Duran, Dana Ginelle A.

Negotiable Instruments

2-D March 27, 2020

A. Cases on Forgery

G.R. No. 132560 January 30, 2002

WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), petitioner, vs. EUGENE

ONG, respondent.

Facts: Respondent Eugene Ong maintained a current account with petitioner 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, issued in the name of Eugene Ong as payee. Ong was unable to get a
hold of these checks, but instead 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.

Issues:

1. Whether or not respondent Ong has a cause of action against petitioner Westmont
Bank;
2. Whether or not Ong is barred to recover the money from Westmont Bank due to
laches.

Held:

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.
The collecting bank is liable to the payee and must bear 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 upon an unauthorized or forged indorsement of the payee’s signature and who
 collects the amount of the check from the drawee, is liable for the proceeds thereof to
the payee or 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.

2. NO. Ong did not 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.
G.R. No. 89802 May 7, 1992

ASSOCIATED BANK and CONRADO CRUZ, petitioners, vs. HON. COURT OF

APPEALS, and MERLE V. REYES, doing business under the name and style
"Melissa's RTW," respondents.

Facts: Private respondent Merle V. Reyes is engaged in the business of ready-to-wear

garments under the name “Melissa’s RTW” and deals with a number of companies as her
clients, some of which are Robinson’s Department Store, Payless Department Store, and the
like. Said client companies issued their payment through crossed checks payable to
Melissa’s RTW. When Ms. Reyes went to her client companies to claim what she thought
were still unpaid accounts, she was informed that the said companies have already issued
crosschecks. Said checks were apparently deposited with Associated Bank and
subsequently paid to one Rafael Sayson, which according to AB was one of their “trusted
depositors.” Sayson had not been authorized by Ms. Reyes to deposit and encash the said
checks. This prompted Reyes to sue the bank and its manager for the return of the money.
The trial and appellate court ruled in favor of Reyes.

Issue: Whether or not petitioner Bank should bear the loss on forged indorsement

Held: YES. Associated Bank should refund the six checks. The six checks in the case at bar
had been crossed and issued “for payee’s account only.” This could only signify that the
drawers had intended the same for deposit only by the person indicated, to wit, Merle Reyes.

The court also elucidated the effects of crossing a check namely:

1. That the check may not be encashed but only deposited in the bank;
2. That the check may be negotiated only once – to one who has an account with a
bank; and
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 that purpose.

On the other hand, even if indeed Eddie Reyes indorsed the checks, Associated Bank is still
liable because in the first place, the husband is not authorized to make indorsements. And
even if the indorsements were forged, as alleged, Associated Bank would still be liable to
Reyes for not verifying the indorser’s authority. There is no substantial difference between
an actual forging of a name to a check as an endorsement by a person not authorized to
indorse it.
G.R. No. 149454 May 28, 2004

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI

INTERNATIONALE LEONARDO T. YABUT, respondents.

Facts: Plaintif CASA Montessori International opened a current account with BPI. In 1991,
plaintiff discovered that nine of its check had been encashed by a certain Sonny D. Santos
since 1990 in the total amount of PHP 782,000. It turned out than Sonny D. Santos with an
account at BPI’s Greenbelt Branch was a fictitious name used by third party defendant
Leonardo T. Yabut who worked as external auditor of CASA. Third party defendant
voluntarily admitted that he forged the signature of Ms. Lebron and encashed the checks.

On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against
defendant bank praying that the latter be ordered to reinstate the amount of PHP 782,500 in
the current and savings accounts of the plaintiff with interest at 6% per annum.

RTC rendered decision in favor of CASA. CA modified decision holding CASA as

contributory negligent hence ordered Yabut to reimburse BPI half the total amount claimed
and CASA, the other half. It also disallowed attorney’s fees and moral and exemplary
damages.

Issue: Whether or not there was forgery under the Negotiable Instruments Law

Held: YES. Under Section 23 of the NIL, a forged signature is a real or absolute defense,
and a person whose signature on a negotiable instrument is forged is deemed to have never
become a party thereto and have never consented to the contract that allegedly gave rise to
it. The counterfeiting of any writing, consisting in the signing of another’s name with intent to
fraud, is fraud.

Negligence is attributable to BPI alone. A banking business is impressed with public interest,
of paramount importance thereto is the trust and confidence of the public in general.
Consequently, the highest degree of diligence is expected, and high standards of integrity
and performance are even required, of it. BPI, despite claims of following its signature
verification procedure, still failed to detect the eight instances of forgery. Its negligence
consisted in the omission of that degree of diligence required of a bank. It cannot now feign
ignorance, for very early on we have already ruled that 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.
G.R. No. 139130 November 27, 2002

RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and THE MANILA
BANKING CORPORATION, respondents

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 petitioner has a cause of action against respondent Bank

Held: NO. To be entitled to damages, petitioner had 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
did not have any hint of the modus operandi of Eugenio as she was a regular customer,
designated by the petitioner to 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.

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.
G.R. No. 129015 August 13, 2004

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR EAST

BANK AND TRUST COMPANY AND COURT OF APPEALS, respondents.

Facts: A check drawn against petitioner was presented for payment to respondent bank.
Satisfied with the authenticity of the signature appearing thereon, the check was encashed.
The following day, petitioner’s accountant who had custody of the company checks
discovered that a check was missing and reported the petitioner’s project manager who is
also the sole signatory to its checking account. Petitioner demanded that it be reimbursed for
the proceeds of the check.

Issue: Whether or not respondent bank is liable to reimburse for the payment of the forged
check

Held: YES. Banks are engaged in a business impressed with public interest, and it is their
duty to protect in return their many clients and depositors who transact business with them.
They have the obligation to treat their clients’ account meticulously and with the highest
degree of care, considering the fiduciary nature of their relationship. The diligence required
of banks, therefore, is more than that of a good father of a family. Given the circumstances,
extraordinary diligence dictates that FEBTC should have ascertained from Jong personally
that the signature in the questionable check was his. Since the drawer, Samsung
Construction, is not precluded by negligence from setting up the forgery, the general rule
should apply. Consequently, if a bank pays for 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. A bank is liable, irrespective of its good faith, in paying a forged check.
G.R. No. 173259 July 25, 2011

PHILIPPINE NATIONAL BANK, Petitioner, vs. F.F. CRUZ and CO., INC. Respondent.

Facts: Respondent F.F. Cruz & Co., Inc. opened a savings/current or so-called combo
account and dollar savings account with petitioner Philippine National Bank. Its President
Felipe Cruz (or Felipe) and Secretary-Treasurer Angelita A. Cruz (or Angelita) were the
named signatories for the said accounts. While they were thus out of the country,
applications for cashier's and manager's checks bearing Felipe's signature were presented
to and both approved by the PNB. When Angelita returned to the country, she had occasion
to examine the PNB statements of account of and she noticed the deductions Claiming that
these were unauthorized and fraudulently made, FFCCI requested PNB to credit back and
restore to its account the value of the checks. PNB refused, and thus FFCCI filed the instant
suit for damages against the PNB and its own accountant Aurea Caparas (or Caparas).

The trial court ruled that PNB should bear the whole loss, while the CA rendered the
assailed Decision affirming with modification. The appellate court found FFCCI guilty of
contributory negligence because it clothed its accountant/bookkeeper Caparas with apparent
authority to transact business with PNB.

Issue: Whether the CA seriously erred when it found PNB guilty of negligence

Held: NO. PNB is guilty of negligence. FFCCI is guilty of contributory negligence, thus,
making it partly liable for the loss. The court finds no reversible error in the findings of the
appellate court that PNB was negligent in the handling of FFCCI's combo account,
specifically, with respect to PNB's failure to detect the forgeries in the subject applications for
manager's check which could have prevented the loss. As the court have often ruled, the
banking business is impressed with public trust.A higher degree of diligence is imposed on
banks relative to the handling of their affairs than that of an ordinary business enterprise.

In the case at bar, PNB failed to meet the high standard of diligence required by the
circumstances to prevent the fraud. Where the bank's negligence is the proximate cause of
the loss and the depositor is guilty of contributory negligence, we allocated the damages
between the bank and the depositor on a 60-40 ratio. We apply the same ruling in this case
considering that, as shown above, PNB's negligence is the proximate cause of the loss while
the issue as to FFCCI's contributory negligence has been settled with finality.
G.R. No. 158143 September 21, 2011
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner, vs. ANTONIO B.
BALMACEDA and ROLANDO N. RAMOS, Respondents.

Facts: PCIB filed an action for recovery of sum of money with damages before the RTC
against Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its
complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by taking advantage of
his position as branch manager, fraudulently obtained and encashed 31 Manager’s checks
in the total amount of PHP 10,782,150.00. PCIB then impleaded Rolando Ramos as one of
the recipients of a portion of the proceeds from Balmaceda’s alleged fraud. PCIB also
increased the number of fraudulently obtained and encashed Manager’s checks to 34, in the
total amount of PHP 11,937,150.00. According to Ramos, he is a reputable businessman
engaged in the business of buying and selling fighting cocks, and Balmaceda was one of his
clients. Ramos admitted receiving money from Balmaceda as payment for the fighting cocks
that he sold to Balmaceda, but maintained that he had no knowledge of the source of
Balmaceda’s money.

Issue: Whether or not PCIB contributed to the perpetration of the fraud

Held: YES. Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk,
testified that Balmaceda broke the Bank’s protocol when he ordered the Bank’s employees
to fill up the application forms for the Manager’s checks, to be debited from the bank account
of one of the bank’s clients, without providing the necessary Authority to Debit from the
client. PCIB also admitted that these Manager’s checks were subsequently released to
Balmaceda, and not to the client’s representative, based solely on Balmaceda’s word that
the client had tasked him to deliver these checks.

Despite Balmaceda’s gross violations of bank procedures – mainly in the processing of the
applications for Manager’s checks and in the releasing of the Manager’s checks –
Balmaceda’s co-employees not only turned a blind eye to his actions, but actually complied
with his instructions. In this way, PCIB’s own employees were unwitting accomplices in
Balmaceda’s fraud.

Moreover, in complete disregard of its duty, PCIB’s systems allowed Balmaceda to encash
26 Manager’s checks which were all crossed checks, or checks payable to the "payee’s
account only."
G.R. No. 126000 October 7, 1998
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (MWSS), petitioner, vs.
COURT OF APPEALS, HON. PERCIVAL LOPEZ, AYALA CORPORATION and AYALA
LAND, INC., respondents.

Facts: Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB.
When it was still called NAWASA, MWSS made a special arrangement with PNB so that it
may have personalized checks to be printed by Mesina Enterprises. These personalized
checks were the ones being used by MWSS in its business transactions.

From March to May 1969, MWSS issued 23 checks to various payees in the aggregate
amount of PHP 320,636.26. During the same months, another set of 23 checks containing
the same check numbers earlier issued were forged. The aggregate amount of the forged
checks amounted to PHP 3,457,903.00. This amount was distributed to the bank accounts of
three persons: Arturo Sison, Antonio Mendoza, and Raul Dizon.

MWSS then demanded PNB to restore the amount of PHP 3,457,903.00. PNB refused. The
trial court ruled in favor of MWSS but the Court of Appeals reversed the trial court’s decision.

Issue: Whether or not PNB should restore the said amount

Held: NO. MWSS is precluded from setting up the defense of forgery. It has been proven
that MWSS has been negligent in supervising the printing of its personalized checks. It failed
to provide security measures and coordinate the same with PNB. Further, the signatures in
the forged checks appear to be genuine as reported by the NBI so much so that the MWSS
itself cannot tell the difference between the forged signature and the genuine one. The
records likewise show that MWSS failed to provide appropriate security measures over its
own records thereby laying confidential records open to unauthorized person. Even if the 23
checks in question are considered forgeries, considering the MWSS’s gross negligence, it is
barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments
Law.
G.R. No. 107382/G.R. No. 107612 January 31, 1996

ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, PROVINCE OF

TARLAC and PHILIPPINE NATIONAL BANK, respondents.

Facts: The Province of Tarlac maintains a current account with the Philippine National Bank
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 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 accounts. 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 allocated checks, and sought the restoration of the
debited amounts from PNB. In turn, PNB demanded reimbursement from Associated Bank.
Both banks resisted payment. Hence, the present action.

Issue: Whether PNB shall bear the loss resulting from the forged checks

Held: NO. 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.
G.R. No. L-53194 March 14, 1988

PHILIPPINE NATIONAL BANK petitioner, vs. HON. ROMULO S. QUIMPO, Presiding

Judge, Court of First Instance of Rizal, Branch XIV, and FRANCISCO S. GOZON II,
respondents.

Facts: Ernesto Santos saw that Franisco Gozon II left his check book he took a check
therefrom, filled it up for the amount of P5,000.00, forged the signature of Gozon, and
thereafter he encashed the check in the bank on the same day. The account of Gozon was
debited the said amount. Upon receipt of the statement of account from the bank, Gozon
asked that the said amount be returned to his account as his signature on the check was
forged but the bank refused. Upon Gozon’s complaint, Ernesto Santos was apprehended by
the police authorities and upon investigation he admitted that he stole the check of Gozon,
forged his signature and encashed the same with the Bank.

Hence Gozon filed the complaint for recovery of the amount of P5,000.00, plus interest,
damages, attorney's fees and costs against the bank in the CFI Rizal. A decision was
rendered ordering the bank to return the amount of P5,000 which it had unlawfully withheld,
with interest at the legal rate from 22 September 1972 until the amount is fully delivered. The
bank was further condemned to pay Gozon the sum of P2,000.00 as attorney's fees and to
pay the costs of the suit. The bank filed a petition for review on certiorari.

Issue: Wheter or not PNB is liable

Held: YES. 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 change the amount so paid to the account of the depositor whose name was
forged.

A comparison of the signature on the forged check with Gozon’s exemplar signatures found
in the PNB Form 35-A would immediately show the negligence of the employees of the
bank. Even a not too careful comparison would immediately arrest one’s attention and direct
it to the graceful lines of Gozon’s exemplar signature in the bank form.

The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or
the depositor on the check being encashed. It is expected to use reasonable business
prudence in accepting and cashing a check presented to it.

Gozon’s act in leaving his checkbook in the car while he went out for a short while can not
be considered negligence sufficient to excuse the bank from its own negligence. When
Gozon left his car, Ernesto Santos, a long time classmate and friend remained in the same.
Gozon could not have been expected to know that the said Ernesto Santos would remove a
check from his checkbook. Gozon had trust in his classmate and friend. He had no reason to
suspect that the latter would breach that trust. Gozon cannot be considered negligent under
the circumstances of the case.

The Supreme Court dismissed the petition for lack of merit, with costs against the bank.
G.R. No. L-37467 December 11, 1933

SAN CARLOS MILLING CO., LTD., plaintiff-appellant, vs. BANK OF THE PHILIPPINE
ISLANDS and CHINA BANKING CORPORATION, defendants-appellees.

Facts: San Carlos Milling Co. Ltd. (San Carlos) was in the hands of Alfred D. Cooper, its
agent under general power of attorney with authority of substitution. The principal employee
in the Manila office was Joseph L. Wilson, to whom had been given a general power of
attorney but without power of substitution. Cooper went on a vacation and gave a general
power of attorney to Newland Baldwin and revoked the power of Wilson relative to the
dealings with BPI.

After a year, Wilson conspired with Dolores, a messenger-clerk and sent a cable gram in
code to the company in Honolulu requesting a telegraphic transfer to the China Banking
Corporation of Manila for $100,000. The money was transferred by cable to Chinabank and
upon receipt, sent to San Carlos Milling an exchange contract for PHP 201,000.00. Such
contract was forged in the name of Newland Baldwin. It further asked Chinabank to send a
certified check in San Carlos’ favor, payable for deposit only with BPI. The endorsement to
which the name of Newland Baldwin was affixed was spurious. BPI credited the current
account of plaintiff in the sum of PHP 201,000 and after it was cleared, it was paid by
Chinabank.

The next day, BPI received a letter purported to be signed by Newland Baldwin, directing
that the money be paid in certain denominations. The counting and packing of the money
was witnessed by Dolores who in turn returned with a check purporting to be signed by
Newland Baldwin as agent. Dolores also returned with a forged check for PHP 1 covering
the cost of packing the money. Shortly thereafter, the crime was discovered but BPI refused
to credit San Carlos with the amount withdrawn by the two forged checks and brought the
case to the Trial Court.

The trial court held that the deposit of PHP 201,000 in the BPI being the result of a forged
endorsement, the relation of the depositor and banker did not exist, but the bank was only a
gratuitous bailee; that BPI acted in good faith in the ordinary course of business and was not
guilty of negligence and that San Carlos could not recover since the loss was due to the
criminal action of its employees.

Issue: Whether or nor BPI is guilty of negligence and is liable to pay San Carlos for the
amount it had cashed out
Held: YES. 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 BPI and the CBC was not bound to inspect
and verify all endorsements of the check, even if some of them were also depositors in that
bank. It had a right to rely upon the endorsement of BPI when it gave the latter bank credit
for its own cashier’s check. Since the money was in fact paid by CBC to BPI, CBC is not
indebted to San Carlos or BPI.

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.

No act of San Carlos led BPI to go astray. The bank paid out its money because it relied
upon the genuineness of the purported signatures of Baldwin. Its employees should have
used care. Therefore, the proximate cause of loss was due to the negligence of BPI in
honoring and cashing two forged checks.
G.R. No. 150228 July 30, 2009

BANK OF AMERICA NT & SA, Petitioner, vs. PHILIPPINE RACING CLUB, Respondent.

Facts: The President and Vice President of respondent PRCI corporation were scheduled to
go out of the country in connection with the corporation’s business. In order not to disrupt
operations in their absence, they pre-signed several checks relating the corporation’s
Current Account with BA to insure continuity of plaintiff-appellee’s operations by making
available cash to settle obligations that might become due. These checks were entrusted to
the accountant with instruction to make use of the same as the need arose.

Thereafter, a John Doe presented two checks to BA for encashment; the two checks had
similar entries with similar infirmities and irregularities. On the space where the name of the
payee should be indicated, appeared 2 lines, on the upper line was the word “CASH” while
the lower line had the following typewritten words: “ONE HUNDRED TEN THOUSAND
PESOS ONLY.” Appellant bank encashed said checks.

The checks actually came into the hands of an employee of PRCI who completed the pre-
signed checks without authority. PRCI’s demand for defendant-appellant to pay fell on deaf
ears. Hence, the complaint.

The trial court rendered a decision in favor of PRCI, and ordered BA to pay plaintiff. The CA
affirmed said decision.

Issue: Whether or not petitioner bank is obligated to verify said checks to respondent

Held: YES. In the case at bar, extraordinary diligence demands that petitioner should have
ascertained from respondent the authenticity of the subject checks or the accuracy of the
entries therein not only because of the presence of highly irregular entries on the face of the
checks but also of the decidedly unusual circumstances surrounding their encashment.

On the contention that it was respondent’s act of issuing pre-signed checks, the SC held
that, although the respondent was also negligent, but under the doctrine of Last Clear
Chance, the law provides that “who had a last clear opportunity to avoid the impending harm
but failed to do so is chargeable with the consequences thereof.” At the most, the
respondent’s liability is merely contributory.

Nevertheless, even if we assume that both parties were guilty of negligent acts that led to
the loss, petitioner will still emerge as the party foremost liable in this case. In instances
where both parties are at fault, this Court has consistently applied the doctrine of last clear
chance in order to assign liability.

In the interest of fairness, however, we believe it is proper to consider respondent’s own

negligence to mitigate petitioner’s liability. Following established jurisprudential precedents,
we believe the allocation of sixty percent (60%) of the actual damages involved in this case
to petitioner is proper under the premises. Respondent should, in light of its contributory
negligence, bear forty percent (40%) of its own loss.
Analysis on Forgery Cases

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.

As a general rule, a bank or corporation who has obtained possession of a check upon an
unauthorized or forged indorsement of the payee’s signature and who collects the amount of
the check from the drawee, is liable for the proceeds thereof to the payee or other owner,
notwithstanding that the amount has been paid to the person from whom the check was
obtained.

Banks are engaged in a business impressed with public interest, and it is their duty to protect
in return their many clients and depositors who transact business with them. They have the
obligation to treat their client’s account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. This was applied in the following cases:

In Westmont Bank v. Ong, petitioner, as the collecting bank, grossly erred in making
payment by virtue of said forged signature. Given the substantial face value of the two
checks, totalling P1,754,787.50, and the fact that they were being deposited by a person not
the payee, the very least defendant bank should have done, as any reasonable prudent man
would have done, was to verify the genuineness of the indorsements thereon. The payee,
herein respondent, should therefore be allowed to recover from the collecting bank.

In Associated Bank v. CA (G.R. No. 89802), the six checks in the case at bar had been
crossed and issued "for payee's account only." This could only signify that the drawers had
intended the same for deposit only by the person indicated. However, the subject checks
were accepted for deposit by the Bank for the account of another person although they were
crossed checks and the payee was not him but Melissa's RTW. When the Bank paid the
checks so endorsed notwithstanding that title had not passed to the endorser, it did so at its
peril and became liable to the payee for the value of the checks. This liability attached
whether or not the Bank was aware of the unauthorized endorsement.

In BPI v. Casa Montesorri, BPI contends that it has a signature verification procedure, in
which checks are honored only when the signatures therein are verified to be the same with
or similar to the specimen signatures on the signature cards. Nonetheless, it still failed to
detect the eight instances of forgery. Its negligence consisted in the omission of that degree
of diligence required of a bank.

In those cited cases, the collecting banks were held to be negligent for failing to observe
precautionary measures to detect the forgery. It has been held that 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.” A bank is liable, irrespective of its
good faith, in paying a forged check.

Now it is a rule that when a signature is forged or made without the authority of the person
whose signature it purports to be, the check is wholly inoperative. No right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any party,
can be acquired through or under such signature. However, the rule does provide for an
exception, namely: "unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority."

In Ilusorio v. CA, it is the exception that applies. Petitioner is precluded from setting up the
forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary
his credit cards and checkbook including the verification of his statements of account. In the
case before us, the Courts found that Manila Bank’s personnel diligently performed their
duties, having compared the signature in the checks from the specimen signatures on record
and satisfied themselves that it was petitioner’s.

In MWSS v. CA, it has been proven that MWSS has been negligent in supervising the
printing of its personalized checks. It failed to provide security measures and coordinate the
same with PNB. Even if the checks in question are considered forgeries, considering the
MWSS’s gross negligence, it is barred from setting up the defense of forgery.

It is different however in the case of Samsung Construction v. FEBTC, where the Court
was unable to conclude that Samsung Construction was guilty of negligence. The bare fact
that the forgery was committed by an employee of the party whose signature was forged
cannot necessarily imply that such party’s negligence was the cause for the forgery.
Employers do not possess the preternatural gift of cognition as to the evil that may lurk
within the hearts and minds of their employees. Given that Samsung Construction is not
precluded by negligence from setting up the forgery, the general rule should apply.

This was also applied in PNB v. Quimpo, wherein the Court held that the act of plaintiff in
leaving his checkbook in the car while he went out for a short while cannot be considered
negligence sufficient to excuse the defendant bank from its own negligence. 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 change the amount so
paid to the account of the depositor whose name was forged.

In the cases cited above, we recognize that Section 23 of the Negotiable Instruments Law
bars a party from setting up the defense of forgery if it is guilty of negligence. However, if the
depositor is guilty of contributory negligence, the greater proportion of the loss shall be borne
by the bank. Such is what was applied in the following cases:

In PNB v. FFCCI, the Court ruled that since FFCCI clothed its accountant/bookkeeper
Caparas with apparent authority to transact business with PNB, it is guilty of contributory
negligence. In addition, FFCCI failed to timely examine its monthly statement of account and
report the discrepancy to PNB within a reasonable period of time to prevent or recover the
loss. As between a bank and its depositor, where the bank’s negligence is the proximate
cause of the loss and the depositor is guilty of contributory negligence, the greater proportion
of the loss shall be borne by the bank.

In PCIB v. Balmaceda, it was held that Balmaceda’s co-employees not only turned a blind
eye to his actions, but actually complied with his instructions. Its employees handled its
clients’ bank accounts and ignored established bank procedures at the branch manager’s
mere order. Therefore, the Court only partially granted the petition.

In Bank of America v. Phil Racing Club, the allocation of sixty percent (60%) of the actual
damages involved in this case (represented by the amount of the checks with legal interest)
to petitioner is proper under the premises. Respondent should, in light of its contributory
negligence, bear forty percent (40%) of its own loss.

This is different in the case of Associated Bank v. CA (G.R. No. 107612) wherein the
collecting bank and the drawee bank are involved. The Court held in this case, that the
collecting bank, Associated Bank, shall be liable to the drawee bank, PNB, for fifty percent. It
is liable on its warranties as indorser of the checks which were deposited by Fausto
Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of
the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its
duty to ascertain the genuineness of the payee's indorsement.

A collecting bank which indorses a check bearing a forged indorsement and presents it to
the drawee bank guarantees all prior indorsement, including the forged indorsement. It
warrants that the instrument is genuine, and that it is valid and subsisting at the time of his
indorsement. Because the indorsement is forgery, the collecting bank commits a breach of
this warranty and will be accountable to the drawee bank. Moreover, the collecting bank is
made liable because it is privy to the depositor who negotiated the check.

This is also similar in the case of San Carlos Milling v. BPI, where the bank paid out its
money because it relied upon the genuineness of the purported signatures of Baldwin. The
signatures to the checks 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.
B. Cases on Consideration
G.R. No. L-56169 June 26, 1992
TRAVEL-ON, INC., petitioner, vs. COURT OF APPEALS and ARTURO S. MIRANDA,
respondents.

Facts: Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on
commission basis for and in behalf of different airline companies. Private respondent Arturo
S. Miranda had a revolving credit line with petitioner. He procured tickets from petitioner on
behalf of airline passengers and derived commissions therefrom.
Travel-On filed suit before the Court of First Instance ("CFI") of Manila to collect on six (6)
checks issued by private respondent with a total face amount of P115,000.00. The complaint
averred that petitioner sold and delivered various airline tickets to respondent at a total price
of P278,201.57; that to settle said account, private respondent paid various amounts in cash
and in kind, and thereafter issued six (6) postdated checks amounting to P115,000.00 which
were all dishonored by the drawee banks. Travel-On further alleged that private respondent
made another payment of P10,000.00 reducing his indebtedness to P105,000.00. The writ of
attachment was granted by the court a quo.
Miranda argued that he had issued the postdated checks for purposes of accommodation,
as he had in the past accorded similar favors to petitioner. In support of his theory that the
checks were issued for accommodation, private respondent testified that he had issued the
checks in the name of Travel-On in order that its General Manager, Elita Montilla, could
show to Travel-On's Board of Directors that the accounts receivable of the company were
still good.
The trial court ruled in favor of Miranda. The CA affirmed the decision of the trial court.
Issue: Whether respondent is still liable considering that petitioner is a holder for value
Held: YES. The Supreme Court finds that the checks are the all important evidence of
petitioner's case; that these checks clearly established private respondent's indebtedness to
petitioner; that private respondent was liable thereunder.
It is important to stress that a check which is regular on its face is deemed prima facie to
have been issued for a valuable consideration and every person whose signature appears
thereon is deemed to have become a party thereto for value. 1 Thus, the mere introduction
of the instrument sued on in evidence prima facie entitles the plaintiff to recovery. Further,
the rule is quite settled that a negotiable instrument is presumed to have been given or
indorsed for a sufficient consideration unless otherwise contradicted and overcome by other
competent evidence.
The fact that all the checks issued by private respondent to petitioner were presented for
payment by the latter would lead to no other conclusion than that these checks were
intended for encashment. There is nothing in the checks themselves (or in any other
document for that matter) that states otherwise.
In the case at bar, Travel-On was payee of all six (6) checks, it presented these checks for
payment at the drawee bank but the checks bounced. Travel-On obviously was not an
accommodated party; it realized no value on the checks which bounced.
Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due
course, 4 that the checks were supported by valuable consideration.
G.R. No. 139006 November 27, 2000
REMIGIO S. ONG, petitioner, vs. PEOPLE OF THE PHILIPPINES and COURT OF
APPEALS (EIGHTH DIVISION), respondents.

Facts: Remigio Ong, at one time retained the services of Marcial de Jesus as adviser on
technical and financial matters and as President of Erocool Industries, a company controlled
by the former.
Remigio Ong approached Marcial de Jesus in his place of work in Pasay City and requested
to be accommodated a loan of P130,000.00 which he needed to pay the 13th month pay of
his employees at the Master Metal Craft. Complainant De Jesus obliged by issuing Ong a
check payable to Ong's Master Metal Craft. In order to ensure the repayment, complainant
required Mr. Ong to issue a post-dated check for the same amount. Mr. Ong therefore
issued a check dated January 16, 1993. The check was deposited in Ong's account only and
debited for the said amount of P130,000.00. At any rate, whatever the date the loan check
was encashed by Remigio Ong, what is certain was that the check was encashed for value
and debited to Ong's account.
In the meanwhile, Ong's check was deposited by Marcial De Jesus in his account at
Producers Bank which was promptly returned the following day by FEBTC for reason that it
was drawn against insufficient funds. That thereafter, De Jesus verbally notified Remigio
Ong of his bounced check several times but unacted until he made a written formal demand.
For failure of Ong to make arrangement for the payment or replacement of the bounced
check, De Jesus filed this case.
The trial court finds the accused, Remigio Ong y Salinas, guilty beyond reasonable doubt for
Violation of Section 1, Batas Pambansa Blg. 22, otherwise known as the Bouncing Check
Law. The CA likewise ruled in favor of De Jesus.
Issue: Whether Ong is guilty of BP 22
Held: YES. Petitioner's argument that the subject check was issued without consideration is
inconsequential. The law invariably declares the mere act of issuing a worthless check as
malum prohibitum. We quote with approval the appellate court's findings on this matter: “In
actions based upon a negotiable instrument, it is unnecessary to aver or prove
consideration, for consideration is imported and presumed from the fact that it is a negotiable
instrument. The presumption exists whether the words "value received" appear on the
instrument or not.”
In light, however, of the rulings in the recent cases of Vaca v. Court of Appeals12 and Rosa
Lim v. People, the Court deems it best in the instant case, to limit the penalty for violation of
B.P. Blg. 22 to payment of a fine in the amount of P150,000.00.
Petition is denied.
G.R. No. 117913 February 1, 2002
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO
and ALFONSO CO, petitioners, vs. COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.

Facts: Charles Lee, as President of MICO wrote private respondent Philippine Bank of
Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum
of PHP 3,000,000.00 for the purpose of carrying out MICO’s line of business as well as to
maintain its volume of business. On the same day, Charles Lee requested for another
discounting loan/credit line of PHP 3,000,000.00 from PBCom for the purpose of opening
letters of credit and trust receipts.
Another loan of PHP 1,000,000.00 was availed of by MICO from PBCom which was likewise
later on renewed. Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard
Velasco, in their personal capacities executed a Surety Agreement in favor of PBCom
whereby the petitioners jointly and severally, guaranteed the prompt payment on due dates
or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of
exchange, trust receipts, and other obligations of every kind and nature, for which MICO
may be held accountable by PBCom. Charles Lee, in his capacity as president of MICO,
wrote PBCom and applied for an additional loan in the sum of PHP 4,000,000.00. The loan
was intended for the expansion and modernization of the company’s machineries. Upon
approval of the said application for loan, MICO availed of the additional loan of PHP
4,000,000.00.
To secure the trust receipts transactions, MICO and Lee executed a real estate mortgage in
favor of PBCOM over several properties it owns. Upon maturity of all credit availments
obtained by MICO from PBCom, the latter made a demand for payment. For failure of
petitioner MICO to pay the obligations incurred despite repeated demands, PBCom
extrajudicially foreclosed MICO’s real estate mortgage and sold the said mortgaged
properties in a public auction sale. Lee contends that the letters of credit, surety agreements
and loan transactions did not ripen into valid and binding contracts since no part of the
proceeds of the loan transactions were delivered to MICO or to any of the petitioners-
sureties. Petitioners-sureties allege that Chua Siok Suy was the beneficiary of the proceeds
of the loans and that the latter made them sign the surety agreements in blank. Thus, they
maintain that they should not be held accountable for any liability that might arise therefrom.
Issues:
1. Whether or not the proceeds of the loans and letters of credit transactions were ever
delivered to MICO
2. Whether or not the individual petitioners, as sureties, may be held liable under the 2
surety agreements
Held:
1. YES. The letter of credit, as well as the security agreements, have not merely
created a prima facie case but have actually proved the solidary obligation of MICO
and the petitioners, as sureties of MICO, in favor of respondent PBCom.

While the presumption found under the Negotiable Instruments Law may not
necessarily be applicable to trust receipts and letters of credit, the presumption that
 the drafts drawn in connection with the letters of credit have sufficient consideration.
Under Section 3(r), Rule 131 of the Rules of Court there is also a presumption that
sufficient consideration was given in a contract.

Hence, petitioners should have presented credible evidence to rebut that

presumption as well as the evidence presented by private respondent PBCom. The
letters of credit show that the pertinent materials/merchandise have been received by
MICO. The drafts signed by the beneficiary/suppliers in connection with the
corresponding letters of credit proved that said suppliers were paid by PBCom for the
account of MICO. On the other hand, aside from their bare denials, petitioners did not
present sufficient and competent evidence to rebut the evidence of private
respondent PBCom.

2. YES. A perusal of the By-Laws of MICO, however, shows that the power to borrow
money for the company and issue mortgages, bonds, deeds of trust and negotiable
instruments or securities, secured by mortgages or pledges of property belonging to
the company is not confined solely to the president of the corporation. The Board of
Directors of MICO can also borrow money, arrange letters of credit, execute trust
receipts and promissory notes on behalf of the corporation.[35] Significantly, this
power of the Board of Directors according to the by-laws of MICO, may be delegated
to any of its standing committee, officer or agent. Hence, PBCom had every right to
rely on the Certification issued by MICO’s corporate secretary, P.B. Barrera, that
Chua Siok Suy was duly authorized by its Board of Directors to borrow money and
obtain credit facilities in behalf of MICO from PBCom.
G.R. No. 126568 April 30, 2003
QUIRINO GONZALES LOGGING CONCESSIONAIRE, QUIRINO GONZALES and
EUFEMIA GONZALES, petitioners, vs. THE COURT OF APPEALS (CA) and REPUBLIC
PLANTERS BANK, respondents.

Facts: Petitioner Quirino Gonzales Logging Concessionaire (QGLC) applied for credit
accommodation which the Bank approved. Their obligation was secured by a real estate
mortgage of parcels of land. QGLC executed a promissory note in which they defaulted. The
Bank foreclosed the property and was subsequently owned by the Bank. The Bank then filed
a complaint for a sum of money in regards to the unpaid notes.
The notes were payable 30 days after date and provided for the solidary liability in their non-
payment at maturity. Petitioners deny having received the value of the promissory notes.
The RTC sided with petitioner but the CA reversed the decision.
Issue: Whether the promissory notes are not valid for want of consideration
Held: No. The promissory notes are valid. Petitioners admission of the genuineness and due
execution of the promissory notes notwithstanding, they raise want of consideration thereof.
The promissory notes, however, appear to be negotiable as they meet the requirements of
Section 1 of the Negotiable Instruments Law. Such being the case, the notes are prima facie
deemed to have been issued for consideration. It bears noting that no sufficient evidence
was adduced by petitioners to show otherwise.
Exhibits 2 to 2-B to which petitioners advert in support of their claim that the credit line on the
notes was unnecessary because they had deposits in, and remittances due from, the Bank
deserve scant consideration. Said exhibits are merely claims by petitioners under their then
proposals for a possible settlement of the case dated February 3, 1978. Parenthetically, the
proposals were not even signed by petitioners but by certain Attorneys Osmundo R.
Victoriano and Rogelio P. Madriaga.
In any case, it is no defense that the promissory notes were signed in blank as Section 14 of
the Negotiable Instruments Law concedes the prima facie authority of the person in
possession of negotiable instruments, such as the notes herein, to fill in the blanks.
G.R. No. 172954 October 5, 2011
ENGR. JOSE E. CAYANAN, Petitioner, vs. NORTH STAR INTERNATIONAL TRAVEL,
INC., Respondent.

Facts: North Star extended credit to Cayanan for air tickets of clients worth PHP 510,034.47,
and for payment to View Sea Ventures of the amounts of $60,000 which came from
respondent General Manager’s (Virginia) personal account. And another $40,000 by
telegraphic transfer with $15,000 from petitioner.
Cayanan then issued 3 checks drawn from Republic Planters Bank (RPB) and 2 checks from
PCIB. When drawn for payment, the checks from PCIB amounting to 1.5M and 35,000 were
dishonored for insufficiency of funds while the 3 checks from RPB were dishonored due to a
stop payment by Cayanan. Upon demand for payment, Cayanan failed to settle.
5 violations of BP 22 were filed by North Star in MeTC, which found Cayanan guilty. On
appeal, the RTC acquitted him. The CA, however, held Cayanan civilly liable.
Issues:
1. Whether or not checks issued by Cayanan were for valuable consideration
2. Whether or not Cayanan is civilly liable to North Star for the value of the checks
Held:
1. YES. Cayanan has not presented credible evidence to rebut resumption that checks
were issued for a valuable consideration. Contrary to petitioners’ claims that North
Star did not give any valuable consideration for the checks since US$85,000 was
taken from the personal dollar account of Virginia and not the corporate funds of
North Star, the fact that petitioner himself specifically named North Star as the payee
of the checks is an admission of his liability to North Star and not to Virginia Balagtas.

Also, his defense that dollars send to View Sea in Nigeria was Virginia’s own
investment could not hold as she only remitted such money due to Cayanan’s
request/instructions – this he never denied. It was him who had business
transactions with View Sea and not Virginia. Transaction between North Star and
Cayanan was actually in the nature of a loan, and checks were issues as payment of
such hence there was no absence of consideration for the issuance of checks.

2. YES. Having failed to fully settle his obligation under the checks, the appellate court
was correct in holding petitioner liable to pay the value of the five checks he issued in
favor of North Star.
Analysis on Consideration Cases
Like any other contract, a negotiable instrument must be supported by valuable
consideration. Under the law, valuable consideration is presumed, even if the words “For
Value Received” is not written on the instrument. Every person whose signature appears
thereon have become a party thereto for value. However, this is only a prima facie
presumption; hence, it admits of evidence to the contrary. But whoever alleges absence of
consideration has the burden of proof to show the contrary.
In Travel-On Inc. v. CA, private respondent invoked that the checks were issued for
accommodation only. But Travel-On obviously was not an accommodated party as it realized
no value on the checks which bounced. Miranda must be held liable on the checks involved
as petitioner is entitled to the benefit of the statutory presumption that it was a holder in due
course and that the checks were supported by valuable consideration.
In Ong v. People, it was held that it is unnecessary to aver or prove consideration, for
consideration is imported and presumed from the fact that it is a negotiable instrument. The
presumption exists whether the words “value received” appear on the instrument or not.
In Lee v. CA, the Court held that while the presumption found under the Negotiable
Instruments Law may not necessarily be applicable to trust receipts and letters of credit, the
presumption that the drafts drawn in connection with the letters of credit have sufficient
consideration.
In Quirino Gonzales Logging v. CA, petitioners' admission of the genuineness and due
execution of the promissory notes notwithstanding, they raise want of consideration thereof.
The promissory notes, however, appear to be negotiable as they meet the requirements of
Section 1 of the Negotiable Instruments Law. Such being the case, the notes are prima facie
deemed to have been issued for consideration. It bears noting that no sufficient evidence
was adduced by petitioners to show otherwise.
In Cayanan v. Northstar, Cayanan has not presented credible evidence to rebut resumption
that checks were issued for a valuable consideration. Transaction between Northstar and
Cayanan were actually in the nature of a loan, and checks were issued as payment of such;
hence there was no absence of consideration for the issuance of checks.
A party who gives valuable consideration for the instrument is a holder for value. In the same
manner, the holder is also considered a holder for value with respect to all persons who
became parties to the instrument prior to the time it is shown that valuable consideration had
been given.
There is absence of consideration if no consideration is given, or the consideration is illegal.
There is failure of consideration if the agreed consideration did not materialize. Partial failure
of consideration is a defense pro tanto, meaning to the extent of the failure. Absence or
failure of consideration is only a personal defense because it is a good defense only as
against a holder is not a holder in due course. It cannot be put up as a defense against a
holder in due course.