Digest Author: Tomic Apacible
 It was deposited with the BPI having a fake endorsement
SAN CARLOS MILLING CO. V. BANK OF
THE P.I. (1933)
Petitioner: SAN CARLOS MILLING CO.
Respondent: BANK OF THE PHILIPPINE ISLANDS AND CHINA BANKING
CORPORATION
Ponencia: SISON, J.
DOCTRINE: 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
FACTS:
 San Carlos Milling Co. Ltd., a a Hawaii-based corporation, 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.
 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
(Baldwin forged as drawer)
 They had a China Bank check for the said amount issued in favor of San
Carlos; then they deposited the amount to the BPI Account of the
company again through the forged signature of Baldwin.
 BPI accepted the check and cleared the amount w/ China Bank. Wilson
then sent a letter to the BPI Cashier, again w/ the spurious signature of
Baldwin, directing the withdrawal and packing of P 200,000.00 cash.
 It must be noted that San Carlos never withdrew such large
amounts from the BPI, and never under the sole supervision of
Dolores. Then the fraud was discovered and San Carlos sought to
recover from both China Bank and BPI
ISSUES:
1. WON BPI is liable for the amounts fraudulently withdrawn.
2. WON China Bank is liable for the amounts fraudulently withdrawn.
PROVISION: Section 23, NEGOTIABLE INSTRUMENTS LAW
RULING + RATIO:
Yes.
- A bank is bound to know the signatures of its customers.
- BPI’s  negligence  is  the proximate cause of the loss when it
honored and cashed the forged checks.
- BPI was the one deceived by the forged signature of Baldwin – and it
was the one that allowed the suspicious withdrawal of the said
amounts in cash by Dolores.
- Further, the presentment of the check was for deposit only; this is
basic and common practice.
No.
- As the drawee bank, it was not bound to inspect all
indorsements in the check; instead, it had the right to rely upon
BPI’s  (mistaken)  endorsement  when  it  gave  credit  to  the  check.
DISPOSITION: Judgment reversed
Digest Author: Marielle Corpin  NO.
 Gozon cannot be considered negligent in this case. His check was
PNB v. QUIMPO removed and stolen from his checkbook without his knowledge and
Petitioner: Philippine National Bank consent. He trusted Santo as a classmate and a friend. He had no
Respondent: Hon. Romulo Quimpo as Presiding Judge of CFI Rizal and Francisco reason to suspect that the latter would breach that trust.
Gozon II  The prime duty of the bank is to ascertain the genuineness of the
Ponencia: Gancayco, J. signature of the drawer or depositor on the check being encashed. It
is expected to use reasonable business prudence in accepting and
DOCTRINE: cashing a check presented to it.
Where the private  respondent’s  check  was  removed  and  stolen  from  his    In this case, the NBI handwriting expert Estelita Santiago Agnes
checkbook without his knowledge and consent, he cannot be considered whom  the  trial  court  considered  to  be  an  “unbiased  scientific  expert”  
negligent in this case. indicated the marked differences such as between the signatures of
Gozon on the sample signatures and the questioned signature. The
graceful lines in the sample signature are completely different from
FACTS: those of the questioned signature.
1. While Gozon (private respondent) was in the bank transacting  Col. Fernandez, witness for PNB, testified the genuineness of the
business,  Ernesto  Santos,  Gozon’s  friend whom he left in his car, signature by merely examining the pictorial report. However when
took  a  check  from  Gozon’s  checkbook,  filled  it  up  for  the  amount  of   the trial court examined said report, it found a marked difference in
P5,000.00  and  forged  Gozon’s  signature. the  second  “c”  and  the  separation  between  the  “s”  and  “c”  in  the  
2. Thereafter, Santos  encashed  the  check  which  debited  Gozon’s   questioned signature.
account.  Obviously petitioner was negligent in encashing said forged check
3. Upon receipt of the statement of account from the bank, Gozon without carefully examining the signature.
asked that said amount should be returned to his account as his
signature on the check was forged but the bank refused. DISPOSITION: Petition dismissed for lack of merit. Costs against petitioner.
4. Upon complaint of Gozon, Santos was apprehended by the police
authorities and upon investigation admitted that he stole the check
and  forged  Gozon’s  signature.
5. Gozon filed the complaint for recovery of the amount against the
bank. The CFI ruled in favor of Gozon.
6. Hence, this petition.

ISSUES:
WON  the  Gozon’s  negligence  was  the  proximate  cause  of  the  loss  thereby  
precluding him from setting up the defense of forgery under Section 23 of the
NIL

PROVISION:
Section 23 NIL
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 arty against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority.

RULING + RATIO:
Digest Author: Alyssa Rodriguez
Phil. National Bank vs CA (1968)
Petitioner: Phil. National Bank
Respondent: The Court of Appeals and Philippine Commercial and Industrial Bank
Ponencia: Concepcion, C.J.
DOCTRINE: The PNB refunded the amount of the check to the GSIS, on
account of the forgery in the signatures, not of the indorsers or supposed
indorsers, but of the officers of the GSIS as drawer of the instrument.
The indorsement of an intermediate bank does not guarantee the signature
of the drawer.
FACTS:
7. The GSIS was the drawer of a GSIS check worth Php 57,415.00,
drawn against the PNB
8. The person named in the check as its payee was Mariano D. Pulido
 who indorsed it to Manuel Go  who indorsed it to Augusto Lim
9. Then Augusto Lim deposited this GSIS check in his current account
with the PCIB branch at Padre Faura, Manila
10. Thereupon, the PCIB stamped the following on the back of the
check:
"All prior indorsements and/or Lack of Endorsement Guaranteed,
Philippine Commercial and Industrial Bank"
11. PCIB then forwarded the check for clearing, through the Central
Bank, to the PNB, which did not return said check but retained it and
paid its amount to the PCIB and debited the amount against the
account of the GSIS with them (PNB)
12. Apparently though, the signatures of the GM and the Auditor of the
GSIS on this check were forged. And actually 2 months before, the
GSIS had already notified the PNB, which acknowledged receipt of
the notice, that said check had been lost and accordingly, requested
that its payment be stopped.
13. As such, GSIS demanded that the sum of P57,415.00 be re-credited
to their account.
14. In turn, PNB demanded from the PCIB to refund the sum, which the
PCIB refused to do.
15. Hence, the present action against the PCIB, which was dismissed by
the Court of First Instance of Manila, whose decision was, in turn,
affirmed by the Court of Appeals.
ISSUES: W/N the Court of Appeals erred in NOT holding that:
1. the indorsements at the back of the check are forged
2. the PCIB is liable to the PNB by virtue of the former's warranty on the
back of the check
3. "clearing" is not "acceptance", in contemplation of the Negotiable
Instruments law;
PROVISION: Sec. 23. Forged signature; effect of. – 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
RULING + RATIO:
NO to all three issues raised. Decision of CA is upheld.
1. The PNB argues that, since the signatures of the drawer are forged,
so must the signatures of the supposed indorsers be; but this
conclusion does not necessarily follow from said premise. The
question whether or not the indorsements have been falsified is
immaterial to the PNB's liability as a drawee. The PNB refunded the
amount of the check to the GSIS, on account of the forgery in the
signatures, not of the indorsers or supposed indorsers, but of the
officers of the GSIS as drawer of the instrument.
2. As to the warranty on the back of the check, it should be noted that
the PCIB thereby guaranteed "all prior indorsements," not the
authenticity of the signatures of the officers of the GSIS who signed
on its behalf, because the GSIS is not an indorser of the check, but
its drawer.
3. Within the purview of the NIL:
Acceptance - is a 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,"
which, in the case of checks, is the payment, on demand, of a given sum
of money
Payment – is the "actual performance" thereof; actual payment of the
amount of a check implies not only an assent to said order of the drawer
and a recognition of the drawer's obligation to pay the aforementioned
sum, but, also, a compliance with such obligation.
Within the NIL, "acceptance" is not required for checks, for the same are
payable on demand.
Moreover, PNB's negligence was the main or proximate cause for the
corresponding loss. It had a previous and formal notice from the GSIS that
the check had been lost, with the request that payment thereof be stopped
but the PNB still honored the check and paid its amount to the PCIB.
DISPOSITION: Petition dismissed. Decision appealed from is affirmed.
Digest Author: Christian Laluna
Metropolitan Waterworks and Sewerage System
(MWSS) v. Court of Appeals and the Philippine
National Bank
Petition: Petition to Review on Certiorari
Petitioner: MWSS
Respondent: CA and PNB
Ponencia: Gutierrez, Jr.
DOCTRINE: Forgery cannot be presumed. It must be established by
clear, positive, and convincing evidence.
RULING + RATIO:
(Paraphrase) The defense of forgery cannot be raised by a party if said
party  “was guilty of negligence not only before the questioned checks
were negotiated but even after the same had already been negotiated.”
FACTS:
1. MWSS had bank accounts with PNB, in particular NWSA Account
No. 6, for which MWSS was allowed by special arrangement with
PNB to use MWSS-personalized checks (rather than PNB checks),
all with authorized officers to sign.
2. Lo and behold, in the months of March-May 1969 there were issued
two sets of 23 checks, each set mirroring the other in their check (ID)
numbers—in short, ONE OF THE SETS WAS FAKE, to the amount
of Php3,457,903.00.
3. We’re interested in the set whose payees were Raul Dizon, Arturo
Sison and Antonio Mendoza, who deposited the checks in their
accounts in PCIB and PBC. These checks were cleared through
PNB,  all  bearing  the  standard  indorsement  “all prior indorsement
and/or lack of endorsement guaranteed.”  PNB  promptly  debited   destruction of spoiled checks, control of inks and paper, or
these checks against the MWSS account.
4. The NBI found that these three payees were fictitious. MWSS
promptly demanded, and later filed a case demanding that PNB
restore the 3-mil deducted from its account, on account of
forged/spurious checks. PNB countered, saying that the checks on
their face aroused no suspicion as to its genuineness.
5. CFI Manila sided with MWSS. CA reversed on appeal.
ISSUES:
1. W/N PNB should restore the 3-mil  amount  debited  from  MWSS’  
account, as a result of the spurious checks
DISPOSITION: Petition DENIED, CA AFFIRMED, MWSS short 3-mil plus.
PROVISIONS:
1. NIL Sec. 23: FORGED SIGNATURE; EFFECT OF.- When the
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.
2. NIL Sec. 24: Every negotiable instrument is deemed prima facie to
have been issued for valuable consideration and every person
whose signature appears thereon to have become a party thereto for
value.
1. NO, MWSS must bear the debits against its account.
a. While MWSS bases its case on the NBI reports, claiming
that they overturn the Sec. 24 prima facie presumption, SC
inspection of the reports finds that these reports do not
expressly and categorically state that the signatures on the
checks are forgeries. In fact, these reports do not touch on
the details that prove that signatures are or are not forgeries.
i. So RULE #1: FORGERIES CANNOT BE
PRESUMED.
b. But more important to Sec. 23, the forgery defense cannot
be raised by a party “is precluded from setting up the forgery
or want of authority.”  How  can  this  happen?  If  the  party  was  
negligent—which  MWSS  was  (“gross”-ly). Knowing it had
customized, personalized checks printed for its use, MWSS
nonetheless did not establish the necessary safety protocols
with its printer (Mesina Ent.) to ensure the safety of the
checks. It did not issue any instructions for safekeeping,
even  had  a  representative  on  hand  during  the  checks’  
printing. MWSS even took too long to reconcile their
accounts with PNB to ensure the security of their account.
And it is such that MWSS cannot even accuse PNB of
negligence, considering that the checks are personalized
and there is no evidence that MWSS provided samples to
PNB to help authenticate future checks.
i. So RULE #2: (GROSS) NEGLIGENCE =
PRECLUDED.
Digest Author: James Atienza
REPUBLIC OF THE PHILIPPINES v. EQUITABLE PROVISION: Sec. 23, Negotiable Instruments Law
BANKING CORP. (1964) RULING + RATIO:
Appellant: Republic of the Philippines No.
Appellees: Equitable Banking Corp., Bank of the Philippine Islands,  Section 23 of the Negotiable Instruments Law states:
Corporacion de los Padres Dominicos
Ponente: Concepcion, J.
“Sec.   23. Forged signature; effect of. - When a
signature is forged or made without the authority
DOCTRINE: Forgery
of the person whose signature it purports to be, it
Where defendant bank, on presentation to it on September 2, of forged
is wholly inoperative, and no right to retain the
check drawn on another bank, paid part of amount to presenter, drawee
instrument, or to give a discharge therefor, or to
paying check through clearing house on said day, held that the latter, not
enforce payment thereof against any party thereto,
giving notice of forgery until December 5, could not hold defendant for
can be acquired through or under such signature,
amount so paid. (First State Bank & Trust Co. v. First Nat. Bank, 145 N. E.
unless the party against whom it is sought to
382, 314 Ill. 269, affirming 234 Ill. App. 39.)
enforce such right is precluded from setting up
the forgery or want of authority.”
FACTS:
 The Treasurer cleared the subject Treasury Warrants prior to its
16. Corporacion de los Padres Dominicos (Corporation) accommodated
declaration of forgery. Said acceptance was relied upon in good faith
its employee Jacinto Carranza (Jacinto), the latter asking the former
by the respective banks. It cannot therefore set up the defense of
to cash twenty eight (28) Treasury Warrants issued by the
forgery after having done the said acts (proviso of Section 23). Thus,
Government to various payees who indorsed the same to Jacinto.
the High Court stated:
Corporacion acceded under the condition that the same shall first be
deposited to Bank of the Philippine Islands (BPI) and must be
“At any rate, the aforementioned twenty-eight (28)
cleared by the Treasurer of the Philippines (Treasurer) prior to
warrants were cleared and paid by the Treasurer,
encashment;
in view which the PI Bank and the Equitable Bank
credited the corresponding amounts to the
17. BPI   accepted   the   said   Warrants   and   subjected   the   same   “for  
respective depositors of the warrants and then
collection  only”.  Thereafter,  BPI  presented  the  same  to  the  Treasurer  
honored their checks for said amounts. Thus, the
and the same was cleared. Thus, the said arrangement materialized
Treasury had not only been negligent in clearing
allowing Corporacion to pay Jacinto with the respective proceeds
its own warrants, but had, also, thereby induced
thereof;
the PI Bank and the Equitable Bank to pay the
amounts thereof to said depositors. The gross
18. However, the twenty four (24) warrants were returned by the Central
nature of the negligence of the Treasury becomes
Bank   on   separate   dates,   charging   the   same   against   BPI’s   account  
more apparent when we consider that each one of
and crediting it back to the Treasury, allegedly for being forged. The
the twenty-four (24) warrants involve in G.R. No.
four (4) other warrants, on the other hand, were allegedly deposited
L-15895 was for over P5,000, and, hence; beyond
to Equitable Banking Corp. (Equitable) which suffered the same fate
the authority of the auditor of the Treasury —
of being returned due to the same reason. With this, the Government
whose signature thereon had been forged — to
instituted collection cases against BPI and Equitable for recovery of
approve. In other words, the irregularity of said
payments made.
warrants was apparent the face thereof, from the
viewpoint of the Treasury. Moreover, the same
ISSUES:
had not advertised the loss of genuine forms of its
warrants. Neither had the PI Bank nor the
WON the Treasurer can recover the proceeds of the Treasury Warrants
Equitable Bank been informed of any irregularity in
cashed out by the banks for having been made under forged signatures.
 connection with any of the warrants involved in
these two (2) cases, until after December 23,
1952, — or after the warrants had been cleared
and honored — when the Treasury gave notice of
the forgeries adverted to above. As a
consequence, the loss of the amounts thereof is
mainly imputable to acts and omissions of the
Treasury, for which the PI Bank and the Equitable
Bank should not and cannot be penalized.”

DISPOSITION: Appealed decision of the lower courts were AFFIRMED.

Digest Author: Joachim Dompor
Philippine National Bank v. The National City Bank of New
York and Motor Service Company (1936)
Petition: Appeal
Petitioner (Appellee): Philippine National Bank
Respondent (Appellant): The National City Bank of New York and Motor Service
Company
Ponencia: Recto
DOCTRINE:
Where a bank, without inquiry or identification of the person presenting a
forged check, purchases it, indorses it, generally, and presents it to the
drawee bank, which pays it, the latter may recover if its only negligence was
its mistake in having failed to detect the forgery, since its mistake, did not
mislead the purchaser or bring about a change in position
FACTS:
1. Unkown persons negotiated with Motor Service Company two checks in
payment for automobile tires purchased from said defendant's stores,
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 the International Auto Repair Shop, for P144.50 and P215.7
2. The checks were then indorsed for deposit by the defendant Motor
Service Company, Inc, at the National City Bank of New York (Citibank)
and said company was accordingly credited with the amounts thereof
3. The checks were cleared at the clearing house and the PNB credited
Citibank for the amounts thereof, believing at the time that the signatures
of the drawer were genuine, that the payee is an existing entity and the
endorsement at the back thereof regular and genuine.
4. PNB then found out that the purported signatures of J. L. Klar, as
Manager and Treasurer of Pantranco, were forged when so informed by
the said company, and it accordingly demanded from the Citibank the
reimbursement of the amounts, but the defendants refused, and continue
to refuse, to make such reimbursements.
5. Pantranco objected to have the proceeds of said check deducted from
their deposit.
6. Exhibits of the signatures were introduced at the trial and are admitted by
the parties as genuine and are made part of this stipulation
7. The MTC rendered a decision in favor of PNB (but case was dismissed
as to Citibank based on a motion by PNB)
8. Hence, this appeal.
ISSUES:
2. W/N PNB has the right to recover from the appellant, under the
circumstances of this case, the value of the checks on which the
signatures of the drawer were forged
PROVISION:
 Section 23, Negotiable Instruments Law
RULING + RATIO:
3. YES. PNB has the right to recover from the appellant, under the
circumstances of this case, the value of the checks on which
the signatures of the drawer were forged
- The responsibility of the drawee who pays a forged check, for
the genuineness of the drawer's signature, is absolute only in
favor of one who has not, by his own fault or negligence,
contributed to the success of the fraud or to mislead the drawee
- Where a bank, without inquiry or identification of the person
presenting a forged check, purchases it, indorses it, generally,
and presents it to the drawee bank, which pays it, the latter may
recover if its only negligence was its mistake in having failed to
detect the forgery, since its mistake, did not mislead the
purchaser or bring about a change in position
- PNB did not warrant to the appellant the genuineness of the
checks in question, by its acceptance thereof, nor did it perform
any act which would have induced the appellant to believe in the
genuineness of said instruments before appellant purchased
them for value
- Motor  Service  Company’s  negligence  was  the  proximate  cause  
of the loss
o Check 637023-D and is dated April 6, 1933, whereas
Check 637020-D is dated April 7, 1933. Therefore, the
latter check, which is prior in number to the former
check, is however, issued on a later date. This
circumstance must have aroused at least the curiosity of
the Motor Service Co., Inc.
o Motor Service Company accepted the checks from two
unknown persons. The company made no inquiries as to
the authority of said persons (one was a subagent of
payee International Auto Repair)
 o The checks were cross checked. This was a warning
that the check could only be collected through a banking
institution
- 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

DISPOSITION: Petition denied. Judgment appealed from AFFIRMED

*There were discussions on payment vis-à-vis acceptance because it was

raised  as  a  defense  by  the  appellants  that  PNB’s  payment  of  the  checks  
constituted  “acceptance”  and  thus  is  liable  for  the  genuineness  of  the  
instrument and the signatures and indorsements therein under Section 62.
 Common sense dictates that the two terms are analogous. However,
in legal parlance, payment is not equal to acceptance, especially
when applied to checks.
 The latter, acts merely as certification that the check is good and
drawn on sufficient funds and may act as a promise that should this
be  further  negotiated,  the  bank  “accepting”  can  and  will  pay  amount  
on the check.
 The former does not have the same effect. When a check is
presented for payment, the duty of the bank is to pay the amount.
Cashing it on presentment is not acceptance. Negotiability ends
there and then.
Digest Author: Terence Ang As shown in the lower courts, forgery was not sufficiently
Illusorio vs CA (2002) proven in order for Sec. 23 to be given any effect.
Additionally, even if forgery were proven, Sec. 23 will not
Petition: Petition for Review of the Decision of the Court apply when the drawee was negligent. Which in this case, he
Petitioner: RAMON K. ILLUSORIO was very much so. First of all, he gave his secretary too
Respondent: HON. COURT OF APPEALS and THE MANILA BANKING much power without keeping it in check. In this case,
CORPORATION although the bank gave petitioner monthly statements, he
Ponencia: Quisumbing, J. never even bothered to check. Second, the bank was not
negligent in performing it’s  duties.  It  checked  the  authenticity  
of the signature sufficiently and would even call the petitioner
DOCTRINE: Although Sec. 23 makes a negotiable instrument which is to ask if the signatures were genuine. Sadly, all calls went
forged or made without authority wholly inoperative, the negligence of directly and were answered by Eugenio.
the drawer will stop him requiring the drawee to reimburse the
embezzled funds. From the forgoing, the Court finds that it was the
acts of Illusorio which were the proximate cause of the loss.
FACTS: Thus being so, he cannot be reimbursed for his negligence.

1) Petitioner, Illusorio was a prominent businessman; running over 20

companies. Because of his work, he was required to leave the
DISPOSITION: Petition denied. The first decision of the CA is affirmed.
country often.
2) He assigned his secretary, Katherine Eugenio to take care of his
accounts during his absence and left with her, his credit cards, blank
checks and checkbooks.
3) Petitioner never checked on his financial accounts and the only
reason which prompted him to do so was because his friend saw
Eugenio  use  the  petitioner’s  card.
4) It was discovered that 17 checks had been drawn against the
petitioners account for P 119,634.34 pesos.
5) Eugenio was promptly fired and cases of estafe were filed against
her by the petitioner and the respondent. Additionally, the bank was
requested to reimburse Illusorio for the forged checks which have
been enashed. Repondent Manila Banking Corporation refused.
6) The lower courts ruled in favor of respondent on the ground that
forgery of the signatures were not sufficiently proven and that the
bank employees performed the required diligence in cashing the
checks.

ISSUES:
a) W/N the respondent bank is liable to petitioner for the reimbursement
of the lost funds from his account.

RULING + RATIO:
a) No.
Digest Author: Ann Catherine Co  The counterfeiting of any writing, consisting in the signing of
BPI v CASA MONTESSORI INTERNATIONALE another’s  name  with  intent  to  defraud,  is  forgery. There was forgery
of  the  drawer’s  signature  on  the  check.
(2004)  Having  established  the  forgery  of  the  drawer’s  signature,  BPI  -- the
Petitioner: Bank of the Philippine Islands drawee -- erred in making payments by virtue thereof. The forged
Respondent: CASA Montessori Internationale; Leonardo Yabut signatures are wholly inoperative, and CASA -- the drawer whose
Ponencia: Panganiban, J. authorized signatures do not appear on the negotiable instruments --
cannot be held liable thereon. Neither is the latter precluded from
DOCTRINE: a forged signature is a real or absolute defense, and a person setting up forgery as a real defense.
whose signature on a negotiable instrument is forged is deemed to have
never become a party thereto and to have never consented to the contract DISPOSITION: Decision Affirmed.
that allegedly gave rise to it.

FACTS:
19. On November 8, 1982, CASA Montessori International opened
Current Account No. 0291-0081-01  with  defendant  BPI,  with  CASA’s  
President Ms. Ma. Carina C. Lebron as one of its authorized
signatories.
20. In 1991, after conducting an investigation, CASA Montessori
discovered that nine (9) of its checks had been encashed by a
certain Sonny D. Santos since 1990 in the total amount of
P782,000.00
21. It  turned  out  that  ‘Sonny  D.  Santos’  with  account  at  BPI’s  Greenbelt  
Branch was a fictitious name used by third party defendant Leonardo
T. Yabut who worked as external auditor of CASA.
22. He voluntarily admitted that he forged the signature of Ms. Lebron
and encashed the checks.
23. The PNP Crime Laboratory conducted an examination of the nine (9)
checks and concluded that the handwritings thereon compared to the
standard signature of Ms. Lebron were not written by the latter.
24. On March 4, 1991, CASA Montessori filed the herein Complaint for
Collection with Damages against BPI praying that the latter be
ordered to reinstate the amount of P782,500.00
25. RTC ruled in favor of CASA Montessori

ISSUES:
WON there was forgery under the Negotiable Instrument Law?

PROVISION: Section 23, Negotiable Instrument Law

RULING + RATIO:
Yes.
 Under Section 23 of the Negotiable Instrument Law, a forged
signature is a real or absolute defense, and a person whose
signature on a negotiable instrument is forged is deemed to have
never become a party thereto and to have never consented to the
contract that allegedly gave rise to it.
Digest Author: Grace Hicban ISSUE:
CITIBANK VS CABAMONGAN WON Citibank is liable

DOCTRINE: RULING + RATIO:

A bank is "bound to know the signatures of its customers; and if it pays a YES. The Court has repeatedly emphasized that, since the banking business is
forged check, it must be considered as making the payment out of its own funds, impressed with public interest, of paramount importance thereto is the trust and
and cannot ordinarily charge the amount so paid to the account of the depositor confidence of the public in general. Consequently, the highest degree of diligence is
whose name was forged." expected,and high standards of integrity and performance are even required, of it.
By the nature of its functions, a bank is "under obligation to treat the accounts of its
FACTS: depositors with meticulous care,always having in mind the fiduciary nature of their
relationship."
1. Spouses Luis and Carmelita Cabamongan opened a joint "and/or" foreign
currency time deposit in trust for their sons Luis, Jr. and Lito at the In this case, it has been sufficiently shown that the signatures of Carmelita in the
Citibank, N.A., Makati branch, in the amount of $55,216.69 for a term of forms for pretermination of deposits are forgeries. Citibank, with its signature
182 days at 2.5625 per cent interest per annum. verification procedure, failed to detect the forgery. Its negligence consisted in the
omission of that degree of diligence required of banks. The Court has held that a
2. One   day,   a   person   claiming   to   be   Carmelita   went   to   Citibank   and   pre- bank is "bound to know the signatures of its customers; and if it pays a forged
terminated  the  time  deposit   by  presenting  a   passport,  a   Bank   of  America   check, it must be considered as making the payment out of its own funds, and
Versatele   Card,   ATM,   and   Mabuhay   Credit   Card.   Account   Officer   Yeye   San   cannot ordinarily charge the amount so paid to the account of the depositor
Pedro   assisted   the   transaction.   The   same   person,   however,   failed   to   whose name was forged." Such principle equally applies here.
surrender   the   Original   Certificate   of   Deposit   and   was   made   to   execute   a  
notarized   release   and   waiver   document   in   favor   of   Citibank   before   the   The  court  repeatedly  emphasized  that  the  banking  business  is  impressed  with  public  
money   was   released   to   her.   However,   the   release   and   waiver   document   interest.   The   highest   degree   of   diligence   is   expected.   They   must   keep   in   mind   the  
was   not   notarized   on   the   same   day   but   the   money   was   released   fiduciary   nature   of   their   relationship   with   depositors.   In   this   case,   the   evidence  
nonetheless.  The  transaction  only  lasted  40  minutes.   sufficiently  established  the  forgery.  The  bank’s  negligence  consisted  in  the  omission  
of   that   degree   of   diligence.   The   bank   is   bound   to   know   the   signatures   of   its  
3. After   the   person   left,   San   Pedro   realized   that   the   person   left   an  
depositors;   and   if   it   pays   a   forged   check,   it   must   be   considered   as   making   the  
identification  card.  She  called  up  Carmelita’s  address  and  it  was  then  that  
payment  out  of  its  own  funds  and  cannot  ordinarily  charge  the  amount  so  paid  to  
the  anomaly  was  discovered.  At   the  time,  the  Cabamongan  spouses   were  
the  account  of  the  depositor  whose  name  was  forged.  
in   the   US   and   it   seems   that   the   unidentified   person   broke   into   their  
residence  and  took  their  passports  and  other  possessions.  It  was  only  then  
that  the  spouses  realized  that  these  were  missing.  
4. The   spouses   demanded   payment   which   was   denied   by   Citibank   asserting  
that   the   deposit   was   in   fact   released   to   Carmelita   upon   proper  
identification  and  verification.  The  PNP   Crime  Lab,  however,  testified  that  
the  questioned  signatures  and  the  sample  signatures  of  Carmelita  showed  
significant   divergence,   and   concluded   that   they   were   not   written   by   one  
and  the  same  person.  
5. Citibank   contended   that   they   were   not   negligent   and   that   the   spouses  
were   guilty   of   contributory   negligence   since   they   failed   to   notify   Citibank  
that  they  migrated  to  the  US  and  that  after  being  victims  of  burglary,  they  
should  have  immediately  assessed  their  loss  and  informed  the  bank  of  the  
disappearance  of  their  bank  certificates  and  other  important  documents.  
Digest Author: Kapunan
GREAT EASTERN LIFE VS. HSBC
Plaintiff-appellant: The Great Eastern Life Insurance Co.
Defendants-appellees: HongKong & Shanghai Banking Corp. & Phil. Natl. Bank
En Banc
DOCTRINE: 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.
FACTS:
1. Plaintiff drew its check for P2,000 on HSBC with whom it had an
account, payable to the order of Lazaro Melicor.
2. E. M. Maasim fraudulently obtained possession of the check, forged
Melicor's signature, as an endorser, and then personally endorsed/
presented it to PNB where the amount of check was placed to his credit.
3. After having paid the check, PNB endorsed the check to HSBC which
paid it and charged the amount of the check to the account of the
plaintiff.
4. 4 months after the check was charged to the account of the plaintiff and
upon knowledge of the fact that the check was forged and originally
made payable to Lazaro Melicor who never received said check, the
plaintiff promptly made a demand upon HSBC that it should be given
credit for the amount of the forged check, which the bank refused to do,
and the plaintiff commenced this action to recover the P2,000 which was
paid on the forged check.
5. On the petition of HSBC, PNB was made defendant. HSBC denies any
liability, but prays that, if a judgment should be rendered against it, in
turn, it should have like judgment against PNB which denies all liability to
either party.
6. Trial court rendered judgment against plaintiff and in favor of the
defendants; hence, the petition.
ISSUE: W/N HSBC should be held liable to pay the amount of P 2,000 to
plaintiff?
PROVISION: Section 23 on Forged Signature
RULING + RATIO: Plaintiff's check was drawn on HSBC payable to the
order of Melicor. In other words, the plaintiff authorized and directed HSBC to
pay Melicor, or his order, P2,000. It did not authorize or direct the bank to
pay the check to any other person than Melicor, or his order, and the
testimony is undisputed that Melicor never did part with his title or endorse
the check, and never received any of its proceeds. Neither is the plaintiff
estopped or bound by the banks statement, which was made to it by the
HSBC. This is not a case where the plaintiff's own signature was forged to
one of it checks. In such a case, the plaintiff would have known of the
forgery, and it would have been its duty to have promptly notified the bank of
any forged signature, and any failure on its part would have released bank
from any liability. That is not this case. Here, the forgery was that of Melicor,
who was the payee of the check, and the legal presumption is that the bank
would not honor the check without the genuine endorsement of Melicor. In
other words, when the plaintiff received it banks statement, it had a right to
assume that Melicor had personally endorsed the check, and that, otherwise,
the bank would not have paid it.
The money was on deposit in HSBC, and it had no legal right to pay it
out to anyone except the plaintiff or its order as provided under Section
23 of the Negotiable Instruments Law. Here, the plaintiff ordered HSBC to
pay Melicor, and the money was actually paid to Maasim. He never
personally endorsed the check, or authorized any one to endorse it for him,
and the alleged endorsement was a forgery. Hence, it must follow that HSBC
has no defense to this action.
It is admitted that PNB cashed the check upon a forged signature, and
placed the money to the credit of Maasim, who was a forger. PNB then
endorsed the check and forwarded it to HSBC by whom it was paid. PNB
had no license or authority to pay the money to Maasim or anyone else
upon a forge signature. It was its legal duty to know that Melicor's
endorsment was genuine before cashing the check. Its remedy is against
Maasim to whom it paid the money.
DISPOSITION: The judgment of the lower court is reversed, and one will be
entered here in favor of the plaintiff and against HSBC for the P2,000, with
interest thereon from November 8, 1920 at the rate of 6%, and the costs of
this action, and a corresponding judgment will be entered in favor of HSBC
against PNB for the same amount, together with the amount of its costs in
this action. So ordered
Digest Author: Phimie Lim
GEMPESAW v. COURT OF APPEALS
Petitioner: NATIVIDAD GEMPESAW
Respondent: THE HONORABLE COURT OF APPEALS and PHILIPPINE
BANK OF COMMUNICATIONS
Ponencia: CAMPOS, JR., J.
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 this rule is where the drawer
is guilty of such negligence which causes the bank to honor such a
check or checks.
FACTS:
1) Petitioner Natividad Gempesaw owns and operates 4 grocery stores
and maintains a checking account with the Caloocan Branch of the
respondent drawee Bank. To facilitate payment of debts to her
suppliers, petitioner draws checks against her checking account with
the respondent bank as drawee.
2) The checks were prepared and filled up as to all material particulars
by her trusted bookkeeper, Alicia Galang, an employee for more
than 8 years. Galang prepared the checks then submitted them to
the petitioner for her signature, together with the invoice receipts.
3) Petitioner signed each and every check without bothering to verify
the accuracy of the checks against the corresponding invoices. The
issuance and delivery of the checks to the payees named therein
were left to the bookkeeper. Petitioner admitted that she did not
make any verification as to whether or not the checks were delivered
to their respective payees.
4) In the course of her business operations covering a period of two
years, petitioner issued a total of 82 checks in favor of several
suppliers.
5) Most of the aforementioned checks were for amounts in excess of
her actual obligations to the various payees.
6) Practically, all the checks issued and honored by the respondent
drawee bank were crossed checks. Aside from the daily notice given
by the respondent drawee Bank, the latter also furnished her with a
monthly statement of her transactions.
7) It was only after the lapse of more 2 years that petitioner found out
about the fraudulent manipulations of her bookkeeper.
8) All the 82 checks with forged signatures of the payees were brought
to Ernest L. Boon, Chief Accountant of Bank at the Buendia branch,
who, without authority therefor, accepted them all for deposit to the
credit and/or in the accounts of Alfredo Y. Romero and Benito Lam.
9) 63 out of the 82 checks were deposited in Savings Account of
Alfredo  Y.  Romero  at  the  Buendia  branch  and  4  checks  in  the  bank’s  
Ongpin branch. The rest of the checks were deposited in Account of
Benito Lam at the Elcaño branch.
10) About 30 of the payees whose names were specifically written on
the checks testified that they did not receive the subject checks and
that the indorsements were not theirs.
11) Under the rules of the respondent drawee Bank, only a Branch
Manager and no other official of the respondent drawee bank, may
accept a second indorsement on a check for deposit.
12) In the case at bar, all the deposit slips of the 82 checks in question
were initialed and/or approved for deposit by Ernest L. Boon.
13) The Branch Managers of the Ongpin and Elcaño branches accepted
the deposits made in the Buendia branch and credited the accounts
of Alfredo Y. Romero and Benito Lam in their respective branches.
14) Petitioner made a written demand to credit her account with the
money value of the checks totalling P1,208.606.89.
15) Respondent drawee Bank refused..
16) Petitioner filed the complaint with the RTC.
ISSUE: W/N a drawer has a right to recover from the drawee bank who pays
checks with forged indorsements of the payees, debiting the same against
the  drawer’s  account.
YES. 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. BUT an exception to this rule is where the drawer is guilty of
such negligence which causes the bank to honor such a check or
checks which applies in this case.
Section 23 of the NIL provides: Forgery is a real or absolute defense by the
party whose signature is forged. A party whose signature to an instrument
was forged was never a party and never gave his consent to the contract
which gave rise to the instrument. Since his signature does not appear in the
instrument, he cannot be held liable thereon by anyone, not even by a holder
in due course. And said section does not refer only to the forged signature of
the maker of a promissory note and of the drawer of a check. It covers also a
forged indorsement, i.e., the forged signature of the payee or indorsee of a
note or check. Since under said provision a forged signature is "wholly
inoperative", no one can gain title to the instrument through such forged
indorsement. Such an indorsement prevents any subsequent party from
acquiring any right as against any party whose name appears prior to the
forgery. Although rights may exist between and among parties subsequent to
the forged indorsement, not one of them can acquire rights against parties
prior to the forgery. Such forged indorsement cuts off the rights of all
subsequent parties as against parties prior to the forgery. However, the law
makes an exception to these rules where a party is precluded from
setting up forgery as a defense.
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 this rule is where the drawer
is guilty of such negligence which causes the bank to honor such a
check or checks.
The negligence of a depositor which will prevent recovery of an
unauthorized payment is based on failure of the depositor to act as a
prudent businessman would under the circumstances. In the case at
bar, the petitioner relied implicitly upon the honesty and loyalty of her
bookkeeper, and did not even verify the accuracy of amounts of the
checks she signed against the invoices attached thereto. Furthermore,
although she regularly received her bank statements, she apparently
did not carefully examine the same nor the check stubs and the
returned checks, and did not compare them with the same invoices.
Otherwise, she could have easily discovered the discrepancies
between the checks and the documents serving as bases for the
checks. With such discovery, the subsequent forgeries would not have
been accomplished. It was not until two years after the bookkeeper
commenced her fraudulent scheme that petitioner discovered that
eighty-two (82) checks were wrongfully charged to her account, at
which she notified the respondent drawee bank.
It is highly improbable that in a period of two years, not one of
Petitioner's suppliers complained of non-payment. Assuming that even
one single complaint had been made, petitioner would have been duty-
bound, as far as the respondent drawee Bank was concerned, to make
an adequate investigation on the matter. Had this been done, the
discrepancies would have been discovered, sooner or later. Petitioner's
failure to make such adequate inquiry constituted negligence which
resulted in the bank's honoring of the subsequent checks with forged
indorsements. A depositor may not sit idly by, after knowledge has
come to her that her funds seem to be disappearing or that there may
be a leak in her business, and refrain from taking the steps that a
careful and prudent businessman would take in such circumstances
and if taken, would result in stopping the continuance of the fraudulent
scheme. If she fails to take steps, the facts may establish her
negligence, and in that event, she would be estopped from recovering
from the bank.
One thing is clear from the records — that the petitioner failed to
examine her records with reasonable diligence whether before she
signed the checks or after receiving her bank statements. Had the
petitioner examined her records more carefully, particularly the invoice
receipts, cancelled checks, check book stubs, and had she compared
the sums written as amounts payable in the eighty-two (82) checks with
the pertinent sales invoices, she would have easily discovered that in
some checks, the amounts did not tally with those appearing in the
sales invoices. Had she noticed these discrepancies, she should not
have signed those checks, and should have conducted an inquiry as to
the reason for the irregular entries. Likewise had petitioner been more
vigilant in going over her current account by taking careful note of the
daily reports made by respondent drawee Bank in her issued checks, or
at least made random scrutiny of cancelled checks returned by
respondent drawee Bank at the close of each month, she could have
easily discovered the fraud being perpetrated by Alicia Galang, and
could have reported the matter to the respondent drawee Bank. The
respondent drawee Bank then could have taken immediate steps to
prevent further commission of such fraud. Thus, petitioner's negligence
was the proximate cause of her loss. And since it was her negligence
which caused the respondent drawee Bank to honor the forged checks
or prevented it from recovering the amount it had already paid on the
checks, petitioner cannot now complain should the bank refuse to
recredit her account with the amount of such checks. Under Section 23
of the NIL, she is now precluded from using the forgery to prevent the
bank's debiting of her account.
Petitioner argues that respondent drawee Bank should not have honored the
checks because they were crossed checks. Issuing a crossed check imposes
no legal obligation on the drawee not to honor such a check.
Petitioner likewise contends that banking rules prohibit the drawee bank from
having checks with more than one indorsement. Breaking this his rule does
not invalidate the instrument; neither does it invalidate the negotiation or
transfer of the said check. In effect, this rule destroys the negotiability of
bills/checks by limiting their negotiation by indorsement of only the payee.
However, under Article 1170 of the same Code the respondent drawee
Bank may be held liable for damages. The article provides —Those who
in the performance of their obligations are guilty of fraud, negligence or
delay, and those who in any manner contravene the tenor thereof, are
liable for damages. In the performance of its obligation, the drawee
bank is bound by its internal banking rules and regulations. 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. Premises considered, respondent
drawee Bank is adjudged liable to share the loss with the petitioner on
a fifty-fifty ratio. The fact that petitioner's negligence was found to be
the proximate cause of her loss does not preclude her from recovering
damages.

DISPOSITION: PREMISES CONSIDERED, the case is hereby ordered

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.
Digest Author: Coco Navarro endorser by stamping its guarantee. When endorsement is forged,
the collecting bank or last endorser generally suffers the loss.
BANCO DE ORO SAVINGS V EQUITABLE Every indorser who indorses without qualification warrants all
Petition: Certioriari subsequent holders in due course. The drawer owes no duty of
Petitioner: Banco de Oro Savings & Mortgage Bank diligence to the collecting bank but the collecting bank is bound to
Respondent: Equitable Banking Corporation & Philippine Clearing House scrutinize checks deposited with it to determine genuineness and
Corporation (PCHC) regularity.
Ponencia: Gancayco

DOCTRINE: When endorsement is forged, the collecting bank or lost

endorser generally suffers the lost. Every indorser who indorses without
qualification warrants all subsequent holders in due course.

FACTS:
1. Equitable  Bank  drew  six  crossed  manager’s  checks  that  amounted  to  
P45,982.23 payable to member establishments of Visa Card. The
checks were deposited with BDO to the credit of depositor Aida
Trencio.
2. The   checks   were   marked   with   the   usual   endorsements:   ‘All   prior  
and/or   lack   of   endorsement   guaranteed’,   BDO sent the checks for
clearing through the PCHC. Equitable paid for the checks.
3. Later, Equitable discovered that the endorsements appearing at the
checks and purporting to be the payees were forged and/or
unauthorized or otherwise belong to persons other than the payees.
4. Equitable presented the checks for reimbursement but BDO refused.
5. PCHC and the RTC ruled in favor of Equitable.

ISSUE:
1. Whether BDO is liable for the forged endorsement.

PROVISIONS OF LAW
Sec. 23. Forged signature; effect of. - 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.

RULING + RATIO:
1. YES. By stamping its guarantee at the back of the checks, petitioner
is now estopped from claiming that the checks under consideration
are not negotiable instruments. It assumed the liability of an
Digest Author: Czar Paguio
BPI vs CA
Petitioner: BANK OF THE PHILIPPINE ISLANDS
Respondent: THE HON. COURT OF APPEALS (SEVENTH JUDICIAL), HON.
JUDGE REGIONAL TRIAL COURT OF MAKATI, BRANCH 59, CHINA BANKING
CORP., and PHILIPPINE CLEARING HOUSE CORPORATION
Ponencia: Montemayor, J.
DOCTRINE: The rights and liabilities of the parties under a forged
endorsement are determined by looking at the legal effects of the relative
negligence of the parties thereto.
FACTS:
1.) Eligia Fernando, the Treasurer of Philamlife, had a money market placement with
a maturity value of P2.4M evidenced by a promissory note in BPI. An impostor who
identified   herself   as   Eligia   Fernando   called   BPI’s   Money   Market   Dept.   and   BPI’s  
dealer trainee received the call. The caller wanted to preterminate the placement.
Nobody in BPI bothered to call Eligia at her office to verify such request.
2.) The caller insisted on the pretermination, although it would yield less and asked
that two checks be issued for the proceeds of the money market placement, one for
P1.8M and the second for the balance, and that the checks be delivered at her office
at Philamlife.
3.)  The  dealer  trainee  prepared  a  purchase  order  slip  and  two  cashier’s  checks,  both   endorsements in consonance with the clearing guarantee requirement.
payable to Eligia Fernando, covering the preterminated payment. These checks were
then   sent   and   signed   by   the   Manager,   Admin   Assistant,   BPI’s   Treasury   Operations   b.)   BPI   contends   that   it   can   claim   reimbursement   from   CBC   because   CBC’s
Dept and went to the dispatcher for delivery.
4.) Later in the same morning, the caller changed the delivery instructions and instead
of the checks being delivered to her office, the caller said that she would herself pick
up the checks or send her niece, Rosemarie Fernando. He then changed the delivery
instructions  and  wrote  on  the  purchase  order  slip,  ‘Rosemarie  Fernando  release  only
with  authority  to  pick  up.’
5.) It was Rosemarie Fernando who picked up the checks. As it turned out, the
impostor impersonated both Eligia and Rosemarie Fernando. The dispatcher failed to
get the surrender of the promissory note evidencing the placement. There is also no
showing that Eligia Fernando's purported signature on the letter requesting the
pretermination and the latter authorizing Rosemarie Fernando to pick up the two
checks was compared or verified with Eligia Fernando's signature in BPI's file.
6.) The story's scene now shifted when a woman who represented herself to be Eligia
Fernando applied at China Banking Corporation's (CBC) Head Office for the opening
of a current account. She was not even interviewed by CBC during the transaction.
7.) The following day, the woman holding herself out as Eligia Fernando deposited
the two checks to her current account. Her endorsement on the two checks was
found to conform with the depositor's specimen signature and CBC guaranteed the
endorsements, which CBC forthwith sent to clearing and which BPI cleared on the
same day.
8.) Two days after, withdrawals were made on the current account by the impostor by
means of several checks payable to cash. All these withdrawals were allowed on the
basis of the verification of the drawer's signature with the specimen signature on file
and the sufficiency of the funds in the account. However, the balance shown in the
computerized teller terminal when a withdrawal is serviced at the counter, unlike the
ledger or usual statement prepared at month-end, does not show the account's
opening date, the amounts and dates of deposits and withdrawals.
9.)  When  the  actual  maturity  date  of  Eligia’s  money  market  placement  came,  the  real  
Eligia Fernando went to BPI for the roll-over of her placement. She denied having
preterminated her placement, stating that while she was the payee of the two checks,
she never received nor endorsed them and that her purported signature on the back
of the checks was not her but forged. After the real Eligia showed the original
promissory note to BPI, BPI issued her a new promissory note to evidence a roll-over
of the placement. BPI then sought reimbursement from CBC.
Contentions:
a.) BPI contends that CBC's clear warranty that "all prior endorsements and/or lack of
endorsements guaranteed" is an unrestrictive clearing guaranty that all prior
endorsements in the checks are genuine.
In short, BPI theorizes that the NIL is not applicable because of the absolute
liability of the representing or collecting bank as regards forged
 
negligence was graver
While the Arbitration Committee declared the negligence of respondent CBC
graver, the PCHC Board of Directors and the lower courts declared that
petitioner BPI's negligence was graver.
ISSUES:
a.) W/N the NIL is applicable
a.1) W/N Sec 23 of the NIL is applicable
b.) W/N the banks were negligent and whose negligence was graver
RULING + RATIO:
a.) The NIL is applicable. The present case involves checks as defined by and
under the coverage of the Negotiable Instruments Law.
 a.1) Sec 23 of the NIL is applicable, but not the general rule.
There are two (2) parts of the provision.
1.) General rule - a forged signature is "wholly inoperative", and
payment made "through or under such signature" is ineffectual or
does not discharge the instrument.
2.) Exception - when the party relying in the forgery is "precluded
from setting up the forgery or want of authority.
In this jurisdiction we recognize negligence of the party invoking
forgery as an exception to the general rule. In the present petition the
payee's names in the two (2) subject checks were forged. Following the
general rule, the checks are "wholly inoperative" and of no effect. However,
the underlying circumstances of the case show that the general rule on
forgery is not applicable.
b.) The records show that BPI as drawee bank and CBC as collecting bank were both
negligent resulting in the encashment of the forged checks. BOTH banks should be
held liable. Both Banks were both guilty in not exercising extraordinary
diligence in the selection and supervision of their employees.
The Arbitration Committee evaluated the negligence of both banks.
Comparative Negligence:
Negligence of BPI
 Even with negligence attending the impostor's opening of a current account, her
encashment of the two checks in controversy could still have been prevented if
only the care and diligence demanded by the circumstances were exercised. The
very date of both checks, October 12, 1981, should have tipped off the real
purpose of the opening of the account on October 13, 1981. But what surely can
be characterized only as abandonment of caution was allowing the withdrawal of
the checks' proceeds which started on October 16, 1981 only two days after the
two checks were deposited; by October 22, 1981, the account had been emptied
of the checks' proceeds.
To the extent that the degree of negligence is equated to the proximate cause of the
loss, we rule that the issue as to whose negligence is graver is relevant.
The proximate cause of the payment of the forged checks by an impostor was due
to the negligence of BPI. Notwithstanding this finding, due care on the part of CBC
could have prevented any loss so BPI must not solely bear the loss of the total
amount of the two forged checks.
While it is true that BPI's negligence may have been the proximate cause of the
loss, CBC's negligence contributed equally (contributory negligence) to the
success of the impostor in encashing the proceeds of the forged checks. Under these
circumstances, we apply Article 2179 of the Civil Code to the effect that while CBC
may recover its losses, such losses are subject to mitigation by the courts. BPI shall
be responsible for 60% of the loss, while CBC shall share 40%.

 The impostor could have been readily unmasked by a mere telephone call, which
nobody in BPI bothered to make.

 The officer who used to handle Fernando's account did not do anything about the
account's pre-termination

 No verification appears to have been made regarding the purported signature on

the letter even if her signature was in BPI's file

 The surrender of the promissory note evidencing the money market placement
that was supposedly pre-terminated was not required

Negligence of CBC

 These findings point to negligence of the CBC employees which led to: (a) the
opening of the impostor's current account in the name of Eligia G. Fernando; (b)
the deposit of said account of the two (2) checks in controversy and (c) the
withdrawal of their proceeds from said account.

 The impostor presented only her tax account number as a means of

identification, the Cash Supervisor of CBC approved the opening of her current
account in the name of Eligia G. Fernando on the strength of the introduction of
Antonio Concepcion who had himself opened an account earlier that year. The
impostor was able to open with CBC's current account in the name of Eligia G.
Fernando due to the negligence, if not misrepresentation, of its Cash Supervisor.
Digest Author: Marti Duya  Section 23, RA 2031. Negotiable Instruments Law
Jai-alai Corp. of the Phils. vs. BPI
Petition: Review of decision of CA RULING + RATIO:
Petitioner: Jai-alai Corporation of the Philippines 2. No. BPI may not be held liable.
Respondent: Bank of the Philippine Islands a. Since it was by Jai-alai  Corp’s  own  lack  of  exercise  of  due  
Ponente: Castro diligence that such NI with such forgery was encashed, it
cannot claim that he/she/it should be reimbursed. A person
who indorses a NI with a forged signature on the
DOCTRINE: (Indorsement of NI with a forged signature) indorsement warrants that such an instrument is good and
Any person who indorses a negotiable instrument where the last valid. He is therefore precluded in using such forgery as a
endorsement is a forged signature warrants such instrument as good and defense.
valid and therefore is precluded from claiming that it did not know of such
forgery.
DISPOSITION: Decision of CA and RTC is affirmed.
FACTS:
9. Jai-alai Corp. of the Phils. was given by Antonio Ramirez ten checks
worth P8, 030.58. Such checks were drawn by different corporations
against diff. banks such as Pacific Banking Corp., China Banking Corp.,
and PNB, all payable to Inter-Island Gas Service, Inc.—a corporation
which has Antonio Ramirez as a Sales Agent.

10. Ramirez sought to pay petitioner with such checks for his Jai-alai tickets.

11. However, the drawees of the NI, having been notified of the forgeries
sought reimbursement from drawee banks. The collecting bank then
(BPI) was sought reimbursement by the drawee banks.

12. October 8, 1959, a check payable to order of Mariano Olondriz y Cia.

was drawn for P135,000 for payment of shares of stock by Jai-alai Corp.
However, it was found that the petitioner no longer had sufficient funds in
their account, taking into consideration the P8,030.58 credited coz of the
checks.

13. Petitioner filed complaint with the RTC which ruled in favor of the
respondents. Ruling was affirmed by the CA.

ISSUES:

4. WoN BPI, the collecting bank may be held liable for

reimbursement of the owner of the money in the account of Jai-
alai.

PROVISION:
Digest Author: Mao Santos (a) That the instrument is genuine and in all respects what it purports
to be.
Republic Bank v. Ebrada
(b) That she has good title to it.
Plaintiff: REPUBLIC BANK
Defendant: MAURICIA T. EBRADA
Ponencia: MARTIN J. Held:

DOCTRINE:
FACTS:
1. Mauricia Ebrada encashed a check issued by the Bureau of
Treasury for the value of P1246.08 at the main office of
plaintiff Republic Bank. Plaintiff bank however was made
aware  of  the  fact  that  the  indorsement  by  “Martin  Lorenzo”  was   the indorsements then she is estopped.
a forgery since the latter has been dead for 11 years (died in
1952). The Bureau then asked for a refund from plaintiff bank,
which they complied with, but afterwards they also requested a
refund from Ebrada, who refused, therefore prompting the
bank to sue defendant.
2. In her defense Ebrada raised that she was a holder in due
course and that the bank has no cause of action against her;
that the plaintiff bank is in estoppel and likewise negligent.
Ebrada likewise filed a third party complaint.
Yes she is liable to pay the bank, seeing as Ebrada was the last
indorser of the check she was supposed to have warranted that she
has good title to said check. In this case it turned out that the
signature of the original payee of the check, Martin Lorenzo, was
forged for he had been dead for almost 11 years before the check
was issued. Had she exercised due diligence she could have
detected the fraud but since she warranted to the genuineness of all
In this case it was also discussed that a forged indorsement does not
render void all transactions, but only the negotiation based on the
forged signature is inoperative, in this case the negotiation between
Martin Lorenzo to Ramon Lorenzo should be inoperative but the
subsequent indorsment that led the note to the defendant Ebrada is
effective, therefore Ebrada is precluded from raising forgery.
DISPOSITION: Judgment appealed is affirmed.

3. The City Court of Manila however rendered judgment in favor

of plaintiff. Defendant Ebrada appealed this decision but was
denied and nonetheless ordered to pay plaintiff bank the
amount of the check that was encashed.

4. Hence this appeal

ISSUE: Whether or not Ebrada is liable to pay the value of a

check with a forged signature of an already deceased person?

Provision: Section 65 NIL:

Every person negotiating an instrument by delivery or by qualified

indorsement, warrants:
Digest Author: Angelo Logronio 6.) MANILA LIGHTER and CHINA BANK filed against each other for the
MANILA LIGHTER TRANSPORTATION, INC. amount of checks.

vs. CA (1990) ISSUE:

Petition: Petition for Review of the Decision of the CA
Petitioner: MANILA LIGHTER TRANSPORTATION, INC.
Respondent: COURT OF APPEALS and CHINA BANKING
CORPORATION
Ponencia: GRIÑO-AQUINO, J.
DOCTRINE:
Since MANILA LIGHTER was not a client of CHINA BANK, CHINA BANK
had  no  way  of  ascertaining  the  authenticity  of  MANILA  LIGHTER’S   Moreover, CHINA BANK was not negligent because it caused the checks to
indorsements on the checks, which were deposited in the accounts of Cao
Pek in CHINA BANK.
W/N CHINA BANK should be held liable for the checks
RULING + RATIO:
NO, CHINA BANK should not be liable for the checks.
Since MANILA LIGHTER was not a client of CHINA BANK, CHINA BANK
had  no  way  of  ascertaining  the  authenticity  of  MANILA  LIGHTER’S  
indorsements on the checks, which were deposited in the accounts of Cao
Pek in CHINA BANK.
pass through the clearing house before it allowed their proceeds to be
withdrawn by Cao Pek.

Moreover, CHINA BANK was not negligent because it caused the checks to
pass through the clearing house before it allowed their proceeds to be DISPOSITION: Accordingly, the petition is DENIED for lack of merit.
withdrawn by Cao Pek.

FACTS:

Over a period of 18 months, Perez collected in behalf of Manila Lighter

some 49 checks from clients

1.) Over a period of 18 months, Augusto Perez collected in behalf of

MANILA LIGHTER some 49 checks from its clients.
2.) The endorsement of the payee, MANILA LIGHTER, appeared on the
said checks.
3.) However, MANILA LIGHTER disclaimed such signatures for they
were forgeries.
4.) The checks were negotiated by the accountant of MANILA LIGHTER
with Cao Pek and Co., an electronic store. The checks were
deposited by the treasurer of Cao Pek in his account with CHINA
BANK. However, the accounts were subsequently left with no
balance.
5.) MANILA LIGHTER later found out what was happening because,
MANILA LIGHTER sent Quintos Transportation, one of its clients
whose checks were collected by Augusto a letter demanding
payment  for  MANILA  LIGHTER’s  services.
a. Similar letters were sent to other clients in a similar situation.
Digest Author: Mae Bulang
Westmont Bank v. Ong (2002)
Petition: Petition for Review
Petitioners: WESTMONT BANK, petitioner,
Respondents: EUGENE ONG, respondents.
DOCTRINE: The collecting bank is liable to the payee and must bear
the  loss  because  it  is  its  legal  duty  to  ascertain  that  the  payee’s   the checks nor did he authorize anybody, he did not
endorsement was genuine before cashing the check.[20] As a general
rule, a bank or corporation who has obtained possession of a
check upon an unauthorized or forged indorsement of the
payee’s  signature  and  who  collects  the  amount  of  the  check  from  
the drawee, is liable for the proceeds thereof to the payee or
other owner, notwithstanding that the amount has been paid to the
person from whom the check was obtained.
Drawer: Island Securities
Drawee/
Collecting bank: Westmont Bank
Payee: Eugene Ong
Indorsee: Paciano Tanlimco (forger)
FACTS:
1. Ong maintained a current account with Westmont Bank. \
2. Sometime in May 1976, he sold certain shares of stocks
through Island Securities Corporation.
3. To pay Ong, Island Securities purchased two (2) Pacific
Banking Corporation  manager’s  checks, both dated May 4,
1976, issued in the name of Eugene Ong as payee.
4. Before Ong could get hold of the checks, his friend
Paciano  Tanlimco  got  hold  of  them,  forged  Ong’s  signature   should be deemed as inoperative and
and deposited these with petitioner, where Tanlimco was
also a depositor.
5. Even  though  Ong’s  specimen  signature  was on file, West
Bank accepted and credited both checks to the account of
Tanlimco,  without  verifying  the  ‘signature  indorsements’   bank.
appearing at the back.
6. Tanlimco then immediately withdrew the money and
absconded.
7. Instead of going straight to the bank to stop or question the
payment,  Ong  first  sought  the  help  of  Tanlimco’s  family  to   corporation who has obtained possession of a check
recover the amount. Later, he reported the incident to the
Central Bank, which like the first effort, unfortunately
proved futile.
8. Only about five (5) months from discovery of the fraud, did
Ong cry foul and demanded in his complaint that West
Bank pay the value of the two checks whose gross
negligence he imputed his loss.
9. The bank claims that since Ong never had possession of
become a holder thereof hence he cannot sue in his own
name, thus Ong’s remedy is with the drawer and not with the
collecting bank.
ISSUE:
(1) Whether Ong can recover Westmont Bank; YES
(2) Whether Ong is barred to recover the money from
Westmont Bank due to laches. NO
PROVISIONS:
Negotiable Instruments Law, Sec. 23.
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.
RULING + RATIO:
3. YES, Ong can recover from Westmont Bank.
a. Under the NIL Sec 23., since the signature of the
payee was forged to make it appear that he had made
an indorsement in favor of the forger, such signature
ineffectual. Petitioner, as the collecting bank, grossly
erred in making payment by virtue of said forged
signature. The payee, herein respondent, should
therefore be allowed to recover from the collecting
b. The collecting bank is liable to the payee and must
bear the loss because it is its legal duty to ascertain
that  the  payee’s  endorsement  was  genuine  before  
cashing the check. As a general rule, a bank or
upon an unauthorized or forged indorsement of the
payee’s signature and who collects the amount of the
 check from the drawee, is liable for the proceeds
thereof to the payee or other owner, notwithstanding
that the amount has been paid to the person from
whom the check was obtained.
c. Petitioner’s  claim  that  since there was no delivery yet
and respondent has never acquired possession of the
checks,  respondent’s  remedy  is  with  the  drawer  and  
not with petitioner bank. Petitioner relies on the view to
the effect that where there is no delivery to the payee
and no title vests in him, he ought not to be allowed to
recover on the ground that he lost nothing because he
never became the owner of the check and still retained
his claim of debt against the drawer. However, another
view in certain cases holds that even if the absence of
delivery is considered, such consideration is not
material. The rationale for this view is that in said
cases the plaintiff uses one action to reach, by a
desirable short cut, the person who ought in any event
to be ultimately liable as among the innocent persons
involved in the transaction. In other words, the payee
ought to be allowed to recover directly from the
collecting bank, regardless of whether the check was
delivered to the payee or not
4. NO, Ong is not barred by laches.
 It cannot be said that respondent sat on his rights. He
immediately acted after knowing of the forgery by
proceeding to seek help from the Tanlimco family and
later the Central Bank, to remedy the situation and
recover his money from the forger, Paciano
Tanlimco. Only after he had exhausted possibilities of
settling the matter amicably with the family of Tanlimco
and through the CB, about five months after the
unlawful transaction took place, did he resort to making
the demand upon the petitioner and eventually before
the court for recovery of the money value of the two
checks. These acts cannot be construed as undue
delay in or abandonment of the assertion of his rights.

DISPOSITION: WHEREFORE, the instant petition is DENIED for

lack of merit. The assailed decision of the Court of Appeals,
sustaining the judgment of the Regional Trial Court of Manila, is
AFFIRMED.
Digest Author: Kina Lampa  In relation to Sec. 72 of the NIL, presentment of payment, to be
ASSOCIATED BANK v. CA sufficient, must be made by the holder or an authorized person only.
Petitioner: Associated Bank and Conrado Cruz Referring  to  the  checks  in  question  which  were  issued  as  “for  
Respondent: Court of Appeals and Merle Reyes payee’s  account  only,”  it  only  signifies  that  the  drawers  intended  the  
Ponencia: Cruz, J. same for deposit only by  Melissa’s  RTW.
 The subject checks were accepted for deposited by Associated
DOCTRINE: The possession of a check on a forged or unauthorized Bank even though they were crossed checks and the payee was
indorsement is wrongful and when the money is collected on the check, the NOT Sayson.
bank can be held liable for the moneys had and received.  It is accepted that possession of a check on a forged or
unauthorized indorsement is wrongful, and when the money is
FACTS: collected  on  the  check,  the  bank  can  be  held  ‘for  moneys  had  
1. Merle Reyes is engaged in the business of ready-to-wear garments and  received’.”
under  “Melissa’s  RTW.”  She  deals  with  Robinson’s  Department    When the Bank paid the checks so endorsed, it did so at its
Store, Payless Department Store, Rempson Department Store, and peril and became liable to the payee for the value of the checks.
the Corona Bazaar. This liability attaches whether they were aware of the
2. As payment, such companies issued crossed checks payable to unauthorized indorsement or not.
Melissa’s  RTW.  The Bank was negligent when they permitted the encashment.
3. Upon going to the companies to collect on what she thought were They should have first verified his right to endorse such
still unpaid accounts, she was informed of the issuance of the checks.  Its  failure  to  inquire  into  Sayson’s  authority  was  a  
crossed checks. breach of a duty it owed to Reyes.
4. It turns out that these checks were deposited with Associated Bank
and subsequently paid to Rafael Sayson (allegedly one of their Additional argument of petitioner:
“trusted  depositors.”   They have no privity of contract with Reyes AND Eddie Reyes (husband)
5. Reyes then sued Associated Bank for recovery of the total value of had endorsed the checks
the checks. Judgment was rendered against Associated Bank and  If the husband did endorse the check, the Bank would still be
they were asked to pay the value of the checks, plus interest and liable because he was not authorized and the Bank then would
damages. have  failed  to  verify  the  endorser’s  authority.
6. On  appeal,  the  CA  affirmed  the  trial  court’s  decisions.  One  of    There being no evidence that the crossed checks were actually
petitioner’s  arguments  is  that  Reyes  has  no  cause  of  action  against   received by Reyes, she would have a right of action against the
them and should sue the companies who issued the checks instead. drawer companies, which in turn could go against their
7. Hence, this petition. respective drawee banks, which in turn could sue the herein
petitioner as collecting bank.
 And so to simplify the proceedings, the payee of the illegally
ISSUES: encashed checks could just recover directly from the bank.
WoN Reyes has a cause of action against Associated Bank

RULING + RATIO:
YES
 Crossing a check is done by writing two parallel lines diagonally on
the left top portion of the checks. This is special where the name of a
bank or business institution is written between the two parallel lines –
meaning that the drawee should only pay with the intervention of
such company.
 Where the crossing is general (as in this case), it means that the
drawee bank should NOT encash but merely accept it for deposit.
Digest Author: Mike Castro
ASSOCIATED BANK vs COURT OF APPEALS
(1996)
Petitioner: ASSOCIATED BANK
Respondent: COURT OF APPEALS, PROVINCE OF TARLAC and
PHILIPPINE NATIONAL BANK
Ponencia: ROMERO, J.
DOCTRINE:
The general rule then is that the drawee bank may not debit the drawer's
account and is not entitled to indemnification from the drawer. The risk of
loss must perforce fall on the drawee bank. However, 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
FACTS:
14. Respondent Province of Tarlac maintains an account with the PNB
where the provincial funds are deposited. Checks issued by the Province
are signed by the Provincial Treasurer.
15. Part of the provincial fund is allocated to the Concepcion Emergency
Hospital. The checks are released by the Office of the Provincial
Treasurer.
16. In January 1981, the books of account of the Provincial Treasurer were
post-audited by the Provincial Auditor. It was then discovered that the
hospital did not receive several allotment checks drawn by the Province.
17. Turns out that Fausto Pangilinan, former administrator of the Hospital
until his retirement, collected 30 checks worth 203,000 from the office of
the Provincial Treasurer and claimed to be helping the hospital follow up
the release of the checks. After forging the signature of the payee of
the Hospital, Dr. Adrena Canlas, to make it seem like it was
indorsed to him, Pangilinan encashed the checks to PNB. All the
checks bore the stamp of Associated Bank which reads "All prior
endorsements guaranteed ASSOCIATED BANK."
18. Province of Tarlac filed a case for reimbursement against PNB. PNB
sought reimbursement from Associated Bank due to the stamp. RTC and
CA ruled that PNB liable to pay Province of Tarlac, with the Associated
Bank liable to reimburse PNB, hence this petition
19. PNB claims that Province of Tarlac is negligent for allowing Pangilinan to
continuing to get checks even after he retired and that Associated Bank
should be liable to pay. Associated Bank claims that PNB, as drawee
bank, is estopped to assert the defense of prior indorsements against it,
being the collecting bank, as Associated was merely following procedure.
Also claims that since PNB already cleared and paid the value of the
forged checks in question, it is now estopped from asserting the defense
that Associated Bank guaranteed prior indorsements.
ISSUES:
5. Who are liable for the forgeries of the indorsement
PROVISION:
 Sec 23, NIL
o 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.
RULING + RATIO:
5. THEY ALL ARE! Partially.
a. Province of Tarlac is equally negligent with PNB, so they
must share in the damage.
i. Province of Tarlac is negligent because it allowed
Pangilinan to keep receiving the checks even after
his retirement.
ii. PNB also breached its duty to pay only according to
the terms of the check. Hence, it cannot escape
liability and should also bear part of the loss.
b. PNB may get reimbursement from Associated Bank
i. Under Sec 66 of NIL, “a collecting bank which
indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees
all prior indorsements, including the forged
indorsement. It warrants that the instrument is
genuine, and that it is valid and subsisting at the
time of his indorsement. Because the indorsement
is a forgery, the collecting bank commits a
breach of this warranty and will be accountable
to the drawee bank.”
 ii. In this case, Associated Bank, having indorsed the
instrument, shall be liable to PNB for its share.
iii. Associated Bank may go after Pangilinan

DISPOSITION: PARTIALLY GRANTED

 Tarlac, being, negligent, absorbs 50% of P203,300 liability
 PNB shall pay fifty percent (50%) of P203,300.00 to the Province of
Tarlac.
 Associated Bank shall pay fifty percent (50%) of P203,300.00 to PNB
as reimbursement.