Jai-alai Corp. of the Philippines v.

Bank of the Philippine Island,

G.R. No. L-29432, August 6, 1975;

Summary: Petitioner deposited in its current account with respondent bank several
checks with a total face value of P8k, all acquired from Antonio J. Ramirez, a regular
bettor at the jai-alai games and a sale agent of the Inter-Island Gas Service, Inc., the
payee of the checks. The deposits were all temporarily credited to petitioner's account
in accordance with the clause printed on the bank's deposit slip. Subsequently they
discovered that all the indorsement made on the checks purportedly by its cashiers
were forgeries.
Bank debited the petitioner's current account and forwarded to the latter the checks
containing the forged indorsements, which petitioner refused to accept. Later,
petitioner drew against its current account a check for P135k. This check was
dishonored by respondent as its records showed that petitioner's balance after netting
out the value of the checks with the forged indorsement, was insufficient to cover the
value of the check drawn.
The Supreme Court ruled that respondent acted within legal bounds when it debited
petitioner's account; that the payments made by the drawee banks to the respondent
on account of the checks with forged indorsements were ineffective; that on account
thereof, no creditor-debtor relationship was created between the parties; that
petitioner was grossly negligent in accepting the checks in question from Ramirez
without making any inquiry as to authority to exchange checks belonging to the payee-
corporation.
Facts:
Jai-Alai Co deposited 10 checks worth 8k in its account with the BPI. These checks were
all payable to Inter Island Gas and indorsed to Jai Alai by its regular bettor, Ramirez.
Ramirez was a sales agent of Inter Island. Upon deposit, BPI temporarily credited to the
Jai Alai account in accordance with the clause printed on the deposit slips issued by the
respondent and which reads:
"Any credit allowed the depositor on the books of the Bank for checks or drafts hereby
received for deposit, is provisional only, until such time as the proceeds thereof, in
current funds or solvent credits, shall have been actually received by the Bank and the
latter reserves to itself the right to charge back the item to the account of its depositor,
at any time before that event, regardless of whether or not the item itself can be
returned."
About 3 months later, BPI found out that all indorsements on the checks were forgeries.
BPI Cashier, Sarthou advised Jai –alai that due to the discovery, the bank would have to
debit its account and forwarded to the latter the checks containing the forged
indorsements, which the Jai Alai, however, refused to accept. When Jai-alai drew a
check for 135k, it was dishonored for insufficiency of funds since the current account
had a sum of 128k, net of the debited 8k. Jai Alai filed for damages.
WN the bank can debit the account of Jai-Alai. YES.

1. No debtor and creditor relationship

When the petitioner deposited the checks with the respondent, the nature of the
relationship created at that stage was one of agency, that is, the bank was to collect
from the drawees of the checks the corresponding proceeds.

2. A forged signature creates no rise and obligations. Sec 23 of NIL provides that a
forged signature shall be wholly in operatives against the person whose signature it
purports to be and no right to discharge it or enforce its payment can be acquired
through or under the forged signature except against a party who cannot invoke the
forgery. The indorsements on the checks had been forged prior to their delivery to the
petitioner. In legal contemplation, therefore, the payments made by the drawee-banks
to the respondent on account of the said checks were ineffective; and, such being the
case, the relationship of creditor and debtor between the petitioner and the respondent
had not been validly effected, the checks not having been properly and legitimately
converted into cash.
Having received the checks merely for collection and deposit, the BPI cannot he
expected to know or ascertain the genuineness of all prior indorsements on the said
checks.
3. Jai Alai was negligent. Petitioner cashed these checks to a mere individual who was
admittedly always bets at its jai-alai games without making any inquiry as to his
authority to exchange checks belonging to the payee-corporation.
It must be noted further that three of the checks in question are crossed checks which
may only be deposited, but not encashed; yet, the petitioner negligently accepted them
for cash.
4. Jai Alai should bear the loss. Under Section 67 of the Negotiable Instruments Law,
"Where a person places his indorsement on an instrument negotiable by delivery he
incurs all the liability of an indorser," and under Section 66 of the same statute a general
indorser warrants that the instrument "is genuine and in all respects what it purports to
be." Where the depositor indorsed the checks with forged indorsement when it
deposited them with the collecting bank, the former as an endorser guaranteed the
genuineness of all prior indorsement thereon. The collecting bank which relied upon this
warranty cannot be held liable for the resulting loss.