Cases: Nego

PNB V. CA- Material Alteration

256 SCRA 491

FACTS:

DECS issued a check in favor of Abante Marketing containing a specific serial

number, drawn against PNB. The check was deposited by Abante in its account
with Capitol and the latter consequently deposited the same with its account
with PBCOM which later deposited it with petitioner for
clearing. The check was thereafter cleared. However, on a relevant date,
petitioner PNB returned the check on account that there had been a material
alteration on it. Subsequent debits were made but Capitol cannot debit the account
of Abante any longer for the latter had withdrawn all the money already from the
account. This prompted Capitol to seek reclarification from PBCOM and
demanded the recrediting of its account. PBCOM followed suit by doing the
same against PNB. Demands unheeded,
it filed an action against PBCOM and the latter filed a third-party complaint against
petitioner.

HELD:

An alteration is said to be material if it alters the effect of the instrument. It means

an unauthorized change in the instrument that purports to modify in any respect
the obligation of a party or an unauthorized addition of words or numbers or
other change to an incomplete instrument relating to the obligation of the
party. In other words, a material alteration is one which changes the items
which are required to be stated under Section 1 of the NIL.

In this case, the alleged material alteration was the alteration of the serial number
of the check in issue—which is not an essential element of a negotiable
instrument under Section 1. PNB alleges that the alteration was material since it
is an accepted concept that a TCAA check by its very
nature is the medium of exchange of governments, instrumentalities and
agencies. As a safety measure, every government office or agency is
assigned checks bearing different serial numbers.

But this contention has to fail. The check’s serial number is not the sole indicia of
its origin. The name of the government agency issuing the check is clearly stated
therein. Thus, the check’s drawer is sufficiently identified, rendering redundant the
referral to its serial number.

Therefore, there being no material alteration in the check committed, PNB could not
return the check to PBCOM. It should pay the same.

SAN CARLOS MINING V. BPI

59 PHIL 59

(FORGED SIGNATURE OF DRAWER)

FACTS:

Wilson, a principal employee of petitioner, together with Wilson, a messenger-

clerk, conspired to withdraw cash from the petitioner’s account through forgery of a
check, in the name of the agent authorized to sign the check.

While the authorized agent of petitioner was on vacation, Wilson and Dolores
sent a cablegram to China Banking for the transfer of $100,000. On the
contract, the name of Baldwin was forged and it was indicated therein that a
certified check be issued. Thereafter, this was received and
deposited with the BPI. Upon deposit, an indorsement in the name of
Baldwin was placed. The bank account was credited. Later, a letter was sent to
the bank, purporting to be signed by Baldwin asking that it be withdrawn.
This was done in supervision of Dolores. Dolores and Wilson then was able to get
the money. This eventually came to the knowledge of plaintiff who filed an action
against China Banking and BPI. The trial court dismissed the case.

HELD:

A bank is bound to know the signatures of its customers and if it pays a forged
check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose
name was forged.

There is no act of the plaintiff that led the bank astray. If it was in fact lulled into
the false sense of security, it was by the effrontery of Dolores, the messenger to
whom it entrusted this large sum of money.

The proximate cause of the loss must therefore be due to the negligence of the
bank in honoring and cashing the two forged checks.

GEMPESAW V. CA

218 SCRA 682

FACTS:
Gempensaw was the owner of many grocery stores. She paid her suppliers through
the issuance of checks drawn against her checking account with respondent
bank. The checks were prepared by her bookkeeper Galang. In the signing of
the checks prepared by Galang, Gempensaw didn't bother
herself in verifying to whom the checks were being paid and if the
issuances were necessary. She didn't even verify the returned checks of the
bank when the latter notifies her of the same. During her two years in business,
there were incidents shown that the amounts paid for were in excess of what
should have been paid. It was also shown that even if the checks were crossed, the
intended payees didn't receive the amount of the checks. This prompted
Gempensaw to demand the bank to credit her account for the amount of the
forged checks. The bank refused to do so and this prompted her to file the case
against the bank.

HELD:
Forgery is a real defense by the party whose signature was forged. A party whose
signature was forged was never a party and never gave his consent to the
instrument. Since his signature doesn’t appear in the instrument, the same
cannot be enforced against him even by a holder in due course. The drawee bank
cannot charge the account of the drawer whose signature was forged because he
never gave the bank the order to pay.
In the case at bar the checks were filled up by petitioner’s employee Galang
and were later given to her for signature. Her signing the checks made the
negotiable instruments complete. Prior to signing of the checks, there was no
valid contract yet. Petitioner completed the checks by signing them and
thereafter authorized Galang to deliver the same to their respective payees. The
checks were then indorsed, forged indorsements thereon.

As a rule, a drawee bank who has paid a check on which an indorsement has been
forged cannot debit the account of a drawer for the amount of said check.
An exception to this rule is when the drawer is guilty of negligence which
causes the bank to honor such checks. Petitioner in this case has relied solely on
the honesty and loyalty of her bookkeeper and never bothered to verify the
accuracy of the amounts of the checks she signed the invoices attached
thereto. And though she received her bank statements, she didn't carefully
examine the same to double-check her
payments. Petitioner didn't exercise reasonable diligence which eventually led to
the fruition of her bookkeeper’s fraudulent schemes.

REPUBLIC V. EQUITABLE BANK

10 SCRA 8

FACTS:
The corporation had acquired 24 treasury warrants by accommodating its former
trusted employee who asked the corporation to cash the warrants, alleging it was
difficulty to do directly with the government and that his wife expected a sort
of commission for the encashment. The corporation
acceded to the request provided that it be first cleared and that the
corporation would receive the amount before paying for it. The warrants were then
cleared but later on, at different periods of time, the treasurer returned 24 warrants
to the CB on the ground that they have forged. The bank refused to return the
cash.

The clearing of the checks, it should be noted, was in accordance to the 24-
hour clearing rule by the CB.

HELD:
The warrants were cleared and paid by the Treasurer, in view of which
Equitable and PI bank credited the corresponding amounts to the
respective depositors of the warrants and then honored the checks for said
amounts. Thus, the treasury had not been only negligent in clearing its own
warrants but had already thereby induced the banks to pay the amounts
thereof to said depositors. This gross negligence becomes more apparent when
each of the warrants were valued for more than the authority of the treasurer
to approve.

BANCO DE ORO SAVING V. EQUITABLE

157 SCRA 188

FACTS:
BDO drew checks payable to member establishments. Subsequently, the checks
were deposited in Trencio’s account with Equitable. The checks were sent
for clearing and was thereafter cleared. Afterwards, BDO discovered that the
indorsements in the back of the checks were forged. It then demanded that
Equitable credit its account but the latter refused to do so. This prompted BDO
to file a complaint against Equitable and PCHC. The trial court and RTC held in favor
of the Equitable and PCHC.

HELD:
First, PCHC has jurisdiction over the case in question. The articles of
incorporation of PHHC extended its operation to clearing checks and other clearing
items. No doubt transactions on non-negotiable checks are within the ambit of its
jurisdiction. Further, the participation of the two banks in the clearing operations is
submission to the jurisdiction of the PCHC.

Petitioner is likewise estopped from raising the non-negotiability of the checks

in issue. It stamped its guarantee at the back of the checks and
subsequently presented it for clearing and it was in the basis of these
endorsements by the petitioner that the proceeds were credited in its
clearing account. The petitioner cannot now deny its liability as it assumed the
liability of an indorser by stamping its guarantee at the back of the checks.

Furthermore, the bank cannot escape liability of an indorser of a check and which
may turn out to be a forged indorsement. Whenever a bank treats the signature at
the back of the checks as indorsements and thus logically guarantees the same
as such there can be no doubt that said bank had considered the checks as
negotiable.
A long line of cases also held that in the matter of forgery in
endorsements, it is the collecting bank that generally suffers the loss
because it had the dutyh 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 the indorsements.

REPUBLIC V. EBRADA

65 SCRA 680

FACTS:

Ebrada encashed a “Back Pay Check” issued by the Bureau of Treasury at the
Republic Bank in Escolta Manila. The Bureau of Treasury advised the Republic
Bank that the instrument was forged. It informed the bank that the original
payee of the check died 11 years before the check was issued. Therefore, there
was a forgery of his signature.

This is the sequence:

Martin Lorenzo
The deceased person, original
“payee”, where the forgery
happened
Ramon Lorenzo

Delia Dominguez

Mauricia Ebrada
Defendant-appelant

Ebrada refuses to return the proceeds of the check claiming that she already
gave it to Delia Dominguez. She also claims that she is a HDC (holder in
due course) and that the bank is already estopped.
HELD:

Ebrada should return the proceeds of the check to Republic Bank. As an

indorser of the check, she was supposed to have warranted that she has good title
to said check. See Section 65.

Section 23: When the signature is forged or made without the authority of the
person whose signature it purports to be, it is wholly inoperative, and no right to
retain the instruments, or to give a discharge thereof against any party thereto, can
be acquired through or under such signature unless the party against whom it is
sought to enforce such right is PRECLUDED from setting up the forgery or want
of authority.

It is only the negotiation based on the forged or unauthorized signature

which is inoperative. Therefore:

Martin Lorenzo
Signature inoperative
Ramon Lorenzo
To Dominguez: operative
Delia Dominguez
To Ebrada: operative
Mauricia Ebrada

Drawee bank can collect from the one who encashed the check. If Ebrada
performed the duty of ascertaining the genuiness of the check, in all
probability, the forgery wouyld have been detected and the fraud defeated.

ASSOCIATED BANK V. CA

252 SCRA 620

FACTS:
The province of Tarlac maintains an account with PNB-Tarlac. Part of its
funds is appropriated for the benefit of Concepcion Emergency Hospital.
During a post-audit done by the province, it was found out that 30 of its checks
weren’t received by the hospital. Upon further investigation, it was found out that
the checks were encashed by Pangilinan who was a former cashier and
administrative officer of the hospital through forged indorsements. This
prompted the provincial treasurer to ask for
reimbursement from PNB and thereafter, PNB from Associated Bank. As the
two banks didn't want to reimburse, an action was filed against them.

HELD:
There is a distinction on forged indorsements with regard bearer
instruments and instruments payable to order.

With instruments payable to bearer, 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 holder in due course.

In instruments payable to order, the signature of the rightful holder is

essential to transfer title to the same instrument. When the holder’s
signature is forged, all parties prior to the forgery may raise the real defense
of forgery against all parties subsequent thereto. In connection to this, an
indorser warrants that the instrument is genuine. A collecting bank is such
an indorser. So even if the indorsement 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.

Furthermore, in cases involving checks with forged indorsements, such as the case
at bar, the chain of liability doesn't end with the drawee bank. The drawee
bank may not debit the account of the drawer but may generally pass liability
back through the collection chain to the party who took from the forger and of
course, the forger himself, if available. In other words, the drawee bank can
seek reimbursement or a return of the amount it paid from the collecting bank
or person. The collecting bank generally suffers the loss because it has te
duty to ascertain the genuineness of all prior endorsements considering
that the act of presenting the check for payment to the drawee is an
assertion that the party making the presentment has done its duty to
ascertain the
genuineness of the indorsements.

With regard the issue of delay, a delay in informing the bank of the forgery,
which deprives it of the opportunity to go after the forger, signifies negligence on
the part of the drawee bank and will preclude it from claiming
reimbursement. In this case, PNB wasn't guilty of any negligent delay. Its delay
hasn't prejudiced Associated Bank in any way because even if there wasn't
delay, the fact that there was nothing left of the account of Pangilinan, there
couldn't be anymore reimbursement.

FACTS:

The plaintiff is an insurance corporation, which drew a check in favor of

Melicor. This was stolen by Maasim, forged the signature of Melicor and
deposited the check to his account in PNB. Thereafter, PNB endorsed the check to
HSBC who later debited the account of plaintiff. Plaintiff believed all along that
Melicor received the payment. Upon knowledge of the debit HSBC did on its
account, it demanded that the same amount be credited.

HELD:

The banks are liable. The money was in deposit with the bank and it had no legal
right to pay it out to anyone except the plaintiff or its order.

The only remedy of the bank paying a check to a person who has forged the name
of the payee is against the forger.

Negotiable Instruments Case Digest: Metrobank V. FNCB (1982)

G.R. No. L-55079 November 19, 1982

Lessons Applicable: Alteration (Negotiable Instruments Law)

FACTS:

 August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable to CASH,
drawn by Joaquin Cunanan & Company on First National City Bank (FNCB) was
deposited with Metropolitan Bank and Trust Company (Metro Bank) by Salvador
Sales.
 Earlier that day, Sales had opened a current account with Metro Bank
depositing P500.00 in cash

 Metro Bank immediately sent the cash check to the Clearing House of
the Central Bank with the following words stamped at the back of the check:

 Metropolitan Bank and Trust Company Cleared (illegible) office

All prior endorsements and/or Lack of endorsements Guaranteed.

 The check was cleared the same day. Private respondent paid
petitioner through clearing the amount of P50,000.00, and Sales was credited
with the said amount in his deposit with Metro Bank.

 August 26, 1964: Sales made his 1st withdrawal of P480.00 from his current
account

 August 28, 1964: he withdrew P32,100.00

 August 31, 1964: he withdrew the balance of P17,920 and closed his account
with Metro Bank

 September 3, 1964: FNCB returned cancelled Check to drawer Joaquin

Cunanan & Company, together with the monthly statement of the company's
account with FNCB.

 notified FNCB that the check had been altered

 actual amount of P50.00 was raised to P50,000.00

 name of the payee, Manila Polo Club, was superimposed the

word CASH.

 September 10, 1964: FNCB wrote Metro Bank asking for reimbursement
 June 29, 1965: FNCB filed for recovery

 CA affirmed Trial Court: Metro Bank to reimburse FNCB

ISSUE: W/N Metrobank should reimsburse FNCB for the altered amount as indorser

HELD: NO. FNCB liable.

 Under the procedure prescribed, the drawee bank receiving the check for
clearing from the Central Bank Clearing House must return the check to the
collecting bank within the 24-hour period if the check is defective for any reason.
- FNCB failed to do so

 indorsement must be read together with the 24-hour regulation on

clearing House Operations of the Central Bank

 Metro Bank can not be held liable for the payment of the altered check.

 Moreover, FNCB did not deny the allegation of Metro Bank that before it
allowed the withdrawal of the balance of P17,920.00 by Salvador Sales, Metro
Bank withheld payment and first verified, through its Assistant Cashier Federico
Uy, the regularity and genuineness of the check deposit from Marcelo Mirasol,
Department Officer of FNCB, because its (Metro Bank) attention was called by
the fast movement of the account

ILLUSORIO V. CA

393 SCRA 89

FACTS:
Petitioner was a prominent businessman who, because of different business
commitments, entrusted to his then secretary the handling of his credit cards
and checkbooks. For a material period of time, the secretary was able to
encash and deposit in her personal account money from the account of
petitioner. Upon knowledge of her acts, she was fired immediately and
criminal actions were filed against her. Thereafter, petitioner requested the
bank to restore its money but the bank refused to
do so.

HELD:

The petitioner doesn’t have a course of action against the bank. To be

entitled to damages, petitioner has the burden of proving negligence on the part of
the bank for failure to detect the discrepancy in the signatures on the checks. It is
incumbent upon petitioner to establish the fact of forgery. Curiously though,
petitioner failed to supply additional signature specimens as requested by the NBI.
The bank was not also remiss in performance of its duties, it practices due diligence
in encashing checks. The bank didn’t
have any hint of the modus operandi of Eugenio as she was a regular
customer, designated by the petitioner himself to transact on his behalf.

It was petitioner who was negligent in this case. He failed to examine his bank
statements and this was the proximate cause of his own damage. Because of
this negligence, he is precluded from setting up the defense of forgery with regard
the checks.

PCIB V. CA

350 SCRA 446

FACTS:
Ford Philippines filed actions to recover from the drawee bank Citibank and
collecting bank PCIB the value of several checks payable to the
Commissioner of Internal Revenue which were embezzled allegedly by an
organized syndicate. What prompted this action was the drawing of a check
by Ford, which it deposited to PCIB as payment and was debited from their
Citibank account. It later on found out that the payment wasn’t received by the
Commissioner. Meanwhile, according to the NBI report, one of the checks
issued by petitioner was withdrawn from PCIB for alleged mistake in the amount to
be paid. This was replaced with manager’s check by PCIB, which were allegedly
stolen by the syndicate and deposited in their own account.

The trial court decided in favor of Ford.

ISSUE:
Has Ford the right to recover the value of the checks intended as payment to CIR?

HELD:
The checks were drawn against the drawee bank but the title of the person
negotiating the same was allegedly defective because the instrument was obtained
by fraud and unlawful means, and the proceeds of the checks were not
remitted to the payee. It was established that instead paying the
Commissioner, the checks were diverted and encashed for the eventual
distribution among members of the syndicate.

Pursuant to this, it is vital to show that the negotiation is made by the

perpetrator in breach of faith amounting to fraud. The person negotiating the
checks must have gone beyond the authority given by his principal. If the principal
could prove that there was no negligence in the performance of his duties, he
may set up the personal defense to escape liability and recover from other
parties who, through their own negligence, allowed the commission of the crime.

It should be resolved if Ford is guilty of the imputed contributory negligence

that would defeat its claim for reimbursement, bearing in mind that its employees
were among the members of the syndicate. It appears although the employees
of Ford initiated the transactions attributable to the organized syndicate, their
actions were not the proximate cause of encashing the checks payable to
CIR. The degree of Ford’s negligence couldn’t be characterized as the
proximate cause of the injury to parties. The mere fact that the forgery
was committed by a drawer-payor’s confidential employee or agent, who by
virtue of his position had unusual facilities for perpetrating the fraud and imposing
the forged paper upon the bank, doesn’t entitle the bank to shift the loss to the
drawer-payor, in the absence of some circumstance raising estoppel against the
drawer.
Note: not only PCIB but also Citibank is responsible for negligence. Citibank
was negligent in the performance of its duties as a drawee bank. It failed to
establish its payments of Ford’s checks were made in due course and legally
in order.

WESTMONT BANK V. ONG

373 SCRA 212

FACTS:

Ong was supposed to be the payee of the checks issued by Island

Securities. Ong has a current account with petitioner bank. He opted to sell his
shares of stock through Island Securities. The company in turn issued checks
in favor of Ong but unfortunately, the latter wasn't able to receive any. His
signatures were forged by Tamlinco and the checks were deposited in his own
account with petitioner. Ong then sought to collect the money from the family
of Tamlinco first before filing a complaint with the Central Bank. As his efforts were
futile to recover his money, he filed an action against the petitioner. The trial
and appellate court decided in favor of Ong.

HELD:

Since the signature of the payee was forged, such signature should be
deemed inoperative and ineffectual. Petitioner, as the collecting bank, grossly
erred in making payment by virtue of said forged signature. The payee, herein
respondent, should therefore be allowed to collect from the collecting bank.

It should be liable for the loss because it is its legal duty to ascertain that the
payee’s endorsement was genuine before cashing the check. As a general
rule, a bank or corporation who has obtained possession of a check with an
unauthorized or forged indorsement of the payee’s signature and who collects the
amount of the check other from the drawee, is liable for the proceeds thereof to the
payee or the other owner, notwithstanding that the amount has been paid to
the person from whom the check was obtained.
DOCTRINE OF DESIRABLE SHORT CUT—plaintiff uses one action to reach, by
desirable short cut, the person who ought to be ultimately liable as among
the innocent persons involved in the transaction. In other words, the payee ought
to be allowed to recover directly from the collecting bank, regardless of whether the
check was delivered to the payee or not.

On the issue of laches, Ong didn't sit on his rights. He immediately sought the
intervention of Tamlinco’s family to collect the sum of money, and later the Central
Bank. Only after exhausting all the measures to settle the issue amicably did
he file the action.