ASSOCIATED BANK V.

CA
252 SCRA 620
The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via
checks drawn against its account with the Philippine National Bank (PNB). These
checks were drawn payable to the order of Concepcion Emergency Hospital. Fausto
Pangilinan was the cashier of Concepcion Emergency Hospital in Tarlac until his
retirement in 1978. He used to handle checks issued by the provincial government of
Tarlac to the said hospital. However, after his retirement, the provincial government still
delivered checks to him until its discovery of this irregularity in 1981. By forging the
signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan was able to
deposit 30 checks amounting to P203k to his account with the Associated Bank.

When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse
the said amount. PNB in turn demanded Associated Bank to reimburse said amount.
PNB averred that Associated Bank is liable to reimburse because of its indorsement
borne on the face of the checks:

All prior endorsements guaranteed ASSOCIATED BANK.

ISSUE: What are the liabilities of each party?

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.
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 bank.
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.