Gempesaw vs.

Court of Appeals
G.R. No. 92244, February 9, 1993
FACTS
Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery
stores located in Caloocan City. To facilitate payment of debts to her suppliers, petitioner
draws checks against her checking account with the Philippine Bank of
Communications (private respondent) as drawee. As a customary practice, her checks
were filled up as to all material particulars by her bookkeeper, Alicia Galang. After the
bookkeeper prepared the checks, it will be submitted to petitioner for her signature
together with the corresponding invoice receipts which indicate the correct obligations
due and payable to her suppliers. Petitioner signed each and every check without
verifying the accuracy of the checks against the corresponding invoices because she
reposed full and implicit trust and confidence on her bookkeeper. Following her usual
practice, a total of eighty-two (82) checks were issued in favor of several suppliers. This
check was presented by the indorsees as holders thereof, and was honored by the
respondent drawee. Respondent drawee bank debited the amounts against petitioners
checking account. Records revealed that most of the checks were for amounts in
excess of her actual obligations to the various payees as shown in their corresponding
invoices. It was only after the lapse of more than two (2) years that petitioner found out
the manipulations of her bookkeeper.
As it turned out, eighty-two (82) checks with forged signatures of the payees
were brought to Ernest L. Boon, Chief Accountant of respondent drawee bank at the
Buendia Branch, who, without authority therefor, accepted them all for deposit to the
credit and accounts of Alfredo Y. Romero and Benito Lam. Under the rule of respondent
drawee bank, only a Branch Manager and no other official may accept a second
indorsement on a check for deposit. In the case at bar, all deposit slips of the eighty-two
(82) checks in question were initiated and approved for deposit by Ernest L. Boon, the
Chief Accountant. Respondent drawee bank failed to discover the unauthorized acts of
Ernest L. Boon.
About 30 of the payees whose names were specially written on the checks
testified that they did not receive the subject checks and that the indorsements
appearing at the back of the checks were not theirs. On November 7, 1984, petitioner
made a written demand on respondent drawee bank to credit her account with the
money value of eighty-two (82) checks totaling P1,208,606.89 for having been
wrongfully charged against her account. The respondent drawee bank refused to grant
the petitioners demand.
On January 23, 1985, petitioner filed the complaint with the Regional Trial Court
of Caloocan City for recovery of money value of eighty-two (82) checks on the ground
that the payees indorsements were forged. The trial court dismissed the complaint.

On appeal, The Court of Appeals affirmed the decision of the Regional Trial Court
on grounds that the petitioners gross negligence in issuing the checks was the
proximate cause of the loss and assuming that the bank was also negligent, the loss
must be borne by the party whose negligence was the proximate cause of the loss.
Hence, this instant petition.
ISSUE
Whether the negligence of the drawer is the proximate cause of the resulting
injury to the drawee bank, and the drawer is precluded from setting the defense of
forgery or want of authority.
RULING
In resolving the issue, the Supreme Court held that it is a general rule that a
drawee bank who had paid the check on which an indorsement had been forged cannot
charge the drawers account for the amount of said check. However, an exception to
said rule is where the drawer is guilty of such negligence which causes the bank to
honor such a check. The negligence of a depositor which will prevent recovery of an
unauthorized payment is based on failure of the depositor to act as a prudent person
would under the circumstances. But, although a depositor owes duty to his drawee bank
to examine his cancelled checks for forgery of his own signature, he has no similar duty
as to forged indorsements.
In the performance of its obligation, the drawee bank is bound by its internal
banking rules and regulations which form part of any contract in enters into with any of
its depositors. When it violated its internal rules that second indorsements are not to be
accepted without the approval by its Branch Managers and it shall not accept the same
upon the mere approval of their Chief Accountant, it contravened the tenor of its
obligation at the very least, if it were not actually guilty of fraud or negligence. For this,
the Supreme Court held that there is no way they can allow the drawee bank to escape
the liability for such negligence. Premises considered, respondent drawee bank is
adjudged liable to share the loss with the petitioner on a fifty-fifty ratio in accordance
with Article 1172 of the Civil Code of the Philippines which provides that responsibility
arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts.
Thus, the fact that petitioners negligence was found to be the proximate cause of
her loss does not preclude her from recovering
damages.
The case is REMANDED to the trial court for the reception of evidence to
determine the exact amount of loss suffered by the petitioner.

Negotiable Instruments Law

PNB vs. Rodriguez (G.R. No. 170325 September 26, 2008)
Facts: Respondent spouses were engaged in the informal lending business. They had
discounting arrangement with Philnabank Employees Savings and Loan Association
(PEMSLA).
PEMSLA regularly granted loan to its members. Spouses Rodriguez would rediscount
the postdated checks issued to members whenever the association was short of funds.
As was customary spouses would replace the postdated checks with their own checks
issued in the name of the members.
Some PEMSLA officers devised a scheme to obtain additional loan despite their
outstanding loan accounts. They took out loans in the names of unknowing members,
without the knowledge and consent of the latter.
The PEMSLA checks issued for these loans were given to the spouses for
rediscounting, in return the spouses issued their personal checks in the names of the
members and delivered the checks to an officer of PEMSLA. PEMSLA checks on the
other hand were deposited by the spouses to their account.
Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings
account without indorsement from the payees.
Petitioner eventually found out about these fraudulent acts. PNB closed the current
accounts of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were
returned or dishonored for the reason account closed. Thus, spouses incurred losses
from the rediscounting transactions.
Petitioner filed a civil complaint for damages against PEMSLA, and petitioner PNB.
After trial, the RTC rendered judgment in favor of spouses Rodriguez. PNB appealed to
the C.A.
The C.A. reversed and set aside the decision of the RTC. It ruled that the checks were
never meant to be paid to order, but instead, to PEMSLA. Upon motion of the spouses
for reconsideration, the C.A. reversed its decision and ruled that the checks were
payable to order.

Issue: whether the subject checks are payable to order or to bearer and who bears the
loss?
Held: An order instrument requires an indorsement from the payee or holder before I
may be validly negotiated. A bearer instrument is negotiable by mere delivery.
A check that is payable to a specified person is an order instrument. However, under
Sec. 9 of the NIL, a check payable to a specified payee may nevertheless be
considered as a bearer instrument if it is payable to order of a fictitious name on nonexisting person.
Considering that the respondent spouses were transacting with PEMSLA and not the
individual payees, it is determinable that they relied on the information given by the
officers of PEMSLA that the payees would be receiving the checks.
PNB failed to show that the payees were fictitious, thus the drawee bank bears the loss.