FORGERY

ASSOCIATED VS. CA (252 SCRA 620)

FACTS:
The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks
drawn against its account with the Philippine National Bank (PNB). These checks were drawn payable to
the order of Concepcion Emergency Hospital.

Fausto Pangilinan was the cashier of Concepcion

Emergency Hospital in Tarlac until his retirement in 1978. He used to handle checks issued by the
provincial government of Tarlac to the said hospital. However, after his retirement, the provincial
government still delivered checks to him. During a post-audit done by the province in 1981, it was found
out that 30 of its checks werent received by the hospital. By forging the signature of the chief payee of
the hospital (Dr. Adena Canlas), Pangilinan was able to deposit the30 checks amounting to P203 thousand
to his account with the Associated Bank.
When the Province of Tarlac discovered this irregularity, it demanded PNB to reimburse the said
amount.

PNB, in turn, demanded Associated Bank to reimburse said amount.

PNB averred that

Associated Bank is liable to reimburse because of its indorsement borne on the face of the checks.
ISSUE:
Where thirty checks bearing forged endorsements are paid, who bears the loss: the drawer
(Tarlac Province), the drawee bank (PNB), or the collecting bank (Associated Bank)?
DECISION:
In sum, by reason of Associated Banks indorsement and warranties of prior indorsements as a
party after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask
reimbursement from PNB because the Province is a party prior to the forgery. Hence, the instrument is
inoperative. HOWEVER, it has been proven that the Provincial Government of Tarlac has been negligent
in issuing the checks, especially when it continued to deliver the checks to Pangilinan even when he
already retired. Due to this contributory negligence, PNB is only ordered to pay 50% of the amount or
half of P203 thousand. Since PNB can pass its loss to Associated Bank (by reason of Associated Banks
warranties), PNB can ask the 50% reimbursement from Associated Bank. Associated Bank can ask
reimbursement from Pangilinan, but unfortunately in this case, the court did not acquire jurisdiction over
him.

ACCOMODATION
PRUDENCIO VS. CA (143 SCRA 7)
FACTS:
In 1955, Concepcion and Tamayo Construction Enterprise had a contract with the Bureau of
Public Works. The firm needed fund to push through with the contract so it convinced spouses Eulalio
and Elisa Prudencio to mortgage their parcel of land with the Philippine National Bank for P10,000.00.
Prudencio, without consideration, agreed and so he mortgaged the land and executed a promissory note
for P10k in favor of PNB. Prudencio also authorized PNB to issue the P10k check to the construction
firm.
In December 1955, the firm executed a Deed of Assignment in favor of PNB which provides that
any payment from the Bureau of Public Works in consideration of work done (by the firm) so far shall be
paid directly to PNB this will also ensure that the loan gets to be paid off before maturity.
Notwithstanding the provision in the Deed of Assignment, the Bureau of Public Works asked
PNB if it can make the payments instead to the firm because the firm needs the money to buy
construction materials to complete the project. Notwithstanding the provision of the Deed of Assignment,
PNB agreed. And so the loan matured without PNB actually receiving any payment from the Bureau of
Public Works. Prudencio, upon learning that no payment was made on the loan, petitioned to have the
mortgage canceled (to save his property from foreclosure).
ISSUE:
Should Prudencio pay the promissory note to PNB? May PNB be considered as a holder in due
course after fraudulent inducement?
DECISION:
No. PNB is not a holder in due course. Prudencio is an accommodation party for he signed the
promissory note as maker, but he did not receive value or consideration therefore. He expected the firm
(accommodated party) to pay the loan this obligation was shifted to the Bureau of Public Works by way
of the Deed of Assignment. As a general rule, an accommodation party is liable on the instrument to a
holder for value/in due course, notwithstanding such holder at the time of taking the instrument knew him
to be only an accommodation party. The exception is that if the holder, in this case PNB, is not a holder
in due course. The court finds that PNB is not a holder in due course because it has not acted in good
faith (pursuant to Section 52 of the Negotiable Instruments Law) when it waived the supposed payments
from the Bureau of Public Works contrary to the Deed of Assignment. Had the Deed been followed, the
loan would have been paid off at maturity.

INDORSEMENT
DEVELOPMENT BANK OF RIZAL vs. SIMA (219 SCRA 736)
FACTS:
Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging to
pay the petitioner Bank or order the amount of P1,820,000.00. Sima Wei subsequently issued two crossed
checks payable to petitioner Bank drawn against China Banking Corporation in full settlement of the
drawer's account evidenced by the promissory note. These two checks, however, were not delivered to
the petitioner-payee or to any of its authorized representatives, but instead came into the possession of
respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement to the
account of respondent Plastic Corporation with Producers Bank. Inspite of the fact that the checks were
crossed and payable to petitioner Bank and bore no indorsement of the latter, the Branch Manager of
Producers Bank authorized the acceptance of the checks for deposit and credited them to the account of
said Plastic Corporation.