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TOPIC: Forgery


(158 SCRA 582)

Francisco Gozon (Gozon) is a depositor in the petitioner bank. He went to one of the branches of the bank in
Caloocan City with Ernesto Santos (Santos) whom the latter was his classmate and friend. Gozon disembarked
the car and went to the petitioner bank to transact business thereby leaving Santos in the car. Subsequently,
Santos saw that Gozon left his check book he took a check therefrom, filled it up for the amount of P5,000.00,
forged the signature of Gozon, and thereafter he encashed the check in the bank on the same day. The account
of Gozon was debited the said amount. Upon receipt of the statement of account from the bank, Gozon asked
that the said amount of P5,000.00 should be returned to his account as his signature on the check was forged
but the bank refused. Santos admitted that he stole the check, forged Gozon’s signature and encashed the same.
On the other hand, the petitioner bank interposed the defense that it exercised diligence in accordance with the
accepted norms of banking practice when it accepted and paid the “check” and that the said check had to pass
scrutiny by a signature verifier as well as an officer of the bank.

RTC Ruling:
It favored the plaintiff. It ruled that a bank is bound to know the signatures of its customers; and if it pays a
forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily change
the amount so paid to the account of the depositor whose name was forged.

Whether the defense of forgery is tenable.


YES. As a rule, a bank is bound to know the signatures of its customers; and if it pays a forged check, it must be
considered as making the payment out of its own funds, and cannot ordinarily change the amount so paid to
the account of the depositor whose name was forged. This rule is absolutely necessary to the circulation of
drafts and checks, and is based upon the presumed negligence of the drawee in failing to meet its obligation to
know the signature of its correspondent. If the paper comes to the drawee in the regular course of business,
and he, having the opportunity of ascertaining its character, pronounces it to be valid and pays it, it is not only
a question of payment under mistake, but payment in neglect of duty which the commercial law places upon
him, and the result of his negligence must rest upon him.

The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or
the depositor on the check being encashed. It is expected to use reasonable business prudence in accepting and
cashing a check presented to it

In this case, the above-mentioned rule was not met. A comparison of the signature on the forged check and the
sample signatures of Gozon show marked differences as the graceful lines in the sample signature which is
completely different from those of the signature on the forged check, was identified by NBI handwriting expert.
Also, there was a variation in the second "c" in Francisco as written on the questioned signature as compared
to the sample signatures, and the separation between the "s" and the "c" in the questioned signature while they
are connected in the sample signatures.
Hence, petitioner bank was negligent in encashing said forged check without carefully examining the signature
which shows marked variation from the genuine signature of private respondent. Gozon cannot be faulted with
negligence because of his trust with Santos who was his long time classmate and a friend whose act committed
was not expected.


(430 SCRA 261)

Respondent CASA Montessori International opened an account with petitioner BPI with CASA's President Ms.
Ma. Carina C. Lebron as one of its authorized signatories. Subsequently, the respondent discovered that nine
(9) of its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00.
It turned out that 'Sonny D. Santos' with account at BPI's Greenbelt Branch [was] a fictitious name used by third
party defendant Leonardo T. Yabut who worked as an external auditor of CASA. Yabut voluntarily admitted
that he forged the signature of Ms. Lebron and encashed the checks. Also, the PNP Crime Laboratory conducted
an examination of the nine (9) checks and concluded that the handwritings thereon compared to the standard
signature of Ms. Lebron were not written by the latter.

BPI contends that it has a signature verification procedure, in which checks are honored only when the
signatures therein are verified to be the same with or similar to the specimen signatures on the signature cards.

RTC Ruling:
Favored the respondent CASA Montesorri International.

Court of Appeals Ruling:

It modified the decision of the lower court. It apportioned the loss between BPI and CASA. The appellate court
took into account CASA's contributory negligence that resulted in the undetected forgery. It then ordered
Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA, the other half.

a) Was there forgery under the Negotiable Instruments Law (NIL)?
b) Were any of the parties negligent and therefore precluded from setting up forgery as a defense?

a) Forged signature wholly inoperative
YES. The counterfeiting of any writing, consisting in the signing of another's name with intent to
defraud, is forgery. A forged signature is a real or absolute defense, and a person whose signature on
a negotiable instrument is forged is deemed to have never become a party thereto and to have never
consented to the contract that allegedly gave rise to it.

In this case, there was forgery of the drawer's signature on the check. Further, Yabut himself had
voluntarily admitted, through an Affidavit, that he had forged the drawer's signature and encashed the
checks and based on the PNP Crime Laboratory, after its examination of the said checks, that the
signature of the drawer was really forged.
b) Negligence Attributable to BPI Alone
NO. The banking business is impressed with public interest, of paramount importance thereto is the
trust and confidence of the public in general. Consequently, the highest degree of diligence is expected,
and high standards of integrity and performance are even required, of it. By the nature of its functions,
a bank is "under obligation to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship.

The negligence of the party invoking forgery is recognized as an exception to the general rule that a
forged signature is wholly inoperative.

In this case, despite the claim of BPI that the check had undergone scrutiny, it still failed to detect the
eight instances of forgery. Its negligence consisted in the omission of that degree of diligence required
of a bank. The monthly statements issued by BPI to its clients contain a notice worded as follows: "If
no error is reported in ten (10) days, account will be correct." Such notice cannot be considered a
waiver, even if CASA failed to report the error. Neither is it estopped from questioning the mistake
after the lapse of the ten-day period. This notice is a simple confirmation or "circularization" — in
accounting parlance — that requests client-depositors to affirm the accuracy of items recorded by the
banks. BPI has no right to impose a condition unilaterally and thereafter consider failure to meet such
condition a waiver. Neither may CASA renounce a right it has never possessed and it never made any
deed or representation that misled BPI.

Lastly, for allowing payment on the checks to a wrongful and fictitious payee, BPI — the drawee bank
— becomes liable to its depositor-drawer. Since the encashing bank is one of its branches, BPI can
easily go after it and hold it liable for reimbursement. It "may not debit the drawer's account and is not
entitled to indemnification from the drawer."

G.R. No. 129015. August 13, 2004.

Samsung has a current account in Far Eastern Bank. The sole signatory of the account was Jong Kyu Lee (“Jong”)
while the checks was with Kyu Yong Lee. A certain Roberto Gonzaga presented for payment FEBTC the check,
payable to cash and drawn against Samsung Construction’s current account. The bank teller checked the
balance of Samsung Construction’s account and compared the signature appearing on the check with the
specimen signature of Jong. She was satisfied as to the authenticity of the signature appearing on the check.
She then asked Gonzaga to submit proof of his identity whish Gonzaga complied. Two bank officers
counterchecked the signature and concluded that the signature was genuine. The assistant accountant of
Samsung also vouched for the genuiness of Jong’s signature. Thus, the bank authorized the encashment of the
check to Gonzaga.

Kyu, examined the balance of the bank account and discovered that a check amounting to P999,500.00 had
been encashed. Knowing that he had not prepared such a check for Jong’s signature, Kyu perused the
checkbook and found that the last blank check was missing. He reported it to Jong, who went to the bank and
realized that his signature had been forged.
Samsung Construction, through counsel, demanded that FEBTC the credit. Samsung Construction filed a
Complaint for violation of Section 23 of the Negotiable Instruments Law, and prayed for the payment of the
amount debited as a result of the questioned check plus interest, and attorney’s fees

Both sides presented their respective expert witnesses to testify on the claim that Jong’s signature was forged.
Samsung Corporation, which had referred the check for investigation to the NBI. She testified that based on
her examination, she concluded that Jong’s signature had been forged on the check. FEBTC, which had sought
the assistance of the Philippine National Police (PNP). She testified that her findings showed that Jong’s
signature on the check was genuine.

RTC ruled in favor of Samsung. RTC held that Jong’s signature on the check was forged and accordingly directed
the bank to pay or credit back to Samsung Construction’s account. But the Court of Appeals reversed the RTC
Decision and absolving FEBTC from any liability. The Court of Appeals held that the contradictory findings of
the NBI and the PNP created doubt as to whether there was forgery.

 WON CA erred in reversing the decision of the RTC.
 Whether Samsung Construction was precluded from setting up the defense of forgery under Section
23 of the Negotiable Instruments Law


 YES. The general rule is to the effect that a forged signature is “wholly inoperative,” and payment made
“through or under such signature” is ineffectual or does not discharge the instrument. If payment is
made, the drawee cannot charge it to the drawer’s account. The traditional justification for the
result is that the drawee is in a superior position to detect a forgery because he has the maker’s
signature and is expected to know and compare it.

Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party
whose signature is forged. On the premise that Jong’s signature was indeed forged, FEBTC is liable
for the loss since it authorized the discharge of the forged check. Such liability attaches even if the
bank exerts due diligence and care in preventing such faulty discharge. Forgeries often deceive the
eye of the most cautious experts; and when a bank has been so deceived, it is a harsh rule which
compels it to suffer although no one has suffered by its being deceived. The forgery may be so near
like the genuine as to defy detection by the depositor himself, and yet the bank is liable to the depositor
if it pays the check.

In a forgery trial, the presumption that document was formally presented is presumed to be genuine
until it is proved to be fraudulent must be overcome but this can only be done by convincing testimony
and effective illustrations. The court will have to decide which version to believe, and explain why or
why not such version is more credible than the other. RTC had the opportunity to examine the relevant
documents and to personally observe the expert witness, clearly disbelieved the PNP expert. The Court
similarly finds the testimony of the PNP expert as unconvincing.

Court of Appeals failed to assess the effect of Jong’s testimony that the signature on the check was not
his. Although the assertion may seem self-serving but Jong was in the best position to know whether
or not the signature on the check was his. While his claim should not be taken at face value, any
averments he would have on the matter, if adjudged as truthful, deserve primacy in consideration.
Jong’s testimony is supported by the findings of the NBI examiner.

 NO. SC held that it cannot conclude that Samsung Construction was guilty of negligence in this case.
The appellate court failed to explain precisely how the Korean accountant was negligent or how more
care and prudence on his part would have prevented the forgery. FEBTC was unable to dispute the
presumption of ordinary care exercised by Samsung Construction, thus the SC did not agree with the
Court of Appeals’ finding of negligence.

The general rule states that the drawee who has paid upon the forged signature bears the loss. The
exception to this rule arises only when negligence can be traced on the part of the drawer whose
signature was forged, and the need arises to weigh the comparative negligence between the drawer
and the drawee to determine who should bear the burden of loss. The general rule imputing liability
on the drawee who paid out on the forgery holds in this case.


[G.R. No. L-26001. October 29, 1968.]

Augusto Lim deposited in his current account with the PCIB drawn against the PNB. The check was forwarded,
for clearing, through the Central Bank, to the PNB, which did not return said check. It however retained, and
paid its amount to the PCIB as well as debited it against account of the GSIS in the PNB.

Upon demand from the GSIS, said sum of P57,415.00 was re-credited to the latter's account, for the reason
that the signatures of its officers on the check were forged. PNB demanded from PCIB the refund of said sum
but PCIB refused. It is not disputed that the signatures of the General Manager and the Auditor of the GSIS on
the check, as drawer thereof, are forged.

The person named in the check as its payee was Mariano D. Pulido, who purportedly indorsed it to one Manuel
Go. THE check have been indorsed by Manuel Go to Augusto Lim, who, in turn, deposited it with the PCIB. PCIB
stamped following on the back of the check: "All prior indorsements/or Lack of Endorsement Guaranteed,
Philippine Commercial Industrial Bank," and PCIB sent the check to the PNB, for clearance, through the
Central Bank. RTC ruled in favor of PCIB.

 WON the court erred in not finding that the indorsements at the back of the check are forged;
 WON the court erred in not holding that "clearing" is not "acceptance", in contemplation of the
Negotiable Instruments Law since the check had not been accepted by the PNB, the latter is entitled
reimbursement therefor;
 WON the court erred in denying the PNB's right to recover from the PCIB

 There was no evidence, and the PNB has not even tried to prove that the indorsements are spurious.
Again, the PNB refunded the amount of the check to the GSIS, on account of the forgery in the
signatures, not of the indorsers or supposed indorsers, but of the officers of the GSIS as drawer of the

The question whether or not the indorsements have been 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.

With respect to the warranty on the back of the check, to which the third assignment of error refers,
it should be noted that the PCIB 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 check, but its drawer. Said warranty is irrelevant, therefore, to the PNB's alleged right to recover
from the PCIB. It could have been availed of by a subsequent indorsee or a holder in due course
subsequent to the PCIB, but, the PNB is neither. Indeed, upon payment by the PNB, as drawee, the,
check ceased to be a negotiable instrument, and became a mere voucher or proof of payment

 "Acceptance", in the sense in which this term is used in the Negotiable Instruments Law is not required
for checks, for the same are payable on demand. Indeed, "acceptance" and "payment" are, within the
purview of said Law, essentially different things, for the former is "a promise to perform an act,"
whereas the latter is the "actual performance" thereof. The law provides that "the acceptance of a bill
is the signification by the drawee of his assent to the order of the drawer," which, in the case of checks,
is the payment, on demand, of a given sum of money. Upon the other hand, actual payment of the
amount of a check implies not only an assent to said order of the drawer and a recognition of the
drawee's obligation to pay the aforementioned sum, but, also, a compliance with such obligation. PNB
was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB. It is a well-
settled maxim of law and equity that when one of two (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.


Associated Bank v. CA,
G.R. No. 107382/G.R. No. 107612 January 31, 1996

The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch
where the provincial funds are deposited. 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 drawn to the order of "Concepcion
Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac."

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.

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. 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 day later. After forging the signature of Dr. Adena Canlas who was
chief of the payee hospital, Pangilinan followed the same procedure for the other checks.

All the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed
ASSOCIATED BANK. CA affirmed RTC: Associated to reimburse PNB and ordering PNB to pay Province of Tarlac

Whether or not PNB and Associated Bank should be held liable?

The collecting bank, Associated Bank, shall be liable to PNB for 50% of P203,300
Section 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.

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. 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.
EX: where "a party against whom it is sought to enforce a right is precluded from setting up the forgery or want
of authority."

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. 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. 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. GR: 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.

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. 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.

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.

Gempesaw v. Court of Appeals

G.R. No. 92244 February 9, 1993
This case involves a petition for recovery of money regarding 82 issued checks—all of which had payee’s
forged indorsements—charged against the petitioner’s account with respondent drawee bank. Prior to
this petition, Natividad O. Gempesaw (petitioner) owns and operates 4 grocery stores at Caloocan city.
Petitioner maintains a checking account with the Caloocan City Branch of the respondent bank. In order
to facilitate payment of debts to her suppliers, she issues checks that were prepared by her bookkeeper,
Alicia Galang (an employee of petitioner for 8 years). After Galang prepared the checks. the completed
checks were submitted to the petitioner for her signatures along with the corresponding invoice receipts
that indicate the correct obligations due and payable to her suppliers. Petitioner then signs each every
checks against the the corresponding invoices because she reposed full and implicit trust and confidence
on her bookkeeper. The issuance an delivery of the checks to the apes were left to the bookkeeper.

Petitioner admits that she does not make any verification regarding the checks even if respondent
drawee bank notified of all the checks presented and paid by the bank, petitioner did not verify if they
were correctly made or if the payees received the checks. This practice covered a period of 2 years and
a total of 82 checks in favor of the suppliers. These checks were all presented by the indorsees as
holders and honored by respondent drawee bank debiting the amount to petitioner’s checking account.
Most of the Cheks were for amounts in excess of her actual obligations to the various payees. All the
checks issue and honored by the respondent drawee Bank were crossed checks. Respondent bank
furnished petitioner monthly statements attaching all the cancelled checks and debited to her current
account. It was only after 2 years that petitioner found out about these fradulent acts of her Galang. All
82 checks with forged signatures of payees were brought to Ernel L. Boon, Chief Accoutant of respondent
bank and without authority accepted all for deposit and credited them to the amount of Alfredo Romero
and Benito Lam. Boon is a very close friend of Romero, 63 out of the 82 checks were deposited to his

The rest were deposited under Benito Lam. About 30 payees whose names were specifically written on
the checks testified that they did not receive or see the subject checks and that the indorsements at
the back of the checks were not theirs. The team of auditors in the main office of respondent failed to
discover the anomaly. Under the rules of the respondent bank, only a branch manager may accept a
second indorsement on a check for deposit. In this case, all deposit slips of the 82 checks were
initialed/approved by Ernest Boon. Managers of the Ongpin and Elcano branches accepted the deposits
and credited to Romero and Lam. November 7, 1984 petitioner made a written demand to respondent
to credit her account with the money value of the 82 checks for a total of 1,208,606.89 for having been
wrongfully charged against her account. Respondent refused to grant petitioner’s demand that prompted
her to file a complaint with the RTC.

(1) Whether the CA erred in ruling that the negligence of the drawer is the proximate cause of the
resulting injury to the drawee bank and the drawer is precluded from setting up the forgery or want
of authority.
(2) Whether the CA erred in not finding and ruling that it was the gross and inexcusable negligence
and fraudulent acts of the officials and employees of the respondent bank in forging the signature of
the payees and the wrong and/or illegal payments made to persons, other than to the intended payees
specified in the checks, is the direct and proximate cause of the damage to petitioner whose saving
account was debited.
(3) Whether the respondent CA erred in nor ordering the respondent bank to restore or recredit the
checking account of petitioner in the caloocan city branch by the value of the 82 checks is in the amount
of 1,208,606.89 with legal interest.

Drawer whose signature is genuine but the indorsements of the payees were forged. How and by whom
the forgeries were committed were not established but the payees did not receive the checks. The
applicable law in this case is Section 23 of the NIL. Forgery is a rea or absolute defense by the party
whose signature was forged. Given that there was no consent a person whose signature is forged cannot
be made to pay because he never made the promise to pay. The same way when the drawer’s signature
is forged, the drawee bank cannot charge the amount to he’s account because he never gave the bank
the order to pay. It also covers forged indorsements (ex. forged signature of the payee or indoors of a
note or check). Since under said provision a forged signatue is “wholly inoperative”, no once can gain
title to the instrument through the endorsement. Said endorsement, prevents any subsequent party from
acquiring any right against any party whose name appears prior to the forgery. However there are
exceptions and contemplate 2 situations: (1) forgery is accomplished by a person not associated with
the drawer (ex. stolen) (2) where indorsement was forged by the agent of the drawer.

This difference would determine the effect of the drawer’s negligence with respect to forged indorsements
—Drawer is under the duty to set up an accounting system or business procedure as are reasonable
calculated to prevent or render difficult the forgery of indorsements. If there is negligence or failure to
discover the forgery, the drawer loses his right against the drawee who has debited his account and is
precluded to use forgery as a defense. -The negligence of a depositor which will prevent recovery of an
unauthorized payment is based on failure of the depositor to act as a prudent businessman-Petitioner
admitted that the checks were filled up by another person and were later given to her for her signature
thus making the checks a negotiable instrument-Petitioner relied upon her bookkeeper to issue the
checks without verifying the accuracy of the amounts stated and although she regularly received her
bank statements, she did not carefully examine the same nor the check stubs and the returned checks.
She could have easily learned about these discrepancies had she been a keen businessman. It was only
after 2 years after the commencement of bookkeeper’s fraudulent scheme did petitioner discover the 82
checks. The records did not even mention complaint made by the suppliers—making it a possibility that
they were inexistent sales. -Thus, petitioner’s negligence was the proximate cause of her loss—causing
the respondent bank to honor the checks and debiting the amounts of the same to her account. Therefor,
under section 23, she is precluded from using forgery as a defense. PETITIONER argues that respondent
bank should not have honored the checks because they were crossed checks. Issuing a crossed checks
imposes no legal obligation on the drawee not to honor such a check. Since it should serve as a
warning to the holder that the check cannot be presented to the drawee bank for payment in cash.
Instead, the check can only be deposited with the payee’s bank which in turn must present it for
payment against the drawee bank in the course of normal banking transactions between the banks. The
crossed check cannot be presented for payment but it can only be deposited and the drawee bank may
only pay to another bank in the payee’s or endorser’s account. -Banking rules prohibit the drawee bank
from having checks with more than one indorsement. Although it neither invalidates the instrument nor
affect its negotiability. -Thus, it limits their negotaition by the endorsement of only the payee and under
the NIL, the only kind of endorsement which stopes further negotiation of an instrument is a restrictive
indorsement which prohibits the further negotiation (Sec. 36). -The prohibition to transfer or negotiate
must be written in express words at the back of the instrument—such that he can no longer transfer
his rights as an indorsee. -The bank may not legally refuse to honor a negotiable bill of exchange or a
checks drawn against it with more than one endorsement if there isn thing irregular with the bill or
check -The drawee (bank) cannot be compelled to accept the check by the drawee or any holder because
he incurs no liability-Though the drawee will make itself liable to suit for damages at the instance of
the drawer from wrongful dishonor of the bill or check.-Petitioner is precluded from raising the defense
of forgery be reason of her gross negligence. Every contract on a negotiable instrument is incomplete
and revocable until the delivery of the instrument to the payee for the purpose of giving effect. ISSUANCE:
first delivery of the instrument to the payee.-The record failed to show who made the forged signatures

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

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

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


[G.R. No. 179952, Dec. 4, 2009] (607 SCRA 620)

Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance) a loan to secure
which, he mortgaged his car to respondent BA Finance. Bitanga thus had the mortgaged car insured by
respondent Malayan Insurance Co., Inc. (Malayan Insurance). The car was stolen. On Bitangas claim, Malayan
Insurance issued a check payable to the order of B.A. Finance Corporation and Lamberto Bitanga for P224,500,
drawn against China Banking Corporation (China Bank). The check was crossed with the notation For Deposit
Payees Account Only.

Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his account
with the Asianbank Corporation (Asianbank), now merged with petitioner Metropolitan Bank and Trust
Company (Metrobank). Bitanga subsequently withdrew the entire proceeds of the check.

In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it. BA Finance
thereupon demanded the payment of the value of the check from Asianbank but to no avail, prompting it to file
a complaint for sum of money and damages against Asianbank and Bitanga alleging that, inter alia, it is entitled
to the entire proceeds of the check.
On the issue of whether or not BA Finance has a cause of action, Metrobank contends that Bitanga is authorized
to indorse the check as the drawer names him as one of the payees. Moreover, his signature is not a forgery nor
has he or anyone forged the signature of the representative of BA Finance Corporation. No unauthorized
indorsement appears on the check. Absent the indispensable fact of forgery or unauthorized indorsement, the
payee may not recover from the collecting bank.

Whether BA Finance has a cause of action against Metrobank even if the subject check had not been
delivered to BA Finance by the issuer itself?

YES. Section 41 of the Negotiable Instruments Law provides:

Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must
indorse unless the one indorsing has authority to indorse for the others.

Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds
thereof, despite the absence of authority of Bitangas co-payee BA Finance to endorse it on its behalf. Petitioners
argument that since there was neither forgery, nor unauthorized indorsement because Bitanga was a co-payee
in the subject check, the dictum in Associated Bank v. CA does not apply in the present case fails. The payment
of an instrument over a missing indorsement is the equivalent of payment on a forged indorsement or an
unauthorized indorsement in itself in the case of joint payees.

Accordingly, 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 entireamount of the check.

Is Metrobank liable to BA Finance for the full value of the check, under the Negotiable Instruments Law?

YES. Section 68 of the Negotiable Instruments Law instructs that joint payees who indorse are deemed
to indorse jointly and severally. When the maker dishonors the instrument, the holder thereof can turn to those
secondarily liable the indorser for recovery.

A collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon
presentment with the drawee bank, is an indorser. his is because in indorsing a check to the drawee bank, a
collecting bank stamps the back of the check with the phrase all prior endorsements and/or lack of
endorsement guaranteed and, for all intents and purposes, treats the check as a negotiable instrument,
hence, assumes the warranty of an indorser.

Petitioner, as the collecting bank or last indorser, 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.
TOPIC: Consideration


Ty’s mother and sister were admitted to Manila Doctors Hospital. Ty signed the Acknowledgement of
Responsibility for Payment and executed a promissory note wherein she assume payment of obligation hospital
bills in installments. To assure payment of the obligation, she drew several postdated checks against
Metrobank, payable to MDH. All the checks were later dishonored by drawee bank and returned unpaid to MDH
due to insufficiency of funds. MDH sent demand letters to Ty but were not heeded. Thus MDH filed 7
informations against Ty. Ty, on the other hand, claimed that she issued the checks because of uncontrollable
fear of greater injury and to obtain release of her mother whom the hospital inhumanely treated.
Ty claims that the obligation to pay the bills was not her personal obligation because she was not the patient
therefore there was no consideration of checks Trial Court found Ty guilty of 7 counts of violation of BP 22. CA
affirmed the Trial Court’s decision.

Whether or not there was valuable consideration in the issuance of the subject checks.

There is a valuable consideration. It is presumed, upon issuance of the checks, in the absence of evidence to the
contrary, that the same was issued for valuable consideration. Sec. 24 of the Negotiable Instrument Law creates
a presumption that every party to an instrument acquired the same for a consideration or for value. In alleging
otherwise, Ty has the onus to prove that the checks were issued without consideration. She must present
convincing evidence to overthrow the presumption. The facts reveal that Ty failed to discharge her burden of
proof. Valuable consideration may in general terms be said to consist either in some right, interest. Profit, or
benefit accruing to the party who makes the contract, or some forbearance detriment, loss or some
responsibility, to act, or labor, or service given, suffered or undertaken by the other side. Simply defined,
valuable consideration means an obligation to give, to do, or not to do in favor of the party who makes the

In this case, Ty’s mother and sister availed of the services of MDH. For the care given to them, Ty had a legitimate
obligation to pay MDH. it is no defense to an action on a promissory noted for the maker to say that there was
no consideration which was beneficial to him personally. It is sufficient if the consideration was a benefit
conferred upon a third person, or a detriment suffered by the promise, at the instance of the promisor.

TOPIC: Accommodation


Antonio Ang and Tomas Ang obtained a loan of 50,000 evidenced by a promissory note. The loan would be
payable, jointly and severally on January 13,1979 and December 8,1978. Despite repeated demands for
payment, Antonio Ang and Tomas Ang failed to settle their obligation. Antonio only admitted that he only
loaned the amount of 80,000 and that the bank was collecting excessive interest. Tomas on the other hand
alleged that he did not receive any valuable consideration for affixing his signatures on the notes but merely
lent his name as an accommodation party. Bank countered that the fact that Tomas never received any money
in consideration of the 2 loans are immaterial because as an accommodation make, he is considered as a
solidary debtor who is primarily liable for the payment of the promissory notes citing Sec. 29 of NIL, saying
that absence of consideration is not a matter of defense, neither is the fact that the holder knew him to be only
an accommodation party.

RTC rendered judgment against Antonio. Now, Tomas alleged that he is released from his obligation as
accommodation party because he is now precluded from asserting his cross-claima gainst Antonio. CA denied

Whether or not Tomas can be held liable as accommodation party.

Tomas can be held liable. Sec. 29 of NIL provides that when a third person advances the face value of the note
to the accommodated party at the time of its creation, the consideration for the note as regards its maker is the
money advances to the accommodated party. It is enough that the value was given for the note at the time of
its creation. As in the instant case, a sum of money was received by virtue of the notes, hence, it is immaterial
so far as the bank is concerned whether one of the signer, particularly petitioner, has or has not received
anything in payment of the use of his name. Furthermore, since liability of an accommodation party remains
not only primary but also unconditional to a holder for value, even if the accommodated party receives
extension of the period of payment without consent of accommodation party, the latter is still liable for the
whole obligation and such extension does not release him because as far as a holder for value is concerned, he
is a solidary co-debtor.

Ybaez owns a lot in Cebu. He entered into agreement and authority to negotiate and sell such land with Saban.
Ybaez authorized Saban to sell the lot for 200k. Saban got Spouses Lim to agree to buy the lot for 600k. But in
the deed of absolute sale it was only sold for 200k. After the sale, Lim issued to Saban postdated checks in
aggregate amount of 200k+. Subsequently, Ybaez sent letter to Lim asking the latter to cancel all the checks
issued by her to Saban and extend another payment in his favor. After the checks were dishonored upon
presentment by Saban, he filed a complaint for collection of sum of monety against Ybaez and Lim in the RTC.
RTC dismissed the case. Saban appealed to CA. CA reversed and held that Lim is liable to pay to Saban the
amount of purchase price because she issued the checks knowing that the total amount thereof corresponding
to Saban’s commission for the sale and that in issuing the check, Lim acted as an accommodation party, signing
as drawer without receiving value therefore for the purpose of lending her name to a third person. As such she
is liable.

Whether or not Lim is liable to pay the checks to Saban,

Sec. 29 of NIL defines an accommodation party as a person who has signed the negotiable instrument as a
maker, drawer, acceptor, or endorser, without receiving a value therefore, for the purpose of lending his name
to some other person. The accommodation party is liable on the instrument to a holder for value even though
the holder at the time of taking the instrument knew him or her to be merely an accommodation party.
Accommodating party may seek reimbursement from the party accommodated. The requisites to be deemed
as accommodation party is that (1) he signed the instrument as maker, drawer, acceptor, or endorser, (2) he
did not receive a value for the signature; (3) and he signed for the purpose of lending his name to some other
person. Lim does not satisfy the second and third requirement. Lim issued checks on account of her transaction.
And neither did she sign it to lend his name to Ybaez.