenger-clerk and sent
be paid on the basis of the completed houses and developed lands delivered to and accepted
a cable gram in codeto the company in Honolulu requesting atelegraphic transfer to the
by AFRDC and the GSIS. Sometime in 1979, Ong discovered that Diaz and Francisco, the Vice-
China BankingCorporation of Manila for $100,000. The moneywas transferred by cable to
President of GSIS, had executed and signed seven checks of various dates and amounts
Chinabank andupon receipt, sent to San Carlos Milling anexchange contract for P201,000
payable to HCCC for completed and delivered work under the contract. Ong, however, claims
(exchangerate then). Such contract was forged in thename of Newland Baldwin. It further
that these checks were never delivered to HCCC. It turned out that Francisco forged the
askedChinabank to send a certified check in SanCarlos Millings favor, payable for deposit
indorsement of Ong on the checks and indorsed the checks for a second time by signing her
onlywith BPI. The endorsement to which the nameof Newland Baldwin was affixed was
name at the back of the checks, petitioner then deposited said checks in her savings account.
spurious.BPI credited the current account of plaintiff inthe sum of P201,000 and after it was
A case was brought by private respondents against petitioner to recover the value of said
cleared, itwas paid by China Banking Corporation The next day, BPI received a letter
checks. Petitioner however claims that she was authorized to sign Ong's name on the checks
purported tobe signed by Newland Baldwin, directing thatthe money be paid in certain
by virtue of the Certification executed by Ong in her favor giving her the authority to collect
denominations. The couting and packing of the money waswitnessed by Dolores who in turn
all the receivables of HCCC from the GSIS, including the questioned checks.
returned witha check purporting to be signed by NewlandBaldwin as agent. . Dolores also
returned witha forged check for P1 covering the cost of packing the money. Shortly
thereafter, thecrime was discovered but BPI refused to creditSan Carlos Milling with the
Whether petitioner cannot be held liable on the questioned checks by virtue of the amount withdrawnby the two forged checks and brought the caseto the Trial Court. Upon
Certification executed by Ong giving her the authority to collect such checks from the GSIS. the petition of BPI,Chinabank was also impleaded as defendant. The trial court held that the
deposit of P201,000 in the BPI being the result of a forgedendorsement, the relation of the
RULING: depositor andbanker did not exist, but the bank was only agratuitous bailee; that BPI acted in
good faithin the ordinary course of business and was notguilty of negligence and that San
Petitioner is liable. The Negotiable Instruments Law provides that where any person is under Carlos Millingcould not recover since the loss was due to thecriminal actions of its
obligation to indorse in a representative capacity, he may indorse in such terms as to employees. San Carlosappealed its case to the Supreme Court.
negative personal liability. An agent, when so signing, should indicate that he is merely
signing in behalf of the principal and must disclose the name of his principal; otherwise he ISSUE:
shall be held personally liable. Even assuming that Francisco was authorized by HCCC to sign
Ong's name, still, Francisco did not indorse the instrument in accordance with law. Instead of WON BPI is guilty of negligence and isliable to pay San Carlos Milling for the amountit had
signing Ong's name, Francisco should have signed her own name and expressly indicated that cashed out
she was signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to
validate her act of forgery.
Judgment absolving BPI was reversed.
BPI is guilty of negligence because itshould have taken care in ensuring thatthe signatures September 28, 1927: A manager's check on the China Banking Corporation for P201K payable
were not forged; ChinaBank is not liable since the responsibilityof verifying all endorsements to San Carlos Milling Company or order was receipted for by Dolores deposited with the BPI
on thecheck is with the bank that cashes thecheck, in this case, BPI. having a fake endorsement (Baldwin forged as drawer)

A bank that cashes a check must knowto whom it pays. In connection with thecashiers For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos Milling
check, this duty was thereforeupon the BPI and the CBC was notbound to inspect and verify Co., Ltd.By (Sgd.) NEWLAND BALDWIN
allendorsements of the check, even if some of them were also those of thedepoistors in that
bank. It had a rightto rely upon the endorsement of BPIwhen it gave the latter bank credit For Agent San Carlos had frequently withdrawn currency for shipment to its mill but never in
forits own cashiers check. Since themoney was in fact paid by CBC to BPI,CBC is not indebted so large an amount, and never under the sole supervision of Dolores
to San CarlosMilling or BPI.
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,
A bank is bound to know thesignatures of its customers; and if itpays a forged check, it
purporting to be signed by Newland Baldwin the crime was discovered and San Carlos filed
must beconsidered as making the payment outof its own funds, and cannot ordinarilycharge
against the BPI and China Bank (after ammendment complaint)
the amount so paid to theaccount of the depositor whose namewas forged. (7 C.J. 683)
China Bank: as the prior endorsement had in law been guaranteed by the BPI, they are
ONo act of San Carlos Milling ledBPI to go astray. The bank paidout its money because it
absolved even if the endorsement of Newland Baldwin on the check was a forgery
reliedupon the genuiness of thepurported signatures of Baldwin. Its employees shouldhave
used care. 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
Therefore,the proximate cause of losswas due to the negligenceof tBPI in honoring
andcashing two forged checks(P201,000 and P1).

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

HELD: YES. judgment absolving the Bank of the Philippine Islands must therefore be reversed
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 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
The principal employee in the Manila office was Joseph L. Wilson, to whom had been given a
that bank
general power of attorney but without power of substitution.
A bank is bound to know the signatures of its customers; and if it pays a forged check, it must
1926: Cooper, desiring to go on vacation, gave a general power of attorney to Newland
be considered as making the payment out of its own funds, and cannot ordinarily charge the
Baldwin and at the same time revoked the power of Wilson relative to the dealings with BPI
amount so paid to the account of the depositor whose name was forged.
Wilson, conspiring together with Alfredo Dolores, a messenger-clerk in San Carlos' Manila
under section 23 of the Negotiable Instruments Law they are not a charge against San Carlos
office, sent a cable gram in code to the company in Honolulu requesting a telegraphic
nor are the checks of any value to the BPI.
transfer to the China Banking Corporation (China Bank) of Manila of $100,00.

The money was transferred by cable, and upon its receipt China Bank sent an exchange
contract to San Carlos offering the sum of P201K, which was then the current rate of proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in
exchange. honoring and cashing the two forged checks
Negotiable Instruments Case Digest: PNB V. National City Bank New York (1936) Acceptance is a step unnecessary for bills of exchange payable on demand (sec. 143)

Lessons Applicable: Forgery (Negotiable Instruments) Acceptance implies, subsequent negotiation of the instrument

FACTS: From the moment a check is paid it is withdrawn from circulation.

April 7 & 9, 1933: unknown person or persons purchased tires and paid Motor Service That the payment of a check does not include or imply its acceptance in the sense that this
Company, Inc.(MSCI) checks purporting to have been issued by the "Pangasinan word is used in section 62 of the Negotiable Instruments Law
Transportation Co., Inc. (Pantranco) by J. L. Klar, Manager and Treasurer" against PNB and in
favor of International Auto Repair Shop. Payment (in checks) - final act which extinguishes a bill.

MSCI indorsed for deposit at the National City Bank of New York and MSCI was accordingly Acceptance (in certified checks) - a promise to pay in the future and continues the life of the
credited with the amounts thereof, or P144.50 and P215.75 bill.

April 8 & 10, 1933: Checks were cleared and PNB credited the National City Bank 2. NO

PNB found out that the signatures of J. L. Klar, Manager and Treasurer were forged and section 187, which provides that "where a check is certified by the bank on which it is drawn,
demanded from MSCI and National City Bank New York the certification is equivalent to an acceptance", and it is then that the warranty under
section 62 exists
PNB filed the case in the municipal court of Manila against National City Bank and MSCI.
That if a drawee bank pays a forged check which was previously accepted or certified by the
Pantranco objected to have the proceeds of said check deducted from their deposit. said bank it cannot recover from a holder who did not participate in the forgery and did not
have actual notice thereof
RTC: Favored PNB
3. YES.
MSCI appealed
check number 637023-D was dated April 6, 1933, whereas check number 637020-D and is
W/N acceptance = payment dated April 7, 1933. (later check had prior number)

W/N law or business practice prevents the presentation of checks for acceptance before they accepted the 2 checks from unknown persons
are paid.
check 637023-D was indorsed by a subagent of the agent of the payee, International Auto
W/N MSCI was negligent and therefore PNB should recover Repair Shop and cross generally

W/N the drawee bank should be allowed recovery, as MSCI's position would not become Section 23 of the Negotiable Instruments Act provides that "when a signature is forged or
worse than if the drawee had refused the payment of these checks upon their presentation. 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
HELD: Affirmed
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.
A check is a bill of exchange payable on demand and only the rules governing bills of
exchange payable on demand are applicable to it, according to section 185 of the Negotiable
Instruments Law
PNB did not warrant to MCSI the genuineness of the checks in question, by its acceptance from one who took the check under circumstances of suspicion and without proper
thereof, nor did it perform any act which would have induced MSCI to believe in the precaution, or whose conduct has been such as to mislead the drawee or induce him to pay
genuineness the check without the usual scrutiny or other precautions against mistake or fraud;

PNB is NOT precluded from setting up the forgery 7. That on who purchases a check or draft is bound to satisfy himself that the paper is
genuine, and that by indorsing it or presenting it for payment or putting it into circulation
4. NO. before presentation he impliedly asserts that he performed his duty;

A drawee of a check, who is deceived by a forgery of the drawer's signature may recover the 8. That while the foregoing rule, chosen from a welter of decisions on the issue as the correct
payment back, unless his mistake has placed an innocent holder of the paper in a worse one, will not hinder the circulation of two recognized mediums of exchange by which the
position than he would have been in if the discover of the forgery had been made on great bulk of business is carried on, namely, drafts and checks, on the other hand, it will
presentation. encourage and demand prudent business methods on the part of those receiving such
mediums of exchange;
MSCI has lost nothing by anything which the drawee has done. It had in its hands some
forged worthless papers. It did not purchase or acquire these papers because of any 9. That it being a matter of record in the present case, that the appellee bank in no more
representation made to it by the drawee chargeable with the knowledge of the drawer's signature than the appellant is, as the drawer
was as much the customer of the appellant as of the appellee, the presumption that a
Court concluded:
drawee bank is bound to know more than any indorser the signature of its depositor does
not hold;

10. That according to the undisputed facts of the case the appellant in purchasing the papers
1. That where a check is accepted or certified by the bank on which it is drawn, the bank is
in question from unknown persons without making any inquiry as to the identity and
estopped to deny the genuineness of the drawer's signature and his capacity to issue the
authority of the said persons negotiating and indorsing them, acted negligently and
contributed to the appellee's constructive negligence in failing to detect the forgery;
2. That if a drawee bank pays a forged check which was previously accepted or certified by
11. That under the circumstances of the case, if the appellee bank is allowed to recover,
the said bank it cannot recover from a holder who did not participate in the forgery and did
there will be no change of position as to the injury or prejudice of the appellant.
not have actual notice thereof;

3. That the payment of a check does not include or imply its acceptance in the sense that this
word is used in section 62 of the Negotiable Instruments Law;

4. That in the case of the payment of a forged check, even without former acceptance, the
drawee can not recover from a holder in due course not chargeable with any act of
negligence or disregard of duty;

5. That to entitle the holder of a forged check to retain the money obtained thereon, there
must be a showing that the duty to ascertain the genuineness of the signature rested entirely
upon the drawee, and that the constructive negligence of such drawee in failing to detect the
forgery was not affected by any disregard of duty on the part of the holder, or by failure of
any precaution which, from his implied assertion in presenting the check as a sufficient
voucher, the drawee had the right to believe he had taken;

6. That in the absence of actual fault on the part of the drawee, his constructive fault in not
knowing the signature of the drawer and detecting the forgery will nor preclude his recovery
Philippine National Bank vs Court of Appeals (October 1968) Negotiable Instruments Case Digest: Great Eastern Life Ins. Co. V. Hongkong Shanghai Bank
25 SCRA 693 Mercantile Law Negotiable Instruments Law Liabilities of Parties
Forgery Forged Check Warranties 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
In November 1961, GSIS advised PNB that a check bearing check number 645915- B has Melicor.
been lost.
E. M. Maasim fraudulently obtained possession of the check, forged Melicor's signature, as
On January 15, 1962, Augusto Lim, holding GSIS Check No. 645915- B which was in the an endorser, and then personally endorsed and presented it to the Philippine National
amount of P57,415.00, went to PCIB to have the check deposited in his PCIB account. Bank (PNB) and it was placed to his credit.
Apparently, the check was indorsed to him by Manuel Go, which was previously indorsed
by Mariano Pulido to Go. Pulido was the named payee in the check. Next day: PNB endorsed the check to the HSBC who paid it

PCIB did not encash the check in favor of Augusto Lim but rather it deposited the amount HSBC sent a bank statement to the Eastern showing the amount of the check was charged
to Lims PCIB account. Lim cannot withdraw the amount yet as it needs clearing. PCIB to its account, and no objection was made
stamped the check with All prior indorsements and/or Lack of Endorsement Guaranteed,
Philippine Commercial and Industrial Bank. PCIB then sent the check to PNB for clearing. 4 months after the check was charged, it developed that Lazaro Melicor, to whom the
PNB did not act on the check but it paid PCIB the amount of the check. PCIB considered this check was made payable, had never received it, and that his signature, as an endorser, was
as a manifestation that the check was good hence it cleared Lim to withdraw the amount. forged by Maasim,

On January 31, 1962, GSIS demanded PNB to restore the amount and PNB complied. PNB Eastern promptly made a demand upon the HSBC to credit the amount of the forged check
then demanded PCIB to refund the amount of the check. PCIB refused. The lower court
Eastern filed against HSBC and PNB
ruled in favor of PCIB. This was affirmed by the Court of Appeals. PNB argued that the
indorsements are forged hence it has no liability.
RTC: dismissed the case
ISSUE: Whether or not PCIB should refund the amount to PNB.
ISSUES: W/N Eastern has the right to recover the amount of the forged check

HELD: No. The question whether or not the indorsements have been falsified is immaterial
HELD: YES. lower court is reversed. Eastern against HSBC who can claim against PNB
to PNBs 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 forgery was that of Melicor (payees and NOT the maker)
drawer, since the forgery of the indorsement is not the cause of the loss.
Eastern received it banks statement, it had a right to assume that Melicor had personally
With respect to the warranty on the back of the check, it should be noted that the PCIB endorsed the check, and that, otherwise, the bank would not have paid it
thereby guaranteed all prior indorsements, not the authenticity of the signatures of the
officers of the GSIS who signed on its behalf, because the GSIS is not an indorser of the Section 23 of Negotiable Instruments Law:
check, but its drawer. Further, PNB has been negligent. It has been notified months before
about the lost check. 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 Gempesaw V. CA (1993)
anyone else upon a forge signature.
Its remedy is against Maasim to whom it paid the money
Gempesaw owns and operates four grocery stores

to pay their debts of her supplies, she draws checks against her account

she signed each and every crossed check without bothering to verify the accuracy of the
checks against the corresponding invoices because she reposed full and implicit trust and
confidence on her bookkeeper.

although the Bank notified her of all checks presented to and paid by the bank, petitioner did
not verify he correctness of the returned checks, much less check if the payees actually
received the checks in payment for the supplies she received

It was only after the lapse of more 2 years that petitioner found out about the fraudulent
manipulations of her bookkeeper

November 7, 1984: Gempesaw made a written demand on respondent drawee Bank to credit
her account with the money value of the 82 checks totalling P1,208.606.89 for having been
wrongfully charged against her account

January 23, 1985: Gempesaw filed against Philippine Bank of Communications (drawee Bank)
for recovery of the money value of 82 checks charged against the Gempesaw's account on
the ground that the payees' indorsements were forgeries

RTC: dismissed the complaint

CA: affirmed

Gempesaw gross negligence = promixate cause of the loss

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

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

Petitioner completed the checks by signing them as drawer and thereafter authorized her
employee Alicia Galang to deliver to payees
GR: drawee bank who has paid a check on which an indorsement has been forged cannot Associated Bank vs Court of Appeals
charge the drawer's account for the amount of said check
The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks
EX: where the drawer is guilty of such negligence which causes the bank to honor such a drawn against its account with the Philippine National Bank (PNB). These checks were drawn
check or checks. payable to the order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of
Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He used to handle
Under the NIL, the only kind of indorsement which stops the further negotiation of an checks issued by the provincial government of Tarlac to the said hospital. However, after his
instrument is a restrictive indorsement which prohibits the further negotiation thereof. retirement, the provincial government still delivered checks to him until its discovery of this
irregularity in 1981. By forging the signature of the chief payee of the hospital (Dr. Adena
Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either
Canlas), Pangilinan was able to deposit 30 checks amounting to P203k to his account with the
chanrobles virtual law library
Associated Bank.
(a) Prohibits further negotiation of the instrument; or
When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the
said amount. PNB in turn demanded Associated Bank to reimburse said amount. PNB averred
xxx xxx xxx
that Associated Bank is liable to reimburse because of its indorsement borne on the face of
In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be the checks:
written in express words at the back of the instrument, so that any subsequent party may be
All prior endorsements guaranteed ASSOCIATED BANK.
forewarned that ceases to be negotiable.

ISSUE: What are the liabilities of each party?

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
HELD: The checks involved in this case are order instruments.
form of the indorsement does not authorize him to do so.
Liability of Associated Bank
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 Where the instrument is payable to order at the time of the forgery, such as the checks in
Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer
not actually guilty of fraud or negligence title to the same instrument. When the holders indorsement is forged, all parties prior to the
forgery may raise the real defense of forgery against all parties subsequent thereto.
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 A collecting bank (in this case Associated Bank) where a check is deposited and which
periodic inspection conducted by a team of auditors from the main office constitutes indorses the check upon presentment with the drawee bank (PNB), is such an indorser. So
negligence on the part of the bank in carrying out its obligations to its depositors even if the indorsement on the check deposited by the bankss client is forged, Associated
Bank is bound by its warranties as an indorser and cannot set up the defense of forgery as
against the PNB.

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.

Liability of PNB

The bank on which a check is drawn, known as the drawee bank (PNB), is under strict liability
to pay the check to the order of the payee (Provincial Government of Tarlac). Payment under
a forged indorsement is not to the drawers order. When the drawee bank pays a person
other than the payee, it does not comply with the terms of the check and violates its duty to
charge its customers (the drawer) account only for properly payable items. Since the drawee
bank did not pay a holder or other person entitled to receive payment, it has no right to
reimbursement from the drawer. The general rule then is that the drawee bank may not
debit the drawers account and is not entitled to indemnification from the drawer. 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 drawer is precluded from asserting the forgery.

In sum, by reason of Associated Banks indorsement and warranties of prior indorsements as

a party after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can
ask reimbursement from PNB because the Province is a party prior to the forgery. Hence, the
instrument is inoperative. HOWEVER, 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. Due to this contributory negligence, PNB
is only ordered to pay 50% of the amount or half of P203 K.

BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated
Banks warranties), PNB can ask the 50% reimbursement from Associated Bank. Associated
Bank can ask reimbursement from Pangilinan but unfortunately in this case, the court did not
acquire jurisdiction over him.