PHILIPPINE NATIONAL BANK vs.

THE NATIONAL CITY BANK OF NEW YORK,

and MOTOR SERVICE COMPANY, INC.
G.R. No. L43596, 31 OCTOBER 1936

Re: Presentment for Acceptance

Instrument guide:
Drawer – Pangasinan Transportation Co., J.L. Klar, Manager and Treasurer
Drawee – PNB
Payee – International Auto Repair Shop
Indorser – Unknown persons
Holder-Indorsee – Motor Services Co.
Collecting Bank – NCBNY

FACTS:
On April 7 and 9, 1933, unknown persons indorsed to defendant Motor Service Company, Inc.
two (2) checks in the amount of P144.50 and P215.75 in payment for automobile tires purchased
from said defendant's stores. The checks were purported to be issued by the Pangasinan
Transportation Company by its manager and treasurer, J.L. Klar, drawn against plaintiff
Philippine National Bank, in favor of International Auto Repair Shop.
Said checks were then indorsed for deposit by Motor Service Co. at the National City Bank of
New York and he was accordingly credited with the same amounts by the bank.
On April 8 and 10, 1933, the said checks were cleared at the clearing house and the Philippine
National Bank credited the National City Bank of New York for the amounts thereof. Eventually,
PNB found out that the signature of the drawer had been forged, which prompted PNB to
demand from the defendants reimbursement for the amounts which it credited to the National
City Bank of New York at the clearing house, and for which the latter credited the Motor Service
Co.
Upon plaintiff's motion, the case was dismissed before trial as to the defendant National City
Bank of New York. A decision was thereafter rendered giving plaintiff judgment for the total
amount of P360.25, with interest and costs. From this decision the instant appeal was taken.
ISSUE:
Whether the plaintiff-appellee has the right to recover from the appellant the value of the checks
on which the signatures of the drawer were forged, and whether the appellant has the right to
retain the money it had received.

RULING:
The Court ruled in favor of plaintiff. In first answering the appellant’s contention that the act of
PNB in paying the check equally amounted to acceptance—as the term is used under Section 62
of the NIL—and by virtue of which it warranted the genuineness of the instrument, the Court
held that acceptance is unnecessary in so far as bills of exchange payable on demand are
concerned. Acceptance implies, in effect, subsequent negotiation of the instrument which is not
true in case of the payment of a check because from the moment a check is paid it is withdrawn
from circulation; thus, there can be no warranty established by Section 62 in favor of holders of
the instrument after its acceptance. Neither did the appellee bank certify the check, which
certification is equivalent to acceptance.
The Court further made a distinction between payment and acceptance, citing US case laws and
jurisprudence in regard to the rule that payment of a check on unauthorized or forged
indorsement does not operate as an acceptance of the check so as to authorize an action by the
real owner to recover its amount from the drawee bank, nor does it create a privity of contract
between the drawee and the payee, or holder of the check.
As regards appellant’s right to retain the money it received, and appellee’s right to
recover:
In order to entitle the holder of a forged check to retain the money obtained thereon, there must
be a showing that the duty to ascertain the genuineness of the signature rested entirely upon the
drawee, and that the constructive negligence of such drawee in failing to detect the forgery was
not affected by any disregard of duty on the part of the holder, or by failure of any precaution
which, from his implied assertion in presenting the check as a sufficient voucher, the drawee had
the right to believe he had taken.
From the facts of the case, the appellant is not entitled to retain the money for his apparent
negligence in purchasing the checks from unknown persons and under suspicious circumstances.
Hence, in the absence of actual fault on the part of the drawee, the appellee’s constructive fault
in not knowing the signature of the drawer and detecting the forgery will not preclude his
recovery from one who took the check under circumstances of suspicion and without proper
precaution, or whose conduct has been such as to mislead the drawee or induce him to pay the
check without the usual scrutiny or other precautions against mistake or fraud.