Westmont Bank v. Ong [G.R. No. 132560.

January 30, 2002]

Ong was supposed to be the payee of the checks issued by Island Securities. Ong has a
current account with petitioner bank. He opted to sell his shares of stock through Island
Securities. The company in turn issued checks in favor of Ong but unfortunately, the latter
wasn't able to receive any. His signatures were forged by Tamlinco and the checks were
deposited in his own account with petitioner. Ong then sought to collect the money from
the family of Tamlinco first before filing a complaint with the Central Bank. As his efforts were
futile to recover his money, he filed an action against the petitioner. The trial and
appellate court decided in favor of Ong.

iSSUE

Whether or not respondent Ong may still recover from petitioner.

YES. Ongs signature as payee, in the case at bar, was forged to make it appear that he had
made an indorsement in favor of the forger. Such signature should be deemed as inoperative and
ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said
forged signature. Ong should therefore be allowed to recover from the collecting bank.

It should be liable for the loss because it is its legal duty to ascertain that the payees
endorsement was genuine before cashing the check. As a general rule, a bank or
corporation who has obtained possession of a check with an unauthorized or forged indorsement
of the payees signature and who collects the amount of the check other from the drawee, is
liable for the proceeds thereof to the payee or the other owner, notwithstanding that the
amount has been paid to the person from whom the check was obtained.

DOCTRINE OF DESIRABLE SHORT CUTplaintiff uses one action to reach, by desirable short
cut, the person who ought to be ultimately liable as among the innocent persons involved
in the transaction. In other words, the payee ought to be allowed to recover directly from the
collecting bank, regardless of whether the check was delivered to the payee or not.

On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of
Tamlincos family to collect the sum of money, and later the Central Bank. Only after
exhausting all the measures to settle the issue amicably did he file the action.

Associated Bank vs. CA, January 31, 1996 252 SCRA 620

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

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

ISSUE: What are the liabilities of each party?

HELD: The checks involved in this case are order instruments.

Liability of Associated Bank

Where the instrument is payable to order at the time of the forgery, such as the checks in this
case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to
the same instrument. When the holders indorsement is forged, all parties prior to the forgery
may raise the real defense of forgery against all parties subsequent thereto.

A collecting bank (in this case Associated Bank) where a check is deposited and which indorses
the check upon presentment with the drawee bank (PNB), is such an indorser. So even if the
indorsement on the check deposited by the bankss client is forged, Associated Bank is bound by
its warranties as an indorser and cannot set up the defense of forgery as against the PNB.

EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in notifying the
collecting bank (Associated Bank) of the fact of the forgery so much so that the latter can no
longer collect reimbursement from the depositor-forger.

Liability of PNB

The bank on which a check is drawn, known as the drawee bank (PNB), is under strict liability to
pay the check to the order of the payee (Provincial Government of Tarlac). Payment under a
forged indorsement is not to the drawers order. When the drawee bank pays a person other than
the payee, it does not comply with the terms of the check and violates its duty to charge its
customers (the drawer) account only for properly payable items. Since the drawee bank did not
pay a holder or other person entitled to receive payment, it has no right to reimbursement from
the drawer. The general rule then is that the drawee bank may not debit the drawers account
and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the
drawee bank.

EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer (Tarlac
Province) to exercise ordinary care that substantially contributed to the making of the forged
signature, the drawer is precluded from asserting the forgery.

In sum, by reason of Associated Banks indorsement and warranties of prior indorsements as a

party after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask
reimbursement from PNB because the Province is a party prior to the forgery. Hence, the
instrument is inoperative. HOWEVER, it has been proven that the Provincial Government of Tarlac
has been negligent in issuing the checks especially when it continued to deliver the checks to
Pangilinan even when he already retired. Due to this contributory negligence, PNB is only ordered
to pay 50% of the amount or half of P203 K.

BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated Banks
warranties), PNB can ask the 50% reimbursement from Associated Bank. Associated Bank can
ask reimbursement from Pangilinan but unfortunately in this case, the court did not acquire
jurisdiction over him.
Samsung Construction v. Far East Bank (August 15, 2004) 436 scra 402

Facts: Samsung Construction held an account with Far East Bank. One day a check worth
900,000, payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far
East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of
Samsung, who was also present during the time the check was cashed. Later however it was
discovered that no such check was ever approved by the Samsungs head accountant, the
president of the company also never signed any such check.

Issue: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged
check, which was drawn from the account of Samsung

Held: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states
that a forged signature makes the instrument wholly inoperative. If payment is made the
drawee (Far East) cannot charge it to the drawers account (Samsung). The fact that the forgery
is clever is immaterial. The forged signature may so closely resemble the genuine as to defy
detection by the depositor himself. And yet, if the bank pays the check, it is paying out with its
own money and not of the depositors. This rule of liability can be stated briefly in these words:
A bank is bound to know its depositors signature. The accusation of negligence on the part of
Samsung was not clearly proven. Absence of proof to the contrary, the presumption is that the
ordinary course of business was followed.

Republic Bank vs Mauricia Ebrada 65 SCRA 680

On January 15, 1963, the Bureau of Treasury issued a back pay check to Martin Lorenzo in the
amount of P1,246.08. The drawee named therein was Republic Bank. The check was
subsequently indorsed to Ramon Lorenzo, then to Delia Dominguez and then to Mauricia Ebrada.
Ebrada encashed the check with the Republic Bank. Republic Bank paid the amount of the check
to Ebrada. Ebrada, upon receiving the cash, gave it to Dominguez; Dominguez in turn gave the
cash to Ramon Lorenzo.

Later, the Bureau of Treasury notified that the check was a forgery because the payee named
therein (Martin Lorenzo) was actually dead 11 years ago before the check was issued. Republic
Bank refunded the amount to the Bureau of Treasury. The bank then demanded Ebrada to refund
them.

ISSUE: Whether or not Republic Bank may recover from Ebrada.

HELD: Yes. Ebrada, being the last indorser, warranted the genuineness of the signatures of the
payee and the previous indorsers. The drawee bank is not duty bound to ascertain whether or
not the signatures of the payee and the indorsers are genuine. One who purchases a check or
draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it
for payment or putting it into circulation before presentation he impliedly asserts that he has
performed his duty and the drawee (in this case Republic Bank) who has paid the forged check,
without actual negligence on his part, may recover the money paid from such negligent
purchasers.

But Ebrada did not profit from this because she, upon receiving the encashment, gave the same
to Dominguez?

She is still liable because she is considered as an accommodation party pursuant to Section 29
of the Negotiable Instruments Law. 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.