Great Eastern Life Ins. Co. V.

Hongkong Shanghai Bank (1922)

G.R. No. L-18657 August 23, 1922
Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on the
Hongkong and Shanghai Banking Corporation (HSBC) payable to the order of Lazaro
Melicor.
E. M. Maasim fraudulently obtained possession of the check, forged Melicor's signature,
as an endorser, and then personally endorsed and presented it to the Philippine
National Bank (PNB) and it was placed to his credit.
Next day: PNB endorsed the check to the HSBC who paid it
HSBC sent a bank statement to the Eastern showing the amount of the check was
charged to its account, and no objection was made
4 months after the check was charged, it developed that Lazaro Melicor, to whom the
check was made payable, had never received it, and that his signature, as an endorser,
was forged by Maasim,
Eastern promptly made a demand upon the HSBC to credit the amount of the forged
check
Eastern filed against HSBC and PNB
RTC: dismissed the case

ISSUES: W/N Eastern has the right to recover the amount of the forged check

HELD: YES. lower court is reversed. Eastern against HSBC who can claim against
PNB
forgery was that of Melicor (payees and NOT the maker)
Eastern received it banks statement, it had a right to assume that Melicor had
personally endorsed the check, and that, otherwise, the bank would not have paid it
Section 23 of 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.
The Philippine National Bank had no license or authority to pay the money to Maasim or
anyone else upon a forge signature.
Its remedy is against Maasim to whom it paid the money.

Jai-Alai Corp. Of the Phil. V. BPI (1975)

G.R. No. L-29432 August 6, 1975
Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
Checks were deposited by petitioner in its current account with the bank. These checks
were from a certain Ramirez, a consistent better in its games, who was a sales agent
from Inter-Island Gas. Inter-Island later found out that of the forgeries committed in the
checks and thus, it informed all the parties concerned. Upon the demands on the bank
as the collecting bank, it debited the account of petitioner. Thereafter, petitioner tried to
issue a check for payment of shares of stock but such was dishonored for insufficient
funds. It filed a complaint against the bank.
Jai-Alai Corp. deposited 10 checks with BPI.
The checks were from Ramirez, a sales agent of the Inter-Island Gas was all payable to
Inter-Island Gas Service, Inc. or order.
Inter-Island Gas discovered that all the indorsements made on the checks purportedly
by its cashiers were forgeries.
BPI debited Jai-Alai's current account and forwarded to it the checks containing the
forged indorsements

ISSUE: W/N BPI had the right to debit.

HELD: YES.
Having indorsed the checks to BPI, Jai-Alai is deemed to have given the warranty
prescribed in Section 66 of the NIL that every single one of those checks "is genuine
and in all respects what it purports to be."
The depositor of a check as indorser warrants that it is genuine and in all respects what
it purports to be.
Jai Alai Corporation negligent in accepting the checks without question from Antonio
Ramirez notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it
did not appear that he was authorized to indorse it.

REPUBLIC BANK vs. MAURICIA T. EBRADA

G.R. No. L-40796 July 31, 1975

Mauricia Ebrada encashed a back pay check for P1246.08 at Republic Bank (Escolta
Branch). 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 the sum deducted
from its account. The bank refunded the amount to the Bureau and demanded upon
Ebrada the sum in question, who refused. Hence, the present action.

Issue: Whether or not the bank can recover from the last indorser.

Held: According to Section 23 of the Negotiable Instruments Law, where the signature
on a negotiable instrument is forged, the negotiation of the check is without force or
effect. However, following the ruling in Beam vs. Farrel (US case), where a check has
several indorsements on it, only the negotiation based on the forged or unauthorized
signature which is inoperative. The last indorser, Ebrada, was duty-bound to ascertain
whether the check was genuine before presenting it to the bank for payment. Her failure
to do so makes her liable for the loss and the Bank may recover from her the money
she received for the check. Had she performed her duty, the forgery would have been
detected and fraud defeated. Even if she turned over the amount to Dominguez
immediately after receiving the cash proceeds of the check, she is liable as an
accommodation party under Section 29 of the Negotiable Instruments Law.
Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp.
[G.R. No. 74917. January 20, 1988]
FACTS
Equitable Bank drew six crossed manager’s check payable to certain member
establishments of Visa Card. Subsequently, the checks were deposited with Banco De
Oro (BDO) to the credit of its depositor. Following normal procedures and after
stamping at the back of the checks the usual endorsements, BDO sent the checks for
clearing through the Philippine Clearing House Corporation (PCHC). Accordingly,
Equitable Banking paid the checks; its clearing account was debited for the value of the
checks and BDO’s clearing account was credited for the same amount. Thereafter,
Equitable Banking discovered that the endorsements appearing at the back of the
checks and purporting to be that of the payees were forged and/or unauthorized or
otherwise belong to persons other than the payees. Equitable Banking presented the
checks directly to BDO for the purpose of claiming reimbursement from the latter.
However, BDO refused to accept such direct presentation and to reimburse Equitable
Banking for the value of the checks.

ISSUES
(a) Whether or not BDO is estopped from claiming that checks under consideration are
non-negotiable instruments.

(b) Whether or not BDO can escape liability by reasons of forgery.

(c) Whether or not only negotiable checks are within the jurisdiction of PCHC.

RULING
(a) YES. BDO having stamped its guarantee of “all prior endorsements and/or lack of
endorsements” is now estopped from claiming that the checks under consideration are
not negotiable instruments. The checks were accepted for deposit by the petitioner
stamping thereon its guarantee, in order that it can clear the said checks with the
respondent bank. By such deliberate and positive attitude of the petitioner it has for all
legal intents and purposes treated the said cheeks as negotiable instruments and
accordingly assumed the warranty of the endorser when it stamped its guarantee of
prior endorsements at the back of the checks. It led the said respondent to believe that
it was acting as endorser of the checks and on the strength of this guarantee said
respondent cleared the checks in question and credited the account of the petitioner.
Petitioner is now barred from taking an opposite posture by claiming that the disputed
checks are not negotiable instrument.
(b) NO. A commercial bank cannot escape the liability of an endorser of a check and
which may turn out to be a forged endorsement. Whenever any bank treats the
signature at the back of the checks as endorsements and thus logically guarantees the
same as such there can be no doubt said bank has considered the checks as
negotiable. The collecting bank or last endorser generally suffers the loss because it
has the 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
endorsements.
(c) NO. PCHC’s jurisdiction is not limited to negotiable checks only. The term check as
used in the said Articles of Incorporation of PCHC can only connote checks in general
use in commercial and business activities. Thus, no distinction. Ubi lex non distinguit,
nec nos distinguere debemus. Checks are used between banks and bankers and their
customers, and are designed to facilitate banking operations. It is of the essence to be
payable on demand, because the contract between the banker and the customer is that
the money is needed on demand.

Negotiable Instruments, Torts And Damages

Case Digest: BPI V. CA, China Banking Corp
And Phil. Clearing Housee Corp. (1992)
G.R. No. 102383 November 26, 1992
Lessons Applicable: 

 Forgery (Negotiable Instruments Law)

 Special Rules on Experts and Professionals (Torts and Damages)
FACTS:
 October 9, 1981 afternoon: Eligia G. Fernando who had a money market
placement as evidenced by a promissory note with a maturity date of
November 11, 1981 amounting to P2,462,243.19 called Reginaldo Eustaquio,
Dealer Trainee in BPI's Money Market Department to preterminate the
placement  
 but she was told "trading time" was over for that Friday, and
suggested that she call again the following week
  The promissory note the caller wanted to preterminate was a roll-over
of an earlier 50-day money market placement that had matured on
September 24, 1981
 Later that afternoon, Eustaquio conveyed the request for pretermination to
Penelope Bulan, but Eustaquio was left to attend to the pretermination
process
 October 12, 1981 morning:  Eligia followed up with Eustaquio.
 Eustaquio knew the real Eligia G. Fernando to be the Treasurer of
Philippine American Life Insurance Company (Philamlife) since he was
handling Philamlife's corporate money market account. 
 But neither Eustaquio nor Bulan who originally handled
Fernando's account, nor anybody else at BPI, bothered to call
up Fernando at her Philamlife office to verify the request for
pretermination
 Despite being informed that the placement would yield less
than the maturity value, Eligia still insisted 
 Eustaquio proceeded to prepare the "purchase order slip" for the requested
pretermination as required by office procedure.  
 The 2 cashier's checks, together with the papers consisting of the
money market placement was to be preterminated and the promissory
note to be preterminated, were sent to Gerlanda E. de Castro
(Manager) and Celestino Sampiton, Jr.,  (Administrative Assistant) in
both signatories from BPI's Treasury Operations Department.  
 Having been singed, the checks now went to the dispatcher for
delivery
 Later in the same morning, the same caller changed the delivery instructions
that she will personally pick them up the checks or send her niece. 
 Eustaquio told her that if were her niece, a written authorization is
required.   
 The signature has been established to be forged although it has a
"close similarity" to the real signature of Eligia G. Fernando
 October 13, 1981 afternoon: a woman who represented herself to be Eligia
G. Fernando applied for a current account
 She was accompanied and introduced to Emily Sylianco Cuaso, Cash
Supervisor, by Antonio Concepcion whom Cuaso knew to have opened,
earlier that year, an account upon the introduction of Valentin Co, a
long-standing "valued client" of China Banking Corp. (CBC) 
 However, Cuaso indicated that she was introduced by Valentin Co
  The final approval of the new current account is indicated on the
application form by the initials of Regina G. Dy, Cashier, who did not
interview the new client but affixed her initials on the application form
after reviewing it. 
 October 14, 1981: the woman deposited the 2 checks in controversy. 
 Her endorsement was found to conform with the depositor's specimen
signature. 
 CBC's guaranty of prior endorsements and/or lack of endorsement was
then stamped
 withdrawals on Current Account was made through Checks payable to "cash"
 October 16, 1981 - P1M
 October 15, 1981- P48.5K through clearing from PNB 
 October 19, 1981 - P370K
 November 4, 1981 - P4,100.00 through clearing from Far East Bank
 All these withdrawals were allowed on the basis of the verification of the
drawer's signature with the specimen signature on file and the sufficiency of
the funds in the account. 
 However, the balance shown in the computerized teller terminal when
a withdrawal is serviced at the counter, unlike the ledger or usual
statement prepared at month-end, does not show the account's
opening date, the amounts and dates of deposits and withdrawals. 
 The last withdrawal on November 4, 1981 with remaining balance of
only P571.61
 November 11, 1981 (maturity date of Eligia G. Fernado's money market
placement with BPI): the real Eligia G. Fernando went to BPI for the roll-over
of her placement
 She disclaimed having preterminated her placement on October 12,
1981. 
 She executed an affidavit stating that while she was the payee
of the two checks in controversy, she never received nor
endorsed them and that her purported signature on the back of
the checks was not hers but forged. 
 With her surrender of the original of the promissory note
evidencing the placement which matured that day, BPI issued
her a new promissory note to evidence a roll-over of the
placement
 November 12, 1981: Eligia supported w/ affidavit
 BPI returned the 2 checks in controversy to CBC for the reason
"Payee's endorsement forged"
  CBC  returned the checks for reason "Beyond Clearing Time"
 CA afformed RTC: favored BPI
 BPI: present clearing guarantee requirement imposed on the
representing or collecting bank under the PCHC rules and regulations
is independent of the Negotiable Instruments Law 
ISSUE: W/N BPI should be liable for the forged check because of the doctrine of last
clear chance

HELD: NO. Modified. BPI 60% CBC 40% of the loss  

 Section 23 of the Negotiable Instruments Law thereof is not applicable in the
light of the absolute liability of the representing or collecting bank as regards
forged endorsements in consonance with the clearing guarantee requirement
imposed upon the presenting or collecting banks "as it is worded today." 
 Administrative regulations adopted under legislative authority by a particular
department must be in harmony with the provisions of the law, and should
be for the sole purpose of carrying into effect its general provisions. By such
regulations, of course, the law itself cannot be extended. (U.S. v. Tupasi
Molina, supra)
 In case of discrepancy between the basic law and a rule or regulation
issued to implement said law the basic law prevails because said rule
or regulation cannot go beyond the terms and provisions of the basic
law (People v. Lim)
 Section 23 of the Negotiable Instruments Law
When 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 discharge therefore, or to enforce payment thereof, against any party thereto, can
be acquired through or under such forged signature, unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of
authority.
 2 parts of the provision 

1. GR: forged signature = "wholly inoperative" and payment made "through or

under such signature" = ineffectual or does not discharge the instrument
2. EX: when the party relying in the forgery is "precluded from setting up the
forgery or want of authority - negligence of the party invoking forgery 
 BPI as drawee bank and CBC as representing/collecting bank were both
negligent resulting in the encashment of the forged checks
 BPI
  Not verifying the phone call
 officer who used to handle Eligia G. Fernando's account did not do
anything about the account's pre-termination
 No verification on Eligia'ssignature on the letter requesting the
pre-termination and the letter authorizing her niece to pick-up
the checks, yet, her signature was in BPI's file
 Failure to ask for the surrender of the promissory note evidencing
the money market placement that was supposedly pre-
terminated
 CBC 
 the opening of the impostor's current account in the name of
Eligia G. Fernando
 the deposit of account of the 2 checks in controversy 
 the withdrawal of their proceeds 
 Doctrine of Last Clear Chance:  negligent acts of the 2 parties were not
contemporaneous, since the negligence of the one succeeded the negligence
of the another by an appreciable interval. Under these circumstances the law
is that the person who has the last fair chance to avoid the impending harm
and fails to do so is chargeable with the consequences, without reference to
the prior negligence of the other party
 It is not unnatural or unexpected that after taking the risk of impersonating
Eligia G. Fernando with the connivance of BPI's employees, the impostor
would complete her deception by encashing the forged checks. There is
therefore, greater reason to rule that the proximate cause of the payment of
the forged checks by an impostor was due to the negligence of petitioner
BPI. 
 Due care on the part of CBC could have prevented any loss.  The Court
cannot ignore the fact that the CBC employees closed their eyes to the
suspicious circumstances of huge over-the-counter withdrawals made
immediately after the account was opened. The opening of the account itself
was accompanied by inexplicable acts clearly showing negligence. 
 while we do not apply the last clear chance doctrine as controlling in this
case, still the CBC employees had ample opportunity to avoid the harm which
befell both CBC and BPI. They let the opportunity slip by when the ordinary
prudence expected of bank employees would have sufficed to seize it
 While it is true that petitioner BPI's negligence may have been the proximate
cause of the loss, CBC's negligence contributed  equally to the success of the
impostor in encashing the proceeds of the forged checks
  Article 2179 of the Civil Code to the effect that while CBC may recover its
losses, such losses are subject to mitigation by the court
 Both banks were negligent in the selection and supervision of their
employees resulting in the encashment of the forged checks by an
impostor. 

NATIVIDAD GEMPESAW vs. CA and PHILIPPINE BANK OF COMMUNICATIONS

G.R. No. 92244 February 9, 1993

Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks

in favor of several supplies. Most of the checks for amounts in excess of actual
obligations as shown in their corresponding invoices. It was only after the lapse of more
than 2 years did she discovered the fraudulent manipulations of her bookkeeper. It was
also learned that the indorsements of the payee were forged, and the checks were
brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank,
Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito
Lam. Gempesaw made demand upon the bank to credit the amount charged due the
checks. The bank refused. Hence, the present action.

Issue: Who shall bear the loss resulting from the forged indorsements.

Held: As a rule, a drawee bank who has paid a check on which an indorsement has
been forged cannot charge the drawer’s account for the amount of said check. An
exception to the rule is where the drawer is guilty of such negligence which causes the
bank to honor such checks. Gempesaw did not exercise prudence in taking steps that a
careful and prudent businessman would take in circumstances to discover
discrepancies in her account. Her negligence was the proximate cause of her loss, and
under Section 23 of the Negotiable Instruments Law, is precluded from using forgery as
a defense. On the other hand, the banking rule banning acceptance of checks for
deposit or cash payment with more than one indorsement unless cleared by some bank
officials does not invalidate the instrument; neither does it invalidate the negotiation or
transfer of said checks. The only kind of indorsement which stops the further negotiation
of an instrument is a restrictive indorsement which prohibits the further negotiation
thereof, pursuant to Section 36 of the Negotiable Instruments Law. In light of any case
not provided for in the Act that is to be governed by the provisions of existing legislation,
pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held liable
for damages in accordance with Article 1170 of the Civil Code. The drawee bank, in its
failure to discover the fraud committed by its employee and in contravention banking
rules in allowing a chief accountant to deposit the checks bearing second indorsements,
was adjudged liable to share the loss with Gempesaw on a 50:50 ratio.