TOPIC: UNAUTHORIZED OR INCOMPLETE SIGNATURE (FORGERY)

ASSOCIATED BANK vs COURT OF APPEALS

FACTS:
The province of Tarlac maintains a cuurrent account with PNB Tarlac Branch were the
provincial funds are deposited. Checks issued by the province are signed by the Provincial
Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang
Bayan
A portion of the funds is allocated to the Concepcion Emergency Hospital drawn to the order
of Concepcion Emergency Hospital, Concepcion, Tarlac, or The Chief Concepcion
Emergency Hospital, Concepcion, Tarlac.
On January 1981, upon Post Audit by the Provincial Auditor, it waas discovered that the
hospital did bot receive several allotment checks.
On February 19, 1981, after the checks were examines, they learned that 30 checks of
P203,300.09 were encashed by Fausto Pangilinan, with the Associated Bank acting as
collecting bank.
It turned out that Fausto Pangilinan, who was the administrative officer and cashier
of payee hospital until his retirement on February 28, 1978, collected the questioned
checks from the office of the Provincial Treasurer. He claimed to be assisting or helping
the hospital follow up the release of the checks and had official receipts.
Pangilinan was able to withdraw the money when the check was cleared and paid by the
drawee, ONB.
After forging the signature of Dr. Adena Canlas who was chief of the payee hospital,
Pangilinan followed the same procedure for the other checks.
All the checks bore the stamp of Associated Bank which reads All prior endorsements
guaranteed ASSOCIATED BANK.
RTC ruled in favor of Associated Bank which was later in affirmed by CA.

ISSUE: Who should bear the loss arising from the forgery, the Province of Tarlac, PNB,
Associated Bank or Pangilinan?

RULING:

The Supreme Court held that the Province and Associated Bank should bear losses in the
proportion of 50-50.

Sec. 23 of the NIL states that, Forged Signature, effect, When a signature is forged or made
without authority of the person whose signature it purports to be, it is wholly inoperative, and
no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired through or under such signature unless the party
against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.

The Province can only recover 50% of the P203,300 from PNB because of the negligence they
exhibited in releasing the checks to the then already retired Pangilinan who is an unauthorized
person to handle the said checks.
On the other hand, Associated Bank is liable to PNB only to 50% of the same amount because
of its liability as indorser of the checks that were deposited by Pangilinan, and guaranteed the
genuineness of the said checks. They failed to exercise due diligence in checking the veracity
of indorsements.