FRANSISCO V.

COURT OF APPEALS
 
FACTS:

 June 23, 1977: Adalia Francisco (Francisco) president of A. Francisco Realty & Development
Corporation (AFRDC) and Jaime C. Ong (Ong) President and General Manager of Herby Commercial &
Construction Corporation (HCCC), entered into a contract where HCCC agreed to undertake the
construction of 35 housing units and the development of 35 hectares of land. 
 HCCC was to be paid on turn-key basis (basis of the completed houses and developed lands
delivered to and accepted by AFRDC and the GSIS) 
 To facilitate payment, AFRDC executed a Deed of Assignment in favor of HCCC to enable the it
to collect payments directly from the GSIS. 
 Furthermore, the GSIS and AFRDC put up an Executive Committee Account with the Insular
Bank of Asia & America (IBAA) of P4M from which checks would be issued and co-signed by petitioner
Francisco and the GSIS Vice-President Armando Diaz (Diaz).
 February 10, 1978: HCCC filed a complaint w/ the RTC against Francisco, AFRDC and the GSIS for
the collection of the unpaid balance under the Land Development and Construction Contract in the amount
of P515,493.89 for completed and delivered housing units and land development. 
 Sometime in 1979: Ong discovered that Diaz and Francisco had executed and signed 7 checks drawn
against the IBAA and payable to HCCC but were never delivered to HCCC
 GSIS gave Francisco custody of the checks since she promised that she would deliver the same
to HCCC. 
 Francisco forged the signature of Ong, without his knowledge or consent, at the dorsal
portion of the said checks to make it appear that HCCC had indorsed the checks; Francisco then indorsed
the checks for a second time by signing her name at the back of the checks and deposited the checks in her
IBAA savings account
 June 7, 1979: Ong filed complaints charging Francisco with estafa thru falsification of commercial
documents - dismmised by the Assistant City Fiscal
 According to Francisco, she agreed to grant HCCC the loans in the total amount of P585K and
covered by 18 promissory notes in order to obviate the risk of the non-completion of the project. 
 As a means of repayment, Ong allegedly issued a Certification authorizing Francisco to
collect HCCCs receivables from the GSIS
 RTC: favored Ong and against IBAA and Francisco
 November 21, 1989: IBAA and HCCC entered into a Compromise Agreement which was approved by
the trial court, wherein HCCC acknowledged receipt of the amount of P370,475.00 in full satisfaction of its
claims against IBAA, without prejudice to the right of IBAA to pursue its claims against Francisco.
 CA affirmed RTC
 Francisco claims that she was, in any event, authorized to sign Ongs name on the checks by virtue of the
Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC
from the GSIS, including the questioned checks.

ISSUE: W/N Francisco can sign Ongs name on the checks and it was not forgery

HELD:  NO. 
 Francisco had custody of the checks, as proven by the check vouchers bearing her uncontested signature
 Francisco forged the signature of Ong on the checks to make it appear as if Ong had indorsed said
checks 
 The Negotiable Instruments Law provides that where any person is under obligation to indorse in a
representative capacity, he may indorse in such terms as to negative personal liability
 An agent, when so signing, should indicate that he is merely signing in behalf of the principal
and must disclose the name of his principal; otherwise he shall be held personally liable
 Instead of signing Ongs name, Francisco should have signed her own name and expressly
indicated that she was signing as an agent of HCCC
San Carlos Milling Co. Ltd V. BPI (1993)

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. 
 1926: Cooper, desiring to go on vacation, gave a general power of attorney to Newland Baldwin and at
the same time revoked the power of Wilson relative to the dealings with BPI
 Wilson, conspiring together with Alfredo Dolores, a messenger-clerk in San Carlos' Manila
office, sent a cable gram in code to the company in Honolulu requesting a telegraphic transfer to the China
Banking Corporation (China Bank) of Manila of $100,00. 
 The money was transferred by cable, and upon its receipt China Bank sent an exchange contract
to San Carlos offering the sum of P201K, which was then the current rate of exchange. 
 September 28, 1927: A manager's check on the China Banking Corporation for P201K payable to San
Carlos Milling Company or order was receipted for by Dolores deposited with the BPI having a fake
endorsement (Baldwin forged as drawer)

For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos Milling Co., Ltd.
By (Sgd.) NEWLAND BALDWIN
For Agent

 San Carlos had frequently withdrawn currency for shipment to its mill but never in so large an amount,
and never under the sole supervision of Dolores
 Before delivering the money, the bank asked Dolores for P1 to cover the cost of packing the money, and
he left the bank and shortly afterwards returned with another check for P1, purporting to be signed by
Newland Baldwin
 the crime was discovered and San Carlos filed against the BPI and China Bank (after ammendment
complaint)
 China Bank: as the prior endorsement had in law been guaranteed by the BPI, they are absolved
even if the endorsement of Newland Baldwin on the check was a forgery
 BPI: guilty of no negligence, loss was due to the dishonesty of San Carlos employees and the
negligence of San Carlos general agent
 RTC: BPI in GF and San Carlos could not recover

ISSUE: W/N BPI was bound to inspect the checks and shall therefore be liable in case of forgery

HELD: YES.  judgment absolving the Bank of the Philippine Islands must therefore be reversed
 duty was upon the BPI, and the China Banking Corporation was not bound to inspect and verify all
endorsements of the check, even if some of them were also those of depositors in that bank
 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.
 under section 23 of the Negotiable Instruments Law they are not a charge against San Carlos nor are the
checks of any value to the BPI.
 proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in
honoring and cashing the two forged checks
BPI vs. Casa Montessori Internationale, et. al., G.R. No. 149454. May 28, 2004

Full Text

Facts: Plaintiff CASA Montessori International opened a current account with BPI. In 1991, plaintiff discovered
that nine (9) of its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of
P782,000.00. It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch was a fictitious name
used by third party defendant Leonardo T. Yabut who worked as external auditor of CASA. A 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 P782,500.00  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.

Issues: WON there was forgery under the Negotiable Instruments Law (NIL)?

Ruling:

The Court first discussed that forgery is a defense.

“Section 23 of the NIL Section 23. Forged signature; effect of. — 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 x x x 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. “

Under this provision, 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 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. In the present case, we hold that there was
forgery of the drawers signature on the check.

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.
Samsung Construction Company Philippines, Inc. v. Far East Bank and Trust Company and Court of
Appeals

FACTS:

Plaintiff Samsung Construction Company Philippines, Inc. (“Samsung Construction”), maintained a current
account with defendant Far East Bank and Trust Company (“FEBTC”). The sole signatory to Samsung
Construction’s account was Jong Kyu Lee (“Jong”), its Project Manager, while the checks remained in the
custody of the company’s accountant, Kyu Yong Lee (“Kyu”).

A certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the bank. The check, payable
to cash and drawn against Samsung Construction’s current account, was in the amount of Nine Hundred Ninety
Nine Thousand Five Hundred Pesos (P999,500.00). The bank teller observed the bank’s policy in encashing
checks. Satisfied with the genuineness of the signature of Jong, the bank authorized the encashment of the
check to Gonzaga.

The following day, Kyu, examined the balance of the bank account and discovered that a check in the amount
of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had been encashed. Aware that he
had not prepared such a check for Jong’s signature, Kyu perused the checkbook and found that the last blank
check was missing. He reported the matter to Jong, who then proceeded to the bank. Jong learned of the
encashment of the check, and realized that his signature had been forged. The Bank Manager reputedly told
Jong that he would be reimbursed for the amount of the check.

Samsung Construction, through counsel, demanded that FEBTC credit to it the said amount with interest. In
response, FEBTC said that it was still conducting an investigation on the matter. Unsatisfied, Samsung
Construction filed a Complaint for violation of Section 23 of the Negotiable Instruments Law, and prayed for
the payment of the amount debited as a result of the questioned check plus interest, and attorney’s fees.

ISSUES:

1. Whether Samsung Construction was precluded from setting up the defense of forgery under Section 23
of the Negotiable Instruments Law.
2. Whether FEBTC is bound to credit the said amount to Samsung Construction’s Account.

RULING:

1. No, Samsung Construction is not precluded to set up the defense of Forgery.

Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty
of negligence.

Admittedly, the record does not clearly establish what measures Samsung Construction employed to safeguard
its blank checks. Jong did testify that his accountant, Kyu, kept the checks inside a “safety box,” and no
contrary version was presented by FEBTC. The presumption remains that every person takes ordinary care of
his concerns, and that the ordinary course of business has been followed. Negligence is not presumed, but must
be proven by him who alleges it.

The drawee who has paid upon the forged signature is held to bear the loss, because he has been negligent in
failing to recognize that the handwriting is not that of his customer. But it follows obviously that if the payee,
holder, or presenter of the forged paper has himself been in default, if he has himself been guilty of a negligence
prior to that of the banker, or if by any act of his own he has at all contributed to induce the banker’s
negligence, then he may lose his right to cast the loss upon the banker. Yet, we are unable to conclude that
Samsung Construction was guilty of negligence in this case.

2. Yes, FEBTC is liable in paying a forged check.

As provided in Sec.23 of the Negotiable Instruments Law, the general rule is that a forged signature is wholly
inoperative, and payment made through or under such signature is ineffectual or does not discharge the
instrument. If payment is made, the drawee cannot charge it to the drawer’s account. The traditional
justification for the result is that the drawee is in a superior position to detect a forgery because he has the
maker’s signature and is expected to know and compare it.

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.
The diligence required of banks, therefore, is more than that of a good father of a family.

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 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.
PNB V. National City Bank New York (1936)

FACTS:
 April 7 & 9, 1933: unknown person or persons purchased tires and paid Motor Service Company, Inc.
(MSCI) checks purporting to have been issued by the "Pangasinan Transportation Co., Inc. (Pantranco) by J.
L. Klar, Manager and Treasurer" against PNB and in favor of International Auto Repair Shop. 
 MSCI indorsed for deposit at the National City Bank of New York and MSCI was accordingly credited
with the amounts thereof, or P144.50 and P215.75
 April 8 & 10, 1933: Checks were cleared and PNB credited the National City Bank 
 PNB found out that the signatures of J. L. Klar, Manager and Treasurer were forged and demanded from
MSCI and National City Bank New York
 PNB filed the case in the municipal court of Manila against National City Bank and MSCI.
 Pantranco objected to have the proceeds of said check deducted from their deposit.
 RTC: Favored PNB
 MSCI appealed
ISSUES: 
1. W/N acceptance = payment
2. W/N law or business practice prevents the presentation of checks for acceptance before they are paid.
3. W/N MSCI was negligent and therefore PNB should recover
4. W/N the drawee bank should be allowed recovery, as MSCI's position would not become worse than if
the drawee had refused the payment of these checks upon their presentation.
HELD: Affirmed
1. NO.
 A check is a bill of exchange payable on demand and only the rules governing bills of exchange payable
on demand are applicable to it, according to section 185 of the Negotiable Instruments Law
 Acceptance is a step unnecessary for bills of exchange payable on demand (sec. 143)
 Acceptance implies, subsequent negotiation of the instrument
 From the moment a check is paid it is withdrawn from circulation. 
 That the payment of a check does not include or imply its acceptance in the sense that this word is used
in section 62 of the Negotiable Instruments Law
 Payment (in checks) - final act which extinguishes a bill. 
 Acceptance (in certified checks) - a promise to pay in the future and continues the life of the bill.
     2. NO
 section 187, which provides that "where a check is certified by the bank on which it is drawn, the
certification is equivalent to an acceptance", and it is then that the warranty under section 62 exists
 That if a drawee bank pays a forged check which was previously accepted or certified by the said bank it
cannot recover from a holder who did not participate in the forgery and did not have actual notice
thereof
     3. YES.
 Circumstances:
 check number 637023-D was dated April 6, 1933, whereas check number 637020-D and is dated
April 7, 1933. (later check had prior number)
 accepted the 2 checks from unknown persons
 check 637023-D was indorsed by a subagent of the agent of the payee, International Auto Repair
Shop and cross generally
 Section 23 of the Negotiable Instruments Act provides that "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.
  PNB did not warrant to MCSI the genuineness of the checks in question, by its
acceptance thereof, nor did it perform any act which would have induced MSCI to believe in the
genuineness
 PNB is NOT precluded from setting up the forgery
     4. NO.
 A drawee of a check, who is deceived by a forgery of the drawer's signature may
recover the payment back, unless his mistake has placed an innocent holder of the paper in a worse
position than he would have been in if the discover of the forgery had been made on presentation.
 MSCI has lost nothing by anything which the drawee has done. It had in its hands
some forged worthless papers. It did not purchase or acquire these papers because of any
representation made to it by the drawee

Court concluded:

1. That where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the
genuineness of the drawer's signature and his capacity to issue the instrument;
2. That if a drawee bank pays a forged check which was previously accepted or certified by the said bank it
cannot recover from a holder who did not participate in the forgery and did not have actual notice thereof;
3. That the payment of a check does not include or imply its acceptance in the sense that this word is used in
section 62 of the Negotiable Instruments Law;
4. That in the case of the payment of a forged check, even without former acceptance, the drawee can not
recover from a holder in due course not chargeable with any act of negligence or disregard of duty;
5. That 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;
6. That in the absence of actual fault on the part of the drawee, his constructive fault in not knowing the
signature of the drawer and detecting the forgery will nor 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;
7. That on who purchases a check or draft is bound to satisfy himself that the paper is genuine, and that by
indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts
that he performed his duty;
8. That while the foregoing rule, chosen from a welter of decisions on the issue as the correct one, will not
hinder the circulation of two recognized mediums of exchange by which the great bulk of business is carried on,
namely, drafts and checks, on the other hand, it will encourage and demand prudent business methods on the
part of those receiving such mediums of exchange;
9. That it being a matter of record in the present case, that the appellee bank in no more chargeable with the
knowledge of the drawer's signature than the appellant is, as the drawer was as much the customer of the
appellant as of the appellee, the presumption that a drawee bank is bound to know more than any indorser the
signature of its depositor does not hold;
10. That according to the undisputed facts of the case the appellant in purchasing the papers in question from
unknown persons without making any inquiry as to the identity and authority of the said persons negotiating
and indorsing them, acted negligently and contributed to the appellee's constructive negligence in failing to
detect the forgery;
11. That under the circumstances of the case, if the appellee bank is allowed to recover, there will be no change
of position as to the injury or prejudice of the appellant.
Phil. National Bank Vs. Court of Appeals and Phil. Commercial and Industrial Bank
Facts:
January 15, 1962, Augusto Lim deposited in his account with PCIB a GSIS Check in the sum of P57,415,
drawn against the PNB. The check as practiced was forwarded for clearing through the Central Bank to PNB,
which did not return the said check and paid the amount to PCIB. This payment made was debited against the
account of GSIS in PNB. Later on, it was found that the amount was re-credited from PNB for the reason of
forged signatures of the officers. Then PNB demanded from PCIB the refund of the amount. 
The demand of PNB was dismissed by the CFI and CA. Allegedly, Mariano Pulido by forging the signatures of
the General Manager and Auditor of GSIS; and later on indorsed it to Manuel Go; Go indorsed it to Augusto
Lim, who in turn deposited it to PCIB. Prior to this incident, GSIS have notified PNB that the check had been
lost, and requested that its payment be stopped.
Issues:
PNB maintains that the court erred in (1) not finding PCIB as negligent, not finding the signatures forged, (2) in
not finding that the signatures are forged (3) not finding PCIB liable by virtue of the warranty on the check, (4)
in not holding that clearing is not acceptance in contemplation of negotiable instruments law, (5) in not finding
that since the PNB did not accept the check, therefore entitles PNB to reimbursement and in (6) denying the
PNB’s right to recover from PCIB.
Ruling:
(2) PCIB is not negligent; There is no absolute evidence, and PNB has not even tried to prove that the
indorsements are spurious. PNB refunded the amount of  the check to GSIS, on account of the forgery in
signatures, not of the indorsers but, the officers of the GSIS as drawers. This is immaterial to PNB’s liability as
drawee, for against the drawee, the indorsement of an immediate bank does not guarantee the signature of the
drawer.
(3) PCIB thereby guarantee “all prior indorsements”, not the authenticity of the signatures because GSIS is the
drawer, not an indorsor.  It is irrelevant, PNB’s alleged right to recover could have been availed by a subsequent
indorsee or holder in due course subsequent to PCIB. PNB is neither, but instead after the payment of PNB, the
check ceased to be a negotiable instrument and became a mere voucher or proof of payment.
(4) and (5) Acceptance is not required for checks, for the same are payable on demand. Actual payment of the
amount of the check implies not only an assent to the order but also a compliance with such obligation.
(6) and (1) PNB was negligent too. PNB not returning the check implied, under the banking practice, that PNB
honoured the check and paid its amount to PCIB; and that only then did PCIB allow Lim to draw said amount
from his account. Thus by not returning the check, indicates that PNB had found nothing wrong with the check.
PNB induced PCIB to honor the check as well. Hence, PNB is the primary or proximate cause of the loss, hence
may not recover from PCIB.
PCIB v. CA

Facts:

This case is composed of three consolidated petitions involving several checks, payable to the Bureau of
Internal Revenue, but was embezzled allegedly by an organized syndicate.

I. G. R. Nos. 121413 and 121479

On October 19, 1977, plaintiff Ford issued a Citibank check amounting to P4,746,114.41 in favor of the
Commissioner of Internal Revenue for the payment of manufacturer’s taxes. The check was deposited with
defendant IBAA (now PCIB), subsequently cleared the the Central Bank, and paid by Citibank to IBAA. The
proceeds never reached BIR, so plaintiff was compelled to make a second payment. Defendant refused to
reimburse plaintiff, and so the latter filed a complaint. An investigation revealed that the check was recalled by
Godofredo Rivera, the general ledger accountant of Ford, and was replaced by a manager’s check. Alleged
members of a syndicate deposited the two manager’s checks with Pacific Banking Corporation. Ford filed a
third party complaint against Rivera and PBC. The case against PBC was dismissed. The case against Rivera
was likewise dismissed because summons could not be served. The trial court held Citibank and PCIB jointly
and severally liable to Ford, but the Court of Appeals only held PCIB liable.

II. G. R. No. 128604

Ford drew two checks in favor of the Commissioner of Internal Revenue, amounting to P5,851,706.37 and
P6,311,591.73. Both are crossed checks payable to payee’s account only. The checks never reached BIR, so
plaintiff was compelled to make second payments. Plaintiff instituted an action for recovery against PCIB and
Citibank.

On investigation of NBI, the modus operandi was discovered. Gorofredo Rivera made the checks but instead of
delivering them to BIR, passed it to Castro, who was the manager of PCIB San Andres. Castro opened a
checking account in the name of a fictitious person “Reynaldo Reyes”. Castro deposited a worthless Bank of
America check with the same amount as that issued by Ford. While being routed to the Central Bank for
clearing, the worthless check was replaced by the genuine one from Ford.

The trial court absolved PCIB and held Citibank liable, which decision was affirmed in toto by the Court of
Appeals.

Issues:

(1) Whether there is contributory negligence on the part of Ford

(2) Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank)
the value of the checks intended as payment to the Commissioner of Internal Revenue?

Held:

(2) The general rule is that if the master is injured by the negligence of a third person and by the concuring
contributory negligence of his own servant or agent, the latter's negligence is imputed to his superior and will
defeat the superior's action against the third person, asuming, of course that the contributory negligence was
the proximate cause of the injury of which complaint is made. As defined, proximate cause is that which, in the
natural and continuous sequence, unbroken by any efficient, intervening cause produces the injury and without
the result would not have occurred. It appears that although the employees of Ford initiated the transactions
attributable to an organized syndicate, in our view, their actions were not the proximate cause of encashing the
checks payable to the CIR. The degree of Ford's negligence, if any, could not be characterized as the proximate
cause of the injury to the parties. The mere fact that the forgery was committed by a drawer-payor's confidential
employee or agent, who by virtue of his position had unusual facilities for perpertrating the fraud and imposing
the forged paper upon the bank, does notentitle the bank toshift the loss to the drawer-payor, in the absence of
some circumstance raising estoppel against the drawer. This rule likewise applies to the checks fraudulently
negotiated or diverted by the confidential employees who hold them in their possession.

(2) We have to scrutinize, separately, PCIBank's share of negligence when the syndicate achieved its ultimate
agenda of stealing the proceeds of these checks.

a. G. R. Nos. 121413 and 121479

On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of
PCIBank employees to verify whether his letter requesting for the replacement of the Citibank Check No. SN-
04867 was duly authorized, showed lack of care and prudence required in the circumstances. Furthermore, it
was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR. As an agent
of BIR, PCIBank is duty bound to consult its principal regarding the unwarranted instructions given by the
payor or its agent. It is a well-settled rule that the relationship between the payee or holder of commercial paper
and the bank to which it is sent for collection is, in the absence of an argreement to the contrary, that of
principal and agent. A bank which receives such paper for collection is the agent of the payee or holder.

Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the check should be
deposited only in the account of the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that
the check be deposited in payee's account only. Therefore, it is the collecting bank (PCIBank) which is bound to
scrutinize the check and to know its depositors before it could make the clearing indorsement "all prior
indorsements and/or lack of indorsement guaranteed".

Lastly, banking business requires that the one who first cashes and negotiates the check must take some
precautions to learn whether or not it is genuine. And if the one cashing the check through indifference or other
circumstance assists the forger in committing the fraud, he should not be permitted to retain the proceeds of the
check from the drawee whose sole fault was that it did not discover the forgery or the defect in the title of the
person negotiating the instrument before paying the check. For this reason, a bank which cashes a check drawn
upon another bank, without requiring proof as to the identity of persons presenting it, or making inquiries with
regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards
diverted to the hands of a third party. In such cases the drawee bank has a right to believe that the cashing bank
(or the collecting bank) had, by the usual proper investigation, satisfied itself of the authenticity of the
negotiation of the checks. Thus, one who encashed a check which had been forged or diverted and in turn
received payment thereon from the drawee, is guilty of negligence which proximately contributed to the success
of the fraud practiced on the drawee bank. The latter may recover from the holder the money paid on the check.

b. G. R. No. 128604

In this case, there was no evidence presented confirming the conscious participation of PCIBank in the
embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their employment. A bank will be held liable
for the negligence of its officers or agents when acting within the course and scope of their employment. It may
be liable for the tortuous acts of its officers even as regards that species of tort of which malice is an essential
element. In this case, we find a situation where the PCIBank appears also to be the victim of the scheme hatched
by a syndicate in which its own management employees had participated. But in this case, responsibility for
negligence does not lie on PCIBank's shoulders alone.
Citibank failed to notice and verify the absence of the clearing stamps. For this reason, Citibank had indeed
failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid
only to its designated payee. The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. Thus, invoking the doctrine of comparative
negligence, we are of the view that both PCIBank and Citibank failed in their respective obligations and both
were negligent in the selection and supervision of their employees resulting in the encashment of Citibank
Check Nos. SN 10597 AND 16508. Thus, we are constrained to hold them equally liable for the loss of the
proceeds of said checks issued by Ford in favor of the CIR.
Great Eastern Life Ins. Co. V. Hongkong Shanghai Bank (1922)

FACTS:
 May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on the Hongkong and
Shanghai Banking Corporation (HSBC) payable to the order of Lazaro Melicor. 
 E. M. Maasim fraudulently obtained possession of the check, forged Melicor's signature, as an endorser,
and then personally endorsed and presented it to the Philippine National Bank (PNB) and it was placed to
his credit. 
 Next day: PNB endorsed the check to the HSBC who paid it
 HSBC sent a bank statement to the Eastern showing the amount of the check was charged to its account,
and no objection was made
 4 months after the check was charged, it developed that Lazaro Melicor, to whom the check was made
payable, had never received it, and that his signature, as an endorser, was forged by Maasim, 
 Eastern promptly made a demand upon the HSBC to credit the amount of the forged check
 Eastern filed against HSBC and PNB
 RTC: dismissed the case

ISSUES: W/N Eastern has the right to recover the amount of the forged check

HELD: YES. lower court is reversed.  Eastern against HSBC who can claim against PNB
 forgery was that of Melicor (payees and NOT the maker)
 Eastern received it banks statement, it had a right to assume that Melicor had personally
endorsed the check, and that, otherwise, the bank would not have paid it
 Section 23 of  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.

 The Philippine National Bank had no license or authority to pay the money to Maasim or anyone else
upon a forge signature.
 Its remedy is against Maasim to whom it paid the money.
Gempesaw v. Court of Appeals

FACTS:

Petitioner maintains a checking with the respondent drawee Bank. After the bookkeeper prepared the checks,
the completed checks were submitted to the petitioner for her signature, together with the corresponding invoice
receipts which indicate the correct obligations due and payable to her suppliers.
Petitioner signed each and every check without bothering to verify the accuracy of the checks against the
corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper. The
issuance and delivery of the checks to the payees named therein were left to the bookkeeper.
Petitioner admitted that she did not make any verification as to whether or not the checks were actually
delivered to their respective payees. Although the respondent drawee Bank notified her of all checks presented
to and paid by the bank, petitioner did not verify the correctness of the returned checks, much less check if the
payees actually received the checks in payment for the supplies she received.
In the course of her business operations covering a period of two years, petitioner issued, following her usual
practice stated above, a total of eighty-two (82) checks in favor of several suppliers. These checks were all
presented by the indorsees as holders thereof to, and honored by, the respondent drawee Bank.
Respondent drawee Bank correspondingly debited the amounts thereof against petitioner’s checking account.
Most of the aforementioned checks were for amounts in excess of her actual obligations to the various payees as
shown in their corresponding invoices. Practically, all the checks issued and honored by the respondent drawee
Bank were crossed checks.
Aside from the daily notice given to the petitioner by the respondent drawee Bank, the latter also furnished her
with a monthly statement of her bank transactions, attaching thereto all the cancelled checks she had issued and
which were debited against her current account. It was only after the lapse of more than two (2) years that
petitioner found out about the fraudulent manipulations of her bookkeeper.
Petitioner made a written demand on respondent drawee Bank to credit her account with the money value of the
eighty-two (82) checks for having been wrongfully charged against her account. Respondent drawee Bank
refused to grant petitioner’s demand.
ISSUE:
Whether or not the negligence of the drawer is the proximate cause of the resulting injury to the drawee bank,
and the drawer is precluded from setting up the forgery or want of authority.
RULING:
Under Sec 23 of the NIL, forgery is a real or absolute defense by the party whose signature is forged. A party
whose signature to an instrument was forged was never a party and never gave his consent to the contract which
gave rise to the instrument. Thus, if a person’s signature is forged as a maker of a promissory note, he cannot be
made to pay because he never made the promise to pay. However, the law makes an exception to these rules
where a party is precluded from setting up forgery as a defense.
In the case at bar, petitioner admitted that the checks were filled up and completed by her trusted employee and
were later given to her for her signature. Her signing the checks made the negotiable instrument complete. As a
rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer’s
account for the amount of said check.
An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a
check or checks. The petitioner relied implicitly upon the honesty and loyalty of her bookkeeper, and did not
even verify the accuracy of the amounts of the checks she signed against the invoices attached thereto.
Furthermore, although she regularly received her bank statements, she apparently did not carefully examine the
same nor the check stubs and the returned checks, and did not compare them with the sales invoices. Thus, it is
clear that under the NIL, petitioner is precluded from raising the defense of forgery by reason of her gross
negligence.
 JAI-ALAI CORPORATION OF THE PHILIPPINES v. BANK OF THE PHILIPPINE ISLAND

FACTS
This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter referred to as the petitioner) for
review of the decision of the Court of Appeals who dismissed them.
·     Simplified
 Drawer                              Inter-Island Gas
 Drawee –Bank                  Inter-Bank
 Last Indorser                     Jai Alai Corporation
 Collecting Bank                 Bank of The Philippine Island
·     Short Story
10 Checks was deposited to BPI, Jai Alai got the Checks from the Indorsement by Antonio Ramirez, Sales
Agent of Inter-Island who forged Company checks to gamble at Jai Alai, Inter-Island Sued the Sales Agent for
Forgery, and ask BPI for the Checks reimbursement as a result BPI gave Jai Alai Corp amount of check, but
after 3 months, Debited the same, The supreme Court found that Jai Alai as the last indorser warrants the check
hence liable, BPI was not liable due to the reason there was a contract of agency between Jai Alai and BPI,
therefore Jai Alai as the Principal and last Indroser.
CASE AS FOLLOWS
From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58 were deposited by the
petitioner in its current account with the respondent bank. The particulars of these checks are as follows:
All the foregoing checks, which were acquired by the petitioner from one Antonio J. Ramirez, a sales agent of
the Inter-Island Gas and a regular bettor at jai-alai games, were, upon deposit, temporarily credited to the
petitioner's account.
About the latter part of July 1959, after Ramirez had resigned from the Inter-Island Gas and after the checks had
been submitted to inter-bank clearing, the Inter-Island Gas discovered that all the indorsements made on the
checks purportedly by its cashiers, Santiago Amplayo and Vicenta Mucor (who were merely authorized to
deposit checks issued payable to the said company) as well as the rubber stamp impression thereon reading
"Inter-Island Gas Service, Inc.," were forgeries.
In due time, the Inter-Island Gas advised the petitioner, the respondent, the drawers and the drawee-banks of the
said checks about the forgeries, and filed a criminal complaint against Ramirez with the Office of the City
Fiscal of Manila.
The respondent's cashier, Ramon Sarthou, upon receipt of the latter of Inter-Island Gas dated August 31, 1959,
called up the petitioner's cashier, Manuel Garcia, and advised the latter that in view of the circumstances he
would debit the value of the checks against the petitioner's account as soon as they were returned by the
respective drawee-banks.
Meanwhile, the drawers of the checks, having been notified of the forgeries, demanded reimbursement to their
respective accounts from the drawee-banks, which in turn demanded from the respondent, as collecting bank,
the return of the amounts they had paid on account thereof. When the drawee-banks returned the checks to the
respondent, the latter paid their value which the former in turn paid to the Inter-Island Gas. The respondent, for
its part, debited the petitioner's current account and forwarded to the latter the checks containing the forged
indorsements, which the petitioner, however, refused to accept.
COURT OF FIRST INSTANCE and COURT OF APPEALS
The petitioner then filed a complaint against the respondent with the Court of First Instance of Manila, which
was however dismissed by the trial court after due trial, and as well by the Court of Appeals, on appeal.
SUPREME COURT
ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at petitioner's cost.
ISSUE:
The issues posed by the petitioner in the instant petition may be briefly stated as follows:
(a)Whether the respondent had the right to debit the petitioner's current account in the amount corresponding to
the total value of the checks in question after more than three months had elapsed from the date their value
was credited to the petitioner's account
          Answer: In our opinion, the respondent acted within legal bounds when it debited the petitioner's account.
When the petitioner deposited the checks with the respondent, the nature of the relationship created at that stage
was one of agency, that is, the bank was to collect from the drawees of the checks the corresponding proceeds.
It is true that the respondent had already collected the proceeds of the checks when it debited the petitioner's
account, so that following the rule in Gullas vs. Philippine National Bank 2 it might be argued that the
relationship between the parties had become that of creditor and debtor as to preclude the respondent from using
the petitioner's funds to make payments not authorized by the latter. It is our view nonetheless that no creditor-
debtor relationship was created between the parties.
(b) Whether the respondent is estopped from claiming that the amount of P8,030.58, representing the total
value of the checks with the forged indorsements, had not been properly credited to the petitioner's account,
since the same had already been paid by the drawee-banks and received in due course by the respondent; and
          Answer: In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5 the Court ruled that it is the
obligation of the collecting bank to reimburse the drawee-bank the value of the checks subsequently found to
contain the forged indorsement of the payee. The reason is that the bank with which the check was deposited
has no right to pay the sum stated therein to the forger "or anyone else upon a forged signature." "It was its duty
to know," said the Court, "that [the payee's] endorsement was genuine before cashing the check." The petitioner
must in turn shoulder the loss of the amounts which the respondent; as its collecting agent, had to reimburse to
the drawee-banks.
(c) On the assumption that the respondent had improperly debited the petitioner's current account, whether the
latter is entitled to damages.
        Answer: No, No right to retain the Money that was unduly delivered.
Associated Bank V. CA (1996)

FACTS:
 The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac
Branch where the provincial funds are deposited. 
 Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the
Provincial Auditor or the Secretary of the Sangguniang Bayan.
 A portion of the funds of the province is allocated to the Concepcion Emergency Hospital
 drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief,
Concepcion Emergency Hospital, Concepcion, Tarlac." 
 The checks are released by the Office of the Provincial Treasurer and received for the hospital by
its administrative officer and cashier.
 January 1981:Upon post-audit by the Provincial Auditor, it was discovered that the hospital did not
receive several allotment checks 
 February 19, 1981:  After the checks were examined, they learned that 30 checks of  P203,300 were
encashed by Fausto Pangilinan, with the Associated Bank acting as collecting bank.
 Fausto Pangilinan, administrative officer and cashier of payee hospital until his retirement on
February 28, 1978, collected the questioned checks from the office of the Provincial Treasurer
 sought to encash the 1st check with Associated Bank
 Jesus David, manager of Associated Bank refused and suggested that Pangilinan deposit the check in his
personal savings account with the same bank
 Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee
bank, PNB.
 PNB did not return the questioned checks within twenty-four hours, but several days later
 After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan
followed the same procedure for the other checks. 
 All the checks bore the stamp of Associated Bank which reads "All prior endorsements
guaranteed ASSOCIATED BANK.
 CA affrimed RTC: Associated to reimburse PNB and ordering PNB to pay Province of Tarlac

ISSUE: W/N PNB and Associated Bank should be held liable

HELD: YES. PARTIALLY GRANTED. The collecting bank, Associated Bank, shall be liable to PNB for 50%
of P203,300

Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a signature is forged or made without 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.

 GR
 A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no
one can gain title to the instrument through it.
 A person whose signature to an instrument was forged was never a party and never consented to
the contract which allegedly gave rise to such instrument. 
 EX: where "a party against whom it is sought to enforce a right is precluded from setting up the forgery
or want of authority."
 Parties who warrant or admit the genuineness of the signature in question and those who, by their
acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this
defense. 
 Indorsers, persons negotiating by delivery and acceptors are warrantors of the
genuineness of the signatures on the instrument
 In bearer instruments, 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 a holder in due course
 In order instruments, the signature of its rightful holder (here, the payee hospital) is essential to transfer
title to the same instrument. When the holder's indorsement is forged all parties prior to the forgery may
raise the real defense of forgery against all parties subsequent thereto. 
 An indorser of an order instrument warrants "that the instrument is genuine and in all respects
what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the
instrument is at the time of his indorsement valid and subsisting
 A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank =  indorser
 So even if the indorsement on the check deposited by the banks's client 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.
 The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check
to the order of the payee. 
 The drawer's instructions are reflected on the face and by the terms of the check. 
 Payment under a forged indorsement is not to the drawer's order. then is that the drawee
bank may not debit the drawer's account and is not entitled to indemnification from the drawer. 25 The risk
of loss must perforce fall on the drawee bank.
 GR: drawee bank may not debit the drawer's account and is not entitled to indemnification from the
drawer - risk of loss must perforce fall on the drawee bank
 EX: 
 if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that
substantially contributed to the making of the forged signature, the drawer is precluded from asserting
the forgery
 If at the same time the drawee bank was also negligent to the point of substantially contributing
to the loss, then such loss from the forgery can be apportioned between the negligent drawer and the
negligent bank
 In cases involving a forged check, where the drawer's signature is forged, the drawer can recover from
the drawee bank.
 In cases involving checks with forged indorsements,  the drawee bank canseek reimbursement or a
return of the amount it paid from the presentor bank or person
 However, a drawee bank has the duty to promptly inform the presentor of the forgery upon
discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said
presentor of the right to recover from the forger, the former is deemed negligent and can no longer recover
from the presentor
 Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be
returned within twenty-Sour (24) hours after discovery of the forgery but in no event beyond the period
fixed or provided by law for filing of a legal action by the returning bank. Section 23 of the PCHC Rules
deleted the requirement that items bearing a forged endorsement should be returned within twenty-four
hours.
 Since PNB did not return the questioned checks within twenty-four hours, but
several days later, Associated Bank alleges that PNB should be considered negligent and not entitled to
reimbursement of the amount it paid on the checks. 
 More importantly, by reason of the statutory warranty of a general indorser in section 66 of the
Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and
presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement
 In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee
bank (PNB) 
 The stamp guaranteeing prior indorsements is not an empty rubric which a bank must
fulfill for the sake of convenience
 It is within the bank's discretion to receive a check for no banking institution
would consciously or deliberately accept a check bearing a forged indorsement. When a check is deposited
with the collecting bank, it takes a risk on its depositor.
Republic V. Ebrada (1975)

FACTS:
 February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check dated January 15, 1963 for P1,246.08
at Republic Bank 
 check was issued by the Bureau of Treasury
 Bureau advised Republic Bank that the indorsement on the reverse side of the check by the payee,
"Martin Lorenzo" was a forgery because he died as of July 14, 1952 and requested a refund
 July 11, 1966: Ebrada filed a Third-Party complaint against Adelaida Dominguez who, in turn, filed on
September 14, 1966 a Fourth-Party complaint against Justina Tinio.
 March 21, 1967: City Court of Manila favored Republic against Ebrada, for Third-Party plaintiff against
Adelaida Dominguez, and for Fourth-Party plaintiff against Justina Tinio
 CA: reversed Mauricia T. Ebrada claim against Adelaida Dominguez and Domiguez against Justina
Tinio

W/N: Ebrada should be held liable.

HELD: YES. Affirmed in toto.

 under Section 65 of the Negotiable Instruments Law: 
Every person negotiating an instrument by delivery or by qualified indorsement, warrants:
(a) That the instrument is genuine and in all respects what it purports to be.
(b) That she has good title to it.
xxx xxx xxx
Every indorser who indorses without qualification warrants to all subsequent holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding sections;
(b) That the instrument is at the time of his indorsement valid and subsisting.
 Under action 23 of the Negotiable Instruments Law (Act 2031):
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 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.
 Martin Lorenzo (forged as original payee) > Ramon R. Lorenzo (2nd indorser) = NO EFFECT
 Ramon R. Lorenzo(2nd indorser)> Adelaida Dominguez (third indorser)>Adelaida Dominguez to
Ebrada who did not know of the forgery = valid and enforceable barring any claim of forgery
 drawee of a check can recover from the holder the money paid to him on a forged instrument
 not its duty to ascertain whether the signatures of the payee or indorsers are genuine or not
 indorser is supposed to warrant to the drawee that the signatures of the payee and
previous indorsers (NOT only holders in due course) are genuine
 RATIONALE: indorsers own credulity or recklessness, or misplaced confidence was the sole
cause of the loss. Why should he be permitted to shift the loss due to his own fault in assuming the risk,
upon the drawee, simply because of the accidental circumstance that the drawee afterwards failed to detect
the forgery when the check was presented
 Ebrada , upon receiving the check in question from Adelaida Dominguez, was duty-bound to ascertain
whether the check in question was genuine before presenting it to plaintiff Bank for payment
 Based on the doctrine from Great Eastern Life Ins. Co. v. Hongkong Shanghai Bank (1922) ,
bank should suffer the loss when it paid the amount of the check in question to Ebrada, but it has the remedy
to recover from the Ebrada the amount it paid
 Ebrada immediately turning over to Adelaida Dominguez (Third-Party defendant and the Fourth-Party
plaintiff) who in turn handed the amount to Justina Tinio on the same date would not exempt her from
liability because by doing so, she acted as an accommodation party in the check for which she is also liable
under Section 29 of the Negotiable Instruments Law (Act 2031):
An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable
on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew
him to be only an accommodation party.