NEGOTIABILITY Philippine Education v.

Soriano FACTS Enrique Montinola sought to purchase from the Manila Post Office 10 money orders (P200 each), offering to pay for them with a private check. Montinola was able to leave the building with his check and the 10 money orders without the knowledge of the teller. Upon discovery, message was sent to all postmasters and banks involving the unpaid money orders. One of the money orders was received by the Philippine Education Co. as part of its sales receipt. It was deposited by the company with the Bank of America, which cleared it with the Bureau of Post. The Postmaster, through the Chief of the Money Order Division of the Manila Post Office informed the bank of the irregular issuance of the money order. The bank debited the account of the company. The company moved for reconsideration. ISSUE Whether postal money orders are negotiable instruments. HELD Philippine postal statutes are patterned from those of the United States, and the weight of authority in said country is that Postal money orders are not negotiable instruments inasmuch as the establishment of a postal money order is an exercise of governmental power for the publics benefit. Furthermore, some of the restrictions imposed upon money order by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, postal money orders may be withheld under a variety of circumstances, and which are restricted to not more than one indorsement. Caltex FACTS On various dates, Security Bank and Trust Co. (SEBTC), through its Sucat branch, issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P1.12 million. Anger de la Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs. De la Cruz was able to obtain a loan of P875,000 from the bank, and in turn, he executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification the CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex claim and demand, after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement, etc. In 1983, de la Cruz loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed the complaint, but which was dismissed. ISSUE [1]: Whether the Certificates of Time Deposit (CTDs) are negotiable instruments. HELD [1]: The CTDs in question meet the requirements of the law for negotiability. Contrary to the lower courts findings, the CTDs are negotiable instruments (Section 1). Negotiability or non-negotiability of an instrument is determined from the writing, i.e. from the face of the instrument itself. The documents provided that the amounts deposited shall be repayable to the depositor. The amounts are to be

repayable to the bearer of the documents, i.e. whosoever may be the bearer at the time of presentment. ISSUE [2]: Whether the CTDs negotiation require delivery only. HELD [2]: Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it (Caltex) and de la Cruz requires both delivery and indorsement; as the CTDs were delivered to it as security for dela Cruz purchases of its fuel products, and not for payment. Herein, there was no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most constitutes Caltex as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for. Metrobank v. CA FACTS: Gomez opened an account with Golden Savings bank and deposited 38 treasury warrants. All these warrants were indorsed by the cashier of Golden Savings, and deposited it to the savings account in a Metrobank branch. They were sent later on for clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. On persistent inquiries on whether the warrants have been cleared, the branch manager allowed withdrawal of the warrants, only to find out later on that the treasury warrants have been dishonored. HELD: The treasury warrants were not negotiable instruments. Clearly, it is indicated that it was nonnegotiable and of equal significance is the indication that they are payable from a particular fund, Fund 501. This indication as the source of payment to be made on the treasury warrant makes the promise to pay conditional and the warrants themselves non-negotiable. Metrobank then cannot contend that by indorsing the warrants in general, GS assumed that they were genuine and in all respects what they purport it to be, in accordance to Section 66 of the NIL. The simple reason is that the law isnt applicable to the non-negotiable treasury warrants. The indorsement was made for the purpose of merely depositing them with Metrobank for clearing. It was in fact Metrobank which stamped on the back of the warrants: All prior indorsements and/or lack of endorsements guaranteed Sesbreno v. CA FACTS On 9 February 1981, Raul Sesbreno made a money market placement in the amount of P300,000 with the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note (2731), the Certificate of Securities Delivery Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn against the Insular

Bank of Asia and America for P304,533.33 payable on 13 March 1981. The checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the security was issued 10 April 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was stamped nonnegotiable on its face. As Sesbreno was unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank. ISSUE Whether non-negotiability of a promissory note prevents its assignment. HELD Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone if it is in bearer form. A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal consequences of negotiation and assignment of the instrument are different. A negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument. herein, there was no prohibition stipulated. Firestone v. CA FACTS: Fojas-Arca Enterprises Company maintained a special account with respondent Luzon Development Bank which authorized and allowed the former to withdraw funds from its account through the medium of special withdrawal slips. Fojas-Arca purchased on credit products from Firestone with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff six special withdrawal slips drawn upon the respondent bank. In turn, these were deposited by the plaintiff with its current account with the Citibank. All of them were honored and paid by the defendant. However, in a subsequent transaction involving the payment of withdrawal slips by Fojas-Arca for purchases on credit from petitioner, two withdrawal slips for the total sum of P2,078,092.80 were dishonored and not paid by respondent bank for the reason "NO ARRANGEMENT". ISSUE: Whether respondent bank should be held liable for damages suffered by petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips. RULING: The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this character. As the withdrawal slips in question were non-negotiable, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply. The respondent bank was under no obligation to give immediate notice that it would not make payment on the subject withdrawal slips. Citibank should have known that withdrawal slips were not negotiable instruments. It could not expect these slips to be treated as checks by other entities. Payment or notice of dishonor from respondent bank could not be expected immediately, in contrast to the situation involving checks. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such, Citibank and petitioner as account-holder must bear the risks attendant to the acceptance of these instruments.

PAYABLE TO BEARER Ang Tek Lian v. CA FACTS: Petitioner drew a check payable to "cash"knowing that he had no funds in his account. He delivered said check to Hong for which the latter handed him money. When the check was presented for payment it was dishonored for insufficiency of funds. An information for the crime of estafa was filed against Ang Tek Lian. Petitioner however argues that he is not guilty of the offense charged because he did not endorse the check which was made payable to "cash". ISSUE: Whether a check payable to "cash" requires an indorsement by the drawer for it to be encashed. RULING: No. Under Section 9(d) of the NIL, a check drawn payable to the order of "cash" is a check payable to bearer and the bank may pay it to the person presenting it for payment without the drawer's indorsement.

COMPLETE BUT UNDELIVERED Development Bank of PH v. Sima Wei FACTS: Sima Wei executed a promissory note in consideration of a loan secured from petitioner bank. She was able to pay partially for the loan but failed to pay for the balance. She then issued two checks to pay the unpaid balance but for some unexplainable reason, the checks were not received by the bank but ended up in the hands of someone else. The bank instituted actions against Sima Wei and other people. The trial court dismissed the case and the CA affirmed this decision. HELD: A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Section 16 provides that every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Thus, the payee of the negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument.

LIABILITY OF PERSONS SIGNING AS AGENT Philippine Bank of Commerce vs. Aruego Doctrines: 1. An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party. One cannot be an accommodation party if he signs as a drawee/acceptor. 2. As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not. Facts: Plaintiff instituted against Aruego a case for the recovery of Php. 35,000.00 with daily interest plus attorneys fees. The sum sought to be recovered represents the cost of the printing of World Current Events, a periodical published by the defendant. To facilitate the payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every printing, the printer, Encal Press and Photo Engraving (EPPE), collected the cost of printing by drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance. As an added security for the payment of the amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds of the sale of said publication to answer for the payment of all obligations arising from the draft. Defendant argued that he is an accommodating party hence shall be liable only secondarily. The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of evidence of indebtedness because payments were made before acceptance. Issues: 1. Whether or not the defendant is an accommodation party 2. Whether or not the drafts signed were bills of exchange Held: 1. No. Section 29 of the Negotiable Instruments Law (NIL) provides: An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party. In lending his name to the accommodated party, the accommodation party is in effect a surety for the

latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he wants to accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, the defendant should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the drafts. 2. Yes. Pursuant to Section 126 of the NIL, a bill of exchange is an unconditional order in writting addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not. Francisco v. CA FACTS: A. Fransisco Realty and Development and Herby Commercial and Construction Corporation entered into a Land Development and Construction Contract. Fransisco was the president of AFRDC while Ong was the president of HCCC. It was agreed upon that HCCC would undertake the construction of housing units and the development of a large parcel of land. The payment would be on a turnkey basis. To facilitate the payment, AFDRC executed a Deed of Assignment to enable the HCCC to collect payments from the GSIS. Further, they opened an account with a bank from which checks would be issued by Fransisco and the GSIS president. HCCC later on filed a complaint for the unpaid balance in pursuance to its agreement with AFRDC. However, an amicable settlement ensued, which was embodied in a Memorandum of Agreement. It was embodied in said agreement that GSIS recognizes its indebtedness to HCCC and that HCCC would also pay its obligations to AFRDC. A year later, it was found out that Diaz and Fransisco had drawn checks payable to Ong. Ong denied accepting said checks and it was further found out that Diaz entrusted the checks to Fransisco who later forged the signature of Ong, showing that he indorsed the checks to her and then she deposited the checks to her personal savings account. This incident prompted Ong to file a complaint against Fransisco. HELD: Ongs signature was found to be forged by Fransisco. Fransiscos contention that he was authorized to sign Ongs name in her favor giving her authority to collect all the receivables of HCCC from GSIS. This contention is bereft of any merit. The Negotiable Instruments Law provides that when a 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 as an agent in behalf of the principal and must disclose the name of

his principal. Otherwise, he will be held liable personally. And assuming she was indeed authorized, she didn't comply with the requirements of the law. Instead of signing Ongs name, she should have signed in her own name as agent of HCCC. Thus, her contentions cannot support or validate her acts of forgery.

FORGERY Jai-Alai v. BPI 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 ineffectivethe creditor-debtor relationship hadnt been validly effected. Republic Bank v. Ebrada FACTS: Ebrada encashed a Back Pay Check issued by the Bureau of Treasury at the Republic Bank in Escolta Manila. The Bureau of Treasury advised the Republic Bank that the instrument was forged. It informed the bank that the original payee of the check died 11 years before the check was issued. Therefore, there was a forgery of his signature. This is the sequence: Martin Lorenzo The deceased person, original payee, where the forgery happened Ramon Lorenzo Delia Dominguez

Mauricia Ebrada Defendant-appelant Ebrada refuses to return the proceeds of the check claiming that she already gave it to Delia Dominguez. She also claims that she is a HDC (holder in due course) and that the bank is already estopped. HELD: Ebrada should return the proceeds of the check to Republic Bank. As an indorser of the check, she was supposed to have warranted that she has good title to said check. See Section 65. Section 23: When the 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. It is only the negotiation based on the forged or unauthorized signature which is inoperative. Therefore: Martin Lorenzo Signature inoperative Ramon Lorenzo To Dominguez: operative Delia Dominguez To Ebrada: operative Mauricia Ebrada Drawee bank can collect from the one who encashed the check. If Ebrada performed the duty of ascertaining the genuiness of the check, in all probability, the forgery wouyld have been detected and the fraud defeated. MWSS v. CA Negotiable Instruments Law Liabilities of Parties 143 SCRA 20 Forgery Negligence of Drawer Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB. When it was still called NAWASA, MWSS made a special arrangement with PNB so that it may have personalized checks to be printed Mesina Enterprises. These personalized checks are the ones being used by MWSS in its business transactions. From March to May 1969, MWSS issued 23 checks to various payees in the aggregate amount of P320,636.26. During the same months, another set of 23 checks containing the same check numbers earlier issued were forged. The aggregate amount of the forged checks amounted to P3,457,903.00. This amount was distributed to the bank accounts of three persons: Arturo Sison, Antonio Mendoza, and Raul Dizon.

MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused. The trial court ruled in favor of MWSS but the Court of Appeals reversed the trial courts decision. ISSUE: Whether or not PNB should restore the said amount. HELD: No. MWSS is precluded from setting up the defense of forgery. It has been proven that MWSS has been negligent in supervising the printing of its personalized checks. It failed to provide security measures and coordinate the same with PNB. Further, the signatures in the forged checks appear to be genuine as reported by the National Bureau of Investigation so much so that the MWSS itself cannot tell the difference between the forged signature and the genuine one. The records likewise show that MWSS failed to provide appropriate security measures over its own records thereby laying confidential records open to unauthorized persons. Even if the twenty-three (23) checks in question are considered forgeries, considering the MWSSs gross negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law. The Supreme Court further emphasized that forgery cannot be presumed. It must be established by clear, positive, and convincing evidence. This was not done in the present case. Banco de Oro v. Equitable Banking Corporation FACTS: BDO drew checks payable to member establishments. Subsequently, the checks were deposited in Trencios account with Equitable. The checks were sent for clearing and was thereafter cleared. Afterwards, BDO discovered that the indorsements in the back of the checks were forged. It then demanded that Equitable credit its account but the latter refused to do so. This prompted BDO to file a complaint against Equitable and PCHC. The trial court and RTC held in favor of the Equitable and PCHC. HELD: First, PCHC has jurisdiction over the case in question. The articles of incorporation of PHHC extended its operation to clearing checks and other clearing items. No doubt transactions on nonnegotiable checks are within the ambit of its jurisdiction. Further, the participation of the two banks in the clearing operations is submission to the jurisdiction of the PCHC. Petitioner is likewise estopped from raising the non-negotiability of the checks in issue. It stamped its guarantee at the back of the checks and subsequently presented it for clearing and it was in the basis of these endorsements by the petitioner that the proceeds were credited in its clearing account. The petitioner cannot now deny its liability as it assumed the liability of an indorser by stamping its guarantee at the back of the checks. Furthermore, the bank cannot escape liability of an indorser of a check and which may turn out to be a forged indorsement. Whenever a bank treats the signature at the back of the checks as indorsements and thus logically guarantees the same as such there can be no doubt that said bank had considered the checks as negotiable. A long line of cases also held that in the matter of forgery in endorsements, it is the collecting bank that generally suffers the loss because it had the dutyh to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment

to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the indorsements. Gempesaw v. CA FACTS: 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 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 drawers 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 v. CA egotiable Instruments Law Liabilities of Parties 252 SCRA 620 Forgery Collecting Bank vs Drawee Bank The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks drawn against its account with the Philippine National Bank (PNB). These checks were drawn payable to the order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He used to handle checks issued by the provincial government of Tarlac to the said hospital. However, after his retirement, the provincial

government still delivered checks to him until its discovery of this irregularity in 1981. By forging the signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan was able to deposit 30 checks amounting to P203k to his account with the Associated Bank. When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the said amount. PNB in turn demanded Associated Bank to reimburse said amount. PNB averred that Associated Bank is liable to reimburse because of its indorsement borne on the face of the checks: All prior endorsements guaranteed ASSOCIATED BANK. ISSUE: What are the liabilities of each party? HELD: The checks involved in this case are order instruments. Liability of Associated Bank Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holders indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. A collecting bank (in this case Associated Bank) where a check is deposited and which indorses the check upon presentment with the drawee bank (PNB), is such an indorser. So even if the indorsement on the check deposited by the bankss client is forged, Associated Bank is bound by its warranties as an indorser and cannot set up the defense of forgery as against the PNB. EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in notifying the collecting bank (Associated Bank) of the fact of the forgery so much so that the latter can no longer collect reimbursement from the depositor-forger. Liability of PNB The bank on which a check is drawn, known as the drawee bank (PNB), is under strict liability to pay the check to the order of the payee (Provincial Government of Tarlac). Payment under a forged indorsement is not to the drawers order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customers (the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule then is that the drawee bank may not debit the drawers account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer (Tarlac Province) to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. In sum, by reason of Associated Banks indorsement and warranties of prior indorsements as a party after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask reimbursement from PNB because the Province is a party prior to the forgery. Hence, the instrument is inoperative. HOWEVER, it has been proven that the Provincial Government of Tarlac has been

negligent in issuing the checks especially when it continued to deliver the checks to Pangilinan even when he already retired. Due to this contributory negligence, PNB is only ordered to pay 50% of the amount or half of P203 K. BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated Banks warranties), PNB can ask the 50% reimbursement from Associated Bank. Associated Bank can ask reimbursement from Pangilinan but unfortunately in this case, the court did not acquire jurisdiction over him. Metrobank v. First National City Bank

Republic Bank v. CA Philippine Commercial Interntional Bank v. CA Ramon Ilusoria v. CA Samsung Construction Co. v. FEBTC

MATERIAL ALTERATION

ACCOMMODATION PARTY

HOLDERS IN DUE COURSE

LIABILITY OF GENERAL INDORSER