Jai-Alai vs.

Bank of the Philippine

Islands
Doctrine: The collecting bank
which endorsed the checks to the
drawee-bank for clearing, should be
liable to the latter for
reimbursement because the
endorsement of the checks had been
forged prior to delivery. The payments
made by the drawee-bank to the
collecting bank on account of the
forged checks were ineffective because
the creditor-debtor relationship
between the depositor and the
collecting bank had not been validly
effected.
Facts: Checks were deposited by
petitioner in its current account with
the bank. These checks were from a
certain Ramirez,
a consistent bettor in its games, who
was a sales agent from Inter-Island
Gas. Inter-Island later found out that of
the forgeries committed in the checks
and thus, it informed all the parties
concerned. Upon the demands on the
bank as the collecting bank, it debited
the account of petitioner. Thereafter,
petitioner tried to issue a check for
payment of shares of stock but such
was dishonored for insufficient funds. It
filed a complaint against the bank.
Issue: Whether or not the
respondent bank had the right to debit
the petitioner's current account.
Held: Respondent bank acted within
legal bounds when it debited the
account of petitioner. When the
petitioner deposited the
checks to its account, the relationship
created was one of agency still and not
of creditor-debtor. The bank was to
collect from the drawers of the checks
with the corresponding
proceeds. The Bank may have the
proceeds already when it debited the
account of petitioner. Nonetheless,
there is still no creditor-debtor

relationship. Following Section 23, a

forged signature is wholly inoperative
and no right to discharge it or enforce
its payment can be acquired through
or under the forged signature except
against a party who cannot invoke its
forgery or want of authority. It stands to
reason that as a collecting bank which
indorsed the checks to the draweebanks for clearing, should be liable to
the latter for reimbursement for the
indorsements on the checks had been
forged prior to their delivery to the
petitioner. The payments made by the
drawee banks to respondent were
ineffective - the creditor-debtor
relationship hadn't been validly
effected.
Republic Bank vs. Ebrada
Doctrine: It is only the
negotiation predicated on the forged
instrument that should be declared
inoperative. The negotiation of the
check in question between the parties
after the immediate parties to the
forgery should be considered valid and
enforceable, barring any claim of
forgery.
Facts: Mauricia T. Ebrada
(defendant) encashed a check at the
Republic Bank. The check was issued
by the Bureau of Treasury and was
indorsed several times before falling
into the hands of the defendant.
Defendant managed to cash the check
(worth around 1200 pesos). It was
however discovered that the original
payee, Martin Lorenzo, was already
dead for more than a decade. Therefore
the initial endorsement must have
been a forgery.
Issue: W/N Ebrada is liable to
return the amount that she cashed.
W/N a drawee of a check (bank)
can recover from the holder (Ebrada)
the money paid from a forged
instrument.

Held: Sec. 23 of the Negotiable

Instruments Law dictates that where
the signature on the negotiable
instrument is forged then the
negotiation of the check is without
force or effect. In this specific case the
court held that since the check was
endorsed multiple times already it was
not the responsibility of the bank to
ascertain if the signatures of the
previous endorsements were genuine
or not. It was the responsibility of the
holder of the check to satisfy himself
that the paper is genuine. The acts of
presenting the check for payment or
putting it into circulation asserts that
the holder has performed his duty to
ascertain the validity of the instrument.
Everyone with even the least
experience in business knows that no
business man would accept a check in
exchange for money or goods unless he
is satisfied that the check is genuine. If
he is deceived he has suffered a loss of
his cash or goods through his own
mistake. Ebrada, upon receiving the
check in question, was duty bound to
ascertain if it was genuine or not before
presenting it to plaintiff Bank. The Bank
may recover from Ebrada the amount
she received for the check.
MWSS vs. Court of Appeals
Doctrine: Petitioner MWSS was
guilty of gross negligence in the
printing of its personalized checks. The
drawee-bank PNB cannot be faulted for
not having detected the fraudulent
encashment of the checks because the
printing of MWSS's personalized checks
was not done under its supervision and
control. MWSS was in a better position
to detect and prevent the fraudulent
encashment.
Facts: Metropolitan Waterworks
and Sewerage System (MWSS) has
several accounts with Philippine
National Bank (PNB). One of them is
NWSA Account No. 6 (NAWASA/NWSA,

is the predecessor-in-interest of MWSS).

By special arrangement,
MWSS used personalized checks, on
the months of March to May, 23 checks
were released by NWSA; all of them
were cleared and debited against their
account. In those same months, the
same 23 checks were cleared and
debited against the NWSA account.
These checks were deposited by Raul
Dizon, Arturo Sison and Antonio
Mendoza to 2 banks, namely Philippine
Commercial and Industrial Bank (PCIB)
and Philippine Bank of Commerce
(PBC). Subsequent investigation by NBI
shows that these depositors were all
fictitious persons. After knowing the
NBI report, NWSA then demanded to
PNB immediate restoration of the value
debited against their account. CFI ruled
in favor of MWSS. However, it was
overturned by the Court of Appeals,
ruling for PNB. Hence this case.
Issue: W/N MWSS can recover the
amounts debited against their account.
Held: No. The MWSS committed
negligence on their part to bar their
action for the restoration of the money.
First, the alleged
forgery of the 23 checks must be
proved with clear, positive and
convincing evidence. Forgery cannot be
presumed. The reports, affidavit and
memorandum submitted by MWSS
merely alleges the discrepancy of
signatures and does not conclude the
checks to be forged. Nonetheless,
MWSS is barred from setting up
defense. Section 23 of the Negotiable
Instruments Law (NIL) provides that
when a signature of an instrument is
forged, it s wholly inoperative unless
the party
against whom it is sought to enforce is
precluded from setting up the forgery.
One of those conditions that bar setting
up defense is negligence. MWSS was
negligent on 3 points.

1. Using personalized checks,

MWSA failed to provide security
measures to the printing office. Failed
to give printer specific
instructions Failed to retrieve spoiled
check forms Failed to provide any
control regarding the paper Failed to
furnish PNB with samples of
typewriting, check writing and print of
personalized checks Failed to send a
representative to the printing office
Faustino Medina, owner of the printing
press even testified that they leave the
finished and unfinished checks
vouchers the rack of the machine so
that work could be continued the
following day.
2. MWSS failed to reconcile the
bank statements with their own
records. Mr. Zapaorteza, the person
who was supposedly in charge of
verifying such accounts, unreasonably
delayed in taking prompt deliveries of
PNB bank statements and credit and
debit memos. It was the proximate
cause of the failure to discover the
fraud.
3. MWSS failed to provide
security measures over its own records.
It was shown that Mr. Ongtengco, the
cashier of the Treasury Dept of NWSA,
allows people known to him to enter his
office while the check writer is merely
on top of his table. NBI reports
concluded that the forged checks were
an inside job, because the forgers knew
specifically the account number that
holds sufficient amount to encash such
checks. PNB should have no liability
because it has taken necessary
measures in the detection of forged
checks. It actually sent a memorandum
to
all Current Account Bookkeepers,
including MWSS, warning them of the
activities of forgery syndicates who
specifically target depositors using
personalized checks.
Banco de Oro vs. Equitable
Banking Corporation

Doctrine: Having stamped its

guarantee of "all prior endorsements
and/ or lack of endorsements," the
collecting bank is estopped
from claiming otherwise. Whenever any
bank treats the signature at the back of
the check as an endorsement, and thus
guarantees the same, it is liable. The
drawer cannot be held liable for the
negligence of the collecting bank.
There is no privity between the drawer
and the collecting bank.
Facts: BDO drew checks payable
to member establishments.
Subsequently, the checks were
deposited in Trencio's account with
Equitable. The checks were sent for
clearing and was thereafter cleared.
Afterwards, BDO discovered that the
indorsements in the back of the checks
were forged. It then demanded that
Equitable credit its account but the
latter refused to do so. This prompted
BDO to file a complaint against
Equitable and PCHC. The trial court and
RTC held in favor of the Equitable and
PCHC.
Issue: Whether or not Banco de
Oro could collect reimbursement from
Equitable Bank.
Held: First, PCHC has jurisdiction
over the case in question. The articles
of incorporation of PHHC extended its
operation to clearing checks and other
clearing items. No doubt transactions
on non-negotiable checks are within
the ambit of its jurisdiction. Further, the
participation of the two banks in the
clearing operations is submission to the
jurisdiction of the PCHC. Petitioner is
likewise estopped from raising the nonnegotiability of the checks in issue. It
stamped its guarantee at the back of
the checks and subsequently presented
it for clearing and it was in the basis of
these endorsements by the petitioner
that the proceeds were credited in its

clearing account. The petitioner cannot

now deny its liability as it assumed the
liability of an indorser by stamping its
guarantee at the back of the checks.
Furthermore, the bank cannot escape
liability of an indorser of a check and
which may turn out to be a forged
indorsement. Whenever a bank treats
the signature at the back of the checks
as indorsements and thus logically
guarantees the same as such there can
be no doubt that said bank had
considered the checks as negotiable. A
long line of cases also held that in the
matter of forgery in endorsements, it is
the collecting bank that generally
suffers the loss because it had the duty
to ascertain the genuineness of all prior
indorsements considering that the act
of presenting the check for payment to
the drawee is an assertion that the
party making the presentment has
done its duty to ascertain the
genuineness of the indorsements.

Gempesaw was negligent in handling

her affairs by not ascertaining the
values of the payments and if indeed
the payments reached the payees
making forgery not a defense for her to
recover. The CA affirmed.
Issue: W/N the forgery entitles
Gempesaw to reimbursement?
Held: Partly Yes & No. The SC
found that Gempesaw is indeed
negligent which precludes her from
raising the defense of forgery. However,
the SC, using Art. 1170 of the Civil
Code, said that the bank becomes also
liable for damages for accepting the
check with a second indorsement. It
should be noted that in the current
banking system, checks with second
indorsements are not generally
accepted and given this fact, the Bank
should also shoulder liability.
Gempesaw and the bank are liable 5050 for the loss.

Gempesaw vs. Court of Appeals

Doctrine: As a rule, a drawee
bank who has paid a check on which an
endorsement has been forged cannot
charge the drawer's account for the
amount of said check. An exception to
the rule is where the drawer is guilty of
such negligence which causes the bank
to honor such a check or checks.
Facts: Gempesaw filed for
recovery of the money value of 82
checks charged against her account
due to forgery of indorsements made
by Alicia Galang, her trusted
bookkeeper. In the normal course of her
grocery business, it would be Galang
who would write the amounts in the
check and Gempesaw would only sign
the checks without ascertaining its
contents. The checks were deposited in
the accounts of Romero and Lam, with
the aggregate total amounting to 1.2
million pesos. Gempesaw filed a case
with the RTC which held that

Associated Bank vs. Court of

Appeals
Doctrine: The drawee-bank
cannot debit the account of the drawer
because it paid checks which bore
forged endorsements. However, if the
drawer was negligent to the point of
contributing substantially to the loss,
then the drawee-bank can charge the
drawer's account. If both the draweebank and the drawer were negligent,
the loss should be apportioned
between them.
Facts: Faustino Pangilinan,
cashier of the Concepcion Emergency
Hospital, forged the signature of Dr.
Adena Canlas who was the Chief of the
said hospital and endorsed 30 checks
amounting to P203,300 to himself. The
money was drawn from the account of
the Province of Tarlac with PNB.
Pangilinan deposited the checks to his

personal savings account with

Associated Bank which was cleared and
paid for by PNB. The checks have a
stamp of Associated Bank which reads
All prior endorsements guaranteed by
Associated
Bank. The Province of Tarlac, through
the Provincial Treasurer, wrote PNB to
restore the various amounts debited
from the current account of the
Province. PNB on its part demanded
reimbursement from Associated Bank.
Both banks resisted payment which led
to the Province of Tarlac suing PNB.
PNB in
turn impleaded Associated Bank in the
suit as a third-party defendant while
Associated Bank impleaded Canlas and
Pangilinan as fourth-party defendants.
For convenience, the transfers were
effected in the following sequence:
TARLAC - PNB - ASSOCIATED BANK CANLAS & PANGILINAN. The trial court
ruled that
1) PNB should pay the Province of
Tarlac the P203,300 with legal
interests,
2) Associated Bank should be
pay the same amount to PNB and
3) dismissed the complaints
against Canlas and Pangilinan. On
appeal, the CA affirmed the ruling of
the trial court.
Issue: Who should bear the loss
arising from the forgery, the Province of
Tarlac, PNB, Associated Bank or
Pangilinan?
Held: The SC held that the
Province and Associated Bank should
bear losses in the proportion of 50-50.
The Province can only recover 50% of
the P203,300 from PNB because of the
negligence they exhibited in releasing
the checks to the then already retired
Pangilinan who is an unauthorized
person to handle the said checks. On
the other hand, Associated Bank is
liable to PNB only to 50% of the same
amount because of its liability as

indorser of the checks that were

deposited by
Pangilinan, and guaranteed the
genuineness of the said checks. They
failed to exercise due diligence in
checking the veracity of indorsements.
Metrobank vs. First National City
Bank
Doctrine: The failure of FNCB as
drawee-bank to inform the collecting
bank, Metrobank, about the alteration
in question until after the lapse of 9
days negates whatever right it might
have had against Metrobank in the light
of Central Bank Circular No.9, as
amended by Circular No.138, which
requires all items cleared on a
particular clearing to be returned not
later than 3:30PM on the following
business day. While it is true that
Metrobank endorsed the check, such an
endorsement must be read together
with the 24-hour rule on Clearing House
Operations of the Central Bank.
Facts: A check was drawn by
Joaquin Cunanan & Company (JCC) on
First National City Bank (FNCB) which
was deposited in Metrobank by
Salvador Sales. The check was cleared
the same day and the latter withdrew it
and closed his account. Thereafter,
upon return of the cancelled check, JCC
notified the bank that the check was
altered from actual amount of P50
raised to P50,000 and over the name
superimposed the word Cash. FNCB
notified and reiterated the request to
Metrobank for the reimbursement but
the latter was adamant in its refusal,
hence, this action.
Issue:Whether or not Metrobank
should bear the loss from a materially
altered check?
Held: In this case, the check was
not returned to Metro Bank in
accordance with the 24-hour clearing

house period, but was cleared by FNCB.

Failure of FNCB, therefore, to call the
attention of Metro Bank to the
alteration of the check in question until
after the lapse of nine days, negates
whatever right it might have had
against Metro Bank in the light of the
said Central Bank Circular. Its remedy
lies not against Metro Bank, but against
the party responsible for the changing
the name of the payee and the amount
on the face of the check.
Republic Bank vs. Court of Appeals
Doctrine: It is true that when an
endorsement is forged, the collecting
bank or last endorser, as a general
rule, bears the loss. But the unqualified
endorsement of the collecting bank
should be read together with the 24hour rule on clearing house regulations.
When the drawee bank fails to return a
forged or altered check to the
collecting bank within the 24-hour
clearing period, the collecting bank is
absolved from liability.
Facts: San Miguel Corporation (SMC)
drew a check amounting to P240.00 on
its account in First National City Bank
(FNCB) in favor of Delgado, a
stockholder. Delgado fraudulently
altered the amount of the check to
P9,240 after which he endorsed and
deposited it with Republic Bank.
Republic Bank endorsed the check to
First National City Bank (FNCB), the
drawee bank, by stamping on the back
of the check all prior and / or lack of
indorsement guaranteed". Based on
such endorsement, FNCB paid the
amount to Republic Bank. Later on,
SMC informed FNCB of the material
alteration of the amount. FNCB
recredited the amount to San Miguels
account, and demanded refund from
Republic Bank. Republic Bank refused,
claiming there was delay in giving it
notice of the alteration.

Issue: Whether petitioner

Republic Bank as the collecting bank
should bear the loss resulting from the
altered check.
Held: When an indorsement is
forged, the collecting bank or last
indorser, as a general rule, bears the
loss. But the unqualified indorsement of
the collecting bank on the check should
be read together with the 24-hour
regulation on clearing house operation.
Hence, when a drawee bank fails to
return a forged or altered check to the
collecting bank within the 24-hour
clearing period, the collecting bank is
absolved from liability.
Philippine Commercial
International Bank vs. Court of
Appeals
Doctrine: The mere fact that the
forgery was committed by a
drawerpayor's confidential employee or
agent, who by virtue of his position had
unusual facilities for perpetrating the
fraud and imposing the forged paper
upon the bank, does not entitle the
bank to shift the loss to the drawerpayor, in the absence of circumstances
raising estoppel against the drawer. A
bank is liable for the fraudulent acts or
representations of an office or agent
acting within the scope of his
employment or authority. But in this
case, responsibility for negligence does
not lie on the collecting bank's
shoulders alone. Citibank, as draweebank was likewise negligent, and must
also answer for the damages suffered
by the drawer because of the
contractual relationship between it and
the latter. Thus, invoking the doctrine
of comparative negligence, both PCI
and Citibank are equally liable.
Facts: 3 cases are consolidated in
this decision involving Ford, Citibank,
and PCI Bank. The original action was
instituted by

Ford to recover from drawee bank

Citibank and collecting bank PCI Bank a
sum of money for the value of several
checks payable to the Commissioner of
Internal Revenue, which were
embezzled allegedly by and organized
syndicate. In 1977, Ford issued a
Citibank check payable to the CIR for
its tax obligations for the third quarter
of the said year. After clearing, the
check was deposited to PCI Bank.
However, it was paid to or received by
the payee, CIR. The latter compelled
Ford to make another payment, which
was then credited. Ford on the other
hand subjected Citibank for
reimbursement for the second
assessment. The same thing happened
in 1978 and 1979. After an
investigation conducted by the NBI, it
was discovered that an organized
syndicate was behind the scam. It was
revealed that the General Ledger
Accountant of Ford recalled the checks
and caused PCI Bank to replace the
checks with manager's checks, which
were later deposited by alleged
members of the syndicate. Ford filed a
complaint against the
officer but was dismissed because he
could not be served summons as he
was a fugitive from justice. Ford
mainly impleads Citibank and PCI Bank
for the recovery of the sum of money.
The trial court ruled in favor of Ford in
declaring that Citibank and PCI Bank
were jointly liable. The CA however
modified the decision, saying that only
Citibank was liable.
Hence, this petition.
Issue: Has Ford the right to
recover the value of the checks
intended as payment to CIR?
Held: With regard to the 1977
case, the SC held PCIBank solely liable
for paying Ford on the basis of its
negligence in failing to verify the
authority of the Ford employee to
negotiate the checks. It showed the
employees lack of care and prudence

required in the circumstances. Further,

PCI Bank's clearing stamps enabled the
checks to pass through the clearing
house and therefore Citibank had no
choice but to pay it. PCI Bank's
contention that Ford was guilty of
imputed contributory negligence
cannot prosper because it was
established that the officer's instruction
to replace the checks was not in the
ordinary course of business which could
have prompted PCI Bank to validate the
check. Regarding the 1978 and 1979
cases, the SC held that both Citibank
and PCI Bank were both liable for the
sum and must share in the loss. The SC
was able to establish the proximate
cause of the loss which was the
negligence of PCI Bank and that one of
its employees was in with the
syndicate. The general rule that a bank
is liable for the fraudulent acts or
representation of an officer or an agent
acting within the course and apparent
scope of his employment or authority
was applied. Citibank on the other hand
was held liable based on its contractual
relationship with Ford. There was a
breach of such relationship and failed
to scrutinize the checks before paying
the amount to the CIR. The SC applied
the doctrine of comparative
negligence, citing both Citibank and PCI
Bank for failing in their respective
obligations and negligence in the
selection and supervision of their
employees.
Ramon Ilusorio vs. CA
Doctrine: It is a rule that when a
signature is forged or made without the
authority of the person whose
signature is forged or made without the
authority of the person whose
signature it purports to be, the check is
wholly inoperative. However, the rule
does provide for an exception, namely:
unless the party against whom it is
sought to enforce such right is
precluded from setting up the forgery

or want of authority.' In the instant

case, it is the exception that applies.
Petitioner is precluded from setting up
the forgery, assuming there is forgery,
due to his own negligence in entrusting
to his secretary his credit cards and
checkbook including the verification of
his statements of account.
Facts: Ilusioro was a prominent
business man and a creditor in good
standing of Manila Banking
Corporation. Due to his numerous
business dealings and frequent travels
he left the management of his account
to his secretary Katherine Eugenio.
From September 1980 to January 1981,
Eugenio was able to encash and
deposit 17 checks to her account drawn
against that of Ilusorio. When a
business partner informed him of
Eugenio's activities he fired her and
instituted criminal action for estafa
through falsification. At the same time,
private respondent Manila Bank also
instituted criminal action against
Eugnio for estafa through falsification
of commercial documents. Petitioner
requested the bank to restore to his
account the value of the checks but
respondent refused. Hence, this
instance case.
ISSUE: 1) W/n petitioner has a
cause of action against Manila Bank.
2) W/n Manila Bank is barred
from raising defense that the fact of
forgery was not established by filing an
estafa case against Eugenio.
RULING: The Court finds that
petitioner has no cause of action
against Manila Bank. Petitioner has the
burden of proving negligence on the
part of the bank for failure to detect the
discrepancy in the signature. The
forgery was not proven because of the
petitioners own inaction, by not
providing further specimen signatures.
He is precluded therefore from setting

up forgery. Sec. 23 of the N.I.L provides

for the exception that unless the party
against whom it is sought to enforce
such right is precluded from setting up
forgery or want of authority. On the
second issue, the fact that Manila Bank
filed a cased against Eugenio would not
estop it from asserting the fact that
forgery has not been clearly
established. Based on Sec 2 Rule 110 of
the Rules of Court, the party to the
complaint is the People of the
Philippines. Petitioner therefore cannot
hold Manila Bank in estoppels for it is
not the actual party to the criminal
action. Petition is denied.
Samsung Construction Co. Phils.,
Inc. vs. FEBTC and CA
Doctrine: The bare fact that the
forgery was committed by an employee
of the party whose signature was
forged cannot necessarily imply that
such party's negligence was the cause
of the forgery. Employers do not
possess the supernatural gift of
cognition as to the evil that may lurk
within the hearts and
minds of their employees.
Facts: Samsung Construction held
an account with Far East Bank. One day
a check worth 900,000, payable to
cash, was presented by one Roberto
Gonzaga in the Makati Branch of Far
East Bank. The check was certified to
be true by Jose Sempio, the assistant
accountant of Samsung, who was also
present during the time the check was
cashed. Later however it was
discovered that no such check was ever
approved by the Samsung's head
accountant, the president of the
company also never signed any such
check.
Issue: W/N Far East Bank is liable
to reimburse Samsung for cashing out
the forged check, which was drawn
from the account of Samsung

Held: Far East Bank is liable for

reimbursement. Sec. 23 of the
Negotiable Instrument Law states that
a forged signature makes the
instrument wholly inoperative. If
payment is made the drawee (Far East)
cannot charge it to the drawer's
account (Samsung). The fact that the
forgery is clever is immaterial. The
forged signature may so closely
resemble the genuine as to defy

detection by the depositor himself. And

yet, if the bank pays the check, it is
paying out with its own money and not
of the depositor's. This rule of liability
can be stated briefly in these words: A
bank is bound to know its depositor's
signature. The accusation of
negligence on the part of Samsung was
not clearly proven. Absence of proof to
the contrary, the presumption is that
the ordinary course of business was
followed.