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Dev't Bank of Rizal vs Sima Wei



instrument from the drawer to the payee, there can

be no liability on the instrument. Petitioner however
has a right of action against Sima Wei for the
balance due on the promissory note.

G.R. No. 85419 March 9, 1993

--complete undelivered

252 SCRA 620

Respondent Sima Wei executed and delivered to
petitioner Bank a promissory note engaging to pay
the petitioner Bank or order the amount of
P1,820,000.00. Sima Wei subsequently issued two
crossed checks payable to petitioner Bank drawn
against China Banking Corporation in full
settlement of the drawer's account evidenced by
the promissory note. These two checks however
were not delivered to the petitioner-payee or to any
of its authorized representatives but instead came
into the possession of respondent Lee Kian Huat,
who deposited the checks without the petitionerpayee's indorsement to the account of respondent
Plastic Corporation with Producers Bank. Inspite of
the fact that the checks were crossed and payable
to petitioner Bank and bore no indorsement of the
latter, the Branch Manager of Producers Bank
authorized the acceptance of the checks for deposit
and credited them to the account of said Plastic

Whether petitioner Bank has a cause of action
against Sima Wei for the undelivered checks.

The province of Tarlac maintains an account with
PNB-Tarlac. Part of its funds is appropriated for
the benefit of Concepcion Emergency Hospital.
During a post-audit done by the province, it was found
out that 30 of its checks werent received by the
hospital. Upon further investigation, it was found out that
the checks were encashed by Pangilinan who was a
former cashier and administrative officer of the
hospital through forged indorsements.
prompted the provincial treasurer to ask for
reimbursement from PNB and thereafter, PNB from
Associated Bank. As the two banks didn't want to
reimburse, an action was filed against them.

There is a distinction on forged indorsements
with regard bearer instruments and instruments
payable to order.
With instruments payable to bearer, the signature of the

No. A negotiable instrument must be delivered to
the payee in order to evidence its existence as a
binding contract. Section 16 of the NIL 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 a negotiable instrument
acquires no interest with respect thereto until its
delivery to him. Without the initial delivery of the

payee or holder is unnecessary to pass title to the

instrument. Hence, when the indorsement is a forgery,
only the person whose signature is forged can
raise the defense of forgery against holder in due
In instruments payable to order, the signature of
the rightful holder is essential to transfer title to the
same instrument.

When the holders signature is

forged, all parties prior to the forgery may raise the

real defense of forgery against all parties subsequent

thereto. In connection to this, an indorser warrants
that the instrument is genuine.
such an indorser.

A collecting bank is

So even if the indorsement is

forged, the collecting bank is bound by his warranties as

an indorser and cannot set up
the defense of forgery as against the drawee bank.
Furthermore, in cases involving checks with forged
indorsements, such as the case at bar, the chain of
liability doesn't end with the drawee bank. The
drawee bank may not debit the account of the
drawer but may generally pass liability back through the
collection chain to the party who took from the forger
and of course, the forger himself, if available.


other words, the drawee bank can seek reimbursement

or a return of the amount it paid from the collecting
bank or person.

The collecting bank generally

suffers the loss because it has te duty to ascertain

the genuineness of all prior endorsements
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.
With regard the issue of delay, a delay in informing
the bank of the forgery, which deprives it of the
opportunity to go after the forger, signifies negligence
on the part of the drawee bank and will preclude it
from claiming reimbursement. In this case, PNB wasn't
guilty of any negligent delay.

Its delay hasn't

prejudiced Associated Bank in any way because

even if there wasn't delay, the fact that there was
nothing left of the account of Pangilinan, there couldn't
be anymore reimbursement.

65 SCRA 680

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
Ramon Lorenzo
Delia Dominguez
Mauricia Ebrada
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
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

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 by Mesina
Enterprises. These personalized checks were the
ones being used by MWSS in its business
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
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.

218 SCRA 682
Gempensaw was the owner of many grocery stores.
She paid her suppliers through the issuance of
checks drawn against her checking account with
respondent bank. The checks were prepared by
her bookkeeper Galang. In the signing of the checks
prepared by Galang, Gempensaw didn't bother
herself in verifying to whom the checks were being
paid and if the issuances were necessary. She
didn't even verify the returned checks of the bank
when the latter notifies her of the same. During her two
years in business, there were incidents shown that
the amounts paid for were in excess of what should

have been paid. It was also shown that even if the

checks were crossed, the intended payees didn't receive
the amount of the checks. This prompted
Gempensaw to demand the bank to credit her
account for the amount of the forged checks. The bank
refused to do so and this prompted her to file the case
against the bank.

negotiable instruments complete. Prior to signing of the

checks, there was no valid contract yet.


completed the checks by signing them and thereafter

authorized Galang to deliver the same to their
respective payees.

The checks were then

indorsed, forged indorsements thereon.

As a rule, a drawee bank who has paid a check on which
an indorsement has been forged cannot debit the


account of a drawer for the amount of said check.

Forgery is a real defense by the party whose signature

An exception to this rule is when the drawer is

was forged. A party whose signature was forged was

guilty of negligence which causes the bank to honor

never a party and never gave his consent to the

such checks. Petitioner in this case has relied solely


on the honesty and loyalty of her bookkeeper and

Since his signature doesnt appear in

the instrument, the same cannot be enforced against

never bothered to verify the accuracy of the

him even by a holder in due course. The drawee bank

amounts of the checks she signed the invoices

cannot charge the account of the drawer whose

attached thereto. And though she received her bank

signature was forged because he never gave the bank

statements, she didn't carefully examine the same

the order to pay.

to double-check her
payments. Petitioner didn't exercise reasonable

In the case at bar the checks were filled up by

diligence which eventually led to the fruition of her

petitioners employee Galang and were later given to

bookkeepers fraudulent schemes.

her for signature. Her signing the checks made the