Duran, Dana Ginelle A.

Negotiable Instruments

2-D March 27, 2020

A. Cases on Forgery

G.R. No. 132560 January 30, 2002

WESTMONT BANK (formerly ASSOCIATED BANKING CORP.),

petitioner, vs. EUGENE ONG, respondent.

Facts: Respondent Eugene Ong maintained a current account with petitioner

Westmont Bank. Sometime in May 1976, he sold certain shares of stocks
through Island Securities Corporation. To pay Ong, Island Securities purchased
two (2) Pacific Banking Corporation manager’s checks, issued in the name of
Eugene Ong as payee. Ong was unable to get a hold of these checks, but instead
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.

Issues:

1. Whether or not respondent Ong has a cause of action against petitioner

Westmont Bank;
2. Whether or not Ong is barred to recover the money from Westmont Bank
due to laches.

Held:
1. YES. Since the signature of the payee, in the case at bar, was forged to
make it appear that he had made an indorsement in favor of the forger,
such signature should be deemed as inoperative and ineffectual.
Petitioner, as the collecting bank, grossly erred in making payment by
virtue of said forged signature. The payee, herein respondent, should
therefore be allowed to recover from the collecting bank.
The collecting bank is liable to the payee and must bear 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 upon an unauthorized or forged
indorsement of the payee’s signature and who collects the amount of the
check from the drawee, is liable for the proceeds thereof to the payee or
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.

2. NO. Ong did not 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.
G.R. No. 89802 May 7, 1992
ASSOCIATED BANK and CONRADO CRUZ, petitioners, vs. HON.
COURT OF APPEALS, and MERLE V. REYES, doing business under the
name and style "Melissa's RTW," respondents.

Facts: Private respondent Merle V. Reyes is engaged in the business of ready-

to-wear garments under the name “Melissa’s RTW” and deals with a number of
companies as her clients, some of which are Robinson’s Department Store,
Payless Department Store, and the like. Said client companies issued their
payment through crossed checks payable to Melissa’s RTW. When Ms. Reyes
went to her client companies to claim what she thought were still unpaid
accounts, she was informed that the said companies have already issued
crosschecks. Said checks were apparently deposited with Associated Bank and
subsequently paid to one Rafael Sayson, which according to AB was one of
their “trusted depositors.” Sayson had not been authorized by Ms. Reyes to
deposit and encash the said checks. This prompted Reyes to sue the bank and its
manager for the return of the money. The trial and appellate court ruled in favor
of Reyes.

Issue: Whether or not petitioner Bank should bear the loss on forged
indorsement

Held: YES. Associated Bank should refund the six checks. The six checks in
the case at bar had been crossed and issued “for payee’s account only.” This
could only signify that the drawers had intended the same for deposit only by
the person indicated, to wit, Merle Reyes.

The court also elucidated the effects of crossing a check namely:

1. That the check may not be encashed but only deposited in the bank;
 2. That the check may be negotiated only once – to one who has an account
with a bank; and
3. That the act of crossing the check serves as a warning to the holder that
the check has been issued for a definite purpose so that he must inquire if
he has received the check pursuant to that purpose.

On the other hand, even if indeed Eddie Reyes indorsed the checks, Associated
Bank is still liable because in the first place, the husband is not authorized to
make indorsements. And even if the indorsements were forged, as alleged,
Associated Bank would still be liable to Reyes for not verifying the indorser’s
authority. There is no substantial difference between an actual forging of a
name to a check as an endorsement by a person not authorized to indorse it.
G.R. No. 149454 May 28, 2004

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA

MONTESSORI INTERNATIONALE LEONARDO T. YABUT,
respondents.

Facts: Plaintif CASA Montessori International opened a current account with

BPI. In 1991, plaintiff discovered that nine of its check had been encashed by a
certain Sonny D. Santos since 1990 in the total amount of PHP 782,000. It
turned out than Sonny D. Santos with an account at BPI’s Greenbelt Branch was
a fictitious name used by third party defendant Leonardo T. Yabut who worked
as external auditor of CASA. Third party defendant voluntarily admitted that he
forged the signature of Ms. Lebron and encashed the checks.

On March 4, 1991, plaintiff filed the herein Complaint for Collection with
Damages against defendant bank praying that the latter be ordered to reinstate
the amount of PHP 782,500 in the current and savings accounts of the plaintiff
with interest at 6% per annum.

RTC rendered decision in favor of CASA. CA modified decision holding CASA

as contributory negligent hence ordered Yabut to reimburse BPI half the total
amount claimed and CASA, the other half. It also disallowed attorney’s fees and
moral and exemplary damages.

Issue: Whether or not there was forgery under the Negotiable Instruments Law

Held: YES. Under Section 23 of the NIL, 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 have never consented to the
contract that allegedly gave rise to it. The counterfeiting of any writing,
consisting in the signing of another’s name with intent to fraud, is fraud.
Negligence is attributable to BPI alone. A 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. BPI,
despite claims of following its signature verification procedure, still failed to
detect the eight instances of forgery. Its negligence consisted in the omission of
that degree of diligence required of a bank. It cannot now feign ignorance, for
very early on we have already 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 charge the amount so
paid to the account of the depositor whose name was forged.
G.R. No. 139130 November 27, 2002

RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and

THE MANILA BANKING CORPORATION, respondents

Facts: Ramon Ilusorio entrusted his credit cards and checkbooks and blank
checks to his secretary. Apparently, his secretary was able to encash and deposit
to her personal account 17 checks drawn against his account. Ilusorio requested
to restore to his account the value of the checks that were wrongfully encashed
but the bank refused, hence the case.

In court, the bank testified that they make sure that the sign on the check is
verified. When asked by the NBI to submit standard signs to compare, Ilusorio
failed to comply. The lower held held in favor of defendant.

Issue: Whether the petitioner has a cause of action against respondent Bank

Held: NO. To be entitled to damages, petitioner had 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 did not have any hint of the modus operandi of Eugenio as she was a
regular customer, designated by the petitioner to 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.
Ilusorio also cites Sec. 23 of the NIL that a forged check is inoperative and that
he bank has no authority to pay. While true, the case at bar falls under the
exception stated in the section. The SC held that Ilusorio is precluded from
setting up the forgery, assuming there is forgery, due to his own negligence in
entrusting his secretary.
G.R. No. 129015 August 13, 2004

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC.,

petitioner, vs. FAR EAST BANK AND TRUST COMPANY AND COURT
OF APPEALS, respondents.

Facts: A check drawn against petitioner was presented for payment to

respondent bank. Satisfied with the authenticity of the signature appearing
thereon, the check was encashed. The following day, petitioner’s accountant
who had custody of the company checks discovered that a check was missing
and reported the petitioner’s project manager who is also the sole signatory to
its checking account. Petitioner demanded that it be reimbursed for the proceeds
of the check.

Issue: Whether or not respondent bank is liable to reimburse for the payment of
the forged check

Held: YES. Banks are engaged in a business impressed with public interest, and
it is their duty to protect in return their many clients and depositors who transact
business with them. They have the obligation to treat their clients’ account
meticulously and with the highest degree of care, considering the fiduciary
nature of their relationship. The diligence required of banks, therefore, is more
than that of a good father of a family. Given the circumstances, extraordinary
diligence dictates that FEBTC should have ascertained from Jong personally
that the signature in the questionable check was his. Since the drawer, Samsung
Construction, is not precluded by negligence from setting up the forgery, the
general rule should apply. Consequently, if a bank pays for a forged check, it
must be considered as paying out of its funds and cannot charge the amount so
paid to the account of the depositor. A bank is liable, irrespective of its good
faith, in paying a forged check.
G.R. No. 173259 July 25, 2011

PHILIPPINE NATIONAL BANK, Petitioner, vs. F.F. CRUZ and CO.,

INC. Respondent.

Facts: Respondent F.F. Cruz & Co., Inc. opened a savings/current or so-called
combo account and dollar savings account with petitioner Philippine National
Bank. Its President Felipe Cruz (or Felipe) and Secretary-Treasurer Angelita A.
Cruz (or Angelita) were the named signatories for the said accounts. While they
were thus out of the country, applications for cashier's and manager's checks
bearing Felipe's signature were presented to and both approved by the PNB.
When Angelita returned to the country, she had occasion to examine the PNB
statements of account of and she noticed the deductions Claiming that these
were unauthorized and fraudulently made, FFCCI requested PNB to credit back
and restore to its account the value of the checks. PNB refused, and thus FFCCI
filed the instant suit for damages against the PNB and its own accountant Aurea
Caparas (or Caparas).

The trial court ruled that PNB should bear the whole loss, while the CA
rendered the assailed Decision affirming with modification. The appellate court
found FFCCI guilty of contributory negligence because it clothed its
accountant/bookkeeper Caparas with apparent authority to transact business
with PNB.

Issue: Whether the CA seriously erred when it found PNB guilty of negligence

Held: NO. PNB is guilty of negligence. FFCCI is guilty of contributory

negligence, thus, making it partly liable for the loss. The court finds no
reversible error in the findings of the appellate court that PNB was negligent in
the handling of FFCCI's combo account, specifically, with respect to PNB's
failure to detect the forgeries in the subject applications for manager's check
which could have prevented the loss. As the court have often ruled, the banking
business is impressed with public trust.A higher degree of diligence is imposed
on banks relative to the handling of their affairs than that of an ordinary
business enterprise.

In the case at bar, PNB failed to meet the high standard of diligence required by
the circumstances to prevent the fraud. Where the bank's negligence is the
proximate cause of the loss and the depositor is guilty of contributory
negligence, we allocated the damages between the bank and the depositor on a
60-40 ratio. We apply the same ruling in this case considering that, as shown
above, PNB's negligence is the proximate cause of the loss while the issue as to
FFCCI's contributory negligence has been settled with finality.
G.R. No. 158143 September 21, 2011
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner, vs.
ANTONIO B. BALMACEDA and ROLANDO N. RAMOS, Respondents.

Facts: PCIB filed an action for recovery of sum of money with damages before
the RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz,
Manila branch. In its complaint, PCIB alleged that between 1991 and 1993,
Balmaceda, by taking advantage of his position as branch manager, fraudulently
obtained and encashed 31 Manager’s checks in the total amount of PHP
10,782,150.00. PCIB then impleaded Rolando Ramos as one of the recipients of
a portion of the proceeds from Balmaceda’s alleged fraud. PCIB also increased
the number of fraudulently obtained and encashed Manager’s checks to 34, in
the total amount of PHP 11,937,150.00. According to Ramos, he is a reputable
businessman engaged in the business of buying and selling fighting cocks, and
Balmaceda was one of his clients. Ramos admitted receiving money from
Balmaceda as payment for the fighting cocks that he sold to Balmaceda, but
maintained that he had no knowledge of the source of Balmaceda’s money.

Issue: Whether or not PCIB contributed to the perpetration of the fraud

Held: YES. Ms. Analiza Vega, an accounting clerk, teller and domestic
remittance clerk, testified that Balmaceda broke the Bank’s protocol when he
ordered the Bank’s employees to fill up the application forms for the Manager’s
checks, to be debited from the bank account of one of the bank’s clients,
without providing the necessary Authority to Debit from the client. PCIB also
admitted that these Manager’s checks were subsequently released to Balmaceda,
and not to the client’s representative, based solely on Balmaceda’s word that the
client had tasked him to deliver these checks.
Despite Balmaceda’s gross violations of bank procedures – mainly in the
processing of the applications for Manager’s checks and in the releasing of the
Manager’s checks – Balmaceda’s co-employees not only turned a blind eye to
his actions, but actually complied with his instructions. In this way, PCIB’s own
employees were unwitting accomplices in Balmaceda’s fraud.

Moreover, in complete disregard of its duty, PCIB’s systems allowed

Balmaceda to encash 26 Manager’s checks which were all crossed checks, or
checks payable to the "payee’s account only."
G.R. No. 126000 October 7, 1998
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM
(MWSS), petitioner, vs. COURT OF APPEALS, HON. PERCIVAL
LOPEZ, AYALA CORPORATION and AYALA LAND, INC.,
respondents.

Facts: Metropolitan Waterworks and Sewerage System (MWSS) had an

account with PNB. When it was still called NAWASA, MWSS made a special
arrangement with PNB so that it may have personalized checks to be printed by
Mesina Enterprises. These personalized checks were the ones being used by
MWSS in its business transactions.

From March to May 1969, MWSS issued 23 checks to various payees in the
aggregate amount of PHP 320,636.26. During the same months, another set of
23 checks containing the same check numbers earlier issued were forged. The
aggregate amount of the forged checks amounted to PHP 3,457,903.00. This
amount was distributed to the bank accounts of three persons: Arturo Sison,
Antonio Mendoza, and Raul Dizon.

MWSS then demanded PNB to restore the amount of PHP 3,457,903.00. PNB
refused. The trial court ruled in favor of MWSS but the Court of Appeals
reversed the trial court’s decision.

Issue: Whether or not PNB should restore the said amount

Held: NO. MWSS is precluded from setting up the defense of forgery. It has
been proven that MWSS has been negligent in supervising the printing of its
personalized checks. It failed to provide security measures and coordinate the
same with PNB. Further, the signatures in the forged checks appear to be
genuine as reported by the NBI so much so that the MWSS itself cannot tell the
difference between the forged signature and the genuine one. The records
likewise show that MWSS failed to provide appropriate security measures over
its own records thereby laying confidential records open to unauthorized person.
Even if the 23 checks in question are considered forgeries, considering the
MWSS’s gross negligence, it is barred from setting up the defense of forgery
under Section 23 of the Negotiable Instruments Law.
G.R. No. 107382/G.R. No. 107612 January 31, 1996

ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS,

PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK,
respondents.

Facts: The Province of Tarlac maintains a current account with the Philippine
National Bank where the provincial funds are deposited. Portions of the funds
were allocated to the Concepcion Emergency Hospital. Checks were issued to it
and were received by the hospital’s administrative officer and cashier Fausto
Pangilinan. Pangilinan, through the help of Associated Bank but after forging
the signature of the hospital’s chief Adena Canlas, was able to deposit the
checks in his personal accounts. All the checks bore the stamp “All prior
endorsement guaranteed Associated Bank.” Through post-audit, the province
discovered that the hospital did not receive several allocated checks, and sought
the restoration of the debited amounts from PNB. In turn, PNB demanded
reimbursement from Associated Bank. Both banks resisted payment. Hence, the
present action.

Issue: Whether PNB shall bear the loss resulting from the forged checks

Held: NO. PNB is not negligent as it is not required to return the check to the
collecting bank within 24 hours as the banks involved are covered by Central
Bank Circular 580 and not the rules of the Philippine Clearing House.
Associated Bank, and not PNB, is the one duty-bound to warrant the instrument
as genuine, valid and subsisting at the time of indorsement pursuant to Section
66 of the Negotiable Instruments Law. The stamp guaranteeing prior
indorsement is not an empty rubric; the collecting bank is held accountable for
checks deposited by its customers. However, due to the fact that the Province of
Tarlac is equally negligent in permitting Pangilinan to collect the checks when
he was no longer connected with the hospital, it shares the burden of loss from
the checks bearing a forged indorsement. Therefore, the province can only
recover 50% of the amount from the drawee bank (PNB), and the collecting
bank (Associated Bank) is liable to PNB for 50% of the same amount.
G.R. No. L-53194 March 14, 1988

PHILIPPINE NATIONAL BANK petitioner, vs. HON. ROMULO S.

QUIMPO, Presiding Judge, Court of First Instance of Rizal, Branch XIV,
and FRANCISCO S. GOZON II, respondents.

Facts: Ernesto Santos saw that Franisco Gozon II 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 be
returned to his account as his signature on the check was forged but the bank
refused. Upon Gozon’s complaint, Ernesto Santos was apprehended by the
police authorities and upon investigation he admitted that he stole the check of
Gozon, forged his signature and encashed the same with the Bank.

Hence Gozon filed the complaint for recovery of the amount of P5,000.00, plus
interest, damages, attorney's fees and costs against the bank in the CFI Rizal. A
decision was rendered ordering the bank to return the amount of P5,000 which it
had unlawfully withheld, with interest at the legal rate from 22 September 1972
until the amount is fully delivered. The bank was further condemned to pay
Gozon the sum of P2,000.00 as attorney's fees and to pay the costs of the suit.
The bank filed a petition for review on certiorari.

Issue: Wheter or not PNB is liable

Held: YES. 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.
A comparison of the signature on the forged check with Gozon’s exemplar
signatures found in the PNB Form 35-A would immediately show the
negligence of the employees of the bank. Even a not too careful comparison
would immediately arrest one’s attention and direct it to the graceful lines of
Gozon’s exemplar signature in the bank form.

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.

Gozon’s act in leaving his checkbook in the car while he went out for a short
while can not be considered negligence sufficient to excuse the bank from its
own negligence. When Gozon left his car, Ernesto Santos, a long time classmate
and friend remained in the same. Gozon could not have been expected to know
that the said Ernesto Santos would remove a check from his checkbook. Gozon
had trust in his classmate and friend. He had no reason to suspect that the latter
would breach that trust. Gozon cannot be considered negligent under the
circumstances of the case.

The Supreme Court dismissed the petition for lack of merit, with costs against
the bank.
G.R. No. L-37467 December 11, 1933

SAN CARLOS MILLING CO., LTD., plaintiff-appellant, vs. BANK OF

THE PHILIPPINE ISLANDS and CHINA BANKING CORPORATION,
defendants-appellees.

Facts: San Carlos Milling Co. Ltd. (San Carlos) was in the hands of Alfred D.
Cooper, its agent under general power of attorney with authority of substitution.
The principal employee in the Manila office was Joseph L. Wilson, to whom
had been given a general power of attorney but without power of substitution.
Cooper went on a vacation and gave a general power of attorney to Newland
Baldwin and revoked the power of Wilson relative to the dealings with BPI.

After a year, Wilson conspired with Dolores, a messenger-clerk and sent a cable
gram in code to the company in Honolulu requesting a telegraphic transfer to
the China Banking Corporation of Manila for $100,000. The money was
transferred by cable to Chinabank and upon receipt, sent to San Carlos Milling
an exchange contract for PHP 201,000.00. Such contract was forged in the
name of Newland Baldwin. It further asked Chinabank to send a certified check
in San Carlos’ favor, payable for deposit only with BPI. The endorsement to
which the name of Newland Baldwin was affixed was spurious. BPI credited
the current account of plaintiff in the sum of PHP 201,000 and after it was
cleared, it was paid by Chinabank.

The next day, BPI received a letter purported to be signed by Newland Baldwin,
directing that the money be paid in certain denominations. The counting and
packing of the money was witnessed by Dolores who in turn returned with a
check purporting to be signed by Newland Baldwin as agent. Dolores also
returned with a forged check for PHP 1 covering the cost of packing the money.
Shortly thereafter, the crime was discovered but BPI refused to credit San
Carlos with the amount withdrawn by the two forged checks and brought the
case to the Trial Court.

The trial court held that the deposit of PHP 201,000 in the BPI being the result
of a forged endorsement, the relation of the depositor and banker did not exist,
but the bank was only a gratuitous bailee; that BPI acted in good faith in the
ordinary course of business and was not guilty of negligence and that San
Carlos could not recover since the loss was due to the criminal action of its
employees.

Issue: Whether or nor BPI is guilty of negligence and is liable to pay San Carlos
for the amount it had cashed out

Held: YES. A bank that cashes a check must know to whom it pays. In
connection with the cashier’s check, this duty was therefore upon the BPI and
the CBC was not bound to inspect and verify all endorsements of the check,
even if some of them were also depositors in that bank. It had a right to rely
upon the endorsement of BPI when it gave the latter bank credit for its own
cashier’s check. Since the money was in fact paid by CBC to BPI, CBC is not
indebted to San Carlos or BPI.

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.

No act of San Carlos led BPI to go astray. The bank paid out its money because
it relied upon the genuineness of the purported signatures of Baldwin. Its
employees should have used care. Therefore, the proximate cause of loss was
due to the negligence of BPI in honoring and cashing two forged checks.
G.R. No. 150228 July 30, 2009

BANK OF AMERICA NT & SA, Petitioner, vs. PHILIPPINE RACING

CLUB, Respondent.

Facts: The President and Vice President of respondent PRCI corporation were
scheduled to go out of the country in connection with the corporation’s
business. In order not to disrupt operations in their absence, they pre-signed
several checks relating the corporation’s Current Account with BA to insure
continuity of plaintiff-appellee’s operations by making available cash to settle
obligations that might become due. These checks were entrusted to the
accountant with instruction to make use of the same as the need arose.

Thereafter, a John Doe presented two checks to BA for encashment; the two
checks had similar entries with similar infirmities and irregularities. On the
space where the name of the payee should be indicated, appeared 2 lines, on the
upper line was the word “CASH” while the lower line had the following
typewritten words: “ONE HUNDRED TEN THOUSAND PESOS ONLY.”
Appellant bank encashed said checks.

The checks actually came into the hands of an employee of PRCI who
completed the pre-signed checks without authority. PRCI’s demand for
defendant-appellant to pay fell on deaf ears. Hence, the complaint.

The trial court rendered a decision in favor of PRCI, and ordered BA to pay
plaintiff. The CA affirmed said decision.

Issue: Whether or not petitioner bank is obligated to verify said checks to

respondent

Held: YES. In the case at bar, extraordinary diligence demands that petitioner
should have ascertained from respondent the authenticity of the subject checks
or the accuracy of the entries therein not only because of the presence of highly
irregular entries on the face of the checks but also of the decidedly unusual
circumstances surrounding their encashment.

On the contention that it was respondent’s act of issuing pre-signed checks, the
SC held that, although the respondent was also negligent, but under the doctrine
of Last Clear Chance, the law provides that “who had a last clear opportunity to
avoid the impending harm but failed to do so is chargeable with the
consequences thereof.” At the most, the respondent’s liability is merely
contributory.

Nevertheless, even if we assume that both parties were guilty of negligent acts
that led to the loss, petitioner will still emerge as the party foremost liable in this
case. In instances where both parties are at fault, this Court has consistently
applied the doctrine of last clear chance in order to assign liability.

In the interest of fairness, however, we believe it is proper to consider

respondent’s own negligence to mitigate petitioner’s liability. Following
established jurisprudential precedents, we believe the allocation of sixty percent
(60%) of the actual damages involved in this case to petitioner is proper under
the premises. Respondent should, in light of its contributory negligence, bear
forty percent (40%) of its own loss.
Analysis on Forgery Cases

Under Section 23 of the Negotiable Instruments Law:

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

As a general rule, a bank or corporation who has obtained possession of a check

upon an unauthorized or forged indorsement of the payee’s signature and who
collects the amount of the check from the drawee, is liable for the proceeds
thereof to the payee or other owner, notwithstanding that the amount has been
paid to the person from whom the check was obtained.

Banks are engaged in a business impressed with public interest, and it is their
duty to protect in return their many clients and depositors who transact business
with them. They have the obligation to treat their client’s account meticulously
and with the highest degree of care, considering the fiduciary nature of their
relationship. This was applied in the following cases:

In Westmont Bank v. Ong, petitioner, as the collecting bank, grossly erred in

making payment by virtue of said forged signature. Given the substantial face
value of the two checks, totalling P1,754,787.50, and the fact that they were
being deposited by a person not the payee, the very least defendant bank should
have done, as any reasonable prudent man would have done, was to verify the
genuineness of the indorsements thereon. The payee, herein respondent, should
therefore be allowed to recover from the collecting bank.

In Associated Bank v. CA (G.R. No. 89802), the six checks in the case at bar
had been crossed and issued "for payee's account only." This could only signify
that the drawers had intended the same for deposit only by the person indicated.
However, the subject checks were accepted for deposit by the Bank for the
account of another person although they were crossed checks and the payee was
not him but Melissa's RTW. When the Bank paid the checks so endorsed
notwithstanding that title had not passed to the endorser, it did so at its peril and
became liable to the payee for the value of the checks. This liability attached
whether or not the Bank was aware of the unauthorized endorsement.

In BPI v. Casa Montesorri, 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. Nonetheless, 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.

In those cited cases, the collecting banks were held to be negligent for failing to
observe precautionary measures to detect the forgery. It has been held 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 charge the amount so paid to the account of the depositor
whose name was forged.” A bank is liable, irrespective of its good faith, in
paying a forged check.

Now it is a rule that when a signature is forged or made without the authority of
the person whose signature it purports to be, the check is wholly inoperative. No
right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party, can be acquired through or under such
signature. However, the rule does provide for an exception, namely: "unless the
party against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority."
In Ilusorio v. CA, it is the exception that applies. Petitioner is precluded from
setting up the forgery, assuming there is forgery, due to his own negligence in
entrusting to his secretary his credit cards and checkbook including the
verification of his statements of account. In the case before us, the Courts found
that Manila Bank’s personnel diligently performed their duties, having
compared the signature in the checks from the specimen signatures on record
and satisfied themselves that it was petitioner’s.

In MWSS v. CA, it has been proven that MWSS has been negligent in
supervising the printing of its personalized checks. It failed to provide security
measures and coordinate the same with PNB. Even if the checks in question are
considered forgeries, considering the MWSS’s gross negligence, it is barred
from setting up the defense of forgery.

It is different however in the case of Samsung Construction v. FEBTC, where

the Court was unable to conclude that Samsung Construction was guilty of
negligence. The bare fact that the forgery was committed by an employee of the
party whose signature was forged cannot necessarily imply that such party’s
negligence was the cause for the forgery. Employers do not possess the
preternatural gift of cognition as to the evil that may lurk within the hearts and
minds of their employees. Given that Samsung Construction is not precluded by
negligence from setting up the forgery, the general rule should apply.

This was also applied in PNB v. Quimpo, wherein the Court held that the act of
plaintiff in leaving his checkbook in the car while he went out for a short while
cannot be considered negligence sufficient to excuse the defendant bank from
its own negligence. 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.
In the cases cited above, we recognize that Section 23 of the Negotiable
Instruments Law bars a party from setting up the defense of forgery if it is
guilty of negligence. However, if the depositor is guilty of contributory
negligence, the greater proportion of the loss shall be borne by the bank. Such is
what was applied in the following cases:

In PNB v. FFCCI, the Court ruled that since FFCCI clothed its
accountant/bookkeeper Caparas with apparent authority to transact business
with PNB, it is guilty of contributory negligence. In addition, FFCCI failed to
timely examine its monthly statement of account and report the discrepancy to
PNB within a reasonable period of time to prevent or recover the loss. As
between a bank and its depositor, where the bank’s negligence is the proximate
cause of the loss and the depositor is guilty of contributory negligence, the
greater proportion of the loss shall be borne by the bank.

In PCIB v. Balmaceda, it was held that Balmaceda’s co-employees not only

turned a blind eye to his actions, but actually complied with his instructions. Its
employees handled its clients’ bank accounts and ignored established bank
procedures at the branch manager’s mere order. Therefore, the Court only
partially granted the petition.

In Bank of America v. Phil Racing Club, the allocation of sixty percent (60%)
of the actual damages involved in this case (represented by the amount of the
checks with legal interest) to petitioner is proper under the premises.
Respondent should, in light of its contributory negligence, bear forty percent
(40%) of its own loss.

This is different in the case of Associated Bank v. CA (G.R. No. 107612)

wherein the collecting bank and the drawee bank are involved. The Court held
in this case, that the collecting bank, Associated Bank, shall be liable to the
drawee bank, PNB, for fifty percent. It is liable on its warranties as indorser of
the checks which were deposited by Fausto Pangilinan, having guaranteed the
genuineness of all prior indorsements, including that of the chief of the payee
hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to
ascertain the genuineness of the payee's indorsement.

A collecting bank which indorses a check bearing a forged indorsement and

presents it to the drawee bank guarantees all prior indorsement, including the
forged indorsement. It warrants that the instrument is genuine, and that it is
valid and subsisting at the time of his indorsement. Because the indorsement is
forgery, the collecting bank commits a breach of this warranty and will be
accountable to the drawee bank. Moreover, the collecting bank is made liable
because it is privy to the depositor who negotiated the check.

This is also similar in the case of San Carlos Milling v. BPI, where the bank
paid out its money because it relied upon the genuineness of the purported
signatures of Baldwin. The signatures to the checks being forged, under section
23 of the Negotiable Instruments Law they are not a charge against plaintiff nor
are the checks of any value to the defendant. It must therefore be held that the
proximate cause of loss was due to the negligence of the Bank of the Philippine
Islands in honoring and cashing the two forged checks.
B. Cases on Consideration
G.R. No. L-56169 June 26, 1992
TRAVEL-ON, INC., petitioner, vs. COURT OF APPEALS and ARTURO
S. MIRANDA, respondents.

Facts: Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline

tickets on commission basis for and in behalf of different airline companies.
Private respondent Arturo S. Miranda had a revolving credit line with petitioner.
He procured tickets from petitioner on behalf of airline passengers and derived
commissions therefrom.
Travel-On filed suit before the Court of First Instance ("CFI") of Manila to
collect on six (6) checks issued by private respondent with a total face amount
of P115,000.00. The complaint averred that petitioner sold and delivered
various airline tickets to respondent at a total price of P278,201.57; that to settle
said account, private respondent paid various amounts in cash and in kind, and
thereafter issued six (6) postdated checks amounting to P115,000.00 which were
all dishonored by the drawee banks. Travel-On further alleged that private
respondent made another payment of P10,000.00 reducing his indebtedness to
P105,000.00. The writ of attachment was granted by the court a quo.
Miranda argued that he had issued the postdated checks for purposes of
accommodation, as he had in the past accorded similar favors to petitioner. In
support of his theory that the checks were issued for accommodation, private
respondent testified that he had issued the checks in the name of Travel-On in
order that its General Manager, Elita Montilla, could show to Travel-On's Board
of Directors that the accounts receivable of the company were still good.
The trial court ruled in favor of Miranda. The CA affirmed the decision of the
trial court.
Issue: Whether respondent is still liable considering that petitioner is a holder
for value
Held: YES. The Supreme Court finds that the checks are the all important
evidence of petitioner's case; that these checks clearly established private
respondent's indebtedness to petitioner; that private respondent was liable
thereunder.
It is important to stress that a check which is regular on its face is deemed prima
facie to have been issued for a valuable consideration and every person whose
signature appears thereon is deemed to have become a party thereto for value. 1
Thus, the mere introduction of the instrument sued on in evidence prima facie
entitles the plaintiff to recovery. Further, the rule is quite settled that a
negotiable instrument is presumed to have been given or indorsed for a
sufficient consideration unless otherwise contradicted and overcome by other
competent evidence.
The fact that all the checks issued by private respondent to petitioner were
presented for payment by the latter would lead to no other conclusion than that
these checks were intended for encashment. There is nothing in the checks
themselves (or in any other document for that matter) that states otherwise.
In the case at bar, Travel-On was payee of all six (6) checks, it presented these
checks for payment at the drawee bank but the checks bounced. Travel-On
obviously was not an accommodated party; it realized no value on the checks
which bounced.
Travel-On was entitled to the benefit of the statutory presumption that it was a
holder in due course, 4 that the checks were supported by valuable
consideration.
G.R. No. 139006 November 27, 2000
REMIGIO S. ONG, petitioner, vs. PEOPLE OF THE PHILIPPINES and
COURT OF APPEALS (EIGHTH DIVISION), respondents.

Facts: Remigio Ong, at one time retained the services of Marcial de Jesus as
adviser on technical and financial matters and as President of Erocool
Industries, a company controlled by the former.
Remigio Ong approached Marcial de Jesus in his place of work in Pasay City
and requested to be accommodated a loan of P130,000.00 which he needed to
pay the 13th month pay of his employees at the Master Metal Craft.
Complainant De Jesus obliged by issuing Ong a check payable to Ong's Master
Metal Craft. In order to ensure the repayment, complainant required Mr. Ong to
issue a post-dated check for the same amount. Mr. Ong therefore issued a check
dated January 16, 1993. The check was deposited in Ong's account only and
debited for the said amount of P130,000.00. At any rate, whatever the date the
loan check was encashed by Remigio Ong, what is certain was that the check
was encashed for value and debited to Ong's account.
In the meanwhile, Ong's check was deposited by Marcial De Jesus in his
account at Producers Bank which was promptly returned the following day by
FEBTC for reason that it was drawn against insufficient funds. That thereafter,
De Jesus verbally notified Remigio Ong of his bounced check several times but
unacted until he made a written formal demand. For failure of Ong to make
arrangement for the payment or replacement of the bounced check, De Jesus
filed this case.
The trial court finds the accused, Remigio Ong y Salinas, guilty beyond
reasonable doubt for Violation of Section 1, Batas Pambansa Blg. 22, otherwise
known as the Bouncing Check Law. The CA likewise ruled in favor of De
Jesus.
Issue: Whether Ong is guilty of BP 22
Held: YES. Petitioner's argument that the subject check was issued without
consideration is inconsequential. The law invariably declares the mere act of
issuing a worthless check as malum prohibitum. We quote with approval the
appellate court's findings on this matter: “In actions based upon a negotiable
instrument, it is unnecessary to aver or prove consideration, for consideration is
imported and presumed from the fact that it is a negotiable instrument. The
presumption exists whether the words "value received" appear on the instrument
or not.”
In light, however, of the rulings in the recent cases of Vaca v. Court of
Appeals12 and Rosa Lim v. People, the Court deems it best in the instant case,
to limit the penalty for violation of B.P. Blg. 22 to payment of a fine in the
amount of P150,000.00.
Petition is denied.
G.R. No. 117913 February 1, 2002
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP,
RICHARD VELASCO and ALFONSO CO, petitioners, vs. COURT OF
APPEALS and PHILIPPINE BANK OF COMMUNICATIONS,
respondents.

Facts: Charles Lee, as President of MICO wrote private respondent Philippine

Bank of Communications (PBCom) requesting for a grant of a discounting
loan/credit line in the sum of PHP 3,000,000.00 for the purpose of carrying out
MICO’s line of business as well as to maintain its volume of business. On the
same day, Charles Lee requested for another discounting loan/credit line of PHP
3,000,000.00 from PBCom for the purpose of opening letters of credit and trust
receipts.
Another loan of PHP 1,000,000.00 was availed of by MICO from PBCom
which was likewise later on renewed. Charles Lee, Chua Siok Suy, Mariano
Sio, Alfonso Yap and Richard Velasco, in their personal capacities executed a
Surety Agreement in favor of PBCom whereby the petitioners jointly and
severally, guaranteed the prompt payment on due dates or at maturity of
overdrafts, promissory notes, discounts, drafts, letters of credit, bills of
exchange, trust receipts, and other obligations of every kind and nature, for
which MICO may be held accountable by PBCom. Charles Lee, in his capacity
as president of MICO, wrote PBCom and applied for an additional loan in the
sum of PHP 4,000,000.00. The loan was intended for the expansion and
modernization of the company’s machineries. Upon approval of the said
application for loan, MICO availed of the additional loan of PHP 4,000,000.00.
To secure the trust receipts transactions, MICO and Lee executed a real estate
mortgage in favor of PBCOM over several properties it owns. Upon maturity of
all credit availments obtained by MICO from PBCom, the latter made a demand
for payment. For failure of petitioner MICO to pay the obligations incurred
despite repeated demands, PBCom extrajudicially foreclosed MICO’s real
estate mortgage and sold the said mortgaged properties in a public auction sale.
Lee contends that the letters of credit, surety agreements and loan transactions
did not ripen into valid and binding contracts since no part of the proceeds of
the loan transactions were delivered to MICO or to any of the petitioners-
sureties. Petitioners-sureties allege that Chua Siok Suy was the beneficiary of
the proceeds of the loans and that the latter made them sign the surety
agreements in blank. Thus, they maintain that they should not be held
accountable for any liability that might arise therefrom.
Issues:
1. Whether or not the proceeds of the loans and letters of credit transactions
were ever delivered to MICO
2. Whether or not the individual petitioners, as sureties, may be held liable
under the 2 surety agreements
Held:
1. YES. The letter of credit, as well as the security agreements, have not
merely created a prima facie case but have actually proved the solidary
obligation of MICO and the petitioners, as sureties of MICO, in favor of
respondent PBCom.

While the presumption found under the Negotiable Instruments Law may
not necessarily be applicable to trust receipts and letters of credit, the
presumption that the drafts drawn in connection with the letters of credit
have sufficient consideration. Under Section 3(r), Rule 131 of the Rules
of Court there is also a presumption that sufficient consideration was
given in a contract.

Hence, petitioners should have presented credible evidence to rebut that

presumption as well as the evidence presented by private respondent
PBCom. The letters of credit show that the pertinent
materials/merchandise have been received by MICO. The drafts signed
by the beneficiary/suppliers in connection with the corresponding letters
of credit proved that said suppliers were paid by PBCom for the account
of MICO. On the other hand, aside from their bare denials, petitioners did
not present sufficient and competent evidence to rebut the evidence of
private respondent PBCom.

2. YES. A perusal of the By-Laws of MICO, however, shows that the power
to borrow money for the company and issue mortgages, bonds, deeds of
trust and negotiable instruments or securities, secured by mortgages or
pledges of property belonging to the company is not confined solely to
the president of the corporation. The Board of Directors of MICO can
also borrow money, arrange letters of credit, execute trust receipts and
promissory notes on behalf of the corporation.[35] Significantly, this
power of the Board of Directors according to the by-laws of MICO, may
be delegated to any of its standing committee, officer or agent. Hence,
PBCom had every right to rely on the Certification issued by MICO’s
corporate secretary, P.B. Barrera, that Chua Siok Suy was duly authorized
by its Board of Directors to borrow money and obtain credit facilities in
behalf of MICO from PBCom.
G.R. No. 126568 April 30, 2003
QUIRINO GONZALES LOGGING CONCESSIONAIRE, QUIRINO
GONZALES and EUFEMIA GONZALES, petitioners, vs. THE COURT
OF APPEALS (CA) and REPUBLIC PLANTERS BANK, respondents.

Facts: Petitioner Quirino Gonzales Logging Concessionaire (QGLC) applied

for credit accommodation which the Bank approved. Their obligation was
secured by a real estate mortgage of parcels of land. QGLC executed a
promissory note in which they defaulted. The Bank foreclosed the property and
was subsequently owned by the Bank. The Bank then filed a complaint for a
sum of money in regards to the unpaid notes.
The notes were payable 30 days after date and provided for the solidary liability
in their non-payment at maturity. Petitioners deny having received the value of
the promissory notes.
The RTC sided with petitioner but the CA reversed the decision.
Issue: Whether the promissory notes are not valid for want of consideration
Held: No. The promissory notes are valid. Petitioners admission of the
genuineness and due execution of the promissory notes notwithstanding, they
raise want of consideration thereof. The promissory notes, however, appear to
be negotiable as they meet the requirements of Section 1 of the Negotiable
Instruments Law. Such being the case, the notes are prima facie deemed to have
been issued for consideration. It bears noting that no sufficient evidence was
adduced by petitioners to show otherwise.
Exhibits 2 to 2-B to which petitioners advert in support of their claim that the
credit line on the notes was unnecessary because they had deposits in, and
remittances due from, the Bank deserve scant consideration. Said exhibits are
merely claims by petitioners under their then proposals for a possible settlement
of the case dated February 3, 1978. Parenthetically, the proposals were not even
signed by petitioners but by certain Attorneys Osmundo R. Victoriano and
Rogelio P. Madriaga.
In any case, it is no defense that the promissory notes were signed in blank as
Section 14 of the Negotiable Instruments Law concedes the prima facie
authority of the person in possession of negotiable instruments, such as the
notes herein, to fill in the blanks.
G.R. No. 172954 October 5, 2011
ENGR. JOSE E. CAYANAN, Petitioner, vs. NORTH STAR
INTERNATIONAL TRAVEL, INC., Respondent.

Facts: North Star extended credit to Cayanan for air tickets of clients worth
PHP 510,034.47, and for payment to View Sea Ventures of the amounts of
$60,000 which came from respondent General Manager’s (Virginia) personal
account. And another $40,000 by telegraphic transfer with $15,000 from
petitioner.
Cayanan then issued 3 checks drawn from Republic Planters Bank (RPB) and 2
checks from PCIB. When drawn for payment, the checks from PCIB amounting
to 1.5M and 35,000 were dishonored for insufficiency of funds while the 3
checks from RPB were dishonored due to a stop payment by Cayanan. Upon
demand for payment, Cayanan failed to settle.
5 violations of BP 22 were filed by North Star in MeTC, which found Cayanan
guilty. On appeal, the RTC acquitted him. The CA, however, held Cayanan
civilly liable.
Issues:
1. Whether or not checks issued by Cayanan were for valuable consideration
2. Whether or not Cayanan is civilly liable to North Star for the value of the
checks
Held:
1. YES. Cayanan has not presented credible evidence to rebut resumption
that checks were issued for a valuable consideration. Contrary to
petitioners’ claims that North Star did not give any valuable consideration
for the checks since US$85,000 was taken from the personal dollar
account of Virginia and not the corporate funds of North Star, the fact
that petitioner himself specifically named North Star as the payee of the
checks is an admission of his liability to North Star and not to Virginia
Balagtas.

Also, his defense that dollars send to View Sea in Nigeria was Virginia’s
own investment could not hold as she only remitted such money due to
Cayanan’s request/instructions – this he never denied. It was him who
had business transactions with View Sea and not Virginia. Transaction
between North Star and Cayanan was actually in the nature of a loan, and
 checks were issues as payment of such hence there was no absence of
consideration for the issuance of checks.

2. YES. Having failed to fully settle his obligation under the checks, the
appellate court was correct in holding petitioner liable to pay the value of
the five checks he issued in favor of North Star.
Analysis on Consideration Cases
Like any other contract, a negotiable instrument must be supported by valuable
consideration. Under the law, valuable consideration is presumed, even if the
words “For Value Received” is not written on the instrument. Every person
whose signature appears thereon have become a party thereto for value.
However, this is only a prima facie presumption; hence, it admits of evidence to
the contrary. But whoever alleges absence of consideration has the burden of
proof to show the contrary.
In Travel-On Inc. v. CA, private respondent invoked that the checks were
issued for accommodation only. But Travel-On obviously was not an
accommodated party as it realized no value on the checks which bounced.
Miranda must be held liable on the checks involved as petitioner is entitled to
the benefit of the statutory presumption that it was a holder in due course and
that the checks were supported by valuable consideration.
In Ong v. People, it was held that it is unnecessary to aver or prove
consideration, for consideration is imported and presumed from the fact that it is
a negotiable instrument. The presumption exists whether the words “value
received” appear on the instrument or not.
In Lee v. CA, the Court held that while the presumption found under the
Negotiable Instruments Law may not necessarily be applicable to trust receipts
and letters of credit, the presumption that the drafts drawn in connection with
the letters of credit have sufficient consideration.
In Quirino Gonzales Logging v. CA, petitioners' admission of the genuineness
and due execution of the promissory notes notwithstanding, they raise want of
consideration thereof. The promissory notes, however, appear to be negotiable
as they meet the requirements of Section 1 of the Negotiable Instruments Law.
Such being the case, the notes are prima facie deemed to have been issued for
consideration. It bears noting that no sufficient evidence was adduced by
petitioners to show otherwise.
In Cayanan v. Northstar, Cayanan has not presented credible evidence to rebut
resumption that checks were issued for a valuable consideration. Transaction
between Northstar and Cayanan were actually in the nature of a loan, and
checks were issued as payment of such; hence there was no absence of
consideration for the issuance of checks.
A party who gives valuable consideration for the instrument is a holder for
value. In the same manner, the holder is also considered a holder for value with
respect to all persons who became parties to the instrument prior to the time it is
shown that valuable consideration had been given.
There is absence of consideration if no consideration is given, or the
consideration is illegal. There is failure of consideration if the agreed
consideration did not materialize. Partial failure of consideration is a defense
pro tanto, meaning to the extent of the failure. Absence or failure of
consideration is only a personal defense because it is a good defense only as
against a holder is not a holder in due course. It cannot be put up as a defense
against a holder in due course.