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REPUBLIC PLANTERS BANK vs. CA and FERMIN CANLAS
G.R. No. 93073 December 21, 1992
Republic Planters Bank issued 9 promissory notes signed by Shozo
Yamaguchi (President) and Fermin Canlas (Treasurer) of Worldwide Garment
Manufacturing Inc. Yamaguchi and Canlas were authorized by the corporation
to apply for credit facilities with the bank in form of export advances and letters
of credit or trust receipts accommodations. Three years after, the bank filed an
action to recover the sums of money covered by the promissory notes.
Worldwide Garment Manufacturing changed its name to Pinch Manufacturing
Corp. Canlas alleged he was not liable personally for the corporate acts that
he performed, and that the notes were still blank when he signed them.
Issue: Whether or not the corporate treasurer is liable for the amounts in the
promissory notes.
Held: Canlas is a co-maker of the promissory notes, under the law, and cannot
escape liability arising therefrom. Inasmuch as the instrument contained the
words “I promise to pay” and is signed by two or more persons, said persons
are deemed to be jointly and severally liable thereon. As the promissory notes
are stereotype ones issued by the bank in printed form with blank spaces filled
up as per agreed terms of the loan, following customary procedures, leaving
the debtors to do nothing but read the terms and conditions therein and to sign
as makers or co-makers. Section 14 of the Negotiable Instruments Law,
therefore, does not apply. Canlas is solidarily liable with the corporation for the
amount of the 9 promissory notes.
Francisco V. CA (1999)
G.R. No. 116320 November 29, 1999
Lessons Applicable: Forgery (Negotiable Instruments Law)
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
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 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
JAI ALAI V. BPI
66 SCRA 29
FACTS:
Checks were deposited by petitioner in its current account with the bank.
These checks were from a certain Ramirez, a consistent better in its
games, who was a sales agent from Inter-Island Gas. Inter-Island later
found out that of the forgeries committed in the checks and thus, it
informed all the parties concerned. Upon the demands on the bank as the
collecting bank, it debited the account of petitioner. Thereafter, petitioner tried
to issue a check for payment of shares of stock but such was
dishonored for insufficient funds. It filed a complaint against the bank.
HELD:
Respondent bank acted within legal bounds when it debited the account of
petitioner. When the petitioner deposited the checks to its account, the
relationship created was one of agency still and not of creditor-debtor. The
bank was to collect from the drawees of the checks with the corresponding
proceeds.
The Bank may have the proceeds already when it debited the account
of petitioner. Nonetheless, there is still no creditor-debtor relationship.
Following Section 23, a forged signature is wholly inoperative and no right to
discharge it or enforce its payment can be acquired through or under the
forged signature except against a party who cannot invoke its forgery or
want of authority. It stands to reason that as a collecting bank which
indorsed the checks to the drawee-banks for clearing, should be liable to
the latter for reimbursement for the indorsements on the checks had been
forged prior to their delivery to the petitioner. The payments made by the
drawee banks to respondent were ineffective—the creditor-debtor
relationship hadn’t been validly effected.
MWSS V. CA (1986)
G.R. No. L-62943 July 14, 1986
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Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
 Metropolitan Waterworks and Sewerage System (MWSS) is a GOCC
and successor-in- interest of the defunct NWSA. 
 The authorized signature for PNB Account No. 6 were those of MWSS
treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General
Manager Victor L. Recio. 
 Specimen signatures were submitted by the MWSS to and on
file with the PNB
 By special arrangement with the PNB, the MWSS used
personalized checks in drawing from this account. 
 printed for MWSS by its printer, F. Mesina Enterprises
 March, April and May 1969: 23 checks were prepared, processed,
issued and released by NWSA, all of which were paid and cleared by PNB
and debited by PNB against NWSA Account No. 6
 deposited by the fictitious payees Raul Dizon, Arturo Sison
and Antonio Mendoza in their respective current accounts with the
Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of
Commerce (PBC)  inherent characteristics of the signatures and that they were written by 2 or
 At the time of their presentation to PNB these checks bear the
standard indorsement which reads 'all prior indorsement and/or lack of
endorsement guaranteed'
 NWSA filed against PNB before the CFI
 PNB also filed a 3rd party complaint against the negotiating
banks PBC and PCIB on the ground that they failed to ascertain the
Identity of the payees and their title to the checks which were deposited in
the respective new accounts of the payees with them
 February 6, 1976: CFI favored MWSS
 CA: reversed and favored PNB
 applied Section 24 of the Negotiable Instruments Law
ISSUE: W/N MWSS can can claim against PNB
HELD: NO. CA reversed.
Every negotiable instrument is deemed prima facie to have been issued for
valuable consideration and every person whose signature appears thereon to
have become a party thereto for value

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 obligation funds,
and cannot ordinarily charge the amount so paid to the account of the
depositor whose name was forged.

 NBI showed that the MWSS fraud was an "inside job" and that the
MWSS' delay in the reconciliation of bank statements and the laxity and
loose records control in the printing of its personalized checks facilitated
the fraud. These reports did not touch on the inherent qualities of the
signatures which are indispensable in the determination of the existence of
forgery. There must be conclusive findings that there is a variance in the
more different persons.
 Forgery cannot be presumed. It must be established by clear, positive,
and convincing evidence. This was not done in the present case.
SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the 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.
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 Gross negligence in the printing of its personalized checks
- MWSS failed to
1. give its printer, Mesina Enterprises, specific instructions relative to the
safekeeping and disposition of excess forms, check vouchers, and safety
papers
2. retrieve from its printer all spoiled check forms
3. provide any control regarding the paper used in the printing of said
checks
4. furnish the respondent drawee bank with samples of typewriting,
cheek writing, and print used by its printer in the printing of its checks and
of the inks and pens used in signing the same
5. send a representative to the printing office during the printing of said
checks
6. to reconcile the bank statements with its own records
 MWSS requested the PNB to discontinue the practice of mailing the
bank statements, but instead to deliver it to Mr. Emiliano Zaporteza.
However, he was unreasonably delayed in taking prompt deliveries of the
bank statements and credit and debit memos. As a consequence, Mr.
Zaporteza failed to reconcile the bank statements.  If Mr. Zaporteza had not
been remiss in his duty of taking the bank statements and reconciling them
with the petitioner's records, the fraudulent encashments of the first checks
should have been discovered, and further frauds prevented. This
negligence was, therefore, the proximate cause of the failure to discover
the fraud.  COMMUNICATIONS
 One factor which facilitate this fraud was the delay in the reconciliation
of PNB statements with the NAWASA bank accounts. x x x. Had the
NAWASA representative come to the PNB early for the statements and
had the bank been advised promptly of the reported bogus check, the
negotiation of practically all of the remaining checks on May, 1969 could
have been prevented.
 The records likewise show that the petitioner failed to provide
appropriate security measures over its own records thereby laying
confidential records open to unauthorized persons. The petitioner's own
Fact Finding Committee, in its report submitted to their General manager
underscored this laxity of records control. It observed that the "office of Mr.
Ongtengco (Cashier No. VI of the Treasury Department at the NAWASA) is
quite open to any person known to him or his staff members and that the
check writer is merely on top of his table
 Even if the 23 checks in question are considered forgeries,
considering the petitioner's gross negligence, it is barred from setting up
the defense of forgery under Section 23 of the Negotiable Instruments Law
 PNB had taken the necessary measures in the detection of forged
checks and the prevention of their fraudulent encashment. In fact, long
before the encashment of the 23 checks in question, the it had issued
constant reminders to all Current Account Bookkeepers informing them of
the activities of forgery syndicates. 
 Under the circumstances, MWSS was in a better position to detect and
prevent the fraudulent encashment of its checks.
NATIVIDAD GEMPESAW vs. CA and PHILIPPINE BANK OF
G.R. No. 92244 February 9, 1993
Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of
82 checks in favor of several supplies. Most of the checks for amounts in
excess of actual obligations as shown in their corresponding invoices. It was
only after the lapse of more than 2 years did she discovered the fraudulent
manipulations of her bookkeeper. It was also learned that the indorsements of
the payee were forged, and the checks were brought to the chief accountant of
Philippine Bank of Commerce (the Drawee Bank, Buendia Branch) who
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deposited them in the accounts of Alfredo Romero and Benito Lam.
Gempesaw made demand upon the bank to credit the amount charged due
the checks. The bank refused. Hence, the present action.
Issue: Who shall bear the loss resulting from the forged indorsements.
Held: 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 the rule is where the drawer is guilty of
such negligence which causes the bank to honor such checks. Gempesaw did
not exercise prudence in taking steps that a careful and prudent businessman
would take in circumstances to discover discrepancies in her account. Her
negligence was the proximate cause of her loss, and under Section 23 of the
Negotiable Instruments Law, is precluded from using forgery as a defense. On
the other hand, the banking rule banning acceptance of checks for deposit or
cash payment with more than one indorsement unless cleared by some bank
officials does not invalidate the instrument; neither does it invalidate the
negotiation or transfer of said checks. The only kind of indorsement which
stops the further negotiation of an instrument is a restrictive indorsement which
prohibits the further negotiation thereof, pursuant to Section 36 of the
Negotiable Instruments Law. In light of any case not provided for in the Act
that is to be governed by the provisions of existing legislation, pursuant to
Section 196 of the Negotiable Instruments Law, the bank may be held liable
for damages in accordance with Article 1170 of the Civil Code. The drawee
bank, in its failure to discover the fraud committed by its employee and in
contravention banking rules in allowing a chief accountant to deposit the
checks bearing second indorsements, was adjudged liable to share the loss
with Gempesaw on a 50:50 ratio.
ASSOCIATED BANK vs. CA,
PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK
G.R. No. 107382/G.R. No. 107612             January 31, 1996
The Province of Tarlac maintains a current account with the Philippine
National Bank (PNB Tarlac Branch) 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 account. 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
allotted 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: Who shall bear the loss resulting from the forged checks.
Held: 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.
Negotiable Instruments Case Digest: Philippine Commercial International Bank
V CA (2001)
G.R. No. 121413,121479,128604         January 29, 2001
Lessons Applicable: Liabilities of the Parties (Negotiable Instruments
Law)
FACTS:
 These consolidated petitions involve several fraudulently
negotiated checks
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 October 19, 1977: Ford drew and issued its Citibank Check of
P4,746,114.41, in favor of the Commissioner of Internal Revenue
(CIR) as payment of percentage or manufacturer's sales taxes for
the third quarter of 1977
 check was deposited with the IBAA (now PCIBank)
and was subsequently cleared at the Central Bank
 Ford, with leave of court, filed a third-party complaint before
the trial court impleading Pacific Banking Corporation (PBC) and
Godofredo Rivera, as third party defendants
 dismissed the complaint against PBC for lack of cause
of action
 dismissed the third-party complaint against Godofredo
Rivera because he could not be served with summons as a
"fugitive from justice"
 trial court: Citibank and IBAA (now PCI Bank), jointly and
severally, to pay the Ford  
 April 20, 1979, Ford drew another Citibank Check of
P6,311,591.73, representing the payment of percentage tax for
the first quarter of 1979 payable to the CIR  superior and will defeat the superior's action against the third
 Both checks were "crossed checks" and contain two diagonal
lines on its upper corner between, which were written the words
"payable to the payee's account only."
 The checks never reached the payee, CIR
 As far as the BIR is concernced, the said two BIR Revenue
Tax Receipts were considered "fake and spurious".  the CIR
 forced Ford to pay the BIR anew, while an action was
filed against Citibank and PCIBank for recovery
 RTC: Mr. Godofredo Rivera was employed by FORD as its
General Ledger Accountant. He prepared the check for payment
to the BIR. Instead, of delivering to the payee, he gave it to
Remberto Castro, a co-conspirator who was a pro-manager of
PCIB.  Castro opened a Checking Account in the name of a
fictitious person "Reynaldo Reyes" with connivance of Dulay,
assistant manager of PCIB
 After an initial deposit of P100 to validate the account, Castro
deposited a worthless Bank of America Check in exactly the same
amount as the first FORD check while this worthless check was
coursed through PCIB's main office enroute to the Central Bank
for clearing, replaced this worthless check with Ford's and
accordingly tampered the accompanying documents to cover the
replacement. As a result, Ford's check was cleared by CITIBANK,
and the fictitious deposit account of 'Reynaldo Reyes' was
credited at the PCIB 
 December 9, 1988: RTC Citibank (drawee bank) liable for the
value of the 2 checks while absolving PCIBank (collecting bank)
from any liability
ISSUE: W/N Ford can hold both PCIB and Citibank liable
HELD: YES.  CA AFFIRMED. PCIBank, know formerly as Insular Bank
of Asia and America, id declared solely responsible for the loss of the
proceeds of Citibank Check in the amount P4,746,114.41.  However,
MODIFIED as follows: PCIBank and Citibank are adjudged liable for
and must share the loss, concerning the proceeds of Citibank Check
Numbers SN 10597 and 16508 on a 50-50 ratio to pay Ford
GR: 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
person, asuming, of course that the contributory negligence was
the proximate cause of the injury of which complaint is made.
 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
 degree of Ford's negligence, if any, could not be
characterized as the proximate cause of the injury to the parties
 Rivera's instruction to replace the check with PCIBank's
Manager's Check was not in the ordinary course of business
which could have prompted PCIBank to validate the same.
 checks were made payable to the CIR
 Both were crossed checks
 These checks were apparently turned around
by Ford's emploees, who were acting on their own personal
capacity.
 Given these circumstances, 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
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bank, does not entitle the bank to shift 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.
 Furthermore, it was admitted that PCIBank is authorized to
collect the payment of taxpayers in behalf of the BIR.  the checks issued by Ford in favor of the CIR
 As an agent of BIR, PCIBank is duty bound to consult
its principal regarding the unwarranted instructions given by the
payor or its agent
 Otherwise stated, the diversion can be justified only
by proof of authority from the drawer, or that the drawer has
clothed his agent with apparent authority to receive the proceeds
of such check.
 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
scruninize the check and to know its depositors before it could
make the clearing indorsement "all prior indorsements and/or
lack of indorsement guaranteed".
 PCIBank did not actually receive nor hold the 2 Ford checks
at all. Neither is there any proof that defendant PCIBank
contributed any official or conscious participation in the process
of the embezzlement.  P4,746,114.41. Since the original complaint for the cause of
 the switching operation (involving the checks while in
transit for "clearing") were the clandestine or hidden actuations
performed by the members of the syndicate in their own personl,
covert and private capacity and done without the knowledge of
the defendant PCIBank…
 clearing stamps at the back of Citibank Check do not bear
any initials
 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
fact that the drawee bank did not discover the irregularity
seasonably, in our view, consitutes negligence in carrying out the
bank's duty to its depositors. 
 invoking the doctrine of comparative negligence, 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 
 hold them equally liable for the loss of the proceeds of
 The statute of limitations begins to run when the bank gives
the depositor notice of the payment, which is ordinarily when the
check is returned to the alleged drawer as a voucher with a
statement of his account, and an action upon a check is ordinarily
governed by the statutory period applicable to instruments in
writing.
 Our laws on the matter provide that the action upon a
written contract must be brought within ten year from the time
the right of action accrues hence, the reckoning time for the
prescriptive period begins when the instrument was issued and
the corresponding check was returned by the bank to its
depositor (normally a month thereafter). 
 Applying the same rule, the cause of action for
the recovery of the proceeds of Citibank Check No. SN 04867
would normally be a month after December 19, 1977, when
Citibank paid the face value of the check in the amount of
action was filed on January 20, 1984, barely six years had lapsed.
Thus, we conclude that Ford's cause of action to recover the
amount of Citibank Check No. SN 04867 was seasonably filed
within the period provided by law.
 Failure on the part of the FORD depositor to examine its
passbook, statements of account, and cancelled checks and to
give notice within a reasonable time (or as required by statute) of
any discrepancy which it may in the exercise of due care and
diligence find therein, serves to mitigate the banks' liability by
reducing the award of interest from twelve percent (12%) to six
percent (6%) per annum.
 Article 1172 of the Civil Code of the Philippines,
respondibility arising from negligence in the performance of every
kind of obligation is also demandable, but such liability may be
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regulated by the courts, according to the circumstances. In quasi-
delicts, the contributory negligence of the plaintiff shall reduce
the damages that he may recover.
BPI vs. Casa Montessori Internationale, et. al., G.R. No. 149454. May
28, 2004
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 v. Far East Bank and Trust Company (FEBTC)
and CA, G.R. No. 129015 Banking, Negotiable Instruments Law
MARCH 27, 2019
FACTS:
A certain Roberto Gonzaga presented for payment FEBTC Check No. 432100
to the bank’s branch in Bel-Air, Makati. The check, payable to cash and drawn
against Samsung Construction’s current account, was in the amount of
P999,500.00. The bank teller, Cleofe Justiani, checked the balance of the
account. After ascertaining there were enough funds, and after comparing the
signature in the check and that of the specimen on record, Justiani was
9
satisfied as to the authenticity of the signature on the check.
Gonzaga presented 3 identification cards to the bank officers.
Justiani forwarded the check to the branch Senior Assistant Cashier Gemma
Velez for approval. Velez too concluded that the check was indeed signed by
the company’s  Project Manager Jong Kyu Lee.
The check was also forwarded to Shirley Syfu, another bank officer for
approval. Syfu then noticed that Jose Sempio III (Sempio), the assistant
accountant of Samsung Construction, was also in the bank. Syfu showed the
check to Sempio, who vouched for the genuineness of Jong’s signature.
Satisfied with the genuineness of the signature of Jong, Syfu authorized the
banks encashment of the check to Gonzaga.
The following day, the company’s accountant, Kyu Yong Lee discovered that a
check had been encashed. Aware that he had not prepared such a check for
Jong’s signature, Kyu found that the last blank check was missing.
Jong learned of the encashment of the check, and realized that his signature
had been forged.
Samsung Construction filed a Complaint for violation of Section 23 of the NIL,
and prayed for the payment of the amount debited as a result of the
questioned check plus interest, and attorneys fees.
The RTC held that Jong’s signature on the check was forged and accordingly
directed the bank to pay or credit back to Samsung Constructions account the
said amount.
On appeal, the CA reversed the RTC Decision and absolved FEBTC from any
liability.
ISSUE:
Whether or not FEBTC is liable to Samsung Construction in paying the forged
check.
RULING:
Section 23 of the Negotiable Instruments Law states:
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 therefore, 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 general rule is to the effect 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 drawers account. The traditional justification for the result is that the
drawee is in a superior position to detect a forgery because he has the makers
signature and is expected to know and compare it. The rule has a healthy
cautionary effect on banks by encouraging care in the comparison of the
signatures against those on the signature cards they have on file.
Quite palpably, the general rule remains that the drawee who has paid upon
the forged signature bears the loss. The exception to this rule arises only when
negligence can be traced on the part of the drawer whose signature was
forged, and the need arises to weigh the comparative negligence between the
drawer and the drawee to determine who should bear the burden of loss. 
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. Yet, we are
unable to conclude that Samsung Construction was guilty of negligence in this
case.
Given the circumstances, extraordinary diligence dictates that FEBTC should
have ascertained from Jong personally that the signature in the questionable
check was his.
Still, even if the bank performed with utmost diligence, the drawer whose
signature was forged may still recover from the bank as long as he or she is
not precluded from setting up the defense of forgery. After all, Section 23 of
the Negotiable Instruments Law plainly states that no right to enforce the
payment of a check can arise out of a forged signature. 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.
MONTINOLA V. PNB
88 PHIL 178
FACTS:
Ramos, as a disbursing officer of an army division of the USAFE, made cash
advancements  w/  the  Provincial  Treasurer  of  Lanao.  In  exchange,  the
Prov’l Treasurer of Lanao gave him a P500,000 check.  Thereafter, Ramos
presented  the  check  to  Laya  for  encashment.    Laya  in  his 
capacityasProvincial  Treasurer  of  Misamis  Oriental  as  drawer,  issued  a 
check  to Ramos in the sum of P100000, on the Philippines National Bank as
drawee; the P400000 value of the check was paid in military notes.  
10

Ramos  was  unable  to  encash  the  said  check  for  he  was  captured  by  it filed an action against PBCOM and the latter filed a third-party complaint
the Japanese.  But after his release, he sold P30000 of the check to Montinola against petitioner.  
for P90000 Japanese Military notes, of which only P45000 was paid by the HELD:
latter.  The  writing  made  by  Ramos  at  the  back  of  the  check  was  to  the An alteration is said to be material if it alters the effect of the instrument.  It
effect that he was assigning only P30000 of the value of the document with an means an unauthorized change in the instrument that purports to modify in 
instruction to the bank to pay P30000 to Montinola and to deposit the balance  any  respect  the  obligation  of  a  party  or  an  unauthorized  addition  of
to  Ramos's  credit.  This  writing  was,  however,  mysteriously obliterated and words or numbers or other change to an incomplete instrument relating to the 
in its place, a supposed indorsement appearing on the back of the check was obligation  of  the  party.    In  other  words,  a  material  alteration  is  one
made for the whole amount of the check. At the time of the  transfer  of  this  which changes the items which are required to be stated under Section 1 of
check  to  Montinola,  the  check  was  long  overdue  by about 2-1/2 years. the NIL.   
Montinola instituted an action against the PNB and the Provincial Treasurer of  In this case, the alleged material alteration was the alteration of the serial
Misamis  Oriental  to  collect  the  sum  of  P100,000,  the  amount  of the number  of  the  check  in  issue—which  is  not  an  essential  element  of  a
aforesaid check.  There now appears on the face of said check the words negotiable instrument under Section 1.  PNB alleges that the alteration
inparenthesis  "Agent,  Phil.  National  Bank"  under  the  signature  of  Laya wasmaterial  since  it  is  an  accepted  concept  that  a  TCAA  check  by  its 
purportedly showing that Laya issued the check as agent of the Philippine very
National Bank. nature  is  the  medium  of  exchange  of  governments,  instrumentalities  and
HELD: agencies.    As  a  safety  measure,  every  government  office  or  agency  is
The words "Agent, Phil. National Bank" now appearing on  the face of the assigned checks bearing different serial numbers.   
check  were  added  or  placed  in  the  instrument  after  it  was  issued  by 
the Provincial  Treasurer  Laya  to  Ramos.  The  check  was  issued  by  only  But this contention has to fail.  The check’s serial number is not the sole indicia
as Provincial Treasurer and as an official of the Government, which was under of its origin.  The name of the government agency issuing the check is clearly
obligation  to  provide  the  USAFE  with  advance  funds,  and not  as  agent  stated therein.  Thus, the check’s drawer is sufficiently identified, rendering
of the bank, which had no such obligation.  The addition of those words was redundant the referral to its serial number.  
made  after  the  check  had  been  transferred  by  Ramos  to  Montinola.  The
insertion  of  the  words  "Agent,  Phil.  National  Bank,"  which  converts  the Therefore, there being no material alteration in the check committed, PNB
bank from a mere drawee to a drawer and therefore  changes its liability, could not return the check to PBCOM.  It should pay the same.
constitutes  a  material  alteration  of  the  instrument  without  the  consent  of
the parties liable thereon, and so discharges the instrument Negotiable Instruments Case Digest: Prudencio V. CA (1986)

PNB V. CA- Material Alteration G.R. No. L-34539 July 14, 1986

256 SCRA 491 Lessons Applicable: Consideration and Accomodation Party; Holder in Due Course
FACTS: (Negotiable Instruments)
DECS  issued  a  check  in  favor  of  Abante  Marketing  containing  a  specific
serial number, drawn against PNB.  The check was deposited by Abante in its  FACTS:
account  with  Capitol  and  the  latter  consequently  deposited 
 Oct 7 1954: Eulalio and Elisa Prudencios, registered owners of a parcel of
the samewith itsaccount  with  PBCOM  which  later  deposited  it  with 
petitioner  forclearing.  The check was thereafter cleared.  However, on a land mortgaged to Philippine National Bank (PNB) to guarantee a loan of
relevant date, petitioner  PNB  returned  the  check  on  account  that  there  P1,000.00 extended to Domingo Prudencio
had  been  a material alteration on it.  Subsequent debits were made but  1955: Concepcion & Tamayo Construction Company (Concepcion) had a
Capitol cannot debit the account of Abante any longer for the latter had pending contract with the Bureau of Public Works (Bureau) for the construction of
withdrawn all the money  already  from  the  account.    This  prompted  the municipal building in Puerto Princess, Palawan amounting to P36,800.00 
Capitol  to  seek reclarification  from  PBCOM  and  demanded  the   In need of funds, Jose Toribio, Concepcions' relative, and attorney-
recrediting  of  its  account.  PBCOM followed suit by doing the same against
PNB.  Demands unheeded, in-fact of the Company, approached PNB to mortgage their property to secure the
loan of P10,000.00 w/ PNB.
11
 The terms and conditions of the original mortgage for Pl,000.00
were made integral part of the new mortgage for P10,000.00 and both documents
were registered with the Register of Deeds
 Dec 23 1955:
 promissory note covering the loan of P10,000.00 dated Dec
29 1955, maturing on Apr 27 1956, was signed by Jose Toribio, as attorney-in-fact
of the Company, and by the Prudencios'
 Deed of Assignment assigning all payments to be made by
the Bureau to the Co. on account of the contract for the construction in favor of the
PNB.
 PNB approved the Bureau's release of 3 payments
directly to Concepcion for material and labor instead of paying the same to the
Bank on account of the contract price totalling P11,234.40 without the knowledge
of the Prudencios'
 PNB did not apply the initial and subsequent
payments to the Prudencios' debt as provided for in the deed of assignment
 Jun 30 1956: Concepcion abandoned their work so Bureau rescinded the
construction contract and assumed the work of completing
 Jun 27 1959: Concepcion filed to cancelled their mortgage
 LawIt was only when the deed of assignment was shown to the spouses that they
complaint was amended to exclude the Company as defendant, it having been shown
that its life as a partnership had already expired and, in lieu thereof, Ramon
Concepcion and Manuel M. Tamayo, partners of the defunct Company, were
impleaded in their private capacity as defendants.
 CA affirmed  RTC: Denied
 no stipulation in the deed making it obligatory on the part of the
PNB to notify the petitioners everytime it authorizes payment to the Company
 Prudencios' contend that as accommodation makers, the nature of their
liability is only that of mere sureties instead of solidary co-debtors such that "a
material alteration in the principal contract, effected by the creditor without the
knowledge and consent of the sureties, completely discharges the sureties from all
liability on the contract of suretyship.  procured tickets from Travel-On on behalf of airline passengers and derived
ISSUE:  commissions therefrom.
1. W/N the Prudencios' as accomodating party are liable as solidary debtors
so real estate mortgage executed by them CANNOT be cancelled
2. W/N PNB was a holder in due course
HELD: Petition is Granted.  CA reversed.
 1. YES
 Section 29 of the Negotiable Instrument Law
 Liability of accommodation party. —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.
 Philippine Bank of Commerce v. Aruego: liability of the accommodation
party remains not only primary but also unconditional to a holder for value
 remedy is a matter of concern exclusively between accommodation indorser
and accommodated party
2. NO
payee PNB is an immediate party and, therefore, is NOT a holder in due course and
stands on no better footing than a mere assignee
holder in due course - payee either acquired the note from anotherholder or has not
directly dealt with the maker thereof
PNB, in effect, waived payments of the first three releases
PNB can not be regarded as having acted in good faith which is also one of the
requisites of a holder in due course under Section 52 of the Negotiable Instruments
consented to the mortgage and signed the promissory note in the Bank's favor.
Negotiable Instruments Case Digest: Travel-On V. CA (1992)
G.R. No. L-56169 June 26, 1992
Lessons Applicable: Consideration and Accomodation Party (Negotiable
Instruments)
FACTS:
Arturo S. Miranda
had a revolving credit line with Travel-On. Inc. (Travel-On), a travel agency
selling airline tickets on commission basis for and in behalf of different airline
companies
June 14 1972: Travel-On filed bef. the CFI to collect 6 checks issued by
Miranda totaling P115,000.00
August 5 1969 - January 16 1970: Travel-On sold and delivered airline tickets
to Miranda w/ total price of P278,201.57
paid in cash and 6 checks = P115,000 - all dishonored by the drawee banks
March 1972: paid P10,000.00 reducing his debts to P105,000
12

Miranda: checks were issued for to "accommodate" Travel-On's General

Manager to show the BOD of Travel-On that their receivables were still good
Travel-On's witness, Elita Montilla: related to situations where its passengers
needed money in Hongkong, and upon request of Travel-On, Miranda would
contact his friends in Hongkong to advance Hongkong money to the
passenger
CA affirmed CFI: ordered Travel-On to pay Miranda P8,894.91 representing
net overpayments by private respondent, moral damages of P10,000.00 (later
increased to P50,000 by CFI and reduced by CA to P20,000) for the wrongful
issuance of the writ of attachment and for the filing of this case, P5,000.00 for
attorney's fees and the costs of the suit - decision was because Travel-On did
not show that Miranda had an outstanding balance of P115,000.00
ISSUE: W/N Miranda is liable for the 6 dishonored checks because there was
no accomodation

HELD: YES. GRANT due course to the Petition for Review on Certiorari and to
REVERSE and SET ASIDE the Decision of the CA and trial court
failed to give due importance the checks themselves as evidence of the debt
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.
negotiable instrument is presumed to have been given or indorsed for a
sufficient consideration unless otherwise contradicted and overcome by other
competent evidence
Those checks in themselves constituted evidence of indebtedness of Miranda,
evidence not successfully overturned or rebutted by private respondent. Negotiable Instruments Case Digest: Agro Conglomerates Inc. V. CA
While the Negotiable Instruments Law does refer to accommodation (2000)
transactions, no such transaction was here shown  G.R. No. 117660  December 18, 2000
Sec. 29. Liability of accommodation party. — An accommodation party is one Lessons Applicable: Consideration and Accommodation Party
who has signed the instrument as maker, drawer, acceptor, or indorser, (Negotiable Instruments Law)
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 FACTS:
value, notwithstanding such holder, at the time of taking the instrument, knew July 17, 1982: Agro Conglomerates, Inc. (Agro) sold 2 parcels of land to
him to be only an accommodation party. Wonderland Food Industries, Inc (Wonderland) for P 5M under terms and
Having issued or indorsed the check, the accommodating party has warranted conditions: 
to the holder in due course that he will pay the same according to its tenor.
Travel-On obviously was not an accommodated party; it realized no value on
the checks which bounced.  P 1M Pesos shall be paid in cash upon the signing of the agreement

 P 2M Pesos worth of common shares of stock of the Wonderland Food

Industries, Inc.

 balance of P2,000,000.00 shall be paid in 4 equal installments, the first

installment falling due, 180 days after the signing of the agreement and
13
every six months thereafter, with an interest  rate of 18% per annum, to
be advanced by the vendee upon the signing of the agreement
 July 19, 1982: Agro, Wonderland and Regent Savings & Loan Bank
(Regent) (formerly Summa Savings & Loan Association) amended the
arrangement resulting to a revision  - addedum was not notarized
 Agro would secure a loan in the name of Agro Conglomerates Inc. for the
total amount of the initial payments, while the settlement of loan would be
assumed by Wonderland
 Mario Soriano (of Agro) signed as maker several promissory
notes, payable to Regent in favor of Wonderland
 subsidiary contract of suretyship had taken effect since Agro signed the
promissory notes as maker and accommodation party for the benefit of
Wonderland
 bank released the proceeds of the loan to Agro who failed to meet their
obligations as they fell due
 bank, experiencing financial turmoil, gave Agro opportunity to settle their
account by extending payment due dates
 Mario Soriano manifested his intention to re-structure the loan, yet did not
show up nor submit his formal written request
 Regent filed 3 separate complaints before the RTC for Collection of sums
of money
 CA affirmed Trial court: held Agro liable
ISSUE: W/N Agro should be liable because there was no accomodation or
surety
HELD: YES. CA affirmed.
First,  there  was  no  contract  of  sale  that  materialized.    The  original
agreement  was  that  Wonderland  would  pay  cash  and  Agro would deliver  debtors
possession  of  the  farmlands.    But  this  was  changed  through  an
addendum, that Agro would instead secure a loan and the settlement  Novation - NOT in this case
of the same would be shouldered by Wonderland.   
contract  of  surety  between  Woodland and petitioner was extinguished by
the rescission of the contract of sale of the farmland
With the rescission,  there was confusion in the persons of the  principal 
debtor  and  surety.    The  addendum  thereon  likewise  lost  its efficacy
accommodation party - NOT in this case because of recission
person who has signed the instrument as:
maker
acceptor
indorser
without receiving value therefor
for the purpose of lending his name to some other person
is liable on the instrument to a holder for value, notwithstanding such holder at
the time of taking the instrument knew (the signatory) to be an accommodation
party
has the right, after paying the holder, to obtain reimbursement from the party
accommodated, since the relation between them has in effect become one of
principal and surety, the accommodation party being the surety.
Suretyship 
relation which exists where:
1 person has undertaken an obligation
another person is also under the obligation or other duty to the obligee, who is
entitled to but one performance
The surety’s liability to the creditor or promisee is directly and equally bound
with the principal and the creditor may proceed against any one of the solidary
extinguishment of an obligation by the substitution or change of the obligation
by a subsequent one which extinguishes or modifies the first, either by
14
changing the object or principal conditions, or by substituting another in place
of the debtor, or by subrogating a third person in the rights of the creditor
never presumed and it must be clearly and unequivocally shown
requisites:
There must be a previous valid obligation - lacking
There must be an agreement of the parties concerned to a new contract
There must be the extinguishment of the old contract; and
There must be the validity of the new contract
Sec. 22 of the Civil Code provides:
Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to him.
Agro had no legal or just ground to retain the proceeds of the loan at the
expense of Wonderland.   the letter Ybañez asked Lim to cancel all the checks issued by her in Saban's
Neither could Agro excuse themselves and hold Wonderland still liable to pay
the loan upon the rescission of their sales contract - surety no effect because
of the rescission
If Agro sustained damages as a result of the rescission, they should have
impleaded Wonderland and asked damages
The non-inclusion of a necessary party does not prevent the court from
proceeding in the action, and the judgment rendered therein shall be without
prejudice to the rights of such necessary party
But respondent appellate court did not err in holding that Agro are duty-bound
under the law to pay the claims of Regent from whom they had obtained the
loan proceeds
LIM v. SABAN
G.R. No. 163720; December 16, 2004
Ponente: J. Tinga
FACTS:
Under an Agency Agreement, Ybañez authorized Saban to look for a buyer of
the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the
selling price to include the amounts needed for payment of taxes, transfer of
title and other expenses incident to the sale, as well as Saban's commission
for the sale. 
Through Saban's efforts, Ybañez and his wife were able to sell the lot to the
petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim
(the Spouses Lim) on March 10, 1994. The price of the lot as indicated in the
Deed of Absolute Sale is Two Hundred Thousand Pesos (P200,000.00).  It
appears, however, that the vendees agreed to purchase the lot at the price of
Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other
incidental expenses of the sale.
After the sale, Lim remitted to Saban the amounts of P113,257 for payment of
taxes due on the transaction as well as P50,000.00 as broker's commission.
Lim also issued in the name of Saban four postdated checks in the aggregate
amount of P236,743.00.
Subsequently, Ybañez sent a letter dated June 10, 1994 addressed to Lim. In
favor and to "extend another partial payment" for the lot in his (Ybañez's)
favor. 
After the four checks in his favor were dishonored upon presentment, Saban
filed a complaint for collection of sum of money and damages against Ybañez
and Lim
Saban alleged that Ybañez told Lim that he (Saban) was not entitled to any
commission for the sale since he concealed the actual selling price of the lot
from Ybañez and because he was not a licensed real estate broker. Ybañez
was able to convince Lim to cancel all four checks.
In his Answer, Ybañez claimed that Saban was not entitled to any commission
because he concealed the actual selling price from him and because he was
not a licensed real estate broker.
ISSUE:
          Whether Saban is entitled to receive his commission from the sale
15

HELD:

          Yes, Saban is entitled to receive his commission from the sale.

          The Supreme Court held that to deprive Saban of his commission

subsequent to the sale which was consummated through his efforts would be
a breach of his contract of agency with Ybañez which expressly states that
Saban would be entitled to any excess in the purchase price after deducting
the P200,000.00 due to Ybañez and the transfer taxes and other incidental
expenses of the sale.
          Moreover, the Court has already decided in earlier cases that would be
in the height of injustice to permit the principal to terminate the contract of
agency to the prejudice of the broker when he had already reaped the benefits
of the broker's efforts.