Islands Doctrine: The collecting bank which endorsed the checks to the drawee-bank for clearing, should be liable to the latter for reimbursement because the endorsement of the checks had been forged prior to delivery. The payments made by the drawee-bank to the collecting bank on account of the forged checks were ineffective because the creditor-debtor relationship between the depositor and the collecting bank had not been validly effected. Facts: Checks were deposited by petitioner in its current account with the bank. These checks were from a certain Ramirez, a consistent bettor 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. Issue: Whether or not the respondent bank had the right to debit the petitioner's current account. 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 drawers 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 draweebanks 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 ineffective - the creditor-debtor relationship hadn't been validly effected. Republic Bank vs. Ebrada Doctrine: It is only the negotiation predicated on the forged instrument that should be declared inoperative. The negotiation of the check in question between the parties after the immediate parties to the forgery should be considered valid and enforceable, barring any claim of forgery. Facts: Mauricia T. Ebrada (defendant) encashed a check at the Republic Bank. The check was issued by the Bureau of Treasury and was indorsed several times before falling into the hands of the defendant. Defendant managed to cash the check (worth around 1200 pesos). It was however discovered that the original payee, Martin Lorenzo, was already dead for more than a decade. Therefore the initial endorsement must have been a forgery. Issue: W/N Ebrada is liable to return the amount that she cashed. W/N a drawee of a check (bank) can recover from the holder (Ebrada) the money paid from a forged instrument.
Held: Sec. 23 of the Negotiable
Instruments Law dictates that where the signature on the negotiable instrument is forged then the negotiation of the check is without force or effect. In this specific case the court held that since the check was endorsed multiple times already it was not the responsibility of the bank to ascertain if the signatures of the previous endorsements were genuine or not. It was the responsibility of the holder of the check to satisfy himself that the paper is genuine. The acts of presenting the check for payment or putting it into circulation asserts that the holder has performed his duty to ascertain the validity of the instrument. Everyone with even the least experience in business knows that no business man would accept a check in exchange for money or goods unless he is satisfied that the check is genuine. If he is deceived he has suffered a loss of his cash or goods through his own mistake. Ebrada, upon receiving the check in question, was duty bound to ascertain if it was genuine or not before presenting it to plaintiff Bank. The Bank may recover from Ebrada the amount she received for the check. MWSS vs. Court of Appeals Doctrine: Petitioner MWSS was guilty of gross negligence in the printing of its personalized checks. The drawee-bank PNB cannot be faulted for not having detected the fraudulent encashment of the checks because the printing of MWSS's personalized checks was not done under its supervision and control. MWSS was in a better position to detect and prevent the fraudulent encashment. Facts: Metropolitan Waterworks and Sewerage System (MWSS) has several accounts with Philippine National Bank (PNB). One of them is NWSA Account No. 6 (NAWASA/NWSA,
is the predecessor-in-interest of MWSS).
By special arrangement, MWSS used personalized checks, on the months of March to May, 23 checks were released by NWSA; all of them were cleared and debited against their account. In those same months, the same 23 checks were cleared and debited against the NWSA account. These checks were deposited by Raul Dizon, Arturo Sison and Antonio Mendoza to 2 banks, namely Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC). Subsequent investigation by NBI shows that these depositors were all fictitious persons. After knowing the NBI report, NWSA then demanded to PNB immediate restoration of the value debited against their account. CFI ruled in favor of MWSS. However, it was overturned by the Court of Appeals, ruling for PNB. Hence this case. Issue: W/N MWSS can recover the amounts debited against their account. Held: No. The MWSS committed negligence on their part to bar their action for the restoration of the money. First, the alleged forgery of the 23 checks must be proved with clear, positive and convincing evidence. Forgery cannot be presumed. The reports, affidavit and memorandum submitted by MWSS merely alleges the discrepancy of signatures and does not conclude the checks to be forged. Nonetheless, MWSS is barred from setting up defense. Section 23 of the Negotiable Instruments Law (NIL) provides that when a signature of an instrument is forged, it s wholly inoperative unless the party against whom it is sought to enforce is precluded from setting up the forgery. One of those conditions that bar setting up defense is negligence. MWSS was negligent on 3 points.
1. Using personalized checks,
MWSA failed to provide security measures to the printing office. Failed to give printer specific instructions Failed to retrieve spoiled check forms Failed to provide any control regarding the paper Failed to furnish PNB with samples of typewriting, check writing and print of personalized checks Failed to send a representative to the printing office Faustino Medina, owner of the printing press even testified that they leave the finished and unfinished checks vouchers the rack of the machine so that work could be continued the following day. 2. MWSS failed to reconcile the bank statements with their own records. Mr. Zapaorteza, the person who was supposedly in charge of verifying such accounts, unreasonably delayed in taking prompt deliveries of PNB bank statements and credit and debit memos. It was the proximate cause of the failure to discover the fraud. 3. MWSS failed to provide security measures over its own records. It was shown that Mr. Ongtengco, the cashier of the Treasury Dept of NWSA, allows people known to him to enter his office while the check writer is merely on top of his table. NBI reports concluded that the forged checks were an inside job, because the forgers knew specifically the account number that holds sufficient amount to encash such checks. PNB should have no liability because it has taken necessary measures in the detection of forged checks. It actually sent a memorandum to all Current Account Bookkeepers, including MWSS, warning them of the activities of forgery syndicates who specifically target depositors using personalized checks. Banco de Oro vs. Equitable Banking Corporation
Doctrine: Having stamped its
guarantee of "all prior endorsements and/ or lack of endorsements," the collecting bank is estopped from claiming otherwise. Whenever any bank treats the signature at the back of the check as an endorsement, and thus guarantees the same, it is liable. The drawer cannot be held liable for the negligence of the collecting bank. There is no privity between the drawer and the collecting bank. Facts: BDO drew checks payable to member establishments. Subsequently, the checks were deposited in Trencio's 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. Issue: Whether or not Banco de Oro could collect reimbursement from Equitable Bank. 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 non-negotiable 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 nonnegotiability 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 duty 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 was negligent in handling
her affairs by not ascertaining the values of the payments and if indeed the payments reached the payees making forgery not a defense for her to recover. The CA affirmed. Issue: W/N the forgery entitles Gempesaw to reimbursement? Held: Partly Yes & No. The SC found that Gempesaw is indeed negligent which precludes her from raising the defense of forgery. However, the SC, using Art. 1170 of the Civil Code, said that the bank becomes also liable for damages for accepting the check with a second indorsement. It should be noted that in the current banking system, checks with second indorsements are not generally accepted and given this fact, the Bank should also shoulder liability. Gempesaw and the bank are liable 5050 for the loss.
Gempesaw vs. Court of Appeals
Doctrine: As a rule, a drawee bank who has paid a check on which an endorsement 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 a check or checks. Facts: Gempesaw filed for recovery of the money value of 82 checks charged against her account due to forgery of indorsements made by Alicia Galang, her trusted bookkeeper. In the normal course of her grocery business, it would be Galang who would write the amounts in the check and Gempesaw would only sign the checks without ascertaining its contents. The checks were deposited in the accounts of Romero and Lam, with the aggregate total amounting to 1.2 million pesos. Gempesaw filed a case with the RTC which held that
Associated Bank vs. Court of
Appeals Doctrine: The drawee-bank cannot debit the account of the drawer because it paid checks which bore forged endorsements. However, if the drawer was negligent to the point of contributing substantially to the loss, then the drawee-bank can charge the drawer's account. If both the draweebank and the drawer were negligent, the loss should be apportioned between them. Facts: Faustino Pangilinan, cashier of the Concepcion Emergency Hospital, forged the signature of Dr. Adena Canlas who was the Chief of the said hospital and endorsed 30 checks amounting to P203,300 to himself. The money was drawn from the account of the Province of Tarlac with PNB. Pangilinan deposited the checks to his
personal savings account with
Associated Bank which was cleared and paid for by PNB. The checks have a stamp of Associated Bank which reads All prior endorsements guaranteed by Associated Bank. The Province of Tarlac, through the Provincial Treasurer, wrote PNB to restore the various amounts debited from the current account of the Province. PNB on its part demanded reimbursement from Associated Bank. Both banks resisted payment which led to the Province of Tarlac suing PNB. PNB in turn impleaded Associated Bank in the suit as a third-party defendant while Associated Bank impleaded Canlas and Pangilinan as fourth-party defendants. For convenience, the transfers were effected in the following sequence: TARLAC - PNB - ASSOCIATED BANK CANLAS & PANGILINAN. The trial court ruled that 1) PNB should pay the Province of Tarlac the P203,300 with legal interests, 2) Associated Bank should be pay the same amount to PNB and 3) dismissed the complaints against Canlas and Pangilinan. On appeal, the CA affirmed the ruling of the trial court. Issue: Who should bear the loss arising from the forgery, the Province of Tarlac, PNB, Associated Bank or Pangilinan? Held: The SC held that the Province and Associated Bank should bear losses in the proportion of 50-50. The Province can only recover 50% of the P203,300 from PNB because of the negligence they exhibited in releasing the checks to the then already retired Pangilinan who is an unauthorized person to handle the said checks. On the other hand, Associated Bank is liable to PNB only to 50% of the same amount because of its liability as
indorser of the checks that were
deposited by Pangilinan, and guaranteed the genuineness of the said checks. They failed to exercise due diligence in checking the veracity of indorsements. Metrobank vs. First National City Bank Doctrine: The failure of FNCB as drawee-bank to inform the collecting bank, Metrobank, about the alteration in question until after the lapse of 9 days negates whatever right it might have had against Metrobank in the light of Central Bank Circular No.9, as amended by Circular No.138, which requires all items cleared on a particular clearing to be returned not later than 3:30PM on the following business day. While it is true that Metrobank endorsed the check, such an endorsement must be read together with the 24-hour rule on Clearing House Operations of the Central Bank. Facts: A check was drawn by Joaquin Cunanan & Company (JCC) on First National City Bank (FNCB) which was deposited in Metrobank by Salvador Sales. The check was cleared the same day and the latter withdrew it and closed his account. Thereafter, upon return of the cancelled check, JCC notified the bank that the check was altered from actual amount of P50 raised to P50,000 and over the name superimposed the word Cash. FNCB notified and reiterated the request to Metrobank for the reimbursement but the latter was adamant in its refusal, hence, this action. Issue:Whether or not Metrobank should bear the loss from a materially altered check? Held: In this case, the check was not returned to Metro Bank in accordance with the 24-hour clearing
house period, but was cleared by FNCB.
Failure of FNCB, therefore, to call the attention of Metro Bank to the alteration of the check in question until after the lapse of nine days, negates whatever right it might have had against Metro Bank in the light of the said Central Bank Circular. Its remedy lies not against Metro Bank, but against the party responsible for the changing the name of the payee and the amount on the face of the check. Republic Bank vs. Court of Appeals Doctrine: It is true that when an endorsement is forged, the collecting bank or last endorser, as a general rule, bears the loss. But the unqualified endorsement of the collecting bank should be read together with the 24hour rule on clearing house regulations. When the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability. Facts: San Miguel Corporation (SMC) drew a check amounting to P240.00 on its account in First National City Bank (FNCB) in favor of Delgado, a stockholder. Delgado fraudulently altered the amount of the check to P9,240 after which he endorsed and deposited it with Republic Bank. Republic Bank endorsed the check to First National City Bank (FNCB), the drawee bank, by stamping on the back of the check all prior and / or lack of indorsement guaranteed". Based on such endorsement, FNCB paid the amount to Republic Bank. Later on, SMC informed FNCB of the material alteration of the amount. FNCB recredited the amount to San Miguels account, and demanded refund from Republic Bank. Republic Bank refused, claiming there was delay in giving it notice of the alteration.
Issue: Whether petitioner
Republic Bank as the collecting bank should bear the loss resulting from the altered check. Held: When an indorsement is forged, the collecting bank or last indorser, as a general rule, bears the loss. But the unqualified indorsement of the collecting bank on the check should be read together with the 24-hour regulation on clearing house operation. Hence, when a drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability. Philippine Commercial International Bank vs. Court of Appeals Doctrine: The mere fact that the forgery was committed by a drawerpayor's confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawerpayor, in the absence of circumstances raising estoppel against the drawer. A bank is liable for the fraudulent acts or representations of an office or agent acting within the scope of his employment or authority. But in this case, responsibility for negligence does not lie on the collecting bank's shoulders alone. Citibank, as draweebank was likewise negligent, and must also answer for the damages suffered by the drawer because of the contractual relationship between it and the latter. Thus, invoking the doctrine of comparative negligence, both PCI and Citibank are equally liable. Facts: 3 cases are consolidated in this decision involving Ford, Citibank, and PCI Bank. The original action was instituted by
Ford to recover from drawee bank
Citibank and collecting bank PCI Bank a sum of money for the value of several checks payable to the Commissioner of Internal Revenue, which were embezzled allegedly by and organized syndicate. In 1977, Ford issued a Citibank check payable to the CIR for its tax obligations for the third quarter of the said year. After clearing, the check was deposited to PCI Bank. However, it was paid to or received by the payee, CIR. The latter compelled Ford to make another payment, which was then credited. Ford on the other hand subjected Citibank for reimbursement for the second assessment. The same thing happened in 1978 and 1979. After an investigation conducted by the NBI, it was discovered that an organized syndicate was behind the scam. It was revealed that the General Ledger Accountant of Ford recalled the checks and caused PCI Bank to replace the checks with manager's checks, which were later deposited by alleged members of the syndicate. Ford filed a complaint against the officer but was dismissed because he could not be served summons as he was a fugitive from justice. Ford mainly impleads Citibank and PCI Bank for the recovery of the sum of money. The trial court ruled in favor of Ford in declaring that Citibank and PCI Bank were jointly liable. The CA however modified the decision, saying that only Citibank was liable. Hence, this petition. Issue: Has Ford the right to recover the value of the checks intended as payment to CIR? Held: With regard to the 1977 case, the SC held PCIBank solely liable for paying Ford on the basis of its negligence in failing to verify the authority of the Ford employee to negotiate the checks. It showed the employees lack of care and prudence
required in the circumstances. Further,
PCI Bank's clearing stamps enabled the checks to pass through the clearing house and therefore Citibank had no choice but to pay it. PCI Bank's contention that Ford was guilty of imputed contributory negligence cannot prosper because it was established that the officer's instruction to replace the checks was not in the ordinary course of business which could have prompted PCI Bank to validate the check. Regarding the 1978 and 1979 cases, the SC held that both Citibank and PCI Bank were both liable for the sum and must share in the loss. The SC was able to establish the proximate cause of the loss which was the negligence of PCI Bank and that one of its employees was in with the syndicate. The general rule that a bank is liable for the fraudulent acts or representation of an officer or an agent acting within the course and apparent scope of his employment or authority was applied. Citibank on the other hand was held liable based on its contractual relationship with Ford. There was a breach of such relationship and failed to scrutinize the checks before paying the amount to the CIR. The SC applied the doctrine of comparative negligence, citing both Citibank and PCI Bank for failing in their respective obligations and negligence in the selection and supervision of their employees. Ramon Ilusorio vs. CA Doctrine: It is a rule that when a signature is forged or made without the authority of the person whose signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. However, the rule does provide for an exception, namely: unless the party against whom it is sought to enforce such right is precluded from setting up the forgery
or want of authority.' In the instant
case, it is the exception that applies. Petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account. Facts: Ilusioro was a prominent business man and a creditor in good standing of Manila Banking Corporation. Due to his numerous business dealings and frequent travels he left the management of his account to his secretary Katherine Eugenio. From September 1980 to January 1981, Eugenio was able to encash and deposit 17 checks to her account drawn against that of Ilusorio. When a business partner informed him of Eugenio's activities he fired her and instituted criminal action for estafa through falsification. At the same time, private respondent Manila Bank also instituted criminal action against Eugnio for estafa through falsification of commercial documents. Petitioner requested the bank to restore to his account the value of the checks but respondent refused. Hence, this instance case. ISSUE: 1) W/n petitioner has a cause of action against Manila Bank. 2) W/n Manila Bank is barred from raising defense that the fact of forgery was not established by filing an estafa case against Eugenio. RULING: The Court finds that petitioner has no cause of action against Manila Bank. Petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signature. The forgery was not proven because of the petitioners own inaction, by not providing further specimen signatures. He is precluded therefore from setting
up forgery. Sec. 23 of the N.I.L provides
for the exception that unless the party against whom it is sought to enforce such right is precluded from setting up forgery or want of authority. On the second issue, the fact that Manila Bank filed a cased against Eugenio would not estop it from asserting the fact that forgery has not been clearly established. Based on Sec 2 Rule 110 of the Rules of Court, the party to the complaint is the People of the Philippines. Petitioner therefore cannot hold Manila Bank in estoppels for it is not the actual party to the criminal action. Petition is denied. Samsung Construction Co. Phils., Inc. vs. FEBTC and CA Doctrine: The bare fact that the forgery was committed by an employee of the party whose signature was forged cannot necessarily imply that such party's negligence was the cause of the forgery. Employers do not possess the supernatural gift of cognition as to the evil that may lurk within the hearts and minds of their employees. Facts: Samsung Construction held an account with Far East Bank. One day a check worth 900,000, payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of Samsung, who was also present during the time the check was cashed. Later however it was discovered that no such check was ever approved by the Samsung's head accountant, the president of the company also never signed any such check. Issue: W/N Far East Bank is liable to reimburse Samsung for cashing out the forged check, which was drawn from the account of Samsung
Held: Far East Bank is liable for
reimbursement. Sec. 23 of the Negotiable Instrument Law states that a forged signature makes the instrument wholly inoperative. If payment is made the drawee (Far East) cannot charge it to the drawer's account (Samsung). The fact that the forgery is clever is immaterial. The forged signature may so closely resemble the genuine as to defy
detection by the depositor himself. And
yet, if the bank pays the check, it is paying out with its own money and not of the depositor's. This rule of liability can be stated briefly in these words: A bank is bound to know its depositor's signature. The accusation of negligence on the part of Samsung was not clearly proven. Absence of proof to the contrary, the presumption is that the ordinary course of business was followed.