Westmont Bank (Formerly Associated Banking Corp.) vs. Eugene Ong GR No. 132560, January 30, 2002 Facts

AGUILAR, Krystalynne F.
(2D)
Westmont Bank (formerly Associated Banking Corp.) vs. Eugene Ong

GR No. 132560, January 30, 2002
Facts:
Respondent Eugene Ong maintained a current account with petitioner,

formerly the Associated Banking Corporation, now known as Westmont Bank. In
May of 1976, he sold certain shares of stock through the Island Securities
Corporation. In order to pay Ong, he purchased (2) Pacific Banking Corporation
manager’s checks issued, Ong being the payee thereof. However, before Ong could
be a holder thereof, his friend Paciano Tanlimco took them and forged Ong’s
signature and thereafter deposited them with the petitioner bank as depositor of
said checks. Petitioner Bank, though Ong’s signature was on file, nevertheless
accepted and credited both checks in the account of Tanlimco without verifying the
“signature indorsements” appearing on the back of the said checks. Tanlimco then
withdrew the money and absconded. Ong asked for the help of Tanlimco’s family
to recover the amount and went as far as reporting the incident to Central Bank. On
October 7, 1977, (5) months from the discovery of the fraud, Ong instituted a
complaint against petitioner bank demanding that they answer for the value of the
two checks which in their gross negligence, had resulted in his loss. The petitioner
bank countered in saying that there was no delivery of the said checks to Ong so he
never became a holder of such, therefore he had no cause of action against them.
RTC ruled in favor of the defendant, directing petitioner bank to pay
P1,754,787.50 representing the total face value of the two checks with interest of
(12%) per annum from October 7, 1977 (the date of the first extrajudicial demand)
until full payment. CA affirmed in toto the appealed decision.
Issue:
1
AGUILAR, Krystalynne F. (2D)
Whether or not the lower courts were correct in finding that the petitioner bank is
liable to respondent and that the latter may recover directly from them
Ruling:
The Supreme Court ruled in the affirmative. Citing Section 23 of the

Negotiable Instruments Law “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,” therefore the signature
of the payee that was forged is deemed wholly inoperative or ineffectual. Since the
collecting bank grossly erred in accepting and crediting said checks in the name of
Tanlimco notwithstanding the fact that they have Ong’s signature on file, it is only
proper that the respondent should therefore be allowed to collect from them. The
collecting bank is liable to the payee and must bear the loss because it is its legal
duty to ascertain that the payee’s endorsement was genuine before cashing the
check. As a general rule, a bank or corporation who has obtained possession of a
check upon an unauthorized or forged indorsement of the payee’s signature and
who collects the amount of the check from the drawee, is liable for the proceeds
thereof to the payee or other owner, notwithstanding that the amount has been paid
to the person from whom the check was obtained. The theory of the rule is that the
possession of the check on the forged or unauthorized indorsement is wrongful,
and when the money had been collected on the check, the bank or other person or
corporation can be held as for moneys had and received, and the proceeds are held
for the rightful owners who may recover them. The position of the bank taking the
check on the forged or unauthorized indorsement is the same as if it had taken the
2
check and collected the money without indorsement at all and the act of the bank
amounts to conversion of the check.
Associated Bank vs Court of Appeals

3
GR No. 89802, May 7, 1992

Facts:
Private respondent is engaged in a business of ready-to-wear garments under

firm name “Melissa’s RTW”. She deals with companies such as Robinson’s
Department Store, Payless Department Store, Rempson Department Store, and
Corona Bazaar. Said companies issued in payment of their respective accounts
crossed checks payable to said respondent. When she was to collect on what she
thought was unpaid accounts, she was informed that six crossed checks were
deposited with the Petitioner Bank and subsequently paid it to one Rafael Sayson,
in the words of its branch manager and co-petitioner Conrado Cruz “trusted
depositors.” Sayson, however, had not been authorized by the Private respondent
to deposit and encash the checks. Private respondent filed a complaint before the
RTC for recovery of total value of the checks plus damages. The RTC ruled in
favor of the private respondent and ordered petitioner to pay the total value of the
checks which is P15,805.00 plus interest, actual damages, exemplary damages,
attorney’s fees and costs of suit. CA affirmed RTC’s ruling stating that The
appellee had clearly shown that she had never authorized anyone to deposit the
said checks nor to encash the same; that the appellants had allowed all said checks
to be deposited, cleared and paid to one Rafael Sayson in violation of the
instructions in the said crossed checks that the same were for payee's account only;
and that the appellee maintained a savings account with the Prudential Bank,
Cubao Branch, Quezon City which never cleared the said checks and the appellee
had been damaged by such encashment of the same.
Issue:
Whether or not petitioner bank was negligent and therefore liable for the value of
the checks
4
Ruling:
The Court ruled in the affirmative. The possession of check on a forged or

unauthorized indorsement is wrongful, and when the money is collected on the
check, the bank can be held ‘for moneys had and received. The proceeds are held
for the rightful owner of the payment and may be recovered by him. The position
of the bank taking the check on the forged or unauthorized indorsement is the same
as if it had taken the check and collected without indorsement at all. The act of the
bank amounts t conversion of the check. When the bank paid the checks so
endorsed notwithstanding that title had not passed to the endorser, it did so at its
peril and became liable to the payee for the value of the checks. This liability
attached whether or not the Bank was aware of the unauthorized endorsement. It is
not disputed that the proceeds of the subject checks belonged to the private
respondent. As she had not at any time authorized Rafael Sayson to endorse or
encash them, there was conversion of the funds by the Bank. There being no
evidence that the crossed checks were actually received by the private respondent,
she would have a right of action against the drawer companies, which in turn could
go against their respective drawee banks, which in turn could sue the herein
petitioner as collecting bank. It was held that to simplify proceedings, the payee of
the illegally encashed checks should be allowed to recover directly from the bank
responsible for such encashment regardless of whether or not the checks were
actually delivered to the payee. Worth noting is the fact that before presenting the
checks for clearing and for payment, the Bank had stamped on the back thereof the
words: "All prior endorsements and/or lack of endorsements guaranteed," and thus
made the assurance that it had ascertained the genuineness of all prior
endorsements would thereby make them liable as last indorser.
5
Bank of the Philippine Islands vs Casa Montessori Internationale

GR No. 149454, May 28, 2004
Facts:
6
Plaintiff, Casa Montessori International opened a current account with

defendant BPI, with Casa’s President Ms. Carina C. Lebron as one of its
authorized signatories. After an investigation, plaintiff discovered that nine (9) of
its checks had been encashed by a certain Sonny D. Santos since 1990 in the total
amount of ₱782,000. Said name of ‘Sonny D. Santos, an account with BPI
Greenbelt Branch, turned out to be a fictitious name used by third party defendant
Leonardo T. Yabut, formerly the external auditor of CASA. Yabut admitted that he
forged the signature of Lebron and thereafter encashed the checks. After a
thorough examination on the said checks, it was found that the signature of Ms.
Lebron and the signature in that of the checks does not match. A complaint was
filed by the plaintiff for Collection of Damages against defendant bank. RTC ruled
in favor of the plaintiff, reinstating the amount of ₱782,500.007 in the current and
savings accounts of the plaintiff with interest at 6% per annum. CA modified said
decision by apportioning the loss between CASA and BPI, taking into account the
contributory negligence of CASA that resulted in the undetected forgery and so
ordered Leonardo T. Yabut to reimburse BPI half and CASA, the other half.
Issues:
1. Whether or not there is a forgery under the Negotiable Instruments Law

2. Who shall bear the loss
Ruling:
1. Yes. The Court did not find reason to disturb the findings of the lower court
for it is supported by substantial evidence. The RTC and the CA found that
there is indeed a forgery and this is supported by the affidavit which states
the voluntary admission of Yabut and this is further strengthened by the
findings of the PNP Crime Laboratory.
7
2. BPI was found to be negligent in its transaction as a banking institution. The

forged signatures are wholly inoperative, and CASA -- the drawer whose
authorized signatures do not appear on the negotiable instruments -- cannot
be held liable thereon. Neither is the latter precluded from setting up forgery
as a real defense. Banking business is impressed with public interest and so
is accorded highest degree of diligence and high standards of integrity and
performance. 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." Its contention that it has a
signature verification procedure when it honors checks cannot be upheld
when it failed to detect the forgeries in the 8 subsequent checks; It cannot
now feign ignorance, for very early on we have already ruled that a bank is
"bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds,
and cannot ordinarily charge the amount so paid to the account of the
depositor whose name was forged." For allowing payment on the checks to a
wrongful and fictitious payee, BPI -- the drawee bank -- becomes liable to
its depositor-drawer. Since the encashing bank is one of its branches, BPI
can easily go after it and hold it liable for reimbursement. It "may not debit
the drawer’s account and is not entitled to indemnification from the drawer."
Pursuant to its prime duty to ascertain well the genuineness of the signatures
of its client-depositors on checks being encashed, BPI is "expected to use
reasonable business prudence." In the performance of that obligation, it is
bound by its internal banking rules and regulations that form part of the
contract it enters into with its depositors. CASA is not found to be negligent
and so is not precluded from setting up the defense of forgery.
8
Ramon K. Ilusorio vs Court of Appeals

GR No. 139130, November 27, 2002
Facts:
9
Petitioner was the Managing Director of Multinational Investment

Bancorporation and the Chairman and/or President of several other corporations, a
depositor in good standing of respondent bank, the Manila Banking Corporation to
which he maintained a checking account. Petitioner entrusted to his Secretary,
Katherine E. Eugenio, his credit cards and checkbooks with blank checks, who also
verified and reconciled the statements of the said checking account. Between
September of 1980 to January of 1981, Eugenio was able to encash and deposit to
her personal account a total of about 17 checks which are drawn against the
account of petitioner at the respondent bank with an estimated total of
P119,634.34. Petitioner only knew of this incident upon the advice of his business
partner claiming that he saw Eugenio use his credit cards and so petitioner
immediately fired Eugenio and lodged a complaint against her for estafa thru
falsification before the Office of the Provincial Fiscal of Rizal. Private respondent,
through an affidavit executed by its employee, Mr. Dante Razon, also lodged a
complaint for estafa thru falsification of commercial documents against Eugenio
on the basis of petitioner’s statement that his signatures in the checks were forged.
Petitioner requested the respondent bank that the value of the checks be restored
however this was refused upon by the said bank. The lower court dismissed the
case finding no sufficient basis for the plaintiff’s cause against respondent bank,
CA affirmed the same.
Issue:
Whether or not the bank was negligent in receiving the check
Ruling:
The Court ruled in the negative, the burden to prove forgery was upon the
plaintiff, which burden he failed to discharge. Aside from his own testimony, the
10
appellant presented no other evidence to prove the fact of forgery. He did not even
submit his own specimen signatures, taken on or about the date of the questioned
checks, for examination and comparison with those of the subject checks.
Petitioner’s contention that respondent bank has been remiss in its duties cannot
also be upheld, the CA and the RTC found that Manila Bank employees exercised
due diligence in cashing the checks. The bank’s employees in the present case did
not have a hint as to Eugenio’s modus operandi because she was a regular
customer of the bank, having been designated by petitioner himself to transact in
his behalf. According to the appellate court, the employees of the bank exercised
due diligence in the performance of their duties. Although it is possible that the
verifiers of TMBC might have made a mistake in failing to detect any forgery -- if
indeed there was. However, a mistake is not equivalent to negligence if they were
honest mistakes. In the instant case, we believe and so hold that if there were
mistakes, the same were not deliberate, since the bank took all the precautions.
Petitioner’s failure to examine his bank statements appears as the proximate cause
of his own damage. Proximate cause 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.
Samsung Construction Company Philippines, Inc vs Far East Bank and Trust
Company and CA
11
GR No. 129015, August 13, 2004

Facts:
Plaintiff maintained a current account with the respondent bank at it’s Bel-
Air Makati Branch. The sole signatory to Samsung Construction’s account was
Jong Kyu Lee, its Project Manager, the checks on the other hand remained in the
custody of the company’s accountant, Kyu Yong Lee. On 1992, a certain Roberto
Gonzaga presented a FEBTC check which is payable to cash and drawn against the
Samsung current account in the amount of P999,500. After verifying if the account
has sufficient funds to cover the check, the bank teller thereafter compared the
signature on the check with the specimen signature of Jong as contained in the
specimen signature card with the bank. Satisfied, she then forwarded the check to
Senior Assistant Velez, it was bank policy that two bank officers approve checks
exceeding P100,000 for encashment. Syfu, another bank officer noticed that the
assistant accountant (Sempio) of petitioner company was also in the same bank,
she then told the same to the accountant who then vouched for the genuineness of
Jong’s signature and claimed that the funds shall be used for the purchase of
equipment of petitioner company. Satisfied, Syfu authorized the encashment. Upon
examination of the bank account, said encashment was found as well as the loss of
the last blank check. Jong went to the bank and claimed that his signature has been
forged however the Bank Manager assured him that he shall be reimbursed. Hence,
a criminal complaint for qualified theft was filed against Sempio. RTC adopted the
findings of the NBI expert and adjudged that there has been a forgery and
accordingly directed the bank to pay or credit back to Samsung Construction’s
account the amount of P999,500.00, together with interest tolled from the time the
complaint was filed, and attorney’s fees in the amount of P15,000. CA reversed
said decision finding that there are conflicting findings of the NBI and the PNP
12
created doubt as to whether there was forgery.17 Moreover, the appellate court
also held that assuming there was forgery, it occurred due to the negligence of
Samsung Construction, imputing blame on the accountant Kyu for lack of care and
prudence in keeping the checks, which if observed would have prevented Sempio
from gaining access thereto.
Issue:
Whether or not respondent bank is liable to reimburse for the payment of the
forged check
Ruling:
The Court ruled in the affirmative. The general rule is to the effect that a
forged signature is "wholly inoperative," and payment made "through or under
such signature" is ineffectual or does not discharge the instrument. If payment is
made, the drawee cannot charge it to the drawer’s account. The traditional
justification for the result is that the drawee is in a superior position to detect a
forgery because he has the maker’s signature and is expected to know and compare
it. The SC upheld the finding of the RTC since it was an intricate finding than that
of the CA. In this case, not only did the amount in the check nearly total one
million pesos, it was also payable to cash. That latter circumstance should have
aroused the suspicion of the bank, as it is not ordinary business practice for a check
for such large amount to be made payable to cash or to bearer, instead of to the
order of a specified person. Moreover, the check was presented for payment by one
Roberto Gonzaga, who was not designated as the payee of the check, and who did
not carry with him any written proof that he was authorized by Samsung
Construction to encash the check. Given the circumstances, extraordinary diligence
dictates that FEBTC should have ascertained from Jong personally that the
13
signature in the questionable check was his. Still, even if the bank performed with
utmost diligence, the drawer whose signature was forged may still recover from the
bank as long as he or she is not precluded from setting up the defense of forgery.
Philippine National Bank vs. F.F. Cruz and Co., Inc
14
GR No. 173259, July 25, 2011

Facts:
Respondent company, FFCCI for brevity, opened a savings/current or

combo account and a dollar savings account with petitioner bank. Respondent
company’s president, Felipe Cruz and Secretary-Treasurer, Angelita Cruz were
respectively the named signatories. Interchangeably, said signatories went to the
US on different dates, the latter following Cruz on a later date and returned ahead.
While they were out of the country, applications for cashier’s and manager’s
checks were presented and approved by PNB bearing the signature of Felipe. The
first amounted to ₱9,950,000, payable to one Gene Sangalang, the other for
₱3,260,500.31 payable to one Paul Bautista. Said amounts were debited against the
combo account of FFCCI. Upon returning, Angelita examined the statements of
account of FFCCI and noticed deductions. Claiming that these were unauthorized
and fraudulently, (FFCCI) and requested PNB to restore value of said checks to
which PNB refused and so this suit for damages against PNB and its own
accountant Aurea Caparas. RTC ruled that both FFCCI and PNB were negligent,
FFCI for clothing Caparas authority to make dispositions and decisions of its
account, PNB for failing to call or personally verify from the authorized signatories
further ordering PNB to pay plaintiff ₱13,210,500. CA affirmed with modification
that PNB shall pay FFCCI only 60% of the actual damages awarded by the lower
court.
Issue:
Whether or not the Court of Appeals seriously erred when it found PNB guilty of
negligence
Ruling:
15
The Court ruled in the negative, upholding the ruling of the CA. find no
reversible error in the findings of the appellate court that PNB was negligent in the
handling of FFCCI’s combo account, specifically, with respect to PNB’s failure to
detect the forgeries in the subject applications for manager’s check which could
have prevented the loss. As we have often ruled, the banking business is impressed
with public trust. A higher degree of diligence is imposed on banks relative to the
handling of their affairs than that of an ordinary business enterprise. Thus, the
degree of responsibility, care and trustworthiness expected of their officials and
employees is far greater than those of ordinary officers and employees in other
enterprises. In the case at bar, PNB failed to meet the high standard of diligence
required by the circumstances to prevent the fraud. where the bank’s negligence is
the proximate cause of the loss and the depositor is guilty of contributory
negligence, we allocated the damages between the bank and the depositor on a 60-
40 ratio. We apply the same ruling in this case considering that, as shown above,
PNB’s negligence is the proximate cause of the loss while the issue as to FFCCI’s
contributory negligence has been settled with finality in G.R. No. 173278. Thus,
the appellate court properly adjudged PNB to bear the greater part of the loss
consistent with these rulings.
16
PCI Bank vs. Balmaceda

GR No. 158143, September 21, 2011
Facts:
PCIB filed an action for recovery of sum of money with damages before the
RTC against Antonio Balmaceda, branch manager of its Sta. Cruz, Manila branch.
In the complaint, PCIB alleged that Balmaceda fraudulently obtained and encashed
31 Manager’s checks totaling ₱10,782,150. It then moved to file an amended
complaint impleading Rolando Ramos, a recipient of a portion of the proceeds
from the alleged fraud. PCIB increased the number of fraudulently obtained and
encashed Manager’s checks to 34 totaling to ₱11,937,150 which motion was
granted upon by the RTC. The RTC ruled in favor of PCIB. Ordered Balmaceda to
pay ₱11,042,150 with interest at a legal rate from date of misappropriation until
fully paid, Ramos to pay ₱895,000 with interest at a legal rate from date of
misappropriation until fully paid and the defendants to pay plaintiff moral damages
and attorney’s fees. RTC found that Balmaceda, taking undue advantage of his
position as branch manager, he successfully obtained and misappropriated the
bank’s funds by falsifying several commercial documents. The RTC concluded
that from the ₱11,937,150.00 that Balmaceda misappropriated from PCIB,
₱895,000.00 actually went to Ramos. Since the RTC disbelieved Ramos’
allegation that the sum of money deposited into his Savings Account (PCIB, Pasig
branch) were proceeds from the sale of fighting cocks, it held Ramos liable to pay
PCIB the amount of ₱895,000. The CA dismissed the complaint against Ramos
holding that there was no sufficient evidence to prove the collusion. the mere fact
that Balmaceda made Ramos the payee on some of the Manager’s checks is not
enough basis to conclude that Ramos was complicit in Balmaceda’s fraud. CA
17
also found that PCIB acted illegally in freezing and debiting ₱251,910.96 from
Ramos’ bank account. Appellee was ordered to release the amount of ₱251,910.96
to appellant Ramos.
Issue:
Whether or not Ramos, who received a portion of the money that Balmaceda took
from PCIB should also be held liable for the return of this money
Ruling:
The Court ruled in the negative. PCIB was proven to be negligent from the
fact that it allowed Balmaceda to encash the Manager’s checks that were plainly
crossed checks. Under the Negotiable Instruments Law; A crossed check is one
where two parallel lines are drawn across its face or across its corner. Based on
jurisprudence, the crossing of checks has the following effects;(a) the check may
not be encashed but only deposited in the bank; (b) the check may be negotiated
only once — to the one who has an account with the bank; and (c) the act of
crossing the check serves as a warning to the holder that the check has been issued
for a definite purpose and he must inquire if he received the check pursuant to this
purpose; otherwise, he is not a holder in due course. The crossing of a check is a
warning that the check should be deposited only in the account of the payee. When
a check is crossed, it is the duty of the collecting bank to ascertain that the check is
only deposited to the payee’s account. In complete disregard of this duty, PCIB’s
systems allowed Balmaceda to encash 26 Manager’s checks which were all crossed
checks, or checks payable to the "payee’s account only. "Petition was Partially
Granted in favor of Ramos. On the part of PCIB, awards for damages and
Attorney’s fees was modified and deleted pursuant to the provisions of Article 22
of the New Civil Code. Ramos cannot be held liable to PCIB on account of unjust
18
enrichment simply because he received payments out of money secured by fraud

from PCIB. To hold Ramos accountable, it is necessary to prove that he received
the money from Balmaceda, knowing that he (Ramos) was not entitled to it. PCIB
must also prove that Ramos, at the time that he received the money from
Balmaceda, knew that the money was acquired through fraud. Knowledge of the
fraud is the link between Ramos and PCIB that would obligate Ramos to return the
money based on the principle of unjust enrichment.
19
Metropolitan Waterworks and Sewerage System vs. Court of Appeals

GR No. L-62943, July 14, 1986
Facts:
Petitioner, MWSS for brevity, is a government-owned and controlled

corporation created by virtue of RA No. 6234. PNB is the depository bank of
MWSS and its predecessor-in-interest, NWSA. An account of NWSA with PNB
namely NWSA Account 6. The authorized signatory for said account were those of
MWSS treasurer Sanchez, auditor Aguilar, and its acting General Manager Recio.
Their respective specimen signatures were submitted by MWSS and on file with
PNB. By virtue of a special agreement, MWSS used personalized checks in
drawing from said account, the checks were printed by F. Mesina Enterprises. On
1969, 23 checks were prepared, processed, issued and released by NWSA, all were
paid and cleared by PNB thereby debiting against NWSA Account No. 6. During
the same months of March, April and May 1969, 23 checks bearing the same
numbers were likewise paid and cleared by PNB and debited against said account.
The foregoing checks were deposited by payees Raul Dizon, Arturo Sison and
Antonio Mendoza in their respective current accounts with the PCIB and PBC.
Through the CB Clearing, said checks were presented for payment by PBC and
PCIB to PNB. At the time of the presentation, the checks bear the standard
indorsement which reads 'all prior indorsement and/or lack of endorsement
guaranteed.' However, a subsequent investigation showed that said payees were
fictitious persons. NWSA filed against PNB before the CFI. PNB also filed a 3rd
party complaint against the negotiating banks PBC and PCIB on the ground that
they failed to ascertain the Identity of the payees and their title to the checks which
were deposited in the respective new accounts of the payees with them. CFI
favored MWSS. CA: reversed
20
Issue:
Whether or not MWSS can claim against PNB
Ruling:
The Court ruled in the negative. CA reversed. Every negotiable instrument is

deemed prima facie to have been issued for valuable consideration and every
person whose signature appears thereon to have become a party thereto for value.
A bank is bound to know the signatures of its customers; and if it pays a forged
check it must be considered as making the payment out of its obligation funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose
name was forged. NBI showed that the MWSS fraud was an "inside job" and that
the MWSS' delay in the reconciliation of bank statements and the laxity and loose
records control in the printing of its personalized checks facilitated the fraud.
These reports did not touch on the inherent qualities of the signatures which are
indispensable in the determination of the existence of forgery. There must be
conclusive findings that there is a variance in the inherent characteristics of the
signatures and that they were written by 2 or more different persons. There was
gross negligence in the printing of its personalized checks - MWSS failed to give
its printer, Mesina Enterprises, specific instructions relative to the safekeeping and
disposition of excess forms, check vouchers, and safety papers retrieve from its
printer all spoiled check forms provide any control regarding the paper used in the
printing of said checks furnish the respondent drawee bank with samples of
typewriting, cheek writing, and print used by its printer in the printing of its checks
and of the inks and pens used in signing the same send a representative to the
printing office during the printing of said checks to reconcile the bank statements
with its own records. MWSS requested the PNB to discontinue the practice of
mailing the bank statements, but instead to deliver it to Mr. Emiliano Zaporteza.
21
However, he was unreasonably delayed in taking prompt deliveries of the bank

statements and credit and debit memos. As a consequence, Mr. Zaporteza failed to
reconcile the bank statements. If Mr. Zaporteza had not been remiss in his duty of
taking the bank statements and reconciling them with the petitioner's records, the
fraudulent encashments of the first checks should have been discovered, and
further frauds prevented. This negligence was, therefore, the proximate cause of
the failure to discover the fraud. Had the NAWASA representative come to the
PNB early for the statements and had the bank been advised promptly of the
reported bogus check, the negotiation of practically all of the remaining checks on
May, 1969 could have been prevented. The records likewise show that the
petitioner failed to provide appropriate security measures over its own records
thereby laying confidential records open to unauthorized persons. The petitioner's
own Fact Finding Committee, in its report submitted to their General manager
underscored this laxity of records control. It observed that the "office of Mr.
Ongtengco (Cashier No. VI of the Treasury Department at the NAWASA) is quite
open to any person known to him or his staff members and that the check writer is
merely on top of his table Even if the 23 checks in question are considered
forgeries, considering the petitioner's gross negligence, it is barred from setting up
the defense of forgery under Section 23 of the Negotiable Instruments Law PNB
had taken the necessary measures in the detection of forged checks and the
prevention of their fraudulent encashment. In fact, long before the encashment of
the 23 checks in question, the it had issued constant reminders to all Current
Account Bookkeepers informing them of the activities of forgery syndicates.
Under the circumstances, MWSS was in a better position to detect and prevent the
fraudulent encashment of its checks.
22
Associated Bank vs Court of Appeals, Province of Tarlac and Philippine

National Bank
GR No. 107612, January 31, 1996
Facts:
The provincial funds of the Province of Tarlac are deposited in their current
account with the Philippine National Bank, Tarlac Branch. Checks issued by the
province are signed by the Provincial Treasurer and countersigned by the
Provincial Auditor or the Secretary of the Sangguniang Bayan. An allocation was
made to the Concepcion Emergency Hospital, allotment checks are drawn to the
order of said hospital. The checks are released by the Office of the Provincial
Treasurer and received by the hospital’s administrative officer and cashier. In
1981, it was discovered that the hospital did not receive several allotment checks.
After verification, the Provincial Treasurer found that 30 checks amounting to
P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank
acting as collecting bank. Pangilinan was the hospital’s former administrative
officer and cashier of payee hospital. He claimed that such encashment was
corollary with his duty of assisting the hospital follow up the release of the checks
and had official receipts. As he were to encash the first check with the petitioner
bank, he was refused and was told to deposit the check instead in his personal
savings account with the same bank, he withdrew said funds thereafter. Following
the procedure in the encashment of the first check, he forged the signature of Dr.
Adena Canlas, chief of the payee hospital. He did the same as to the subsequent 28
checks. All the checks bore the stamp of Associated Bank which reads "All prior
endorsements guaranteed Associated Bank." Pangilinan made it appear that the
23
checks were paid to him for certain projects with the hospital so the forgery went
undetected. The Provincial Treasurer then wrote to PNB and asked for the
restoration of the various amounts, the PNB in turn, asked for reimbursement with
the collecting bank. Since both banks refused payment, bore this suit by the
Province of Tarlac against PNB which, in turn, impleaded Associated Bank as
third-party defendant. The latter then filed a fourth-party complaint against Adena
Canlas and Fausto Pangilinan. The lower court’s ruling was disposed as follows:
1. On the basic complaint, in favor of the the plaintiff, ordering PNB to pay to
the Province of Tarlac, the sum of (P203,300.00) Pesos with legal interest
thereon from March 20, 1981 until fully paid
2. On the third-party complaint, in favor of defendant/third-party plaintiff
Philippine National Bank (PNB) and against third-party defendant/fourth-
party plaintiff Associated Bank ordering the latter to reimburse to the former
the amount of (P203,300.00) Pesos with legal interests thereon from March
20, 1981 until fully paid
3. On the fourth-party complaint, ordered dismissed for lack of cause of action
as against fourth-party defendant Adena Canlas and lack of jurisdiction over
the person of fourth-party defendant Fausto Pangilinan.
4. On the counterclaims on the complaint, third-party complaint and fourth-
party complaint, the dismissed for lack of merit.
The CA affirmed such decision of the RTC and so this petition against the assailed
decision.
Issue:
Whether or not Petitioner Bank should bear the loss of the forged document
Ruling:
24
The infirmity lies in the payee's indorsements which are forgeries. At the
time of their indorsement, the checks were order instruments. Checks having
forged indorsements should be differentiated from forged checks or checks bearing
the forged signature of the drawer. The exception to the general rule in Section 23
is where "a party against whom it is sought to enforce a right is precluded from
setting up the forgery or want of authority." Parties who warrant or admit the
genuineness of the signature in question and those who, by their acts, silence or
negligence are estopped from setting up the defense of forgery, are precluded from
using this defense. Indorsers, persons negotiating by delivery and acceptors are
warrantors of the genuineness of the signatures on the instrument. In a bearer
instrument, indorsement is not necessary--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 a holder in due course.
PNB is not negligent as it is not required to return the check to the collecting
bank within 24 hours as the banks involved are covered by Central Bank Circular
580 and not the rules of the Philippine Clearing House. Associated Bank, and not
PNB, is the one duty-bound to warrant the instrument as genuine, valid and
subsisting at the time of indorsement pursuant to Section 66 of the Negotiable
Instruments Law. The stamp guaranteeing prior indorsement is not an empty
rubric; the collecting bank is held accountable for checks deposited by its
customers. However, due to the fact that the Province of Tarlac is equally negligent
in permitting Pangilinan to collect the checks when he was no longer connected
with the hospital, it shares the burden of loss from the checks bearing a forged
indorsement. Therefore, the Province can only recover 50% of the amount from the
25
drawee bank (PNB), and the collecting bank (Associated Bank) is liable to PNB
for 50% of the same amount.
Philippine National Bank vs Hon. Romulo S. Quimpo

GR No. L-53194, March 14, 1998
Facts:
Francisco Gozon II, a depositor of the Caloocan City Branch of PNB, went
to the bank using his car and was accompanied by his friend, Ernesto Santos. He
went in and transacted business with the bank however Santos was left and saw
that Gozon’s checkbook was left behind. He then took a check therefrom and filled
it up for the amount of P5,000, forged the signature of Gozon and thereafter
encashing it on the same day to which was debited from the account of Gozon.
Gozon was now seeking for the restoration of the value of the check to the
petitioner bank to which petitioner bank refused and so this criminal complaint by
private respondent. Santos was apprehended and upon inverstigation, he admitted
stealing the check, forging the signature of Gozon and thereafter encashing the
same with the bank. Gozon filed the complaint for recovery of the amount of
P5,000.00, plus interest, damages, attorney's fees and costs against the bank. CFI
ruled in favor of Gozon.
Issue:
Whether or not Gozon, in putting his checkbook containing the check in question
into the hands of Santos was a proximate cause of loss thereby precluding him
from setting up the defense of forgery or want of authority
26
Ruling:
The prime duty of a bank is to ascertain the genuineness of the signature of

the drawer or the depositor on the check being encashed. It is expected to use
reasonable business prudence in accepting and cashing a check presented to it. In
this case the findings of facts of the court a quo are conclusive. The trial court
found that a comparison of the signature on the forged check and the sample
signatures of private respondent show marked differences as the graceful lines in
the sample signature which is completely different from those of the signature on
the forged check which is consistent with the NBI handwriting expert’s finding.
Obviously, petitioner was negligent in encashing said forged check without
carefully examining the signature which shows marked variation from the genuine
signature of private respondent. The act of plaintiff in leaving his checkbook in the
car while he went out for a short while cannot be considered negligence sufficient
to excuse the defendant bank from its own negligence.
27
San Carlos Milling Co., LTD vs BPI and China Banking Corp
GR No. 37467, December 11, 1933
Facts:
Plaintiff corporation is organized under the laws of Hawaii and is authorized

to engage business in the Philippine Islands, Manila being the place of their main
office. Said business was in the hands of Alfred D. Cooper, its agent under general
power of attorney with authority of substitution. Joseph L. Wilson, a principal
employee in the Manila office was also given the same power but without authority
of substitution. Cooper gave Newland Baldwin general power of attorney and
revoked power of Wilson relative to dealings with BPI wherein plaintiff
maintained a deposit. Wilson, conspiring with one Alfredo Dolores, sent a
cablegram to the company in Honolulu requesting a telegraphic transfer to CBC of
Manila $100,000. Money was then transferred by cable and upon receipt, the CBC
a bank also in which plaintiff maintained a deposit sent an exchange contract to
plaintiff offering P201,000. The manager’s check payable to San Carlos Milling or
order was receipted for by Dolores. The endorsement to which the name of
Baldwin was affixed was forged. BPI credited to the current account said sum and
passed through clearing, where it was paid by CBC. It was deposited with the BPI
having a fake endorsement. San Carlos had frequently withdrawn currency for
shipment to its mill but never in so large an amount, and never under the sole
28
supervision of Dolores Before delivering the money, the bank asked Dolores for P1
to cover the cost of packing the money, and he left the bank and shortly afterwards
returned with another check for P1, purporting to be signed by Newland Baldwin
the crime was discovered and San Carlos filed against the BPI and China Bank
(after amendment complaint) China Bank: as the prior endorsement had in law
been guaranteed by the BPI, they are absolved even if the endorsement of Newland
Baldwin on the check was a forgery. BPI: guilty of no negligence, loss was due to
the dishonesty of San Carlos employees and the negligence of San Carlos general
agent. RTC: BPI in GF and San Carlos could not recover
Issue:
Whether or not BPI was bound to inspect the checks and shall therefore be liable in
case of forgery
Ruling:
The Court ruled in the affirmative. Judgment absolving the Bank of the
Philippine Islands must therefore be reversed duty was upon the BPI, and the
China Banking Corporation was not bound to inspect and verify all endorsements
of the check, even if some of them were also those of depositors in that bank. A
bank is bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose
name was forged. Under section 23 of the Negotiable Instruments Law they are not
a charge against San Carlos nor are the checks of any value to the BPI. Proximate
cause of loss was due to the negligence of the Bank of the Philippine Islands in
honoring and cashing the two forged checks.
29
Bank of America NT and SA vs. Philippine Racing Club

GR No. 150228, July 30, 2009
Facts:
Plaintiff-appellee PRCI is a domestic corporation which maintains several

accounts with different banks in the Metro Manila area, among said accounts was a
current account with defendant-appellant bank. The authorized joint signatories
were PRCI’s President Antonia Reyes and Vice President for Finance, Gregorio
Reyes. When the signatories were scheduled to go out of the country for business-
related matters, they pre-signed several checks to not disrupt operations and ensure
continuity by making available cash to settle obligations that might become due,
covering the time of their absence. The checks were entrusted to the accountant,
that he uses it when there is already the need to make use of the same, he would
then prepare a corresponding voucher and thereafter complete the entries on the
pre-signed checks. On December 16, 1988, a John Doe presented to the defendant-
appellant bank for encashment a couple of said corporation’s checks with an
indicated value of P110,000 each. Those two checks were among the pre-signed
authorized signatures. The 2 checks had similar entries but bore similar
infirmities. Despite said infirmities, defendant-appellant bank encashed said checks
without any verification whatsoever. After an investigation, it was found that there
was no transaction involving PRCI with the payment of P220,000. The checks
have come into the hands of Clarita Mesina, an employee who completed the
30
entries on the pre-signed checks without authority. RTC ruled in favor of plaintiff
and ordered defendant to pay the value the check with legal interest, attorney’s
fees, costs of suit. CA denied the petitioner’s MR, holding that petitioner was
liable.
Issue:
Whether or not the appellate court’s denial is proper
Ruling:
The Court ruled in the affirmative. Although not in the strict sense "material
alterations," the misplacement of the typewritten entries for the payee and the
amount on the same blank and the repetition of the amount using a check writer
were glaringly obvious irregularities on the face of the check. Clearly, someone
made a mistake in filling up the checks and the repetition of the entries was
possibly an attempt to rectify the mistake. Also, if the check had been filled up by
the person who customarily accomplishes the checks of respondent, it should have
occurred to petitioner's employees that it would be unlikely such mistakes would
be made. All these circumstances should have alerted the bank to the possibility
that the holder or the person who is attempting to encash the checks did not have
proper title to the checks or did not have authority to fill up and encash the same.
As noted by the CA, petitioner could have made a simple phone call to its client to
clarify the irregularities and the loss to respondent due to the encashment of the
stolen checks would have been prevented. Although respondent’s practice of pre-
signing blank checks could be deemed a seriously negligent behavior,
Nevertheless, even if we assume that both parties were guilty of negligent acts that
led to the loss, petitioner will still emerge as the party foremost liable in this case.
In instances where both parties are at fault, this Court has consistently applied the
31
doctrine of last clear chance in order to assign liability. Following established

jurisprudential precedents, we believe the allocation of sixty percent (60%) of the
actual damages involved in this case (represented by the amount of the checks with
legal interest) to petitioner is proper under the premises. Respondent should, in
light of its contributory negligence, bear forty percent (40%) of its own loss.
Analysis
Before delving into the comparative analysis of the cases above-stated, it is

imperative to cite section 23 of the Negotiable Instruments Law to set a legal
standard in determining the differences regarding its applicability to said cases.
Section 23 states,
Forged signature; effect of. When a signature is forged or is made without

authority of the person whose signature it purports to be, it is wholly inoperative
and no right to retain the instrument, or to give 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 sought to be enforced such right is
precluded from setting up the defense of forgery or want of authority.
Thus, a forged signature, whether it be that of the drawer, the maker, the
payee or any other party, is wholly inoperative and no one can gain title to the
instrument through such forged signature against parties prior to the forgery. A
person whose signature was forged was never a party and never consented to the
contract, which gave rise to the instrument. However, a person alleging such
forgery has the burden of proving it. Forgery cannot be presumed; it must be
established by clear and convincing evidence.
32
In the words of Timoteo B. Aquino, however, it can be gleaned from the

provision the exception to the general rule which goes, “..where a party against
whom it sought to be enforced such right is precluded from setting up the defense
of forgery or want of authority. The persons it refers to are the following:
1. Parties who warrant or admit the genuineness of the signature in question

2. Those who, by their acts, silence, or negligence are estopped from setting up
the defense of forgery. These include acts or omissions that amount to
ratification, express or implied
Those under enumeration 1 are those indorsers, persons negotiating by delivery,

and acceptors are warrantors of the genuineness of certain signatures on the
instrument. With respect to negligence, a drawer who can otherwise recover from
the drawee may be barred from doing so because of its negligence or may have to
suffer reduction of the amount because if his (drawer’s) negligence.
These enumerations were apparent in the several cases above-stated. Liability

attaches to the person who is found to be negligent or the person who warrants the
genuineness of the indorsements. In the case of Westmont Bank vs Eugene Ong,
the collecting bank bore the liability for it warranted the signature indorsements as
genuine even though it has Tanlimco’s signature on file. The collecting bank is
liable to the payee and must bear the loss because it is its legal duty to ascertain
that the payee’s endorsement was genuine before cashing the check. As a general
rule, a bank or corporation who has obtained possession of a check upon an
unauthorized or forged indorsement of the payee’s signature and who collects the
amount of the check from the drawee, is liable for the proceeds thereof to the
payee or other owner, notwithstanding that the amount has been paid to the person
from whom the check was obtained. The act of taking of a check on the forged or
unauthorized indorsement is the same as if it had taken the check and collected the
33
money without indorsement at all and the act of the bank amounts to conversion of
the check. Verification of the signature indorsements is a vital obligation on the
part of the collecting bank, failure to do so would mean attachment of liability.
Similarly, with the case of Associated Bank vs CA, the drawer may directly
proceed against the collecting bank in this case for such bank is responsible for the
encashment of the check regardless of the delivery to the payee. It was held that,
“to simplify proceedings, the payee of the illegally encashed checks should be
allowed to recover directly from the bank responsible for such encashment
regardless of whether or not the checks were actually delivered to the payee. Worth
noting is the fact that before presenting the checks for clearing and for payment,
the Bank had stamped on the back thereof the words: "All prior endorsements
and/or lack of endorsements guaranteed," and thus made the assurance that it had
ascertained the genuineness of all prior endorsements would thereby make them
liable as last indorser.” Being the last indorser, it warranted the genuineness of the
indorsements on the said check. “The act of the bank amounts t conversion of the
check. When the bank paid the checks so endorsed notwithstanding that title had
not passed to the endorser, it did so at its peril and became liable to the payee for
the value of the checks. This liability attached whether or not the Bank was aware
of the unauthorized endorsement.” In contrast, the collecting bank will not bear
any liability absent any showing of negligence. In the case of San Carlos Milling
Co., LTD vs BPI and China Banking Corp, China Bank cannot be held liable for it
is the drawee bank who was negligent in its affairs. “China Banking Corporation
was not bound to inspect and verify all endorsements of the check, even if some of
them were also those of depositors in that bank. A bank is bound to know the
signatures of its customers; and if it pays a forged check, it must be considered as
making the payment out of its own funds, and cannot ordinarily charge the amount
so paid to the account of the depositor whose name was forged.”
34
On account of negligence, the case of Associated Bank vs CA and Province of

Tarlac, the liability were born equally by the petitioner and PNB for they were
found to be equally negligent in their transactions. The payee can collect from the
drawee bank who is charged with the responsibility of knowing the drawer’s
signature who in turn can collect reimbursement from the collecting bank. In cases
involving checks with forged indorsements, the chain of liability does not end with
the drawee bank, it may pass liability through collection claim to the party who
took from the forger and to the forger, himself if available. Associated Bank as the
collecting bank which indorsed the checks shall be liable to PNB, drawee bank for
the checks bearing forged indorsements. The Court has consistently ruled that “the
collecting bank or last endorser generally suffers the loss because it has 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 its genuineness. Collecting
bank is made liable because it is privy to the depositor who negotiated the check.
Still on the concept of negligence of both parties, Philippine National Bank vs. F.F.
Cruz and Co., Inc holds a similar situation. It is PNB’s failure to detect the
forgeries in the subject applications for manager’s check which could have
prevented the loss and so makes it liable. As we have often ruled, the banking
business is impressed with public trust. A higher degree of diligence is imposed on
banks relative to the handling of their affairs than that of an ordinary business
enterprise. Thus, the degree of responsibility, care and trustworthiness expected of
their officials and employees is far greater than those of ordinary officers and
employees in other enterprises. In the case at bar, PNB failed to meet the high
standard of diligence required by the circumstances to prevent the fraud. where the
bank’s negligence is the proximate cause of the loss and the depositor is guilty of
contributory negligence, we allocated the damages between the bank and the
35
depositor on a 60-40 ratio. We apply the same ruling in this case considering that,
as shown above, PNB’s negligence is the proximate cause of the loss while the
issue as to FFCCI’s contributory negligence has been settled with finality in G.R.
No. 173278.A 60:40 ratio has been adopted by the Court since PNB should bear
greater liability for it could have prevented the loss. In a similar footing, Bank of
America NT and SA vs. Philippine Racing Club, the Court stated, “As noted by the
CA, petitioner could have made a simple phone call to its client to clarify the
irregularities and the loss to respondent due to the encashment of the stolen checks
would have been prevented. Although respondent’s practice of pre-signing blank
checks could be deemed a seriously negligent behavior, Nevertheless, even if we
assume that both parties were guilty of negligent acts that led to the loss, petitioner
will still emerge as the party foremost liable in this case. In instances where both
parties are at fault, this Court has consistently applied the doctrine of last clear
chance in order to assign liability. Following established jurisprudential
precedents, we believe the allocation of sixty percent (60%) of the actual damages
involved in this case (represented by the amount of the checks with legal interest)
to petitioner is proper under the premises. Respondent should, in light of its
contributory negligence, bear forty percent (40%) of its own loss”. In these cases,
there is negligence on the part of the drawer/maker as well as on the part of the
drawee-bank and so both shall share the liability of the loss.
In the case of BPI vs Casa Montessori Internationale, liability is born by

BPI, the drawee-bank. BPI was found to be negligent for failure to detect the
subsequent 8 forged checks. “It cannot now feign ignorance, for very early on we
have already ruled that a bank is "bound to know the signatures of its customers;
and if it pays a forged check, it must be considered as making the payment out of
its own funds, and cannot ordinarily charge the amount so paid to the account of
36
the depositor whose name was forged." For allowing payment on the checks to a
wrongful and fictitious payee, BPI -- the drawee bank -- becomes liable to its
depositor-drawer.” When there is forgery, there is no right to discharge on the part
of the drawee bank. A drawee-bank is bound to know the signature of its client, the
drawer. BPI, having found to be remiss in failing to verify the genuineness of the
signature of Ms. Lebron, must bear the loss. As a banking institution, it must exert
extraordinary diligence in its dealings or transactions. Bridging the ruling of the
Supreme Court in Associated Bank vs CA, “In cases involving a forged check,
where the drawer’s signature is forged, the drawer can recover from the drawee
bank. No drawee bank has a right to pay a forged check. If it does, it shall have to
recredit the amount of the check to the account of the drawer. The same is
applicable in Samsung Construction Company Philippines vs Far East Bank and
Trust Company, respondent bank was likewise held to be liable, in this case, not
only did the amount in the check nearly total one million pesos, it was also payable
to cash. That latter circumstance should have aroused the suspicion of the bank, as
it is not ordinary business practice for a check for such large amount to be made
payable to cash or to bearer, instead of to the order of a specified person.
Moreover, the check was presented for payment by one Roberto Gonzaga, who
was not designated as the payee of the check, and who did not carry with him any
written proof that he was authorized by Samsung Construction to encash the check.
The drawee bank should therefore bear the loss absent any showing of contributory
negligence of that of the drawee. In the case of PCI Bank vs. Balmaceda, the
drawee-bank is likewise found to be negligent. “The crossing of a check is a
warning that the check should be deposited only in the account of the payee. When
a check is crossed, it is the duty of the collecting bank to ascertain that the check is
only deposited to the payee’s account. In complete disregard of this duty, PCIB’s
systems allowed Balmaceda to encash 26 Manager’s checks which were all crossed
37
checks, or checks payable to the "payee’s account only.” The determining factor of
Ramos’ liability was his knowledge of the fraud, absent any showing or evidence
that he was instrumental to the fraud, he shall bear no liability. Similarly In the
case of PNB vs Hon. Romulo S. Quimpo, the drawee bank bears the loss for the act
of plaintiff in leaving his checkbook in the car while he went out for a short while
cannot be considered negligence sufficient to excuse the defendant bank from its
own negligence. It is the primary duty of the drawee-bank to ascertain the
genuineness of its drawer’s signature therefore PNB, being the drawee-bank,
should bear the loss.
In comparison with Associated Bank vs CA and the Province of Tarlac
Associated Bank vs CA and Province BPI vs CASA Montessori

of Tarlac Internationale, Samsung Construction
vs FEBTC, PCI Bank vs. Balmaceda,
PNB vs Hon. Romulo S. Quimpo
“..the chain of liability does not end “The liability chain ends with the
with the drawee bank, it may pass drawee bank whose responsibility it is
liability through collection claim to the to know the drawer’s signature since
party who took from the forger and to the latter is its customer.”
the forger, himself if available.
Associated Bank as the collecting bank
which indorsed the checks shall be
liable to PNB, drawee bank for the
checks bearing forged indorsements.”
Ilusorio vs CA is a case when the drawer is negligent in his own dealings

which thereby subjects him to bear the liability of his loss. It has to be reiterated
38
that the burden of proving the forgery the burden to prove forgery was upon the
plaintiff, which burden he failed to discharge. Aside from his own testimony, the
appellant presented no other evidence to prove the fact of forgery. He did not even
submit his own specimen signatures, taken on or about the date of the questioned
checks, for examination and comparison with those of the subject checks. The
petitioner’s contention that the drawee-bank should bear the loss was found to be
unmeritorious since he has long been entering into transactions with the bank
through his Secretary which makes her an authorized representative. Petitioner’s
failure to examine his bank statements appears as the proximate cause of his own
damage. Proximate cause 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. Following the premise of the negligence
of the drawer, MWSS vs CA holds a similar ruling. The Court ruled that, “there
was gross negligence in the printing of its personalized checks - MWSS failed to
give its printer, Mesina Enterprises, specific instructions relative to the safekeeping
and disposition of excess forms, check vouchers, and safety papers retrieve from
its printer all spoiled check forms provide any control regarding the paper used in
the printing of said checks furnish the respondent drawee bank with samples of
typewriting, cheek writing, and print used by its printer in the printing of its checks
and of the inks and pens used in signing the same send a representative to the
printing office during the printing of said checks to reconcile the bank statements
with its own records. MWSS requested the PNB to discontinue the practice of
mailing the bank statements, but instead to deliver it to Mr. Emiliano Zaporteza.
However, he was unreasonably delayed in taking prompt deliveries of the bank
statements and credit and debit memos. As a consequence, Mr. Zaporteza failed to
reconcile the bank statements. If Mr. Zaporteza had not been remiss in his duty of
taking the bank statements and reconciling them with the petitioner's records, the
39
fraudulent encashments of the first checks should have been discovered, and
further frauds prevented. This negligence was, therefore, the proximate cause of
the failure to discover the fraud.” Due to the petitioner’s own negligence, (failing
to give proper security measures in its printer of its personalized checks) petitioner
is precluded from setting up the defense of forgery.
In a nutshell, the liability varies according to the degree of negligence

committed by any of the parties. The drawer, drawee-bank or the collecting bank
may be negligent in their affairs or transactions and that would make any or both of
them as in the case of a negligent drawer and a drawee-bank or a drawee-bank and
a collecting bank.
40
Travel-On Inc vs Court of Appeals and Arturo S. Miranda

GR No. L-56169, June 26, 1992
Facts:
Petitioner Company is a travel agency selling airline tickets on commission

basis for and in behalf of different airline companies to which Private respondent
had a revolving credit line therein, procuring tickets from petitioner on behalf of
airline passengers and deriving commissions therefrom. On 1972, Petitioner filed a
complaint with a prayer for the issuance of a writ of preliminary attachment and
attorney's fees before the CFI to collect 6 checks issued by private respondent with
a totaling P115,000. petitioner sold and delivered various airline tickets to
respondent at a total price of P278,201.57. Private respondent paid various
amounts in cash and in kind, and issued 6 postdated checks amounting to
P115,000, all dishonored by the drawee banks. However, private respondent made
another payment of P10,000 reducing his indebtedness to P105,000. The writ was
granted by the court a quo. The Private respondent averred that contrary to the
allegations of the petitioner company, he in fact has paid all his obligation and
even overpaid and is due for a refund and that it merely issued the checks for
purposes of accommodation further alleging that this is to show to the petitioner’s
board of directors that the account receivables were still good. RTC ruled in favor
of the Private respondent finding that private respondent's indebtedness to
41
petitioner was not satisfactorily established and said issuance of the 6 postdated
checks were merely for the purpose of accommodation, CA affirmed the same.
Issue:
Whether or not Miranda is liable
Ruling:
The Supreme Court ruled in the affirmative. It is important to stress that a

check which is regular on its face is deemed prima facie to have been issued for a
valuable consideration and every person whose signature appears thereon is
deemed to have become a party thereto for value. Thus, the mere introduction of
the instrument sued on in evidence prima facie entitles the plaintiff to recovery.
Further, the rule is quite settled that a negotiable instrument is presumed to have
been given or indorsed for a sufficient consideration unless otherwise contradicted
and overcome by other competent evidence. Reliance by the lower and appellate
court on the company’s financial statements were wrong, to see if Miranda was
liable or not. These financial statements were actually not updated to show that
there was indebtedness on the part of Miranda. The best evidence that the courts
should have looked at were the checks itself. There is a prima facie presumption
that a check was issued for valuable consideration and the provision puts the
burden upon the drawer to disprove this presumption. Miranda was unable to
relieve himself of this burden. Only clear and convincing evidence and not mere
self-serving evidence of drawer can rebut this presumption. The company was
entitled to the benefit conferred by the statutory provision. Miranda failed to show
that the checks weren’t issued for any valuable consideration. The checks were
clear by stating that the company was the payee and not a mere accommodated
party. Notice was given to the fact that the checks were issued after a written
42
demand by the company regarding Miranda’s unpaid liabilities. Also, the fact
alone that the various statements of account had variances in figures, simply did
not mean that private respondent had no more financial obligations to petitioner. It
must be stressed that private respondent's account with petitioner was a running or
open one, which explains the varying figures in each of the statements rendered as
of a given date.
Remigio S. Ong vs People of the Philippines and Court of Appeals

GR No. 139006, November 27, 2000
Facts:
Private complainant Marcial de Jesus and accused Remigio Ong are both
businessmen who are both suppliers of certain companies. On 1992, Ong
approached De Jesus and requested to be accommodated a loan of P130,000.00
which he needed to pay the 13th month pay of his employees to which De Jesus
complied with by the issuance of a Producer’s Bank check. In order to insure
payment, Ong issued a FEBTC check. Said FEBTC check was deposited by De
Jesus in his account at Producer’s Bank which was returned the following day for
it was drawn on insufficient funds. After which, De Jesus verbally notified Ong of
the bounced checks however this was unacted upon and so a written formal
demand was made. De Jesus filed a case against Ong for said failure of repayment.
RTC found Ong guilty beyond reasonable doubt for violation of Sec. 1 BP Blg. 22
CA dismissed the appeal for lack of merit and appealed lower court’s decision.
Issue:
Whether or not Ong was guilty of violation of BP Blg .22
Ruling:
43
The Court ruled in the affirmative. The contention of the petitioner that there was
no evidence that the Producers Bank check issued by private complainant in his
favor was ever encashed by him and so the subject check cannot be considered
drawn and issued "to apply on account or for value cannot be upheld." The trial
court as well as the CA clearly established the existence of the loan and the
subsequent encashment of the Producer’s Bank check. Petitioner’s argument that
the subject check was issued without consideration is inconsequential. The law
invariably declares the mere act of issuing a worthless check as malum prohibitum.
We quote with approval the appellate court’s findings on this matter: In actions
based upon a negotiable instrument, it is unnecessary to aver or prove
consideration, for consideration is imported and presumed from the fact that it is a
negotiable instrument. The presumption exists whether the words "value received"
appear on the instrument or not (Agbayani, A.F., Commentaries and Jurisprudence
on the Commercial Laws of the Philippines, 1989 Ed., Vol. 1, p. 227, Emphasis
supplied). Furthermore, such contention is also inconsequential in Batas Pambansa
Blg. 22.
44
Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Veloso,
Alfonso Co vs Court of Appeals and Philippine Bank Communications
GR No. 117913, February 1, 2002
Facts:
On 1979, Charles Lee, President of MICO wrote to respondent bank

requesting for a grant of a discounting loan/credit line in the sum P3,000,000.00 to
maintain and carry out their line or volume of business. On the same day, Lee
requested another P3M as discounting loan/credit line now for the purpose of
opening letters of credit and trust receipts. -Charles Lee, Chua Siok Suy, Mariano
Sio, Alfonso Yap and Richard Velasco, in their personal capacities executed a two
Surety Agreements in favor of PBCom whereby the petitioners jointly and
severally, guaranteed the prompt payment on due dates or at maturity of overdrafts,
promissory notes, discounts, drafts, letters of credit, bills of exchange, trust
receipts, and other obligations of every kind and nature, for which MICO may be
held accountable by PBCom. MICO furnished PBCom with a notarized
certification issued by its corporate secretary, Atty. P.B. Barrera, that Chua Siok
Suy was duly authorized by the Board of Directors to negotiate on behalf of MICO
for loans and other credit availments from PBCom. Several applications for
45
domestic as well as foreign letters of credit and availments of the credit line were
made by MICO. -Upon maturity of all credit availments obtained by MICO from
PBCom, the latter made a demand for payment. For failure of petitioner MICO to
pay the obligations incurred despite repeated demands, private PBCom
extrajudicially foreclosed MICO’s REM and sold the said mortgaged properties in
a public auction sale. PBCom then demanded the settlement of the aforesaid
obligations from sureties who, however, refused to acknowledge their obligations
to PBCom under the surety agreements. -Hence, PBCom filed a complaint with
prayer for writ of preliminary attachment before the RTC of Manila alleging that
MICO was no longer in operation and had no properties to answer for its
obligations. Petitioners denied having received the loans, and that, since no loan
was ever released or received by MICO, the corresponding real estate mortgage
and surety agreements signed concededly by MICO are null and void. RTC:
Dismissed the case in favor of MICO, ruling that PBcom failed to adequately
prove that the proceeds of the loan were ever delivered to MICO, no proof has
been adduced as to the existence of the goods covered and paid by the said
amounts. Hence, inasmuch as no consideration ever passed from Pbcom to MICO,
all the documents involved therein, such as the promissory notes, real estate
mortgage, including the suretyship agreements were all void for lack of cause or
consideration CA: The Court of Appeals reversed the ruling of the trial court,
saying that the latter committed an erroneous application and appreciation of the
rules governing the burden of proof. Citing Section 24 of the Negotiable
Instruments Law which provides that “Every negotiable instrument is deemed
prima facie to have been issued for valuable consideration and every person whose
signature appears thereon to have become a party thereto for value”, the Court of
Appeals said that while the subject promissory notes and letters of credit issued by
46
the PBCom made no mention of delivery of cash, it is presumed that said

negotiable instruments were issued for valuable consideration.
Issue:
Whether or not there is sufficient consideration with respect to the drafts issued in
connection with the Letters of Credit
Ruling:
The Court ruled in the affirmative. Although letters of Credit and trust
receipts are not negotiable instruments, drafts issued in connection with the letters
of credit are negotiable instruments. Hence, while the presumption of consideration
under the negotiable instruments law may not necessarily be applicable to trust
receipts and letters of credit, the presumption that the drafts drawn in connection
with the letter of credit have sufficient consideration apply. The drafts signed by
the beneficiary/suppliers in connection with the corresponding letters of credit
proved that said suppliers were paid by PBCom for the account of MICO. On the
other hand, aside from their bare denials petitioners did not present sufficient and
competent evidence to rebut the evidence of private respondent PBCom. Petitioner
MICO did not proffer a single piece of evidence, apart from its bare denials, to
support its allegation that the loan transactions, real estate mortgage, letters of
credit and trust receipts were issued allegedly without any consideration. Anent
petitioners-sureties contention that they obtained no consideration whatsoever on
the surety agreements, we need only point out that the consideration for the
sureties is the very consideration for the principal obligor, MICO, in the contracts
of loan.
47
Quirino Gonzales Logging vs Court of Appeals and Republic Planters Bank

GR No. 126568, April 30, 2003
Facts:
Quirino Logging applied for credit accommodations with Respondent Bank.

Bank approved, granting it a credit line of P900,000 broken in an overdraft line of
P500,000 which was later reduced to P450,000 and a Letter of Credit line of
P400,00. Pursuant to the grant, the bank and petitioners and spouses Quirino
executed 10 documents, 2 denominated as "Agreement for Credit in Current
Account,"4 "Application and Agreement for Commercial Letter of Credit," and 4
denominated "Trust Receipt." Said obligations were secured by a real estate
mortgage on 4 parcels of land. To secure certain advances, it executed a
promissory note in favor of the Bank and 3 more subsequently. In 1965, petitioners
long defaulted in the payment of their obligations under the credit line. The Bank
foreclosed the mortgage and bought properties covered thereby. The Bank filed a
complaint against petitioners for non-payment of the balance and promissory notes
despite repeated demands. The notes were payable 30 days after date and provided
for the solidary liability in their non-payment at maturity. Petitioners deny having
48
received the value of the promissory notes. RTC ruled in favor of the petitioner but
the CA reversed the decision.
Issue:
Whether or not the promissory notes were valid
RULING:
The Court ruled in the affirmative. The genuineness and due execution of the
notes had, however, been deemed admitted by petitioners, they having failed to
deny the same under oath. Their claim that they signed the notes in blank does not
thus lie. Petitioners' admission of the genuineness and due execution of the
promissory notes notwithstanding, they raise want of consideration thereof. The
promissory notes, however, appear to be negotiable as they meet the requirements
of Section 146 of the Negotiable Instruments Law. Such being the case, the notes
are prima facie deemed to have been issued for consideration. It bears noting that
no sufficient evidence was adduced by petitioners to show otherwise. In any case,
it is no defense that the promissory notes were signed in blank as Section 14 of the
Negotiable Instruments Law concedes the prima facie authority of the person in
possession of negotiable instruments, such as the notes herein, to fill in the blanks.
49
Engr. Jose E. Cayanan vs North Star International Travel, Inc

GR No. 172954, October 3, 2011
Facts:
Respondent Company is a travel agency while petitioner is the owner of a

recruitment agency. On 1994, the General Manager of North Star, in
accommodation and upon the instruction of the petitioner, sent the amount of
$40,000 to View Sea Ventures by telegraphic transfer, with $15,000 coming from
petitioner. North Star extended credit to petitioner totaling P510,035.47 with the
total amount of such indebtedness. To cover said indebtedness, petitioner issued 5
checks in which those with the amount of P1,500,000 and P35,000 were
dishonored for insufficiency of funds while 3 others were dishonored due to a stop
payment order from petitioner. North Star instituted a complaint for violation of
BP Blg. 22. MeTC found petitioner guilty. RTC acquitted petitioner of criminal
charges positing that the checks issued by the accused were presented beyond the
period of NINETY (90) DAYS and therefore, there is no violation of the provision
of Batas Pambansa Blg. 22 and the accused is not considered to have committed
the offense. There being no offense committed, accused is not criminally liable and
50
there would be no basis for the imposition of the civil liability arising from the
offense. CA reversed decision of the RTC insofar as the issue of civil liability.
Issue:
Whether or not the checks issued by Cayanan were for valuable consideration
Ruling:
The Court ruled in the affirmative, checks were issued for a valuable
consideration. Cayanan has not presented credible evidence to rebut resumption
that checks were issued for a valuable consideration. Contrary to petitioners claims
that North Star did not give any valuable consideration for the checks since the
US$85,000 was taken from the personal dollar account of Virginia and not the
corporate funds of North Star, the fact that petitioner himself specifically named
North Star as the payee of the checks is an admission of his liability to North Star
and not to Virginia Balagtas. it is highly inconceivable that an experienced
businessman like petitioner would issue various checks in sizeable amounts to a
payee if these are without consideration. Also, his defense that dollars sent to View
Sea in Nigeria was Virginia’s own investment could not hold as she only remitted
such money due to Cayanan’s request/ instructions – this he never denied. It was
him who had business transactions with View Sea and not Virginia. Transaction
between North Star and Cayanan was actually in the nature of a loan, and checks
were issued as payment of such hence there was no absence of consideration for
the issuance of checks.
51
Analysis
The above-stated cases are examples of negotiable instruments that are

issued for valuable consideration. Section 24 states that, “every negotiable
instrument is deemed prima facie to have been issued for valuable consideration;
and every person whose signature appears thereon to have become a party thereto
for value.” The onus of proving the absence of consideration is upon the party
alleging such. Section 25 states that, “Value is any consideration sufficient to
support a simple contract. An antecedent or pre-existing debt constitutes value; and
is deemed as such whether the instrument is payable on demand or at a future time.
A valuable consideration consists of either of rights, interest, profit or benefit
accruing to the party who makes the contract or some forbearance, detriment, loss
or some responsibility to act, or labor, or service given or suffered or undertaken
by the other party.
In the case of Quirino Gonzales Logging vs Court of Appeals and Republic

Planters Bank, the petitioner failed to prove that the promissory notes are not
negotiable. Their claim that they signed the notes in blank was not upheld. The
promissory notes were negotiable for they comply with the requirements of Section
52
146 of the NIL. Such being the case, the notes are prima facie deemed to have been
issued for consideration. Since there was no sufficient evidence adduced by
petitioners to show otherwise, they cannot claim that said notes were not
negotiable instruments for value. It is also of no defense that the promissory notes
were signed in blank for Section 14 of the Negotiable Instruments Law concedes
the prima facie authority of the person in possession of negotiable instruments,
such as the notes herein, to fill in the blanks. Absent any evidence of the absence
of consideration, Section 24 of the NIL will operate, that the negotiable instrument
is deemed prima facie to have been issued for valuable consideration, same goes to
the case of Engr. Jose E. Cayanan vs North Star International Travel, Inc, where
petitioner failed to prove the absence of consideration of the checks he issued.
Being the payee of said checks, he warranted himself to liability to North Star, not
its General Manager as he claims so. It was him who had business transactions
with View Sea and not Virginia.
However, in the case of Travel-On Inc vs Court of Appeals and Arturo S.

Miranda, the trial court erred in only taking into consideration the company’s
financial statements when the check itself is conclusive evidence of Miranda’s
indebtedness. There is a prima facie presumption that a check was issued for
valuable consideration and the provision puts the burden upon the drawer to
disprove this presumption. Miranda was unable to relieve himself of this burden.
Only clear and convincing evidence and not mere self-serving evidence of drawer
can rebut this presumption. The checks were clear by stating that the company was
the payee and not a mere accommodated party.
In the case of Remigio S. Ong vs People of the Philippines and Court of

Appeals, the contention of the petitioner is that there was no evidence that the
Producers Bank check issued by private complainant in his favor was ever
53
encashed by him and so the subject check cannot be considered drawn and issued
"to apply on account or for value cannot be upheld. The findings of the lower court
and the appellate court is accorded great respect for it has better standing to
ascertain the facts such as the establishment the existence of the loan and the
subsequent encashment of the Producer’s Bank check. The Court further stated
that, “in actions based upon a negotiable instrument, it is unnecessary to aver or
prove consideration, for consideration is imported and presumed from the fact that
it is a negotiable instrument. The presumption exists whether the words "value
received" appear on the instrument or not” in relation to Section 24 of the NIL. A
negotiable instrument is therefore deemed transferred for a valuable consideration
if it was transferred in consideration of the obligation of the transferee to give or
deliver a thing, or to perform a service. Lastly, in the case of Charles Lee, Chua
Siok Suy, Mariano Sio, Alfonso Yap, Richard Veloso, Alfonso Co vs Court of
Appeals and Philippine Bank Communications, although letters of credit and trust
receipts are not negotiable instruments, drafts issued in connection with the letters
of credit are negotiable instruments and so Section 24 is remains operative.
Ultimately, the petitioner failed to prove the absence of consideration, “aside from
their bare denials petitioners did not present sufficient and competent evidence to
rebut the evidence of private respondent PBCom. Petitioner MICO did not proffer
a single piece of evidence, apart from its bare denials, to support its allegation that
the loan transactions, real estate mortgage, letters of credit and trust receipts were
issued allegedly without any consideration.”
54

Westmont Bank (Formerly Associated Banking Corp.) vs. Eugene Ong GR No. 132560, January 30, 2002 Facts

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Westmont Bank (Formerly Associated Banking Corp.) vs. Eugene Ong GR No. 132560, January 30, 2002 Facts

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AGUILAR, Krystalynne F.

Westmont Bank (formerly Associated Banking Corp.) vs. Eugene Ong

Respondent Eugene Ong maintained a current account with petitioner,

The Supreme Court ruled in the affirmative. Citing Section 23 of the

Associated Bank vs Court of Appeals

GR No. 89802, May 7, 1992

Private respondent is engaged in a business of ready-to-wear garments under

The Court ruled in the affirmative. The possession of check on a forged or

Bank of the Philippine Islands vs Casa Montessori Internationale

Plaintiff, Casa Montessori International opened a current account with

1. Whether or not there is a forgery under the Negotiable Instruments Law

2. BPI was found to be negligent in its transaction as a banking institution. The

Ramon K. Ilusorio vs Court of Appeals

Petitioner was the Managing Director of Multinational Investment

Whether or not the bank was negligent in receiving the check

GR No. 129015, August 13, 2004

Philippine National Bank vs. F.F. Cruz and Co., Inc

GR No. 173259, July 25, 2011

Respondent company, FFCCI for brevity, opened a savings/current or

PCI Bank vs. Balmaceda

enrichment simply because he received payments out of money secured by fraud

Metropolitan Waterworks and Sewerage System vs. Court of Appeals

Petitioner, MWSS for brevity, is a government-owned and controlled

Whether or not MWSS can claim against PNB

The Court ruled in the negative. CA reversed. Every negotiable instrument is

However, he was unreasonably delayed in taking prompt deliveries of the bank

Associated Bank vs Court of Appeals, Province of Tarlac and Philippine

Philippine National Bank vs Hon. Romulo S. Quimpo

The prime duty of a bank is to ascertain the genuineness of the signature of

Plaintiff corporation is organized under the laws of Hawaii and is authorized

Bank of America NT and SA vs. Philippine Racing Club

Plaintiff-appellee PRCI is a domestic corporation which maintains several

Whether or not the appellate court’s denial is proper

doctrine of last clear chance in order to assign liability. Following established

Before delving into the comparative analysis of the cases above-stated, it is

Forged signature; effect of. When a signature is forged or is made without

In the words of Timoteo B. Aquino, however, it can be gleaned from the

1. Parties who warrant or admit the genuineness of the signature in question

Those under enumeration 1 are those indorsers, persons negotiating by delivery,

These enumerations were apparent in the several cases above-stated. Liability

On account of negligence, the case of Associated Bank vs CA and Province of

In the case of BPI vs Casa Montessori Internationale, liability is born by

In comparison with Associated Bank vs CA and the Province of Tarlac

Associated Bank vs CA and Province BPI vs CASA Montessori

Ilusorio vs CA is a case when the drawer is negligent in his own dealings

In a nutshell, the liability varies according to the degree of negligence

Travel-On Inc vs Court of Appeals and Arturo S. Miranda

Petitioner Company is a travel agency selling airline tickets on commission

Whether or not Miranda is liable

The Supreme Court ruled in the affirmative. It is important to stress that a

Remigio S. Ong vs People of the Philippines and Court of Appeals

Whether or not Ong was guilty of violation of BP Blg .22

On 1979, Charles Lee, President of MICO wrote to respondent bank

the PBCom made no mention of delivery of cash, it is presumed that said

Quirino Gonzales Logging vs Court of Appeals and Republic Planters Bank

Quirino Logging applied for credit accommodations with Respondent Bank.

Whether or not the promissory notes were valid

Engr. Jose E. Cayanan vs North Star International Travel, Inc

Respondent Company is a travel agency while petitioner is the owner of a

The above-stated cases are examples of negotiable instruments that are

In the case of Quirino Gonzales Logging vs Court of Appeals and Republic

However, in the case of Travel-On Inc vs Court of Appeals and Arturo S.

In the case of Remigio S. Ong vs People of the Philippines and Court of