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CA - Accommodation Party 177 SCRA 594 FACTS: The president of Movers Enterprises, to accommodate its clients Spouses Ong, issued a check in favor of petitioner Crisologo-Jose. This was in consideration of a quitclaim by petitioner over a parcel of land, which the GSIS agreed to sell to spouses Ong, with the understanding that upon approval of the compromise agreement, the check will be encashed accordingly. As the compromise agreement wasn't approved during the expected period of time, the aforesaid check was replaced with another one for the same value. Upon deposit though of the checks by petitioner, it was dishonored. This prompted the petitioner to file a case against Atty. Bernares and Santos for violation of BP22. Meanwhile, during the preliminary investigation, Santos tried to tender a cashiers check for the value of the dishonored check but petitioner refused to accept such. This was consigned by Santos with the clerk of court and he instituted charges against petitioner. The trial court held that consignation wasn't applicable to the case at bar but was reversed by the CA. HELD: Petitioner averred that it is not Santos who is the accommodation party to the instrument but the corporation itself. But assuming arguendo that the corporation is the accommodation party, it cannot be held liable to the check issued in favor of petitioner. The rule on accommodation party doesn't include or apply to corporations which are accommodation parties. This is because the issue or indorsement of another is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. If the form of the instrument, or the nature of the transaction, is such as to charge the indorsee with the knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of another, he cannot recover against the corporation thereon. By way of exception, an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name of the corporation for the accommodation of a third party only is specifically authorized to do so. Corollarily, corporate officers have no power to execute for mere accommodation a negotiable instrument of the corporation for their individual debts and transactions arising from or in relation to matters in which the corporation has no legitimate concern. Since such accommodation paper cannot be enforced against the corporation, the signatories thereof shall be personally liable therefore, as well as the consequences arising from their acts in connection therewith.

GEMPESAW V. CA 218 SCRA 682 FACTS: Gempensaw was the owner of many grocery stores. She paid her suppliers through the issuance of checks drawn against her checking account with respondent bank. The checks were prepared by her bookkeeper Galang. In the signing of the checks prepared by Galang, Gempensaw didn't bother herself in verifying to whom the checks were being paid and if the issuances were necessary. She didn't even verify the returned checks of the bank when the latter notifies her of the same. During her two years in business, there were incidents shown that the amounts paid for were in excess of what should have been paid. It was also shown that even if the checks were crossed, the intended payees didn't receive the amount of the checks. This prompted Gempensaw to demand the bank to credit her account for the amount of the forged checks. The bank refused to do so and this prompted her to file the case against the bank. HELD: Forgery is a real defense by the party whose signature was forged. A party whose signature was forged was never a party and never gave his consent to the instrument. Since his signature doesnt appear in the instrument, the same cannot be enforced against him even by a holder in due course. The drawee bank cannot charge the account of the drawer whose signature was forged because he never gave the bank the order to pay. In the case at bar the checks were filled up by petitioners employee Galang and were later given to her for signature. Her signing the checks made the negotiable instruments complete. Prior to signing of the checks, there was no valid contract yet. Petitioner completed the checks by signing them and thereafter authorized Galang to deliver the same to their respective payees. The checks were then indorsed, forged indorsements thereon. As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot debit the account of a drawer for the amount of said check. An exception to this rule is when the drawer is guilty of negligence which causes the bank to honor such checks. Petitioner in this case has relied solely on the honesty and loyalty of her bookkeeper and never bothered to verify the accuracy of the amounts of the checks she signed the invoices attached thereto. And though she received her bank statements, she didn't carefully examine the same to doublecheck her payments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition of her bookkeepers fraudulent schemes.

IBASCO VS. CA GR 117488, 5 September 1996 FACTS: The Ibasco spouses requested credit accommodation for the supply of ingredients in the manufacture of animal feeds from the Trivinio spouses. Ibasco issued 3 checks for 3 deliveries of darak. The checks bounced and the Ibasco spouses were notified of the dishonor. Ibasco instead offered a property in Daet. The property, being across the sea, the Trivinio spouses did not inspect the property. For the failure of the Ibasco spouses to settle their account, the Trivinio spouses filed criminal cases against the former for violation of BP22. ISSUE: Whether the checks were for accommodation or guarantee to acquire the benefits of the interpretation of Ministry Circular 4 of the Department of Justice in relation to BP 22. HELD: Ministry Circular 4, issued 1 December 1981 by the Department of Justice, provides that where a check is issued as part of an arrangement to guarantee or secure the payment of the obligation, pre-existing or not, the drawer is not criminally liable for either estafa or violation of BP 22. Incidents however indicate that the checks were issued as payment and for value, and not for accommodation (i.e. pertaining to an arrangement made a favor to another, not upon a consideration received). As the checks failed to bear any statement for accommodation and for guarantee to show Ibascos intent. ( It must be noted, however, that BP22 does not distinguish and applies even in cases where dishonored checks were issued as a guarantee or for deposit only. The erroneous interpretation of Ministry Circular 4 was rectified by the repealing Ministry Circular 12, issued on 8 August 1984).

DELA VICTORIA V. BURGOS 245 SCRA 374 FACTS: Sesbreno filed a case against Mabanto Jr. among other people wherein the court decided in favor of the plaintiff, ordering the defendants to pay former a definite amount of cash. The decision had become final and executory and a writ of execution was issued. This was questioned in the CA by the defendants. In the meanwhile, a notice of garnishment was issued to petitioner who was then the City Fiscal. She was asked to withhold any check or whatnot in favor of Mabanto Jr. The CA then dismissed the defendants petition and the garnishment was commenced only to find out that petitioner didn't follow instructions of sheriff. She is now being held liable. HELD: Garnishment is considered as the species of attachment for reaching credits belonging to the judgment debtor owing to him from a stranger in litigation. Emphasis is laid on the phrase belonging to the judgment debtor since it is the focal point of resolving the issues raised. As Assistant City Fiscal, the source of Mabantos salary is public funds. Under Section 16 of the NIL, every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof. The petitioner is the custodian of the checks. Inasmuch as said checks were in the custody of the petitioner and not yet delivered to Mabanto, they didn't belong to him and still had the character of public funds. The salary check of a government officer or employee doesn't belong to him before it has been physically delivered to him. Until that time the check belongs to the government. Accordingly, before there is actual delivery of the check, the payee has no power over it, he cannot assign it without the consent of the government. *If public funds would be allowed to be garnished, then basic services of the government may be hampered.

SALAS V. CA 181 SCRA 296 FACTS: Petitioner bought a car from Viologo Motor Sales Company, which was secured by a promissory note, which was later on indorsed to Filinvest Finance, which financed the transaction. Petitioner later on defaulted in her installment payments, allegedly due to the fraud imputed by VMS in selling her a different vehicle from what was agreed upon. This default in payment prompted Filinvest Finance to initiate a case against petitioner. The trial court decided in favor of Filinvest, to which the appellate court upheld by increasing the amount to be paid. It is the contention of petitioner that since the agreement between her and the motor company was inexistent, none had been assigned in favor of private respondent. HELD: Petitioners liability on the promissory note, the due execution and genuineness of which she never denied under oath, is under the foregoing factual milieu, as inevitable as it is clearly established. The records reveal that involved herein is not a simple case of assignment of credit as petitioner would have it appear, where the assignee merely steps into the shoes of, is open to all defenses available against and can enforce payment only to the same extent as, the assignor-vendor. The instrument to be negotiable must contain the so-called words of negotiability. There are only 2 ways for an instrument to be payable to order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words or order or to the order of, the instrument is payable only to the person designated therein and is thus non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder in due course but will merely step into the shoes of the person designated in the instrument and will thus be open to the defenses available against the latter. In the case at bar, the promissory notes is earmarked with negotiability and Filinvest is a holder in due course.

REPUBLIC V. EBRADA 65 SCRA 680 FACTS: Ebrada encashed a Back Pay Check issued by the Bureau of Treasury at the Republic Bank in Escolta Manila. The Bureau of Treasury advised the Republic Bank that the instrument was forged. It informed the bank that the original payee of the check died 11 years before the check was issued. Therefore, there was a forgery of his signature. This is the sequence: Martin Lorenzo The deceased person, Ramon Lorenzo Delia Dominguez Mauricia Ebrada Defendant-appelant

original payee,



forgery happened

Ebrada refuses to return the proceeds of the check claiming that she already gave it to Delia Dominguez. She also claims that she is a HDC (holder in due course) and that the bank is already estopped. HELD: Ebrada should return the proceeds of the check to Republic Bank. As an indorser of the check, she was supposed to have warranted that she has good title to said check. See Section 65. Section 23: When the 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 instruments, or to give a discharge 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. It is only the negotiation based on the forged or unauthorized signature which is inoperative. Therefore: Martin Lorenzo Signature inoperative Ramon Lorenzo To Dominguez: operative Delia Dominguez To Ebrada: operative Mauricia Ebrada Drawee bank can collect from the one who encashed the check. If Ebrada performed the duty of ascertaining the genuiness of the check, in all probability, the forgery wouyld have been detected and the fraud defeated.

BPI V. CASA MONTESORRI INTERNATIONALE 430 SCRA 261 FACTS: CASA has a current account with BPI. It was discovered that for a material period of time, several checks were encashed by a certain Sonny Santos, who eventually was known to be a fictitious name used by the external auditor of CASA. The external auditor admitted forging the signature of CASAs president to be able to encash the checks. The trial court held the bank liable but this was modified. The modified decision apportioned the loss between BPI and CASA. HELD: A forged signature is a real and absolute defense, and a person whose signature appears on a negotiable instrument is forged is deemed to never have become a party thereto and to have never consented to the contract that allegedly gave rise to it. The counterfeiting of any writing, consisting in the signing of anothers name with intent to defraud, is forgery. First, there was really a finding of forgery. The forger admitted even in his affidavit of his forgery. Second, there was a finding by the police laboratory that indeed the signatures were forged. Furthermore, the negligence is attributable to BPI alone. Its negligence consisted in the omission of the degree of diligence required of a bank. *Loss borne by proximate cause of negligence

JAI ALAI V. BPI 66 SCRA 29 FACTS: Checks were deposited by petitioner in its current account with the bank. These checks were from a certain Ramirez, a consistent better in its games, who was a sales agent from Inter-Island Gas. Inter-Island later found out that of the forgeries committed in the checks and thus, it informed all the parties concerned. Upon the demands on the bank as the collecting bank, it debited the account of petitioner. Thereafter, petitioner tried to issue a check for payment of shares of stock but such was dishonored for insufficient funds. It filed a complaint against the bank. HELD: Respondent bank acted within legal bounds when it debited the account of petitioner. When the petitioner deposited the checks to its account, the relationship created was one of agency still and not of creditor-debtor. The bank was to collect from the drawees of the checks with the corresponding proceeds. The Bank may have the proceeds already when it debited the account of petitioner. Nonetheless, there is still no creditor-debtor relationship. Following Section 23, a forged signature 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 its forgery or want of authority. It stands to reason that 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 payments made by the drawee banks to respondent were ineffectivethe creditor-debtor relationship hadnt been validly effected.

ASSOCIATED BANK V. CA 252 SCRA 620 FACTS: The province of Tarlac maintains an account with PNB-Tarlac. Part of its funds is appropriated for the benefit of Concepcion Emergency Hospital. During a post-audit done by the province, it was found out that 30 of its checks werent received by the hospital. Upon further investigation, it was found out that the checks were encashed by Pangilinan who was a former cashier and administrative officer of the hospital through forged indorsements. This prompted the provincial treasurer to ask for reimbursement from PNB and thereafter, PNB from Associated Bank. As the two banks didn't want to reimburse, an action was filed against them. HELD: There is a distinction on forged indorsements with regard bearer instruments and instruments payable to order. With instruments payable to bearer, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against holder in due course. In instruments payable to order, the signature of the rightful holder is essential to transfer title to the same instrument. When the holders signature is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. In connection to this, an indorser warrants that the instrument is genuine. A collecting bank is such an indorser. So even if the indorsement 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. Furthermore, in cases involving checks with forged indorsements, such as the case at bar, the chain of liability doesn't end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and of course, the forger himself, if available. In other words, the drawee bank can seek reimbursement or a return of the amount it paid from the collecting bank or person. The collecting bank generally suffers the loss because it has te 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 indorsements. With regard the issue of delay, a delay in informing the bank of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence on the part of the drawee bank and will preclude it from claiming reimbursement. In this case, PNB wasn't guilty of any negligent delay. Its delay hasn't prejudiced Associated Bank in any way because even if there wasn't delay, the fact that there was nothing left of the account of Pangilinan, there couldn't be anymore reimbursement.

ASSOCIATED BANK V. CA 208 SCRA 465 FACTS: Reyes was engaged in the RTW business and held transactions with different department stores. She was about to collect payments from the department stores when she was informed that the payments had already been made, through crossed checks issued in her business name and the same were deposited with the bank. The bank consequently allowed its transfer to Sayson who later encashed the checks. This prompted Reyes to sue the bank and its manager for the return of the money. The trial and appellate court ruled in her favor. HELD: There is no doubt that the checks were crossed checks and for payees account only. Reyes was able to show that she has never authorized Sayson to deposit the checks nor to encash the same; that the bank had allowed all checks to be deposited, cleared and paid to one Sayson in violation of the instructions in the said crossed checks that the same were for payees account only; and that Reyes maintained a savings account with the bank which never cleared the said checks. Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the top left portion of the checks. The crossing is special where the name of a bank or a business institution is written between the two parallel lines, which means that the drawee should pay only with the intervention of the company. The crossing is general where the words written in between are And Co. and for payees account only, as in the case at bar. This means that the drawee bank should not encash the check but merely accept it for deposit. The effects of crossing a check are as follows: 1. That the check may not be encashed but only deposited in the bank 2. That the check may be negotiated only onceto one who has an account with a bank 3. That the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to the purpose The subject checks were accepted for deposit by the bank for the account of Sayson although they were crossed checks and the payee wasn't Sayson but Reyes. The bank stamped thereon its guarantee that all prior endorsements and/or lack of endorsements guaranteed. By such deliberate and positive act, the bank had for all legal intents and purposes treated the said checks as negotiable instruments and accordingly assumed the warranty of the endorser. When the bank paid the checks so indorsed notwithstanding that title has not passed to the endorser, it did so at its peril and became liable to the payee for the value of the checks.

SAMSUNG CONSTRUCTION COMPANY PHILS., INC VS FEBTC (GR No 129015, Aug 13, 2004, Tinga) FACTS: Petitioner maintains a current account with the respondent bank. The petitioner authorized Jong to sign checks in behalf of the company. The checks are in the custody of an accountant Kyu. On one occasion, a certain Gonzaga presented a check to FEBTC purportedly drawn by the Company in the amount of P999,500. The check was payable to cash and appeared to be signed by Jong. FEBTC upon ascertaining that there are sufficient fund to cover the check and finding the signature of Jong appears to be genuine paid Gonzaga. Later, the forgery was discovered. Samsung demanded that the amount paid to Gonzaga be credited back to its account because they have not authorized the encashment of the check. On the other hand, the respondent bank claimed negligence on the part of the petitioner in protecting its check. ISSUE: Who should bear the loss? HELD: The SC held that the FEBTC should bear the loss. Under Sec. 62 of NIL, among the warranties to be assumed by the acceptor is it admits the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument. It is incumbent upon the drawee bank to ascertain the genuineness of the signature of its depositor. The respondent bank in this case did not exercise the degree of diligence required to enable it to detect the forgery. Addendum: ***Aside from the warranties as an indorser, the collecting bank is made liable because it is privy to the depositor who negotiated the check because it knows him, his address and history for being a client thereof. Thus, it is in a better position to detect forgery or irregularity in the indorsement. (Associated bank v. CA, 252 SCRA 620). aka Doctrine of Comparative Negligence

BANCO DE ORO SAVING V. EQUITABLE 157 SCRA 188 FACTS: BDO drew checks payable to member establishments. Subsequently, the checks were deposited in Trencios account with Equitable. The checks were sent for clearing and was thereafter cleared. Afterwards, BDO discovered that the indorsements in the back of the checks were forged. It then demanded that Equitable credit its account but the latter refused to do so. This prompted BDO to file a complaint against Equitable and PCHC. The trial court and RTC held in favor of the Equitable and PCHC. HELD: First, PCHC has jurisdiction over the case in question. The articles of incorporation of PHHC extended its operation to clearing checks and other clearing items. No doubt transactions on non-negotiable checks are within the ambit of its jurisdiction. Further, the participation of the two banks in the clearing operations is submission to the jurisdiction of the PCHC. Petitioner is likewise estopped from raising the non-negotiability of the checks in issue. It stamped its guarantee at the back of the checks and subsequently presented it for clearing and it was in the basis of these endorsements by the petitioner that the proceeds were credited in its clearing account. The petitioner cannot now deny its liability as it assumed the liability of an indorser by stamping its guarantee at the back of the checks. Furthermore, the bank cannot escape liability of an indorser of a check and which may turn out to be a forged indorsement. Whenever a bank treats the signature at the back of the checks as indorsements and thus logically guarantees the same as such there can be no doubt that said bank had considered the checks as negotiable. A long line of cases also held that in the matter of forgery in endorsements, it is the collecting bank that generally suffers the loss because it had the dutyh to ascertain the genuineness of all prior indorsements 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 indorsements.

WESTMONT BANK V. ONG 373 SCRA 212 FACTS: Ong was supposed to be the payee of the checks issued by Island Securities. Ong has a current account with petitioner bank. He opted to sell his shares of stock through Island Securities. The company in turn issued checks in favor of Ong but unfortunately, the latter wasn't able to receive any. His signatures were forged by Tamlinco and the checks were deposited in his own account with petitioner. Ong then sought to collect the money from the family of Tamlinco first before filing a complaint with the Central Bank. As his efforts were futile to recover his money, he filed an action against the petitioner. The trial and appellate court decided in favor of Ong. HELD: Since the signature of the payee was forged, such signature should be deemed 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 collect from the collecting bank. It should be liable for the loss because it is its legal duty to ascertain that the payees endorsement was genuine before cashing the check. As a general rule, a bank or corporation who has obtained possession of a check with an unauthorized or forged indorsement of the payees signature and who collects the amount of the check other from the drawee, is liable for the proceeds thereof to the payee or the other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained. DOCTRINE OF DESIRABLE SHORT CUTplaintiff uses one action to reach, by desirable short cut, the person who ought to be ultimately liable as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not. On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of Tamlincos family to collect the sum of money, and later the Central Bank. Only after exhausting all the measures to settle the issue amicably did he file the action.