TOPIC Section 23 – Forged Indorsement

CASE NO. No. L - 29432

CASE NAME Jalai-Alai v. BPI
MEMBER Tim Ilog

DOCTRINE
A forged signature in a negotiable instrument 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 the forgery.

RECIT-READY DIGEST
Jalai-Alai deposited 10 checks, with a total face value of P8,030.58 to BPI. It acquired all 10 from Anthony
Ramirez, a sales agent of Inter-Island, who is also a regular bettor in jalai-alai games. The checks were
temporarily credited to Jalai-Alai’s account. Ramirez resigned from Inter-Island. The checks were also
submitted to inter-bank clearing. Later on, Inter-Island informed BPI, Jalai-Alai, drawers and drawee-banks
were forged. So, the drawers demanded reimbursement from drawee-banks. The drawee-banks, then,
demanded the return of their payments from BPI. BPI paid them and the drawee-banks used this to pay
Inter-Island. BPI then debited the amount to Jalai-Alai’s account. Later on, Jalai-Alai issued a check in the
amount of P135, 000 for purchase of stocks. However, this was dishonored since after BPI’s debiting, the
account was onlt P128,257.65. Jalai-Alai instituted the case.

The issue is basically whether it was right for BPI to debit the amounts to Jalai-Alai’s account. The Court
ruled for BPI. Since the checks were forged, it relied on Section 23 of the Negotiable Instruments Law. A
forged signature in a negotiable instrument 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
the forgery. BPI should be liable to drawee-banks for reimbursement for the indorsements on the checks
were forged prior to their delivery to Jalai-Alai. In legal contemplation, the payments were ineffective and
no creditor-debtor relationship between Jalai-Alai and BPI rose for the checks have not been properly and
legitimately converted into cash. Jalai-Alai must then shoulder the loss of the amounts BPI had to reimburse
the drawee-banks.

FACTS
• Jalai-Alai Corporation of the Philippines (Jalai-Alai) deposited ten checks with a total face value
of P8,030.58 in its current account with BPI.
• The particulars are summarized below (check original text for actual corresponding amounts):
o Drawn by the Delta Engineering Service upon the Pacific Banking Corporation and
payable to Inter-Island Gas Services, Inc. – 5 checks
o Drawn by the Enrique Ortiz & Co. upon the Pacific Banking Corporation and payable to
Inter-Island Gas Services, Inc. – 2 checks
o Drawn by the Luzon Tinsmith & Company upon the Pacific Banking Corporation and
payable to Inter-Island Gas Services, Inc. – 1 check
o Drawn by the Roxas Manufacturing, Inc. upon the Pacific Banking Corporation and
payable to Inter-Island Gas Services, Inc. – 2 checks
• Jalai-Alai acquired all these checks from Antonio J. Ramirez (Ramirez), a sales agent of Inter-
Island Gas (Inter-Island). Ramirez is also a regular jalai-alai bettor.
• The checks were temporarily credited to Jalai-Alai’s account. The clause in the deposit slips issued
reads:

“Any credit allowed the depositor on the books of the Bank for checks or drafts hereby
received for deposit, is provisional only, until such time as the proceeds thereof, in current

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 funds or solvent credits, shall have been actually received by the Bank and the latter
reserves to itself the right to charge back the item to the account of its depositor, at any
time before that event, regardless of whether or not the item itself can be returned.”

• Ramirez resigned from the Inter-Island Gas and the checks had been submitted to inter-bank
clearing. Afterwards, the Inter- Island Gas discovered that 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 Inter-Island) and the rubber stamp impression thereon were
forgeries.
• Inter-Island advised the Jalai-Alai, BPI, the drawers and the drawee-banks of the said checks about
the forgeries. Inter-Island also filed a criminal complaint against Ramirez.
• BPI’s cashier, Ramon Sathou, called up Jalai-Alai’s cashier, Manuel Garcia and advised him that
he would debit the value of the checks against Jalai-Alai’s account as soon as the drawee-banks
return them.
• After being notified of the forgeries, the drawers of the checks demanded reimbursement from the
drawee-banks. The drawee-banks, in turn, demanded from BPI the return of the amounts they paid
on the account thereof. BPI paid them the value, which the drawee-banks paid to Inter-Island.
• BPI then debited to Jalai-Alai’s current account and forwarded to Jalai-Alai the checks with forged
indorsements. Jalai-Alai, however, refused to accept the checks.
• October 8, 1959 the Jalai-Alai drew against its current account with BPI a check for P135,000
payable to the order of the Mariano Olondriz y Cia. in payment of certain shares of stock.
o BPI dishonored the check as its records showed that as of October 8, 1959 the current
account of Jalai-Alia, after netting out the value of the checks (P8,030.58), had a balance
of only P128,257.65.
• Jalai-Alai then filed a case against BPI.

ISSUE/S and HELD

1. W/N BPI had the right to debit the Jalai-Alai’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 Jalai-Alai’s account - NO
2. W/N BPI 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 BPI - NO

RATIO

The Court resolved all issues jointly.

1. On both issues, the Court ruled that BPI acted within legal bounds.
• When Jalai-Alai deposited the checks with the BPI, the nature of the relationship created at
that stage was one of agency, that is, BPI was to collect from the drawees of the checks the
corresponding proceeds.
• BPI already collected the proceeds because of the debiting, and one might argue that there is
a creditor-debtor relationship between them as to preclude BPI from using Jalai-Alai’s funds
to make payments Jalai-Alai did not authorize.
o However, the Court ruled that no creditor-debtor relationship was created.
• Section 23 of the Negotiable Instruments Law (Act 2031) states 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

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 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.”

• A forged signature in a negotiable instrument 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 the forgery.
o Thus, BPI, 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 were forged prior to their delivery to Jalai-Alai.
o In legal contemplation, the payments made by the drawee- banks to BPI on account of
the said checks were ineffective; and, such being the case, the relationship of creditor
and debtor between the Jalai-Alai and BPI had not been validly effected, the checks
not having been properly and legitimately converted into cash.
• Jalai-Alai must then shoulder the loss of the amounts BPI had to reimburse the drawee-banks.
• It is also not material that more than 3 months had elapsed since the proceeds of the checks
were collected.
o BPI acted promptly after being informed that the indorsements on the checks were
forged. Moreover, having received the checks merely for collection and deposit, the
BPI cannot be expected to know or ascertain the genuineness of all prior indorsements
on the said checks.
o Jalai-Alai is deemed to have given the warranty prescribed in Section 66 of the
Negotiable Instruments Law that every single one of those checks “is genuine and in
all respects what it purports to be.” This is because it indorsed the checks to BPI in
accordance with the rules and practices of commercial banks (which the Court takes
due cognizance).
• Jalai-Alai was grossly recreant in accepting the checks in question from Ramirez. It could not have
missed that the payee of all the checks was Inter-Island Gas Service, Inc.
o It cashed these checks to a mere individual who was a habitue at its jai-alai games without
making any inquiry as to his authority to exchange checks.
• It must be noted further that three of the checks are crossed checks, which may only be deposited,
but not encashed.
o Jalai-Alai negligently accepted them for cash. Even if two of the crossed checks are bearer
instruments, it would not exculpate Jalai-Alai from liability with respect to them.
o The fact that they are bearer checks and at the same time crossed checks should have
aroused the Jalai-Alai’s suspicion as to Ramirez’s title over them and his authority to cash
them (apparently to purchase jai-alai tickets from the petitioner).
• Section 66 of the Negotiable Instruments Law – a general indorser warrants that the instrument “is
genuine and in all respects what it purports to be.”
o Considering that Jalai-Alai indorsed the said checks when it deposited them with BPI,
Jalai-Alai, as an indorser, guaranteed the genuineness of all their prior indorsements.
o BPI should not be held liable for the resulting loss, who only relied on the warranty.
o This conclusion applied similarly to the uncrossed bearer instrument, for under Section 65
of the Negotiable Instrument Law. “Every person negotiating an instrument by
delivery…warrants (a) That the instrument is genuine and in all respects what it purports
to be.”Under that same section this warranty “extends in favor of no holder other than the
immediate transferee,”which is BPI in this case.
• A provision in the deposit slip stipulates that it “reserves to itself the right to charge back the item
to the account of its depositor,” at any time before “current funds or solvent credits shall have been
actually received by the Bank.”
o This would not materially affect the ruling as the stipulation prescribes that there must be
an actual receipt by the bank of current funds or solvent credits.

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 o However, the transfer by the drawee-banks of funds to BPI on account of the checks was
ineffectual because they were made under the mistaken and valid assumption that the
indorsements of the payee thereon were genuine.
o Article 2154 of the New Civil Code – “If something is received when there is no right to
demand it and it was unduly delivered through mistake, the obligation to return it arises.”
o There was no valid payment of money made by the drawee-banks to BPI on account of the
questioned checks.

DISPOSTIVE PORTION
ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at petitioner’s cost.