BPI (1993)
FACTS:
San Carlos Milling Co. Ltd. (San Carlos) was in the hands of Alfred D. Cooper, its agent under general
power of attorney with authority of substitution
The principal employee in the Manila office was Joseph L. Wilson, to whom had been given a general power
of attorney but without power of substitution.
1926: Cooper, desiring to go on vacation, gave a general power of attorney to Newland Baldwin and at the
same time revoked the power of Wilson relative to the dealings with BPI
Wilson, conspiring together with Alfredo Dolores, a messenger-clerk in San Carlos' Manila office,
sent a cable gram in code to the company in Honolulu requesting a telegraphic transfer to the China Banking
Corporation (China Bank) of Manila of $100,00.
The money was transferred by cable, and upon its receipt China Bank sent an exchange contract
to San Carlos offering the sum of P201K, which was then the current rate of exchange.
September 28, 1927: A manager's check on the China Banking Corporation for P201K payable to San
Carlos Milling Company or order was receipted for by Dolores
deposited with the BPI having a fake endorsement (Baldwin forged as drawer)
For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos Milling Co., Ltd.
By (Sgd.) NEWLAND BALDWIN
For Agent
San Carlos had frequently withdrawn currency for shipment to its mill but never in so large an amount, and
never under the sole supervision of Dolores
Before delivering the money, the bank asked Dolores for P1 to cover the cost of packing the money, and he
left the bank and shortly afterwards returned with another check for P1, purporting to be signed by Newland
Baldwin
the crime was discovered and San Carlos filed against the BPI and China Bank (after ammendment
complaint)
China Bank: as the prior endorsement had in law been guaranteed by the BPI, they are absolved
even if the endorsement of Newland Baldwin on the check was a forgery
BPI: guilty of no negligence, loss was due to the dishonesty of San Carlos employees and the
negligence of San Carlos general agent
ISSUE: W/N BPI was bound to inspect the checks and shall therefore be liable in case of forgery
HELD: YES. judgment absolving the Bank of the Philippine Islands must therefore be reversed
duty was upon the BPI, and the China Banking Corporation was not bound to inspect and verify all
endorsements of the check, even if some of them were also those of depositors in that bank
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.
under section 23 of the Negotiable Instruments Law they are not a charge against San Carlos nor are the
checks of any value to the BPI.
proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in honoring
and cashing the two forged checks
FACTS:
April 7 & 9, 1933: unknown person or persons purchased tires and paid Motor Service Company, Inc.
(MSCI) checks purporting to have been issued by the "Pangasinan Transportation Co., Inc. (Pantranco) by
J. L. Klar, Manager and Treasurer" against PNB and in favor of International Auto Repair Shop.
MSCI indorsed for deposit at the National City Bank of New York and MSCI was accordingly
PNB found out that the signatures of J. L. Klar, Manager and Treasurer were forged and demanded
MSCI.
Pantranco objected to have the proceeds of said check deducted from their deposit.
MSCI appealed
ISSUES:
1.
2.
W/N law or business practice prevents the presentation of checks for acceptance
before they are paid.
3.
4.
W/N the drawee bank should be allowed recovery, as MSCI's position would not
become worse than if the drawee had refused the payment of these checks upon
their presentation.
HELD: Affirmed
1.
NO.
A check is a bill of exchange payable on demand and only the rules governing bills of exchange
payable on demand are applicable to it, according to section 185 of the Negotiable Instruments Law
Acceptance is a step unnecessary for bills of exchange payable on demand (sec. 143)
That the payment of a check does not include or imply its acceptance in the sense that this word is
bill.
2. NO
section 187, which provides that "where a check is certified by the bank on
which it is drawn, the certification is equivalent to an acceptance", and it is then that
3. YES.
Circumstances:
check number 637023-D was dated April 6, 1933, whereas check number
637020-D and is dated April 7, 1933. (later check had prior number)
accepted the 2 checks from unknown persons
check 637023-D was indorsed by a subagent of the agent of the payee,
question, by its acceptance thereof, nor did it perform any act which would have
4. NO.
A drawee of a check, who is deceived by a forgery of the drawer's signature may
recover the payment back, unless his mistake has placed an innocent holder of the
paper in a worse position than he would have been in if the discover of the forgery
Court concluded:
1. That where a check is accepted or certified by the bank on which it is drawn, the
bank is estopped to deny the genuineness of the drawer's signature and his capacity to
issue the instrument;
2. That if a drawee bank pays a forged check which was previously accepted or certified
by the said bank it cannot recover from a holder who did not participate in the forgery
and did not have actual notice thereof;
3. That the payment of a check does not include or imply its acceptance in the sense
that this word is used in section 62 of the Negotiable Instruments Law;
4. That in the case of the payment of a forged check, even without former acceptance,
the drawee can not recover from a holder in due course not chargeable with any act of
negligence or disregard of duty;
5. That to entitle the holder of a forged check to retain the money obtained thereon,
there must be a showing that the duty to ascertain the genuineness of the signature
rested entirely upon the drawee, and that the constructive negligence of such drawee in
failing to detect the forgery was not affected by any disregard of duty on the part of the
holder, or by failure of any precaution which, from his implied assertion in presenting
the check as a sufficient voucher, the drawee had the right to believe he had taken;
6. That in the absence of actual fault on the part of the drawee, his constructive fault in
not knowing the signature of the drawer and detecting the forgery will nor preclude his
recovery from one who took the check under circumstances of suspicion and without
proper precaution, or whose conduct has been such as to mislead the drawee or induce
him to pay the check without the usual scrutiny or other precautions against mistake or
fraud;
7. That on who purchases a check or draft is bound to satisfy himself that the paper is
genuine, and that by indorsing it or presenting it for payment or putting it into
circulation before presentation he impliedly asserts that he performed his duty;
8. That while the foregoing rule, chosen from a welter of decisions on the issue as the
correct one, will not hinder the circulation of two recognized mediums of exchange by
which the great bulk of business is carried on, namely, drafts and checks, on the other
hand, it will encourage and demand prudent business methods on the part of those
receiving such mediums of exchange;
9. That it being a matter of record in the present case, that the appellee bank in no
more chargeable with the knowledge of the drawer's signature than the appellant is, as
the drawer was as much the customer of the appellant as of the appellee, the
presumption that a drawee bank is bound to know more than any indorser the signature
of its depositor does not hold;
10. That according to the undisputed facts of the case the appellant in purchasing the
papers in question from unknown persons without making any inquiry as to the identity
and authority of the said persons negotiating and indorsing them, acted negligently and
contributed to the appellee's constructive negligence in failing to detect the forgery;
11. That under the circumstances of the case, if the appellee bank is allowed to recover,
there will be no change of position as to the injury or prejudice of the appellant.
FACTS:
January 15, 1962: Augusto Lim deposited in his current account with the PCIB
branch at Padre Faura, Manila a GSIS Check of P57,415.00 drawn against the PNB
PCIB stamped the following on the back of the check: "All prior indorsements
and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank,"
Padre Faura Branch, Manila
Same date: following an established banking practice in the Philippines, the check
was forwarded for clearing through the Central Bank to the PNB
did not return said check the next day, or at any other time, but retained it
and paid its amount to the PCIB, as well as debited it against the account of the GSIS in
the PNB
PNB received a formal notice from the GSIS that the check had been lost,
with the request that payment thereof be stopped
January 31, 1962: Upon demand from the GSIS, the P57,415.00 was re-credited to
them bec. the signatures of its officers on the check were forged
signatures of the General Manager and the Auditor of the GSIS on the check,
as drawer, are forged
ISSUE: W/N PCIB as indorser is liable despite the fact that the check is forged when PNB is
also negligent
HELD: NO. Affirmed
PCIB stamped on the back of the check: "All prior indorsements and/or Lack of
Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura
Branch, Manila
Guaranteed not the authenticity of the signatures of the officers of the GSIS who
signed because the GSIS is not an indorser of the check, but its drawer
warranty is irrelevant to the PNB's alleged right to recover from the PCIB
in general, "acceptance" is not required for checks since they are payable on
demand
acceptance
promise to perform an act
the acceptance of a bill is the signification by the drawee of his assent
to the order of the drawer
payment
actual performance
PNB had been guilty of a greater degree of negligence, because it had a previous and
formal notice from the GSIS that the check had been lost, with the request that
payment thereof be stopped
PNB's negligence was the main or proximate cause for the corresponding loss
when 1 of 2 innocent persons must suffer by the wrongful act of a third person, the
loss must be borne by the one whose negligence was the proximate cause of the loss or
who put it into the power of the third person to perpetrate the wrong
where the collecting (PCIB) and the drawee (PNB) banks are equally at fault, the
court will leave the parties where it finds them
applies in the case of a drawee who pays a bill without having previously
accepted it
The acceptor by accepting the instrument engages that he will pay it according to the tenor
of hisacceptance; and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity and
authority to
draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
Negotiable Instruments Case Digest: Great Eastern Life Ins. Co. V. Hongkong Shanghai Bank (1922)
G.R. No. L-18657
FACTS:
May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on the
Hongkong and Shanghai Banking Corporation (HSBC) payable to the order of Lazaro
Melicor.
Next day: PNB endorsed the check to the HSBC who paid it
HSBC sent a bank statement to the Eastern showing the amount of the check was
charged to its account, and no objection was made
4 months after the check was charged, it developed that Lazaro Melicor, to whom the
check was made payable, had never received it, and that his signature, as an endorser,
was forged by Maasim,
Eastern promptly made a demand upon the HSBC to credit the amount of the forged
check
ISSUES: W/N Eastern has the right to recover the amount of the forged check
HELD: YES. lower court is reversed. Eastern against HSBC who can claim against PNB
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
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 Philippine National Bank had no license or authority to pay the money to Maasim
or anyone else upon a forge signature.
FACTS:
to pay their debts of her supplies, she draws checks against her account
she signed each and every crossed check without bothering to verify the
accuracy of the checks against the corresponding invoices because she reposed full
ISSUE: W/N Gempesaw has a right to recover the amount attributable to the forgeries
HELD: NO. REMANDED to the trial court for the reception of evidence to determine the
exact amount of loss suffered by the petitioner, considering that she partly benefited
from the issuance of the questioned checks since the obligation for which she issued
them were apparently extinguished, such that only the excess amount over and above
the total of these actual obligations must be considered as loss of which one half must
be paid by respondent drawee bank to herein petitioner.
forged cannot charge the drawer's account for the amount of said check
EX: where the drawer is guilty of such negligence which causes the bank to
to do so.
When it violated its internal rules that second endorsements are not to be
accepted without the approval of its branch managers and it did accept the same
upon the mere approval of Boon, a chief accountant, it contravened the tenor of its
obligation at the very least, if it were not actually guilty of fraud or negligence
drawee Bank did not discover the irregularity with respect to the acceptance of
checks with second indorsement for deposit even without the approval of the branch
manager despite periodic inspection conducted by a team of auditors from the main
office constitutes negligence on the part of the bank in carrying out its obligations to
its depositors
FACTS:
The Province of Tarlac maintains a current account with the Philippine National Bank (PNB)
Tarlac Branch where the provincial funds are deposited.
Checks issued by the Province are signed by the Provincial Treasurer and
countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan.
A portion of the funds of the province is allocated to the Concepcion Emergency Hospital
The checks are released by the Office of the Provincial Treasurer and received for the
hospital by its administrative officer and cashier.
January 1981:Upon post-audit by the Provincial Auditor, it was discovered that the hospital did
not receive several allotment checks
February 19, 1981: After the checks were examined, they learned that 30 checks of
P203,300 were encashed by Fausto Pangilinan, with the Associated Bank acting as collecting
bank.
Fausto Pangilinan
Jesus David, manager of Associated Bank refused and suggested that Pangilinan deposit the
check in his personal savings account with the same bank
Pangilinan was able to withdraw the money when the check was cleared and paid by
the drawee bank, PNB.
PNB did not return the questioned checks within twenty-four hours, but several
days later
After forging the signature of Dr. Adena Canlas who was chief of the payee hospital,
Pangilinan followed the same procedure for the other checks.
All the checks bore the stamp of Associated Bank which reads "All prior endorsements
guaranteed ASSOCIATED BANK.
CA affrimed RTC: Associated to reimburse PNB and ordering PNB to pay Province of Tarlac
HELD: YES. PARTIALLY GRANTED. The collecting bank, Associated Bank, shall be liable to PNB for 50%
of P203,300
Sec. 23. FORGED SIGNATURE, EFFECT OF. When a 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.
GR
A forged signature, whether it be that of the drawer or the payee, is wholly inoperative
and no one can gain title to the instrument through it.
A person whose signature to an instrument was forged was never a party and never
consented to the contract which allegedly gave rise to such instrument.
EX: where "a party against whom it is sought to enforce a right is precluded from setting up
the forgery or want of authority."
Parties who warrant or admit the genuineness of the signature in question and those
who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are
precluded from using this defense.
In bearer instruments, the signature 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 a holder in due course
In order instruments, the signature of its rightful holder (here, the payee hospital) is essential
to transfer title to the same instrument. When the holder's indorsement is forged all
parties prior to the forgery may raise the real defense of forgery against all parties subsequent
thereto.
An indorser of an order instrument warrants "that the instrument is genuine and in all
respects what it purports to be; that he has a good title to it; that all prior parties had capacity to
contract; and that the instrument is at the time of his indorsement valid and subsisting
A collecting bank where a check is deposited and which indorses the check
upon presentment with the drawee bank = indorser
The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay
the check to the order of the payee.
The drawer's instructions are reflected on the face and by the terms of the check.
Payment under a forged indorsement is not to the drawer's order. then is that
the drawee bank may not debit the drawer's account and is not entitled to indemnification from
the drawer. 25 The risk of loss must perforce fall on the drawee bank.
GR: drawee bank may not debit the drawer's account and is not entitled to indemnification
from the drawer - risk of loss must perforce fall on the drawee bank
EX:
if the drawee bank can prove a failure by the customer/drawer to exercise ordinary
care that substantially contributed to the making of the forged signature, the drawer is
precluded from asserting the forgery
If at the same time the drawee bank was also negligent to the point of substantially
contributing to the loss, then such loss from the forgery can be apportioned between the
negligent drawer and the negligent bank
In cases involving a forged check, where the drawer's signature is forged, the drawer can
recover from the drawee bank.
In cases involving checks with forged indorsements, the drawee bank canseek reimbursement
or a return of the amount it paid from the presentor bank or person
However, a drawee bank has the duty to promptly inform the presentor of the forgery
upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby
depriving said presentor of the right to recover from the forger, the former is deemed negligent
and can no longer recover from the presentor
Since PNB did not return the questioned checks within twenty-four
hours, but several days later, Associated Bank alleges that PNB should be considered negligent
and not entitled to reimbursement of the amount it paid on the checks.
In this case, the checks were indorsed by the collecting bank (Associated Bank) to the
drawee bank (PNB)