TRADERS ROYAL BANK vs CA FACTS: Filriters (assigned) > Philfinance (still under the name of Filriters assigned) >

Traders Royal Bank = ? (valid or not) November 27, 1979: Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness (CBCI) of P500k and having an aggregate value of P3.5M

Traders prayed for the registration by the Central Bank of the subject CBCI in its name. CA affirmed RTC: subsequent assignment in favor of Traders Royal Bank null and void and of no force and effect. Philfinance acquired no title or rights under CBCI which it could assign or transfer to Traders and which it can register with the Central Bank instrument is payable only to Filriters, the registered owner

The Detached Assignment contains an express authorization executed by the transferor intended to complete the assignment through the registration of the transfer in the name of PhilFinance February 4, 1981: Traders Royal Bank (Traders) entered into a Repurchase Agreement w/ PhilFinance whereby in consideration of the sum of P500,000.00, PhilFinance sold, transferred and delivered a CBCI w/ a face value of P500K which CBCI was among those previously acquired by PhilFinance from Filriters PhilFinance failed to repurchase on the agreed date of maturity, April 27, 1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds Philfinance transferred and assigned all, its rights and title in the CBCI to Traders Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing

ISSUE: W/N the CBCI is a negotiable instrument HELD: NO. Petition is dismissed. CA affirmed.

CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law (Act 2031) certificate of indebtedness = certificates for the creation and maintenance of a permanent improvement revolving fund similar to a "bond" properly understood as acknowledgment of an obligation to pay a fixed sum of money usually used for the long term loans purpose of

Philfinance merely borrowed the CBCI from Filriters, a sister corporation. lack of any consideration = assignment is a complete nullity

Filriters to Philfinance did not conform to the "Rules and Regulations Governing Central Bank Certificates of Indebtedness" (Central Bank Circular No. 769, series of 1980) under which the note was issued. Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that any assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the BOD Traders, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements.

CALTEX VS CA Lessons Applicable: Requisites of negotiability to antedated and postdated instruments (Negotiable Instrument Law) FACTS: Security Bank and Trust Company (Security Bank), a commercial banking institution, through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who deposited with Security Bank the total amount of P1,120,000

Angel delivered the CTDs to Caltex for his purchase of fuel products March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he lost all CTDs, submitted the required Affidavit of Loss and received the replacement March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank in the amount of P875,000 and executed a notarized Deed of Assignment of Time Deposit November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to verify the CTDs declared lost by Angel November 26, 1982: Security Bank received a letter from Caltex formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the same. December 8, 1982: Caltex was requested by Security Bank to furnish: a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz

The fact that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. Traders knew that Philfinance is not registered owner of the CBCI. The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI. Nemo potest nisi quod de jure potest no man can do anything except what he can do lawfully.

the details of Mr. Angel's obligation against which Caltex proposed to apply the time deposits Security Bank rejected Caltex demand for payment bec. it failed to furnish a copy of its agreement w/ Angel April 1983, the loan of Angel dela Cruz with Security Bank matured August 5, 1983: CTD were set-off w/ the matured loan Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest CA affirmed RTC to dismiss complaint

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. The documents provide that the amounts deposited shall be repayable to the depositor

depositor = bearer If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself

ISSUE: 1. W/N the CTDs are negotiable 2. W/N Caltex as holder in due course can rightfully recover on the CTDs

HELD: Petition is Denied and appealed decision is affirmed. 1. YES. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to become negotiable, viz: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and -check

2. NO. although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement

CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products There was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to the extent of his lien. As such holder of collateral security, he would be a pledgee but the

requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights: Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed. Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument. Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. METROBANK VS CA G.R. No. 88866 February 18, 1991 Lessons Applicable: Forgery (Negotiable Instruments Law) FACTS: January 1979: Eduardo Gomez opened an account with Golden Savings and deposited over a period of 2 months 38 treasury warrants totalling P1,755,228.37.

Castillo as Cashier of Golden Savings and deposited to its Savings in the Metrobank branch

They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing More than 2 weeks after the deposits, Castillo asked if the warrants were cleared. She was told to wait. Gomez was also not allowed to withdraw from his account exasperated over Gloria's repeated inquiries and also as an accommodation for a "valued client," Metrobank allowed Golden Savings to make the following withdrawals:

July 9, 1979 - P508,000.00 July 13, 1979 - P310,000.00 July 16, 1979 - P150,000.00

Gomez was also allowed to withdraw a total amount of P1,167,500 (latest on July 16, 1979) July 21, 1979: Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account. - refused CA affirmed RTC: favored Golden Savings

all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor: 6 - directly payable to Gomez 32 - indorsed by their respective payees, followed by Gomez as second indorser June 25 - July 16, 1979: all warrants were subsequently indorsed by Gloria

ISSUE: W/N Metrobank can claim a refund from Golden Savings

HELD: NO. Affirmed. withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit because of the dishonor of the warrants Metrobank was negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw

It "presumed" that the warrants had been cleared simply because of "the lapse of one week." There was no reason why it should not have waited until the treasury warrants had been cleared

(b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. xxx xxx xxx Sec. 3. When promise is unconditional. An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with (a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or (b) A statement of the transaction which gives rise to the instrument judgment. But an order or promise to pay out of a particular fund is not unconditional. PHILIPPINE NATIONAL BANK, plaintiffappellee, vs. CONCEPCION MINING COMPANY, INC., ET AL., defendants-appellants. Ramon B. de los Reyes for plaintiffappellee. Demetrio Miraflor for defendantsappellants. LABRADOR, J.: Appeal from a judgment or decision of the Court of First Instance of Manila, Hon. Gustavo Victoriano, presiding, sentencing defendants Concepcion Mining Company and Jose Sarte to pay jointly and severally to the plaintiff the amount of P7,197.26 with interest up to September 29, 1959, plus a daily interest of P1.3698 thereafter up to the time the amount is fully paid, plus 10% of the amount as attorneys fees, and costs of this suit. The present action was instituted by the plaintiff to recover from the defendants the

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged 'with more or less rigor by the courts, according to whether the agency was or was not for a compensation. Golden Savings acted with due care and diligence

Forgery cannot be presumed. It must be established by clear, positive and convincing evidence. -here not proven treasury warrants in question are not negotiable instruments stamped on their face is the word "nonnegotiable" indicated that they are payable from a particular fund

Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer;

face of a promissory note the pertinent part of which reads as follows: Manila, March 12, 1954 NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National Bank . . . . In case it is necessary to collect this note by or through an attorney-at-law, the makers and indorsers shall pay ten percent (10%) of the amount due on the note as attorneys fees, which in no case shall be less than P100.00 exclusive of all costs and fees allowed by law as stipulated in the contract of real estate mortgage. Demand and Dishonor Waived. Holder may accept partial payment reserving his right of recourse again each and all indorsers. (Purpose mining industry) CONCEPCION MINING COMPANY, INC., By: (Sgd.) VICENTE LEGARDA President (Sgd.) VICENTE LEGARDA (Sgd.) JOSE S SARTE Please issue Mr. Jose S. Sarte check to

A motion to reconsider this decision was denied and thereupon defendants presented a petition for relief, asking that the effects of the judgment be suspended for the reason that the deceased Vicente L. Legarda should have been included as a party-defendant and his liability should be determined in pursuance of the provisions of the promissory note. This motion for relief was also denied, hence defendant appealed to this Court. Section 17 (g) of the Negotiable Instruments Law provides as follows: SEC. 17. Construction where instrument is ambiguous. Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: xxx xxx xxx

(g) Where an instrument containing the word I promise to pay is signed by two or more persons, they are deemed to be jointly and severally liable thereon. And Article 1216 of the Civil Code of the Philippines also provides as follows: ART. 1216. The creditor may proceed against any one of the solidary debtors or some of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others so long as the debt has not been fully collected. In view of the above quoted provisions, and as the promissory note was executed jointly and severally by the same parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of the promissory note had the right to hold any one or any two of the signers of the promissory note responsible for the payment of the amount of the note. This judgment of the lower court should be affirmed.

Upon the filing of the complaint the defendants presented their answer in which they allege that the co-maker of the promissory note Don Vicente L. Legarda died on February 24, 1946 and his estate is in the process of judicial determination in Special Proceedings No. 29060 of the Court of First Instance of Manila. On the basis of this allegation it is prayed, as a special defense, that the estate of said deceased Vicente L. Legarda be included as party-defendant. The court in its decision ruled that the inclusion of said defendant is unnecessary and immaterial, in accordance with the provisions of Article 1216 of the Deny Civil Code and section 17 (g) of the Negotiable Instruments Law.

Our attention has been attracted to the discrepancies in the printed record on appeal. We note, first, that the names of the defendants, who are evidently the Concepcion Mining Co., Inc. and Jose S. Sarte, do not appear in the printed record on appeal. The title of the complaint set forth in the record on appeal does not contain the name of Jose Sarte, when it should, as two defendants are named in the complaint and the only defense of the defendants is the non-inclusion of the deceased Vicente L. Legarda as a defendant in the action. We also note that the copy of the promissory note which is set forth in the record on appeal does not contain the name of the third maker Jose S. Sarte. Fortunately, the brief of appellee on page 4 sets forth said name of Jose S. Sarte as one of the co-maker of the promissory note. Evidently, there is an attempt to mislead the court into believing that Jose S. Sarte is not one of the comakers. The attorney for the defendants Atty. Jose S. Sarte himself and he should be held primarily responsible for the correctness of the record on appeal. We, therefore, order the said Atty. Jose S. Sarte to explain why in his record on appeal his own name as one of the defendants does not appear and neither does his name appear as one of the co-signers of the promissory note in question. So ordered. DEVELOPMENT BANK OF RIZAL vs SIMA WEI FACTS: Respondent Sima Wei executed and delivered to petitioner Bank a promissory noteengaging to pay the petitioner Bank or order the amount of P1,820,000.00. Sima Wei subsequently issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation in full settlement of the drawer's account evidenced by the promissory note. These two checks however were not delivered to the petitioner-payee or to any of its

authorized representatives but instead came into the possession of respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement to the account of respondent Plastic Corporation with Producers Bank. Inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter, the Branch Manager of Producers Bank authorized the acceptance of the checks for deposit and credited them to the account of said Plastic Corporation. ISSUE: Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks. RULING: No. A negotiable instrument must be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the NIL provides that every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Petitioner however has a right of action against Sima Wei for the balance due on the promissory note. LIM vs CA REPUBLIC PLANTERS BANK vs CA Lessons Applicable: Incomplete instruments to rules of construction (Negotiable Instrument Law) FACTS: Shozo Yamaguchi (President/Chief Operating Officer) and Fermin Canlas (Treasurer) by virtue of Board Resolution of Worldwide Garment

Manufacturing, Inc were authorized to apply for credit facilities with the Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations.

9 promissory notes with Worldwide Garment Manufacturing, Inc. was apparently rubber stamped above the signatures of Yamaguchi and Canlas were issued to Republic PlantersBank December 20, 1982: Worldwide Garment Manufacturing, Inc. changed its corporate name to Pinch Manufacturing Corporation February 5, 1982: Republic Planters filed a complaint for the recovery of sums of money Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice Fermin Canlas denied having issued the promissory notes as an officer of Pinch Manufacturing Corporation and when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., it was in blank (typewritten entries not appearing when he signed)

notes with the following sums and at 16% interest per annum Under the Negotiable lnstruments Law, persons who write their names on the face ofpromissory notes are makers and are liable as such.

Fermin Canlas one of the co-makers of the promissory notes cannot escape therefrom liability arising

made clearer and certain, without reason for ambiguity, by the presence of the phrase "joint and several" as describing the unconditional promise to pay to the order of Republic PlantersBank Severally and jointly or solidarily liable "I promise to pay" is signed by 2 or more persons "I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons "and (in) his personal capacity" below the signatures of the makers immaterial and will not affect to the liability of Fermin Canlas as a joint and several debtor of the notes. With or without it, he is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor A change in the corporate name does not make a new corporation, and whether effected by special act or under a general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities The corporation continues, as before, responsible in its new name for all

ISSUE: W/N Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi on the 9 promissory notes because they are negotiable and ruled by the Negotiable Instruments Law HELD: CA absolving Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable on all 9promissory

debts or other liabilities which it had previously contracted or incurred.

signed by their clients in obtaining loans.

GR: officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by the Board. EX: Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for as follows:

blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity date. An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law:

Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability. Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability.

Sec. 14. Blanks: when may be filled. Where the instrument is wanting in any material particular, the person in possesion thereof has a prima facie authority to complete it by filling up the blanks therein. ... In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time... The notes were not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable. ASTRO ELECTRONICS VS PHILEXPORT Lessons Applicable: Promissory notes and checks (Negotiable Instruments Law) FACTS:

Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting P3M w/ interest and secured by 3 promissory notes: December 14, 1981: P600,000.00 December 14, 1981: P400,000.00 August 27, 1981: P2,000,000.00

incomplete stereotype printed form of promissory notes generally used by commercial banking institutions to be

Roxas signed twice the promissory notes as President of Astro in his personal capacity Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as surety Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astros loan, subject to the condition that upon payment by Philguanrantee, it shall be proportionally subrogated to the rights of Philtrust against Astro

HELD: YES. CA affirmed Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers,promising that they will pay to the order of the payee or any holder according to its tenor.

even without the phrase personal capacity, Roxas will still be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in 2 different capacities, official and personal. 3 promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to PHILTRUST BANK or order... begins with I, We, or Either of us promise to pay, when signed by two or more persons = solidarily liable Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of Philtrust to demand for and collect payment from both Roxas and Astro since it already paid the value of 70% of roxas and Astro Electronics Corp.s loan obligation Roxas acquiescence is not necessary for subrogation to take place because the instant case is one of the legal subrogation that occurs by operation of law, and without need of the debtors knowledge

Upon Astros failure to pay, Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with the RTC Roxas: alleged that he merely signed the same in blank and the phrases in his personal capacity and in his official capacity were fraudulently inserted without his knowledge RTC: favored Philguarantee holding Astro and Roxas jointly and severally liable if Roxas really intended to sign the instruments merely in his capacity as President of Astro, then he should have signed only once CA affirmed RTC

ISSUE: W/N Roxas should be jointly and severally liable with Astro

Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as against Roxas and Astro because the guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor

Carlos Milling Company or order was receipted for by Dolores

deposited with the BPI having a fake endorsement (Baldwin forged as drawer)

SAN CARLOS MINING vs BPI Lessons Applicable: Forgery (Negotiable Instruments Law) FACTS: San Carlos Milling Co. Ltd. (San Carlos) was in the hands of Alfred D. Cooper, its agent under general power of attorney with authority of substitution

For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos Milling Co., Ltd. By (Sgd.) NEWLAND BALDWIN For Agent San Carlos had frequently withdrawn currency for shipment to its mill but never in so large an amount, and never under the sole supervision of Dolores

The principal employee in the Manila office was Joseph L. Wilson, to whom had been given a general power of attorney but without power of substitution. 1926: Cooper, desiring to go on vacation, gave a general power of attorney to Newland Baldwin and at the same time revoked the power of Wilson relative to the dealings with BPI Wilson, conspiring together with Alfredo Dolores, a messenger-clerk in San Carlos' Manila office, sent a cable gram in code to the company in Honolulu requesting a telegraphic transfer to the China Banking Corporation (China Bank) of Manila of $100,00. The money was transferred by cable, and upon its receipt China Bank sent an exchange contract to San Carlos offering the sum of P201K, which was then the current rate of exchange. September 28, 1927: A manager's check on the China Banking Corporation for P201K payable to San

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 ammendment 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: W/N BPI was bound to inspect the checks and shall therefore be liable in case of forgery

HELD: YES. 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

HSBC sent a bank statement to the Eastern showing the amount of the check was charged to its account, and no objection was made 4 months after the check was charged, it developed that Lazaro Melicor, to whom the check was made payable, had never received it, and that his signature, as an endorser, was forged by Maasim, Eastern promptly made a demand upon the HSBC to credit the amount of the forged check Eastern filed against HSBC and PNB RTC: dismissed the case

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.

ISSUES: W/N Eastern has the right to recover the amount of the forged check HELD: YES. lower court is reversed. Eastern against HSBC who can claim against PNB forgery was that of Melicor (payees and NOT the maker)

proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in honoring and cashing the two forged checks GREAT EASTERN LIFE vs HSBC Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS: May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on theHongkong and Shanghai Banking Corporation (HSBC) payable to the order of Lazaro Melicor.

Eastern received it banks statement, it had a right to assume that Melicor had personally endorsed the check, and that, otherwise, the bank would not have paid it Section 23 Instruments Law: of Negotiable

E. M. Maasim fraudulently obtained possession of the check, forged Melicor's signature, as an endorser, and then personally endorsed and presented it to the Philippine National Bank (PNB) and it was placed to his credit. Next day: PNB endorsed the check to the HSBC who paid it

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.

The Philippine National Bank had no license or authority to pay the money to Maasim or anyone else upon a forge signature. Its remedy is against Maasim to whom it paid the money.

W/N: Ebrada should be held liable. HELD: YES. Affirmed in toto. under Section 65 of the Negotiable Instruments Law: Every person negotiating an instrument by delivery or by qualified indorsement, warrants: (a) That the instrument is genuine and in all respects what it purports to be. (b) That she has good title to it. xxx xxx xxx Every indorser who indorses without qualification warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding sections; (b) That the instrument is at the time of his indorsement valid and subsisting. Under action 23 of the Negotiable Instruments Law (Act 2031): 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 instruments, or to give a discharge 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. Martin Lorenzo (forged as original payee) > Ramon R. Lorenzo (2nd indorser) = NO EFFECT

REPUBLIC BANK VS EBRADA Lessons Applicable: Forgery (Negotiable Instruments Law) FACTS: February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check dated January 15, 1963 for P1,246.08 at Republic Bank

check was issued by the Bureau of Treasury Bureau advised Republic Bank that the indorsement on the reverse side of the check by the payee, "Martin Lorenzo" was a forgery because he died as of July 14, 1952 and requested a refund July 11, 1966: Ebrada filed a ThirdParty complaint against Adelaida Dominguez who, in turn, filed on September 14, 1966 a Fourth-Party complaint against Justina Tinio. March 21, 1967: City Court of Manila favored Republic against Ebrada, for Third-Party plaintiff against Adelaida Dominguez, and for Fourth-Party plaintiff against Justina Tinio CA: reversed Mauricia T. Ebrada claim against Adelaida Dominguez and Domiguez against Justina Tinio

Ramon R. Lorenzo(2nd indorser)> Adelaida Dominguez (third indorser)>Adelaida Dominguez to Ebrada who did not know of the forgery = valid and enforceable barring any claim of forgery

drawee of a check can recover from the holder the money paid to him on a forged instrument not its duty to ascertain whether the signatures of the payee or indorsers are genuine or not indorser is supposed to warrant to the drawee that the signatures of the payee and previous indorsers (NOT only holders in due course) are genuine RATIONALE: . indorsers own credulity or recklessness, or misplaced confidence was the sole cause of the loss. Why should he be permitted to shift the loss due to his own fault in assuming the risk, upon the drawee, simply because of the accidental circumstance that the drawee afterwards failed to detect the forgery when the check was presented Ebrada , upon receiving the check in question from Adelaida Dominguez, was duty-bound to ascertain whether the check in question was genuine before presenting it to plaintiff Bank for payment Based on the doctrine from Great Eastern Life Ins. Co. v. Hongkong Shanghai Bank (1922) , bank should suffer the loss when it paid the amount of the check in question to Ebrada, but it has the remedy to recover from the Ebrada the amount it paid Ebrada immediately turning over to Adelaida Dominguez (Third-Party defendant and the Fourth-Party plaintiff) who in turn handed the

amount to Justina Tinio on the same date would not exempt her from liability because by doing so, she acted as an accommodation party in the check for which she is also liable under Section 29 of theNegotiable Instruments Law (Act 2031): An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. GEMPESAW vs CA Lessons Applicable: Promissory Notes and Checks (Negotiable Instruments Law) FACTS: Gempesaw owns and operates four grocery stores to pay their debts of her supplies, she draws checks against her account she signed each and every crossed check without bothering to verify the accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper. although the Bank notified her of all checks presented to and paid by the bank, petitioner did not verify he correctness of the returned checks, much less check if the payees actually received the checks in payment for the supplies she received It was only after the lapse of more 2 years that petitioner found out about the fraudulent manipulations of her bookkeeper November 7, 1984: Gempesaw made a written demand on respondent

drawee Bank to credit her account with the money value of the 82 checks totalling P1,208.606.89 for having been wrongfully charged against her account January 23, 1985: Gempesaw filed against Philippine Bank of Communications (drawee Bank) for recovery of the money value of 82 checks charged against the Gempesaw's account on the ground that the payees' indorsements were forgeries RTC: dismissed the complaint CA: affirmed Gempesaw gross negligence = promixate cause of the loss ISSUE: W/N Gempesaw has a right to recover the amount attributable to the forgeries HELD: NO. REMANDED to the trial court for the reception of evidence to determine the exact amount of loss suffered by the petitioner, considering that she partly benefited from the issuance of the questioned checks since the obligation for which she issued them were apparently extinguished, such that only the excess amount over and above the total of these actual obligations must be considered as loss of which one half must be paid by respondent drawee bank to herein petitioner. Petitioner completed the checks by signing them as drawer and thereafter authorized her employee Alicia Galang to deliver to payees GR: drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the amount of said check EX: where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument is a

restrictive indorsement which prohibits the further negotiation thereof. Sec. 36. When indorsement restrictive. An indorsement is restrictive which either chanrobles virtual law library (a) Prohibits further negotiation of the instrument; or xxx xxx xxx

In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that any subsequent party may be forewarned that ceases to be negotiable. However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so. When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence drawee Bank did not discover the irregularity with respect to the acceptance of checks with second indorsement for deposit even without the approval of the branch manager despite periodic inspection conducted by a team of auditors from the main office constitutes negligence on the part of the bank in carrying out its obligations to its depositors

MWSS VS CA FACTS: Metropolitan Waterworks and Sewerage System (MWSS) is a

GOCC and successor-in- interest of the defunct NWSA.

February 6, 1976: CFI favored MWSS CA: reversed and favored PNB applied Section 24 of the Negotiable Instruments Law

The authorized signature for PNB Account No. 6 were those of MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor L. Recio. Specimen signatures were submitted by the MWSS to and on file with the PNB By special arrangement with the PNB, the MWSS used personalized checks in drawing from this account. printed for MWSS by its printer, F. Mesina Enterprises March, April and May 1969: 23 checks were prepared, processed, issued and released by NWSA, all of which were paid and cleared by PNB and debited by PNB against NWSA Account No. 6 deposited by the fictitious payees Raul Dizon, Arturo Sison and Antonio Mendoza in their respective current accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC) At the time of their presentation to PNB these checks bear the standard indorsement which reads 'all prior indorsement and/or lack of endorsement guaranteed' 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

ISSUE: W/N MWSS can can claim against PNB HELD: NO. 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 itmust 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. Forgery cannot be presumed. It must be established by clear, positive, and convincing evidence. This was not done in the present case.

SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or 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 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. Gross negligence in the printing of its personalized checks - MWSS failed to 1. give its printer, Mesina Enterprises, specific instructions relative to the safekeeping and disposition of excess forms, check vouchers, and safety papers 2. retrieve from its printer all spoiled check forms 3. provide any control regarding the paper used in the printing of said checks 4. 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 5. send a representative to the printing office during the printing of said checks 6. to reconcile the bank statements with its own records

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.

One factor which facilitate this fraud was the delay in the reconciliation of PNB statements with the NAWASA bank accounts. x x x. 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

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

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.

discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his specimen signatures and comparing them with those on the questioned checks. Curiously though, petitioner failed to submit additional specimen signatures as requested by the NBI from which to draw a conclusive finding regarding forgery.

ILUSORIO vs CA Ilusorio v. CA and Manila Banking Corporation, 2002 Facts: Petitioner entrusted to his secretary his credit cards and his checkbook with blank checks. His secretary, thru falsification, encashed and deposited to her personal account seventeen checks drawn against the account of the petitioner at respondent bank. Petitioner then requested the respondent bank to credit back and restore to his account the value of the checks which were wrongfully encashed, but respondent bank refused. Hence, petitioner filed the instant case. Manila Bank sought the expertise of the NBI in determining the genuineness of the signatures appearing on the checks. Consequently, the trial court dismissed the case. On appeal, the Court of Appeals held that petitioner's own negligence was the proximate cause of his loss. Hence, this petition. Issue: Whether that Manila Bank is liable for damages for its negligence in failing to detect the discrepant checks. Ruling: No. To be entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure to detect the

Further, the bank's employees in the present case did not have a hint as to the secretaryus modus operandi because she was a regular customer of the bank, having been designated by petitioner himself to transact in his behalf. It was petitioner, not the bank, who was negligent. In the present case, it appears that petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements, including custody and possession of cancelled checks and reconciliation of accounts. Petitioner's failure to examine his bank statements appears as the proximate cause of his own damage. True, it is a rule that when a signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. However, the rule does provide for an exception, namely: "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of However, authority." petitioner Infailed the to instant submit case, his specimen it is thesignatures for purpos exception that applies. Petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account.