G.R. No.
17230 March 17, 1922
JOSE VELASCO, plaintiff-appelle,
vs.
TAN LIUAN & CO., TAN LIUAN, UY TENGPIAO, and AW YONG CHIOW
SOO, defendants.
AW YONG CHIOW SOO, appellant.
Jesus E. Blanco for appellant.
De Joya and Espiritu for appellee.
STATEMENT
The defendant Tan Liuan and Co. executed to the defendant Aw Yong Chiow
Soo four certain promissory notes: The first, for P12,000, dated February 18th,
the second, for P16,000, dated February 23d, the third, for P38,000, dated
March 17th, and the fourth, for P21,000, dated March 27th, all in the year 1919,
and each payable six months after its respective date.
March 17, 1919, the defendant Aw Yong Chiow Soo drew a bill of exchange
or sight draft, for P33,500 Yen on Jing Kee and Co., 2 Kaisandori 5-Chone,
Kobe, in favor of the Philippine National Bank, which at first it refused to cash.
The plaintiff was then induced to, and did, endorse it, and the bank cashed the
draft, no part of which plaintiff received, and it is claimed that all of the money
was paid to Tan Liauan and Co. In the ordinary course of business, the draft
was dishonored when presented, and later the plaintiff was requested to, and
did, personally execute to the Philippine National Bank his promissory note,
for the amount of the draft, interest and expenses.
August 18, 1991, Tan Liuan made the following written statement:
In consideration for the indorsement by Jose Velasco at my request of
a draft drawn by Aw Yong Chiow Soo on Messrs. Jing Kee and Co., 2
Kaisandori 5-Chone, Kobe, Japan, for the payment of which he
became liable upon his indorsement for the sum of 33,500 Yen, I
promise to pay to Jose Velasco, or oder, within ten days after he shall
have been obligated to pay the amount of said draft, or any part
thereof, the full amount with all costs, expenses and attorney's fees
which he shall pay on account of his indorsement of said draft, with
interest on the amount paid by him at 10 per cent per annum thereon
from the time of payment.
On the same day, the plaintiff made the following written statement:
Aw Yong Chiow Soo having this day transferred to me his claim of
credit against the firm of Tan Liuan and Co. as collateral security in
consideration of my having indorsed his draft made by him on Messrs.
Jing Kee and Co. for the sum of 33,500 Yen and presented to the
Philippine National Bank by which it was cashed, now if the drawer of
said draft or the said Aw Yong Chiow Soo shall pay the said draft so
that I am relieved from all responsibility in connection therewith and
the expenses incurred on account thereof, then I will reassign the said
claim against Tan Liuan and Co. to him, and if I am obliged to pay said
draft, any amount which I may receive on account of said claim
assigned to me over and above the amount paid by me, including all
expenses and attorney's fees, shall be delivered to the said Aw Yong
Chiow Soo.
August 22, 1919, the defendant Aw Yong Chiow Soo made the following
written statement:
For value received and to me in hand paid, I hereby assign, transfer and deliver
to Jose Velasco the whole amount of my credit against Tan Liuan and Co.,
amounting to eighty-seven thousand pesos (P87,000), evidenced by four (4)
promissory notes, which are described as follows:
1. Promissory note dated Manila, February 18, 1919, for the sum of
P12,000; for six (6) months;
2. Promissory note dated Manila, February 23, 1919, for the sum of
P16,000; for six (6) months;
3. Promissory note dated Manila, March 17, 1919, for the sum of
P38,000; for six (6) months;
4. Promissory note dated Manila, March 27, 1919, for the sum of
P21,000; for six (6) months;
the above-mentioned promissory notes being attached hereto and made a part
hereof, and fully autnorize the said Jose Velasco to collect and receive the said
amount from Tan Liuan and Co., or from the legal representative of, or
liquidator of said Tan Liuan and Co.
Concurrent therewith, the defendant unqualifiedly indorsed the four promissory
notes to the plaintiff, who, on February 19, 1920, commenced this action
against the defendants.
The complaints alleges the execution of the notes by the defendant Tan Liuan
and Co. to the defendant Aw Yong Chiow Soo. That the defendant Aw Yong
Chiow Soo indorsed the notes to the plaintiff; that at their maturity they were
duly presented to Tan Liuan and Co.; and that payment was refused, of which
refusal the defendant Aw Yong Chiow Soo was duly notified.
For answer, Aw Yong Chiow Soo makes a general denial, and, as a further
and separate defense, alleges the drawing of the sight draft, and that it was an
accommodation only, and that, conforming to the agreement, it was duly
indorsed by the plaintiff, and Aw Yong Chiow So delivered the money to the
defendant Tan Liuan. The defendant then alleges the making of the written
statement by Tan Liuan of August 18, 1919, above quoted. On that date, Aw
Yong Chiow Soo was a creditor of the defendant Tan Liuan and Co., evidenced
by the promissory notes above described, and that Tan Liuan and Co. was
insolvent. That by reason thereof, one of the promissory notes was executed
to guarantee Aw Yong Chiow Soo against any liability in case that Tan Liuan
or the plaintiff would not pay the sight draft, and because the bank had
requested the plaintiff to pay the draft, this defendant and the plaintiff agreed
that this defendant should transfer to him all of its interest in the four
promissory notes, under an agreement that, in case Jing Kee and Co. should
pay the draft, the plaintiff would transfer the note to this defendant, but in the
event that the plaintiff was required to pay the draft, the he would endeavor to
collect the notes in full, and from the proceeds would first reimburse himself
and then pay any remainder to the defendant. It is also alleged that the palintiff
has not paid the draft or made any effort to collect it from Tan Liuan. That this
defendant is not liable to the plaintiff on any contract, and does not owe him
anything, but that, under the agreement, the plaintiff should return to this
defendant any amount which he should collect over the amount of his personal
claim. That, by reason of the contract between the plaintiff and the defendant,
Tan Liuan, this defendant has been released and discharged of all liability, and
that the action is premature.
Upon such issues, the case was tried, and the lower court rendered judgment
against the defendants Tan Liuan and Co. and Tan Liuan and Uy Tengpiao,
for the full amount of the notes, from which the plaintiff should only receive a
sufficient amount to fully compensate him as an indorser of the draft; to wit,
P46,135.70, and that, if collected, the remainder, if any, should be paid to Aw
Yong Chiow Soo against whom judgment was rendered for the amount of
P46,135.70 should be defendant Tan Liuan and Co. fail to pay the judgment.
From this, the defendant Aw Yong Chiow Soo only appealed, claiming that the
lower court erred in rendering judgment against it upon the four promissory
notes, or that it was liable for the payment of either of them, or that it should
pay the plaintiff P46,135.70, or that he should have any judgment against this
defendant.
JOHNS, J.:
It will be noted that two of the promissory notes are dated in February; that the
third is dated March 17th, and the last March 27th, all in 1919. That each
promissory note is payable six months after date, and is executed by Tan Liuan
and Co. in favor of Aw Yong Chiow Soo.
The sight draft is dated March 17, 1919, payable thirty days after date, and is
drawn by Aw Yong Chiow Soo upon Jing Kee and Co. in favor of the Philippine
National Bank.
The written statement of Tan Liuan is dated August 18, 1919, and that three
of the promissory notes were then due and payable.
Although it is claimed taht Tan Liuan and Co. received the proceeds from the
draft, its name does not appear in or upon the draft, and it is very apparent that
the written statement of Tan Liuan and Co., of August 18th, was signed, for
the purpose of showing the true relations of that firm to the transaction, and
that within ten days after the plaintiff had assumed and paid the amount of the
draft, with costs and expenses, Tan Liuan and Co. would pay the plaintiff the
full amount which plaintiff had obligated himself to pay. In other words, Tan
Liuan and Co., by that writing, assumes all liability for the amount of the draft
and promises to pay the plaintiff and release him from all liability. In legal effect,
plaintiff's written statement of August 18th, is an acknowledgment of the reciept
from Aw Yong Chiow Soo of the four promissory notes as collateral security
for his indorsement of the draft, and that, in the event the plaintiff is released
from his liability, he will then reassign the notes to the defendant, Aw Yong
Chiow Soo, and that, if he is required to pay the draft, any amount which he
may receive on account of the promissory notes over and above the amount
which he is required to pay, he will then pay any remainder to the defendant
Aw Yong Chiow Soo. The indorsement of Aw Yong Chiow Soo of the notes to
the plaintiff was unqualified, and the law fixes the liability of an unqualified
indorser, and oral testimony is not admisible to vary or contradict the terms of
a written instrument.
Section 30 of Act No. 2031, of the Philippine Legislature, known as "The
Negotiable Instruments Law," says:
SEC. 30. What constitutes negotiation. An instrument is negotiated
when it is transferred from one person to another in such manner as
to constitute the transferee the holder thereof. If payable to bearer, it
is negotiated by delivery; if payable to order, it is negotiated by the
indorsement of the holder completed by delivery.
SEC. 31. Indorsement; how made. The indorsement must be written
on the instrument itself or upon a paper attached thereto. The
signature of the indorser, without additional words, is a sufficient
indorsement.
SEC. 33. Kinds of indorsement. An indorsement may be either
special or in blank; and it may also be either restrictive or qualified, or
conditional.
SEC. 38. Qualified indorsement. A qualified indorsement
constitutes the indorser a mere assignor of the title to the instrument.
It may be made by adding to the indorser's signature the words
"without recourse" or any words of similar import. Such an
indorsement does not impair the negotiable character of the
instrument.
SEC. 45. Time of indorsement; presumption. Except where an
indorsement bears date after the maturity of the instrument, every
negotiation is deemed prima facie to have been effected before the
instrument was overdue.
SEC. 63. When person deemed indorser. A person placing his
signature upon an instrument otherwise than as maker, drawer, or
acceptor is deemed to be an indorser, unless he clearly indicates by
appropriate words his intention to be bound in some other capacity.
SEC. 66. Liability of general indorser. Every indorser who indorses
without qualification, warrants to all subsequent holders in due course
(a) The matters and things mentioned in subdivisions (a), (b), and (c)
of the next preceding section; and
(b) That the instrument is at the time of his indorsement valid and
subsisting.
And, in addition, he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, according to its tenor,
and that if it be dishonored, and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder,
or to any subsequent indorser who may be compelled to pay it.
SEC. 114. When notice need not be given to drawer. Notice of
dishonor is not required to be given to the drawer in either of the
following cases:
xxx xxx xxx
(d) Where the drawer has no right to expect or require that the drawee
or acceptor will honor the instrument.
Aw Yong Chiow Soo, being an unqualified indorser, the law fixes its liability.
If it was not its purpose or intent to assume and agree to pay the notes, it
should have indorsed them "without recourse," or in such a manner as to
discliam any personal liability. When a person makes an unqualified
indorsement of a promissory note, the Negotiable Instruments Law specifies
and defines his liability, and parol testimony is not admissible to explain or
defeat such liability. Here, the bill of exchange was drawn by the defendant,
Aw Yong Chiow Soo, and it was the bill of exchange which was indorsed by
the plaintiff, and the testimony is conclusive taht plaintiff's indorsement was
required by the bank as one of the conditions upon which it would cash the
draft. Three of the notes had matured at the time they were indorsed and the
written instruments signed. Although the draft was drawn by Aw Yong Chiow
Soo, it was dishonored, and the plaintiff was required by the bank to execute
his note for its amount. At the time of the execution of the notes, Aw Yong
Chiow Soo was a creditor of Tan Liuan and Co. for the amount of the notes.
The action here is not based upon the draft. It is founded upon the promissory
notes. The plaintiff did not receive any part of the proceeds of the draft, but
has been required by the bank to make his promissory note for the amount of
the draft. As collateral and to indemnify and protect plaintiff from any liability,
Aw Yong Chiow Soo indorsed the promissory notes, which it held against Tan
Liuan and Co. to the plaintiff and did not in any manner qualify its indorsement,
and the Negotiable Instruments Act says that
Every indorser who indorses without qualification, warrants to all
subsequent holders in due course, etc., engages that on due
presentment, it shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof
to the holder, or to any subsequent indorser who may be compelled to
pay it.
Section 80 of the Act says:
Presentment for payment is not required in order to charge an indorser
where the instrument was made or accepted for his accommodation
and he has no reason to expect that the instrument will be paid if
presented.
And subdivision (d), of section 114, says:
Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument.
The draft was drawn on March 18, 1919, payable thirty days after sight, and it
was dishonored. Three of the notes were past due at the time the written
agreements were made, and the testimony is conclusive that Tan Liuan and
Co. was insolvent, and that Aw Yong Chiow Soo knew it, and that none of the
notes would be paid if presented, and the evidence shows that, before they
were indorsed, the first two had been duly presented and dishonored. In other
words, at the time the unqualified indorsement was made, two of the notes had
been protested, and Aw Yong Chiow Soo knew that Tan Liuan and Co. was
insolvent, and had no reason to expect that the notes would be paid if
presented. There is no claim or pretense that its claim was prejudiced or that
it lost any legal right, because the last two notes were not protested, the first
of which was past due when it was indorsed.
The purpose and intent of the August written statements was to explain the
transactions between the parties, to whom the proceeds from the draft were
paid, and that the notes were indorsed by Aw Yong Chiow Soo to palintiff, as
collateral, to protect and hold him harmless in his indorsement of the draft, an
to specify that Aw Yong Chiow Soo should have any proceeds from the notes
after the draft had been fully paid therefrom and the plaintiff released from his
liability as an indorser. The statements do not make any reference to the legal
liability of Aw Yong Chiow Soo as an indorser of the notes, do not and were
never contended to fully discharge and release that firm from its liability as an
indorser.
With all due respect to the able and ingenious brief for the appellant, there is
no merit in the defense, and the judgment of the lower court is affirmed, with
costs in favor of the plaintiff. So ordered.
G.R. No. 112392 February 29, 2000
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision1 of the Court of
Appeals in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial
Court of Makati, Branch 139,2 which dismissed the complaint filed by petitioner
Bank of the Philippine Islands against private respondent Benjamin C. Napiza
for sum of money.
On September 3, 1987, private respondent deposited in Foreign Currency
Deposit Unit (FCDU) Savings Account No. 028-1873 which he maintained in
petitioner bank's Buendia Avenue Extension Branch, Continental Bank
Manager's Check No. 000147574 dated August 17, 1984, payable to "cash" in
the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly
endorsed by private respondent on its dorsal side. 5 It appears that the check
belonged to a certain Henry who went to the office of private respondent and
requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent
acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with
the understanding that as soon as the check is cleared, both of them would go
to the bank to withdraw the amount of the check upon private respondent's
presentation to the bank of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on
October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of
$2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal
slip shows that the amount was payable to Ramon A. de Guzman and Agnes
C. de Guzman and was duly initialed by the branch assistant manager,
Teresita Lindo.6
On November 20, 1984, petitioner received communication from the Wells
Fargo Bank International of New York that the said check deposited by private
respondent was a counterfeit check 7 because it was "not of the type or style of
checks issued by Continental Bank International." 8 Consequently, Mr. Ariel
Reyes, the manager of petitioner's Buendia Avenue Extension Branch,
instructed one of its employees, Benjamin D. Napiza IV, who is private
respondent's son, to inform his father that the check bounced.9 Reyes himself
sent a telegram to private respondent regarding the dishonor of the check. In
turn, private respondent's son wrote to Reyes stating that the check been
assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de
Guzman after it shall have been cleared upon instruction of Chan. He also said
that upon learning of the dishonor of the check, his father immediately tried to
contact Chan but the latter was out of town.10
Private respondent's son undertook to return the amount of $2,500.00 to
petitioner bank. On December 18, 1984, Reyes reminded private respondent
of his son's promise and warned that should he fail to return that amount within
seven (7) days, the matter would be referred to the bank's lawyers for
appropriate action to protect the bank's interest.11 This was followed by a letter
of the bank's lawyer dated April 8, 1985 demanding the return of the
$2,500.00.12
In reply, private respondent wrote petitioner's counsel on April 20,
198513 stating that he deposited the check "for clearing purposes" only to
accommodate Chan. He added:
Further, please take notice that said check was deposited on
September 3, 1984 and withdrawn on October 23, 1984, or a total
period of fifty (50) days had elapsed at the time of withdrawal. Also, it
may not be amiss to mention here that I merely signed an authority to
withdraw said deposit subject to its clearing, the reason why the
transaction is not reflected in the passbook of the account. Besides, I
did not receive its proceeds as may be gleaned from the withdrawal
slip under the captioned signature of recipient.1wphi1.nt
If at all, my obligation on the transaction is moral in nature, which (sic)
I have been and is (sic) still exerting utmost and maximum efforts to
collect from Mr. Henry Chan who is directly liable under the
circumstances.
xxx xxx xxx
On August 12, 1986, petitioner filed a complaint against private respondent,
praying for the return of the amount of $2,500.00 or the prevailing peso
equivalent plus legal interest from date of demand to date of full payment, a
sum equivalent to 20% of the total amount due as attorney's fees, and litigation
and/or costs of suit.
Private respondent filed his answer, admitting that he indeed signed a "blank"
withdrawal slip with the understanding that the amount deposited would be
withdrawn only after the check in question has been cleared. He likewise
alleged that he instructed the party to whom he issued the signed blank
withdrawal slip to return it to him after the bank draft's clearance so that he
could lend that party his passbook for the purpose of withdrawing the amount
of $2,500.00. However, without his knowledge, said party was able to withdraw
the amount of $2,541.67 from his dollar savings account through collusion with
one of petitioner's employees. Private respondent added that he had "given
the Plaintiff fifty one (51) days with which to clear the bank draft in question."
Petitioner should have disallowed the withdrawal because his passbook was
not presented. He claimed that petitioner had no one to blame except itself "for
being grossly negligent;" in fact, it had allegedly admitted having paid the
amount in the check "by mistake" . . . "if not altogether due to collusion and/or
bad faith on the part of (its) employees." Charging petitioner with "apparent
ignorance of routine bank procedures," by way of counterclaim, private
respondent prayed for moral damages of P100,000.00, exemplary damages
of P50,000.00 and attorney's fees of 30% of whatever amount that would be
awarded to him plus an honorarium of P500.00 per appearance in court.
Private respondent also filed a motion for admission of a third party complaint
against Chan. He alleged that "thru strategem and/or manipulation," Chan was
able to withdraw the amount of $2,500.00 even without private respondent's
passbook. Thus, private respondent prayed that third party defendant Chan be
made to refund to him the amount withdrawn and to pay attorney's fees of
P5,000.00 plus P300.00 honorarium per appearance.
Petitioner filed a comment on the motion for leave of court to admit the third
party complaint, whenever it asserted that per paragraph 2 of the Rules and
Regulations governing BPI savings accounts, private respondent alone was
liable "for the value of the credit given on account of the draft or check
deposited." It contended that private respondent was estopped from
disclaiming liability because he himself authorized the withdrawal of the
amount by signing the withdrawal slip. Petitioner prayed for the denial of the
said motion so as not to unduly delay the disposition of the main case asserting
that private respondent's claim could be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief and to
avoid multiplicity of suits, the motion to admit third party complaint should be
granted. Meanwhile, the trial court issued orders on August 25, 1987 and
October 28, 1987 directing private respondent to actively participate in locating
Chan. After private respondent failed to comply, the trial court, on May 18,
1988, dismissed the third party complaint without prejudice.
On November 4, 1991, a decision was rendered dismissing the complaint. The
lower court held that petitioner could not hold private respondent liable based
on the check's face value alone. To so hold him liable "would render inutilethe
requirement of "clearance" from the drawee bank before the value of a
particular foreign check or draft can be credited to the account of a depositor
making such deposit." The lower court further held that "it was incumbent upon
the petitioner to credit the value of the check in question to the account of the
private respondent only upon receipt of the notice of final payment and should
not have authorized the withdrawal from the latter's account of the value or
proceeds of the check." Having admitted that it committed a "mistake" in not
waiting for the clearance of the check before authorizing the withdrawal of its
value or proceeds, petitioner should suffer the resultant loss.
On appeal, the Court of Appeals affirmed the lower court's decision. The
appellate court held that petitioner committed "clears gross negligence" in
allowing Ruben Gayon, Jr. to withdraw the money without presenting private
respondent's passbook and, before the check was cleared and in crediting the
amount indicated therein in private respondent's account. It stressed that the
mere deposit of a check in private respondent's account did not mean that the
check was already private respondent's property. The check still had to be
cleared and its proceeds can only be withdrawn upon presentation of a
passbook in accordance with the bank's rules and regulations. Furthermore,
petitioner's contention that private respondent warranted the check's
genuineness by endorsing it is untenable for it would render useless the
clearance requirement. Likewise, the requirement of presentation of a
passbook to ascertain the propriety of the accounting reflected would be a
meaningless exercise. After all, these requirements are designed to protect
the bank from deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc.
v. IAC,14 where this Court stated that a personal check is not legal tender or
money, and held that the check deposited in this case must be cleared before
its value could be properly transferred to private respondent's account.
Without filing a motion for the reconsideration of the Court of Appeals'
Decision, petitioner filed this petition for review on certiorari, raising the
following issues:
1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER
HIS WARRANTIES AS A GENERAL INDORSER.
2. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED
BETWEEN RESPONDENT NAPIZA AND RUBEN GAYON.
3. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT
IN ALLOWING THE WITHDRAWAL.
Petitioner claims that private respondent, having affixed his signature at the
dorsal side of the check, should be liable for the amount stated therein in
accordance with the following provision of the Negotiable Instruments Law (Act
No. 2031):
Sec. 66. Liability of general indorser. Every indorser who indorses
without qualification, warrants to all subsequent holders in due course
(a) The matters and things mentioned in subdivisions (a), (b), and (c)
of the next preceding section; and
(b) That the instrument is at the time of his indorsement, valid and
subsisting.
And, in addition, he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, according to its tenor,
and that if it be dishonored, and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder,
or to any subsequent indorser who may be compelled to pay it.
Sec. 65, on the other hand, provides for the following warranties of a person
negotiating an instrument by delivery or by qualified indorsement: (a) that the
instrument is genuine and in all respects what it purports to be; (b) that he has
a good title to it, and (c) that all prior parties had capacity to
contract.15 In People v. Maniego,16 this Court described the liabilities of an
indorser as follows:
Appellant's contention that as mere indorser, she may not be liable on
account of the dishonor of the checks indorsed by her, is likewise
untenable. Under the law, the holder or last indorsee of a negotiable
instrument has the right "to enforce payment of the instrument for the
full amount thereof against all parties liable thereon. Among the
"parties liable thereon." Is an indorser of the instrument, i.e., "a person
placing his signature upon an instrument otherwise than as a maker,
drawer or acceptor * * unless he clearly indicated by appropriate
words his intention to be bound in some other capacity." Such an
indorser "who indorses without qualification," inter alia "engages that
on due presentment, * * (the instrument) shall be accepted or paid, or
both, as the case may be, according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or any subsequent
indorser who may be compelled to pay it." Maniego may also be
deemed an "accommodation party" in the light of the facts, i.e., a
person "who has signed the instrument as maker, drawer, acceptor,
or indorser, without receiving value thereof, and for the purpose of
lending his name to some other person." As such, she is under the law
"liable on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew * * (her) to be only an
accommodation party," although she has the right, after paying the
holder, to obtain reimbursement from the party accommodated, "since
the relation between them is in effect that of principal and surety, the
accommodation party being the surety.
It is thus clear that ordinarily private respondent may be held liable as an
indorser of the check or even as an accommodation party.17 However, to hold
private respondent liable for the amount of the check he deposited by the strict
application of the law and without considering the attending circumstances in
the case would result in an injustice and in the erosion of the public trust in the
banking system. The interest of justice thus demands looking into the events
that led to the encashment of the check.
Petitioner asserts that by signing the withdrawal slip, private respondent
"presented the opportunity for the withdrawal of the amount in question."
Petitioner relied "on the genuine signature on the withdrawal slip, the
personality of private respondent's son and the lapse of more than fifty (50)
days from date of deposit of the Continental Bank draft, without the same being
returned yet."18 We hold, however, that the propriety of the withdrawal should
be gauged by compliance with the rules thereon that both petitioner bank and
its depositors are duty-bound to observe.
In the passbook that petitioner issued to private respondent, the following rules
on withdrawal of deposits appear:
4. Withdrawals must be made by the depositor personally but in some
exceptional circumstances, the Bank may allow withdrawal by another
upon the depositor's written authority duly authenticated; and neither
a deposit nor a withdrawal will be permitted except upon the
presentation of the depositor's savings passbook, in which the amount
deposited withdrawn shall be entered only by the Bank.
5. Withdrawals may be made by draft, mail or telegraphic transfer in
currency of the account at the request of the depositor in writing on
the withdrawal slip or by authenticated cable. Such request must
indicate the name of the payee/s, amount and the place where the
funds are to be paid. Any stamp, transmission and other charges
related to such withdrawals shall be for the account of the depositor
and shall be paid by him/her upon demand. Withdrawals may also be
made in the form of travellers checks and in pesos. Withdrawals in the
form of notes/bills are allowed subject however, to their (availability).
6. Deposits shall not be subject to withdrawal by check, and may be
withdrawal only in the manner above provided, upon presentation of
the depositor's savings passbook and with the withdrawal form
supplied by the Bank at the counter.19
Under these rules, to be able to withdraw from the savings account deposit
under the Philippine foreign currency deposit system, two requisites must be
presented to petitioner bank by the person withdrawing an amount: (a) a duly
filled-up withdrawal slip, and (b) the depositor's passbook. Private respondent
admits he signed a blank withdrawal slip ostensibly in violation of Rule No. 6
requiring that the request for withdrawal must name the payee, the amount to
be withdrawn and the place where such withdrawal should be made. That the
withdrawal slip was in fact a blank one with only private respondent's two
signatures affixed on the proper spaces is buttressed by petitioner's allegation
in the instant petition that had private respondent indicated therein the person
authorized to receive the money, then Ruben Gayon, Jr. could not have
withdrawn any amount. Petitioner contends that "(I)n failing to do so (i.e.,
naming his authorized agent), he practically authorized any possessor thereof
to write any amount and to collect the same."20
Such contention would have been valid if not for the fact that the withdrawal
slip itself indicates a special instruction that the amount is payable to "Ramon
A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioner's
personnel should have been duly warned that Gayon, who was also employed
in petitioner's Buendia Ave. Extension branch,21 was not the proper payee of
the proceeds of the check. Otherwise, either Ramon or Agnes de Guzman
should have issued another authority to Gayon for such withdrawal. Of course,
at the dorsal side of the withdrawal slip is an "authority to withdraw" naming
Gayon the person who can withdraw the amount indicated in the check. Private
respondent does not deny having signed such authority. However, considering
petitioner's clear admission that the withdrawal slip was a blank one except for
private respondent's signature, the unavoidable conclusion is that the
typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it
was signed by Gayon or whoever was allowed by petitioner to withdraw the
amount. Under these facts, there could not have been a principal-agent
relationship between private respondent and Gayon so as to render the former
liable for the amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states: "This
receipt must be signed and presented with the corresponding foreign currency
savings passbook by the depositor in person. For withdrawals thru a
representative, depositor should accomplish the authority at the back." The
requirement of presentation of the passbook when withdrawing an amount
cannot be given mere lip service even though the person making the
withdrawal is authorized by the depositor to do so. This is clear from Rule No.
6 set out by petitioner so that, for the protection of the bank's interest and as a
reminder to the depositor, the withdrawal shall be entered in the depositor's
passbook. The fact that private respondent's passbook was not presented
during the withdrawal is evidenced by the entries therein showing that the last
transaction that he made with the bank was on September 3, 1984, the date
he deposited the controversial check in the amount of $2,500.00.22
In allowing the withdrawal, petitioner likewise overlooked another rule that is
printed in the passbook. Thus:
2. All deposits will be received as current funds and will be repaid in
the same manner; provided, however, that deposits of drafts, checks,
money orders, etc. will be accented as subject to collection only and
credited to the account only upon receipt of the notice of final payment.
Collection charges by the Bank's foreign correspondent in effecting
such collection shall be for the account of the depositor. If the account
has sufficient balance, the collection shall be debited by the Bank
against the account. If, for any reason, the proceeds of the deposited
 checks, drafts, money orders, etc., cannot be collected or if the Bank
is required to return such proceeds, the provisional entry therefor
made by the Bank in the savings passbook and its records shall be
deemed automatically cancelled regardless of the time that has
elapsed, and whether or not the defective items can be returned to the
depositor; and the Bank is hereby authorized to execute immediately
the necessary corrections, amendments or changes in its record, as
well as on the savings passbook at the first opportunity to reflect such
cancellation. (Emphasis and underlining supplied.)
As correctly held by the Court of Appeals, in depositing the check in his name,
private respondent did not become the outright owner of the amount stated
therein. Under the above rule, by depositing the check with petitioner, private
respondent was, in a way, merely designating petitioner as the collecting bank.
This is in consonance with the rule that a negotiable instrument, such as a
check, whether a manager's check or ordinary check, is not legal tender. 23 As
such, after receiving the deposit, under its own rules, petitioner shall credit the
amount in private respondent's account or infuse value thereon only after the
drawee bank shall have paid the amount of the check or the check has been
cleared for deposit. Again, this is in accordance with ordinary banking practices
and with this Court's pronouncement that "the collecting bank or last endorser
generally suffers the loss because has the 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 endorsements."24 The
rule finds more meaning in this case where the check involved is drawn on a
foreign bank and therefore collection is more difficult than when the drawee
bank is a local one even though the check in question is a manager's check.25
In Banco Atlantico v. Auditor General,26 Banco Atlantico, a commercial bank
in Madrid, Spain, paid the amounts represented in three (3) checks to Virginia
Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did
so without previously clearing the checks with the drawee bank, the Philippine
National Bank in New York, on account of the "special treatment" that Boncan
received from the personnel of Banco Atlantico's foreign department. The
Court held that the encashment of the checks without prior clearance is
"contrary to normal or ordinary banking practice specially so where the drawee
bank is a foreign bank and the amounts involved were large." Accordingly, the
Court approved the Auditor General's denial of Banco Atlantico's claim for
payment of the value of the checks that was withdrawn by Boncan.
Said ruling brings to light the fact that the banking business is affected with
public interest. By the nature of its functions, a bank is under obligation to treat
the accounts of its depositors "with meticulous care, always having in mind the
fiduciary nature of their relationship."27 As such, in dealing with its depositors,
a bank should exercise its functions not only with the diligence of a good father
of a family but it should do so with the highest degree of care.28
In the case at bar, petitioner, in allowing the withdrawal of private respondent's
deposit, failed to exercise the diligence of a good father of a family. In total
disregard of its own rules, petitioner's personnel negligently handled private
respondent's account to petitioner's detriment. As this Court once said on this
matter:
Negligence is the 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. The seventy-eight (78)-year-old, yet
still relevant, case of Picart v. Smith, provides that test by which to
determine the existence of negligence in a particular case which may
be stated as follows: Did the defendant in doing the alleged negligent
act use that reasonable care and caution which an ordinarily prudent
person would have used in the same situation? If not, then he is guilty
of negligence. The law here in effect adopts the standard supposed to
be supplied by the imaginary conduct of the discreetpater-familias of
the Roman law. The existence of negligence in a given case is not
determined by reference to the personal judgment of the actor in the
situation before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that.29
Petitioner violated its own rules by allowing the withdrawal of an amount that
is definitely over and above the aggregate amount of private respondent's
dollar deposits that had yet to be cleared. The bank's ledger on private
respondent's account shows that before he deposited $2,500.00, private
respondent had a balance of only $750.00.30 Upon private respondent's
deposit of $2,500.00 on September 3, 1984, that amount was credited in his
ledger as a deposit resulting in the corresponding total balance of
$3,250.00.31 On September 10, 1984, the amount of $600.00 and the
additional charges of $10.00 were indicated therein as withdrawn thereby
leaving a balance $2,640.00. On September 30, 1984, an interest of $11.59
was reflected in the ledger and on October 23, 1984, the amount of $2,541.67
was entered as withdrawn with a balance of $109.92.32 On November 19, 1984
the word "hold" was written beside the balance of $109.92. 33 That must have
been the time when Reyes, petitioner's branch manager, was informed
unofficially of the fact that the check deposited was a counterfeit, but
petitioner's Buendia Ave. Extension Branch received a copy of the
communication thereon from Wells Fargo Bank International in New York the
following day, November 20, 1984.34 According to Reyes, Wells Fargo Bank
International handled the clearing of checks drawn against U.S. banks that
were deposited with petitioner.35
From these facts on record, it is at once apparent that petitioner's personnel
allowed the withdrawal of an amount bigger than the original deposit of
$750.00 and the value of the check deposited in the amount of $2,500.00
although they had not yet received notice from the clearing bank in the United
States on whether or not the check was funded. Reyes' contention that after
the lapse of the 35-day period the amount of a deposited check could be
withdrawn even in the absence of a clearance thereon, otherwise it could take
a long time before a depositor could make a withdrawal,36 is untenable. Said
practice amounts to a disregard of the clearance requirement of the banking
system.
While it is true that private respondent's having signed a blank withdrawal slip
set in motion the events that resulted in the withdrawal and encashment of the
counterfeit check, the negligence of petitioner's personnel was the proximate
cause of the loss that petitioner sustained. Proximate cause, which is
determined by a mixed consideration of logic, common sense, policy and
precedent, 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."37 The proximate cause of the
withdrawal and eventual loss of the amount of $2,500.00 on petitioner's part
was its personnel's negligence in allowing such withdrawal in disregard of its
own rules and the clearing requirement in the banking system. In so doing,
petitioner assumed the risk of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer the resulting
damage.1wphi1.nt
WHEREFORE, the petition for review on certiorari is DENIED. The Decision
of the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED.
G.R. No. L-7271 August 30, 1957
PHILIPPINE NATIONAL BANK, plaintiff-appellant,
vs.
JOSE ZULUETA, defendant-appellee.
Natalio M. Balboa and Ramon B. de los Reyes for appellant.
Lorenzo F. Miravite for appellee.
BENGZON, J.:
In the Manila court of first instance, the Philippine National Bank sued the
defendant upon a letter of credit and a draft for the amount of $14,449.15.
Although willing to pay the equivalent in pesos of the draft, plus bank charges,
the defendant objected to the 17% excise tax imposed by Republic Act No.
601 which the Bank tried to collect. Both documents, he contended, had been
issued and had matured before the approval of said Act, therefore the excise
tax should not be charged.
After the trial, the court rendered judgment exempting defendant from the 17%
excise tax; but ordered him to deliver to plaintiff the sum of P37,622.11 plus
daily interest of P3.9938 on P29,154.55 beginning from January 9, 1953.
The plaintiff appealed, insisting on the right to collect 17% excise or exchange
tax. This is the only issue between the parties now.
For a statement of the facts we may quote from plaintiff's brief. "On October
26, 1948, Defendant-Appellee applied for a commercial letter of credit with
Plaintiff-Appellant, Philippine National Bank (Manila) and was granted L/C No.
35171 (Exhibit "B") on November 6, 1948, in favor of Otis Elevator Co., 260
Eleventh Avenue, New York City, U.S.A., for $14,449.15 for the purchase of
an electric passenger elevator; on May 17, 1949, and under the said letter of
credit (Exhibit "B"), Otis Elevator Co. drew a 90 day sight draft for $14,449.15
(Exhibit "A") which draft was duly presented to and accepted by Defendant-
Appellee on July 6, 1949. Said acceptance matured on October 4, 1949. Upon
Defendant-Appellee's signing a 90 day trust receipt (Exhibit "C") on June 3,
1949, Plaintiff-Appellant released to Defendant-Appellee the covering
documents of the shipment. In the meantime, debit advice (Exhibit "G") was
received from Plaintiff-Appellant's New York Agency to the effect that it
advanced or paid the draft (Exhibit "A") to Otis Elevator Co. on May 17, 1949,
and charged Plaintiff-Appellant the sum of $14,467.21 representing the face
value of the draft (Exhibit "A") plus $18.06 as 1/8 of 1% commission. After the
maturity date (October 4, 1949) Plaintiff-Appellant presented the draft to
Defendant-Appellee for payment but the latter failed, neglected and refused to
pay.
During its special session in January, 1951, Congress passed House Bill No.
1513, now Republic Act No. 601, approved on March 28, 1951, imposing a
17% special excise tax (otherwise known as foreign exchange tax) on the
value in Philippine peso of foreign exchange sold by the Central Bank of the
Philippines or its authorized agents. Plaintiff-appellant, as any other
commercial bank in the Philippines, is an authorized agent of the Central Bank
of the Philippines.
On October 17, 1952, and January 18, 1953, Plaintiff-Appellant sent bills or
statements of collection (Exhibits "D" and "D-1") to Defendant-Appellee but the
latter failed and refused to effect payment thereof. In those statements, the
sum of P4,955.74 was included representing the 17% special excise tax on
the peso value of the draft for US $14,449.15 (Exhibit "A"), . . . .
Defendant's application for a letter of credit party read as follows:
 Please arrange by cable for the establishment of an Irrevocable Letter
of Credit on New York in favor of Otis Elevator Co., 260 Eleventh
Avenue, New York City for account of Ho. Jose C. Zulueta for the sum
of FOURTEEN THOUSAND FOUR HUNDRED FORTY-NINE AND
15/100 ($14,449.15) DOLLARS against drawn at NINETY DAYS
accompanied by shipping documents covering of One COMPLETE
ELECTRIC PASSENGER ELEVATOR . . .
Drafts must be drawn and presented or negotiated not later than May
31, 1949.
IN CONSIDERATION THEREOF, I/we promise and agree to pay you
at maturity in Philippine Currency, the equivalent of the above amount
or such portion thereof as may be drawn or paid upon the faith of said
credit, together with your usual charges, and I/we authorize you and
your respective correspondents to pay or to accept drafts under this
credit, . . .
And the draft issued thereunder (Exhibit A) was negotiable and addressed to
herein defendant as the drawee.
From plaintiff's statement of its position it is not clear whether recovery is
demanded upon the letter of credit, or upon the draft Exhibit A. Plaintiff may,
undoubtedly, proceed on either cause of action. (See Art. 571 Code of
Commerce; Sec. 51 Negotiable Instruments Law.)
Had the plaintiff elected to recover on said letter of credit, then it would meet
with the doctrines in Araneta vs. Philippine National Bank, 95 Phil., 160, 50
Off. Gaz., (11) 5350), According to the majority opinion in that case, plaintiff
should receive the equivalent in pesos, on May 17, 1949, of what the New York
Agency paid to Otis Elevator, i.e. $14,467.21 (plus bank fees of course.)
According to the minority opinion, the equivalent in pesos of the same amount
of dollars on October 4, 1949. No. 17% tax on both dates. In converting dollars
into pesos, no 17% exchange tax would be imposable, since it was created
only in March 1951. The plaintiff knows the case, for it was a party to it; and
anticipating, in this appeal, the obvious conclusions, it insists not so much on
the letter of credit, as on the bill of exchange Exhibit A1 . As stated before, such
draft was drawn by Otis Elevator Co. in New York. It was addressed to
defendant as drawee, who is due course accepted it. There is no, question that
upon accepting it, defendant became a party primarily liable2; and the holder
(Philippine National Bank) may sue him, even if there had been no
presentation for payment on the day of maturity. (Sec. 70 Negotiable
Instruments Law.)
Admittedly, defendant's responsibility is for $14,449.15 due in Manila on
October 4, 1949 (plus bank fees). He is under obligation to deliver such amount
in pesos as were the equivalent of $14,449.15. At what rate of exchange? The
rate prevailing on the day of issuance, day of acceptance, day of maturity, the
day suit is filed, or that prevailing on the day judgment is rendered requiring
him to pay? Herein lies the center of the controversy. Appellant will win this
appeal only if the rate on the last days above mentioned is held to be the legal
rate.
The document is negotiable and is governed by the Negotiable Instruments
Law. But this statute does not certain any express provision on the question.
We know the draft is a foreign bill of exchange, because, drawn in New York,
it is payable here. (See. 129 Negotiable Instruments Law.) We also know that
although the amount payable is expressed in dollars not current money here
it is still negotiable, for it may be discharged with pesos of equivalent
amount3. The problem arises when we try to determine the "equivalent
amount", because the rate of exchange fluctuates from day to day.
There are decisions in America to the effect that, "the rate of exchange in effect
at the time the bill should have been paid" controls. (11 C.J.S. p. 264.)
Such decisions agree with the provisions of the Bills of Exchange Act of
England4 and could be taken as enunciating the correct principle, inasmuch as
our Negotiable Instruments Law, practically copied the American Uniform
Negotiable Instruments Law which in turn was based largely on the Bills of
Exchange Act of England of 1882. In fact we practically followed this rule
in Westminster Bank vs. K. Nassor, 58 Phil. 855.
There is one decision applying the rate of exchange at the time judgment is
entered. (11 C. J. S. p.264.)5
This decision however seems not to have taken into account the Bills of
Exchange Act above mentioned. And we have rejected its view in the
Westminster case, supra. Furthermore it related to a bill expressly
made payable in a foreign currency which is not the case here. And the
theory would probably produce undesirable effects upon commercial
documents, for it would make the amount uncertain, the parties to the bill not
being able to foresee the day judgment would be rendered.6
But the appellant argues, the defendant had promised to pay $14,419.15 in
dollars; therefore he must be ordered to pay the sum in dollars at current
rates plus 17%.
The argument rests on a wrong premise. Defendant had not promised to pay in
dollars. He agreed to pay the equivalent of $14,419.15 dollars, in Philippine
currency 7.
But if we admit that defendant had agreed to pay in dollars, then we have to
apply Republic Act No. 529 and say that his obligation "shall be discharged in
Philippine currency measured at the prevailing rates of exchange at the time
the obligation was incurred."
Now then, Zulueta's obligation having been incurred 8 before the creation of the
17% tax, it may not be validly burdened with such tax, because the law
imposing it could not be deemed to have impaired obligations already existing
at the time of its approval..
The plaintiff's theory seems to be that in remitting dollars to its New York
Agency, after it collects from the defendant, it has to pay for the said excise
tax.9 The trial judge expressed the belief that such amount had been
remitted before the enactment of Republic Act 601, because considering the
practice of banks of replenishing their agencies abroad with necessary funds,
he deemed it improbable that the Manila Office of the Bank in two years had
not reimburse its New York Agency for the amount advanced on account of
the draft Exhibit A. This belief most probably accorded with reality; because as
early as May 17, 1949 (Exhibit G) the New York Agency had "charged" the
amount of this draft against the account of the Manila office there, which
means the Agency had reimbursed itself the amount of the draft out of the
funds of the Manila Office then in its possession (in New York) or coming to its
possession afterwards. And it is unbelievable that in two years the Manila
office never had in New York sufficient funds to effect the reimbursement.
In fact, the statement of account rendered by plaintiff to defendant on October
17, 1952, (Exhibit D) enumerated these charges:
Other charges 3.00
From the above it may be deduced that the amount of the draft had
been remitted or paid to the New York Agency in May 1949, for the reason that
Zulueta is charged with remitter's commission" and 5% interest on the amount
of the draft (and such commission) beginning from May 17, 1949. This
necessarily impllies that in accordance with Exhibit G, the New York Agency
had been reimbursed of the draft's amount (or such amount was remitted) on
May 17, 1949.10 Now, in May 1949 no 17% exchange tax was payable upon
such remittance; and the Manila office did not pay it. Therefore Zulueta should
not pay it too.
In view of the foregoing the judgment will be affirmed, with costs against
appellant. So ordered.
JAI-ALAI CORPORATION OF THE PHILIPPINES, Petitioner, v. BANK OF
THE PHILIPPINE ISLAND, Respondent.
CASTRO, J.:
This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter
referred to as the petitioner) for review of the decision of the Court of Appeals
in C.A.-G.R. 34042-R dated June 25, 1968 in favor of the Bank of the Philippine
Islands (hereinafter referred to as the respondent).
From April 2, 1959 to May 18, 1959, ten checks with a total face value of
P8,030.58 were deposited by the petitioner in its current account with the
respondent bank. The particulars of these checks are as follows:
1. Drawn by the Delta Engineering Service upon the Pacific Banking
Corporation and payable to the Inter-Island Gas Service Inc. or order:

To your acceptance amounting to $14,449.15 Date Check Exhibit

Plus: Remitter's Commission 18.06
$14,567.21 Deposited Number Amount Number
Converted at 3/4 % P29,151.43
4/2/59 B-352680 P500.00 18
5% int. 5/17/49-10/19/52-1251 4,995.68
da. 4/20/59 A-156907 372.32 19
P34,147.11
10% comm. on $14,449.15 2,911.51 4/24/59 A-156924 397.82 20
Documentary stamps 8.70
5/4/59 B-364764 250.00 23
Air Mail 2.00
17% Excise Tax on P29,151.43 4,955.74 5/6/59 B-364775 250.00 24
 Garcia, and advised the latter that in view of the circumstances he would debit
2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation the value of the checks against the petitioner's account as soon as they were
and payable to the Inter-Island Gas Service, Inc. or bearer: returned by the respective drawee-banks.

4/13/59 B-335063 P 2108.70 21 Meanwhile, the drawers of the checks, having been notified of the forgeries,
demanded reimbursement to their respective accounts from the drawee-
4/27/59 B-335072 P2210.94 22 banks, which in turn demanded from the respondent, as collecting bank, the
return of the amounts they had paid on account thereof. When the drawee-
3. Drawn by the Luzon Tinsmith & Company upon the China Banking banks returned the checks to the respondent, the latter paid their value which
Corporation and payable to the Inter-Island Gas Service, Inc. or bearer: the former in turn paid to the Inter-Island Gas. The respondent, for its part,
debited the petitioner's current account and forwarded to the latter the checks
5/18/59 VN430188 P940.80 25 containing the forged indorsements, which the petitioner, however, refused to
accept.
4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank
and payable to the Inter-Island Gas Service, Inc. order: On October 8, 1959 the petitioner drew against its current account with the
respondent a check for P135,000 payable to the order of the Mariano Olondriz
5/14/59 1860160 P 500.00 26 y Cia. in payment of certain shares of stock. The check was, however,
dishonored by the respondent as its records showed that as of October 8, 1959
5/18/59 1860660 P 500.00 27 the current account of the petitioner, after netting out the value of the checks
P8,030.58) with the forged indorsements, had a balance of only P128,257.65.
All the foregoing checks, which were acquired by the petitioner from one
Antonio J. Ramirez, a sales agent of the Inter-Island Gas and a regular bettor The petitioner then filed a complaint against the respondent with the Court of
at jai-alai games, were, upon deposit, temporarily credited to the petitioner's First Instance of Manila, which was however dismissed by the trial court after
account in accordance with the clause printed on the deposit slips issued by due trial, and as well by the Court of Appeals, on appeal.
the respondent and which reads:
Hence, the present recourse.
"Any credit allowed the depositor on the books of the Bank for checks or drafts
hereby received for deposit, is provisional only, until such time as the proceeds The issues posed by the petitioner in the instant petition may be briefly stated
thereof, in current funds or solvent credits, shall have been actually received as follows:
by the Bank and the latter reserves to itself the right to charge back the item
to the account of its depositor, at any time before that event, regardless of (a) Whether the respondent had the right to debit the petitioner's current
whether or not the item itself can be returned." account in the amount corresponding to the total value of the checks in
question after more than three months had elapsed from the date their value
About the latter part of July 1959, after Ramirez had resigned from the Inter- was credited to the petitioner's account:(b) Whether the respondent is
Island Gas and after the checks had been submitted to inter-bank clearing, the estopped from claiming that the amount of P8,030.58, representing the total
Inter-Island Gas discovered that all the indorsements made on the checks value of the checks with the forged indorsements, had not been properly
purportedly by its cashiers, Santiago Amplayo and Vicenta Mucor (who were credited to the petitioner's account, since the same had already been paid by
merely authorized to deposit checks issued payable to the said company) as the drawee-banks and received in due course by the respondent; and(c) On
well as the rubber stamp impression thereon reading "Inter-Island Gas the assumption that the respondent had improperly debited the petitioner's
Service, Inc.," were forgeries. In due time, the Inter-Island Gas advised the current account, whether the latter is entitled to damages.
petitioner, the respondent, the drawers and the drawee-banks of the said
checks about the forgeries, and filed a criminal complaint against Ramirez with These three issues interlock and will be resolved jointly.
the Office of the City Fiscal of Manila. 1
In our opinion, the respondent acted within legal bounds when it debited the
The respondent's cashier, Ramon Sarthou, upon receipt of the latter of Inter- petitioner's account. When the petitioner deposited the checks with the
Island Gas dated August 31, 1959, called up the petitioner's cashier, Manuel respondent, the nature of the relationship created at that stage was one of
agency, that is, the bank was to collect from the drawees of the checks the
corresponding proceeds. It is true that the respondent had already collected
the proceeds of the checks when it debited the petitioner's account, so that
following the rule in Gullas vs. Philippine National Bank 2 it might be argued
that the relationship between the parties had become that of creditor and
debtor as to preclude the respondent from using the petitioner's funds to make
payments not authorized by the latter. It is our view nonetheless that no
creditor-debtor relationship was created between the parties.
Section 23 of the Negotiable Instruments Law (Act 2031) states that 3
"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."
Since under the foregoing provision, a forged signature in a negotiable
instrument 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 the forgery, it stands to reason, upon the facts of
record, that the respondent, as a collecting bank which indorsed the checks to
the drawee-banks for clearing, should be liable to the latter for reimbursement,
for, as found by the court a quo and by the appellate court, the indorsements
on the checks had been forged prior to their delivery to the petitioner. In legal
contemplation, therefore, the payments made by the drawee-banks to the
respondent on account of the said checks were ineffective; and, such being
the case, the relationship of creditor and debtor between the petitioner and the
respondent had not been validly effected, the checks not having been properly
and legitimately converted into cash. 4 fact that they are bearer checks and at the same time crossed checks should
In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5 the Court
ruled that it is the obligation of the collecting bank to reimburse the drawee-
bank the value of the checks subsequently found to contain the forged
indorsement of the payee. The reason is that the bank with which the check
was deposited has no right to pay the sum stated therein to the forger "or
anyone else upon a forged signature." "It was its duty to know," said the Court,
"that [the payee's] endorsement was genuine before cashing the check." The
petitioner must in turn shoulder the loss of the amounts which the respondent;
as its collecting agent, had to reimburse to the drawee-banks.
We do not consider material for the purposes of the case at bar that more than
three months had elapsed since the proceeds of the checks in question were
collected by the respondent. The record shows that the respondent had acted
promptly after being informed that the indorsements on the checks were
forged. Moreover, having received the checks merely for collection and
deposit, the respondent cannot he expected to know or ascertain the
genuineness of all prior indorsements on the said checks. Indeed, having itself
indorsed them to the respondent in accordance with the rules and practices of
commercial banks, of which the Court takes due cognizance, the petitioner is
deemed to have given the warranty prescribed in Section 66 of the Negotiable
Instruments Law that every single one of those checks "is genuine and in all
respects what it purports to be.".
The petitioner was, moreover, grossly recreant in accepting the checks in
question from Ramirez. It could not have escaped the attention of the petitioner
that the payee of all the checks was a corporation the Inter-Island Gas
Service, Inc. Yet, the petitioner cashed these checks to a mere individual who
was admittedly a habitue at its jai-alai games without making any inquiry as to
his authority to exchange checks belonging to the payee-corporation. In Insular
Drug Co. vs. National 6 the Court made the pronouncement that.
". . . The right of an agent to indorse commercial paper is a very responsible
power and will not be lightly inferred. A salesman with authority to collect
money belonging to his principal does not have the implied authority to indorse
checks received in payment. Any person taking checks made payable to a
corporation, which can act only by agents, does so at his peril, and must abide
by the consequences if the agent who indorses the same is without authority."
(underscoring supplied)
It must be noted further that three of the checks in question are crossed
checks, namely, exhs. 21, 25 and 27, which may only be deposited, but not
encashed; yet, the petitioner negligently accepted them for cash. That two of
the crossed checks, namely, exhs. 21 and 25, are bearer instruments would
not, in our view, exculpate the petitioner from liability with respect to them. The
have aroused the petitioner's suspicion as to the title of Ramirez over them
and his authority to cash them (apparently to purchase jai-alai tickets from the
petitioner), it appearing on their face that a corporate entity the Inter Island
Gas Service, Inc. was the payee thereof and Ramirez delivered the said
checks to the petitioner ostensibly on the strength of the payee's cashiers'
indorsements.
At all events, under Section 67 of the Negotiable Instruments Law, "Where a
person places his indorsement on an instrument negotiable by delivery he
incurs all the liability of an indorser," and under Section 66 of the same statute
a general indorser warrants that the instrument "is genuine and in all respects
what it purports to be." Considering that the petitioner indorsed the said checks
when it deposited them with the respondent, the petitioner as an indorser
guaranteed the genuineness of all prior indorsements thereon. The
respondent which relied upon the petitioner's warranty should not be held liable
for the resulting loss. This conclusion applied similarly to exh. 22 which is an
uncrossed bearer instrument, for under Section 65 of the Negotiable
Instrument Law. "Every person negotiating an instrument by delivery . . .
warrants (a) That the instrument is genuine and in all respects what it purports
to be." Under that same section this warranty "extends in favor of no holder
other than the immediate transferee," which, in the case at bar, would be the
respondent.

The provision in the deposit slip issued by the respondent which stipulates that
it "reserves to itself the right to charge back the item to the account of its
depositor," at any time before "current funds or solvent credits shall have been
actually received by the Bank," would not materially affect the conclusion we
have reached. That stipulation prescribes that there must be an actual receipt
by the bank of current funds or solvent credits; but as we have earlier indicated
the transfer by the drawee-banks of funds to the respondent on account of the
checks in question was ineffectual because made under the mistaken and
valid assumption that the indorsements of the payee thereon were genuine.
Under article 2154 of the New Civil Code "If something is received when there
is no right to demand it and it was unduly delivered through mistake, the
obligation to return it arises." There was, therefore, in contemplation of law, no
valid payment of money made by the drawee-banks to the respondent on
account of the questioned checks.

ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at

petitioner's cost.

Makasiar, Esguerra, Muoz Palma and Martin, JJ., concur.