GEMPESAW V.
CA FACTS:
February 9, 1993 | GR No. 92244 | Campos Jr., J. | Second Division | Section 196
DIGEST MADE BY:
Dave U
CLUE: Breaking Trust
PETITIONER: NATIVIDAD GEMPESAW
RESPONDENTS: THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS
DOCTRINE:
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.
RECIT- READY SUMMARY:
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 where 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 who 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: Is Gempesaw barred from recovering damages due to her negligence? — YES
Court ruled in the affirmative. 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.
1. Natividad Gempesaw operates four grocery stores. To pay her suppliers she maintains
a checking account with the Philippine Bank of Communications where she draws
checks against said account.
2. Her customary practice of issuing checks are as follows:
a. Her trusted bookkeeper, Alicia Galang fills the said cheques with all the
material particulars.
b. Without checking the details of the cheque, she then signs each cheque
Galang fills due to the full and implicit trust and confidence she reposed to
her bookkeeper.
3. Based on this practice, 82 cheques were issued in favor of several suppliers, with amounts
in excess to Gempesaw’s actual obligations with said suppliers. Regardless, the drawee
bank, Philippine Bank of Commerce debited the said amounts to Gempesaw’s account.
4. After 2 years, Gepesaw found out that Galang fraudulently manipulated all 82 cheques. It
was later found that said cheques were with forged signatures of the payees. It was also
later found that the 30 payees whose names were written in the cheques did not receive
the said cheques, and the indorsements allegedly made at the back of the cheques were
not theirs.
5. As a result, Gempesaw made a written demand with the bank to credit her account with
the value of the 82 cheques totalling Php 1,208,606.89. Furthermore, Gempesaw argued
that since the cheques were crossed cheques, they should not have been honored by the
bank. The bank refused to grant Gempesaw’s demand, hence the complaint with the
Regional Trial Court.
PROCEDURAL AND CASE HISTORY:
RTC ● Ruled in favor of the bank. It ruled that Gempesaw was grossly negligent with
not verifying the details stated in the cheque. Furthermore, even if the bank
was also negligent, the loss must be borne by the party who was the
proximate cause of the loss.
● Hence, the appeal to the CA.
CA ● Upon appeal, the appellate court affirmed the trial court’s decision.
● Hence, the petition for review to the Supreme Court.
ISSUE/S:
1. Is Gempesaw barred from recovering damages due to her negligence? — YES
RULING:
WHEREFORE, The decision of the lower court is reversed, and judgment is hereby rendered
plaintiff for the sum of P3,290.25, and for the costs of both instances.
RATIO:
1
1. YES

● Court ruled in the affirmative. 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.
● In this case, 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. (A/N: The extent of the bank’s liability in the present case was not determined
by the SC. It was instead remanded to a lower court)