CASE NAME Metropolitan Bank & Trust Company vs.

CA
PRINCIPLE: Treasury warrants are NOT negotiable instruments
FACTS: In January 1979, Eduardo Gomez opened an account with Golden
Savings and deposited over a period of two months 38 treasury
warrants with a total value of PHP 1,755,228.37 which were all drawn
by the Philippine Fish Marketing Authority. Six of these were directly
payable to Gomez while the others appeared to have been indorsed
by their respective payees, followed by Gomez as second indorser.
All of the warrants were subsequently indorsed by Gloria Castillo as
Cashier of Golden Savings and deposited to its account in Metrobank
Calapan. These were then sent for clearing by the branch office to
the principal office of Metrobank, which then forwarded them to the
Bureau of Treasury for special clearing.

More than 2 weeks after the deposit, Gloria went to MBTC Calapan
Branch several times to ask whether the warrants had been cleared
but she was told to wait. Gomez was meanwhile not allowed to
withdraw from his account. Because of Gloria’s repeated inquiries
and as an accommodation for a valued client, MBTC allowed Golden
Savings to withdraw from the proceeds of the warrants.

Total withdrawal amounted to PHP 968,000.00. In turn, Golden

Savings allowed Gomez to withdraw from his account, eventually
collecting a total amount of PHP 1,167,500.00 from the proceeds of
the apparently cleared warrants. Days later, MBTC informed Golden
Savings that the Bureau of Treasury dishonored 32 of the warrants
and demanded refund from Golden Savings to make up for the
resulting deficit. The demand was rejected, hence, MBTC sued
Golden Savings before RTC.

RTC: in favor of GOLDEN SAVINGS

CA: affirmed RTC Decision

ISSUE: (1) Whether or not treasury warrants are negotiable instruments.
(NO) (2) Whether or not petitioner’s negligence would bar them for
recovery. (YES)
RULING: Section 1 of the Negotiable Instruments Law states that for an
instrument to be negotiable, it must conform to the following
requirements:
(1) It must be in writing and signed by the maker or drawer;
(2) Must contain an unconditional promise or order to pay a sum
certain in money;
(3) Must be payable on demand, or at a fixed or determinable future
time;
(4) Must be payable to order or to bearer; and (
5) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
 A promise to be unconditional must not be paid out of a particular
fund (Sec 3, NIL) The indication of Fund 501 as the source of the
payment to be made on the treasury warrants makes the order or
promise to pay "not unconditional" and the warrants themselves non-
negotiable.

The document bearing on its face the words "payable from the
appropriation for food administration, is actually an Order for payment
out of "a particular fund," and is not unconditional and does not fulfill
one of the essential requirements of a negotiable instrument.

The indorsement was made by Gloria Castillo not for the purpose of
guaranteeing the genuineness of the warrants but merely to deposit
them with Metrobank for clearing. It was in fact Metrobank that made
the guarantee when it stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements guaranteed, Metropolitan
Bank & Trust Co., Calapan Branch." Metrobank exhibited
extraordinary carelessness. The amount involved was not trifling —
more than one and a half million pesos (and this was 1979).

There was no reason why it should not have waited until the treasury
warrants had been cleared; it would not have lost a single centavo by
waiting. It "presumed" that the warrants had been cleared simply
because of "the lapse of one week." It was the clearance given by it
that assured Golden Savings it was already safe to allow Gomez to
withdraw the proceeds of the treasury warrants he had deposited
Metrobank misled Golden Savings.

CASE NAME: Caltex Phils. vs. CA

PRINCIPLE: The accepted rule is that the negotiability or non-negotiability of an

instrument is determined from the writing, that is, from the face of the
instrument itself. In the construction of a bill or note, the intention of
the parties is to control, if it can be legally ascertained.

While the writing may be read in the light of surrounding

circumstances in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be
the only outward and visible expression of their meaning, no other
words are to be added to it or substituted in its stead. The duty of the
court in such case is to ascertain, not what the parties may have
secretly intended as contradistinguished from what their words
express, but what is the meaning of the words they have used.

What the parties meant must be determined by what they said. Under
the Negotiable Instruments Law, an instrument is negotiated when it
is transferred from one person to another in such a manner as to
 constitute the transferee the holder thereof, and a holder may be the
payee or indorsee of a bill or note, who is in possession of it, or the
bearer thereof. In the present case, however, there was no
negotiation in the sense of a transfer of the legal title to the CTDs in
favor of petitioner in which situation, for obvious reasons, mere
delivery of the bearer CTDs would have sufficed.
FACTS: On various dates, defendant, a commercial banking institution,
through its Sucat Branch issued 280 certificates of time deposit
(CTDs) in favor of one Angel dela Cruz who deposited with herein
defendant the aggregate amount of P1,120,000.00. Angel dela Cruz
delivered the said certificates of time deposit (CTDs) to herein
plaintiff in connection with his purchase of fuel products from the
latter.

Sometime in March 1982, Angel dela Cruz lost all the certificates of
time deposit in dispute. Mr. Tiangco advised said depositor to
execute and submit a notarized Affidavit of Loss, as required by
defendant bank’s procedure. Angel dela Cruz executed and delivered
to defendant bank the required Affidavit of Loss Then replacement
CTDs were issued in favor of said depositor.

Angel dela Cruz negotiated and obtained a loan from defendant

bank. On the same date, said depositor executed a notarized Deed
of Assignment of Time Deposit which stated, among others, that he
(dela Cruz) surrenders to defendant bank ‘full control of the indicated
time deposits and further authorizes said bank to apply the said time
deposits to the payment of whatever amount or amounts may be due’
on the loan upon its maturity. Mr. Aranas, Credit Manager of plaintiff
Caltex (Phils.) Inc., went to the defendant bank’s Sucat branch and
presented for verification the CTDs declared lost by Angel dela Cruz
alleging that the same were delivered to herein plaintiff.

Then, plaintiff was requested by herein defendant to furnish the

former ‘a copy of the document evidencing the guarantee agreement
with Mr. Angel dela Cruz’ as well as ‘the details of Mr. Angel dela
Cruz’ obligations against which’ plaintiff proposed to apply the time
deposits. Accordingly, defendant bank rejected the plaintiff’s demand
and claim for payment of the value of the CTDs.

In April 1983, the loan of Angel dela Cruz with the defendant bank
matured and fell due, the latter set-off and applied the time deposits
in question to the payment of the matured loan. Plaintiff filed the
instant complaint,
ISSUE: Whether or not the subject certificates of deposit are non-negotiable

RULING: Contrary to what respondent court held, the CTDs are negotiable
instruments. The documents provide that the amounts deposited
shall be repayable to the depositor. And who, according to the
document, is the depositor? It is the “bearer.” The documents do not
say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are
to be repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.

If it was really the intention of respondent bank to pay the amount to

Angel de la Cruz only, it could have with facility so expressed that
fact in clear and categorical terms in the documents, instead of
having the word “BEARER” stamped on the space provided for the
name of the depositor in each CTD. Petitioner’s aforesaid witness
merely declared that Angel de la Cruz is the depositor “insofar as the
bank is concerned,” but obviously other parties not privy to the
transaction between them would not be in a position to know that the
depositor is not the bearer stated in the CTDs.

Hence, the situation would require any party dealing with the CTDs to
go behind the plain import of what is written thereon to unravel the
agreement of the parties thereto through facts aliunde. This need for
resort to extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the
obscurity.

Petitioner’s insistence that the CTDs were negotiated to it begs the

question. Under the Negotiable Instruments Law, an instrument is
negotiated when it is transferred from one person to another in such
a manner as to constitute the transferee the holder thereof, and a
holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof.

In the present case, however, there was no negotiation in the sense

of a transfer of the legal title to the CTDs in favor of petitioner in
which situation, for obvious reasons, mere delivery of the bearer
CTDs would have sufficed. Here, the delivery thereof only as security
for the purchases of Angel de la Cruz (and we even disregard the
fact that the amount involved was not disclosed) could at the most
constitute petitioner only as a holder for value by reason of his lien.

Accordingly, a negotiation for such purpose cannot be effected by

mere delivery of the instrument since, necessarily, the terms thereof
and the subsequent disposition of such security, in the event of non-
payment of the principal obligation, must be contractually provided
for.
CASE NAME: Romeo C. Garcia Vs. Dionisio V. Llamas.
PRINCIPLE: (1) A note that was made payable to a specific person rather
than to bearer or to order is not a negotiable insturments,
it is merely a simple contract covered by the provisions
of the Civil Code.
(2) The relation between an accommodation party and the
party accommodated is, in effect, one of principal and
surety -- the accommodation party being the surety.
FACTS: On 23 December 1996, Petitioner and de Jesus borrowed
P400,000.00 from respondent. On the same day, they executed a
promissory note wherein they bound themselves jointly and severally
to pay the loan on or before 23 January 1997 with a 5% interest per
month; the loan has long been overdue and, despite repeated
demands, petitioner and de Jesus have failed and refused to pay it.
By reason of their unjustified refusal, [respondent] was compelled to
engage the services of counsel to whom he agreed to pay 25% of the
sum to be recovered from [petitioner and de Jesus, plus P2,000.00 for
every appearance in court.

"Resisting the complaint, Petitioner Garcia, averred that he assumed

no liability under the promissory note because he signed it merely as
an accommodation party for De Jesus; and, alternatively, that he is
relieved from any liability arising from the note inasmuch as the loan
had been paid by De Jesus by means of a check dated 17 April 1997;
and that, in any event, the issuance of the check and respondent's
acceptance thereof novated or superseded the note.

Respondent tendered a reply to Petitioner Garcia's answer,

thereunder asserting that the loan remained unpaid for the reason that
the check issued by De Jesus bounced.

On July 7, 1998, the Regional Trial Court (RTC) of Quezon City

rendered in favor of respondent and against petitioner and De Jesus,
who are hereby ordered to pay, jointly and severally the respondent.

The appellate court ruled that no novation -- express or implied -- had

taken place when respondent accepted the check from De Jesus.
According to the CA, the check was issued precisely to pay for the
loan that was covered by the promissory note jointly and severally
undertaken by petitioner and De Jesus. Respondent's acceptance of
the check did not serve to make De Jesus the sole debtor because,
first, the obligation incurred by him and petitioner was joint and
several; and, second, the check -- which had been intended to
 extinguish the obligation -- bounced upon its presentment.

ISSUE: 1. Whether there was novation of the obligation. (None)

2. Whether the defense that petitioner was only an
accommodation party had any basis. (None) - relevant to the
Nego
RULING: Novation

Petitioner seeks to extricate himself from his obligation as joint and

solidary debtor by insisting that novation took place, either through the
substitution of De Jesus as sole debtor or the replacement of the
promissory note by the check. Alternatively, the former argues that the
original obligation was extinguished when the latter, who was his co-
obligor, "paid" the loan with the check.

Novation is a mode of extinguishing an obligation by changing its

objects or principal obligations, by substituting a new debtor in place
of the old one, or by subrogating a third person to the rights of the
creditor.

In general, there are two modes of substituting the person of the

debtor: (1) expromision and (2) delegacion.

In expromision, the initiative for the change does not come from --
and may even be made without the knowledge of -- the debtor, since it
consists of a third person's assumption of the obligation. As such, it
logically requires the consent of the third person and the creditor.

In delegacion, the debtor offers, and the creditor accepts, a third

person who consents to the substitution and assumes the obligation;
thus, the consent of these three persons are necessary.

Both modes of substitution by the debtor require the consent of the

creditor.

Novation may also be extinctive or modificatory.

It is extinctive when an old obligation is terminated by the creation of

a new one that takes the place of the former.

It is merely modificatory when the old obligation subsists to the

extent that it remains compatible with the amendatory agreement.

For novation to take place, the following requisites must concur:

1) There must be a previous valid obligation. 2) The parties concerned
must agree to a new contract. 3) The old contract must be
extinguished. 4) There must be a valid new contract.

Novation may also be express or implied. It is express when the

new obligation declares in unequivocal terms that the old obligation is
extinguished. It is implied when the new obligation is incompatible
with the old one on every point. The test of incompatibility is whether
the two obligations can stand together, each one with its own
independent existence.

Applying the foregoing to the instant case, we hold that no

novation took place.

The parties did not unequivocally declare that the old obligation
had been extinguished by the issuance and the acceptance of
the check, or that the check would take the place of the note. There is
no incompatibility between the promissory note and the check. As the
CA correctly observed, the check had been issued precisely to answer
for the obligation. On the one hand, the note evidences the loan
obligation; and on the other, the check answers for it. Verily, the two
can stand together.

Neither could the payment of interests -- which, in petitioner's view,

also constitutes novation[ -- change the terms and conditions of the
obligation. Such payment was already provided for in the promissory
note and, like the check, was totally in accord with the terms thereof.

Also unmeritorious is petitioner's argument that the obligation

was novated by the substitution of debtors. In order to change the
person of the debtor, the old one must be expressly released from the
obligation, and the third person or new debtor must assume the
former's place in the relation.[19] Well-settled is the rule that novation
is never presumed. Consequently, that which arises from a purported
change in the person of the debtor must be clear and express. It is
thus incumbent on petitioner to show clearly and unequivocally that
novation has indeed taken place. In the present case, petitioner has
not shown that he was expressly released from the obligation, that a
third person was substituted in his place, or that the joint and solidary
obligation was cancelled and substituted by the solitary undertaking of
De Jesus.

Moreover, it must be noted that for novation to be valid and legal, the
law requires that the creditor expressly consent to the
substitution of a new debtor. Since novation implies a waiver of the
right the creditor had before the novation, such waiver must be
express. It cannot be supposed, without clear proof, that the present
respondent has done away with his right to exact fulfillment from
either of the solidary debtors

(2) Accommodation Party

Petitioner avers that he signed the promissory note merely as an

accommodation party; and that, as such, he was released as obligor
 when respondent agreed to extend the term of the obligation.

This reasoning is misplaced, because the note herein is not a

negotiable instrument.

By its terms, the note was made payable to a specific person

rather than to bearer or to order -- a requisite for negotiability under
Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner
cannot avail himself of the NIL's provisions on the liabilities and
defenses of an accommodation party. Besides, a non-negotiable note
is merely a simple contract in writing and is evidence of such
intangible rights as may have been created by the assent of the
parties. The promissory note is thus covered by the general provisions
of the Civil Code, not by the NIL.

Even granting arguendo that the NIL was applicable, still, petitioner
would be liable for the promissory note. Under Article 29 of Act 2031,
an accommodation party is liable for the instrument to a holder for
value even if, at the time of its taking, the latter knew the former to be
only an accommodation party. The relation between an
accommodation party and the party accommodated is, in effect,
one of principal and surety -- the accommodation party being the
surety. It is a settled rule that a surety is bound equally and absolutely
with the principal and is deemed an original promissor and debtor
from the beginning. The liability is immediate and direct.

CASE NAME: Philippine National Bank (PNB) v. Erlando Rodriguez and Norma
Rodriguez
PRINCIPLE: Fictitious payee rule, payable to bearer
FACTS: Respondent-Spouses Erlando and Norma Rodriguez were clients of
petitioner PNB, Amelia Ave. Branch, Cebu City. They maintained
two PNBig Demand Deposits (demand/checking accounts). The
spouses were engaged in the informal lending business.

In line with their business, they had a discounting arrangement with

Philnabank Employees Savings and Loan Association (PEMSLA),
an association of PNB employees, also client of PNB Amelia Ave.
Branch, where they maintained current and savings accounts.
PEMSLA regularly granted loans to its member and Spouses would
rediscount the postdated checks issued to members whenever the
association was short of funds. At the same time, the spouses would
replace the postdated checks with their own checks issued in the
same name. PEMSLA’s policy would not approve applications with
outstanding debts and in order to subvert this they created a
scheme to obtain additional loans in the names of unknowing
members without their knowledge and consent. PEMSLA checks
were then given to spouses for rediscounting and were carried out
by forging the endorsement of the named payees in the checks.
 Rodriguez checks were deposited directly to PEMSLA without any
endorsement from the named payees.

Petitioner found out about the fraudulent acts, and took measures by
closing the current account of PEMSLA. Since PEMSLA checks
were dishonored and returned the respondents incurred losses from
the rediscounting transactions. The corresponding Rodriguez
checks, however, were deposited as usual to the PEMSLA savings
account. The amounts were duly debited from the Rodriguez
account. Thus, because the PEMSLA checks given as payment
were returned, spouses Rodriguez incurred losses from the
rediscounting transactions. RTC rendered judgement in favor of
spouses Rodriguez and PNB is liable to return the value of checks
(payable to bearer).

AT FIRST, CA reversed and set aside RTC's decision since the

checks were obviously meant by the Spouses to be paid to
PEMSLA. AFTER THE SPOUSES MOVED FOR
RECONSIDERATION that the checks on their faces were
unquestionably payable to order; and that PNB committed a breach
of contract when it paid the value of the checks to PEMSLA without
indorsement from the payees., CA reversed itself. Ruling that PNB
is liable to pay the Spouses.
ISSUE: WON the subject checks are payable to order or to bearer and who
bears the loss?
RULING: The Court affirmed CA's decision with modification. As a rule, when
the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument. A check
is "a bill of exchange drawn on a bank payable on demand." It is
either an order or a bearer instrument. The distinction between
Bearer and Order instruments lies in their manner of negotiation. An
order instrument requires an indorsement from the payee or holder
before it may be validly negotiated WHILE a bearer instrument is
negotiable by mere delivery.

The provision reads: SEC. 30. What constitutes negotiation.

An instrument is negotiated when it is transferred from one person to

another in such manner as to constitute the transferee the holder
thereof. If payable to bearer, it is negotiated by delivery; if payable to
order, it is negotiated by the indorsement of the holder completed by
delivery. A check that is payable to a specified payee is an order
instrument. However, under Section 9(c) of the NIL, a check
payable to a specified payee may nevertheless be considered as a
bearer instrument if it is payable to the order of a fictitious or non-
existing person, and such fact is known to the person making it so
payable. Thus, checks issued to who are well- known characters in
Philippine mythology, are bearer instruments because the named
 payees are fictitious and non-existent. A review of US jurisprudence
yields that an actual, existing, and living payee may also be fictitious
if the maker of the check did not intend for the payee to in fact
receive the proceeds of the check. This usually occurs when the
maker places a name of an existing payee on the check for
convenience or to cover up an illegal activity. Thus, a check made
expressly payable to a non-fictitious and existing person is not
necessarily an order instrument. If the payee is not the intended
recipient of the proceeds of the check, the payee is considered a
fictitious payee and the check is a bearer instrument.

In a fictitious-payee situation, the drawee bank is absolved from

liability and the drawer bears the loss. When faced with a check
payable to a fictitious payee, it is treated as a bearer instrument that
can be negotiated by delivery.

However, there is a commercial exception to this rule that is if

the transferee of the check acts dishonestly, and is a party to
the fraudulent scheme, PNB was remiss in its duty as the drawee
bank. It does not dispute the fact that its teller or tellers accepted the
69 checks for deposit to the PEMSLA account even without any
indorsement from the named payees. It bears stressing that order
instruments can only be negotiated with a valid indorsement.

CASE NAME: Philippine National Bank vs. Manila Oil Refining & By-Products
Company
PRINCIPLE:
FACTS: On May 8, 1920, the manager and the treasurer of the Manila Oil
Refining & By-Products Company, Inc,. executed and delivered to
the Philippine National Bank, a written instrument.The Manila Oil
Refining & By-Products Company, Inc. failed to pay the promissory
note on demand. The Philippine National Bank brought action in the
Court of First Instance of Manila, to recover P61,000, the amount of
the note, together with interest and costs. Mr. Elias N. Recto, an
attorney associated with the Philippine National Bank, entered his
appearance in representation of the defendant, and filed a motion
confessing judgment. The defendant, however, in a sworn
declaration, objected strongly to the unsolicited representation of
attorney Rect. Later, attorney Antonio Gonzalez appeared for the
defendant and filed a demurrer, and when this was overruled,
presented an answer.

The trial judge rendered judgment on the motion of attorney Recto in

the terms of the complaint. The foregoing facts, and appellant's
three assignments of error, raise squarely the question which was
suggested in the beginning of this opinion. In view of the importance
 of the subject to the business community, the advice of prominent
attorneys-at-law with banking connections, was solicited.

These members of the bar responded promptly to the request of the

court, and their memoranda have proved highly useful in the solution
of the question. It is to the credit of the bar that although the
sanction of judgment notes in the Philippines might prove of
immediate value to clients, every one of the attorneys has looked
upon the matter in a big way, with the result that out of their
independent investigations has come a practically unanimous
protest against the recognition in this jurisdiction of judgment notes.

The attorney for the appellee contends that the Negotiable

Instruments Law (Act No. 2031) expressly recognized judgment
notes, and that they are enforcible under the regular procedure. The
Negotiable Instruments Law, in section 5, provides that "The
negotiable character of an instrument otherwise negotiable is not
affected by a provision which ". . . (b) Authorizes confession of
judgment if the instrument be not paid at maturity.' We do not
believe, however, that this provision of law can be taken to sanction
judgments by confession, because it is a portion of a uniform law
which merely provides that, in jurisdictions where judgments notes
are recognized, such clauses shall not affect the negotiable
character of the instrument.

Moreover, the same section of the Negotiable Instruments Law

concludes with these words: "But nothing in this section shall
validate any provision or stipulation otherwise illegal." The court is
thus put in the position of having to determine the validity in the
absence of statute of a provision in a note authorizing an attorney to
appear and confess judgment against the maker. This situation, in
reality, has its advantages for it permits us to reach that solution
which is best grounded in the solid principles of the law, and which
will best advance the public interest.
ISSUE: Whether or not a judgment note or a provision in a promissory note
whereby in case the same is not paid at maturity, the maker
authorizes any attorney to and confess judgment thereon for the
principal amount with interest, costs and attorney’s fees, and waives
all errors, rights to inquisition, and appeal, and all property
exemptions.

Will it affect the negotiable character of the instrument?

RULING: No, a judgment note will not affect the negotiable character of the
instrument. However, judgment note is not valid and effective.
Warrants of attorney to confess judgment are not authorized nor
contemplated by our law. We are further of the opinion that
provisions in notes authorizing attorneys to appear and confess
judgments against makers should not be recognized in this
jurisdiction by implication and should only be considered as valid
when given express legislative sanction.

And if this instrument be considered as a security for a debt, as it

was by the common law, it has never so found recognition in this
state. The policy of our law has been against such hidden securities
for debt. Our Recorder's Act is such that instruments intended as
security for debt should find a place in the public records, and if not,
they have often been viewed with suspicion, and their bona fides
often questioned. "Nor do we think that the policy of our law is such
as to thus place a debtor in the absolute power of his creditor. The
field for fraud is too far enlarged by such an instrument.

Oppression and tyranny would follow the footsteps of such a

diversion in the way of security for debt. Such instruments procured
by duress could shortly be placed in judgment in a foreign court and
much distress result therefrom. Again, under the law the right to
appeal to this court or some other appellate court is granted to all
persons against whom an adverse judgment is rendered, and this
statutory right is by the instrument stricken down.

True it is that such right is not claimed in this case, but it is a part of
the bond and we hardly know why this pound of flesh has not been
demanded. Courts guard with jealous eye any contract innovations
upon their jurisdiction. The instrument before us, considered in the
light of a contract, actually reduces the courts to mere clerks to enter
and record the judgment called for therein. By our statute (Rev. St.
1899, sec. 645) a party to a written instrument of this character has
the right to show a failure of consideration, but this right is brushed
to the wind by this instrument and the jurisdiction of the court to hear
that controversy is by the contract divested. Agreements whose
object is to oust the jurisdiction of the courts are contrary to public
policy and will not be enforced. Thus it is held that any stipulation
between parties to a contract distinguishing between the different
courts of the country is contrary to public policy.

The principle has also been applied to a stipulation in a contract that

a party who breaks it may not be sued, to an agreement designating
a person to be sued for its breach who is nowise liable and
prohibiting action against any but him, to a provision in a lease that
the landlord shall have the right to take immediate judgment against
the tenant in case of a default on his part, without giving the notice
and demand for possession and filing the complaint required by
stature, to a by-law of a benefit association that the decisions of its
officers on a claim shall be final and conclusive, and to many other
agreements of a similar tendency.

In some courts, any agreement as to the time for suing different from
the time allowed by the statute of limitations within which suit shall
 be brought or the right to sue be barred is held void. This contract, in
so far as it goes beyond the usual provisions of a note, is void as
against the public policy of the state, as such public policy is found
expressed in our laws and decisions. Such agreements are
iniquitous to the uttermost and should be promptly condemned by
the courts, until such time as they may receive express statutory
recognition, as they have in some states.

CASE NAME: Republic Planters Bank vs. CA, 216 SCRA 738;
PRINCIPLE: MAIN POINT: INCOMPLETE INSTRUMENTS TO RULES OF
CONSTRUCTION. Judicial notice of the customary procedure of
commercial banks of requiring their clientele to sign promissory
notes prepared by the banks in printed form with blank spaces
already filled up as per agreed terms of the loan, leaving the
borrowers-debtors to do nothing but read the terms and conditions
therein printed and to sign as makers or co-makers. Under the
Negotiable Instruments Law, persons who write their names on the
face of promissory notes are makers and are liable as such.
FACTS: Defendants Shozo Yamaguchi (President/Chief Operating Officer)
and Fermin Canlas (Treasurer), by virtue of Board Resolution of
Worldwide Garment Manufacturing, Inc, were authorized to apply for
credit facilities with the Republic Planters Bank in the forms of export
advances and letters of credit/trust receipts accommodations.

Petitioner bank issued nine promissory notes, each of which were

uniformly worded and stated: “… I/we jointly and severally promise
to pay to the order of the Republic Planters Bank…” On the right
bottom margin of the promissory notes appeared the signature of
the defendants above their printed names with the phrase “and (in)
his personal capacity” typewritten below.

Meanwhile, Worldwide Garment Manufacturing, Inc. changed its

corporate name to Pinch Manufacturing Corporation Subsequently,
petitioner Republic Planters filed a complaint for the recovery of
sums of money initially against Worldwide Garment. Later on, Pinch
Manufacturing Corporation was substituted in its place.

RTC- ordered Pinch Manuf, Shozo and Fermin liable

CA - affirmed but absolved Fermin Respondent Fermin Canlas

denied having issued the promissory notes as an officer of Pinch
Manufacturing Corporation and when he issued said promissory
notes in behalf of Worldwide Garment Manufacturing, Inc., it was in
blank (the typewritten entries not appearing when he signed)
ISSUE: Whether the corporate treasurer is liable for the amounts in the
promissory notes. (YES)
RULING: Canlas is a co-maker of the promissory notes, under the law, and
cannot escape liability arising therefrom. Inasmuch as the
 instrument contained the words “I promise to pay” and is signed by
two or more persons, said persons are deemed to be jointly and
severally liable thereon. As the promissory notes are stereotype
ones issued by the bank in printed form with blank spaces filled up
as per agreed terms of the loan, following customary procedures,
leaving the debtors to do nothing but read the terms and conditions
therein and to sign as makers or co-makers.

An incomplete instrument which has been delivered to the borrower

for his signature is governed by Section 14 of the Negotiable
Instruments Law: Sec. 14. Blanks: when may be filled. — Where the
instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it by
filling up the blanks therein. ... In order, however, that any such
instrument when completed may be enforced against any person
who became a party thereto prior to its completion, it must be filled
up strictly in accordance with the authority given and within a
reasonable time...xxx

The notes were not incomplete instruments; neither were they given
to private respondent Fermin Canlas in blank as he claims. Thus,
Section 14 of the Negotiable Instruments Law, therefore, does not
apply. The Supreme Court held that the claim that the notes were
signed in blank was only self-serving testimony of private
respondent Fermin Canlas.

The Supreme Court believed he bank’s testimony that the notes

were filled up before they were given to private respondent Fermin
Canlas and defendant Shozo Yamaguchi for their signatures as joint
and several promissors. For signing the notes above their
typewritten names, they bound themselves as unconditional makers.

CASE NAME: SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C.

EVANGELISTA, Petitioners, vs. MERCATOR FINANCE CORP.,
LYDIA P. SALAZAR, LAMEC'S** REALTY AND DEVELOPMENT
CORP. and the REGISTER OF DEEDS OF BULACAN,
Respondents.
PRINCIPLE: Where an instrument containing the word "I promise to pay" is
signed by two or more persons, they are deemed to be jointly and
severally liable thereon.
FACTS: Petitioners filed a complaint1 for annulment of titles against
respondents, Mercator Finance Corporation, Lydia P. Salazar,
Lamecs Realty and Development Corporation, and the Register of
Deeds of Bulacan. Petitioners claimed being the registered owners
of five (5) parcels of land contained in the Real Estate Mortgage
executed by them and Embassy Farms, Inc. ("Embassy Farms").
They alleged that they executed the Real Estate Mortgage in favor
of Mercator Financing Corporation ("Mercator") only as officers of
 Embassy Farms. They did not receive the proceeds of the loan
evidenced by a promissory note, as all of it went to Embassy Farms.

Thus, they contended that the mortgage was without any

consideration as to them since they did not personally obtain any
loan or credit accommodations. With the void mortgage, they
assailed the validity of the foreclosure proceedings conducted by
Mercator, the sale to it as the highest bidder in the public auction,
the issuance of the transfer certificates of title to it, the subsequent
sale of the same parcels of land to respondent Lydia P. Salazar
("Salazar"), and the transfer of the titles to her name, and lastly, the
sale and transfer of the properties to respondent Lamecs Realty &
Development Corporation ("Lamecs"). Mercator contended that "on
February 16, 1982, plaintiffs executed a Mortgage in favor of
defendant Mercator Finance Corporation ‘for and in consideration of
certain loans, and/or other forms of credit accommodations obtained
from the Mortgagee (defendant Mercator Finance Corporation)
amounting (P844,625.78) PESOS.

It contended that since petitioners and Embassy Farms signed the

promissory note6 as co-makers, aside from the Continuing
Suretyship Agreement subsequently executed to guarantee the
indebtedness of Embassy Farms, and the succeeding promissory
notes restructuring the loan, then petitioners are jointly and severally
liable with Embassy Farms. Due to their failure to pay the obligation,
the foreclosure and subsequent sale of the mortgaged properties
are valid.

Respondents Salazar and Lamecs asserted that they are innocent

purchasers for value and in good faith, relying on the validity of the
title of Mercator. After pre-trial, Mercator moved for summary
judgment. The RTC granted the motion for summary judgment and
dismissed the complaint.

A reading of the promissory notes show (sic) that the liability of the
signatories thereto are solidary in view of the phrase "jointly and
severally." On the promissory note appears (sic) the signatures of
Eduardo B. Evangelista, Epifania C. Evangelista The appeal and
motion for reconsideration before the CA were also denied.
ISSUE: Whether or not the signature of the spouses on the promissory note
intended to continue the suretyship agreement. (Yes)
RULING: Even if petitioners intended to sign the note merely as officers of
Embassy Farms, still this does not erase the fact that they
subsequently executed a continuing suretyship agreement. A surety
is one who is solidarily liable with the principal.

Petitioners cannot claim that they did not personally receive any
consideration for the contract for well-entrenched is the rule that the
 consideration necessary to support a surety obligation need not
pass directly to the surety, a consideration moving to the principal
alone being sufficient.

A surety is bound by the same consideration that makes the contract

effective between the principal parties thereto. Having executed the
suretyship agreement, there can be no dispute on the personal
liability of petitioners. Where an instrument containing the word "I
promise to pay" is signed by two or more persons, they are deemed
to be jointly and severally liable thereon.

CASE NAME: Ilano vs. Hon. Espanol

PRINCIPLE: Cause of Action Three elements:
(1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and
(3) the act or omission of the defendant in violation of said legal
right.

Section 6 of the Negotiable Instruments Law Section 6.

Omission; seal; particular money. – The validity and negotiable
character of an instrument are not affected by the fact that –
(a) It is not dated; or
(b) Does not specify the value given, or that any value had been
given therefor; or
(c) Does not specify the place where it is drawn or the place where it
is payable; or
(d) Bears a seal; or
(e) Designates a particular kind of current money in which payment
is to be made.
FACTS: AMELIA O. ALONZO, is a trusted employee of VICTORIA J. ILANO
for several years already.

Due to these trust there were occasions when ALONZO was

entrusted with ILANO's METROBANK Check Book containing either
signed or unsigned blank checks, especially in those times when
she left for the United States for medical check-up ILANO filed a
complaint against 15 defendants (and several John Does) for
Revocation/Cancellation of Promissory Notes and Bills of Exchange
(Checks) with Damages and Prayer for Preliminary Injunction or
Temporary Restraining Order (TRO) She alleges that ALONZO by
means of deceit and abuse of confidence succeeded in procuring
Promissory Notes and signed blank checks from her who was then
recuperating from illness.

The named defendants-herein respondents filed their respective

Answers invoking, among other grounds for dismissal, lack of cause
of action, for while the checks subject of the complaint had been
issued on account and for value, some had been dishonored due to
 "ACCOUNT CLOSED;" and the allegations in the complaint are bare
and general.

RTC dismissed the complaint for failure "to allege the ultimate facts"

CA affirmed the RTC's decision and held that the elements of a

cause of action are absent in the case.
CA stated that such allegations in the complaint are only general
averments of fraud, deceit and bad faith. There were no allegations
of facts showing that the acts complained of were done in the
manner alleged. Neither did it state any right or cause of action on
the part of [petitioner] to show that she is indeed entitled to the relief
prayed for.

Moreover, CA find nothing on the face of the complaint to show that

[petitioner] denied the genuineness or authenticity of her signature
on the subject promissory notes and the allegedly signed blank
checks. Even if allegations were true, ILANO cannot be held totally
blameless for her predicament as it was by her own negligence that
subject instruments/signed blank checks fell into the hands of third
persons.
ISSUE: Whether or not petitioner’s complaint failed to state a cause of action
RULING: No. Petitioner’s complaint did not fail to state a cause of action The
SC held that the elements of a cause of action are present. A cause
of action has three elements:
(1) the legal right of the plaintiff,
(2) the correlative obligation of the defendant, and
(3) the act or omission of the defendant in violation of said legal
right. While some of the allegations may lack particulars, and are in
the form of conclusions of law, the elements of a cause of action are
present.
For even if some are not stated with particularity, petitioner alleged
1) her legal right not to be bound by the instruments which were
bereft of consideration and to which her consent was vitiated;
2) the correlative obligation on the part of the defendants-
respondents to respect said right; and
3) the act of the defendants-respondents in procuring her signature
on the instruments through "deceit," "abuse of confidence"
"machination," "fraud," "falsification," "forgery," "defraudation," and
"bad faith," and "with malice, malevolence and selfish intent."

WITH RESPECT TO THE QUESTIONED PROMISSORY NOTES

THAT THE PRESENT PETITION ASSUMES MERIT. FOR,
PETITIONER’S ALLEGATIONS IN THE COMPLAINT RELATIVE
THERETO, EVEN IF LACKING PARTICULARITY, DOES NOT AS
PRIORLY STATED CALL FOR THE DISMISSAL OF THE
COMPLAINT. Where the allegations of a complaint are vague,
indefinite, or in the form of conclusions, its dismissal is not proper for
 the defendant may ask for more particulars. With respect to the
checks subject of the complaint, it is gathered that, except for Check
No. 0084078,10 they were drawn all against petitioner’s Metrobank
Account No. 00703-955536-7. With respect to above-said Check
No. 0084078, however, which was drawn against another account of
petitioner, albeit the date of issue bears only the year − 1999, its
validity and negotiable character at the time the complaint was filed
on March 28, 2000 was not affected.

For Section 6 of the Negotiable Instruments Law provides: Section

6. Omission; seal; particular money. – The validity and negotiable
character of an instrument are not affected by the fact that –
(a) It is not dated; or (
b) Does not specify the value given, or that any value had been
given therefor; or
(c) Does not specify the place where it is drawn or the place where it
is payable; or
(d) Bears a seal; or
(e) Designates a particular kind of current money in which payment
is to be made.

However, even if the holder of Check No. 0084078 would have filled
up the month and day of issue thereon to be "December" and "31,"
respectively, it would have, as it did, become stale six (6) months or
180 days thereafter, following current banking practice.

CASE NAME: FRANCISCO v. COURT OF APPEALS

PRINCIPLE: Where any person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative personal
liability
FACTS: In 23 June 1977, A. Francisco Realty & Development Corporation
(AFRDC) represented by Adalia Francisco, and Herby Commercial
& Construction Corporation (HCCC), represented by Jaime Ong,
entered a contract, where HCCC agreed to undertake the
construction of 35 housing units and the development of 35 hectares
of land.

Under the contract, HCCC will be paid based on the completed

houses and developed land delivered to and accepted by AFRDC
and GSIS. Then, AFRDC executed a Deed of Assignment in order
for HCCC to collect payments directly from GSIS. Further, an
Executive Committee Account was put up by AFRDS and GSIS from
which checks would be issued and co-signed by Francisco and
GSIS Vice President. In 10 February 1978, HCCC filed a complaint
against Francisco and GSIS for the collection of unpaid balance for
the completed and delivered housing units and land development.

Thereafter, the parties arrived at an amicable settlement of their

 differences. In their agreement, 83 housing units turned over by
HCCC were accepted and paid for by the GSIS, while GSIS still
owed HCCC Php 520,177.50 for the incomplete construction of the
housing units and land development. Moreover, it was also
stipulated in the agreement that HCCC was indebted to AFRDC
which will be paid out of the proceeds from the 40 housing units to
be turned over by HCCC or from any amount due to HCCC by
GSIS. Consequently, the RTC dismissed the case upon the filing by
the parties of a joint motion to dismiss. Sometime in 1979, Ong
discovered that Francisco and GSIS Vice President had executed
and signed seven (7) checks drawn against Insular Bank of Asia and
America and payable to HCCC for the completed and delivered work
under their contract.

However, Ong claimed that said checks were never delivered to

HCCC. Ong also learned that GSIS gave Francisco custody of the
checks since she promised that she would deliver the same to
HCCC. Instead, Francisco forged the signature of Ong to make it
appear that HCCC had indorsed the checks. Then, Francisco
indorsed the checks for the second time and deposited the check in
her IBAA savings account. Thereafter, Francisco withdrew the
amount credited to her account. Ong filed complaints for estafa thru
falsification of commercial documents against Francisco but, the
assistant city fiscal dismissed the complaints which were affirmed by
the Minister of Justice. Then, Ong filed a case against Francisco and
IBAA and prayed for the recovery of the total value of the seven (7)
checks.

The trial court rendered its decision in favor of Ong and held that
Francisco had indeed forged the signature of Ong to make it appear
that he had indorsed the checks. Similarly, IBAA was held liable for
honoring the checks despite such obvious irregularities.

However, the trial court allowed IBAA recourse against Francisco,

who was ordered to reimburse the IBAA for any sums it shall have to
pay to private respondents. Both Francisco and IBAA appealed the
trial court’s decision.

The CA dismissed IBAA’s appeal for its failure to file its brief within
the extension granted by the appellate court. However, it affirmed
the trial court’s ruling. Hence, this petition.
ISSUE: Whether Francisco forged the signature of Ong on the seven (7)
checks
RULING: YES. The Court held that Francisco forged the signature of Ong on
the checks to make it appear as if Ong had indorsed said checks
and that, after indorsing the checks for a second time by signing her
name at the back of the checks, Francisco deposited said checks in
her savings account with IBAA.
 The forgery was satisfactorily established in the trial court upon the
strength of the findings of the NBI handwriting expert. Other than
Francisco's self-serving denials, there is nothing in the records to
rebut the NBI's findings. Francisco claims that she was, in any
event, authorized to sign Ong's name on the checks by virtue of the
Certification executed by Ong in her favor giving her the authority to
collect all the receivables of HCCC from the GSIS, including the
questioned checks. The Negotiable Instruments Law provides that
where any person is under obligation to indorse in a
representative capacity, he may indorse in such terms as to
negative personal liability. An agent, when so signing, should
indicate that he is merely signing in behalf of the principal and
must disclose the name of his principal; otherwise he shall be
held personally liable.

Even assuming that Francisco was authorized by HCCC to sign

Ong's name, still, Francisco did not indorse the instrument in
accordance with law. Instead of signing Ong's name, Francisco
should have signed her own name and expressly indicated that she
was signing as an agent of HCCC.

Thus, the Certification cannot be used by Francisco to validate her

act of forgery. Every person who, contrary to law, wilfully or
negligently causes damage to another, shall indemnify the latter for
the same. Due to her forgery of Ong's signature which enabled her
to deposit the checks in her own account, Francisco deprived HCCC
of the money due it from the GSIS pursuant to the Land
Development and Construction Contract.

CASE NAME: Manila Pest Control v. Workmens Compensation L-27662

PRINCIPLE:
FACTS: It was alleged that on Feb 24, 1967, respondent Workmen’s
Compensation Commission considered a complaint filed against it
by Mario Abitria for compensation submitted for decision after Abitria
and a physician testified, with petitioner’s counsel failing to appear.
Petitioner filed a motion for reconsideration, praying to present
evidence, which was denied. A decision was rendered awarding
respondent Abitria Php 6000 as disability compensation benefit.

The petitioner said that they were not aware of the decision as it was
not furnished them. The contention was that the one "officially
furnished" with a copy of such decision was not its counsel. It was
sent to one Atty. Camacho but care of petitioner's counsel, Atty.
Corpuz. Petitioner avers that they were denied due process. From
the record of the case, Abitria was assigned to the Research
division, working 6 days a week, and receiving a compensation
monthly wage of Php 180.
 During his work, he was made to inhale dangerous fumes since the
atmosphere in the workplace was polluted with poisonous chemical
dust. He was not extended any protective device and he was made
to life heavy objects.

In July 1966, he started to experience symptoms of pulmonary

tuberculosis. He spat blood (hemoptysis) and he was diagnosed
with pulmonary tuberculosis when he was brought to the Quezon
Institute. On cross examination, the doctor testified that indeed the
nature of the work involving strenuous physical exertion and other
factors such as inhalation of chemicals brought about the
aggravation of the illness.

Respondent was duly notified of his illness and repeated demands

were made for the compensation and in view of the respondent's
refusal to pay him disability compensation despite repeated
demands, claimant filed this instant claim
ISSUE: Whether there is sufficient evidence in support of the claim for
disability compensation benefits under the Workmen’s
Compensation Law (YES)
RULING: Claimant had substantially proven his case and that the illness was
service connected. The evidence on record is crystal clear that the
claimant had already substantially proven his case and all
indications point that the illness was service connected in view of his
work as laborer.

The Court further ruled that No valid defenses could have been put
up by the petitioner in this case. The claim of deprivation of due
process is without basis.

The reason why the petitioner was not able to present evidence is
because it failed to do so during the trial itself. On the claim that it
was not furnished a copy of the decision, it is the fault of petitioner’s
counsel Atty Manuel Corpuz, because when such counsel received
the decision, he told Gerardo Guzman, the one who delivered the
decision to him, that he was no longer handling the case, and that it
should be furnished to one Atty Manuel Camacho, and since
Camacho was not around to receive the decision, it was left with a
clerk working in his law office. It is to be noted that there is no, as
there could not be any, valid ground for denying compensation to
respondent Abitria on the facts as found. Considering how great and
pressing the laborer's need for the compensation due him was and
the consequent temptation to settle for less if in the meanwhile, the
money he had the right to expect, was not forthcoming, petitioner, as
the employer liable, had everything to gain and nothing to lose by
such a turn of events. Even if it were an honest mistake, the
consequences were still deplorable.
CASE NAME: Traders Royal Bank v. Radio Phils Network GR No. 138510
PRINCIPLE: Drawee bank must suffer the consequences of the unauthorized or
wrongful endorsement when it encashed in favor of unknown
person, checks which were on their face payable to a government
agency. Collecting bank shall be liable when it endorses a check
bearing a forged indorsement and presents it to the drawee bank for
payment. Drawee bank has no right to reimbursement when it did
not pay the rightful holder.
FACTS: • April 15, 1985, the Bureau of Internal Revenue (BIR) assessed
plaintiffs Radio Philippines Network (RPN) of their tax obligations
for the taxable years 1978 to 1983

• June 26, 1986, plaintiffs purchased from defendant Traders Royal

Bank (TRB) three (3) manager's checks to be used as payment
for their tax liabilities

• TRB turned over the checks to Mrs. Vera (RPNs Comptroller)

who was supposed to deliver the same to the BIR in payment of
plaintiffs' taxes

• September, 1988, the BIR again assessed plaintiffs for their tax
liabilities for the years 1979-82. It was then they discovered that the
three (3) managers checks (Nos. 30652, 30650 and 30796)
intended as payment for their taxes were never delivered nor paid to
the BIR by Mrs. Vera. Instead, the checks were presented for
payment by unknown persons to defendant Security Bank and
Trust Company (SBTC), Taytay Branch.

• Meanwhile, for failure of the plaintiffs to settle their

obligations, the BIR issued warrants of levy, distraint and
garnishment against them. Thus, they were constrained to enter
into a compromise and paid BIR P18,962,225.25 in settlement of
their unpaid deficiency taxes.

• Traders Royal Bank sent letters to both defendants, demanding

that the amounts covered by the checks be reimbursed or credited
to their account. The defendants refused, hence, the instant suit.

• RTC: favored Traders Royal Bank against RPN and SBTC

• CA: absolved SBTC and held Traders solely liable • SBTC denies
liability on the ground that it had no participation in the negotiation of
the checks
ISSUE: Whether Traders Royal Bank should solely bare the loss for its
negligence (YES)
RULING: """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."" Consequently, if a bank pays 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.

The 3 checks were payable to the BIR. It was established, however,

that said checks were never delivered or paid to the payee BIR but
were in fact presented for payment by some unknown persons who,
in order to receive payment therefor, forged the name of the payee.
Despite this fraud, petitioner TRB paid the 3 checks in the total
amount of P9,790,716.87.

Petitioner ought to have known that, where a check is drawn

payable to the order of one person and is presented for payment by
another and purports upon its face to have been duly indorsed by
the payee of the check, it is the primary duty of petitioner to know
that the check was duly indorsed by the original payee and, where it
pays the amount of the check to a third person who has forged the
signature of the payee, the loss falls upon petitioner who cashed
the check. Its only remedy is against the person to whom it
paid the money.

By encashing in favor of unknown persons checks which were on

their face payable to the BIR, a government agency which can only
act only through its agents, petitioner did so at its peril and must
suffer the consequences of the unauthorized or wrongful
endorsement. In this light, petitioner TRB cannot exculpate itself
from liability by claiming that respondent networks were
themselves negligent.

SBTC not liable: 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 itself, and
ultimately should be held liable therefor.

However, it is doubtful if the subject checks were ever presented to

and accepted by SBTC so as to hold it liable as a collecting bank. "

CASE NAME: Great Eastern Life Ins. Co. V. Hongkong Shanghai Bank
PRINCIPLE: 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.
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
ISSUE: W/N Eastern has the right to recover the amount of the forged check
RULING: 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.

CASE NAME: Bank of the Phil Islands v. CA

PRINCIPLE:
FACTS: A woman who identified herself to be Eligia Fernando called up BPI,
requesting for the pre-termination of her money market placement
with the bank.

The staff of the BPI named Reginaldo Eustaquio took the call but did
not bother to verify with Fernando’s office if whether or not she really
intended to preterminate her money market placement. Instead, he
relied on the verification stated by the caller. He proceeded with the
 processing of the termination.

Thereafter, the caller gave delivery instructions that instead of

delivering the checks to her office, it would be picked up by her
niece and it indeed happen as such. It was found out later on that
the person impersonated Fernando and her alleged niece in getting
the checks. The dispatcher also didn't bother to get the promissory
note evincing the placement when he gave the checks to the
impersonated niece.

This was aggravated by the fact that this impersonator opened an

account with the CBC and deposited the subject checks. It then
withdrew the amounts. The day of the maturity of the money market
placement happened and the real Fernando surfaced herself. She
denied preterminating the money market placements and though
she was the payee of the checks in issue, she didn't receive any of
its proceeds.

This prompted the bank to surrender to CBC the checks and asking
for reimbursement on alleged forgery of payee’s indorsements.
ISSUE: Whether or not a forged signature is wholly inoperative and payment
made through or under such signature is ineffective or does not
discharge the instrument.
RULING: Yes. Generally, a forged signature is wholly inoperative and
payment made through or under such signature is ineffective or
does not discharge the instrument. There are two (2) parts of the
provision. The first part states the general rule while the second part
states the exception to the general rule. The general rule is to the
effect that a forged signature is “wholly inoperative nd payment
made “through or under such signature” is ineffectual or does not
discharge the instrument. The exception to this rule is when the
party relying on the forgery is “precluded from setting up the forgery
or want of authority.” In this jurisdiction we recognize negligence of
the party invoking forgery as an exception to the general rule. The
Court ruled that while it is true that petitioner BPI’s negligence may
have been the proximate cause of the loss, respondent CBC’s
negligence contributed equally to the success of the impostor in
encashing the proceeds of the forged checks. There is no question
that the banks were negligent in the selection and supervision of
their employees.

The Arbitration Committee, the PCHC Board of Directors and the

lower courts, however disagree in the evaluation of the degree of
negligence of the banks. While the Arbitration Committee declared
the negligence of respondent CBC graver, the PCHC Board of
Directors and the lower courts declared that petitioner BPI’s
negligence was graver. To the extent that the degree of negligence
is equated to the proximate cause of the loss, we rule that the issue
 as to whose negligence is graver is relevant.

No matter how many justifications both banks present to avoid

responsibility, they cannot erase the fact that they were both guilty in
not exercising extraordinary diligence in the selection and
supervision of their employees. The next issue hinges on whose
negligence was the proximate cause of the payment of the forged
checks by an impostor. Under these circumstances, we apply Article
2179 of the Civil Code to the effect that while respondent CBC may
recover its losses, such losses are subject to mitigation by the
courts.

CASE NAME: REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs.

EQUITABLE BANKING CORPORATION, defendant-appellee.
PRINCIPLE: Forgery
FACTS: From July to December 1952, the Corporacion de los Padres
Dominicos obtained the twenty-four treasury warrants by
accommodating a former trusted employee, Jacinto Carranza, who
asked the Corporacion to cash the warrants, claiming that doing so
directly with the government was difficult and that his wife expected
a commission for the encashment.

Corporacion agreed on the condition that the warrants be deposited

with the Bank of the Philippine Islands first, and that actual payment
of the warrants' value would be paid only once the proceeds were
credited to the Corporacion's account: a. They were accepted
"subject to collection only" by Corporacion. b. The Corporation's
indorsement was on each warrant, as well as the payees'.
Corporacion acceded provided that the warrants would first be
deposited with Bank of the Philippine Islands and that actual
payment of the value of the warrants would be made only after the
proceeds thereof would be credited to the account of the
Corporacion: a. Corporacion accepted them "subject to collection
only" b. Warrants each bore the indorsement of the respective
payees and that of the Corporation PI Bank (BPI) then presented the
warrants for payment to the drawee, the Government, through the
Clearing Office of the Central Bank: a. Cleared and credited to
Corporacion Corporacion then withdrew said proceeds by means of
its own checks and eventually paid the corresponding amounts to
Jacinto Carranza. Subsequently however, the Treasurer returned 3
warrants to the Central Bank, and demanded, on the ground that
they had been

forged, that the value thereof be charged against the accounts of

the PI Bank in the Clearing Office and credited back to the demand
deposit of the Bureau of the Treasury: a. A few days later, the
remaining warrants were also returned for the same reason with
same demands G.R. No. L-15895, a civil case, was instituted
 against the PI Bank for the recovery of P342,767.63, while G.R. No.
L-15894 was instituted against the Equitable Bank for, the recovery
of P17,100.00. Accordingly, the signature thereon of the drawing
office and that of the representative of the Auditor General in that
office are forged.
ISSUE: Whether or not the Treasury can recover the amount. (NO)
RULING: No. The Treasury had not only been negligent in clearing its own
warrants, but had, also, thereby induced the PI Bank and the
Equitable Bank to pay the amounts thereof to said depositors.

a. Such negligence becomes more apparent when each one of the

twenty-four (24) warrants was for over P5,000, and, hence;
beyond the authority of the auditor of the Treasury

b. In other words, the irregularity of said warrants was apparent the

face thereof, from the viewpoint of the Treasury.

Where a loss, which must be borne by one of two parties alike

innocent of forgery, can be traced to the neglect or fault of either, it
is reasonable that it would be borne by him, even if innocent of any
intentional fraud, through whose means it has succeeded.
Generally, where a drawee bank otherwise would have a right of
recovery against a collecting or indorsing bank for its payment of a
forged check, its action will be barred if it is guilty of an
unreasonable delay in discovering the forgery and in giving notice

CASE NAME: MWSS v. CA GR No. 62943

PRINCIPLE: Where a depositor is using its own personalized checks, its failure to
provide adequate security measures to prevent forgeries of its
checks constitutes gross negligence and bars it from setting up the
defense of forgery. Section 24 of the Negotiable Instruments Law: -
applicable in this case since forgery was not established by clear,
positive and convincing evidence. (forgery cannot be presumed)
SEC 24. Every negotiable instrument is deemed prima facie to have
been issued for valuable consideration and every person whose
signature appears thereon to have become a party thereto for value.
Section 23 of the Negotiable Instruments Law: - applicable in this
case and it bars MWSS from filing a suit for MWSS’ gross
negligence. SEC. 23. FORGED SIGNATURE; EFFECT OF.- When
the signature is forged or made without 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.
FACTS: Metropolitan Waterworks and Sewerage System (MWSS) is a
government owned and controlled corporation which is the
 successor-in- interest of the NWSA. The Philippine National Bank
(PNB for short), on the other hand, is the depository bank of MWSS
and NWSA.

Among the several accounts of NWSA with PNB is NWSA Account

No. 6. The authorized signature for said Account No. 6 were those
of MWSS treasurer, auditor, and its acting General Manager. By
special arrangement with the PNB, the MWSS used personalized
checks in drawing from this account. These checks were printed for
MWSS by its printer, F. Mesina Enterprises. During the months of
March, April and May 1969, twenty-three (23) checks were
prepared, processed, issued and released by NWSA, all of which
were paid by PNB against NWSA Account No. 6. These

checks were deposited by the certain 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) in the months of March, April and May
1969. These checks were presented for payment by PBC and PCIB
to the defendant PNB, and paid, also in the months of March, April
and May 1969. 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 In view of
refusal to credit back to NWSA, MWSS filed a complaint in CFI.
ISSUE: Whether or not the bank shall bear the loss from the alleged forged
checks.
RULING: No, forgery cannot be presumed. It must be established by clear,
positive, and convincing evidence. This was not done in the present
case. Further, the petitioner is barred from setting up the defense of
forgery under Section 23 of the Negotiable Instruments Law for
gross negligence on their part.

In Siasat, et al. v. Intermediate Appellate Court, the Court ruled that

forgery cannot be presumed and in Section 23 of the Negotiable
Instruments Law, it provides that: SEC. 23. FORGED SIGNATURE;
EFFECT OF.- When the signature is forged or made without
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.
 Forgery must be established by clear, positive, and convincing
evidence. This was not done in the present case. The NBI reports
relied upon by petitioner MWSS did not expressly show that the
signatures were forged. Further, Petitioner is petitioner is barred
from setting up the defense of forgery under Sec. 23 of NIL because
it was guilty of negligence not only before the questioned checks but
even after the same had already been negotiated. This is evident in
the fact that the petitioner:

a) failed to provide the needed security measures in printing their

personalized checks. - there was gross negligence because the
printing company merely throws out the spoiled checks; locks the
excess checks in a cabinet; and NAWASA did not send any
representatives during the printing nor provide any safety
instructions to the printing press (aside from providing a sample
check).

b) failed to reconcile the bank statements with its own records. -

petitioner requested the respondent PNB to discontinue the practice
of mailing the bank statements, but instead to deliver the same to a
certain Mr. Emiliano Zaporteza.

For reasons known only to Mr. Zaporteza however, he was

unreasonably delayed. As a consequence, Mr. Zaporteza failed to
reconcile the bank statements with the petitioner's records.

c) failed to secure the check writer which was merely sitting on top
of their cashier’s table which was open to any person known to him
or his staff members Therefore, under the circumstances, the Bank
cannot be faulted for it performed all necessary measures. Petitioner
was in a better position to detect and prevent the fraud.

CASE NAME: BANCO ATLANTICO, petitioner, vs. AUDITOR GENERAL,

respondent.
PRINCIPLE: 3 checks cleared without clearance from drawn bank
FACTS: Petitioner Banco Atlantico is a commercial bank in Madrid, Spain.
On various occasions, Virginia Boncan, the Finance Officer of the
Philippine Embassy in Madrid, negotiated with Banco Atlantico some
Philippine Embassy checks signed by Luis M. Gonzales as
ambassador, and Virginia Boncan as Finance Officer, dated October
31, 1968 in the sum of $10,109.10 payable to Azucena Pace and
drawn against the Philippine National Bank branch in New York,
U.SA. The check was endorsed by Azucena Pace and Virginia
Boncan. The petitioner, without clearing the check with the drawn
bank in New York, paid the full amount of $10,109.10 to Virginia
Boncan.

On November 2, 1968, Virginia Boncan negotiated by endorsement

 with the petitioner another embassy check in the sum of $35,000.75
payable to Virginia Boncan and drawn against the Philippine
National Bank branch in New York. Petitioner paid the full amount of
the check to Boncan without clearing said check with the drawn
bank. On November 5, 1968, Virginia Boncan again negotiated by
endorsement to petitioner another embassy check in the sum of
$90,000.

The same was paid by petitioner in full amount to Virginia Boncan

without clearing said check with the drawn bank. These occasions
where the bank allowed the payment of the checks, notwithstanding
the fact that the drawee bank has not yet cleared the check for
collection was premised on the finding that Boncan had special
relations with the employees of the bank. And that upon
presentment to the drawee bank, the checks were dishonoured due
to non-acceptance allegedly on the ground that the drawer has
ordered the stoppage of payment.

This prompted Banco Atlantico to collect from the Philippine

Embassy for the funds released to Boncan but the latter refused.
This eventually led to filing of money claim of the bank with the
Auditor General. The Auditor General claimed that: 1. The Embassy
never maintained any checking account with Banco Atlantico at any
time in the past. Only the individual staff members of the Embassy,
including Miss Virginia Boncan, in their personal and private
capacities, maintained accounts with said bank. 2. While the checks
of the Embassy may have appeared valid, payment of Miss Boncan
in her capacity as endorser and payee of the check without clearing
them first with the drawee bank is definitely not in accordance with
normal or ordinary banking practice.
ISSUE: Whether or not payments of the checks without clearing them first
with the drawee bank constitute an actual notice of a defective title
in the endorser and/or an assumption of risk by Banco Atlantico
(YES)
RULING: Yes. Philippine Embassy in Madrid, as drawer of the 3 checks in
question cannot be held liable. Banco Atlantico paid the amounts of
the 3 checks in question to Boncan without previously clearing the
said checks with the drawee bank, PNB. This is contrary to the
normal or ordinary banking practice specially so where the drawee
bank is a foreign bank and the amounts involved were large. There
is a showing that Boncan enjoyed special treatments from the
employees and chiefs of Banco Atlantico’s foreign department.

It was probably because of this special relationship that Banco

Atlantico, in view of the elementary principle that should attend
banking transactions, cashed the 3 checks in question without prior
clearances from the PNB. On whether or not Banco Atlantico was a
holder in due course, it is not. Following the decision of the Auditor
 General in denying the claim of the bank, the checks were demand
notes. It should have been put on guard when Boncan negotiated
the checks with them and subsequently deposited the same to her
account. Even though it were demand notes, she instructed the
bank that the same be not presented for collection till a later date.

The fact that the amount was quite big and it was the payee herself
who made the request that the same be not presented for collection
until a fixed date in the future was a proof of a defect in the
instrument. It loudly proclaims “Take me at your own risk”. It was
obviously by then the bank had knowledge of the infirmity or defect
of the checks. In view of the foregoing, the Philippine Embassy as
the drawer of the 3 checks in question cannot be held liable. It is
apparent that the said 3 checks were fraudulently altered by Virginia
Boncan as to their amount and, therefore, wholly inoperative. No
right of payment thereof against any party thereto could have been
acquired by the petitioner.

CASE NAME: Jai-Alai Corporation of the Philippines vs. BPI

PRINCIPLE: Obligation of the collecting bank to reimburse drawee-bank due to
forged checks
FACTS: 10 checks with a total face value of P8,030.58 were deposited by
Jai-Alai in its current account with BPI, which the former acquired
from one Antonio Ramirez who was a sales agent of Inter-Island
Gas Corporation and a regular bettor at jai-alai games. The deposits
were all temporarily credited to petitioner’s account in accordance
with the clause printed on the bank’s deposit slip: “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.”

After Ramirez had resigned from the Inter-Island Gas and after the
checks had been submitted to inter-bank clearing, the Inter-Island
Gas discovered that all the indorsements made on the checks
purportedly by its cashiers as well as the rubber stamp impression
thereon reading "Inter-Island Gas Service, Inc.," were forgeries.
Inter-Island Gas notified the parties concerned of such fact, and filed
a criminal complaint against Ramirez. The drawers of the checks,
having been notified of the forgeries, demanded reimbursement to
their respective accounts from the drawee banks.

When the drawee-banks returned the checks to BPI, the latter paid
their value which the former in turn paid to the Inter-Island Gas. BPI
debited petitioner’s current account and forwarded to the latter the
 checks containing the forged indorsements, which the petitioner
refused to accept. Later on, Jai-Alai Corporation drew against its
current account a check for P135,000 payable to the order of
Mariano Olondriz y Cia, which was dishonored by BPI 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 petitioner filed a complaint against BPI with the CFI of Manila,
which was dismissed by the CFI of Manila and as well by the CA, on
appeal.
ISSUE: Whether or not the BPI had the right to debit from petitioner’s current
account the value of the checks with the forged endorsements
RULING: YES. The respondent BPI acted within legal bounds when it debited
the petitioner's account. When the petitioner deposited the checks
with BPI, the relationship created was one of agency, that is, the
bank was to collect from the drawees of the checks the proceeds.
Under Sec. 23 of the NIL, a forged signature in a negotiable
instrument is wholly inoperative 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.

As such, BPI, as a collecting bank which indorsed the checks to the

drawee-banks for clearing, should be liable to the latter for
reimbursement, for the indorsements on the checks had been forged
prior to their delivery to the petitioner. The reason is that the bank
with which the check was deposited has no right to pay the sum
stated therein to the forger "or anyone else upon a forged
signature." In legal contemplation, the payments made by the
drawee-banks to the respondent on account of the said checks were
ineffective; hence, the creditor-debtor relationship between the
petitioner and the respondent had not been validly effected, the
checks not having been properly and legitimately converted into
cash. The fact that more than three months had elapsed since the
proceeds of the checks in question were collected by BPI is
immaterial. Here, BPI had acted promptly after being informed of the
forgery.

Moreover, having received the checks merely for collection and

deposit, the respondent cannot be expected to know or ascertain the
genuineness of all prior indorsements on the said checks. Petitioner
is deemed to have given the warranty prescribed in Sec. 66 of the
NIL that every single one of those checks "is genuine and in all
respects what it purports to be." 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. It was also the petitioner’s duty to know that the
payee's endorsement was genuine before cashing the check.
 The petitioner must in turn shoulder the loss of the amounts which
the respondent, as its collecting agent, had to reimburse to the
drawee-banks. Having indorsed the checks to respondent bank,
petitioner is deemed to have given the warranty prescribed in
Section 66. Respondent which relied upon the petitioner's warranty
should not be held liable for the resulting loss. Jai Alai Corporation is
negligent in accepting the checks without question from Antonio
Ramirez notwithstanding the fact that he is a mere individual who
was admittedly a habitue at its jai-alai games, that the payee was
the Inter-Island Gas Services, Inc. and it did not appear that he was
authorized to indorse it.

CASE NAME: Republic Bank v. Ebrada

PRINCIPLE: forgery of check
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, in
order for the bank to receive a refund of the amount but she refused.

Republic bank filed a complaint against Ebrada before the City Court
of Manila. Ebrada filed an answer denying the allegations and that
she is entitled to the proceeds of the check issued by the Bureau of
Treasury City Court: Ebrada has to reimburse the proceeds Ebrada
filed an appeal: The Bureau of Treasury issued a check payable to
Martin Lorenzo and it was drawn on the Republic Bank.

The back side of the check has signatures according to this order:
signature of Martin Lorenzo , second Ramon Lorenzo, third Adelaida
Dominguez, lastly, Mauricia Ebrada Domingues delivered the check
to Ebrada for encashment.

Ebrada went to RB and affixed her signature when she encashed it

to the bank. Ebrada received the proceeds of the check and turned
over the amount to Domingues. Dominguez handed it to Justinia
Tinio.
ISSUE: Whether or not the bank can recover from the last indorser.
RULING: Yes. 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, but instead warrant that
she has a good title of the check even though the payee was
already dead 11 years befor ethe check wa sissued.

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.

CASE NAME:
PRINCIPLE:
FACTS:
ISSUE:
RULING:

CASE NAME: Ramon Ilusorio v. CA

PRINCIPLE: Sec. 23. Forged signature, effect of.—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.
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 bank was negligent in receiving the checks.
RULING: The SC affirmed the lower court's decision. Ilusorio failed to prove
that the bank was negligent on their part as he has the burden of
proof. The bank's employees did not know the secretary's modus
operandi as she was always transacting in behalf of Ilusorio.

The SC even held that it was Ilusorio who was negligent as he

trusted his secretary of unusual degree. Petitioner’s failure to
examine his bank statements appears as the proximate cause of his
 own damage 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.

CASE NAME: WESTMONT BANK (formerly ASSOCIATED BANKING CORP.),

petitioner, vs.EUGENE ONG, respondent.
PRINCIPLE: 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. The essential elements of a cause of action are:
(a) a legal right or rights of the plaintiff, (b) a correlative obligation of
the defendant, and (c) an act or omission of the defendant in
violation of said legal right.1
FACTS: Respondent Eugene Ong maintained a current account with
petitioner, formerly the Associated Banking Corporation, but now
known as 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,2 both dated May 4, 1976, issued in the name of
Eugene Ong as payee.

Before Ong could get hold of the checks, his friend Paciano
Tanlimco got hold of them, forged Ong’s signature and deposited
these with petitioner, where Tanlimco was also a depositor. Even
though Ong’s specimen signature was on file, petitioner accepted
and credited both checks to the account of Tanlimco, without
verifying the ‘signature indorsements’ appearing at the back thereof.
Tanlimco then immediately withdrew the money and absconded.
ISSUE: Essentially the issues in this case are:
(1) whether or not respondent Ong has a cause of action against
petitioner Westmont Bank; and
(2) whether or not Ong is barred to recover the money from
Westmont Bank due to laches.
RULING: 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.

2. No. In turn, respondent contends that petitioner presented no

evidence to support its claim of laches. On the contrary, the
established facts of the case as found by the trial court and affirmed
by the Court of Appeals are that respondent left no stone unturned
to obtain relief from his predicament.

CASE NAME:
PRINCIPLE:
FACTS:
ISSUE:
RULING:

CASE NAME: PNB v. CA GR No. 107612

PRINCIPLE: Effects of forged notes
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 retired 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. - Province of Tarlac filed a suit against PNB,
which impleaded Associated Bank as third-party defendant. - RTC
ruled in favor of Province of Tarlac, ordering PNB to pay the
province in the amount of Php 203K - PNB and Associated Bank
appealed to CA, which affirmed the decision of the trial court.
Hence, the present action.

>> PNB's contentions:

1. Respondent court erred in exempting the Province of Tarlac from
liability when, in fact, the latter was negligent because it delivered
and released the questioned checks to Fausto Pangilinan who was
then already retired as the hospital's cashier and administrative
officer. PNB also maintains its innocence and alleges that as
between two innocent persons, the one whose act was the cause of
the loss, in this case the Province of Tarlac, bears the loss.

2. PNB asserts that it was error for the court to order it to pay the
 province and then seek reimbursement from Associated Bank.
According to petitioner bank, respondent appellate Court should
have directed Associated Bank to pay the adjudged liability directly
to the Province of Tarlac to avoid circuity.

3. Respondent court allegedly erred in applying Section 23 of the

Philippine Clearing House Rules instead of Central Bank Circular
No. 580, which, being an administrative regulation issued pursuant
to law, has the force and effect of law. The PCHC Rules are merely
contractual stipulations among and between member-banks. As
such, they cannot prevail over the aforesaid CB Circular.

>> Associated Bank's contentions:

1. It contends that PNB, the drawee bank, is estopped from
asserting the defense of guarantee of prior indorsements against
Associated Bank, the collecting bank. In stamping the guarantee (for
all prior indorsements), it merely followed a mandatory requirement
for clearing and had no choice but to place the stamp of guarantee;
otherwise, there would be no clearing.

2. Associated Bank also claims that since PNB already cleared and
paid the value of the forged checks in question, it is now estopped
from asserting the defense that Associated Bank guaranteed prior
indorsements. The drawee bank allegedly has the primary duty to
verify the genuineness of payee's indorsement before paying the
check.
ISSUE: Whether Associated Bank should bear the loss from the forged
checks
RULING: - YES. - The Court held that 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. 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. > Liability of the Province: Province of Tarlac was
equally negligent and should, therefore, share the burden of loss
from the checks bearing a forged indorsement.

The Province of Tarlac permitted Fausto Pangilinan to collect the

checks when the latter, having already retired from government
service, was no longer connected with the hospital. With the
exception of the first check (dated January 17, 1978), all the checks
were issued and released after Pangilinan's retirement on February
28, 1978. After nearly three years, the Treasurer's office was still
releasing the checks to the retired cashier. In addition, some of the
aid allotment checks were released to Pangilinan and the others to
Elizabeth Juco, the new cashier. The fact that there were now two
persons collecting the checks for the hospital is an unmistakable
sign of an irregularity which should have alerted employees in the
Treasurer's office of the fraud being committed.

There is also evidence indicating that the provincial employees

were aware of Pangilinan's retirement and consequent dissociation
from the hospital. The failure of the Province of Tarlac to exercise
due care contributed to a significant degree to the loss tantamount
to negligence. Hence, the Province of Tarlac should be liable for part
of the total amount paid on the questioned checks.

> Liability of the drawee bank (PNB) The drawee bank PNB also
breached its duty to pay only according to the terms of the check.
Hence, it cannot escape liability and should also bear part of the
loss. As earlier stated, PNB can recover from the collecting bank.

*OTHER NOTES: 1. Effect of forged signature, Section 23 of NIL

xxx Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a
signature is forged or made without 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. xxx - A forged signature, whether it be that of the
drawer or the payee, is wholly inoperative and no one can gain title
to the instrument through it.

A person whose signature to an instrument was forged was never a

party and never consented to the contract which allegedly gave rise
to such instrument. Section 23 does not avoid the instrument but
only the forged signature. The exception to the general rule in
Section 23 is where "a party against whom it is sought to enforce a
right is precluded from setting up the forgery or want of authority."
 Parties who warrant or admit the genuineness of the signature in
question and those who, by their acts, silence or negligence are
estopped from setting up the defense of forgery, are precluded from
using this defense.

Indorsers, persons negotiating by delivery and acceptors are

warrantors of the genuineness of the signatures on the instrument. A
collecting bank where a check is deposited and which indorses the
check upon presentment with the drawee bank, is such an indorser.
So even if the indorsement on the check deposited by the banks's
client is forged, the collecting bank is bound by his warranties as an
indorser and cannot set up the defense of forgery as against the
drawee bank.

2. Duty of Drawee Bank and Collecting Bank

a. Drawee Bank - makes no warranty as to the genuineness of any
indorsement - drawee bank's duty is but to verify the genuineness of
the drawer's signature and not of the indorsement because the
drawer is its client

b. Collecting Bank - 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.

CASE NAME: San Carlos Milling v. BPI GR No 37467

PRINCIPLE: 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
FACTS: 1. San Carlos Milling Co. Ltd , is the corporation whose main office
was in Hawaii. This office was managed by certain Alfred Cooper
with the general power of authority with power of substitution.

2. On the other hand, Joseph L . Wilson, the principal employee in

Manila who was given also a general power of authority but
subsequently revoked by the former.

3. Cooper had a vacation, appointed Newland Baldwin a general

power of authority.

4. The respondents China Banking Corporation and BPI, impleaded

by the plaintiff for sum of money amounted to Php 201,000 for the
payment of spurious forged check with the forged signature of the
Newland Baldwin issued by China Banking Corporation to a certain
 Alfredo Dolores who were conspiring and confederating together
with Wilson for the crimes of forgery of the checked

5. On the trial, it was found out that the manager’s check was forged
and Baldwin never signed the instrument.

6. The China Bank Corporation interposed the defense it drew its

check payable to the order of plaintiff and delivered it to plaintiff's
agent who was authorized to receive it. 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 Bank of the Philippine Islands, and
the China Banking Corporation was not bound to inspect and verify
all endorsements of the check, even if some of them were also
those of depositors in that bank. It had a right to rely upon the
endorsement of the Bank of the Philippine Islands when it gave the
latter bank credit for its own cashier's check.
ISSUE: WON the BPI is liable for the sum of money amounting to Php
201,000 as results of its negligence in encashed the forged check
without the due diligence?
RULING: YES. Petition is granted. The fact that these signatures were forged
is beyond question. It is an elementary principle both of banking and
of the Negotiable Instruments Law that — Xxx 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. (7 C.J., 683.)

xxx There is no act of the plaintiff that led the Bank of the Philippine
Islands astray. If it was in fact lulled into a false sense of security, it
was by the effrontery of Dolores, the messenger to whom it
entrusted this large sum of money. The bank paid out its money
because it relied upon the genuineness of the purported signatures
of Baldwin. These, they never questioned at the time its employees
should have used care. In fact, even today the bank represents that
it has a relief that they are genuine signatures.

The signatures to the check 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.

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CASE NAME: Ang Tek Lian vs CA

PRINCIPLE: A check payable to the order of cash is a bearer instrument. Where
a check is made payable to the order of "cash", the word cash "does
not purport to be the name of any person", and hence the instrument
is payable to bearer. The drawee bank need not obtain any
indorsement of the check, but may pay it to the person presenting it
without any indorsement. A check payable to bearer is authority for
payment to holder.

Where a check is in the ordinary form, and is payable to bearer, so

that no indorsement is required, a bank, to which it is presented for
payment, need not have the holder identified, and is not negligent in
falling to do so. Consequently, a drawee bank to which a bearer
check is presented for payment need not necessarily have the
holder identified and ordinarily may not be charged with negligence
in failing to do so. If the bank has no reasonable cause for
suspecting any irregularity, it will be protected in paying a bearer
check, "no matter what facts unknown to it may have occurred prior
to the presentment."

Although a bank is entitled to pay the amount of a bearer check

without further inquiry, it is entirely reasonable for the bank to insist
that holder give satisfactory proof of his identity.
FACTS: Ang Tek Lian (petitioner) went to the office of the complainant, Lee
Hua Hong. The petitioner asked the complainant to exchange his
check payable to the order of "cash" for cash because the bank at
that time was closed. Having the consideration that the petitioner
owned a hotel and previously they used to borrow money from each
other, the complainant delivered to him the money in exchange for a
China Bank check for the sum of PhP 4,000.00, assuming that there
was a sufficient fund in the account of the petitioner.

The next day, the complainant presented the check to the drawee
bank, but the same was dishonored for insufficiency of funds. The
petitioner was nowhere to be found despite the repeated efforts to
notify him that the check had been dishonored. This led the
complainant to file for a criminal charge of estafa against the
petitioner. The lower court and the Court of Appeals convicted the
petitioner for estafa.
ISSUE: Whether or not a payable to the order of cash checks need
indorsement. - No.
RULING: No. a payable to the order of cash checks need indorsement. Under
the Negotiable Instruments Law sec. 9 [d], a check drawn payable to
the order of "cash" is a check payable to bearer, and the bank may
pay it to the person presenting it for payment without the drawer's
indorsement. Where a check is made payable to the order of "cash",
 the word cash "does not purport to be the name of any person", and
hence the instrument is payable to bearer. The drawee bank need
not obtain any indorsement of the check, but may pay it to the
person presenting it without any indorsement. In the case at the bar,
since the rubber check is payable to the order of cash, then there is
no need for an indorsement. NOTE: The petitioner here was held
liable for estafa. The Court upheld the CA decision that the rubber
check was returned unsatisfied because the drawer had insufficient
funds — not because the drawer's indorsement was lacking.

CASE NAME: The Greatest Eastern v. HSBC and PNB

PRINCIPLE: 1. Section 23 of Act No. 2031, known as the Negotiable Instruments
Law, says: 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.

2. the legal presumption is that the bank would not honor the check
without the genuine endorsement of Melicor.
FACTS: The plaintiff drew its check for P2,000 on the Hongkong and
Shanghai Banking Corporation (HSBC) with whom it had an
account, payable to the order of Lazaro Melicor. However, 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 where the amount
of the check was placed to his credit. After having paid the check,
and on the next day, the PNB endorsed the check to HSBC which
paid it and charged the amount of the check to the account of the
plaintiff.

The plaintiff received teh bank statement where the check was
successfully deducted. However, Melicor never received the
proceeds of the check. After four months, it was then that the
plaintiff discovered that the signature of Melicor was forged. This
prompted the plaintiff to demand from HSBC PHP 2,000.00 which
was paid on the forged check. HSBC refused to do so. The plaintiff
commenced this action to recover the P2,000 against HSBC. HSBC,
on the other hand, made PNB its co-defendant. After trial, the lower
court dismissed the case.
ISSUE: Whether or not HSBC and PNB are held liable for the improper
endorsement of a forged-signature check,
RULING: Yes. HSBC and PNB are held liable for the improper indorsement of
a forged check, Section 23 of Act No. 2031, known as the
Negotiable Instruments Law, says: 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.

In the case at bar, the money was on deposit in the HSBC, and it
had no legal right to pay it out to anyone except the plaintiff or its
order.

Here, the plaintiff ordered HSBC to pay the P2,000 to Melicor.

However, the money was actually paid to Maasim and was never
paid to Melicor, and he never paid to Melicor, and he never
personally endorsed the check, or authorized anyone to endorse it
for him, and the alleged endorsement was a forgery. Hence, upon
the undisputed facts, it must follow that the HSBC has no defense to
this action. It is admitted that the Philippine National Bank cashed
the check upon a forged signature, and placed the money to the
credit of Maasim, who was a forger. That the Philippine National
Bank then endorsed the check and forwarded it to the HSBC by
whom it was paid. The Philippine National Bank had no license or
authority to pay the money to Maasim or anyone else upon a forge
signature. It was its legal duty to know that Melicor's endorsment
was genuine before cashing the check. Its remedy is against
Maasim to whom it paid the money.

Conclusion: HSBC is held liable to pay Php 2000.00 the plaintiff plus
interest and costs of the action. While PNB is held liable to pay
HSBC the Php 2,000.00 while Maasim is held liable to pay PNB for
the PhP2000.000

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