Crisologo-Jose vs Court of Appeals (1989) By way of exception, an officer or agent of a corporation shall have the power to execute or

indorse a negotiable paper in the name of the corporation for the accommodation of a third
Facts:
Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of
marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares.
Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued
check against Traders Royal Bank, payable to defendant Ernestina Crisologo-Jose. Since the
check was under the account of Mover Enterprises, Inc., the same was to be signed by its
president, Atty. Oscar Z. Benares, and the treasurer of the said corporation.
However, since at that time, the treasurer of Mover Enterprises was not available, Atty.
Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check. The
check was issued to defendant Ernestina Crisologo-Jose in consideration of the waiver or
quitclaim by said defendant over a certain property which the Government Service Insurance
System (GSIS) agreed to sell to the spouses Jaime and Clarita Ong, with the understanding
that upon approval by the GSIS of the compromise agreement with the spouses Ong, the
check will be encashed accordingly.
Since the compromise agreement was not approved within the expected period of time, the
aforesaid check was replaced by Atty. Benares. This replacement check was also signed by
Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant deposited
this replacement check with her account at Family Savings Bank, Mayon Branch, it was
dishonored for insufficiency of funds. The petitioner filed an action against the corporation for
accommodation party.
Issue: WON the corporation can be held liable as accommodation party?
Held:
person only if specifically authorized to do so.
Corollarily, corporate officers, such as the president and vice-president, have no power to
execute for mere accommodation a negotiable instrument of the corporation for their
individual debts or transactions arising from or in relation to matters in which the corporation
has no legitimate concern.
Since such accommodation paper cannot thus be enforced against the corporation,
especially since it is not involved in any aspect of the corporate business or operations, the
inescapable conclusion in law and in logic is that the signatories thereof shall be personally
liable therefor, as well as the consequences arising from their acts in connection therewith.
Doctrine:
Ultra vires
- Act committed outside the object for which a corporation is created as defined by the
law of its organization
- Therefore beyond the power conferred upon it by law
- UV of corporation is different from UV of an officer
- Latter distinguished from an illegal act for the former
- Void
- Cannot be validated
- Former may be enforced by performance, ratification or estoppel
- Merely voidable

No. Accommodation party liable on the instrument to a holder for value, although such holder
at the time of taking the instrument knew him to be only an accommodation party, does not
include nor apply to corporations which are accommodation parties.

This is because the issue or indorsement of negotiable paper by a corporation without

consideration and for the accommodation of another is ultra vires. Hence, one who has
taken the instrument with knowledge of the accommodation nature thereof cannot recover
against a corporation where it is only an accommodation party.

If the form of the instrument, or the nature of the transaction, is such as to charge the
indorsee with knowledge that the issue or indorsement of the instrument by the corporation is
for the accommodation of another, he cannot recover against the corporation thereon.
Atrium Management Corp. vs CA
Facts:
Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de Leon,
treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry
and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to Atrium
for valuable consideration. Enrique Tan of E.T. Henry approached Atrium for financial
assistance, offering to discount four RCBC checks in the total amount of P2 million, issued by
Hi-Cement in favor of E.T. Henry.
Atrium agreed to discount the checks, provided it be allowed to confirm with Hi-Cement the
fact that the checks represented payment for petroleum products which E.T. Henry delivered
to Hi-Cement. Upon presentment for payment, the drawee bank dishonored all four checks
for the common reason “payment stopped”.
As a result thereof, Atrium filed an action for collection of the proceeds of 4 PDC in the total
amount of 2M with RTC Manila. Judgment was rendered in favor of Atrium ordering Lourdes
and Rafael de Leon, E.T. Henry and Co., and Hi-Cement to pay Atrium the said amount plus
interest and attorneys fees. CA absolved Hi-cement Corporation from liability. It also ruled
that since Lourdes was not authorized to issue the subjects checks in favor of E.T. Henry Inc.,
the said act was ultra vires.
Issue: Whether the issuance of the questioned checks was an ultra vires act
Held:
Yes.
He agrees to hold himself personally and solidarily liable with the corporation; or
He is made, by a specific provision of law, to personally answer for his corporate action.
In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of
Hi-Cement were authorized to issue the checks. However, Ms. de Leon was negligent when
she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry
for the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that
the checks were strictly endorsed for deposit only to the payee’s account and not to be further
negotiated. What is more, the confirmation letter contained a clause that was not true, that is,
“that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from
E.T. Henry”. Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may
be held personally liable therefor.
Doctrine:
Ultra vires
- Act committed outside the object for which a corporation is created as defined by the
law of its organization
- Therefore beyond the power conferred upon it by law
- UV of corporation is different from UV of an officer
- Latter distinguished from an illegal act for the former
- Void
- Cannot be validated
- Former may be enforced by performance, ratification or estoppel
- Merely voidable

An ultra vires act is one committed outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond the power conferred upon it by
law. The term “ultra vires” is “distinguished from an illegal act for the former is merely voidable
which may be enforced by performance, ratification, or estoppel, while the latter is void and
cannot be validated.

Personal liability of a corporate director, trustee or officer along (although not necessarily)
with the corporation may so validly attach, as a rule, only when:

He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;

He consents to the issuance of watered down stocks or who, having knowledge thereof, does
not forthwith file with the corporate secretary his written objection thereto;
Salas vs CA
Facts:
In February 1980, Juanita Salas bought a motor vehicle from the Violago Motor Sales
Corporation (VMS for brevity)
- P58,138.20 as evidenced by a promissory note
- Said note was subsequently endorsed to Filinvest Finance & Leasing Corporation, which
financed the purchase.
Salas defaulted in her installments beginning May 21, 1980
- allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to
her and those indicated in the sales invoice, certificate of registration and deed of chattel
mortgage, which she discovered when the vehicle figured in an accident on 9 May 1980.
This failure to pay prompted VMS to initiate a Civil Case for a sum of money
- Both petitioner and private respondent appealed the aforesaid decision to the CA
- Salas imputed fraud, bad faith and misrepresentation against VMS for having delivered a
different vehicle to Salas; and prayed for a reversal of the trial court's decision so that she
may be absolved from the obligation under the contract
- CA denied motion of Salas
Salas argued that no contract ever existed between her and VMS, and therefore none had
been assigned in favor of VMS
- she contends to implead VMS as a party to the case before it can be made to answer for
damages because VMS was earlier sued by her for breach of contract
- VMS avers that said decision on the breach of contract cannot be invoked as an authority as
the same is still pending determination in the appellate court.
Salas never denied under oath her liability on the due execution and genuineness of the
promissory note.
Issue: Whether or not such fraud would relieve the petitioner of her liability from private
respondent.
Held:
NO. The fraud in this case is with the contractual relations with VMS and not to the
promissory note. Respondent corporation holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior parties among themselves, and may
enforce payment of the instrument for the full amount thereof. This being so, petitioner cannot
set up against respondent the defense of nullity of the contract of sale between her and VMS.
- Real Defenses question the legal validity of the instrument itself.
- Personal Defenses question only the validity of the agreement for which the instrument was
issued
A holder in due course is free from personal defenses but not from real defenses
- therefore, when a person primarily or secondarily liable raises a defense, which questions
the legal validity of the instrument itself when the HIDC enforces payment on the instrument,
the latter may be defeated if such defense is meritorious (if not meritorious then, HIDC can
enforce)
- however, if a person primarily or secondarily liable raises a defense, which questions the
validity of the agreement for which the instrument was issued, then an HIDC cannot be
defeated by such defense since it is free from it, thus it can enforce the full payment of the
instrument
On the other hand, if the holder is not a holder in due course then he is subject to the same
defenses as if it were non-negotiable. EXCEPT if the said holder derives his title through an
HIDC, and who himself is not a party to any fraud or illegality affecting the instrument, then he
has all the rights of such former holder in respect of all parties prior to the latter.
In the present case Salas raised a personal defense questioning the validity of agreement
between her and VMS. She never denied her liability and the genuineness of the promissory
note. Answering the question, whether or not Filinvest can enforce full payment on Salas as
an HIDC, it is affirmative, because an HIDC is free from personal defenses. Salas cannot
refuse payment if her defense is only personal.
Doctrine:
The difference between the two is fraud in the factum is a legal defense and fraud in the
inducement can be described as an equitable defense. Fraud in the factum is used as a legal
defense when one party makes or signs an agreement not realizing it is supposed to be a
contract. ... Fraud in the inducement is illegal.
Prudencio vs CA
Facts:
Appellants are the owners of a property
- they mortgaged to help secure a loan of a certain Domingo Prudencio.
On a later date, they were approached by their relative
- who was the attorney-in-fact of a construction company
......which was in dire need of funds for the completion of a municipal building.
After some persuasion, the appellants amended the mortgage
- wherein the terms and conditions of the original mortgage was made an integral part
of the new mortgage.
- The promissory note covering the “second loan”
...... was signed by their relative
...... It was also signed by them, indicating the request that the check be released by the
bank.
After the amendment of the mortgage was executed
- a deed of assignment was made by Toribio
...... assigning all the payments to the Bureau to the construction company.
- the Bureau with approval of the bank, conditioned however that they should be for labor
and materials,
...... made three payments to the company.
The last request was denied by the bank
- averring that the account was long overdue
...... the remaining balance of the contract price should be applied to the loan.
The company abandoned the work
- as consequence, the Bureau rescinded the contract and assumed the work.
Appellants wrote to the PNB
- that since the latter has authorized payments to the company instead of on account
of the loan guaranteed by the mortgage
...... there was a change in the conditions of the contract without the knowledge of appellants
...... which entitled the latter to cancel the mortgage contract.
The trial court held them still liable together with their co-makers.
- It has also been held that if the judgment is not satisfied within a period of time
...... the mortgaged properties would be foreclosed and sold in public auction.
In their appeal
- petitioners contend that as accommodation makers
...... the nature of their liability is only that of mere sureties instead of solidary co-debtors
...... such that a material alteration in the principal contract, effected by the creditor without
the knowledge and consent of the sureties, completely discharges the sureties from all
liabilities on the contract of suretyship.
Issue:
W/N the Prudencios' as accommodating party are liable as solidary debtors so real estate
mortgage executed by them CANNOT be cancelled
W/N PNB was a holder in due course
Held:
The Court held that PNB is not a holder in due course, thus, the spouses Prudencio can
validly set up their personal defense of release from the real estate mortgage against PNB.
--------------------------------------------------
The Court held that there is no question that as accommodation makers, Prudencio would be
primarily and unconditionally liable on the promissory note to a holder for value, regardless of
whether they stand as sureties or solidary co-debtors since such distinction would be entirely
immaterial and inconsequential as far as a holder for value is concerned.
- Consequently, the Prudencios cannot claim to have been released from their obligation
simply because at the time of payment of such obligation was temporarily deferred by
the PNB without their knowledge and consent.
- There has to be another basis for their claim of having been freed from their obligation.
- It has to be determined if PNB was a holder for value.
A holder for value is one who meets the requirement of being a holder in due course except
the notice for want of consideration.
- In the case at bar, PNB may not be considered as a holder for value.
- Not only was PNB an immediate party or privy to the promissory note, knowing fully
well that petitioners only signed as accommodation parties, but more importantly it was the
Deed of Assignment which moved the petitioners to sign the promissory note.
Prudencio also relied on the belief that there will be no alterations to the terms of the
agreement
- The deed provided that there will be no further conditions which could possibly alter the
agreement without the consent of the petitioner such as the grant of greater priority to
obligations other than the payment of the loan.
- This notwithstanding, the bank approved the release of payments to the Company
instead of the same to the bank.
- This was in violation of the deed of assignment and prejudiced the rights of
petitioners.
- The bank was not in good faith—

Good faith preclude the defense of fraud and failure of consideration

- a payee who receives a negotiable promissory note, in good faith, for value, before maturity,
and without any notice of any infirmity, from a holder, not the maker. to whom it was
negotiated as a completed instrument, is a holder in due course within the purview of a
Negotiable Instruments law, so as to preclude the defense of fraud and failure of
consideration between the maker and the holder to whom the instrument, was delivered

Doctrine:

The difference between the two is fraud in the factum is a legal defense and fraud in the
inducement can be described as an equitable defense. Fraud in the factum is used as a legal
defense when one party makes or signs an agreement not realizing it is supposed to be a
contract. ... Fraud in the inducement is illegal.
Associated Bank vs CA
Facts:

The Province of Tarlac maintains a current account with the Philippine National Bank (PNB
Tarlac Branch) 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 account. 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 allotted 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: W/N collecting bank is liable for the forged instruments

Held:

Yes. A collecting bank which indorses a check bearing a forged indorsement and presents it
to the drawee bank guarantees all prior indorsements, including the forged indorsement.

- It warrants that the instrument is genuine, and

- That it is valid and subsisting at the time of indorsement

Because the indorsement is forgery, the collecting bank commits a breach of this warranty
and will be accountable to the drawee bank.

This liability scheme operates without regard to fault on the part of the collecting/presenting
bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank
because of its indorsement.

Moreover, the collecting bank is made liable because it is privy to the depositor who
negotiated the check. The bank knows him, his address and history, because he is a client. It
has taken a risk on his deposit.

The bank is also in a better position to detect forgery, fraud, or irregularity in the indorsement

Doctrine:
Gempesaw vs CA 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
Facts:
second indorsements, was adjudged liable to share the loss with Gempesaw on a 50:50 ratio.
Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in
Doctrine:
favor of several supplies. Most of the checks for amounts in excess of actual obligations as
shown in their corresponding invoices. Section 23 of the Negotiable Instruments Law, is precluded from using forgery as a defense
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: W/N collecting bank is liable for the forged instruments

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.
Republic vs Ebrada
Facts:

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 he 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.

Doctrine:

Section 23 of the Negotiable Instruments Law, is precluded from using forgery as a defense
MWSS (METROPOLITAN WATERWORKS AND SEWERAGE)
vs. CA
Facts:
Twenty three checks were deposited by the payees Dizon, Sison and Mendoza in their
respective current accounts with the PCIB and PBC. Thru the Central Bank Clearing, these
checks were presented for payment by PBC and PCIB to the defendant PNB, and were paid.
At the time of their presentation to PNB these checks bear the standard indorsement which
reads ‘all prior indorsement and/or lack of endorsement guaranteed.’
Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo
Sison and Antonio Mendoza were all fictitious persons.
NWSA addressed a letter to PNB requesting the immediate restoration to its Account No. 6,
of the total sum of P3,457,903.00 corresponding to the total amount of these twenty-three
(23) checks claimed by NWSA to be forged and/or spurious checks.
------
Metropolitan Waterworks and Sewerage System (MWSS) is a GOCC and successor-in-
interest of the defunct NWSA. The authorized signature for PNB Account No. 6 were those of
MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager
Victor L. Recio.
Specimen signatures were submitted by the MWSS to and on file with the PNB. By special
arrangement with the PNB, the MWSS used personalized checks in drawing from this
account.
printed for MWSS by its printer, F. Mesina Enterprises
March, April and May 1969: 23 checks were prepared, processed, issued and released by
NWSA, all of which were paid and cleared by PNB and debited by PNB against NWSA
Account No.
deposited by the fictitious payees Raul Dizon, Arturo Sison and Antonio Mendoza in their
respective current accounts with the Philippine Commercial and Industrial Bank (PCIB) and
Philippine Bank of Commerce (PBC)
At the time of their presentation to PNB these checks bear the standard indorsement which
reads 'all prior indorsement and/or lack of endorsement guaranteed'
NWSA filed against PNB before the CFI
PNB also filed a 3rd party complaint against the negotiating banks PBC and PCIB on the
ground that they failed to ascertain the Identity of the payees and their title to the checks
which were deposited in the respective new accounts of the payees with them
February 6, 1976: CFI favored MWSS
CA: reversed and favored PNB
applied Section 24 of the Negotiable Instruments Law
Issue: WON THE DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF
THE NEGOTIABLE INSTRUMENTS LAW
Held:
No. The NBI does not declare or prove that the signatures appearing on the questioned
checks are forgeries. These reports did not touch on the inherent qualities of the signatures
which are indispensable in the determination of the existence of forgery. There must be
conclusive findings that there is a variance in the inherent characteristics of the signatures
and that they were written by two or more different persons. Forgery cannot be presumed. It
must be established by clear, positive, and convincing evidence. This was not done in the
present case.
Even if the twenty-three (23) checks in question are considered forgeries, considering the
petitioner’s gross negligence, it is barred from setting up the defense of forgery under Section
23 of the Negotiable Instruments Law.
One factor which facilitate this fraud was the delay in the reconciliation of bank (PNB)
statements with the NAWASA bank accounts. The records likewise show that the petitioner
failed to provide appropriate security measures over its own records thereby laying
confidential records open to unauthorized persons.
We cannot fault the respondent drawee Bank for not having detected the fraudulent
encashment of the checks because the printing of the petitioner’s personalized checks was
not done under the supervision and control of the Bank. Under the circumstances, therefore,
the petitioner was in a better position to detect and prevent the fraudulent encashment of its
checks
Doctrine:
Section 23 of the Negotiable Instruments Law, is precluded from using forgery as a defense
QUIRINO GONZALES LOGGING CONCESSIONAIRE v. THE
COURT OF APPEALS
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 the petitioner but the CA reversed the decision.

ISSUE: Whether the promissory notes were valid.

RULING:

Petitioner claims that they signed the notes in blank but did not receive the value of the notes.
They also admit the genuineness and due execution of the notes. The promissory notes were
negotiable as they met the requirements of Sec. 1 of the NIL. The notes are prima facie
deemed to have issued for consideration.

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.

The SC remanded the issue concerning the notes to the court of origin.
Great Eastern vs Hongkong Shanghai Bank 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.
Facts:
The Philippine National Bank had no license or authority to pay the money to Maasim or
May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on the anyone else upon a forge signature.
Hongkong and Shanghai Banking Corporation (HSBC) payable to the order of Lazaro
Melicor. Its remedy is against Maasim to whom it paid the money.

E. M. Maasim fraudulently obtained possession of the check, forged Melicor's signature, as

Doctrine:
an endorser, and then personally endorsed and presented it to the Philippine National Bank
(PNB) and it was placed to his credit. Section 23 of the Negotiable Instruments Law, is precluded from using forgery as a defense

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

Issue: 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
McGuire vs Province of Samar
Facts:

While the province of Samar was still occupied by Japanese military forces, a check was
issued by said province to Paulino M. Santos (then the postmaster of Borongan) for the sum
of P25,000, drawn against the Philippine National Bank Cebu Branch. The payee negotiated
the check with James McGuire, an American citizen and resident of the municipality of
Borongan. James McGuire presented the check to the municipal treasurer of Borongan for
payment, but the latter (who merely noted it) was not able or did not choose to pay the same.

James McGuire wrote letters to the Bureau of Posts seeking payment of the check, which
were in turn referred to the PNB. As of this date the province of Samar still had a deposit of
P84,287.47 in the PNB. PNB requested James McGuire to present the check to the provincial
treasurer and the provincial auditor for certification. Before the check could be certified by the
authorities concerned as being in order and entitled to priority of payment, the province of
Samar, withdraw the amount of P83,504.07, leaving a balance of only P743.43.

In the meantime, James McGuire transferred his rights to the check to the herein Plaintiffs
who, unable to cash it.

Issue: WON defendants herein are solidarily liable to pay the check.

Held:

The obligation of the Appellant bank is merely subsidiary. An implied acceptance of the check
by the Appellant bank was thereby created. The request by the Appellant bank from the
Bureau of Posts for photostatic copies of the check and the subsequent requirement by it for
its presentation by James McGuire to the provincial treasurer and the provincial auditor for
certification, would be an empty gesture if the Appellant did not thereby mean to assume the
obligation of paying the check and holding sufficient deposit of the drawer for the purpose.
Even so, Appellant’s resulting obligation is merely subsidiary, the province of Samar being
primarily liable to pay the check.

Doctrine:

Section 23 of the Negotiable Instruments Law, is precluded from using forgery as a defense