Вы находитесь на странице: 1из 29

Negotiable

Instruments Sec 14 -23



1. Development Bank of Rizal vs Sima Wei
(Loan, Checks, Delivery) Joben del Rosario
EMERGENCY RECIT:
DBR extended a loan to Sima Wei who issued a promissory note. To pay the promissory note
issued 2 checks but were never delivered to DBR. Said checks, for reasons not shown, came
into the possession of Lee Kian Huat who deposited the checks even if it had no
indorsement. Petitioner DBR filed a complaint. Dismissed by Trial Court and CA for no cause
of action. The Supreme Court ruled that DBR had cause of action against Sima Wei for
mentioned loan and not any of the other respondents. Regarding the two specific checks,
DBR has no interest therein because the checks were never delivered to them. A negotiable
instrument, of which a check is, is not only a written evidence of a contract right but is also
a species of property. Just as a deed to a piece of land must be delivered in order to convey
title to the grantee, so must a negotiable instrument be delivered to the payee in order to
evidence its existence as a binding contract.
FACTS:
In consideration for a loan extended by petitioner Development Bank of Rizal (DBR)
to respondent Sima Wei, the latter executed and delivered to the former a
promissory note, engaging to pay the petitioner Bank or order the amount of
P1,820,000.00 on or before June 24, 1983 with interest at 32% per annum.
Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On
November 18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank
drawn against China Banking Corporation, bearing respectively the serial numbers
384934, for the amount of P550,000.00 and 384935, for the amount of
P500,000.00.
The two checks were not delivered to DBR.
For reasons not shown, these checks came into the possession of respondent Lee
Kian Huat, who deposited the checks without the petitioner-payee's indorsement
(forged or otherwise) to the account of respondent Plastic Corporation, at the
Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager
of the Balintawak branch of Producers Bank, relying on the assurance of respondent
Samson Tung, President of Plastic Corporation, that the transaction was legal and
regular, instructed the cashier of Producers Bank to accept the checks for deposit
and to credit them to the account of said Plastic Corporation, inspite of the fact that
the checks were crossed and payable to petitioner Bank and bore no indorsement of
the latter.
Hence, petitioner filed the complaint as aforestated.
Trial Court and Court of Appeals granted motion to dismiss of respondents for DBR
having no cause of action.
ISSUE:
Whether or not DBR has a cause of action against any or all of the defendants. YUP
against SIMA WEI
RATIO:
A cause of action is defined as an act or omission of one party in violation of the legal right
or rights of another. The essential elements are: (1) legal right of the plaintiff; (2) correlative
obligation of the defendant; and (3) an act or omission of the defendant in violation of said
legal right.

Negotiable Instruments Sec 14 -23



The normal parties to a check are the drawer, the payee and the drawee bank. Courts have
long recognized the business custom of using printed checks where blanks are provided for
the date of issuance, the name of the payee, the amount payable and the drawer's signature.
All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and
sign it. However, the mere fact that he has done these does not give rise to any liability on
his part, until and unless the check is delivered to the payee or his representative. A
negotiable instrument, of which a check is, is not only a written evidence of a contract right
but is also a species of property. Just as a deed to a piece of land must be delivered in order
to convey title to the grantee, so must a negotiable instrument be delivered to the payee in
order to evidence its existence as a binding contract.
Section 16 of the Negotiable Instruments Law, Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect
thereto.
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its
delivery to him. Delivery of an instrument means transfer of possession, actual or
constructive, from one person to another. Without the initial delivery of the instrument from
the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery
must be intended to give effect to the instrument.
Without the delivery of said checks to petitioner DBR, the former did not acquire any right or
interest therein and cannot therefore assert any cause of action, founded on said checks,
whether against the drawer Sima Wei or against the Producers Bank or any of the other
respondents.
Notwithstanding the above, Sima Wei is not freed from liability to petitioner Bank under the
loan evidenced by the promissory note agreed to by her. Her allegation that she has paid the
balance of her loan with the two checks payable to DBR has no merit for these checks were
never delivered to petitioner Bank. And even granting, without admitting, that there was
delivery to DBR, the delivery of checks in payment of an obligation does not constitute
payment unless they are cashed or their value is impaired through the fault of the creditor.
Therefore, unless respondent Sima Wei proves that she has been relieved from liability on
the promissory note by some other cause, DBR has a right of action against her for the
balance due thereon. However, insofar as the other respondents are concerned, DBR has no
privity with them. Since DBR never received the checks on which it based its action against
said respondents, it never owned them (the checks) nor did it acquire any interest therein.
In the light of the foregoing, the judgment of the Court of Appeals dismissing the
petitioner's complaint is AFFIRMED insofar as the second cause of action is concerned. On
the first cause of action, the case is REMANDED to the trial court for a trial on the merits,
consistent with this decision, in order to determine whether respondent Sima Wei is liable to
the Development Bank of Rizal for any amount under the promissory note allegedly signed
by her.
DOCTRINE:
1.
A negotiable instrument must be delivered to the payee in order to evidence its
existence as a binding contract.
2.
The payee of the negotiable instrument acquires no interest until its delivery to him.
3.
Such delivery must be intended to give effect to the instrument.

Negotiable Instruments Sec 14 -23


2. Lim v CA 251 SCRA 408 - Dondon Lucenario


Emergency Recit:
Rigi Built Industries, through spouses Lim (Manuel as President and Rosalita as Treasurer),
purchased steel products numerous times from its long time supplier Linton Commercial
Co. (LINTON). As payment, they issued 7 Consolidated Bank and Trust Co (SOLIDBANK)
checks. However, when LINTON deposited the checks, they were dishonoured. Albeit
numerous notices and demands, spouses Lim refused to pay the checks or make
arrangements for the full payment thereof within 5 banking days. Hence, the couple was
charged with estafa and violations of BP 22 in RTC Malabon.
RTC Ruling Spouses are GUILTY of BOTH estafa and violation of BP 22
CA Ruling Spouses are ACQUITTED for estafa but GUILTY of violation of BP 22
On this appeal to SC, spouses Lim contend:
1) They only ordered the bank to stop payment since the goods received did not
comply with the specifications of their order
2) RTC Malabon had no jurisdiction over their case since none of the essential elements
of violation of BP 22 occurred inside the territory of Malabon (all in Kalookan)
SC - they are GUILTY for violation of BP 22.
BP 22 provides prima facie evidence of knowledge of insufficiency of funds and
spouses failed to adduce evidence to prove otherwise
Spouses also failed to pay or make arrangements for the full payment of the checks
within 5 banking days
Jurisdiction was obtained by RTC Malabon since the checks were issued and
delivered to LINTONs office in Balut, Navotas (inside jurisdiction of Malabon)
contrary to what spouses alleged
The important lesson here is the definition of ISSUE and DELIVER as contemplated by the
law.
Spouses Lim wrongly believed that the issuance and delivery of the checks happened in their
office in Kalookan where Lintons collector picked up the checks.
However, the issuance and delivery of an instrument as contemplated by the law is
actually the transfer to a valid holder. The collector was not a holder or even an agent of
Linton and hence him receiving it was actually no delivery.
The delivery was actually in Lintons office in Balut, Navotas. (see red part in ratio for
discussion)
BELLOSILLO, J:

FACTS
1) Spouses Manuel (President) and Rosita (Treasurer) Lim of Rigi Built
Industries (RIGI) have transacted with Linton Commercial Co.
(LINTON) for several years the latter supplying them with steel
structures (i.e. plates, bars)
2) Spouses Lim purchased the following goods listed below from
Linton Commercial Co. on different dates. As payment
simultaneously upon delivery of the goods, they issued
7
Consolidated Bank and Trust Co. (SOLIDBANK) checks
a. 100 pieces of mild steel plates Php51,815
b. 65 pieces of mild steel plates Php63,455
c. 2600 Z purlins Php241,800

Negotiable Instruments Sec 14 -23



3) When the checks were deposited to the Rizal Commercial Banking
Corporation, they were dishonoured for insufficiency of funds,
with the notation payment stopped
4) SOLIDBANK employee (signature verifier) Salvador Alfonso testified
that all 7 checks were dishonoured because the Spouses Lim
ordered them to stop payment and that they were drawn against
insufficient funds
5) Manuel Lim admitted drawing the 7 checks but denied that they
had insufficient funds and showed a ledger of their account with
a balance of Php65,752.65
a. Manuel claimed that he ordered SOLIDBANK to stop
payment since the goods delivered by LINTON were not in
accordance with the specifications in the purchase orders
6) Despite repeated notice and demands, Lim refused to pay the
checks or the value of the goods
a. Also, despite receipts of such notice that the checks were
dishonoured, they failed to pay the amounts of the checks
or to make arrangements for full payment within 5 banking
days
7) Spouses Lim were charged in RTC Malabon for 3 counts of estafa
and 7 counts of violation of BP 22
a. It was alleged that spouses issued the checks with
knowledge that they didnt have sufficient funds or credit
with the bank
8) RTC RULING Spouses are guilty of both estafa and violation of BP
22 prison plus indemnity for damages
9) On appeal, spouses Lim contend:
a. RTC Malabon has no jurisdiction since offense was
committed outside territory
i. The checks were issued at their place of business,
received by a collector of LINTON, and dishonoured
by the drawee bank all in Kalookan City
b. They couldnt be liable for estafa since the 7 checks were
issued by them after the delivery of the goods
c. They couldnt be held liable for violating BP 22 since they
only ordered to stop payment since the goods delivered
were not as they specified and besides, they had sufficient
funds to pay the checks
10) CA RULING
a. NOT guilty for estafa since the checks were not made in
payment of an obligation contracted at time of their
issuance
b. GUILTY of violation of BP 22
11) Hence, final appeal to SC

ISSUE:
12) W/N RTC Malabon has jurisdiction (RTC Malabon has jurisdiction)
13) W/N spouses Lim are guilty of violating BP 22 (YES they are guilty)

HELD: CA Ruling affirmed. GUILTY of violation of BP 22

Negotiable Instruments Sec 14 -23


RATIO
14) BP 22 punishes:
a. any person who makes or draws and issues any check to
apply on account or for value, knowing that the time of
issue that he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full
upon its presentment, which check is subsequently
dishonoured by the drawee bank for insufficiency of funds
or credit or would have been dishonoured for the same
reason had not the drawer, without any valid reason,
ordered the bank to stop payment
15) The gravamen of the offense is KNOWINGLY issuing a worthless
check
16) 2 essential elements:
a. KNOWLEDGE on the part of the drawer of the insufficiency
of funds
b. SUBSEQUENT DISHONOR of the check by the drawee bank
for insufficiency of funds or that the drawer without any
valid reason, order to stop payment

Determining Jurisdiction
17) Jurisdiction belongs to the court where the offense was committed
or where any one of the essential ingredients took place
18) Violations BP 22 is among those called continuing or transitory
crimes
19) The following is the breakdown of the essential elements of the
violation with corresponding locations
1
2
3
4

7 Checks issued to LINTON in its office


Delivered to LINTON office
Checks were dishonoured
Spouses
Lim
had
knowledge
of
their
insufficiency of funds in SOLIDBANK at time
they were issued

Balut, Navotas
Balut, Navotas
Kalookan City

IMPORTANT LESSON:
What was crucial in this case is the definition of ISSUE and DELIVERED as contemplated by
the law.
Spouses Lim contend that the checks were issued and delivered in their Kalookan office
when the collector of LINTON went there to get the checks.
However, under Negotiable Instruments Law, this is NOT TRUE.
20) In Negotiable instruments Law:
a. Issue means the first delivery of the instrument complete
in form to a person who takes it as a holder
b. Holder refers to the payee or indorsee of a bill or note
who is in possession of it or the bearer thereof
c. Delivery of the check signifies transfer of possession,
actual or constructive, from one person to another with
intent to transfer title thereto

Negotiable Instruments Sec 14 -23



Therefore since delivery and issuance actually happened in LINTONs office in Navotas, the
RTC Malabon obtained jurisdiction.
21) SC the place where the bills were written, signed or dated does
not necessarily fix or determine the place where they were
executed
a. What is decisive is the DELIVERY thereof
b. The delivery of the instrument is the final act essential to
its consummation as an obligation until delivery, the
contract is revocable
22) In this case, although LINTON sent a collector who received the
checks from RIGI office in Kalookan, they were actually issued and
delivered to LINTON in its place of business in Balut, Navotas
a. The receipt of the checks by the collector of LINTON is not
the issuance and delivery contemplated by the law,
because:
1) The collector was not the person who could take the checks as a
holder (he was not a payee or indorsee to which it was intended to
transfer title to)
2) The collector cannot be deemed an agent since he is a mere
employee
23) BP 22 establishes prima facie evidence of knowledge of
insufficiency of funds
a. Spouses Lim were not able to show proof to the contrary
because:
1) They did not pay LINTON the amounts due on the checks
2) Failed to make arrangements to pay in full within 5 days after receiving notices that
the checks had not been paid by drawee bank
24) People v. Manzanilla knowledge on the part of the maker or
drawer of the check of the insufficiency of his funds is by itself a
continuing eventuality, whether the accused be in one territory or
another
a. The information alleges that the offense was committed in
Municipality of Navotas which is controlling and sufficient
to give jurisdiction to the RTC of Malabon
3. Republic Planters Bank v CA 216 SCRA 738 - Zep Rivera
EMERGENCY RECIT
Canlas and Yamaguchi, officers of World wide Garment Manufacturing (later ong Pinch
Manufacturing) were authorized by Worldwide Garments to apply for credit facilities w/
Republic Planters Bank. The Bank prepared 9 promissory notes w/c were signed by Canlas
and Yamaguchi binding themselves jointly and severally liable to the Bank; the name of
Worldwide was merely rubber stamped above their signatures. Worldwide was not able to to
settle its debt. The Bank filed a collection suit against the two officers. Trial Court held
Canlas and Yamaguchi personally liable. Canlas seeks to avoid liability.
SC said that the promissory notes are negotable instruments, this governed by the NIL.
Canlas is solidarily liable on each of the promissory notes to which his signature appears.

Negotiable Instruments Sec 14 -23



Under the Negotiable Instruments Law, persons who write their names in promissory notes
are deemed makers and are liable. When an instrument contains the words I promise to pay
signed by 2 or more persons, they are deemed solidarily liable. The singular pronoun
indicates that the promise is individual to all the co-makers. All the more so in this case
where the words jointly and severally are present; Canlas is definitely solidarily liable for
the amount indicated therein.
Canlas cannot be considered to be an agent as one of its officers because he did not
indicate Worldwide in the instrument as his principal. If an agent signs his name in an
instrument, but nowhere in the instrument does he disclose the principal, he is liable
therefor according to Sec. 201 of the Negotiable Instruments Law.
Canlas claims that the instrument was delivered to him for signature as a blank instrument.
NIL Sec. 142 cannot be invoked either because it was not a blank instrument. If such were
the case, then it would be considered an incomplete instrument and the person in
possession thereof has prima facie authority to fill up the blanks therein, as long as it is
filled up strictly in accordance w/ the authority given and w/in a reasonable time. The notes
were delivered to Canlas for his signature after the blanks have already been filed up by the
Bank. The notes were not incomplete instruments and Sec. 14 does not apply.
FACTS
I.

President/ Chief Operating Officer Yamaguchi and Treasurer Canlas of Worldwide


Garment were authorized to apply for credit facilities with Republic Planters Bank in
the forms of export advances and letters of credit/trust receipts accommodations.
Petitioner bank RPB issued nine promissory notes:

___________, after date, for value received, I/we, jointly and severaIly
promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its
office in Manila, Philippines, the sum of ___________ PESOS(....)
Philippine Currency...
II.

The name Worldwide Garment Manufacturing, Inc. was rubber stamped above the
signatures of Yamaguchi and Canlas above their printed names with the phrase "and
(in) his personal capacity The signatures were on the right bottom margin of the
promissory note. At the bottom of the promissory notes appeared:


1 1

Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person adds to his signature
words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on the instrument if
he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character,
without disclosing his principal, does not exempt him from personal liability.
2
Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession
thereof has a prima facie authority to complete it by filling up the blanks therein.
And a signature on a blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount.
In order, however, that any such instrument when completed may be enforced against any person who became a
party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable
time.
But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all
purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within
a reasonable time.

Negotiable Instruments Sec 14 -23



Please credit proceeds of this note to:
________ Savings Account ______XX Current Account No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
III.
IV.
V.

VI.
VII.

RPB filed a case with the RTC when Worldwide was not able to to settle its debt.
The RTC Ruled in favor of RPB and ordered Worldwide Garment Manufacturing,
Yamaguchi and Canlas to jointly and severally pay the bank.
From this decision, only Canlas appealed to the Intermediate Court/Court of
Appeals. He claims that he singed the promissory notes as an officer who as
authorized by WGM and should not be personally liable.
Court of Appeals affirmed the decision of the RTC rodering WGM to pay, but
absolved Canlas from liability under the promissory notes.
RPB petitioned to the SC that Canlas is solidarily liable with Yamaguchi on each of
the 9 promissory notes because he singed.

ISSUE - Wno Canlas is solidarily liable with WGM and Yamaguchi?- YES. Canlas is solidarily liable
on each of the promissory notes bearing his signature for the following reasons:

RATIO
Canlas is one of the co-makers of the promissory notes. He cannot escape liability arising
therefrom.
VIII.
IX.
X.

The promissory motes are negotiable instruments and must be governed by the
Negotiable Instruments Law.
Under the Negotiable lnstruments Law, persons who write their names on the face of
promissory notes are makers and are.
By signing the notes, the maker promises to pay to the order of the payee or any
holder according to the tenor thereof.

The solidary liability of Canlas is clearer and certain, by the presence of the phrase "joint
and several" as describing the unconditional promise to pay to the order of Republic
Planters Bank. By making a joint and several promise to pay to the order of Republic Planters
Bank, Canlas assumed the solidary liability of a debtor and the payee may choose to enforce
the notes against him alone or jointly with Yamaguchi and Corporation as solidary debtors.
XI.
XII.
XIII.

XIV.

XV.

Where an instrument containing the words "I promise to pay" is signed by two or
more persons, they are deemed to be jointly and severally liable thereon.
An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when
signed by two or more persons, makes them solidarily liable.
The fact that the singular pronoun is used indicates that the promise is individual as
to each other; meaning that each of the co-signers is deemed to have made an
independent singular promise to pay the notes in full.
A joint and several note is one in which the makers bind themselves both jointly and
individually to the payee so that all may be sued together for its enforcement, or the
creditor may select one or more as the object of the suit.
A joint and several obligation in common law corresponds to a civil law solidary
obligation; that is, one of several debtors bound in such wise that each is liable for
the entire amount, and not merely for his proportionate share.

Canlas cannot claim to be the agent of the corporation to exempt him from liablity.

Negotiable Instruments Sec 14 -23



XVI.

Under the Negotiable Instruments Law, the liability of a person signing as an agent is
specifically provided for as follows is under Sec. 20. Where the agent signs his name
but did not that he is acting in a representative capacity, the agent is personally
liable to take holder of the instrument and cannot be permitted to prove that he was
merely acting as agent.

When the notes were given to Fermin Canlas for his signature, the notes were complete in
the sense that the spaces for the material particular had been filled up by the bank as per
agreement. The notes were not incomplete instruments, thus Section 14 of the NegotiabIe
Instruments Law is not applicable.
XVII.

XVIII.

A careful examination of the notes shows that they are the stereotype printed form
of promissory notes generally used by commercial banking institutions to be signed
by their clients in obtaining loans.
1) They only seem to be incomplete because there are blank spaces to be filled
up on material particulars such as payee's name, amount of the loan, rate of
interest, date of issue and the maturity date. The terms and conditions of the
loan are printed on the note for the borrower-debtor 's perusal.
2) However, this is customary procedure of commercial banks of requiring their
clientele to sign promissory notes prepared by the banks in printed form with
blank spaces already filled up as per agreed terms of the loan, leaving the
borrowers-debtors to do nothing but read the terms and conditions therein
printed and to sign as makers or co-makers.
The notes were filled up before they were given to Canlas and Yamaguchi for their
signatures as joint and several promissors.
For signing the notes above their
typewritten names, they bound themselves as unconditional makers.

4. Astro Electronics v. Phil Export and Foreign Loan - Keith King


Emergency Recit:
Astro loaned from Philtrust company P3,000,000 secured by 3 promissory notes. The
promissory notes were signed by Roxas twice, as President of Astro and in his personal
capacity. Astro also undertook a contract with Philguarantee making Philguarantee a
guaranty for 70% of the P3,000,000 loaned. Such contract had a stipulation that failure of
Astro to pay would subrogate the rights of Philtrust to Philguarantee against Astro. Astro
failed to pay. Philguarantee therefore paid the 70% as guarantors. They filed a complaint for
a sum of money against Astro in the RTC Makati. RTC Makati ordered that they pay
Philguarantee the amount solidarily. CA affirmed. Petitioner Roxas contends that he is not
solidarily liable. SC held that he was solidarily liable. He signed the three promissory notes
twice, as president of Astro and in his personal capacity. Under the Negotiable Instruments
Law, persons who write their names on the face of promissory notes are makers, promising
that they will pay to the order of the payee or any holder according to its tenor.
The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally
and solidarily, promise to pay to PHILTRUST BANK or order...12 An instrument which begins
with I, We, or Either of us promise to pay, when signed by two or more persons, makes them
solidarily liable.
Facts:

Negotiable Instruments Sec 14 -23


Astro was granted several loans by the Philippine Trust Company (Philtrust)
amounting to P3,000,000.00 with interest and secured by three promissory notes
o 1st promissory note for P600,000 Dec. 14, 1981
o 2nd promissory note for P400,000 also Dec. 14, 1981
o 3rd promissory note for P2,000,000 August 27, 1981
Roxas as President of Astro, signed twice, as President of Astro and in his personal
capacity.
Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as
President of Astro and as surety.
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust
the payment of 70% of Astros loan with the condition that upon payment by
Philguarantee of 70% (P2,400,000), they will be proportionally subrogated in the
rights of Philtrust against Astro.
Astro failed to pay. Philguarantee therefore paid 70% of the loan. After, it filed a
complaint in RTC Makati for a sum of money against Astro Electronics Co. and
Roxas.
RTC ordered Astro and Roxas to pay jointly and severally, the plaintiff
(Philguarantee) the sum of P3,621.187.52 representing the total obligation of
defendants in favor of plaintiff Philguarantee as of December 31, 1984 with interest.
CA affirmed RTC.
The trial court observed that if Roxas really intended to sign the instruments merely
in his capacity as President of Astro, then he should have signed only once in the
promissory note.
Roxas failed to explain why he had to sign twice in the contract and therefore the
presumption that private transactions have been fair and regular must be sustained.
Roxas claim that the phrases in his personal capacity and in his official capacity were
inserted on the notes without his knowledge was correctly disregarded by the RTC
and the Court of Appeals.
It is not disputed that Roxas does not deny that he signed the notes twice. As aptly
found by both the trial and appellate court, Roxas did not offer any explanation why
he did so. It devolves upon him to overcome the presumptions that private
transactions are presumed to be fair and regular and that a person takes ordinary
care of his concerns.

Issue: Whether or not Roxas should be jointly and severally liable (solidary) with Astro for
the sum awarded by the RTC? YES!
Ratio:
As it appears on the notes, Roxas signed twice: first, as president of Astro and second, in
his personal capacity. In signing his name aside from being the President of Asro, Roxas
became a co-maker of the promissory notes and cannot escape any liability arising from it.
Under the Negotiable Instruments Law, persons who write their names on the face of
promissory notes are makers,[10 promising that they will pay to the order of the payee or
any holder according to its tenor.11 Thus, even without the phrase personal capacity, Roxas
will still be primarily liable as a joint and several debtor under the notes considering that his
intention to be liable as such is manifested by the fact that he affixed his signature on each
of the promissory notes twice which necessarily would imply that he is undertaking the
obligation in two different capacities, official and personal.

Negotiable Instruments Sec 14 -23



The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally
and solidarily, promise to pay to PHILTRUST BANK or order...12 An instrument which begins
with I, We, or Either of us promise to pay, when signed by two or more persons, makes them
solidarily liable.
He also executed, and again, signed twice, a continuing Surety ship Agreement notarized on
July 31, 1981, wherein he guaranteed, jointly and severally with Astro the repayment of
P3,000,000.00 due to Philtrust. Such continuing suretyship agreement even re-enforced his
solidary liability Philtrust because as a surety, he bound himself jointly and severally with
Astros obligation.
Philguarantee has all the right to proceed against petitioner, it is subrogated (Legal
subrogation) to the rights of Philtrust to demand for and collect payment from both Roxas
and Astro since it already paid the value of 70% of roxas and Astro Electronics Corp.s loan
obligation in compliance with its contract of Guarantee in favor of Philtrust. (Subrogation =
alam niyo na dapat yan)
Further, Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as
against Roxas and Astro because the guarantor who pays is subrogated by virtue thereof to
all the rights, which the creditor had against the debtor.
*tangina hindi ko alam kung saan ung phil export and foreign loan guarantee corporation,
the respondents.
** Im assuming that they are Philguarantee.
5. San Carlos Mining v. BPI 59 Phil 59 - Alexis Aquino
Emergency Recit:
Wilson and Dolores, both employees of SCMC sent a cablegram to China Banking
Corporation for the transfer of $100,000. On this contract, they forged the name of Baldwin,
the agent authorized by the SCMC. The money was received and deposited in BPI. Upon
deposit, an indorsement in the name of Baldwin was placed. Later, a letter was sent
to the bank, purporting to be signed by Baldwin asking that the money be withdrawn. This
was done in supervision of Dolores. Dolores and Wilson were able to get the money. When
SCMC found out, they filed a case against both China Banking Corporation and BPI. The SC
held that 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 (in this case SCMC). Therefore, BPI was negligent in honoring and cashing the checks.
December 11, 1933
I. FACTS
1. San Carlos Milling Co., is a business that has a branch in the Philippines. It was in the
hands of Alfred D. Cooper. The principal employee in the Manila office was Joseph L.
Wilson, who had been given a general power of attorney but without power of
substitution.
2. Cooper gave a general power of attorney to Newland Baldwin and at the same time
revoked the power of Wilson relative to the dealings with the BPI, one of the banks in
Manila in which San Carlos Milling Co., maintained a deposit.

Negotiable Instruments Sec 14 -23



3. Wilson, conspiring together with Alfredo Dolores, a messenger-clerk in SCMCs
Manila office sent a cable gram to the company in Honolulu requesting a telegraphic
transfer to the China Banking Corporation of Manila of $100,00.3 The money was
transferred, and upon its receipt, the China Banking Corporation, sent an exchange
contract to SCMC offering the sum of P201,000, which was then the current rate of
exchange. On this contract was forged the name of Newland Baldwin.
4. A managers check on the China Banking Corporation for P201,000 payable to San
Carlos Milling Company or order was received by Dolores. The managers check was
deposited with the BPI by the following endorsement:
1. For deposit only with Bank of the Philippine Islands, to credit of account of
San Carlos Milling Co., Ltd.
2. By (Sgd.) NEWLAND BALDWIN
3. For Agent
5. The endorsement to which the name of Newland Baldwin was affixed was spurious.4
6. The BPI credited the current account of SCMC in the sum of P201,000 and passed the
cashiers check in the ordinary course of business through the clearing house, where
it was paid by the China Banking Corporation.
7. On the same day, the cashier of the BPI received a letter, purporting to be signed by
Newland Baldwin, directing that P200,000, named in the letter, be packed for
shipment and delivery the next day. The next day, Dolores returned with the check
for the sum of P200,000, purporting to be signed by Newland Baldwin as agent.
8. SCMC had frequently withdrawn currency for shipment from the BPI but never in so
large an amount, and according to the record, never under the sole supervision of
Dolores as its representative.
9. The money was turned over to Dolores, who then turned the money over to Wilson
and received as his share, P10,000.
10. Shortly thereafter the crime was discovered, and upon the BPI refusing to credit
SCMC with the amount withdrawn by the two forged checks of P200,000 and P15,
suit was brought against both the BPI and the China Banking Corporation.
11. China Banking Corporations defense: They had drawn a check to the credit of SCMC.
The check had been endorsed for deposit, and had been guaranteed by the BPI.
Therefore they should be absolved even if the endorsement of Newland Baldwin on
the check was a forgery.
12. BPIs defense: There had been no negligence on their part. The loss was due to the
dishonesty of SCMCs employees and the negligence of its general agent.

I just copy-pasted the value. Its probably a typo. Im guessing it was supposed to be $100,000.00
IN A NUTSHELL: $100,000 was transferred to China Banking Corporation. CBC converted it to P201,000. The
money was deposited to BPI.
4


5 Another forgery instance, but not as important: Before delivering the money, the bank asked Dolores for P1

to cover the cost of packing the money, and he left the bank and shortly afterwards returned with another
check for P1, purporting to be signed by Newland Baldwin

Negotiable Instruments Sec 14 -23



13. Trial Court: Deposit of P201,000 in BPI was a result of a forged endorsement, but the
bank was only a gratuitous bailee; that the BPI acted in good faith in the ordinary
course of its business, was not guilty of negligence, and therefore under article 1902
of the Civil Code which should control the case, SCMC could not recover; and that as
the cause of loss was the criminal actions of Wilson and Dolores; and as Newland
Baldwin, the agent, had not exercised adequate supervision over the Manila office,
therefore SCMC was guilty of negligence, which ground would likewise defeat
recovery.
14. SCMC appealed
Issue
Whether or not the BPI should be held liable.
Held:
The judgment absolving the BPI must therefore be reversed.

Ratio:
The Court's Ruling
15. As to the China Banking Corporation, it will be seen that it drew its check payable to
the order of SCMC and delivered it to the agent who was authorized to receive it. A
bank that cashes a check must know to whom it pays. In connection with the
cashiers check, this duty was therefore upon the BPI, and the China Banking
Corporation was not bound to inspect and verify all endorsements of the check, even
if some of them were also those of depositors in that bank. The China Banking
Corporation is indebted neither to SCMC nor to the BPI.
16. The check of P201,000 was not for cash payment but for deposit only. It is a matter
of general knowledge that most endorsements for deposit only, are informal. The
bank would have been justified in accepting the check for deposit even with only a
typed endorsement. It accepted the check and duly credited SCMCs account with the
amount on the face of the check.
17. SCMC in its letter of December 23, 1928, to the BPI said in part:
1. . . . we now leave to demand that you pay over to us the entire amount of
said managers check of two hundred one thousand (P201,000) pesos,
together with interest thereon at the agreed rate of 3 per cent per annum on
daily balances of our credit in account current with your bank to this date. In
the event of your refusal to pay, we shall claim interest at the legal rate of 6
per cent from and after the date of this demand inasmuch as we desire to
withdraw and make use of the money. Such language might well be treated
as a ratification of the deposit.
18. Banks are not gratuitous bailees of the funds deposited with them by their
customers. Banks are run for gain, and they solicit deposits in order that they can
use the money for that very purpose. In this case the action was neither gratuitous
nor was it a bailment.
19. We now come to consider the legal effect of payment by the bank to Dolores of

Negotiable Instruments Sec 14 -23



the sum of P201,000, on two checks on which the name of Baldwin was forged
as drawer. As above stated, the fact that these signatures were forged is
beyond question. It is an elementary principle both of banking and of the
Negotiable Instruments Law that 1. 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.
20. There is no act of the SCMC that led the BPI astray. The bank paid out its money
because it relied upon the genuineness of the purported signatures of Baldwin.
These, they never questioned at the time its employees should have used care.
21. The signatures to the check being forged, under section 23 of the Negotiable
Instruments Law they are not a charge against SCMC.
22. It must therefore be held that the proximate cause of loss was due to the negligence
of the BPI in honoring and cashing the two forged checks.

6. Great Eastern Life v HSBC 43 Phil 678 - Karl Libongco


Emergency Recits: GELI issued a check to Melicor or his order for the amount of P2,000.
Melicors signature was forged by Maasim who then encashed said check with the PNB. The
PNB then indorsed said check to HSBC for payment. A case was filed assailing the validity of
said transaction. The lower court ruled that PNB was in good faith and that HSBC was a
holder of the check in due course. Upon appeal/petition, the Court stated that GELIs check
was drawn on Shanghai Bank payable to the order of Melicor. This is not a case where the
plaintiffs own signature was forged to one of it checks. 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. When a signature is forged
or made without the authority of the person whose signature it purports to be 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.
Facts:
-
-

Great Eastern Life Insurance Co. (GELI) indorsed a check to Lazaro Melicor or his
order for the amount of P2,000.
Melicors signature was forged to said check so that the person to whose order
the check was issued did not receive the money, which was collected by E. M.
Maasim.
Maasim encashed said check in the Philippine National Bank (PNB), the latter not
making any inquiry as regards an endorsement by Melicor. The PNB then brought
said check to the Hongkong and Shanghai Banking Corp. (HSBC) for payment.
A case was filed against both PNB and HSBC assailing the transaction
o The lower court held that the PNB cannot be held liable for a payment
made to Maasim was in good faith. They added that the PNB did not have
any obligations to question the endorsement because
it was not
obligated to identify the signature of the former indorser (Melicor)
o Neither was the HSBC held liable because it was a holder in due course.
Hence this appeal/petition.

Negotiable Instruments Sec 14 -23



Issue:
-
-

W/N PNB should be held liable for the payment of the check to Maasim YES
W/N HSBC should be held liable for the payment made to the PNB YES

Ratio:
GELIs check was drawn on Shanghai Bank payable to the order of Melicor.
o GELI authorized and directed the Shanghai Bank 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.
-
This is not a case where the plaintiffs own signature was forged to one of it
checks.
o 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.
-
Sec. 23 of the Negotiable Instruments Law:
When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from
setting up the forgery or want of authority.
-
The money was on deposit in the Shanghai Bank, and it had no legal right to pay
it out to anyone except the plaintiff or its order.
o GELI ordered the Shanghai Bank to pay the check to Melicor, and the
money was actually paid to Maasim and he never paid to Melicor, and he
never personally endorsed the check, or authorized any one to endorse it
for him, and the alleged endorsement was a forgery.
-
The Philippine National Bank 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
Melicors endorsment was genuine before cashing the check. Its remedy is
against Maasim to whom it paid the money.
-

The judgment of the lower court is reversed, and one will be entered here in favor of the
plaintiff and against the Hongkong and Shanghai Banking Corporation for the P2,000, with
interest thereon from November 8, 1920 at the rate of 6 per cent per annum, and the costs
of this action, and a corresponding judgment will be entered in favor of the Hongkong
Shanghai Banking Corporation against the Philippine National Bank for the same amount,
together with the amount of its costs in this action. So ordered.
Doctrine: Sec. 23 of the NIL
7. Republic Bank v. Ebrada 65 SCRA 680 - Gaston Perez de Tagle
Emergency Recit
FACTS: Ebrada encashed a check at the office of RB (the drawee) for P1,246.08. The check
was indorsed a total of 3 times. Ebrada was the last holder. It turned out that the first
indorsees (Martin Lorenzo) signature was forged, evidenced by the fact that he was dead at
the time when he allegedly signed it. RB refunded the check to the Bureau of Treasury and
sought to recover the amount from Ebrada. RB won in the lower courts; Ebrada appealed
until SC.

Negotiable Instruments Sec 14 -23



HELD: The negotiation as to Ebrada was held to be valid (only the negotiation from Lorenzo
to the second holder was void). DOCTRINE: where a check has several indorsements on
it, it was held that it is only the negotiation based on the forged or unauthorized
signature which is inoperative. As basis for the preceding sentence, the Court cited US
jurisprudence.
Nonetheless, the Court held that Ebrada was liable to the RB for the amount on the
instrument because as indorser, one is expected to find out w/n the instrument was
impaired. As basis, it cited several cases.

Facts
Ebrada encashed Back Pay Check No. 508060 dated January 15, 1963 for P1,246.08
at the office of the plaintiff Republic Bank (RB)
o Check was issued by the Bureau of Treasury
RB was later advised by the said Bureau that the alleged indorsement on the reverse
side of the aforesaid check by the payee, "Martin Lorenzo" was a forgery since the
latter had allegedly died as of July 14, 1952.
RB was then requested by the Bureau of Treasury to refund the amount of
P1,246.08.
To recover what it had refunded to the Bureau of Treasury, RB made verbal and
formal demands upon Ebrada to account for the sum of P1,246.08, but said
defendant refused to do so.
o So RB sued Ebrada before the City Court of Manila
City Court of Manila rendered judgment for the plaintiff Bank against Ebrada; for
Third-Party plaintiff against Third-Party defendant, Adelaida Dominguez, and for
Fourth-Party plaintiff against Fourth-Party defendant, Justina Tinio.
Ebrada and co. appealed to the CFI and entered the ff. stipulation of facts:
o Treasury of the Philippines issued its Check No. BP-508060, payable to the
order of one MARTIN LORENZO, in the sum of P1,246.08, and drawn on the
RB.
o That the back side of the check bears the following signatures, in this order:
MARTIN LORENZO;
RAMON R. LORENZO;
DELIA DOMINGUEZ; and
MAURICIA T. EBRADA;
o The aforementioned check was delivered to the defendant EBRADA by the
Third-Party defendant and Fourth-Party plaintiff ADELAIDA DOMINGUEZ, for
the purpose of encashment;
o That the signature of defendant EBRADA was affixed on said check on
February 27, 1963 when she encashed it with the plaintiff Bank;
o Immediately after defendant MAURICIA T. EBRADA received the cash
proceeds of said check in the sum of P1,246.08 from the plaintiff Bank, she
immediately turned over the said amount to the third-party defendant and
fourth-party plaintiff ADELAIDA DOMINGUEZ
Trial Court decided against Ebrada; ordered her to pay RB P1,246.08.

Issue
W/N The Trial Court erred IN ORDERING THE APPELLANT TO PAY THE APPELLEE THE
FACE VALUE OF THE SUBJECT CHECK AFTER FINDING THAT THE DRAWER ISSUED THE
SUBJECT CHECK TO A PERSON ALREADY DECEASED FOR 11 YEARS

Held

Negotiable Instruments Sec 14 -23


IN VIEW OF THE FOREGOING, the judgment appealed from is hereby affirmed in toto
with costs against defendant-appellant

Ratio
It is admitted that Ebrada was the last indorser of the said check.
o As such indorser, she was supposed to have warranted that she has good
title to said check under Section 65 of the Negotiable Instruments Law.
It turned out, however, that the signature of the original payee of the check, Martin
Lorenzo was a forgery because he was already dead for almost 11 years before the
check in question was issued by the Bureau of Treasury. Under Section 23 of the
Negotiable Instruments Law (Act 2031):
o 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 instruments, or to give a discharge thereof against any party
thereto, can be acquired through or under such signature unless the party
against whom it is sought to enforce such right is precluded from setting up
the forgery or want of authority.
But does this mean that the existence of one forged signature therein will
render void all the other negotiations of the check with respect to the other
parties whose signature are genuine?
o Beam vs. Farrel - where a check has several indorsements on it, it was held
that it is only the negotiation based on the forged or unauthorized
signature which is inoperative.
o Applying this principle to this case, it can be safely concluded that it is only
the negotiation predicated on the forged indorsement that should be
declared inoperative.
This means that the negotiation of the check in question from Martin
Lorenzo, the original payee, to Ramon R. Lorenzo, the second
indorser, should be declared of no affect.
But the negotiation of the check from Ramon R. Lorenzo to Adelaida
Dominguez, the third indorser, and from Adelaida Dominguez to the
Ebrada who did not know of the forgery, should be considered valid
and enforceable, barring any claim of forgery
[I FEEL LIKE THIS IS NOT THE MAIN POINT, BUT GOOD TO KNOW IF YOU HAVE
TIME] What happens then, if, after the drawee bank has paid the amount of the
check to the holder thereof, it was discovered that the signature of the payee
was forged? Can the drawee bank recover from the one who encashed the
check?
o State v. Broadway Mut. Bank - held that the drawee of a check can recover
from the holder the money paid to him on a forged instrument. It is not
supposed to be its duty to ascertain whether the signatures of the payee or
indorsers are genuine or not.
o This is because the indorser is supposed to warrant to the drawee that the
signatures of the payee and previous indorsers are genuine, warranty not
extending only to holders in due course.
o Although the drawee was in a way negligent in failing to detect the forgery,
yet if the encasher of the check had performed his duty, the forgery would in
all probability, have been detected and the fraud defeated.
o In the instant case, EBRADA, upon receiving the check in question from
Adelaida Dominguez, was duty-bound to ascertain whether the check in
question was genuine before presenting it to plaintiff Bank for payment.

Negotiable Instruments Sec 14 -23



Her failure to do so makes her liable for the loss and the plaintiff Bank
may recover from her the money she received for the check.
With the foregoing doctrine, We are to concede that RB should suffer the loss when it
paid the amount of the check in question to defendant-appellant, but it has the
remedy to recover from the latter the amount it paid to her.
o Although Ebrada was not proven to be the author of the supposed forgery,
as last indorser of the check, she has warranted that she has good title to it
even if in fact she did not have it because the payee of the check was already
dead 11 years before the check was issued.

8. Gempesaw v CA 218 SCRA 682 - Norby Geraldez


Emergeny Recit:
GEMPESAW seeks to have DRAWEE BANK recredit her account for P1.2 M. Gempesaw signed
checks (a bill of exchange) that her trusted bookkeeper, GALANG, prepared for her; but
instead of delivering it to the actual payees stated therein, Galang forged the signatures of
the payees and subsequently indorsed it to other persons. Court ruled that although a
forgery is a real defense with regard to all persons prior to the forgery, it does not operate
when those parties are guilty of negligence. Here, GEMPESAW was ruled negligent as for two
years, she did not exercise the diligence of a prudent businessperson, and was made to
suffer the results. However, since DRAWEE BANK was also guilty of breach of contract, it was
made to pay for half the losses by way of damages.
Doctrines:

1.

Forgery in Sec. 23 does not pertain only to the signature of a maker or drawer. It
also pertains to forged signatures of indorsers.

2.

Forged signature of indorser will act as a real defense for all parties prior to the
forgery, and release them from liability.

3.

The last portion of Sec. 23 speaks of the exeption. Even if theres a subsequent
forgery, if its caused by fraud or negligence by said party, he will not be able to avail of
this defense.

Facts:
Gempesaw (GEMPESAW) appeals to SC from adverse rulings of RTC and CA on the issue of
the right of the drawer to recover from the drawee Philippine Bank of Communications
(DRAWEE BANK) who pays a check with a forged indorsement of the payee, debiting the
same against the drawer's account. This suit was brought in order to recover the amounts
debited from Gempesaw's account by Drawee Bank. Two lower courts ruled against
Gempesaw, saying that 1. her negligence was proximate cause of loss, 2. Even if Drawee
Bank was negligent, Gempesaw was still proximate cause of loss.

Gempesaw owns and operates four grocery stores located at Rizal Avenue Extension and
at Second Avenue, Caloocan City.

Petitioner maintains a checking account Drawee Bank. To facilitate payment of debts to


her suppliers, petitioner draws checks against her checking account with the respondent
bank as drawee.

Gempesaw's method of paying suppliers by check:

Negotiable Instruments Sec 14 -23


The checks were prepared and filled up as to all material particulars by her trusted
bookkeeper, Alicia Galang (GALANG), an employee for more than eight (8) years and
one she fully and implicitly trusted.

the completed checks were submitted to the petitioner for her signature, together
with the corresponding invoice receipts which indicate the correct obligations due
her suppliers. She signed them without verifying amounts expressed therein.

The checks were then delivered by Galang to the payees. Again, Gempesaw never
verified if payees actually received such checks or payments.

Bank would send regular reports of disbursed checks, Gempesaw never reviewed
them.

All checks were presented to Drawee Bank as checks supposedly indorsed by payees.
After payment, Drawee debited account of Gempesaw.

Example of the fraud perpetrated, as shown in the Court exhibits: Invoice of Php
1,189.00 would be paid in check as Php 11,189.00

This practice continued for 2 years. 82 checks were concerned. Total amount debited
was Php 1.2 M.

This is what happened when checks were brought to bank:


-
The checks, wherein impliedly the signatures of payees were forged by Galang, we're
presented to Ernest BOON, Chief Accountant of Drawee Bank.
-
Boon received them without authority. Under the rules of the 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.
-
These checks were deposited to the various accounts of Boon's close friends.

Issue:
W/N Gempesaw's account can be re-credited by Drawee Bank.
Held:
Account to be re-credited but only for half of the actual loss incurred. Other half shall be
borne by the Drawee Bank. Case remanded back to trial court to determine actual loss
incurred by Gempesaw.
Ratio:
The applicable law is the Negotiable Instruments Law 4 (heretofore referred to as the NIL).
Section 23 of the NIL provides:
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.
Under the aforecited provision, 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. Thus, if a person's signature is forged as a maker of a

Negotiable Instruments Sec 14 -23



promissory note, he cannot be made to pay because he never made the promise to pay. Or
where a person's signature as a drawer of a check is forged, the drawee bank cannot charge
the amount thereof against the drawer's account because he never gave the bank the order
to pay. 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 matter of practical significance, problems arising from forged indorsements of checks
may generally be broken into two types of cases: (1) where forgery was accomplished by a
person not associated with the drawer for example a mail robbery; and (2) where the
indorsement was forged by an agent of the drawer. This difference in situations would
determine the effect of the drawer's negligence with respect to forged indorsements. For his
negligence or failure either to discover or to report promptly the fact of such forgery to the
drawee, the drawer loses his right against the drawee who has debited his account under a
forged indorsement. In other words, he is precluded from using forgery as a basis for his
claim for re-crediting of his account.
In the case at bar, petitioner admitted that the checks were filled up and completed by her
trusted employee, GALANG, and were given to her for her signature. Her signing the checks
made the negotiable instrument complete. Prior to signing the checks, there was no valid
contract yet. Without the initial delivery of the instrument from the drawer of the check to
the payee, there can be no valid and binding contract and no liability on the instrument.
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.
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. Thus, petitioner's negligence was the proximate cause of her loss. Under
Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's
debiting of her account.
(Obiter) Under the NIL, the only kind of indorsement which stops the further negotiation of
an instrument is a restrictive indorsement which prohibits the further negotiation thereof.
Sec. 36.

When indorsement restrictive. An indorsement is restrictive which either

(a) Prohibits further negotiation of the instrument; or


xxx

xxx

xxx

In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be


written in express words at the back of the instrument, so that any subsequent party may be
forewarned that ceases to be negotiable. However, the restrictive indorsee acquires the right

Negotiable Instruments Sec 14 -23



to receive payment and bring any action thereon as any indorser, but he can no longer
transfer his rights as such indorsee where the form of the indorsement does not authorize
him to do so.
Thus, it is clear that under the NIL, petitioner is precluded from raising the defense of
forgery by reason of her gross negligence. 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 which form part of any contract it enters into with any of its depositors.
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 50-50 ratio in accordance with Article 172, which says:
Responsibility arising from negligence in the performance of every kind of obligation is
also demandable, but such liability may be regulated by the courts according to the
circumstances.

9. MWSS v CA 143 SCRA 20 - Ceej Narvasa


Emergency Recit:
MWSS has several accounts in PNB. Among these is account no. 6. During the months of
April, May and March, MWSS issued 23 checks in drawing from this account. PNB paid and
cleared these, debiting them against account no. 6. During the same months, another 23
checks bearing the same check numbers were presented, and was likewise paid by PNB, and
credited against account no. 6. NWSA sent a letter to PNB saying the second set of 23 was
forged, and requesting the immediate restoration to account number 6 the total amount
therein. The main question is whether MWSS should bare the loss of the checks or should
PNB restore to the accounts of MWSS the debited money due to the checks. SC: MWSS should
bare the loss. MWSS is barred from setting up the defense of forgery under Section 23 of the
Negotiable Instruments Law because it was guilty of negligence not only before the
questioned checks were negotiated but even after the same had already been negotiated.
I. FACTS
Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is a
government owned and controlled corporation
o the successor-in- interest of the defunct NWSA.
The Philippine National Bank (PNB for short) is the depository bank of MWSS and its
predecessor-in-interest NWSA.
Among the several accounts of NWSA with PNB is NWSA Account No. 6
o The authorized signature for said Account No. 6 were those of MWSS
treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General
Manager Victor L. Recio.
o Their respective specimen signatures were submitted by the MWSS to and on

Negotiable Instruments Sec 14 -23



file with the PNB.
By special arrangement with the PNB, the MWSS used personalized checks in
drawing from this account.
During the months of March, April and May 1969, twenty-three (23) checks were
prepared, processed, issued and released by NWSA,
o All of which were paid and cleared by PNB and debited by PNB against NWSA
Account No. 6 amounting to P320,636.26
During the same months of March, April and May 1969, twenty-three (23) checks
bearing the same numbers as the aforementioned NWSA checks surfaced
o Which were likewise paid and cleared by PNB and debited against NWSA
Account No. 6
o Amounting to P3,457,903.00
The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and
Antonio Mendoza in their respective current accounts
o Exactly the same check numbers
o w/ Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of
Commerce (PBC) in the months of March, April and May 1969.
Thru the Central Bank Clearing, these checks were presented for payment by PBC
and PCIB to the defendant PNB
o
and paid, also in the months of March, April and May 1969. At the time of
their presentation to PNB these checks bear the standard indorsement which
reads all prior indorsement and/or lack of endorsement guaranteed.
Subsequent investigation by the NBI showed that Raul Dizon, Arturo Sison and
Antonio Mendoza were all fictitious persons.
NWSA addressed a letter to PNB requesting the immediate restoration to its Account
No. 6, of the total sum of P3,457,903.00 pertaining to the 23 forged and/or
spurious checks.
o PNB refused, so a case was filed in CFI Manila
PNB said that the checks in question were regular on its face in all respects
o Including the genuineness of the signatures of authorized NWSA signing
officers
o There was nothing on its face that could have aroused any suspicion as to its
genuineness and due execution
o That NWSA was guilty of negligence, which was the proximate cause of the
loss.
PNB also filed a third party complaint against the negotiating banks PBC and PCIB
o On the ground that they failed to ascertain the Identity of the payees and
their title to the checks which were deposited with them.
CFI: In accordance with Section 23 of the Negotiable Instruments Law, the Court
hereby renders judgment in favor of the plaintiff Metropolitan Waterworks and
Sewerage System (MWSS)
o Orders PNB to restore P3,457,903.00 to plaintiff's Account No. 6
o The Court, for lack of evidence, renders judgment in favor of PBC and PCIB by
dismissing the Third Party Complaint.
CA: Reverses the CFIs decision
o

Issue: The main question is whether MWSS should bare the loss of the checks or should PNB
restore to the accounts of MWSS the debited money due to the checks.
Held: MWSS should bare the loss.
Ratio:

Negotiable Instruments Sec 14 -23


The appellate court applied Section 24 of the Negotiable Instruments Law which
provides:
o 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.
MWSS submits that the above provision does not apply to the case because the
questioned checks were not those of the MWSS and neither were they drawn by its
authorized signatories.
o The same creates only a prima facie presumption which was overcome by the
following documents, to wit:
(1) the NBI Report ; (2) another NBI Report (3) the NBI Chemistry
Report (4) the Memorandum of the Assistant Auditor of PNB (5) the
admission of the PNBs counsel in open court that the National Bureau
of Investigation found the signature on the twenty-three (23) checks
in question to be forgeries;
The petitioner contends that since the signatures of the checks were
forgeries, the respondent drawee bank must bear the loss under the
rulings of this Court.
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 obligation funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose
name was forged.
The signatures to the checks being forged, under Section 23 of the Negotiable
Instruments Law they are not a charge against MWSS nor are the checks of any value
to PNB.
Quoting cases:
o It must therefore be held that the proximate cause of loss was due to the
negligence of the Bank of the Philippine Islands in honoring and cashing the
two forged checks.
o It was its legal duty to know that xs endorsement was genuine before
cashing the check. Its remedy is against Maasim to whom it paid the money.
We have carefully reviewed the documents cited by the petitioner.
o There is no express and categorical finding in these documents that the
twenty-three (23) questioned checks were indeed signed by persons other
than the authorized MWSS signatories.
o On the contrary, the findings of the National Bureau of Investigation in its
Report show that the MWSS fraud was an "inside job"
o That the petitioner's delay in the reconciliation of bank statements and the
laxity and loose records control in the printing of its personalized checks
facilitated the fraud.
o Likewise, the questioned Documents of the National Bureau of Investigation
does not prove that the signatures appearing on the questioned checks are
forgeries.
The report merely mentions the alleged differences in the type face,
checkwriting, and printing characteristics appearing in the standard or
submitted models and the questioned typewritings.
The NBI Chemistry merely describes the inks and pens used in writing
the alleged forged signatures.
Forgery cannot be presumed. It must be established by clear, positive, and
convincing evidence. This was not done in the present case.
Considering the absence of sufficient security in the printing of the checks coupled

Negotiable Instruments Sec 14 -23


with the very close similarities between the genuine signatures and the alleged
forgeries,
o The twenty-three (23) checks in question could have been presented to the
MWSSs signatories without their knowing that they were bogus checks.
o Indeed, the cashier of the petitioner whose signatures were allegedly forged
was unable to discern the difference between the allegedly forged signature
and his own genuine signature.
Moreover, the MWSS is barred from setting up the defense of forgery under Section
23 of the Negotiable Instruments Law which provides that:
o 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.
Because it was guilty of negligence not only before the questioned checks were
negotiated but even after the same had already been negotiated.
o The records show that at the time the twenty-three (23) checks were
prepared, negotiated, and encashed, the petitioner was using its own
personalized checks, instead of the official PNB Commercial blank checks.
o In the exercise of this special privilege, they failed to provide the needed
security measures.
o That there was gross negligence in the printing of its personalized checks is
shown by the following uncontroverted facts, to wit:
There were no specific instructions relative to the safekeeping
The petitioner failed to retrieve from its printer all spoiled check
forms;
Failed to provide any control regarding the paper used in the printing
of said checks;

Failed to furnish the respondent drawee bank with samples of


typewriting, cheek writing, and print used
Failed to send a representative to the printing office during the
printing of said checks.
Another factor which facilitated the fraudulent encashment of the twenty-three (23)
checks in question was the failure of the petitioner to reconcile the bank statements
with its own records.
Negligence was, therefore, the proximate cause of the failure to discover the fraud.
o When a person opens a checking account with a bank, he is given blank
checks which he may fill out and use whenever he wishes.
o Each time he issues a check, he should also fill out the check stub to which
the check is usually attached.
o This stub, if properly kept, will contain the number of the check, the date of
its issue, the name of the payee and the amount thereof.
o The drawer would therefore have a complete record of the checks he issues.
o It is the custom of banks to send to its depositors a monthly statement of the
status of their accounts, together with all the cancelled checks which have
been cashed by their respective holders.
o If the depositor has filled out his check stubs properly, a comparison between
them and the cancelled checks will reveal any forged check not taken from
his checkbook.

Negotiable Instruments Sec 14 -23



It is the duty of a depositor to carefully examine the bank's statement, his
cancelled checks, his check stubs and other pertinent records within a
reasonable time, and to report any errors without unreasonable delay.
o If his negligence should cause the bank to honor a forged check or prevent it
from recovering the amount it may have already paid on such check, he
cannot later complain should the bank refuse to recredit his account with the
amount of such check
o The records likewise show that the petitioner failed to provide appropriate
security measures over its own records thereby laying confidential records
open to unauthorized persons
Even if the twenty-three (23) checks in question are considered forgeries,
considering the petitioner's gross negligence, it is barred from setting up the
defense of forgery under Section 23 of the Negotiable Instruments Law.
The records show that the respondent drawee bank, had taken the necessary
measures in the detection of forged checks and the prevention of their fraudulent
encashment.
We cannot fault the respondent drawee Bank for not having detected the fraudulent
encashment of the checks because the printing of the petitioner's personalized
checks was not done under the supervision and control of the Bank.
There is no evidence on record indicating that because of this private printing the
petitioner furnished the respondent Bank with samples of checks, pens, and inks or
took other precautionary measures with the PNB to safeguard its interests.
WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of
merit. The decision of the respondent Court of Appeals dated October 29, 1982 is
AFFIRMED. No pronouncement as to costs.
o

10. Ilusorio v CA 393 SCRA 89 - Mariana Lopa


Emergency Recit:
Ilusorio was a depositor in good standing of the Manila Banking Corporation. He was a busy
man, running about 20 corporations and travelling abroad, so he left his credit cards and
his checkbooks with blank checks with Eugenio, his secretary. Eugenio encashed and
deposited P119,634.34 from Ilusorios account into her own personal account. Ilusorio and
Manila Banking Corporation filed a case for Estafa against her. Ilusorio also filed a case
against Manila Banking Corporation so that they would credit back and restore the money in
his account.
Issues/Held
W/N Ilusorio has a cause of action against Manila Banking Corp.
No, bank was not negligent. They followed the SOP of checking signatures
against specimen signatures. They even asked for NBIs help to determine if the
signatures were forged but Ilusorio did not give the needed extra specimen
signatures. Cause of loss was Ilusorios own negligence because he didnt
monitor his bank statements
Under Section 23 of the Negotiable Instruments Law a forged check is
inoperative, and that Manila Bank had no authority to pay the forged
checks. True, it is a rule that when a signature is forged or made without the
authority of the person whose signature it purports to be, the check is wholly
inoperative. No right to retain the instrument, or to give a discharge therefor, or
to enforce payment thereof against any party, can be acquired through or under
-

I.

II.

Negotiable Instruments Sec 14 -23



such signature. 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. In our view, 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.
2. Whether or not the Manila Bank Corporation, in filing an estafa case against
petitioners secretary (Eugenio), is barred from raising the defense that the fact of
forgery was not established. NO! Party in a criminal case is the Republic of the
Philippines, not Manila Bank Corporation.
QUISUMBING, J.:
FACTS
Ramon
1.
2.
3.

K. Ilusorio
Managing Director of Multinational Investment Bancorporation
Chairman and/or President of several other corporations
Depositor in good standing of the Manila Banking Corporation (Respondent Bank)
(current Checking Account No. 06-09037-0)

Ilusorio was running about 20 corporations and was going out of the country so he assigned
his credit cards and checkbooks with blank checks to Katherine Eugenio, his secretary. She
verified and reconciled the statements of his checking account.
September 5, 1980- January 23, 1981
4. Eugenio was able to encash and deposit to her personal account about 17 checks
drawn against the account of Ilusorio at the Manila Banking Corporation worth P
119,634.34
A business partner appraised Ilusorio of Eugenios actions and Ilusorio fired Eugenio
immediately.
Cases against Eugenio:
Ilusorio v. Eugenio Estafa thru falsification
Manila Banking Corporation thru an affidavit executed by its employee, Mr. Dante Razon
Estafa thru falsification of commercial documents on the basis of Ilusorios statement that
his signatures in the checks were forged.
Ilusorio requested that Manila Banking Corporation credit back and restore to its full
account the value of the checks which were wrongfully encashed but the bank refused.
Ilusorio testified. Employees of the Manila Bank Corporation testified and said that the SOP
of their bank was that whenever a check is presented for encashment or clearing, the
signature is first verified against the specimen signature cards on file.
Manila Bank sought the expertise of NBI to determine genuineness of the signatures. NBI
could not do the test because they said that the standard specimens submitted were not
sufficient for purposes of rendering a definitive opinion. NBI asked for 7 more signatures.

Negotiable Instruments Sec 14 -23



Ilusorio did not comply.
CFIs ruling:
WHEREFORE, finding no sufficient basis for plaintiff's cause herein against defendant bank,
in the light of the foregoing considerations and established facts, this case would have to
be, as it is hereby DISMISSED.
Defendants counterclaim is likewise DISMISSED for lack of sufficient basis.
CAs ruling:
WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the appellant.
Ilusorios claims:
1. Manila Bank is liable for damages for its negligence in failing to detect the
discrepant checks.
2. As a general rule a bank which has obtained possession of a check upon an
unauthorized or forged endorsement of the payees signature and which collects
the amount of the check from the drawee is liable for the proceeds thereof to the
payee.
3. Doctrine of estoppel. Having itself instituted a forgery case against Eugenio, Manila
Bank is now estopped from asserting that the fact of forgery was never proven.
Manila Banks Claims:
1.
CA did not depart from the accepted and usual course of judicial
proceedings, hence there is no reason for the reversal of its ruling.
2.
Section 23 of the Negotiable Instruments Law is inapplicable, considering
that the fact of forgery was never proven.
3.
Negates petitioners claim of estoppel.
ISSUE/HELD
(1) Whether or not Ilusorio has a cause of action against The Manila Bank Corporation;
NO!
(2) Whether or not the Manila Bank Corporation, in filing an estafa case against
petitioners secretary (Eugenio), is barred from raising the defense that the fact of forgery
was not established. NO!
RATIO:
To be entitled to damages, petitioner has the burden of proving negligence on the part of
the bank for failure to detect the discrepancy in the signatures on the checks. It is
incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his specimen
signatures and comparing them with those on the questioned checks. Curiously though,
petitioner failed to submit additional specimen signatures as requested by the National
Bureau of Investigation from which to draw a conclusive finding regarding forgery. The
Court of Appeals found that petitioner, by his own inaction, was precluded from setting up
forgery.
Ilusorios contention that Manila Bank was remiss in the exercise of its duty as drawee lacks
factual basis. Manila Bank employees exercised due diligence in cashing the checks. The
banks employees in the present case did not have a hint as to Eugenios modus operandi

Negotiable Instruments Sec 14 -23



because she was a regular customer of the bank, having been designated by petitioner
himself to transact in his behalf.
The evidence on both sides indicates that TMBCs employees exercised due diligence before
encashing the checks. Its verifiers first verified the drawers signatures thereon as against
his specimen signature cards, and when in doubt, the verifier went further, such as by
referring to a more experienced verifier for further verification. In some instances the
verifier made a confirmation by calling the depositor by phone. It is only after taking such
precautionary measures that the subject checks were given to the teller for payment.
Negligence - omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the
doing of something which a prudent and reasonable man would do.
As borne by the records, it was petitioner, not the bank, who was negligent. In the present
case, it appears that petitioner accorded his secretary unusual degree of trust and
unrestricted access to his credit cards, passbooks, check books, bank statements, including
custody and possession of cancelled checks and reconciliation of accounts.
Petitioners failure to examine his bank statements appears as the proximate cause of his
own damage. Proximate cause is that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without which the
result would not have occurred. Petitioner had sufficient opportunity to prevent or detect
any misappropriation by his secretary had he only reviewed the status of his accounts based
on the bank statements sent to him regularly. In view of Article 2179 of the New Civil
Code, when the plaintiffs own negligence was the immediate and proximate cause of
his injury, no recovery could be had for damages.
Under Section 23 of the Negotiable Instruments Law a forged check is inoperative, and that
Manila Bank had no authority to pay the forged checks. True, it is a rule that when a
signature is forged or made without the authority of the person whose signature it purports
to be, the check is wholly inoperative. No right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party, can be acquired
through or under such signature. 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. In our view, 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.
Petitioner cannot hold private respondent in estoppel for the latter is not the actual party to
the criminal action. In a criminal action, the State is the plaintiff, for the commission of a
felony is an offense against the State. Thus, under Section 2, Rule 110 of the Rules of Court
the complaint or information filed in court is required to be brought in the name of the
People of the Philippines.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the
Court of Appeals dated January 28, 1999 in CA-G.R. CV No. 47942, is AFFIRMED.
Costs against petitioner.

Negotiable Instruments Sec 14 -23



SO ORDERED.

Bellosillo, Acting C.J., (Chairman), Mendoza, Austria-Martinez, and Callejo, Sr., JJ., concur.