Cases: Nego

PNB V. CA- Material Alteration

256 SCRA 491

FACTS:

DECS issued a check in favor of Abante Marketing containing a specific serial number, drawn
against PNB. The check was deposited by Abante in
its account with Capitol and the latter consequently deposited the same
with its account with PBCOM which later deposited it with petitioner for
clearing. The check was thereafter cleared. However, on a relevant date,
petitioner PNB returned the check on account that there had been a material alteration on
it. Subsequent debits were made but Capitol cannot debit the account of Abante any longer for the latter
had withdrawn all the money already from the account. This prompted Capitol to seek
reclarification from PBCOM and demanded the recrediting of its account. PBCOM followed suit by
doing the same against PNB. Demands unheeded,
it filed an action against PBCOM and the latter filed a third-party complaint against petitioner.

HELD:

An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in the instrument that purports to modify
in any respect the obligation of a party or an unauthorized addition of words or numbers or other
change to an incomplete instrument relating to
the obligation of the party. In other words, a material alteration is one which changes the items
which are required to be stated under Section 1 of the NIL.

In this case, the alleged material alteration was the alteration of the serial
number of the check in issue—which is not an essential element of a negotiable instrument under
Section 1. PNB alleges that the alteration was
material since it is an accepted concept that a TCAA check by its very
nature is the medium of exchange of governments, instrumentalities and
agencies. As a safety measure, every government office or agency is assigned checks bearing
different serial numbers.
But this contention has to fail. The check’s serial number is not the sole indicia of its origin. The name of
the government agency issuing the check is clearly stated therein. Thus, the check’s drawer is sufficiently
identified, rendering redundant the referral to its serial number.

Therefore, there being no material alteration in the check committed, PNB could not return the check to
PBCOM. It should pay the same.

SAN CARLOS MINING V. BPI

59 PHIL 59

(FORGED SIGNATURE OF DRAWER)

FACTS:

Wilson, a principal employee of petitioner, together with Wilson, a messenger-clerk, conspired to

withdraw cash from the petitioner’s account through forgery of a check, in the name of the agent
authorized to sign the check.

While the authorized agent of petitioner was on vacation, Wilson and

Dolores sent a cablegram to China Banking for the transfer of $100,000. On the contract, the na
me of Baldwin was forged and it was indicated therein that a certified check be issued. Thereafter,
this was received and
deposited with the BPI. Upon deposit, an indorsement in the name of Baldwin was placed. The
bank account was credited. Later, a letter was
sent to the bank, purporting to be signed by Baldwin asking that it be withdrawn. This was done in
supervision of Dolores. Dolores and Wilson then was able to get the money. This eventually came to the
knowledge of plaintiff who filed an action against China Banking and BPI. The trial court dismissed the
case.

HELD:

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.
There is no act of the plaintiff that led the bank astray. If it was in fact lulled into the false sense of
security, it was by the effrontery of Dolores, the messenger to whom it entrusted this large sum of
money.

The proximate cause of the loss must therefore be due to the negligence of the bank in honoring and
cashing the two forged checks.

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 doesn’t 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 petitioner’s 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 double-check her
payments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition of her
bookkeeper’s fraudulent schemes.

REPUBLIC V. EQUITABLE BANK

10 SCRA 8

FACTS:

The corporation had acquired 24 treasury warrants by accommodating its former trusted employee who
asked the corporation to cash the warrants,
alleging it was difficulty to do directly with the government and that his wife expected a sort of
commission for the encashment. The corporation
acceded to the request provided that it be first cleared and that the corporation would receive the
amount before paying for it. The warrants were then cleared but later on, at different periods of time,
the treasurer returned 24 warrants to the CB on the ground that they have forged. The bank refused to
return the cash.

The clearing of the checks, it should be noted, was in accordance to the 24-hour clearing rule by
the CB.

HELD:

The warrants were cleared and paid by the Treasurer, in view of which
Equitable and PI bank credited the corresponding amounts to the respective depositors of the
warrants and then honored the checks for said
amounts. Thus, the treasury had not been only negligent in clearing its
own warrants but had already thereby induced the banks to pay the amounts thereof to said
depositors. This gross negligence becomes more
apparent when each of the warrants were valued for more than the authority of the treasurer to
approve.
 BANCO DE ORO SAVING V. EQUITABLE

157 SCRA 188

FACTS:

BDO drew checks payable to member establishments. Subsequently, the

checks were deposited in Trencio’s 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.

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, original
“payee”, where the forgery
happened
Ramon Lorenzo

Delia Dominguez

Mauricia Ebrada
Defendant-appelant

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.

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 weren’t 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 holder’s
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 n
ot 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.

FACTS:
The plaintiff is an insurance corporation, which drew a check in favor of
Melicor. This was stolen by Maasim, forged the signature of Melicor and deposited the check to
his account in PNB. Thereafter, PNB endorsed the check to HSBC who later debited the account of
plaintiff. Plaintiff believed all along that Melicor received the payment. Upon knowledge of the debit
HSBC did on its account, it demanded that the same amount be credited.

HELD:

The banks are liable. The money was in deposit with the bank and it had no legal right to pay it out to
anyone except the plaintiff or its order.

The only remedy of the bank paying a check to a person who has forged the name of the payee is against
the forger.

Negotiable Instruments Case Digest: Metrobank V. FNCB (1982)

G.R. No. L-55079 November 19, 1982

Lessons Applicable: Alteration (Negotiable Instruments Law)

FACTS:

 August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable to CASH, drawn by Joaquin
Cunanan & Company on First National City Bank (FNCB) was deposited with Metropolitan Bank and
Trust Company (Metro Bank) by Salvador Sales.

 Earlier that day, Sales had opened a current account with Metro Bank depositing P500.00 in cash

 Metro Bank immediately sent the cash check to the Clearing House of the Central Bank with the
following words stamped at the back of the check:
 Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or Lack of
endorsements Guaranteed.

 The check was cleared the same day. Private respondent paid petitioner through clearing the amount
of P50,000.00, and Sales was credited with the said amount in his deposit with Metro Bank.

 August 26, 1964: Sales made his 1st withdrawal of P480.00 from his current account

 August 28, 1964: he withdrew P32,100.00

 August 31, 1964: he withdrew the balance of P17,920 and closed his account with Metro Bank

 September 3, 1964: FNCB returned cancelled Check to drawer Joaquin Cunanan & Company,
together with the monthly statement of the company's account with FNCB.

 notified FNCB that the check had been altered

 actual amount of P50.00 was raised to P50,000.00

 name of the payee, Manila Polo Club, was superimposed the word CASH.

 September 10, 1964: FNCB wrote Metro Bank asking for reimbursement

 June 29, 1965: FNCB filed for recovery

 CA affirmed Trial Court: Metro Bank to reimburse FNCB

ISSUE: W/N Metrobank should reimsburse FNCB for the altered amount as indorser

HELD: NO. FNCB liable.

 Under the procedure prescribed, the drawee bank receiving the check for clearing from the Central
Bank Clearing House must return the check to the collecting bank within the 24-hour period if the
check is defective for any reason. - FNCB failed to do so

 indorsement must be read together with the 24-hour regulation on clearing House Operations of the
Central Bank

 Metro Bank can not be held liable for the payment of the altered check.

 Moreover, FNCB did not deny the allegation of Metro Bank that before it allowed the withdrawal of
the balance of P17,920.00 by Salvador Sales, Metro Bank withheld payment and first verified, through
its Assistant Cashier Federico Uy, the regularity and genuineness of the check deposit from Marcelo
Mirasol, Department Officer of FNCB, because its (Metro Bank) attention was called by the fast
movement of the account

ILLUSORIO V. CA

393 SCRA 89

FACTS:

Petitioner was a prominent businessman who, because of different business

commitments, entrusted to his then secretary the handling of his credit
cards and checkbooks. For a material period of time, the secretary was
able to encash and deposit in her personal account money from the
account of petitioner. Upon knowledge of her acts, she was fired
immediately and criminal actions were filed against her. Thereafter, petitioner requested the bank
to restore its money but the bank refused to
do so.

HELD:

The petitioner doesn’t have a course of action against the bank. To be entitled to damages,
petitioner has the burden of proving negligence on the part of the bank for failure to detect the
discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of
forgery. Curiously though, petitioner failed to supply additional signature specimens as requested by the
NBI. The bank was not also remiss in performance of its duties, it practices due diligence in encashing
checks. The bank didn’t
have any hint of the modus operandi of Eugenio as she was a regular customer, designated by the
petitioner himself to transact on his behalf.

It was petitioner who was negligent in this case. He failed to examine his
bank statements and this was the proximate cause of his own damage. Because of this negligence,
he is precluded from setting up the defense of forgery with regard the checks.

PCIB V. CA

350 SCRA 446

FACTS:

Ford Philippines filed actions to recover from the drawee bank Citibank and
collecting bank PCIB the value of several checks payable to the Commissioner of Internal
Revenue which were embezzled allegedly by an
organized syndicate. What prompted this action was the drawing of a
check by Ford, which it deposited to PCIB as payment and was debited from their Citibank
account. It later on found out that the payment wasn’t
received by the Commissioner. Meanwhile, according to the NBI report, one of the checks issued by
petitioner was withdrawn from PCIB for alleged mistake in the amount to be paid. This was replaced with
manager’s check by PCIB, which were allegedly stolen by the syndicate and deposited in their own
account.

The trial court decided in favor of Ford.

ISSUE:

Has Ford the right to recover the value of the checks intended as payment to CIR?

HELD:
The checks were drawn against the drawee bank but the title of the person negotiating the same was
allegedly defective because the instrument was
obtained by fraud and unlawful means, and the proceeds of the checks were not remitted to the
payee. It was established that instead paying the
Commissioner, the checks were diverted and encashed for the eventual distribution among
members of the syndicate.

Pursuant to this, it is vital to show that the negotiation is made by the perpetrator in breach of
faith amounting to fraud. The person negotiating the checks must have gone beyond the authority given
by his principal. If the principal could prove that there was no negligence in the performance
of his duties, he may set up the personal defense to escape liability and recover from other parties
who, through their own negligence, allowed the commission of the crime.

It should be resolved if Ford is guilty of the imputed contributory negligence that would defeat its
claim for reimbursement, bearing in mind that its employees were among the members of the
syndicate. It appears although the employees of Ford initiated the transactions attributable to
the organized syndicate, their actions were not the proximate cause of
encashing the checks payable to CIR. The degree of Ford’s negligence
couldn’t be characterized as the
proximate cause of the injury to parties. The mere fact that the forgery was committed by a dr
awer-payor’s confidential employee or agent, who by virtue of his position had unusual facilities for
perpetrating the fraud and imposing the forged paper upon the bank, doesn’t entitle the bank to shift the
loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer.

Note: not only PCIB but also Citibank is responsible for negligence. Citibank was negligent in the
performance of its duties as a drawee
bank. It failed to establish its payments of Ford’s checks were made in due course and legally in
order.

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 payee’s 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
payee’s 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 CUT—plaintiff 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 Tamlinco’s
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.