GSIS V.

CA
170 SCRA 533

FACTS:
Two deeds of mortgages were issued by spouses Racho in favor of GSIS as security for two loans
obtained by them. They also executed a promissory note. Due to the failure to comply with
the terms of the mortgage, the mortgages were extrajudicially foreclosed. The foreclosure
was being assailed by the spouses as they alleged that the mortgage contracts were signed not
as guarantees or sureties but merely gave their common property for the sole benefit of the
other spouses. Both sides of the case
used the provisions on accommodation parties in the Negotiable Instruments Law.

The trial court dismissed the action but this was reversed by the appellate court.

HELD:
Both parties rely on the Negotiable Instruments Law but this is misplaced. The promissory
note and the deeds of mortgage are not negotiable instruments as they lack the fourth requisite
which is it must be payable to order or bearer.

Tibajia Jr. v. Court of Appeals [G.R. No. 100290.

June 4, 1993]
24MAR
FACTS
Tibajia spouses delivered to Sheriff the total money judgment in cashiers check and cash.Private
respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and instead insisted
that the garnished funds deposited with the cashier of the Regional Trial Court of Pasig, Metro Manila be
withdrawn to satisfy the judgment obligation. Tibajias filed a motion to lift the writ of execution on the
ground that the judgment debt had already been paid. The motion was denied.

ISSUE
Whether or not payment by means of cashiers check is considered payment in legal tender.

RULING
NO. A check, whether a managers check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor .
A check is not legal tender and that a creditor may validly refuse payment by check, whether it be a
managers, cashiers or personal check. The Supreme Court stressed that, We are not, by this decision,
sanctioning the use of a check for the payment of obligations over the objection of the creditor.

Negotiable Instruments Case Digest:

Philippine Airlines V. CA (1990)

G.R. No. L-49188 January 30, 1990

Lessons Applicable: Promissory notes and checks (Negotiable Instruments
Law)

FACTS:
November 8, 1967: Amelia Tan, under the name and style of Able Printing Press
commenced a complaint for damages before the CFI

CFI: favored Amelia Tan against Philippine Airlines Inc. (PAL)

CA affirmed with mod

May 18, 1978: PAL received a copy of the first alias writ of execution issued on the same
day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of
P25,000.00 with legal interest thereon from July 20,1967 when respondent Amelia Tan made
an extra-judicial demand through a letter

May 23, 1978: PAL filed an urgent motion to quash the alias writ of execution stating that
no return of the writ had as yet been made and that the judgment debt had already been fully
 satisfied as evidenced by the cash vouchers signed and received by Deputy Sheriff Reyes
who absconded

May 26,1978: served a notice of garnishment on the depository bank of PAL

ISSUE: W/N payment made to the absconding sheriff by check in his name operate to satisfy the
judgment debt

HELD: NO. CA affirmed.

payment must be made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment

The receipt of money due on ajudgment by an officer authorized by law to accept

it will, therefore, satisfy the debt

Since a negotiable instrument is only a substitute for money and not money, the delivery
of such an instrument does not, by itself, operate as payment

The payment made by the PAL to the absconding sheriff was not in cash or legal
tender but in checks

Article 1249 of the Civil Code provides:

The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is
legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
As between two innocent persons, one of whom must suffer the consequence of a breach
of trust, the one who made it possible by his act of confidence must bear the loss.

PAL without prudence, departed from what is generally observed and done, and
placed as payee in the checks the name of the errant Sheriff and not the name of the rightful
payee
Philippine Airlines v. Court of Appeals [G.R. No. L-49188. January 30, 1990]
24
MAR
FACTS

Amelia Tan was found to have been wronged by Philippine Air Lines (PAL). She filed her complaint
in 1967. After ten (10) years of protracted litigation in the Court of First Instance and the Court of
Appeals, Ms. Tan won her case. Almost twenty-two (22) years later, Ms. Tan has not seen a
centavo of what the courts have solemnly declared as rightfully hers. Through absolutely no fault
of her own, Ms. Tan has been deprived of what, technically, she should have been paid from the
start, before 1967, without need of her going to court to enforce her rights. And all because PAL
did not issue the checks intended for her, in her name. Petitioner PAL filed a petition for review on
certiorari the decision of Court of Appeals dismissing the petition for certiorari against the order
of the Court of First Instance (CFI) which issued an alias writ of execution against them. Petitioner
alleged that the payment in check had already been effected to the absconding sheriff, satisfying
the judgment.

ISSUE

Whether or not payment by check to the sheriff extinguished the judgment debt.

RULING

NO. The payment made by the petitioner to the absconding sheriff was not in cash or legal tender
but in checks. The checks were not payable to Amelia Tan or Able Printing Press but to the
absconding sheriff.In the absence of an agreement, either express or implied, payment means the
discharge of a debt or obligation in money and unless the parties so agree, a debtor has no rights,
except at his own peril, to substitute something in lieu of cash as medium of payment of his debt.
Strictly speaking, the acceptance by the sheriff of the petitioners checks, in the case at bar, does
not, per se, operate as a discharge of the judgment debt. The check as a negotiable instrument is
only a substitute for money and not money, the delivery of such an instrument does not, by itself,
operate as payment. A check, whether a managers check or ordinary cheek, is not legal tender,
and an offer of a check in payment of a debt is not a valid tender of payment and may be refused
receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under
a judgment. The obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized (Art. 1249, Civil Code, par. 3).

Sesbreno vs CA
Sesbreno vs. Court of Appeals
GR 89252, 24 May 1993

FACTS:
Petitioner Sesbreno made a money market placement in the amount of P300,000 with
the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32
days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta
Motor Corporation Promissory Note, the Certificate of Securities Delivery Receipt
indicating the sale of the note with notation that said security was in the custody of
Pilipinas Bank, and postdated checks drawn against the Insular Bank of Asia and
America for P304,533.33 payable on March 13, 1981. The checks were dishonored for
having been drawn against insufficient funds. Pilipinas Bank never released the note,
nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the security
which was issued on April 10, 1980, maturing on 6 April 1981, has a face value of
P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was
stamped non-negotiable on its face. As Sesbreno was unable to collect his
investment and interest thereon, he filed an action for damages against Delta Motors
and Pilipinas Bank. Delta Motors contents that said promissory note was not intended
to be negotiated or otherwise transferred by Philfinance as manifested by the word
"non-negotiable" stamped across the face of the Note.

ISSUE:
Whether the non-negotiability of a promissory note prevents its assignment.

RULING:
A negotiable instrument, instead of being negotiated, may also be assigned or
transferred. The legal consequences of negotiation and assignment of the instrument
are different. A non-negotiable instrument may not be negotiated but may be assigned
or transferred, absent an express prohibition against assignment or transfer written in
the face of the instrument. The subject promissory note, while marked "non-
negotiable," was not at the same time stamped "non-transferable" or "non-assignable."
It contained no stipulation which prohibited Philfinance from assigning or transferring
such note, in whole or in part.

**A non-negotiable instrument may not be negotiated but may be assigned or transferred, absent
an express prohibition against assignment or transfer written on the face of the instrument.

Philippine Education Co., Inc. vs

Mauricio Soriano, et al
December 14, 2013
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39 SCRA 587 Commercial Law Negotiable Instruments Law Postal Money Orders Not
Negotiable Instruments
In April 1958, a certain Enrique Montinola was purchasing ten money orders from the
Manila Post Office. Each money order was worth P200.00. Montinola offered to pay the
money orders via a private check but the cashier told him he cannot pay via a private check.
But still somehow, Montinola was able to leave the post office with the money orders without
him paying for them.
Days later, the missing money orders were discovered. Meanwhile, the Philippine
Education Co., Inc. (PECI) presented one of the missing postal money orders before the
Bank of America. The money order was initially credited and so P200.00 was deposited in
PECIs account with the bank. But then later the post office, through Mauricio Soriano (Chief
of the Money Order Division of the Post Office), advised the bank that the money order was
irregularly issued hence the P200.00 was debited back from PECIs account.
PECI is now invoking that the money order was duly negotiated to them and thus they are
entitled to the amount it represents.
ISSUE: Whether or not postal money orders are negotiable instruments.
HELD: No. Postal money orders are not negotiable instruments. The rationale behind this
rule is the fact that in establishing and operating a postal money order system, the
government is not engaging in commercial transactions but merely exercises a
governmental power for the public benefit. In fact, postal money orders are subject to a lot
of restrictions limiting their negotiability. Particularly in this case, as far back as 1948, there
was already an agreement between Bank of America and the Manila Post Office, that in
case the post office would have an adverse claim against any Bank of America depositor
involving postal money orders issued by the post office, all amounts cleared in relation
thereto shall be refunded back to the post offices account with the bank this in itself is
already a limitation in the negotiability and nature of the postal money orders issued by the
post office because of the special conditions attached.

ECO vs. Soriano

Philippine Education Co. vs. Soriano

L-22405 June 30, 1971

Dizon, J.:

Facts:
Enrique Montinola sought to purchase from Manila Post Office ten money orders of
200php each payable to E. P. Montinola. Montinola offered to pay with the money orders with a
private check. Private check were not generally accepted in payment of money orders, the teller
advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave the building without the knowledge of the teller. Upon the disappearance of the
unpaid money order, a message was sent to instruct all banks that it must not pay for the money
order stolen upon presentment. The Bank of America received a copy of said notice. However,
The Bank of America received the money order and deposited it to the appellants account upon
clearance. Mauricio Soriano, Chief of the Money Order Division notified the Bank of America
that the money order deposited had been found to have been irregularly issued and that, the
amount it represented had been deducted from the banks clearing account. The Bank of America
debited appellants account with the same account and give notice by mean of debit memo.

Issue:
Whether or not the postal money order in question is a negotiable instrument

Held:
No. It is not disputed that the Philippine postal statutes were patterned after similar statutes in
force in United States. The Weight of authority in the United States is that postal money orders
are not negotiable instruments, the reason being that in establishing and operating a postal money
order system, the government is not engaged in commercial transactions but merely exercises a
governmental power for the public benefit. Moreover, some of the restrictions imposed upon
money orders by postal laws and regulations are inconsistent with the character of negotiable
instruments. For instance, such laws and regulations usually provide for not more than one
endorsement; payment of money orders may be withheld under a variety of circumstances.
Negotiable Instruments Case Digest: Caltex
(Phils.) Inc. V. CA And Security Bank And Trust
Co. (1992)
G.R. No. 97753 August 10, 1992
Lessons Applicable: Requisites of negotiability to antedated and postdated instruments
(Negotiable Instrument Law)

FACTS:
Security Bank and Trust Company (Security Bank), a commercial banking
institution, through its Sucat Branch issued 280 certificates of time deposit (CTDs)
in favor of Angel dela Cruz who deposited with Security Bank the total amount of
P1,120,000

Angel delivered the CTDs to Caltex for his purchase of fuel products

March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he
lost all CTDs, submitted the required Affidavit of Loss and received the replacement

March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security
Bank in the amount of P875,000 and executed a notarized Deed of Assignment of
Time Deposit

November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch
to verify the CTDs declared lost by Angel

November 26, 1982: Security Bank received a letter from Caltex formally
informing it of its possession of the CTDs in question and of its decision to pre-
terminate the same.

December 8, 1982: Caltex was requested by Security Bank to furnish:

a copy of the document evidencing the guarantee agreement with Mr.

Angel dela Cruz
 the details of Mr. Angel's obligation against which Caltex proposed to
apply the time deposits

Security Bank rejected Caltex demand for payment bec. it failed to furnish a
copy of its agreement w/ Angel

April 1983, the loan of Angel dela Cruz with Security Bank matured

August 5, 1983: CTD were set-off w/ the matured loan

Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest

CA affirmed RTC to dismiss complaint

ISSUE:

1. W/N the CTDs are negotiable

2. W/N Caltex as holder in due course can rightfully recover on the CTDs

HELD: Petition is Denied and appealed decision is affirmed.

1. YES.
Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law,
enumerates the requisites for an instrument to become negotiable, viz:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and -check
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
The documents provide that the amounts deposited shall be repayable to the
depositor
 depositor = bearer

If it was really the intention of respondent bank to pay the amount

to Angel de la Cruz only, it could have with facility so expressed that fact in clear
and categorical terms in the documents, instead of having the word "BEARER"
stamped on the space provided for the name of the depositor in each CTD

negotiability or non-negotiability of an instrument is determined from the

writing, that is, from the face of the instrument itself

2. NO.
although the CTDs are bearer instruments, a valid negotiation thereof for the
true purpose and agreement between it and De la Cruz, as ultimately ascertained,
requires both delivery and indorsement

CTDs were in reality delivered to it as a security for De la Cruz' purchases

of its fuel products

There was no negotiation in the sense of a transfer of the legal title to the
CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of
the bearer CTDs would have sufficed.

Where the holder has a lien on the instrument arising from contract, he is
deemed a holder for value to the extent of his lien.

As such holder of collateral security, he would be a pledgee but the

requirements therefor and the effects thereof, not being provided for by the
Negotiable Instruments Law, shall be governed by the Civil Code provisions on
pledge of incorporeal rights:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be

pledged. The instrument proving the right pledged shall be delivered to the creditor,
and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the
thing pledged and the date of the pledge do not appear in a public instrument.
Art. 1625. An assignment of credit, right or action shall produce no effect as against
third persons, unless it appears in a public instrument, or the instrument is recorded in
the Registry of Property in case the assignment involves real property.
Caltex vs CA
Caltex (Philippines) Inc. vs. CA
GR 97753, 10 August 1992
-negotiability

FACTS:
Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in favor of
one Mr. Angel dela Cruz who deposited with the bank P1.12 million. Dela Cruz
delivered the CTDs to Caltex in connection with his purchase of fuel products from the
latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and thus
executed an affidavit of loss to facilitate the issuance of the replacement CTDs. When
Caltex presented said CTDs for verification with the bank and formally informed the
bank of its decision to preterminate the same, the bank rejected Caltex claim and
demand as Caltex failed to furnish copies of certain requested documents. In 1983,
dela Cruz loan matured and the bank set-off and applied the time deposits as payment
for the loan. Caltex filed a complaint which was dismissed on the ground that the
subject certificates of deposit are non-negotiable.

ISSUE:
Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.

RULING:
The CTDs in question are negotiable instruments as they meet the requirements of the
law for negotiability as provided for in Section 1 of the Negotiable Instruments Law. The
documents provide that the amounts deposited shall be repayable to the depositor. And
according to the document, the depositor is the "bearer." The documents do not say that
the depositor is Angel de la Cruz and that the amounts deposited are repayable
specifically to him. Rather, the amounts are to be repayable to the bearer of the
documents or, for that matter, whosoever may be the bearer at the time of presentment.
However, petitioner cannot recover on the CTDs. Although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement between it
and dela Cruz, as ultimately ascertained, requires both delivery and indorsement. In
this case, there was no indorsement as the CTDs were delivered not as payment but
only as a security for dela Cruz' fuel purchases.

**The accepted rule is that the negotiability or non-negotiability of an instrument is determined

from the writing, that is, from the face of the instrument itself. The CTDs in question are
negotiable instruments as they meet the requirements of the law for negotiability as provided for
in Section 1 of the Negotiable Instruments Law. The documents provide that the amounts
deposited shall be repayable to the depositor. And according to the document, the depositor is
the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the
amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to
the bearer of the documents or, for that matter, whosoever may be the bearer at the time of
presentment.

FACTS
A check from respondent Gozon was taken and forged by his trustee. It was drawn successfully against
the drawee bank. Gozon demands back credit from debited amount. Petitioner bank argues that Gozon
was negligent and precluded from setting up forgery.

ISSUE
Whether or not Gozon may recover from drawee bank.

RULING
YES. Gozons act in leaving his checkbook in the car while he went out for a short while can not be
considered negligence sufficient to excuse the defendant bank from its own negligence. His trustee, a
long time classmate and friend, remained in the same. Gozon could not have been expected to know that
the said trustee would remove a check from his checkbook. Gozon had trust in his classmate and friend.
He is therefore not precluded from setting up forgery as a defense.

In June 1973, Francisco Gozon II went to the Philippine National Bank (Caloocan City)
accompanied by his friend Ernesto Santos. Gozon left Santos in his car and while Gozon
was at the bank, Santos took a check from Gozons checkbook. Santos forged Gozons
signature and filled out the check with the amount of P5,000.00. Santos was able to encash
the check that day with PNB. Gozon learned of this when his statement arrived. Santos
eventually admitted to forging Gozons signature. Gozon then demanded the PNB to refund
him the amount. PNB refused. Judge Romulo Quimpo ruled in favor of Gozon.

ISSUE: Whether or not PNB is liable.

HELD: Yes. 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 change the amount so paid to the account of the depositor whose name was
forged. PNB failed to meet its obligation to know the signature of its correspondent (Gozon).
Further, it was found by the court that there are glaring differences between Gozons
authentic specimen signatures and that of the forged check.
Facts: CASA Montessori International opened an account
with BPI, with CASAs President as one of its authorized
signatories. It discovered that 9 of its checks had been
encashed by a certain Sonny D. Santos whose name
turned out to be fictitious, and was used by a certain
Yabut, CASAs external auditor. He voluntarily admitted
that he forged the signature and encashed the checks.

RTC granted the Complaint for Collection

with Damages against BPI ordering to reinstate the
amount in the account, with interest. CA took account of
CASAs contributory negligence and apportioned the loss
between CASA and BPI, and ordred Yabut to reimburse
both.

BPI contends that the monthly statements it issues to its

clients contain a notice worded as follows: If no error is
reported in 10 days, account will be correct and as such,
it should be considered a waiver.

Issue:Whether or not waiver or estoppel results from

failure to report the error in the bank statement

Held: Such notice cannot be considered a waiver, even if

CASA failed to report the error. Neither is it estopped from
questioning the mistake after the lapse of the ten-day
period.
This notice is a simple confirmation or "circularization" --
inaccounting parlance -- that requests client-depositors to
affirm the accuracy of items recorded by the banks. Its
purpose is to obtain from the depositors a direct
corroboration of the correctness of theiraccount
balances with their respective banks.

Every right has subjects -- active and passive. While the

active subject is entitled to demand its enforcement, the
passive one is duty-bound to suffer such enforcement. On
the one hand, BPI could not have been an active subject,
because it could not have demanded from CASA a
response to its notice. CASA, on the other hand, could not
have been a passive subject, either, because it had no
obligation to respond. It could -- as it did -- choose not to
respond.

Estoppel precludes individuals from denying or asserting,

by their own deed or representation, anything contrary to
that established as the truth, in legal contemplation. Our
rules on evidence even make a juris et de jure
presumption that whenever one has, by ones own act or
omission, intentionally and deliberately led another to
believe a particular thing to be true and to act upon that
belief, one cannot -- in any litigation arising from such act
or omission -- be permitted to falsify that supposed truth.

In the instant case, CASA never made any deed or

representation that misled BPI. The formers omission, if
any, may only be deemed an innocent mistake oblivious to
the procedures and consequences of periodic audits.
Since its conduct was due to such ignorance founded
upon an innocent mistake, estoppel will not arise. A person
who has no knowledge of or consent to a transaction may
not be estopped by it. "Estoppel cannot be sustained by
mere argument or doubtful inference x x x." CASA is not
barred from questioning BPIs error even after the lapse of
the period given in the notice.
\

BPI V. CASA MONTESORRI

INTERNATIONALE
430 SCRA 261

FACTS:
CASA has a current account with BPI. It was discovered that for a material period of time, several
checks were encashed by a certain Sonny Santos, who eventually was known to be a fictitious
name used by the external auditor of CASA. The external auditor admitted forging the
signature of CASAs president to be able to encash the checks. The trial court held the bank liable
but this was modified. The modified decision apportioned the loss between BPI and CASA.

HELD:
A forged signature is a real and absolute defense, and a person whose signature appears on
a negotiable instrument is forged is deemed to never have become a party thereto and to have never
consented to the contract that allegedly gave rise to it.

The counterfeiting of any writing, consisting in the signing of anothers name with intent to
defraud, is forgery.

First, there was really a finding of forgery. The forger admitted even in his affidavit of his forgery.

Second, there was a finding by the police laboratory that indeed the signatures were forged.

Furthermore, the negligence is attributable to BPI alone. Its negligence consisted in the
omission of the degree of diligence required of a bank.

*Loss borne by proximate cause of negligence

PI VS. CASA MONTESSORI INTERNATIONAL

FACTS: On November 8, 1982, CASA Montessori International opened Current AccouNT with BPI with
CASAs President Lebron as one of its authorized signatories. In 1991, after conducting an investigation,
plaintiff discovered that nine of its checks had been encashed by a certain Sonny D. Santos since 1990 in
the total amount of P782,000.00. It turned out that Santos with account at BPI Greenbelt Branch was a
fictitious name used by third party defendant Leonardo T. Yabut who worked as external auditor of CASA.
Third party defendant voluntarily admitted that he forged the signature of Lebron and encashed the
checks. In 1991, plaintiff filed Complaint for Collection with Damages against defendant bank praying that
the latter be ordered to reinstate the amount of P782,500.00 with interest. RTC rendered decision in
favor of the plaintiff. CA modified decision holding CASA as contributory negligent hence ordered Yabut
to reimburse BPI half the total amount claimed and CASA, the other half. It also disallowed attorneys fees
and moral and exemplary damages.

ISSUE: W/N moral and exemplary damages and attorneys fees should be awarded.

RULING: Moral and exemplary damages denied but atty.s fees granted.
In the absence of a wrongful act or omission, or of fraud or bad faith, moral damages cannot be awarded.
The adverse result of an action does not per se make the action wrongful, or the party liable for it.CASA
was unable to identify the particular instance upon which its claim for moral damages is predicated.
Neither bad faith nor negligence so gross that it amounts to malice can be imputed to BPI.
Imposed by way of correction for the public good, exemplary damages cannot be recovered as a matter of
right. There is no bad faith on the part of BPI for paying the checks of CASA upon forged signatures.
Therefore, the former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. The latter, having no right to moral damages, cannot demand exemplary damages.
When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the
latters interest, or where the court deems it just and equitable, attorneys fees may be recovered. In the
present case, BPI persistently denied the claim of CASA under the NIL to recredit the latters account for
the value of the forged checks. This denial constrained CASA to incur expenses and exert effort for more
than ten years in order to protect its corporate interest in its bank account.
*Mia
BANK OF THE PHILIPPINE ISLANDS v. CASA MONTESSORI INTERNATIONALE and
LEONARDO T. YABUT
[G.R. No. 149454. May 28, 2004] (430 SCRA 261)

FACTS:
CASA Montessori International opened a current account with BPI with CASAs
President Ms. Ma. Carina C. Lebron as one of its authorized signatories. In 1991, after
conducting an investigation, plaintiff 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. It
turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious
name used by third party defendant Leonardo T. Yabut who worked as external auditor of
CASA. Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron
and encashed the checks.
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.
On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages
against defendant bank.

ISSUE 1:
Was there forgery under the Negotiable Instruments Law (NIL)?

HELD:
YES. Forgery cannot be presumed. It must be established by clear, positive and
convincing evidence. Under the best evidence rule as applied to documentary evidence like
the checks in question, no secondary or substitutionary evidence may inceptively be
introduced, as the original writing itself must be produced in court. But when, without bad
faith on the part of the offeror, the original checks have already been destroyed or cannot be
produced in court, secondary evidence may be produced. Without bad faith on its part,
CASA proved the loss or destruction of the original checks through the Affidavit of the one
person who knew of that fact- Yabut. He clearly admitted to discarding the paid checks to
cover up his misdeed. In such a situation, secondary evidence like microfilm copies may be
introduced in court.

Even with respect to documentary evidence, the best evidence rule applies only when
the contents of a document -- such as the drawers signature on a check -- is the subject of
inquiry.
ISSUE 2:
Is BPI liable as the drawee bank for allowing payment on the checks to a wrongful
and fictitious payee?

HELD:
YES. BPI -- the drawee bank -- becomes liable to its depositor-drawer for allowing
payment on the checks to a wrongful and fictitious payee. Since the encashing bank is one
of its branches, BPI can easily go after it and hold it liable for reimbursement. It may not
debit the drawers account and is not entitled to indemnification from the drawer. In both law
and equity, when one of two innocent persons must suffer by the wrongful act of a third
person, the loss must be borne by the one whose negligence was the proximate cause of
the loss or who put it into the power of the third person to perpetrate the wrong.
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.
Samsung Construction v. Far East Bank (August 15, 2004)
Post under case digests, Commercial Law at Monday, February 20, 2012 Posted by Schizophrenic Mind

Facts: Samsung Construction held an account with Far

East Bank. One day a check worth 900,000, payable to
cash, was presented by one Roberto Gonzaga in the
Makati Branch of Far East Bank. The check was certified
to be true by Jose Sempio, the assistant accountant of
Samsung, who was also present during the time the check
was cashed. Later however it was discovered that no such
check was ever approved by the Samsungs head
accountant, the president of the company also never
signed any such check.

Issue: Whether or not Far East Bank is liable to reimburse

Samsung for cashing out the forged check, which was
drawn from the account of Samsung

Held: Far East Bank is liable for reimbursement. Sec. 23

of the Negotiable Instrument Law states that a forged
signature makes the instrument wholly inoperative. If
payment is made the drawee (Far East) cannot charge it
to the drawers account (Samsung). The fact that the
forgery is clever is immaterial. The forged signature may
so closely resemble the genuine as to defy detection by
the depositor himself. And yet, if the bank pays the check,
it is paying out with its own money and not of the
depositors. This rule of liability can be stated briefly in
these words: A bank is bound to know its depositors
signature. The accusation of negligence on the part of
Samsung was not clearly proven. Absence of proof to the
contrary, the presumption is that the ordinary course of
business was followed.
The bare fact that the forgery was committed by an employee of the party whose signature was
forged can not necessarily imply that such partys negligence was the cause of the forgery in the
absence of some circumstances raising estoppel against the drawer. (Samsung Construction Co. v.
Far East Bank and Trust Company, G.R. No. 129015, Aug. 13, 2004)

ASSOCIATED BANK V. CA
252 SCRA 620

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

HELD:
There is a distinction on forged indorsements with regard bearer instruments and
instruments payable to order.

With instruments payable to bearer, the signature of the payee or holder is unnecessary to pass title
to the instrument. Hence, when the indorsement is a forgery, only the person whose signature
is forged can raise the defense of forgery against holder in due course.

In instruments payable to order, the signature of the rightful holder is essential to transfer
title to the same instrument. When the holders signature is forged, all parties prior to the
forgery may raise the real defense of forgery against all parties subsequent thereto. In connection
to this, an indorser warrants that the instrument is genuine. A collecting bank is such an
indorser. So even if the indorsement is forged, the collecting bank is bound by his warranties
as an indorser and cannot set up
the defense of forgery as against the drawee ban

+k.

Furthermore, in cases involving checks with forged indorsements, such as the case at bar, the
chain of liability doesn't end with the drawee bank. The drawee bank may not debit the
account of the drawer but may generally pass liability back through the collection chain to the
party who took from the forger and of course, the forger himself, if available. In other words,
the drawee bank can seek reimbursement or a return of the amount it paid from the collecting
bank or person. The collecting bank generally suffers the loss because it has te duty to
ascertain the genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the
genuineness of the indorsements.
With regard the issue of delay, a delay in informing the bank of the forgery, which deprives it
of the opportunity to go after the forger, signifies negligence on the part of the drawee bank and
will preclude it from claiming reimbursement. In this case, PNB wasn't guilty of any negligent
delay. Its delay hasn't prejudiced Associated Bank in any way because even if there wasn't
delay, the fact that there was nothing left of the account of Pangilinan, there couldn't be
anymore reimbursement.

Associated Bank v. Court of Appeals [G.R. No.

107382 G.R. No. 107612. January 31, 1996]
30JUL
FACTS
Respondent Province of Tarlac allowed a retired hospital cashier to receive checks for the payee hospital
for a period three years and in not properly ascertaining why the retired hospital cashier was collecting
checks for the payee hospital in addition to the hospitals real cashier. Associated Bank, as collecting
bank, received and indorsed the said checks.

ISSUE
Whether or not the doctrine of comparative negligence apply.

RULING
YES. The Court finds as reasonable, the proportionate sharing of fifty percent fifty percent (50%-50%).
Respondent Province contributed to the loss and shall be liable to the PNB for fifty (50%), Province of
Tarlac can only recover fifty percent (50%) from PNB. Associated Bank, shall be liable to PNB for fifty
(50%). It is liable on its warranties as indorser of the checks which were deposited to it.

inShare

WESTMONT BANK V. ONG

 373 SCRA 212

FACTS:
Ong was supposed to be the payee of the checks issued by Island Securities. Ong has a
current account with petitioner bank. He opted to sell his shares of stock through Island
Securities. The company in turn issued checks in favor of Ong but unfortunately, the latter
wasn't able to receive any. His signatures were forged by Tamlinco and the checks were
deposited in his own account with petitioner. Ong then sought to collect the money from
the family of Tamlinco first before filing a complaint with the Central Bank. As his efforts were
futile to recover his money, he filed an action against the petitioner. The trial and appellate
court decided in favor of Ong.

HELD:
Since the signature of the payee was forged, such signature should be deemed
inoperative and 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 collect from the collecting bank.

It should be liable for the loss because it is its legal duty to ascertain that the payees
endorsement was genuine before cashing the check. As a general rule, a bank or
corporation who has obtained possession of a check with an unauthorized or forged indorsement
of the payees signature and who collects the amount of the check other from the drawee, is
liable for the proceeds thereof to the payee or the other owner, notwithstanding that the amount
has been paid to the person from whom the check was obtained.

DOCTRINE OF DESIRABLE SHORT CUTplaintiff uses one action to reach, by desirable

short cut, the person who ought 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.

On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of
Tamlincos family to collect the sum of money, and later the Central Bank. Only after
exhausting all the measures to settle the issue amicably did he file the action.

Negotiable Instruments Digest: BPI FAMILY BANK v.

EDGARDO BUENAVENTURA et al.
BPI FAMILY BANK v. EDGARDO BUENAVENTURA et al.
[G.R. No. 148196, September 30, 2005] (471 SCRA 431)

FACTS:
A complaint for Reinstatement of Current Account/Release of Money plus Damages
was filed by the Buenaventuras against BPI Family Bank (BPI-FB) in the RTC.
Buenaventura, et al. opened a Current account with the BPI-FB Branch in Caloocan City.
They deposited a check from Amado Franco which was purportedly issued by Eladio Teves
and Joseph Teves. The check was subsequently cleared and the amount of P500, 000.00
was credited to their Current Account.
Petitioners then drew a check amounting to P91, 270.00 which was dishonored
upon presentment for payment for the reason that the account was already closed in spite
of the balance in their current account. They subsequently learned that the Bank of the
Philippine Islands unilaterally freeze their Current account on the ground that the source of
fund was illegal or unauthorized.
BPI-FB refused to reinstate the account even after demand from the petitioners. It
asserted that the freezing of the account was triggered by the forgery claim of FMIC and
the unauthorized fund transfer to Tevesteco. The check received by Buenaventura, et al.
from Amado Franco was drawn by Eladio Teves and Joseph Teves against the Current
Account of the Tevesteco Arrastre Stevedoring Co., Inc. (Tevesteco) by means of forgery.

ISSUE:
WON BPI-FB is liable for the loss due to its negligence to detect forgery prior to
clearing the check?

HELD:
YES. Every bank that issues checks for the use of its customers should know
whether or not the drawer's signature thereon is genuine, whether there are sufficient funds
in the drawers account to cover checks issued, and it should be able to detect alterations,
erasures, superimpositions or intercalations thereon, for these instruments are prepared,
printed and issued by itself, it has control of the drawer's account, and it is supposed to be
familiar with the drawer's signature. It should possess appropriate detecting devices for
uncovering forgeries and/or alterations on these instruments. Unless a forgery or alteration
is attributable to the fault or negligence of the drawer himself, the remedy of the drawee
bank that negligently clears a forged and/or altered check for payment is against the party
responsible for the forgery or alteration, otherwise, it bears the loss.
 Having been negligent in detecting the forgery prior to clearing the check, BPI-FB
should bear the loss and cant shift the blame to Buenaventura, et al. having failed to show
any participation on their part in the forgery. BPI-FB fails to point any circumstance which
should have put Buenaventura, et al. on inquiry as to the why and wherefore of the
possession of the check by Amado Franco. Buenaventura, et al. were not privies to any
transaction involving FMIC, Tevesteco or Franco. They thus had no obligation to ascertain
from Franco what the nature of the latters title to the checks was, if any, or the nature of his
possession. They cannot be guilty of gross neglect amounting to legal absence of good
faith, absent any showing that there was something amiss about Francos acquisition or
possession of the check, which was payable to bearer.
Thus, BPI-FB has no unilateral right to freeze the current account of
Buenaventura, et al. based on the suspicion that the funds in the latters account are illegal
or unauthorized having been sourced from the unlawful transfer of funds from the account
of FMIC to Tevesteco and disallow any withdrawal therefrom to allegedly protect its interest.
Needless to stress, the contract between a bank and its depositor is governed by
the provisions of the Civil Code on simple loan. Thus, there is a debtor-creditor relationship
between a bank and its depositor. The bank is the debtor and the depositor is the creditor.
The depositor lends the bank money and the bank agrees to pay the depositor on demand.
The savings or current deposit agreement between the bank and the depositor is the
contract that determines the rights and obligations of the parties.
Thus, the fact that the funds in deposit with BPI-FB under the name of
Buenaventura, et al. were allegedly derived exclusively from the alleged P80,000,000.00
unlawfully transferred from the funds of FMIC or that the deposit under the name of
Tevesteco consisted allegedly exclusively of the said P80,000,000.00 debited from FMICs
account is immaterial. These circumstances cannot be used against a party not privy to the
forgery. xxx

Negotiable Instruments Case Digest: San

Carlos Milling Co. Ltd V. BPI (1993)
G.R. No. L-37467 December 11, 1993
Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
San Carlos Milling Co. Ltd. (San Carlos) was in the hands of Alfred D. Cooper, its
agent under general power of attorney with authority of substitution
 The principal employee in the Manila office was Joseph L. Wilson, to whom had
been given a general power of attorney but without power of substitution.

1926: Cooper, desiring to go on vacation, gave a general power of attorney to

Newland Baldwin and at the same time revoked the power of Wilson relative to the
dealings with BPI

Wilson, conspiring together with Alfredo Dolores, a messenger-clerk in

San Carlos' Manila office, sent a cable gram in code to the company in Honolulu
requesting a telegraphic transfer to the China Banking Corporation (China Bank) of
Manila of $100,00.

The money was transferred by cable, and upon its receipt China Bank sent
an exchange contract to San Carlos offering the sum of P201K, which was then the
current rate of exchange.

September 28, 1927: A manager's check on the China Banking Corporation for
P201K payable to San Carlos Milling Company or order was receipted for by Dolores

deposited with the BPI having a fake endorsement (Baldwin forged as

drawer)

For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos
Milling Co., Ltd.
By (Sgd.) NEWLAND BALDWIN
For Agent
San Carlos had frequently withdrawn currency for shipment to its mill but never
in so large an amount, and never under the sole supervision of Dolores

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

the crime was discovered and San Carlos filed against the BPI and China Bank
(after ammendment complaint)
 China Bank: as the prior endorsement had in law been guaranteed by the
BPI, they are absolved even if the endorsement of Newland Baldwin on the check
was a forgery

BPI: guilty of no negligence, loss was due to the dishonesty of San Carlos
employees and the negligence of San Carlos general agent

RTC: BPI in GF and San Carlos could not recover

ISSUE: W/N BPI was bound to inspect the checks and shall therefore be liable in case of
forgery

HELD: YES. judgment absolving the Bank of the Philippine Islands must therefore be
reversed
duty was upon the BPI, and the China Banking Corporation was not bound to
inspect and verify all endorsements of the check, even if some of them were also
those of depositors in that bank

A bank is bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose
name was forged.

under section 23 of the Negotiable Instruments Law they are not a charge
against San Carlos nor are the checks of any value to the BPI.

proximate cause of loss was due to the negligence of the Bank of the
Philippine Islands in honoring and cashing the two forged checks
SAN CARLOS MINING V. BPI
59 PHIL 59
(FORGED SIGNATURE OF DRAWER)

FACTS:
Wilson, a principal employee of petitioner, together with Wilson, a messenger-
clerk, conspired to withdraw cash from the petitioners account through forgery of a
check, in the name of the agent authorized to sign the check.
While the authorized agent of petitioner was on vacation, Wilson and Dolores
sent a cablegram to China Banking for the transfer of $100,000. On the
contract, the name of Baldwin was forged and it was indicated therein that a
certified check be issued. Thereafter, this was received and
deposited with the BPI. Upon deposit, an indorsement in the name of
Baldwin was placed. The bank account was credited. Later, a letter was sent to
the bank, purporting to be signed by Baldwin asking that it be withdrawn.
This was done in supervision of Dolores. Dolores and Wilson then was able to get
the money. This eventually came to the knowledge of plaintiff who filed an action
against China Banking and BPI. The trial court dismissed the case.

HELD:
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.

There is no act of the plaintiff that led the bank astray. If it was in fact lulled into
the false sense of security, it was by the effrontery of Dolores, the messenger to
whom it entrusted this large sum of money.

The proximate cause of the loss must therefore be due to the negligence of the
bank in honoring and cashing the two forged checks.