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[ch4-A] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V.

Quevedo [Ch4-A]
CHAPTER IV: DEFENSES AND EQUITIES indefeasible as against the infant, or to make the act of -From the facts set out in the judgment of the court
indorsement an irrevocable one. The law would not below, plaintiff Rodriguez acquired the ownership of the
[Cases cited in Campos]
“The original plan was to have these digests merely as case ticklers – want to deprive the infant of the right to reinvest in note in question by virtue of its indorsement, he having
not as substitute for the originals. Please limit your digests to relevant himself the title to the instrument against a holder who paid the value thereof to its former holder. He did so
details only. We do not need a reproduction of the LONG excerpts in had knowledge of the indorser’s infancy. without being aware of the fact that the note had an
Campos.”
I already lost count how many times sentiments of this sort have been -The common-law rule is that the purchaser and unlawful origin, since he was not given notice, as the
aired – face-to-face w/ the people concerned, discussions during block indorsee of such a note is not a bona-fide holder as court found, of any conditions existing against the note.
meetings, message chains over the yahoogroups, etc. =( against an infant indorser, and that the latter may Furthermore, he accepted it in good faith, believing the
Next time, unless there are several separate opinions (w/c should ALWAYS
be included), please limit length of submissions to one column in this disaffirm and recover the note from the possession of note was valid and absolutely good, and that defendant
format. the former, who takes with constructive notice of the Martinez would not repudiate it for the reason that
P.S. To those who submitted on time and followed the format, thanks! incapacity. This means that the infant could disaffirm Martinez, had assured him before the purchase of the
Editing usually takes hours. You spared me that. I appreciate it.
and recover note that the same was good and that he would it at a
MURRAY V THOMPSON Disposition: Court of Civil Appeals reversed while the discount. Without such assurance from Martinez we can
136 Tenn. 118, 188 S.W. 378, LRA, 1817B 1172 (1916) chancellor is affirmed. hardly believe that Rodriguez would have bought the
~ice~ RODRIGUEZ V MARTINEZ note. It is thus inferred from the fact that he,
5 Phil 67 (1906) Rodriguez, inquired from the defendant about the
FACTS ~rean~ nature of the note before accepting its indorsement.
SUBJECT: Bil of Exchange-Check -These facts sufficiently show that Rodriguez bought
MAKERS: Brick company FACTS the note upon the statement of Martinez that the same
PAYEE: Murray SUBJECT: promissory note dated Oct. 17, 1902, for had no legal defect and that he was thereby induced to
SUBSEQUENT INDORSEMENTS: Father of Murray sold to 4,000 Mexican pesos buy the same by the personal act of Martinez. In view
Thompson. Signed by Martinez, payable to one Montalvo. of this, Martinez can not be relieved from the obligation
-Murray received a note from a brick company in -Montalvo, for value received, sold and transferred the of paying Rodriguez the amount of the note alleged to
satisfaction to his claim for damages worth $1,750 said PN to Rodriguez before maturity. Rodriguez have been executed for an unlawful consideration. If
because of personal injuries. It was payable on June 1, received the same w/o notice of any conditions existing such unlawful consideration did in fact exist, Martinez
1915 because he was still a minor. On October 16, against the note. Rodriguez, before having the note, deliberately and maliciously concealed it from
1914, W.A. Murray, his father, with the consent of the went to Martinez and asked him in respect thereto, and Rodriguez. Therefore, to hold otherwise would be
minor, sold the note to Thompson. He indorsed the was informed by him that the note was good and that equivalent to permitting Martinez to go against his own
name of his son without apprising Thompson that he he would pay the same at a discount; and that the note acts to the prejudice of Rodriguez. Such a holding
himself was not the payee. The proceeds were was delivered by Martinez to said Montalvo in payment would be contrary to the most rudimentary principles of
deposited to the account of Murray. It was invested in a of the gambling debt which Martinez owed Montalvo. justice and law. Par. 1, Sec. 333 of Code of Civil
saloon business and was lost. There was no actual This note was presented to the court as evidence of Procedure, applicable to this case, provides as follows:
fraud on the part of Murray in the transaction with that debt without the stamp required by law, and no "Whenever a party has, by his own declaration, act, or
Thompson. stamp had ever been attached thereto. After the trial omission intentionally and deliberately led another to
-Murray wanted to disaffirm and recover. Rodriguez offered to put the necessary stamp on the believe a particular thing true, and to act upon such
note, and tendered such stamp. belief, he can not, in any litigation arising out of such
ISSUE declaration, act, or omission, be permitted to falsity it."
WON an infant’s indorsement is void or voidable ISSUE Disposition Judgment of lower court is reversed.
WON defendant Martinez is liable to pay Rodriguez on Defendant Martinez is ordered to pay to the plaintiff
HELD: Voidable. the instrument. Rodriguez the sum of 4,000 pesos, Mexican currency,
Ratio Sec. 22. Effect of indorsement by infant or or its equivalent in Phil. currency, with legal interest at
corporation.-The indorsement or assignment of the HELD: YES 6 % p.a.
instrument by a corporation or by an infant passes the -SC did not discuss whether the game at which this
property therein, notwithstanding that from want of debt was incurred is a prohibited game or not. In view
capacity, the corporation or infant may incur no liability of the fact that the judgment of the court below GLUCKMAN V DARLING (1914)
thereon. contains no finding as to the name or nature of the 85 N.J.L. 457, 89 Atl. 1016 (1914)
-The statement that the infant “passes property game, SC applied A1277 of CC: the consideration of the ~yella~
therein” entails that the contract of indorsement is not contract must be presumed to be lawful and valid until
void and that his indorsee has the right to enforce the contrary is proved; and without considering as we FACTS
payment from all parties prior to the infant indorser. have said these questions which we do not think SUBJECT: Promisory note
The incapacity of the minor cannot be availed of by the necessary to discuss for the purposes of this decision, MAKER: Charles Flynn
prior parties. yet there are other grounds upon which this case can PAYEE: Balene & Max
-It was not intended to provide that the indorsee should be decided. INDORSEE: H.L. Darling
become the owner of the instrument by title HOLDER FOR VALUE: Isaac Gluckman
[ch4-B] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-B]
-Balene & Max were about to sell to Charles Flynn some proceeds of the checks with knowledge that such she did not receive any checks, which was her usual
real estate and were to take in part payment therefore proceeds came from the checks. TC found that plaintiff routine.
notes made by Flynn and indorsed by defendant. When had ratified Haley’s actions and conduct in cashing the -Court concluded that plaintiff ratified all the
Balene & Max requested the defendant to be present at checks. Plaintiff appealed unauthorized signatures in these cases; that by reason
the transfer and questioned him about the notes, he of such ratification she is precluded from setting up the
attended and examined them and said, “Everything is ISSUE fact that her signatures were unauthorized in the
all right.” The notes were then accepted on account of WON plaintiff is liable for Haley’s acts by ratification actions against Haley.
the purchase price of the property, and the one in suit Disposition affirmed
subsequently passed by indorsement, for a valuable HELD: YES
consideration, to the plaintiff. *Court first determined WON “precluded” in sec.23 of
-Defendant at the trial denied his signature as indorser, the NIL includes ratification (in this case receiving SAN CARLOS MINING CO, LTD. V
insisiting that it was a forgery. Court denied proceeds of the checks) BPI, CHINABANK CORP (1933)
defendant’s motion for nonsuit -“precluded” includes ratification. NIL is based largely [place citation here]
on the English Bills of Exchange Act. The English law ~brian b~
ISSUE contains a proviso “that nothing in this section shall
WON defendant is stopped from alleging forgery affect the ratification of an unauthorized signature not FACTS
amounting to a forgery.” This proviso was not included -Plaintiff corporation is organized under Hawaiian law
HELD: YES in the NIL but a footnote was added that a forged and is authorized to engage business in the Phils.
-It is true that silence and acquiescence alone does not signature may be ratified. The dropping of such proviso (Manila)
estop a defendant in a suit upon an alleged forged did not indicate any intention of changing the meaning -The business in the Phils. was handled by Alfred
instrument from proving the forgery, where the plaintiff adopted from the English law. Established rule was that Cooper, its agent (under GPA) w/ authority of
had not been prejudiced or damaged thereby. But an unauthorized signature not amounting to forgery substitution. The principal employee in the Manila office
where the holder of a note has been willfully misled as could be so ratified. is Joseph Wilson who also has a GPA but w/out
to the genuineness of an indorsement thereon by one -SC concluded that the framers of the NIL intended that substitution. Before Cooper left in 1926, he gave a GPA
who purports to be the indorser and sustains damage under the act, the same as under the prior law, a party to Newland Baldwin and at the same time revoked
or is prejudiced thereby, the alleged indorser will be may be “precluded” by ratification. Wilson’s GPA relative to dealing with BPI, a bank where
stopped from denying the validity of the signature. *case had a discussion on WON “precluded” was plaintiff has an account.
Disposition Judgment affirmed. equivalent to “estoppel” as some authors conclude. -After a year, Wilson, conspiring w/ Alfredo Dolores, a
However the Court said that although “precluded” messenger-clerk in Plaintiff’s Manila office, sent a
denotes the consequence of an estoppel, it is not cablegram to the company in Hawaii requesting a
STRADER V HALEY equivalent and its meaning should not be so limited telegraphic transfer of $100K to China Banking Corp.
216 Minn. 315, 12 N.W. (2d) 608 (1943) because 1)it is not the intention of the framers; 2) it is (CBC), where plaintiff also has an account.
~javi~ opposed to the prior law which NIL adopted. -After receipt of the money, CBC sent an exchange
*Court then determined WON a forgery may be ratified contract to plaintiff offering P201K (current rate). On
FACTS -By a forgery is meant an unauthorized signature on an this contract was forged the name of Baldwin. It also
-Haley and his wife lived with plaintiff Strader. Between instyument or a material alteration thereof in violation contained a request for a certified check from CBC
July 11, 1936 and June 14, 1941, 69 checks were of a criminal statute. Rule is that an unauthorized upon receipt of the money.
negotiated by Haley. Strader claimed that Haley forged signature on a note, check or other instrument under -A manager’s check on CBC for P201K payable to
her name as drawer for 2 checks and as indorser in a circumstances not constituting the crime of forgery plaintiff was receipted for by Dolores. W/c check was
total of 57 checks. Checks varied amounts. Park may be ratified. deposited to BPI by the following indorsement:
Recreation Parlor, Luz, Easlinger, Liberty State Bank -in the instant case, there was no forgery committed as “For deposit only with BPI, to credit account of
were those who cashed the checks. an essential element, the intent to fraud, was not (plaintiff).
-Plaintiff claimed she never made such indorsements or proven. “By (Sgd.)
signed as drawer. *WON plaintiff ratified acts of Haley: YES NEWLAND BALDWIN
-Plaintiff brought separate actions against Haley, -where the principal accepts and retains the benefits of
parties who were alleged to have cashed checks for an unauthorized act of an agent with full knowledge of For Agent”
Haley and Liberty State Bank. all the facts, he thereby ratifies the act. This endorsement was spurious.
-Defense claimed that the checks were indorsed by -in the instant case, the evidence sustains the finding -BPI credited plaintiff’s account for P201K and passed
plaintiff herself, that she delivered them to Haley with that plaintiff received the proceeds of the checks in the cashier’s check through the clearing house, where
instructions to cash them, to purchase supplies, and cash and with full knowledge of all the facts. This was it was paid by CBC.
return the change to her. proven by: proceeds of the check were definitely -The same day, BPI received a letter, purporting to be
-TC said that there was no finding that plaintiff identified and traced; corroboration of Haley’s wife; the signed by Baldwin, directing that P200K in bills of
authorized Haley to sign her name on any check. TC fact that Strader did not complain to her attorneys that various denominations be packed for shipment and
also said that plaintiff received from Haley all the delivery the next day. The next day, Dolores witnessed
[ch4-C] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-C]
the counting and packing of the money then he gave a PHIL. NAT’L BANK V QUIMPO not have been expected to know that Santos would
check, purporting to be signed by Baldwin, for P200K. G.R. No. L-53194; Gancayco; March 14, 1988 remove a check from his checkbook. Defendant had
He was also charged P1 for the service wherein he also ~mini~ trust in his classmate and friend. He had no reason to
came up w/ another check for P1, again purporting to suspect that the latter would breach that trust.
be signed by Baldwin. (This practice of withdrawing FACTS Disposition Petition is DISMISSED for lack of merit.
money for shipment was frequent for plaintiff but never -Francisco S. Gozon II, a depositor of the Caloocan The Lawphil Project -Arellano Law Foundation
so large an amount and under the sole supervision of Branch of PNB, went to the bank accompanied by his
Dolores.) friend Ernesto Santos whom he left in the car while he PRICE V NEAL
-Dolores then delivered the money, in plaintiff’s office, transacted business in the bank. 3 Burr. 1354 (1762)
to Wilson where he received his P10K share. Shortly -Santos took a check from Gozon’s checkbook, filled it ~ricky~
thereafter, the crime was discovered, and upon BPI up for the amount of P5T, forged the signature of
refusing to credit plaintiff with the amount of the 2 Gozon, and encashed it in the bank on the same day. FACTS
forged checks (P200K+P1), plaintiff sued BPI and CBC. Upon receipt of the statement of account from the -A bill for 40 pounds (L40) was purportedly drawn by
-TC absolved both defendants. bank, Gozon asked that the amount of P5T be returned Benjamin Sutton (drawer) against John Price (drawee)
to his account as his signature on the check was forged in favor of Rogers Ruding (payee). It appeared from the
ISSUES but the bank refused. bill that it was indorsed to Anthony Topham, then
1. WON CBC is liable -Santos was apprehended by the police and he Hammon and Laroche and finally, for a valuable
2. WON BPI is liable admitted that he stole the check of Gozon. Gozon filed consideration, to Watson and Son whose
the complaint for recovery of the amount of P5T representative, Edward Neal, received it. Neal gave
HELD against the bank in the CFI Rizal. notice to Price. On the day it was due, Price sent his
*SC, first and foremost, declared that the falsity of -CFI ruled in favor of Gozon. Bank then filed petition for servant to Neal to pay the L40 and take up the bill.
Baldwin’s signatures is beyond reasonable doubt. review on certiorari before SC. -A second bill for L40 was again purportedly drawn by
1. NO. A bank that cashes a check must know to whom Sutton (drawer) against Price (drawee) in favor of
it pays. In connection with the cahier’s check, this duty ISSUES Ruding (payee). It appeared from this bill that it was
was therefore upon BPI, and CBC was not bound to 1. WON PNB was negligent in encashing the forged indorsed by Ruding to Watson and Son. This second bill
inspect and verify all endorsements of the check, even check without carefully examining the signature therein was accepted by Price upon presentment by writing on
if some of them were also depositors in that bank. It 2. WON Gozon is precluded from setting up the defense it: “Accepted John Price.” The bill being accepted, it was
had a right to rely upon BPI’s endorsement when it of forgery or want of authority (since it is his own indorsed by Neal for a valuable consideration and left
gave the latter bank credit for its own cahier’s check negligent act of leaving the checkbook in Santos’ hands at Price’s bankers for payment. It was paid upon Price’s
2. YES. It is an elementary principle both of banking that is the proximate cause of the loss) order.
and the NIL that a bank is bound to know the -Unfortunately for Price, both these bills were actually
signatures of its customers; and if it pays a forged HELD fakes. They were done by a certain Lee who was later
check, it must be considered as making the payment 1. YES hanged for the crime of forgery.
out of its own funds, and cannot ordinarily charge the Ratio A bank is bound to know the signatures of its -Wanting to recover the amount he paid, Price sued
amount so paid to the account of the depositor whose customers; and if it pays a forged check, it must be Neal. It was proven that Neal acted innocently and
name was forged. considered as making the payment out of its own bona fide, without any suspicion of the forgeries and
-The bank in the case at bar was neither a gratuitous funds, and cannot ordinarily change the amount so that he paid the whole value of those bills. But the jury
bailee (as contended by BPI) nor an intermeddler bank paid to the account of the depositor whose name was found a verdict for Price.
(as contended by plaintiff). Their relation is that of forged. This rule is absolutely necessary to the
depositor and banker, creditor and debtor. circulation of drafts and checks, and is based upon the ISSUE
-The bank paid out its money because it relied upon the presumed negligence of the drawee in failing to meet WON Price may recover from Neal the money he paid
genuineness of the purported signatures of Baldwin. its obligation to know the signature of its on the two bills.
These, they never questioned at the time its employees correspondent. If the paper comes to the drawee in the
should have used care. In fact, even today the bank regular course of business, and he, having the HELD: NO.
represents that it has a belief that they are genuine opportunity ascertaining its character, pronounces it to Ratio Price cannot recover the money paid from Neal
signatures. be valid and pays it, it is not only a question of because the latter received it upon a bill of exchange
-The signatures to the checks being forged, under Sec. payment under mistake, but payment in neglect of indorsed to him for a fair and valuable consideration,
23, NIL, they are not a charge against plaintiff nor are duty which the commercial law places upon him, and which he had bona fide paid, without the least privity or
the checks of any value to the defendant. The the result of his negligence must rest upon him. suspicion of any forgery.
proximate cause of the loss is BPI’s negligence. 2. NO Reasoning Here was no fraud: no wrong. It was
Disposition Judgment modified –affirmed as to CBC, -The act of Gozon in leaving his checkbook in the car incumbent upon Price (drawee) to be satisfied “that the
reversed as to BPI. while he went out for a short while can not be bill drawn upon him was the drawer’s hand,” before ha
considered negligence sufficient to excuse the accepted or paid it. It was not Neal’s duty to do so.
defendant bank from its own negligence. Gozon could Notice was given upon Price of a bill drawn upon him;
[ch4-D] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-D]
and he sends his servant to pay and take it up. The National City Bank and for w/c the National City Bank
other bill he actually accepts. ISSUE credited Motor Svc.
-It was a considerable time after payment before Price WON defendant bank is liable to plaintiff bank -Motor Servic refused to reimburse. Pangasinan
found they were forged and the forger was already to Transport refused to have proceeds deducted from
be hanged. He made no objection at the time he paid HELD: NO their deposit.
them. Whatever neglect there was, it was on his side. -GEN RULE: Where a holder for value in due course
-Neal had no reason to doubt the second bill after Price, presents to the drawee a bill of exchange to which the ISSUE
without any scruple or hesitation, paid the first. Neal name of the drawer has been forged, and the drawee WON PNB has right to recover from National City Bank
also paid the whole value bona fide. It is a misfortune pays the instrument, the holder and drawee alike
which happened without Neal’s fault or neglect. Even if ignorant that the signature of the ostensibly drawer HELD: YES
there was no neglect on the part of Price, there is no was forged, and it is subsequently discovered that the -Acceptance is unnecessary in so far as bills of
reason to throw off the loss from one innocent man to signature of the drawer was forged, the drawee cannot exchange payable on demand are concerned (e.g.,
another innocent man. recover payment made to the holder. checks).
Disposition Postea1 delivered to defendant. -EXCEPTIONS: This defense is not available to a holder -A check being payable immediately and on demand,
who (1) is guilty of bad faith, or (2) has been negligent. bank can fulfill its duty to depositor only by paying the
-Was the defendant negligent? NO. There was nothing amount demanded. The holder has no right to demand
FIRST NAT’L BANK OF PORTLAND V upon the face of any of the checks to excite suspicion, from bank anything but payment, and the bank cannot
U.S. NAT’L BANK OF PORTLAND and it is not claimed that any of the 18 merchants knew do anything but pay.
100 Ore. 264, 196 Pac 547, 14 ALR 470 (1921) or had any reason to suspect the checks were forgeries. -There is however, nothing w/c prohibits presentation of
~joey~ -The fact that the defendant had in its files the genuine checks for acceptance before they are paid. Where a
signature of a drawer might, if there are other check is certified by the bank on w/c it is drawn,
FACTS circumstances tending to show negligence be certification is equivalent to an acceptance. The bank
SUBJECT: 18 forged checks considered in determining whether the defendant was accepts if it chooses.
DRAWER: Willamette Iron & Steel Works negligent; but it cannot be said that the failure to -The purpose of certification is to import strength to the
DRAWEE: First National Bank of Portland compare the signatures was, as a matter of law, paper by obtaining acknowledgment from the certifying
PAYEES: Rose and Shea, separately negligence on the part of the defendant. bank that the drawer has sufficient funds.
INDORSEES: various merchants  United States Disposition Judgment affirmed. -In this case, there was payment but no acceptance nor
National Bank of Portland certification.
-Rose and Shea confederated to obtain 18 blank checks -To entitle the holder of forged check to retain the
bearing the lithographed signature of Ball, president of PHIL. NAT’L BANK V NAT’L CITY BANK OF NY money obtained, he must be able to show that the
Steel Works, and forge therein the signature of Insley, and MOTOR SERVICE CO., INC. whole responsibility of determining validity of the
secretary-treasurer. 63 PHIL 711; RECTO; 1936 signature was upon drawee.
-The checks were negotiated by the two to various ~chriscaps~ -The drawee of a check who is deceived by forgery of
merchants, all of whom deposited the checks in their drawer’s signature may recover payment, unless his
accounts in the United States National Bank. FACTS mistake has placed an innocent holder of paper in a
-Defendant bank collected from drawee/plaintiff bank. -Unknown person negotiated w/ Motor Svc the checks worse position than he could have been in if the
-Forgery was discovered and drawee was immediately in payment for tires purchased fr Motor Svc, purporting discovery of the forgery had been made on
notified. to have been issued by Pangasinan Transport Co. presentation.
-Plaintiff bank wants to recover from defendant bank on against PNB and in favor of Int’l Auto Repair Shop. -The appellant in purchasing the papers from unknown
the theory that (1) the latter was negligent in not -Said checks were indorsed by unknown person at the person w/o making inquiry, acted negligently and
detecting the forgery (apparently, drawer also had a back, Motor Svc believing that the signatures of Klar contributed to the appellee’s constructive negligence in
checking account in defendant bank, so they should (Manager and Treasurer of Pangasinan Transport) were failing to detect the forgery.
have been aware of the required signatures), and (2) genuine.
even if not negligent, the indorsement of the checks -Checks were indorsed for deposit by Motor Svc at the
and presentment for payment, followed by actual National City Bank of New York and Motor Svc was REPUBLIC V EQUITABLE BANKING CORP
payment, oblige the defendant to refund. credited w/ the amounts. and REPUBLIC OF THE PHIL V. BPI
-Checks were cleared and PNB credited the National 10 SCRA 8; Concepcion; Jan 30, 1964
1 City Bank of New York for the amounts, believing that ~’del~
Black’s Law Dictionary: “In the common-law practice, a formal
the signatures of the drawer were genuine, that the
statement, indorsed on the nisi prius record, which gives an
account of the proceedings at the trial of the action.” The term payee is an existing entity and the indorsements are FACTS
“nisi prius” means the court in which “the cause was tried to a regular. [BPI case]
jury, as distinguished from the appellate court.” [So it appears -PNB found out that the purported signatures of Klar -Jacinto Carranza asked the Corporacion de los Padres
that in common-law practice, the victor will be entitled to a were forged. It demanded from Motor Svc the Dominicos to cash 24 treasury warrants from which
formal statement of the proceedings. Probably so he could use reimbursement of amounts for w/c it credited the
it to prove his acquittal or for execution of his claim.]
[ch4-E] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-E]
encashment his wife expected to earn a sort of SUBJECT: check drawn as a refund of the payment
commission. HELD: No. The Treasury was the negligent one here made by John and Lilian Noble for the property
-The Corporacion accommodated Carranza’s request since there was a “24 –hour clearing rule,” wherein purchased and subsequently reconveyed to T.D. Lee
since the latter was a trusted former employee but items that should be returned for whatever reason through the drawer
subject to certain conditions: should be done so within 24 hours. This it failed to do in DRAWER: Kelleck, a broker
a) that the warrants be deposited with BPI; these two cases. DRAWEE: First National Bank of Portland Oregon
b) that the actual payment of the value of the (Note: there is no mention of the NIL here because the PAYEE: Lilian S. Noble
warrants would be made only after the same had been 28 warrants were not negotiable; Campos posed the SUBSEQUENT INDORSEMENTS: Mrs. Noble indorsed the
duly accepted and cleared by the Treasurer and the question that had the said warrants been negotiable, check in blank and deposited it in the United States
proceeds thereof duly credited to the BPI account of would the Court’s ruling be different?) National Bank of Portland. The deposit, on the same
the Corporacion. -Negligence in clearing: The Auditor of the Treasury, day, was entered as credits in the Noble’s savings
-Said conditions were met and deposited with BPI who whose signature was forged, exceeded his authority to account and checking account.
accepted the warrants “subject to collection only” and approve since each of the warrants involved were for -The US National Bank, on Sept21, placed its clearing
with each of them (warrants) bearing the indorsement over 5k pesos. The irregularity of the warrants was house indorsement, as of Sept22, on the check. The
of the respective payee and that of the Corporacion. apparent on the face thereof from the Treasury’s check reached the drawee, the First National Bank of
-BPI presented the warrants for payment to the drawee viewpoint yet the banks were not informed of any of Portland on Sept22. The account of the drawer, Kelleck,
(the Government) through the Clearing Office and upon the irregularity in them until after said warrants were then had but $200 to his credit. On discovery of this
clearing, was paid by the Treasurer. cleared and honored. Only then did the Treasury give fact a teller in the First National Bank placed a small
-BPI then credited the proceeds to the Corporacion’s notice of the forgeries. symbol on the check which indicated that the check
account, which was then withdrawn by the Corporacion. -As was stated, all 28 warrants were cleared and paid was to be rejected for want of sufficient funds. The
-The Treasurer returned 3 of the warrants to the by the Treasury, this, then, induced the banks to credit check was then returned through the clearing house to
Central Bank on the ground that those were forged and the amounts to the respective depositors. TF, the loss the forwarding bank, the US National, at 11 am,
then demanded that the value of said warrants be of amounts was imputable to the acts and omissions of Sept23, with the advice that it was being dishonored for
charged against BPI’s account with the Clearing Office the Treasury so the banks should not and cannot be insufficient funds in the drawer’s account. The credit to
and credited back to the demand deposit of the penalized. the US National Bank was canceled by the First
Treasury. -Treasury should bear the loss, citing PNB v Nat’l City National. The US National, by letter dated Sept23,
-Eventually, all warrants were returned by the Treasury Bank of NY, “Where a loss, which must be borne by one informed Mrs. Noble of the dishonor of the Kelleck
to the Central Bank for the same reason and with the of two parties alike, innocent of forgery, can be traced check and that it had been charged back to the Noble’s
same demand. to the neglect or fault of either, it is reasonable that it account.
-Central Bank then referred the matter to BPI for would be borne by him, even if innocent of any -Sept24, shortly before 3pm, US National Bank by
appropriate action but the latter opposed the return of intentional fraud, through whose means it has messenger presented the check over the counter of the
the warrants or to have their value charged against its succeeded.” First National. The teller in the First National, to whom
account and requested, instead, to the CB to return -“Generally, where a drawee bank otherwise would the check was presented the second time, mistook the
said warrants to the Treasurer. have a right of recovery against a collecting or rejection symbol which on Sept22, had been placed on
[Equitable Case] indorsing bank for its payment of a forged check, its the check by another teller of the First National, for a
-4 warrants were deposited with Equitable by its action will be barred if it is guilty of an unreasonable symbol authorizing payment. Acting on this mistaken
depositors Robert Wong, Lu Chiu Kau and Chung delay in discovering the forgery and in giving notice assumption he prepared a cashier’s check dated
Ching . thereof.” (C.J.S. 769-770) Sept24, payable to order of the United States National
-Equitable cleared said warrants through the Clearing -First State Bank & Trust v. First Nat’l Bank: (restated in the amount of the Kelleck check, had the same duly
Office and then collected the corresponding amounts lang ‘to ha!) Where a defendant bank, on presentation signed by an assistant cashier of the drawee and
from the Treasurer, and thereafter, credited those to to it of a forged check drawn on another bank, paid part delivered the same to the messenger from the United
the accounts of the depositors. of amount to presenter, drawee having had the check States National. The United States National credited the
-The Treasurer notified Equitable that said warrants cleared through the clearing house, with no notice of First National’s cashier’s check to the account of the
were defective and demanded reimbursement of said forgery given, said bank cannot be held liable for Nobles. The First National’s cashier’s check was marked
amounts, which the latter refused. amount so paid. paid through the clearing house at 8:45 a.m., Sept25,
[Consolidation] Disposition Decision appealed from is Affirmed. to the United States National though the courts finds
-By agreement of the parties, said cases were jointly that the cashier’s check was received by the First
heard. (Kasi,BPI filed a complaint against the National on Sept24 and marked paid on that date
Corporacion; Equitable filed a similar complaint for FIRST NAT’L BANK OF PORTLAND V NOBLE (1946) though the clearing house transaction took place on the
whatever reimbursements it and BPI may be sentenced 179 Ore. 26, 168 P. (2d) 354 (1946) next morning.
to give the Gov’t.) ~jaja~ -Sept25, the First National Bank discovered its mistake
and before 12 o’clock the First National retendered the
ISSUE FACTS Kelleck check as a dishonored item but the United
WON said banks are liable States National refused to receive it and to return the
[ch4-F] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-F]
proceeds of the cashier’s check. The First National Bank the United States National Bank. The defendants Noble within the meaning of the general rule which permits
brought an action of assumpsit for money had and may have their costs and disbursements from the the recovery of money paid under a mistake of fact;
received against Lilian Noble and John Noble and the plaintiff First National Bank. and
United States National Bank to recover the amount of 3. to permit the bank to repudiate the payment would
the cashier’s check, i.e., $10, 573.50. The US National destroy the certainty that must pertain to commercial
Bank filed its bill of interpleader and tendered the LIBERTY TRUST CO V HAGGERTY (1921) transactions and give way to uncertainty, delay and
money into court. The plaintiff recovered judgment in [place citation here] annoyance.
the trial court against the Nobles. The Nobles appealed. ~ina~ -It's a rule that a person receiving stolen money
-The court concluded that the asserted right of plaintiff innocently in due course of business, in payment of a
to restitution must be considered exactly as if the FACTS pre-existing debt, is a holder for value as against the
Kelleck check and had been paid over the counter in -Haggerty, a manloloko, had a checking account with former owner.
cash. Liberty Trust Co. He induced a bookkeeper of the bank
to manipulate the bank's books to make it appear that
ISSUE he had credit in the bank so that the checks he drew on GREAT EASTERN LIFE INS. V HSBC (1922)
WON the trial court erred in discharging the US National the bank would be honored. They were successful for 43 Phil 678 (1922); Johns
from liability about 5 months, when a bank official accidentally ~chrislao~
discovered the falsification. Haggerty and bookkeeper
HELD: NO succeeded in obtaining overdrafts of about $53k of the FACTS
-Rule 33 of the Restatement on Restitution must control bank's funds. -Great Eastern, an insurance company, drew a check
the decision of this case. It is as follows: -Haggerty was arrested. He was also declared bankrupt for 2k on HSBC payable to the order of Melicor.
-The payee is entitled to retain the money which he has and a trusty was appointed. His total realized assets -Maasim fraudulently obtained possession of said check
received as a bona fide purchaser. The typical cases was $9500 and the claims filed with the trustee totaled and forged Melicor's signature, as an endorser. He then
are those where an employee of a bank pays the holder more than $150k. endorsed and presented it to PNB where the amount
of a check in the mistaken belief that the drawer has -Mayhew was one of the claimants. He loaned Haggerty was placed to his credit.
sufficient funds on deposit to meet it or in forgetfulness some money with 20-40% interest. Haggerty paid him -After paying Maasim, PNB endorsed the check to
of the fact that the drawer has directed that payment with checks drawn on Liberty. The bank paid a total of HSBC. HSBC paid PNB and then charged the check to
should not be made. $19k to Mayhew during the time the books were being the account of Great Eastern.
-The forgery cases are said to rest, in part at least, magicked. Mayhew was not aware of the fact that -HSBC, as expected in the ordinary course of business,
upon the maxim that where the equities are equal the Haggerty's account was being falsified. sent Great Eastern a bank statement which showed
legal title must prevail. That maxim appears applicable -Liberty wants to recover the money it paid to Mayhew. that the check was charged to its account. Great
where a drawee bank pays a check so skillfully forged Eastern did not object.
as to defy detection. The holder and the drawee are ISSUES -4 months later, Great Eastern found out that Melicor
equally without fault, and the holder has the money. WON Liberty can recover what it paid Mayhew never got paid. Great Eastern then made a demand on
-The position of the defendants in the case at bar is in HSBC that Great Eastern should be given credit for the
this respect stronger than that of the one who has HELD: NO. forged check but HSBC refused.
received payment of a forged check. Here the equities Mayhew was a bona fide holder for value. As such, he -Great Eastern sued HSBC to recover the 2k (so it could
are not equal. The representative of the plaintiff was did not have a right to exact payment from Liberty pay Melicor). HSBC, on the other hand, prays that
clearly negligent. He acted in reliance on a symbol because there was no contract between them. Liberty, should judgment be rendered against it, it should have
which he had never before seen the meaning of which on the other hand, had the right to determine WON to like judgment against PNB.
he had no reason to know. A moment’s inquiry would pay him. When the bank decided to pay, it was bound
have informed him fully concerning the meaning of the to know the state of its account with Haggerty. Having ISSUES
symbol and the state of Kelleck’s account. But no exercised its option to pay or not to pay by honoring WON Great Eastern can recover
inquiry was made. the checks, Liberty can't recover the money back from
-The defendants Noble are not chargeable with any the payee. This is under the general rule that payment HELD
neglect or inequitable conduct. Neither they nor their of a check by a bank upon which it is drawn, under the YES. This is not a case where the plaintiff's own
collecting agent knew or were entitled to know the mistaken belief that the maker of the check has signature was forged to one of its checks. In such a
state of the Kelleck account, and the fact that the sufficient funds to his credit to pay the check, is a case, the plaintiff would have known the forgery and
Kellect check was NSF on Sept22 did not render it finality, and the bank can't recover from the payee of would therefore have the duty to promptly notify the
unconscionable to present it again on Sept24, Freeport the check the amount so paid. bank. Failure to do so would release the bank.
Bank of Freeport. -The reasons for this rule are: -Here, the forgery was that of Melicor, the payee.
Disposition The decree in favor of the First National 1. there's no privity between the payee and the bank; Therefore, when Great Eastern, the drawer, received its
Bank is reversed. It is ordered that the defendants 2. the bank always has the means of knowing the state bank statement, it had the right to assume that Melicor
Noble recover the sum $10,573.50 paid into the of the depositor's account by an examination of its had personally endorsed the check because otherwise,
registry of the court xxx The decree is affirmed as to books, and therefore the payment is not a mistake HSBC would not have paid it.
[ch4-G] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-G]
-HSBC had no legal right to pay it out to anyone except to the order of the Mariano Olondriz y Cia in payment of checks. Indeed, Jai-Alai, having indorsed the checks to
Great Eastern or its order. Great Eastern ordered HSBC certain shares of stock. BPI in accordance with the rules and practices of
to pay the 2k to Melicor but the money was paid to -The check was dishonored by BPI as its records commercial banks, is deemed to have given the
Maasim. HSBC has no defense to this action. showed that the current account of the petitioner, after warranty prescribed in Section 66 of the Negotiable
-PNB cashed the check upon a forged signature. PNB netting out the value of the checks P8,030.58 with the Instruments Law that every single one of those checks
had no license or authority to pay the money to forged indorsements, had a balance of only "is genuine and in all respects what it purports to be."
Maasim. It was its legal duty to know that Melicor's P128,257.65. -Also, Jai-Alai was grossly recreant in accepting the
endorsement was genuine before cashing the check. Its -Jai-Alai Corp filed a complaint with CFI, which was checks in question from Ramirez. It could not have
remedy is against Maasim. dismissed; CA affirmed dismissal escaped it's attention that the payee of all the checks
-Great Eastern can recover from HSBC. HSBC can was a corporation — the Inter-Island Gas Service, Inc.
recover from PNB. As for PNB, it should go after ISSUE Yet, the petitioner cashed these checks to a mere
Maasim. WON BPI had the right to debit the petitioner's current individual who was admittedly a habitue at its jai-alai
account in the amount corresponding to the total value games without making any inquiry as to his authority to
of the checks with the forged indorsements exchange checks belonging to the payee-corporation.
JAI-ALAI CORP. OF THE PHIL. V BPI (1975) -It must be noted further that three of the checks in
66 SCRA 29; CASTRO; August 6, 1975 HELD: YES. The respondent acted within legal bounds question are crossed checks, which may only be
~apple~ when it debited the petitioner's account. deposited, but not encashed; yet, the petitioner
-When the petitioner deposited the checks with the negligently accepted them for cash.
FACTS respondent, the nature of the relationship created at -Under Section 67 of the Negotiable Instruments Law,
-10 checks with a total face value of P8,030.58 were that stage was one of agency--the bank was to collect "Where a person places his indorsement on an
deposited by Jai-Alai Corporation in its current account from the drawees of the checks the corresponding instrument negotiable by delivery he incurs all the
with BPI proceeds. It is true that the respondent had already liability of an indorser," and under Section 66 of the
-All the checks (all payable to Inter-Island Gas or order) collected the proceeds of the checks when it debited same statute a general indorser warrants that the
were acquired by the Jai-Alai Corporation from one the petitioner's account, so that following the rule in instrument "is genuine and in all respects what it
Antonio J. Ramirez, a sales agent of the Inter-Island Gas Gullas vs. Philippine National Bank, it might be argued purports to be." Considering that the petitioner
and a regular bettor at jai-alai games that the relationship between the parties had become indorsed the said checks when it deposited them with
-Upon deposit to BPI, the checks were temporarily that of creditor and debtor as to preclude the the respondent, the petitioner as an indorser
credited to Jai-Alai Corporation's account with the respondent from using the petitioner's funds to make guaranteed the genuineness of all prior indorsements
condition that “any credit allowed...is provisional only, payments not authorized by the latter. thereon. The respondent which relied upon the
until such time as the proceeds thereof, in current -Section 23 of the Negotiable Instruments Law petitioner's warranty should not be held liable for the
funds or solvent credits, shall have been actually provides: "When a signature is forged or made without resulting loss.
received by the Bank, and the latter reserves to itself the authority of the person whose signature it purports -Also, under article 2154 of the New Civil Code "If
the right to charge back the item to the account of its to be, it is wholly inoperative, and no right to retain the something is received when there is no right to demand
depositor, at any time before that event, regardless of instrument, or to give a discharge therefor, or to it and it was unduly delivered through mistake, the
whether or not the item itself can be returned...” enforce payment thereof against any party thereto, can obligation to return it arises." There was, therefore, in
-After Ramirez had resigned from the Inter-Island Gas be acquired through or under such signature, unless contemplation of law, no valid payment of money made
and after the checks had been submitted to inter-bank the party against whom it is sought to enforce such by the drawee-banks to the respondent on account of
clearing, Inter-Island Gas discovered that all the right is precluded from setting up the forgery or want of the questioned checks.
indorsements made on the checks purportedly by its authority." Disposition Petition denied. CA judgment affirmed.
cashiers, as well as the rubber stamp impression -BPI, as a collecting bank which indorsed the checks to
thereon reading "Inter-Island Gas Service, Inc.," were the drawee-banks for clearing, should be liable to the CANAL BANK V BANK OF ALBANY
forgeries. latter for reimbursement, for, as found by the court a Supreme Court of New York; 1 Hill 287 (1841)
-Inter-Island Gas advised Jai-Alai Corp, BPI, the drawers quo and by the appellate court, the indorsements on ~rach~
and the drawee-banks of the said checks about the the checks had been forged
forgeries -In legal contemplation, therefore, the payments made FACTS
-Drawers of the checks demanded reimbursement to by the drawee-banks to the BPI, on account of the said -This is a case to recover money paid on a draft. The
their respective accounts from the drawee-banks checks, were ineffective; and, such being the case, the ground on which the plaintiffs sought to recover back
-Drawee-banks demanded from BPI, as collecting bank, relationship of creditor and debtor between the the money was that the endorsement purporting to be
the return of the amounts they had paid on account petitioner and the respondent had not been validly that of Bentley was a forgery, which fact was proved by
thereof effected, the checks not having been properly and Bentley and others on the trial.
-BPI, for its part, debited Jai-Alai Corp's current account legitimately converted into cash. -The draft was drawn on the plaintiffs (Canal Bank) by
-On October 8, 1959, Jai-Alai Corp drew against its -Having received the checks merely for collection and the Montgomery County Bank, payable to the order
current account with BPI a check for P135,000 payable deposit, BPI cannot he expected to know or ascertain of E. Bentley. It purported to have been endorsed
the genuineness of all prior indorsements on the said successively by Bentley, then by one Budd, afterward
[ch4-H] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-H]
by the Bank of New-York, and lastly by the defendants ~cha~ forged check, without actual negligence on his part,
(Bank of Albany), to whom the plaintiffs paid it. may recover the money paid from such negligent
-Two months after payment, plaintiffs asked the FACTS purchasers. In such cases the recovery is permitted
defendants to have the money refunded, notifying SUBJECT: A forged check because although the drawee was in a way negligent in
them at the same time of the forgery. DRAWER: Bureau of Treasury (treasury) failing to detect the forgery, yet if the encasher of the
-Upon plaintiff’s objections, the circuit judge overruled DRAWEE: Republic Bank (RB) check had performed his duty, the forgery would in all
the defendant’s offer to prove the ff: PAYEE: Martin Lorenzo, who was already dead 11 years probability, have been detected and the fraud
(1) That the defendants received the draft from the before the check was executed defeated.
Bank of New York to collect, as agents for the latter, INDORSEE: Ramon Lorenzo, Delia Dominguez, then Ratio for allowing recovery: Every one with even the
and that as such they received the money and paid it lastly Mauricia Ebrada least experience in business knows that no business
over to their principals, before notice of the forgery; -Treasury issued check in favor of Martin Lorenzo. The man would accept a check in exchange for money or
(2) That a uniform custom of the banks of this state is check was subsequently indorsed to Ebrada for goods unless he is satisfied that the check is genuine.
to receive and collect drafts in the manner this was encashment, and so after, she delivered the proceeds He accepts it only because he has proof that it is
done, without disclosing their agency. to Dominguez, and Dominguez delivered the latter to a genuine, or because he has sufficient confidence in the
certain Justinia Tinio. When Treasury found out that the honesty and financial responsibility of the person who
ISSUE check was forged, they demanded RB to refund the vouches for it. If he is deceived he has suffered a loss
WON the defendants were bound to return the money check proceeds. RB demanded refund from Ebrada. TC of his cash or goods through his own mistake. His own
received ruled for RB. credulity or recklessness, or misplaced confidence was
the sole cause of the loss. Why should he be permitted
HELD: YES ISSUE to shift the loss due to his own fault in assuming the
Ratio Though the defendants were innocent of any WON Ebrada, the last indorser, was liable to pay the risk, upon the drawee, simply because of the accidental
intended wrong, they had obtained money of the check on its face although she did not benefit from it circumstance that the drawee afterwards failed to
plaintiffs on an instrument to which they had no title, detect the forgery when the check was presented?
and were therefore bound to refund; though notice of HELD: YES. Ebrada liable to RB, RB liable to Treasury Reasoning.Since Ebrada was the last indorser of the
the forgery was not given till more than two months Ratio. Where a check is drawn payable to the order of check, she was supposed to have warranted that she
after they had received the money, they already one person and is presented to a bank by another and has good title to said check. She was duty-bound to
received it and transmitted it to their principal. purports upon its face to have been duly indorsed by ascertain whether the check in question was genuine
-Where a bank collects a draft without disclosing to the the payee of the check, it is the duty of the bank to before presenting it to plaintiff Bank for payment. Her
drawee that it is merely collecting as agent, and it is know that the check was duly indorsed by the original failure to do so makes her liable for the loss and the
afterwards discovered that the indorsement was a payee, and where the Bank pays the amount of the plaintiff Bank may recover from her the money she
forgery, it is liable as principal in an action, by the check to a third person, who has forged the signature received for the check. As reasoned out above, had she
drawee. of the payee, the loss falls upon the bank who cashed performed the duty of ascertaining the genuineness of
-Where a draft had been fraudulently indorsed with the the check, and its only remedy is against the person to the check, in all probability the forgery would have
name of an agent, who is also payee, and put in whom it paid the money. been detected and the fraud defeated.
circulation, bona fide, by the principal of the pretended Re: effect of forged instrument: Where the signature on -As regards RB, the plaintiff Bank should suffer the loss
agent, without disclosing an agency, the indorsee of a negotiable instrument if forged, the negotiation of the when it paid the amount of the check in question to
the principal, discovering the forgery two months after check is without force or effect (from Section 23 of the defendant-appellant, but it has the remedy to recover
might recover the money advanced to the principal. Negotiable Instruments Law (Act 2031)). It is only the from the latter the amount it paid to her.
-If one accepts a draft in the hands of a bona fide negotiation based on the forged or unauthorized -as regards the argument that Ebrada did not benefit
holder, he will not be allowed afterward to dispute the signature which is inoperative (Beam vs. Farrel). from the check, although the defendant-appellant to
genuineness of the drawer's signature, though he may Re: drawee’s recovery when he paid based on a forged whom the plaintiff Bank paid the check was not proven
that of the endorsers; and payment operates, in this instrument: the drawee of a check can recover from the to be the author of the supposed forgery, yet as last
respect, the same as an acceptance. holder the money paid to him on a forged instrument. It indorser of the check, she has warranted that she has
-To a note or bill payable to order, none but the payee is not supposed to be its duty to ascertain whether the good title to it even if in fact she did not have it
can assert any title without the indorsement of such signatures of the payee or indorsers are genuine or not. because the payee of the check was already dead 11
payee; not even a bona fide holder. This is because the indorser is supposed to warrant to years before the check was issued. The fact that
Disposition New trial denied. the drawee that the signatures of the payee and immediately after receiving the cash proceeds of the
previous indorsers are genuine, warranty not extending check in question in the amount of P1,246.08 from the
only to holders in due course. One who purchases a plaintiff Bank, defendant-appellant immediately turned
check or draft is bound to satisfy himself that the paper over said amount to Adelaida Dominguez (Third-Party
is genuine and that by indorsing it or presenting it for defendant and the Fourth-Party plaintiff) who in turn
payment or putting it into circulation before handed the amount to Justina Tinio on the same date
REPUBLIC BANK V EBRADA presentation he impliedly asserts that he has would not exempt her from liability because by doing
L-40796; 65 SCRA 680; July 31, 1975 performed his duty and the drawee who has paid the so, she acted as an accommodation party in the check
[ch4-I] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-I]
for which she is also liable under Section 29 of the BDO, paid on the checks. The same principle of -Under Sec. 23, the general rule is that forged
Negotiable Instruments Law. estoppel effectively prevents the BDO from denying the signatures are wholly inoperative and payments
Disposition Judgment affirmed. existence of the checks. through such are ineffectual; the exception is where
-Whether the checks have been issued for valuable the party relying on the forgery is precluded from
considerations or not is of no serious moment to this setting up the forgery or want of authority. The court
BANCO DE ORO V EQUITABLE BANK CORP case. These checks have been made the subject of recognizes negligence of the party invoking forgery as
157 SCRA 188; Gancayco; January 20, 1988 contracts of endorsement wherein BDO made an exception; hence general rule does not apply here.
~jojo~ expressed warranties to induce payment by the drawer BPI claims the clearing guaranty makes CBC wholly
of the Checks; and the defendant cannot now refuse liable for forged checks. Records show both BPI (not
FACTS liability for breach of warranty as a consequence of calling Fernando to confirm pretermination; not
-Sometime in 1983, EBC thru its Visa Card such forged endorsements. BDO has falsely warranted verifying Fernando’s signatures; not asking for the
Department, drew 6 crossed Manager's checks in favor of EBC the validity of all endorsements and the promissory note upon pickup of checks) and CBC
amounting to P45,982.23 and payable to certain genuineness of the checks in all respects what they (opening account for Lopez with only Fernando’s tax
member establishments of Visa Card. Subsequently, purport to be. account number as ID, not questioning Lopez’ huge
the Checks were deposited with the BDO to the credit -The damage that will result if judgment is not deposit and withdrawals) were negligent in the
of its depositor, a certain Aida Trencio. rendered for EBC is irreparable. The collecting bank has selection/supervision of their employees and thus both
-Following normal procedures, and after stamping at privity with the depositor who is the principal culprit in liable.
the back of the checks the usual endorsements: 'All this case. BDO knows the depositor; her address and Disposition BPI is liable 60%, CBC is liable 40%
prior and/or lack of endorsement guaranteed', BDO her history, Depositor is BDO's client. It has taken a risk
sent the checks for clearing through the PCHC. on its depositor when it allowed her to collect on the
Accordingly, EBC paid the checks; its clearing account crossed-checks. GEMPESAW V CA, PBCOM
was debited for the value of the checks and -Having accepted the crossed checks from persons 218 SCRA 682; Campos, Jr.; Feb 9, 1993
defendant's clearing account was credited for the same other than the payees, BDO is guilty of negligence; the ~athe~
amount. risk of wrongful payment has to be assumed by BDO.
-Thereafter, EBC discovered that the endorsements FACTS
appearing at the back of the checks and purporting to -Petitioner Natividad O. Gempesaw (petitioner) owns
be that of the payees were forged and/or unauthorized BPI V CA, CHINA BANKING CORP and operates four grocery stores in Caloocan City.
or otherwise belong to persons other than the payees. L-102383; 216 SCRA 51; November 26, 1992 Petitioner maintains a checking account with the
-EBC presented the checks directly to BDO for the ~kiyo~ Caloocan City Branch of the respondent drawee Bank
purpose of claiming reimbursement from the latter. (PBC). To facilitate payment of debts to her suppliers,
However, BDO refused to accept such direct FACTS petitioner draws checks against her checking account
presentation and to reimburse the EBC for the value of SUBJECT: 2 checks for the pretermination of a money with PBC as drawee. Her customary practice of issuing
the Checks. market placement checks in payment of her suppliers was as follows: The
DRAWER/DRAWEE: BPI checks were prepared and filled up as to all material
ISSUE PAYEE: Eligia Fernando, impersonated by Susan Lopez particulars by her trusted bookkeeper, Alicia Galang, an
WON BDO was negligent and thus responsible for any INDORSMENT: China Banking Corp., collecting bank of employee for more than eight (8) years. After the
undue payment the BPI checks bookkeeper prepared the checks, the completed
-Lopez impersonated Fernando, preterminated the checks were submitted to the petitioner for her
HELD: YES latter’s money market placement evidenced by a signature, together with the corresponding invoice
-In presenting the Checks for clearing and for payment, promissory note (P2,462,243.19) from and through BPI, receipts which indicate the correct obligations due and
BDO made an express guarantee on the validity of 'all who issued her 2 checks. She later opened an account payable to her suppliers. Petitioner signed each and
prior endorsements'. Thus, stamped at the bank of the at CBC and endorsed the checks there; CBC stamped every check without bothering to verify the accuracy of
checks are the defendant's clear warranty: ALL PRIOR them with guaranty of prior endorsements and/or lack the checks against the corresponding invoices because
ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS of endorsement; BPI cleared them. Lopez withdrew she reposed full and implicit trust and confidence on
GUARANTEED. Without such warranty, EDC would not nearly the whole amount. The real Fernando came on her bookkeeper. The issuance and delivery of the
have paid on the checks. the maturity date of the placement for rollover and checks to the payees named therein were left to the
-No amount of legal jargon can reverse the clear claimed forgery of endorsements. bookkeeper.
meaning of BDO's warranty. As the warranty has -In the course of her business operations covering a
proven to be false and inaccurate, the BDO is liable for ISSUE period of two years, petitioner issued, following her
any damage arising out of the falsity of its WON in the event that the payee’s signature is forged, usual practice stated above, a total of eighty-two (82)
representation. BPI may claim reimbursement from CBC checks in favor of several suppliers.
-The principle of estoppel effectively prevents BDO -It appears that instead of issuing the checks to the
from denying liability for any damages sustained by HELD: NO payees as named in the checks, Alicia Galang delivered
EBC which, relying upon an action or declaration of the them to the Chief Accountant of the Buendia branch of
[ch4-J] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-J]
the respondent drawee Bank, a certain Ernest L. Boon, 1. NO. The petitioner’s negligence was the proximate of a promissory note, he cannot be made to pay
who, without authority therefor, accepted them all for cause of her loss. because he never made the promise to pay. Or where a
deposit at the Buendia branch to the credit and/or in Reasoning person's signature as a drawer of a check is forged, the
the accounts of Alfredo Y. Romero and Benito Lam. One thing is clear from the records -that the petitioner drawee bank cannot charge the amount thereof against
Ernest L. Boon was a very close friend of Alfredo Y. failed to examine her records with reasonable diligence the drawer's account because he never gave the bank
Romero. It was established that the signatures of the whether before she signed the checks or after receiving the order to pay.
payees as first indorsers were forged. The record fails her bank statements. Had the petitioner examined her -Exception: Where the drawer is guilty of such
to show the identity of the party who made the forged records more carefully, particularly the invoice negligence which causes the bank to honor such a
signatures. The checks were then indorsed for the receipts, cancelled checks, check book stubs, and had check or checks.
second time with the names of Alfredo Y. Romero and she compared the sums written as amounts payable in -Example: If a check is stolen from the payee, it is
Benito Lam, and were deposited in the latter's accounts the eighty-two (82) checks with the pertinent sales quite obvious that the drawer cannot possibly discover
as earlier noted. The second indorsements were all invoices, she would have easily discovered that in the forged indorsement by mere examination of his
genuine signatures of the alleged holders. some checks, the amounts did not tally with those cancelled check. This accounts for the rule that
-The total amount of P1,208,606.89, represented by appearing in the sales invoices. Had she noticed these although a depositor owes a duty to his drawee bank to
eighty-two (82) checks, were credited and paid out by discrepancies, she should not have signed those examine his cancelled checks for forgery of his own
respondent drawee Bank to Alfredo Y. Romero and checks, and should have conducted an inquiry as to the signature, he has no similar duty as to forged
Benito Lam, and debited against petitioner's checking reason for the irregular entries. Likewise, had petitioner indorsements. A different situation arises where the
account , Caloocan branch. been more vigilant in going over her current account by indorsement was forged by an employee or agent of
-It was only after the lapse of more than two (2) years taking careful note of the daily reports made by the drawer, or done with the active participation of the
that petitioner found out about the fraudulent respondent drawee Bank on her issued checks, or at latter. Most of the cases involving forgery by an agent
manipulations of her bookkeeper (payees did not least made random scrutiny of her cancelled checks or employee deal with the payee's indorsement. The
receive nor see the subject checks). Because of this, returned by respondent drawee Bank at the close of drawer and the payee oftentimes have business
the petitioner demanded from the drawee Bank to each month, she could have easily discovered the fraud relations of long standing. The continued occurrence of
credit her account with the money value of the 82 being perpetrated by Alicia Galang, and could have business transactions of the same nature provides the
checks for having been wrongfully charged against her reported the matter to the respondent drawee Bank. opportunity for the agent/employee to commit the
account. The Bank refused. The respondent drawee Bank then could have taken fraud after having developed familiarity with the
PROCEDURE immediate steps to prevent further commission of such signatures of the parties.
RTC Caloocan – Complaint for recovery of the money fraud. Reasoning In the case at bar, the agent was the one
value of the 82 checks: dismissed who perpetrated the series of forgeries. Had the
CA – Appeal: affirmed the decision of the RTC on two 2. YES. As a general rule, forgery is a defense. petitioner been more prudent under the circumstances,
grounds, namely (1) that the plaintiff’s (petitioner However, the plaintiff falls under the exception. she could have discovered the fraud earlier.
herein) gross negligence in issuing the checks was the -The applicable law is Section 23 of the NIL which
proximate cause of the loss and (2) assuming that the provides: 3. NO.
bank was also negligent, the loss must nevertheless be "When a signature is forged or made without the Ratio Issuing a crossed check imposes no legal
borne by the party whose negligence was the authority of the person whose signature it purports to obligation on the drawee not to honor such a check. It
proximate cause of the loss. be, it is wholly inoperative, and no right to retain the is more of a warning to the holder that the check
SC- Petition under Rule 45 instrument, or to give a discharge therefor, or to cannot be presented to the drawee bank for payment
enforce payment thereof against any party thereto, can in cash. Instead, the check can only be deposited with
ISSUES be acquired through or under such signature, unless the payee's bank which in turn must present it for
(issues relevant to the topic) the party against whom it is sought to enforce such payment against the drawee bank in the course of
1. WON the CA erred in ruling that the negligence of the right is precluded from setting up the forgery or want normal banking transactions between banks. The
drawer is the proximate cause of the resulting injury of authority." crossed check cannot be presented for payment but it
to the drawee bank -General Rule: Forgery is a real or absolute defense by can only be deposited and the drawee bank may only
2. WON the drawer is precluded from setting up the the party whose signature is forged. A party whose pay to another bank in the payee's or indorser's
forgery or want of authority as a defense WON the signature to an instrument was forged was never a account.
respondent drawee Bank should not have honored party and never gave his consent to the contract which
the checks because they were crossed checks. gave rise to the instrument. Since his signature does 4. NO.
(other issues) not appear in the instrument, he cannot be held liable Ratio The banking rule banning acceptance of checks
3. WON banking rules prohibit the drawee bank from thereon by anyone, not even by a holder in due course. for deposit or cash payment with more than one
having checks with more than one indorsement. -This section covers both the forged signature of the indorsement unless cleared by some bank officials does
4. WON the drawee Bank may be held liable for maker of a promissory note/drawer of a check and not invalidate the instrument; neither does it invalidate
damages under any law aside from NIL forged indorsement, i.e., the forged signature of the the negotiation or transfer of the said check. In effect,
payee or indorsee of a note or check. this rule destroys the negotiability of bills/checks by
HELD -Example: If a person's signature is forged as a maker limiting their negotiation by indorsement of only the
[ch4-K] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-K]
payee. Under the NIL, the only kind of indorsement moment.
which stops the further negotiation of an instrument is Disposition: REMANDED to the trial court for the
a restrictive indorsement which prohibits the further reception of evidence to determine the exact amount
negotiation thereof (Sec. 36, NIL). In this kind of of loss suffered by the petitioner (which one half must
restrictive indorsement, the prohibition to transfer or be paid by respondent drawee bank to herein
negotiate must be written in express words at the back petitioner-50/50 ratio based on Article 1172).
of the instrument, so that any subsequent party may
be forewarned that it 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.
-Although the holder of a check cannot compel a
drawee bank to honor it because there is no privity
between them, as far as the drawer-depositor is
concerned, such bank may not legally refuse to honor a
negotiable bill of exchange or a check drawn against it
with more than one indorsement if there is nothing
irregular with the bill or check and the drawer has
sufficient funds. The drawee cannot be compelled to
accept or pay the check by the drawer or any holder
because as a drawee, he incurs no liability on the check
unless he accepts it. But the drawee will make itself
liable to a suit for damages at the instance of the
drawer for wrongful dishonor of the bill or check.

5. YES. Article 1170 of the New Civil Code


provides -
-Those who in the performance of their obligations are
guilty of fraud, negligence or delay, and those who in
any manner contravene the tenor thereof, are liable for
damages."
Reasoning There is no question that there is a
contractual relation between petitioner as depositor
(obligee) and the respondent drawee bank as the
obligor. In the performance of its obligation, the drawee
bank is bound by its internal banking rules and
regulations which form part of any contract it enters
into with any of its depositors. 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.
We hold that banking business is so impressed with
public interest where the trust and confidence of the
public in general is of paramount importance such that
the appropriate standard of diligence must be a high
degree of diligence, if not the utmost diligence. Its
liability as obligor is not merely vicarious but primary
wherein the defense of exercise of due diligence in the
selection and supervision of its employees is of no
[ch4-L] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-L]
TOLMAN V AMERICAN NAT’L BANK party against whom it is sought to enforce such right is HELD: NO.
48 Atl 480, 52 LRA 877 (1901) precluded from setting up forgery or want of authority -The bank said that Neimann was not a real, bona fide
~giulia~ payee, but was in legal contemplation, a fictitious
SNYDER V CORN EXCHANGE NAT’L BANK person—and such fact was known to Greenfield when
FACTS 70 Atl. 876 (1908) he drew the checks, in his capacity as Snyder’s
Tolman sues to recover money paid out by the ~ajang~ attorney/agent. Neimann may have been an existing
defendant on his account, upon his check, under a person, but nevertheless, he was a fictitious name
forged indorsement. Potter, representing himself as FACTS within the meaning of the act of assembly as Greenfield
Haskell, went to the plaintiff to get a loan of money, -Action was filed by Snyder, individually and trading as only intended to use this name and never intended for
giving the residence and occupation of Haskell as his Harrison, Snyder & Son against Corn Exchange National him to receive the checks or have any right to them.
own. The plaintiff made an inquiry on Haskell and Bank. Snyder wants to recover the amount of the -A check is payable to bearer when it is payable to the
founding that the residence and occupation correct checks which were wrongfully paid by the bank. order of a fictitious or nonexisting person, and such fact
thereby agreed to nake the loan. Potter, under the -George Snyder is a broker, trading and doing business was known to the person making it so payable.
name of Haskell, gave the note to the plaintiff, and the under the name of Harrison, Snyder & Son. He is a -The intent of the drawer in inserting the name of the
plaintiff gave him a check on the defendant payable to depositor at the Corn Exchange National Bank. He had payee is the sole test of whether the payee is a
the order of Haskell, delivering it to Potter, supposing in his employ a clerk named Edwin Greenfield, an fictitious person.
him to be Haskell. Potter indorsed Haskell's name on attorney, who was authorized to draw checks in his -In such case, there could be no recovery.
the back of the check, and gave it to AB Homes, who name against his deposit in the said bank. Greenfield -When the checks were delivered to R.M. Miner, they
collected it from the bank. When the note given to the drew 4 checks payable to the order of Charles Niemann were shown as payable to bearer and nothing therefore
plaintiff became due, fraud was discovered. He with a total amount of $ 18, 387.50. These checks need be said in the contention of Snyder as to the
thereupon notified the ank, and demanded the return were paid by the bank and charged to the account of liability of the trust company to the bank upon the
of the amount paid on the check to the credit of his Snyder. guaranty of the indorsements on the checks.
account. -The checks were said to have been indorsed by -The checks drawn by Greenfield are made as if drawn
Neimann, but these indorsements were forgeries and by Snyder himself. And when Snyder lodged with
ISSUE were never authorized by him or Snyder. They were Greenfield with this power, it is as if he said to the bank
WON the bank is liable for the payment which it made said to have been indorsed in blank to R.M. Miner & that any check drawn by Greendield should be paid by
on the check, Co., a copartnership purporting to caryy on a stock and it as if it was made and issued by him. The court said
grain brokerage business but is actually conducting a that if this is not enough to protect the bank from
Held gambling establishment popularly known as a “bucket liability for mispayments from his account, it is not easy
Ratio shop.” to conceive what else would be.
Yes. When a bank receives money to be checked out by -The 4 checks were deposited by R.M. Miner to Real
a depositor, it is to be paid only as the depositor shall Estate Title Insurance & Trust Company of Philadelphia.
order. The bank assumes this duty in receiving the The trust company then indorsed 3 of the 4 checks to
deposit. If the bank pays money out on a forged guarantee previous indorsements to certain banks in CLEARFIELD TRUST CO V UNITED STATES
signature, the depositor being free from balme or Philadelphia for collection. The 4th check was also 318 US 363, 63 S.S. Ct. 573 (1943)
negligence, it must bear the loss. indorsed by the trust company but without ~glaisa~
guaranteeing the previous indorsements.
Reasoning -Corn Exchagne Bank, relying upon the guaranty by the FACTS
In this case the money was intended to Haaskell, trust company, paid each of the checks to the trust -A check was drawn on the Treasurer of the US through
because his was the only name suggested. He had company through its collecting agents. the Federal Reserve Bank of Philadelphia to the order of
been looked up and found to be responsible. It is a -Based on the averments that, the indorsements Clair Barner in the amount of $24.20.
perversion of words to say that it was intended for purporting to be those of Charles Niemann were -It was dated aat Harrisburg, Pennsylvania and was
Potter simply because he had fraudulently forgeries; that the trust company collected the drawn for the services rendered by Barner to the Works
impersonated Haskell, and led the plaintiff to believe proceeds of the checks without actual knowledge of the Progress Administration.
the he was Haskell. The plaintiff did not intend Potter to character of the business of R.M. Miner; that Corn -The check was placed at the mail addressed to Barner
have the money. When Potter fraudulently indorsed Exchange Nat’l Bank had constructive notice of the but he did not receive the check.
Haskell's name on the check, it was a typical case of business of the firm; and that the said checks were not -Some unknown person obtained it and presented it to
forgery. given in due course of the business. JC Penney Co. store representing that he was the payee
When a signature is forged or made out without the -Snyder wants to recover from the bank the amounts and endorsed the check in the name of Barner and
authority of the person whose signature it purports to drawn from its account. transferred it to JC Penney Co. in exchange for cash and
be, it is wholly inoperative, and no right to retain the merchandise.
instrument, or to give discharge therefor, or to enforce ISSUE -JC Penney Co. endorsed the check to Clearfiled Trust
payment thereof, against a party thereto, can be WON Snyder may recover Co. which accepted it as an agent and endorsed it as
acquired through or under such signature, unless a
[ch4-M] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-M]
follows: “Pay to the order of Federal Reserve Bank,
Prior endorsements guaranteed”
-Clearfield collected check from the US and paid the full
amount to JC Penney.
-Neither Clearfield nor JC Penney had any knowledge or
suspicion of forgery
-US filed a case against Clearfield based on the express
guaranty of prior endorsements made by Clearfield.
-District Court held that the rights of the parties were to
be determined by the law of Pennsylvania and since the
US unreasonably delayed in giving notice to the forgery
to Clearfield, it was barred from recovery. Circuit CA
reversed.

ISSUE
WON US is barred from recovery

HELD: NO
-He who presents a check for payment warrants that he
has title to it and the right to receive payment. If he has
acquired the check through forged endorsement, the
warranty is breached at the time the check is cashed.
The drawee’s right to recover accrues when the
payment is made. There is no other barrier to the
maintenance of cause of action. The theory of the
drawee’s responsibility where the drawer’s signature is
forged is inapplicable here. The drawee, whether it be
the US or another, is not chargeable with the
knowledge of the signature of the payee.
-Prompt notice of discovery of forgery was not a
condition precedent to suit. If it shown that the drawee
on learning of the forgery did not give prompt notice of
it and that damages resulted, recovery by the drawee
is barred.
-But we do not think that he who accepts a forged
signature of a payee deserves a preferential treatment.
It is his neglect or error in accepting the forger’s
signature which occasions the loss. He should be
allowed to shift that loss to the drawee only upon clear
showing that the drawee’s delay in notifying him of the
forgery caused him damage. No such damage has been
shown by Clearfield.
[ch4-N] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-N]
DETROIT PISTON RING CO. V on the part of the Company consisted in the failure of examining it President Carmona told him that it was
WAYNE COUNTY & HOME SAVINGS BANK its officers to make a thorough check of the payroll. negotiable but that he should not let the Japanese
252 Mich. 163, 233 N.W. 185 (1930) Each time the checks were issued, the officers signing catch him with it because possession of the same
~tito_romy~ them would compare the checks with the payroll, but at would indicate that he was still waiting for the return of
no time was a complete investigation made, i.e., a the Americans to the Philippines. He and Ramos finally
FACTS comparison of the checks with the time cards, nor was agreed to the sale of the check for P850,000 Japanese
-Helen Culbert was a trusted payroll clerk of Detroit an audit of the payroll ever made. It is perfectly clear military notes, payable in installments; that of this
Piston. She prepared the biweekly payroll and the that a complete investigation would have disclosed the amount, P450,000 was paid to Ramos in Japanese
checks corresponding therewith. She would then have fraud at once. military notes in five installments, and the balance of
these signed by the officer of the Company who would -A depositor may not sit idly by after knowledge has P400,000 was paid in kind, (4 bottles of sulphatiasole,
sign the same without question. Unbeknown to the come to him that his funds seem to be disappearing or each bottle containing 1,000 tablets, and each tablet
Company, Culbert was also preparing checks to the that there may be a leak in his business, and refrain valued at P100). Upon payment of the full price, Ramos
order of non-existing persons or former employees taking steps that a careful and prudent businessman duly indorsed the check which now appears on the back
which she subsequently indorsed in the names of the would take in such circumstances, & w/c if taken would of the document:
payees and negotiate them to other banks or stores. result in stopping the issuances of fraudulent checks. -"The words, 'pay to the order of ' -in rubber stamp and
The drawee bank would then pay the same and debit Disposition Judgment reversed. in violet color are placed about one inch from the top.
Detroit for the corresponding amount. MONTINOLA V PHIL. NAT’L BANK This is followed by the words 'Enrique P. Montinola' in
-The cancelled checks were then returned to the 88 PHIL 178; Montemayor; February 26, 1951 typewriting which is approximately 5/8 of an inch below
company on the first of each month. the bookkeeper ~owen~ the stamped words 'pay to the order of'. Below 'Enrique
would then compare the balance on the bank P. Montinola', in typewriting are the words and figures
statement with Detroit’s own book. She would then sign FACTS also in typewriting, '517 Isabel Street' and about 1/8 of
a receipt containing the stipulation “if no error is -Ramos is disbursing officer of USAFFE. As such, he an inch therefrom, the edges of the check appear to
reported in ten days the account will be considered went to the Province of Lanao to procure a cash have been burned, but there are words stamped
correct. advance in the amount of P800K for the use of USAFFE. apparently in rubber stamp which, according to
-Because of the increased cost due to the activities of Encarnacion, Provincial Treasurer of Lanao did not have Montinola, are a facsimile of the signature of Ramos.
Culbert, the Company employed auditors to ascertain that amount in cash. So, he gave Ramos P300K in There is a signature which apparently reads 'M. V.
the reason for said increased costs. However, the emergency notes and a check for P500K. Ramos went Ramos' also in green ink but made in handwriting."
auditors (it should have employed Ricky if they really to the office of Laya, the Provincial Treasurer of -M. V. Ramos is handprinted in green ink, under the
wanted to get to the bottom of the problem) failed to Misamis Oriental and ex officio agent of PNB branch in signature. According to Montinola, he asked Ramos to
discover the cause. Misamis Oriental, to encash the check for P500K which handprint it because Ramos' signature was not clear.
-As it turned out, the fraud could have been easily he had received from Encarnacion. Ramos worked Ramos in his turn told the court that the agreement
discovered if someone just compared the payroll sheet under him as assistant agent in the bank branch and between himself and Montinola regarding the transfer
with the time cards punched by employees in the time Ramos got the job as disbursing officer from the of the check was that he was selling only P30,000 of
clock. recommendation of Laya. Note that the currency being the check and for this reason, at the back of the
-The company finally discovered the defalcation used in Misamis Oriental and Lanao which had not yet document he wrote in longhand the following:
amounting to $28,066.66. The Company sued Wayne been occupied by the Japanese invading forces, was "Pay to the order of Enrique P. Montinola P30,000
County & Home Savings alleging negligence in paying the emergency currency. Laya did not have enough only. The balance to be deposited in the Philippine
the questioned checks and claiming reimbursement of cash to cover the check so he gave Ramos P400K in National Bank to the credit of M. V. Ramos."
the above amount plus interests thereon. emergency notes and a check for P100,000 drawn on -Ramos further said that in exchange for this
-The lower court found for Detroit. Hence the PNB. According to Laya, he had previously deposited assignment of P30,000 Montinola would pay him
appeal. P500,000 emergency notes in PNB Cebu and he P90,000 in Japanese military notes but that Montinola
expected to have the check issued by him cashed in gave him only two checks of P20,000 and P25,000,
ISSUE Cebu against said deposit. Ramos had no opportunity leaving a balance unpaid of P45,000. In this he was
WON Detroit was negligent in the issuance of the to cash the check because in the evening of the same corroborated by Atty. Ramos Jr
checks and thus estopped from asserting claims day the check was issued to him, the Japanese forces -The indorsement or writing described by M. V. Ramos
against the Bank entered the capital of Misamis Oriental, and the USAFFE which had been written by him at the back of the check
forces surrendered. Ramos was made a prisoner of war does not now appear at the back of said check. What
HELD: YES until 1943. In 1945, Ramos allegedly indorsed this appears thereon is the indorsement testified to by
Ratio The estoppel of the depositor, on the ground of check (P100K) to Montinola. Montinola and described by the trial court as
negligence, to recover for an unauthorized payment, is -However, Montinola alleges that in 1944, Ramos, reproduced above. Before going into a discussion of the
based on the failure of the depositor to act as a prudent needing money to buy foodstuffs and medicine, offered merits of the version given by Ramos and Montinola as
businessman in issuing his checks. to sell him the check. Montinola, with his agents and to the indorsement or writing at the back of the check,
Reasoning At the beginning of the period during which Ramos, went to see President Carmona of PNB Manila it is well to give a further description of it as we shall do
the fraudulent checks were issued, the only negligence to check the genuineness of said check; after later.
[ch4-O] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-O]
-Montinola filed a complaint in the CFI Manila against HELD have realized that following the practice already
PNB and the Provincial Treasurer of Misamis Oriental to 1. NO described, the check having been issued by Laya as
collect the sum of P100K the amount of a check issued -a comparison between the photostatic copy and the Provincial Treasurer, and not as agent of the bank, and
on 1942 by the Provincial Treasurer of Misamis Oriental original check reveals discrepancies between the two. since the check bears the countersignature not of the
to Ramos and supposedly indorsed to Montinola. The condition of the check as it was produced is such Bank cashier but of the Provincial Auditor, the addition
I. When Montinola filed his complaint in 1947 he stated that it was partially burned, partially blotted, badly of the words "Agent, Phil. National Bank" could not
therein that the check had been lost, and so in lieu mutilated, discolored and pasted with cellophane. What change the status and responsibility of the bank. It is
thereof he filed a supposed photostatic copy. However, is worse is that Montinola's excuse as to how it was therefore more logical to believe and to find that the
at the trial, he presented the check itself and had its lost, that it was mixed up with household effects is not addition of those words was made after the check had
face marked and the back thereof. But the check is plausible, considering the fact that it involves his life been transferred by Ramos to Montinola.
badly mutilated, blotted, torn and partly burned, and its savings, and that before the alleged loss, he took
condition can best be appreciated by seeing it. In extreme pains and precautions to save the check from 4. NO
explanation of the mutilation of the check Montinola the possible ravages of the war, had it photographed, -The check was not legally negotiated within the
told the court that several months after indorsing and registered said check with the General Auditing Office meaning of the Negotiable Instruments Law. Section 32
delivering the check to him, Ramos demanded the and he knew that Ramos, since liberation, was not after of the same law provides that "the indorsement must
return of the check to him, threatening Montinola with the possession of that check. be an indorsement of the entire instrument. An
bodily harm, even death by himself or his guerrilla indorsement which purports to transfer to the indorsee
forces if he did not return said check, and that in order 2. NO a part only of the amount payable, . . . (as in this case)
to justify the non-delivery of the document and to -If he issued the check as agent of the PNB, then the does not operate as a negotiation of the instrument."
discourage Ramos from getting it back, he (Montinola) bank is not only drawee but also a drawer of the check, Montinola may therefore not be regarded as an
had to resort to the mutilation of the document. and Montinola evidently is trying to hold PNB liable in indorsee. At most he may be regarded as a mere
II. Laya stated that he issued the check only his that capacity of drawer, because as drawee alone, assignee of the P30,000 sold to him by Ramos, in which
capacity as Provincial Treasurer, and that the words in inasmuch as the bank has not yet accepted or certified case, as such assignee, he is subject to all defenses
parenthesis "Agent, Phil. National Bank" now appearing the check, it may yet avoid payment. available to the drawer Provincial Treasurer of Misamis
under his signature did not appear on the check when -What renders more probable the testimony of Laya Oriental and against Ramos.
he issued the same. The words 'Agent, Phil. National and Ramos the money for which the check was issued IN SUMMARY
Bank' which now appear on the check were not was expressly for the use of USAFFE of which Ramos -Montinola’s complaint cannot prosper because
typewritten below his signature when he signed the was then disbursing officer. And upon delivery of 1) Check long overdue by about 2 1/2 years. It may
said check and delivered the same to Ramos. P400K in emergency notes and the P100K check to therefore be considered even then, a stale check.
According to Laya, when he issued checks in his Ramos, Laya credited his depository accounts as 2) The insertion of the words "Agent, Phil. National
capacity as agent of PNB Misamis Oriental the said provincial treasurer with the corresponding credit entry. Bank" which converts the bank from a mere drawee to
check must be countersigned by the cashier of the said In the normal course of events the check could not a drawer and therefore changes its liability, constitutes
agency -not by the provincial auditor. Montinola on the have been issued by the bank, and this is borne by the a material alteration of the instrument without the
other hand said that when he received the check it fact that the signature of Laya was countersigned by consent of the parties liable thereon, and so discharges
already bore the words 'Agent, Phil. National Bank' the provincial auditor, not the bank cashier. the instrument. (Section 124 of the Negotiable
below the signature of Laya and the printed words -said check was issued by the provincial treasurer of Instruments Law).
'Provincial Treasurer'. Lanao to Ramos who requisitioned the said funds in his 3) The check was not legally negotiated within the
-TC: dismissed the complaint. Montinola appealed capacity as disbursing officer of the USAFFE. The check meaning of the Negotiable Instruments Law. Section 32
directly to this Court because the amount exceeds is not, in business parlance, 'certified check' or of the same law provides that "the indorsement must
P50,000 'cashier's check.' be an indorsement of the entire instrument. An
indorsement which purports to transfer to the indorsee
ISSUES 3. NO a part only of the amount payable does not operate as
1. WON the photostatic copy of the check is acceptable -Naturally, Ramos must have known the procedure a negotiation of the instrument." Montinola may
given its mutilated condition followed as to the issuance of checks, namely, that therefore not be regarded as an indorsee. At most he
2. WON the words, 'Agent, Phil, National Bank' were when a check is issued by the Provincial Treasurer, it is may be regarded as a mere assignee of the P30,000
added after Laya had issued the check TF issued in the countersigned by the Provincial Auditor as was done on sold to him by Ramos, in which case, as such assignee,
capacity as agent of PNB the check. And that if the Provincial Treasurer issues a he is subject to all defenses available to the drawer
3. WON Ramos added or placed those words "in his check as agent of the PNB, the check is countersigned Provincial Treasurer of Misamis Oriental and against
capacity as Provincial Treasurer of Misamis Oriental" not by the Provincial Auditor who has nothing to do with Ramos.
(obviously, not as agent of the Bank) below the the bank, but by the bank cashier, which was not done 4) He should have known that a check for such a large
signature of Laya before transferring the check to in this case. It is not likely, therefore, that Ramos had amount of P100K could not have been issued to Ramos
Montinola made the insertion of the words "Agent, Phil. National in his private capacity but rather in his capacity as
4. WON there was valid negotiation (P30,000 only Bank" after he received the check, because he should disbursing officer of the USAFFE, and that at the time
indorsed) that Ramos sold a part of the check to him, Ramos was
[ch4-P] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-P]
no longer connected with the USAFFE but already a WON the signing of the notes by Lizzie Crafton after the Issue: WON the the bank is liable for the overdraft (or
civilian who needed the money only for himself and his execution and delivery of the contract of guaranty should W.L. Foutch bear the loss)
family. without the consent and knowledge of the guarantors Held: The bank is not liable because it was the plaintiff
5) Ramos had he retained the check may not now released and discharged the guarantors from the 's negligence which approximately caused the loss and
collect its value because it had been issued to him as contract of guaranty the bank is not guilty of any negligence that
disbursing officer. As observed by the trial court, the contributed to the loss.
check was issued to M. V. Ramos not as a person but M. HELD: YES There is a distinction between bank checks and
V. Ramos as the disbursing officer of the USAFFE. -the adding of an additional party to a negotiable negotiable instruments of the note and bill class. One
Therefore, he had no right to indorse it personally to instrument subsequent to its execution and delivery who purchases a note, or like negotiable instrument, is
plaintiff. It was negotiated in breach of trust, hence he discharges the original parties when such change is under no manner of compulsion and acts purely at his
transferred nothing to the plaintiff. made without their knowledge or consent option or election, under which circumstances it is not
6) It is absolutely necessary for the court to examine -the reason why the addition of a name to a note as a inappropriate to apply, by analogy the caveat emptor
the original in order to see the actual alterations joint maker, after its issuance, materially alters it, is rule; whereas, the Bank is under a direct and peculiarly
supposedly made thereon, and that should this Court because it changes the number of parties and their delicate obligation,which requires prompt discharge,
grant the prayer contained in the bank's brief that the relative rights, the rate of contribution, and the usually with little opportunity for investigation to pay
check be later referred to the city fiscal for appropriate character and description of the instrument the check of its depositor ,upon presentation, or subject
action, said check may no longer be available if the -“a guarantor is exonerated, except as far as he may be itself to the risk f damages. Furthermore the depositor
appellant is allowed to withdraw said document. indemnified by the principal, if by any act of the on the other hand,owes to his bank the duty to exercise
Disposition Decision affirmed creditor, without the consent of the guarantor, the care in drawing checks in order to avoid possible loss.
original obligation of the principal is altered in any The drawer of this check in this case authorized the
respect, or the remedies or rights of the creditor payee to fill out the check,not only in pencil,which
BANK OF COMMERCE OF SULPHUR V WEBSTER against the principal in respect thereto, in any way made the added words and figures raising the check
70 Okla. 73, 172 942 (1918) impaired or suspended. “ particularly easy to insert and well high impossible to
~maia~ -the addition of the name of Lizzie to the note, payment detect,there being no such variation as frequently
of which the guarantors guaranteed, changed the appears when different ink is used, but the payee
FACTS identity of the said note and its effect and operation, having been authorized to fill out the check in his
SUBJECT: a note of guaranty (this is the negotiable and such alteration being made without the consent handwriting,with the words and figures placed as
instrument in question) was executed by Webster and and knowledge of the guarantors, the guarantors are herein before shown, no possibility of detection of the
Molacek as guarantors, guaranteeing to the Bank of discharged from their liability on the guaranty, check having been thus raised was left open to the
Commerce of Sulphur the payment of two notes issued Disposition Judgment affirmed. Bank.
by Crafton ($1,450 and $204)
MAKERS: of the 2 notes  Crafton; Note of Guarantee
(guaranteeing the notes) Webster and Molacek FOUTCH V ALEXANDRIA BANK & TRUST CO SAVINGS BANK OF RICHMOND V
PAYEE: Security State Bank 177 Tenn 348; (1941) NAT’L BANK OF GOLDSBORO
INDORSEE: Bank of Commerce of Sulphur (current ~da~ 39 A.L.R. 1374 (1925)
holder) ~bry_sj~
-The note of guarantee was executed when the notes FACTS
(to be guaranteed) were transferred from Security W.L. Foutch purchased a cow from B.W. Foutch for $18 FACTS
State Bank to Bank of Commerce. When Bank of for which he gave a check to B.W. Foutch, payable to -A.C. Norwood (DRAWER), President of the National
Commerce sued for the fulfillment against the his order. This check was wholly written by the payee Bank of Goldsboro issued a certain draft dated March
guarantors, the guarantors interposed the defense that (because it was W.L.'s practice to have the checks filled 29, 1918 for the sum of $6, drawn against the FIRST
they were relieved of liability since the note issued by filled out by the parties to whim the check was made). NATIONAL BANK OF NEW YORK (the DRAWEE) payable
Crafton had been materially altered. The alteration In the check in issue: there was a space between the to the order of N.L. Massie.
consists of having the wife of maker Crafton (Lizzie dollar sign and the amount in numbers and the amount -The said draft was thereafter unlawfully and without
Crafton) sign the note at the instance of the Bank of in words was written midway of the line provided for it the knowledge or consent of A.C. Norwood or the
Commerce after execution and delivery of the and in the lower left corner “for cow” and when Goldsboro Bank, fraudulently forged and altered in
guaranty. (note: it seems that in effect, Lizzie became a presented it already bore $418, four hundred eighteen material respects. The date was changed from March
co-maker to the note) dollars and “for cow and note”. All the figures and 29, 1918 to June 21, 1918, and the amount thereof
-Trial court held that the signing of Lizzie at the writings in the check were in the same writing except from $6 to $8,470.
instance of the Bank of Commerce, without knowledge for the signature when it was presented to the -Massie sold the altered draft to the SAVINGS BANK OF
and consent of the guarantors, was an alteration that bank.The bank paid to B.W. Foutch the sum $418 called RICHMOND, with whom he had been transacting with
defeated the guaranty for by the check, and charged it to the account of the for two years. Trusting Massie’s moral and financial
drawer. strength, the SAVINGS BANK OF RICHMOND purchased
ISSUE the draft for $8,470 giving him in exchange a cashier’s
[ch4-Q] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-Q]
check for the same amount. When the Savings Bank BSJ Comment: In other words, HIDC enjoys status as amount of these forged checks, over and above the
attempted to collect it, only then did it find out that the such only to the extent of the original amount as sums for which they were originally drawn
draft was forged. written by drawer or maker in a proper case. The Court
-In this suit, the Savings Bank insists that the National seems to consider it as a fair rule that nobody should ISSUES
Bank of Goldsboro (THE DRAWER) should be liable on be liable for more than what s/he originally bargained 1. WON plaintiff is guilty of negligence
the theory that it was negligent or amiss in its duty to for. Impliedly, it seems to say that the HIDC albeit 2. WON by negligence in its discharge or by the failure
ensure that the draft is safe from every reasonable protected by the law still has some duty to conduct to discover and notify the bank, the depositor (plaintiff)
chance of alteration. Ordinary paper was used and that reasonable inquiry especially when transactions involve is estopped from asserting that they are forgeries
there was no protectograph or other safety device to huge sums of money. Certainly 8,000 dollars is a huge 3. WON defendant bank can claim relief from plaintiff’s
prevent alteration. Daniel, a commentator on the amount in the 1920s. The Court’s ruling here could be negligence
negotiable instruments law is cited as authority for the justified under the common law rule: as between two
liability of the drawer of a bill or the maker of a note innocent persons, the one whose acts occasioned the HELD
who by careless execution of the instrument left room loss shall suffer the consequences. Here, Savings 1. YES In this case, Davis falsified the additions or total
for any alteration, insertion or erasure, which would Bank’s own negligence is the proximate cause of the sat the foor of the pages in the check book. But with a
prejudice the bona fide holder’s rights. loss.] few exceptions he did not alter the amounts expressed
-The Goldsboro Bank counters that with a completed in the stubs. In no case did he change in the stubs the
draft, losses arising from its subsequent alteration and name of the payee of the check. It is clear therefore
forgery do not fall upon it but rather upon those who CRITTEN V CHEMICAL NAT’L BANK (1902) that at all times a comparison of the returned checks
have chosen to accept the same as changed. Assuming NY Court of Appeals; 171 NY 219; 63 N.E. 969, 57 LRA with the stubs in the checkbooks would have exposed
that the argument of Savings Bank to be valid, it will 529 the alterations made in the checks. Of course the
not be liable because it is not the proximate cause of ~mel~ knowledge of the forgeries that davis possessed from
the loss. the fact that he himself was the forger, was in no
FACTS respect to be attributed to the plaintiffs. the Court sees
ISSUES -Plaintiff kept a large and active account with the no reason why they were not chargeable with such
1. WON Savings Bank can recover from point of view of defendant. The Plaintiffs employed a clerk named information as a comparison of the checks with the
tort or negligence. Davis. It was the duty of Davis to fill up the checks check book would have imparted to an innocent party
2. WON Bank can recover from the draft as a contract which it might be necessary for the plaintiffs to give in previously unaware of the forgeries. As regards the
btwn the parties. the course of business, top make corresponding entries failure to discover the forgeries after the return of the
3. WON Savings Bank can recover from the negotiable in the stubs of the check book, and present the checks checks and the balancing of the account in the
instrument. so prepared to Mr. Critten, one of the plaintiffs, for passbook. As held in Weisser’s adm’rs vs Denison, “the
signaturem together with the bills in payment of which rule is settled that the depositor owes his bank the duty
HELD they were drawn. After signing a check Critten would of a reasonable verification of the returned checks.” . If
1. NO. The issuing of the note could in no sense be place it and the bill in an envelope addressed to the the depositor has by his negligence in failing to detect
considered as proximate cause of the loss. Where a proper party, seal the envelope and put it in the mailing forgeries in his checks and give notice thereof caused
negotiable note was delivered in completed form, the drawer. loss to his bank, either by enabling the forger to repeat
possibility that it might be altered by the willful fraud or -in 24 separate instances, Davis abstracted one of the his fraud or by depriving the bank of an opportunity to
forgery of another was too remote to afford basis of an envelopes from the mailing drawer, opened it, obtain restitution, he should be responsible for the
action either in tort or in contract. obliterated by acids the name of the payee and the damage caused by his default but beyond this his
2. NO. The note in its forged and altered state is not a account specified in the checks, then made the check liability should not extend. Moreover, the court sees no
contract of the maker of the instrument. Thus, a suit payable to cash and raised its amount, in the majority reason why the bank should be entitled to anything
based on contract can neither prosper. of cases, by the sum of $100. he would draw the money more than indemnity for the loss the depositor’s
3. YES, but only as to the original face value of the on the checks so altered from the defendant bank, pay negligence has caused it *The Court also made a
draft. Section 3106 of the Negotiable Instruments Law the bill for which the check was drawn in cash, and finding that the ordinary rule of principal and agent or
of North Carolina provides: appropriate the excess. On one occasion David did not master and servant that the principal or master is liable
“Where a negotiable instrument is materially altered collect the altered check from the defendant, but for the fault of his servant or agent in the master’s
without the assent of all parties liable thereon, it is deposited it to his own credit in another bank. When a business apply in this case.
avoided except as against the party who has himself check was presented to Critten for signature the 2. NO .While the Court hold that this duty rests upon
made, authorized or assented to the alteration and number of dollars for which it was drawn would be cut the depositor, it does not accept the doctrine asserted
subsequent indorsers. But when the instrument has in the check by a punching instrument. When Davis in some of the cases that, by negligence in its
been materially altered and is in the hands of a holder altered a check he would punch a new figure in front of discharge or by the failure to discover and notify the
in due course, not a party to the alteration, he may those already appearing in the check. This work has bank, the depositor either adopts the checks as
enforce payment thereof according to the original been entrusted to another person in Davis’ absence, genuine and ratifies their payment or estops himself
tenor.” hence the forgeries were discovered and Davis was from asserting that they are forgeries. In the present
arrested and punished. Hence this action to recover the case, a check altered by Davis from the sum of $22 to
[ch4-R] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-R]
$622 was paid by the defendant to the Colonial Bank in drawn, and also to those in which the name of the
which Davis had deposited it. Against the bank the FACTS payee has been feloniously changed.
defendant has ample recourse. If it were to be held that SUBJECT: A check for $25 (but was altered later) -The drawee is presumed to be acquainted with the
the plaintiffs are estopped from denying the DRAWER: Lunt Brothers drawer’s signature, but to require the drawee to know
genuineness of that check as against the defendant, DRAWEE: Marine National Bank the handwriting of the residue of the bill is
the latter could have no claim against the Colonial PAYEE: To the order of Henry Smith unreasonable. It would, in most cases, be requiring an
Bank, nor is it clear that the plaintiffs would have any -Lunt Brothers who were merchants in NY gave a impossibility. Such a rule would be not only arbitrary
direct right of action against that Bank. The Colonial stranger the $25-check in exchange for the same and rigorous, but unjust.
bank took the check solely on the responsibility of amount. Disposition Judgment affirmed.
Davis. To it the plaintiffs owed no duty. A rule which -The next day, a person called upon Derippe & Co (gold
might operate to relieve the bank from the liability it brokers in NY) stating that he wished to buy some gold
assumed when it collected an altered check, merely for Lunt Brothers, and asked $3334 gold in currency. A WELLS FARGO BANK & UNION TRUST CO V
because the plaintiffs failed in their duty, not ti it, but to memo, giving the amount as $4079.96 was delivered to BANK OF ITALY
a third party should not be upheld. Nor would it operate him. SC of California; 214 Cal. 156, 4 P. 2d 781 (1944)
justly in a case in which the bank had paid a single -The person then altered the $25-check by erasing the ~jat~
forgery unless by the depositor’s default and delay the date, payee, and amount, and inserting Dec.2,1969,
bank had lost its opportunity to secure restitution. payee Derippe & Co, amount $4079.96, sent the check FACTS
3. NO. It was held that the defendant was also guilty of to Marine for certification, and upon presentation it was SUBJECT: A check drawn on Wells Fargo Bank by
negligence in paying the check. The sixth in sequence duly certified, and thereupon, Derippe without notice, McCormick Co. made payable to order of Albert Meyer
of these forgeries was a check with the name of the and being ignorant of the alteration and relying upon Co. was altered. The name of the payee thereon was
payee erased and “cash” written in the place thereof. the certification, gave to the person the sum of $3334 erased and the name of one “Harry Behling” was
The teller of the defendant who paid the check and was American gold, receiving in payment the certified substituted.
a witness on its behalf testified that the check showed check. DRAWER: McCormick Steamship Company
on its face that the word “cash” had been written in the -Derippe indorsed the check and deposited it in DRAWEE: Wells Fargo Bank
place for the payee’s name over an erasure; that it was National City Bank. Marine Bank paid the check to Nat’l PAYEE: Albert Meyer and Company
in such mutilated condition when it was presented to City Bank, but requested repayment of the amount -Behling, an employee of steamship co., purchased
him that, before paying it he required Davis to indorse immediately when it discovered the alterations. Nat’l clothes from a store owned by a certain Popkin, and
upon the check a receipt for its amount. Had Davis City Bank refused to repay the same. Before the offered the check in question as payment. (It is not
been required to obtain the indorsement or guaranty of discovery of the alteration, both banks believed the known how Behling got hold of the check). The 2 then
the plaintiffs as to its correctness, the forgeries of Davis check to be genuine. went to drawee bank to have the check cashed. After
would have been exposed, and their repetition would -Judgment was rendered for Marine Bank on the ground presentment, the drawee bank certified the check but
not have occurred.The action brought by plaintiffs was that it did not guarantee the genuineness of the filling suggested that Popkin, being a depositor of defendant
brought on contract, not on tort for the allegation of out of the check by certifying, and so it was not bank, should cash it there instead. So defendant bank,
negligence on the part of the defendant is used only to estopped from showing the alteration, and was entitled after the check was presented to it, paid the amount
defeat its claim for relief on account of the plaintiff’s to the repayment. thereof and transmitted it to drawee bank, which in
negligence. turn paid the amount of the check to defendant bank.
Disposition The judgment should be reversed, and a ISSUE -Drawer did not discover the alteration until the original
new trial granted. WON Marine National Bank is entitled to the payee made an inquiry several months after the check
DISSENTING OPINION Since plaintiffs entrusted the repayment. had been paid. Drawer notified drawee. Drawee then
work to a competent agent and, as established by notified defendants (Bank of Italy and Popkin)
evidence, took other precautions, there was evidence HELD: YES demanding repayment of the amount of the check.
to support the finding in their favor. The rule which -That an acceptor of a bill of exchange by acceptance Drawee filed action to recover the sum. Talo. Sa District
imputes to a principal knowledge acquired by his agent only admits the genuineness of the signature of the Court of Appeals, talo rin.
rest upon the presumption that the latter has disclosed drawer, and does not admit the genuineness of the *Note: The alteration was made with such skill that it
all the material facts to the former. This presumption indorsements...or any other part of the bill, is could not be detected. The person responsible for the
does not extend to a fact which, if disclosed would elementary and sustained by an unbroken current of alteration is unknown.
subject the agent to a prosecution for crime or defeat a authority. The reason is that when the bill is presented
scheme in which he was engaged to defraud his for acceptance the acceptor looks to the handwriting of ISSUE
employer. the drawer with which he is presumed to be WON the drawee bank may recover the money it paid
acquainted...But the acceptor cannot be presumed to
have any such knowledge of the other facts upon which HELD: NO
MARINE NAT’L BANK V NAT’L CITY BANK (1874) the rights of the holder may depend. -Under Sec. 62, the acceptor, by accepting the
Court of Appeals of NY, 59 NY 67 (1874) -The doctrine is applied to cases of bills altered in the instrument, engages to pay “according to the tenor of
~eva~ body, by the raising of the amount for which they were his acceptance.”
[ch4-S] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-S]
-It makes for the usefulness and currency of negotiable items must be returned not later than 3:00 PM of the ~aida rose~
paper to construe the words “according to the tenor of following business day. Since HSBC advised PBTC 27
his acceptance” as referring to the instrument as it was days after clearing, PBTC claims that it is now too late FACTS
at the time it came into the hands of the acceptor for to do so. SUBJECT: Demand for refund by FNCB from Republic
acceptance, for he accepts no other instrument other -CFI dismissed the complaint based on the fact that Bank due to clearing by the former of an altered check
than the one presented to him-the altered form-and it HSBC allowed 27 days to elapse after clearing before DRAWER: San Miguel Corporation (SMC)
alone he engages to pay. notifying PBTC as to such alteration, the applicable DRAWEE: First National City Bank (FNCB)
-The presentation of a check to a drawee for payment Central Bank regulation providing for a 24-hour period. PAYEE: J. Roberto Delgado
is not a negotiation. It involves no warranties as the -SMC drew a divided check worth P240 in favor of
drawee is not a holder in due course. A drawee who has ISSUE: Delgado, one of its stockholders.
paid the instrument is not a transferee of title as the WON the Central Bank regulation should be applied, -After the check had been delivered, the check was
last holder’s indorsement does not transfer the check and would thus preclude or allow recovery by HSBC altered by increasing the amount on its face from P240
but converts it into a voucher. from PBTC to P9,240. This was done fraudulently and without the
-Banking institutions can readily protect themselves authority of SMC as drawer. The check was indorsed
against liability on altered instruments either by HELD: and deposited on March 14, 1996 by Delgado in his
qualifying their acceptance or certification or by relying YES, it should apply account with Republic Bank.
on forgery insurance and special paper, which will -The “24-hour” clearing house rule issued by the -Republic accepted the check without ascertaining its
make alterations obvious. Central Bank was applied in Republic v. Equitable genuineness and regularity. It endorsed the check to
Disposition Judgment affirmed Banking Corporation. The rule is embodied in sec 4(c) FNCB with a stamp on the back of the check, stating:
of Circular No. 9 of the Central Bank and reads thus: “all prior and/or lack of indorsement guaranteed.”
"Items which should be returned for any reason -March 15, 1966: FNCB, believing that the check was
HSBC V PEOPLE’S BANK AND TRUST CO whatsoever shall be returned directly to the bank, genuine and relying on the guaranty and endorsement
G.R. No. L-28226; Fernando; Sept 30, 1970 institution or entity from which the item was received. of the petitioner bank, paid the amount on the face of
~kooky~ … All items cleared at 11:00 o'clock a.m. shall be the check.
returned not later than 2:00 o'clock p.m. on the same -April 19, 1966 -SMC notified FNCB of the material
FACTS: day and all items cleared at 3:00 o'clock p.m. shall be alternation in the check about a month after FNCB had
-On Mar 8, 1965, PLDT drew a check on HSBC in favor returned not later than 8:30 a.m. of the following paid Republic Bank. FNCB recredited P9,240 to SMC’s
of the same bank in the sum of P14,608.05. PLDT sent business day, except for items cleared on Saturday account.
this check to HSBC by mail. which may be returned not later than 8:30 of the -May 19, 1966 – FNCB wrote Republic about the
-Florentino Changco somehow got hold of the check, following day." The circular is clear and comprehensive; alteration. But at that time, Delgado had already
and was able to erase the name of HSBC as payee and the facts of the present case fall within it. withdrawn the said amount from his Republic Bank
instead typed his name. Four days before, Changco had -Moreover, as mentioned in a case cited by HSBC, "It is account.
opened a current account with PBTC, where he a settled rule that a person who presents for payment -FCNB demanded that Republic Bank refund the
deposited the altered check. checks such as are here involved guarantees the amount of P9,240 on the basis of the latter’s
-The check was presented by PBTC for clearing, with genuineness of the check, and the drawee bank need endorsement and guaranty. Republic refused, saying
the following indorsement: "For clearance, clearing concern itself with nothing but the genuineness of the that 1) there was delay in giving notice of the
office. All prior endorsements and/or lack of signature, and the state of the account with it of the alteration, 2) it was SMC’s fault in drawing the heck in
endorsements guaranteed. Peoples Bank and Trust drawee." If at all, then, whatever remedy HSBC has such a way as to allow the alteration and 3) that FNCB,
Company." would lie not against PBTC but as against the party as drawee, was absolved of any liability to SMC thus
-The check was duly cleared by HSBC, and PBTC responsible for changing the name of the payee. Its FNCB had no right to recourse against Republic Bank.
credited Changco with the amount of the check. failure to call the attention of PBTC as to such alteration -The trial court ordered Republic Bank to pay P9,240 to
Changco began to withdraw from the account then until after the lapse of 27 days would, in the light of the PNCB with interest. The CA affirmed the TC ruling.
subsequently closed it. above Central Bank circular, negate whatever right it
-On Apr 12, 1965 it was returned to PLDT, and the might have had against defendant Bank. ISSUE
alteration in the name of the payee was discovered. On Disposition Decision affirmed WON Republic Bank, as clearing bank, is protected from
that same date, PBTC was notified of the alteration, and NOTE: As per Campos, this case illustrates the fact that liability by the 24-hour clearing house rule (in CB
HSBC requested PBTC to refund to it the sum of the SC comes to the same conclusion, but on an etirely Circular 9)
P14,608.05. PBTC refused. different basis, as the minority view regarding the
-HSBC relies on the indorsement (above), arguing that effect of drawee’s payment or acceptance of altered HELD: YES
since such an indorsement carries with it a concomitant check. -When an endorsement is forged, the collecting bank or
guarantee of genuineness, PBTC is liable to HSBC for last endorsor bears the loss. However the unqualified
alteration. endorsement of the collecting bank on the check
-PBTC relies on the "24 hour" regulation of the Central REPUBLIC BANK V CA, First Nat’l City Bank should be read together with the 24-hour regulation on
Bank that requires after a clearing, that all cleared G.R. No. 42725; April 22, 1991 clearing house operation.
[ch4-T] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-T]
-When the drawee bank fails to return a forged or of Home Improvement Company (payee) in payment of against the defendants hence, plaintiff takes nothing by
altered heck to the collecting bank within the 24-hour certain repairs and renovations to be performed by the its action.
clearing period, the collecting bank is absolved from payee upon two dwelling houses owned by the -Plaintiffs appealed from the judgment.
liability. defendants.
Jurisprudential rulings on the matter: -The notes were indorsed by the payee to the plaintiff ISSUES
-HSBC vs. People’s Bank: A check was drawn by PLDT which claims to be holder in due course. 1. WON plaintiff is a holder in due course.
on HSBC payable to the same bank. It was mailed to -Defendants denied that the plaintiff was such a holder 2. WON defendants are free from negligence.
the payee but landed in the hands of Changco who and as a separate defense, pleaded fraud on the part of 3. WON the defendants can plead the defense of fraud
erased the payee’s name and replaced it with his own the payee in the procurement of the notes by its agent against the plaintiff.
name. He then deposited the check in People’s Bank -William Hart. The defendants were alleged to be
with the indorsement: “For clearance, clearing office.” illiterate. HELD
This was cleared by the drawee bank HSBC. Changco -Hart was introduced to the defendants by a friend of 1. YES. Defendants do not contend that the plaintiff is
withdrew the money and when the alteration was theirs, Krajer, for whom Home Improvement Company not a holder in due course. No evidence was introduced
discovered, HSBC sought to recover the amount from had done repair work similar to that proposed to be that C.L.T. had actual knowledge of a defect in the
People’s Bank. HSBC advised People’s Bank of the done by defendants. instruments or any fact that would justify a finding that
alteration 27 days after clearing. The Court ruled that -Hart prepared a document which purported to embody the plaintiff’s acceptance of the instruments amounted
the said indorsement must be read with the 24-hour the understanding arrived at on the work to be to bad faith on their part.
regulation. performed and the cost. He asked defendants to sign it. 2. YES. The trial court determined that, notwithstanding
-Metrobank vs. FNCB (Aha! Gaya nga ng sabi ni Sharon Both demurred, Mrs. Panac stating that she did not the possession of some knowledge of the English
Cuneta, “Di na natuto…”): A check for P50 was drawn read it and wished to see an attorney. Hart assured her language on the part of the defendants, their neglect to
by Cunanan and Co. on its account at FNCB and that it was not necessary, that the contract has to be call upon others present to read to them the
payable to Manila Polo Club was changed to P50,000. It signed at once to get the work started. In doing so, he documents, and their failure to insist on their request
was deposited by Sales in his account in Metrobank. read the items of work entered in his note book, stating for time to seek independent legal advice, they are free
The check was cleared by FNCB which paid P50,000 to that they were in agreement and urged again the from negligence. A reading of the record alone might
Metrobank. The alteration was discovered 9 days later defendants to sign. They still objected but their well disapprove this finding, but, bearing in mind that
so FNCB sought to recover from Metrobank. The Court scruples were overcome by Hart’s assurance that all the trial court had an opportunity to view the witnesses,
upheld the validity of the 24-hour clearing house the work shall be done to their satisfaction and that it note their demeanor, the Court refrained from stating
regulation. The check was not returned to Metrobank was necessary to start at once. Martin thereupon as a matter of law that there is insufficient evidence to
in accordance with the given period but was cleared by affixed his signature to the contract. uphold it.
FNCB. Failure of FNCB to call attention to the alteration -Hart then presented to them another paper, divided 3. NO. Brannan’s Negotiable Instrument: At common
of the check negates whatever right it may have had into 3 parts by perforated lines, one part being an law a real defense was held in most jurisdictions to
against Metrobank. application for credit, the second a form of promissory exist in those cases in which a person, without
-Every bank that issues checks for the use of its note and the third a declaration that the work for which negligence, has signed an instrument, which was, in
customers should know WON the drawer’s signature is the credit was required had been satisfactorily fact a negotiable instrument, but was deceived as to
genuine. It should be able to detect alterations, completed. The defendants placed their signatures at the character of the instrument and without knowledge
erasures and other intercalations on the check. It the point indicated by Hart upon his assurance that it of it. In such cases, there is no contract because there
should possess appropriate detecting devices. was part of the contract for the work to be done and was no consenting mind, but the signer may be
-Unless the alteration is attributable to the fault or without having Hart read it to them. The second note estopped by negligence to deny knowledge of the
negligence of the drawer, the remedy of the drawee was executed under the same circumstances. character of the instrument which he has signed. If he
bank that negligently clears a forged/altered check for -There were present during the proceedings 2 other was not negligent he is not liable.
payment is against the party responsible for the persons beside Krajer but neither the defendants -In Wisconsin, Minnesota and Illinois, the NIL or other
forgery/alteration. requested any of them to read aloud the document or legislation expressly makes fraud in the factum a real
Disposition Petition for review granted. to explain the contents thereof. defense. The Uniform Act does not cover the question
-The defendants testified that they understood from in so many words. It is possible however, that such
Hart that the work was to be paid for in monthly conduct is fraud within Sec. 55 and hence causes
C.L.T. CORPORATION V PANAC installments, but had not contemplated giving notes. merely a defective title, or that it is one of the defenses
(District CA, California; 1944) -The work was never completed notwithstanding under Sec. 57. It might also be assimilated to want of
149 P. (2d) 901 (1944); WARD, J. vigorous efforts made by the plaintiff and the delivery, which was made an equitable defense by Sec.
~lora~ defendants to induce Home Improvement Company to 16. Either possibility would change the common law
do so, with the consequence that when the first and protect the holder in due course.
FACTS installment became due on the notes the defendants -In further support of this position it should be noted
-Plaintiff (CLT-holder) brought this action to recover refused to pay. that the other real defenses are covered by the act and
from the defendants (Panacs-maker) the amount of 2 -The trial court found that CLT is a holder in due course broad interpretation of Sec. 55, especially the last
promissory notes, negotiable in form, executed in favor however, it also held that fraud was perpetuated clause “under such circumstances as amount to fraud”
[ch4-U] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-U]
certainly includes all kinds of fraud in factum. Since this negligent, is a real defense, by blindly following the WON the defense put up by the makers is a real
is so it is hard to believe that the framers overlooked common law rule. Cogent and compelling reasons exist defense, good even against indorsee as a holder in due
this particular defense. The equities are all in favor of for this approval. course
such interpretation, since the defrauded party really -It must be remembered that NIL is not an entirely new
caused the situation and should be the one to suffer. statute, nor did it purport to repeal the entire law of HELD: YES
-Under the old common law view fraud in Sec. 55 would contracts. It purported to codify the law of merchant -A negotiable instrument which is void (as when there
be limited to fraud in the inducement and defenses in and where there was a conflict to adopt what was is in fact no contract or there is fraud in the execution)
Sec, 57 restricted to defenses which were equitable at considered to be the better rule. Where the NIL has no is not enforceable by a holder in due course in the
common law, while fraud in the factum would continue excess provision, or where its meaning is ambiguous, absence of negligence on the part of the maker.
to be a real defense analogous to forgery under Sec. cases decided under the law merchant and -A person who cannot read is not always negligent in
23. Such is the result of a number of cases which have fundamental rules of contract should be looked to in not calling on a third person to read the instrument to
arisen since the NIL, most of which do not cite the act, arriving at a proper interpretation. him. The question as to his negligence is one for the
but there is a strong line of well reasoned cases contra. -So far as the present problem is concerned, the NIL jury (that is, the courts) to decide.
-Freedom from negligence on the part of the makers has no express provision covering the subject. There Circumstances showing that makers were not
has never been regarded in California in following the are provisions, however which tend to show that the negligent:
common law rule, or made by statute a defense, real or drafter of the act intended fraud in the execution to be -Sps. Panac were illiterate
personal, against a claim of a holder of a negotiable real defense. -Hart employed high pressure method
instrument in due course. If the legislature had -Sec. 57 of NIL, Sec. 3138 of the Civil Coe, provides that -Only contract for repair was read, not the notes
intended such defense it would undoubtedly have so the holder in dues course “free from any defect of title -Hart insisted an immediate execution
provided in no uncertain terms, as the courts of this of prior parties, and free from defenses available prior -Hart brushed aside Mrs. Panac’s suggestion that legal
state have not, at any time, recognized such a defense. parties among themselves.” When a party, without advice be obtained
-It follows that the defendants were not in position to negligence, signs a document by reason of fraud of -Witnesses to the signing were all friends of Hart. Even
set up as a defense in this case any equities existing another and honestly and reasonably believes it to be Krajer, whom makers personally knew couldn’t have
between them and the Home Improvement Company something else other than a negotiable instrument, the objected to such fraud since he was promised
even if, as found by the court, they were free from document, when executed is not merely voidable – it is commission. In fact, it was his apparent acquiescence
negligence in executing notes. void.” Fraud of this type is not a mere defense nor a in the transaction that served to silent any
Disposition Judgment Reversed. mere defect of title such as referred to in Sec. 57. It is a apprehensions of the makers.
factor which renders the instrument non-existent as a
PETERS (Dissenting) binding obligation.
-The type of fraud here involved has been referred to Disposition Judgment Affirmed COHN V CITY OF TAUNTON
as fraud in esse contractus, fraud in the factum, fraud C.I.T. CORPORATION V PANAC 303 Mass. 182, 21 N.E. (2d) 281 (1939)
in the inception or fraud in execution, to distinguish it Supreme Court of California ~anton~
from fraud in the inducement which is a mere personal 25 Cal. (2d) 547, 154 P. (2d) 710, 160 ALR 1285 (1944)
defense. At common law the cases were practically ~marge~ FACTS
unanimous that fraud in the execution was a real -Action by Cohn et al., innocent purchasers for value
defense. FACTS (as found by the District Court of Appeals) without notice, to prosecute to recover the face amount
-The overwhelming weight of authority is to the effect SUBJECT: 2 promissory notes in payment of certain of overdue coupons on certain bonds of the defendant
that the adoption of the NIL in now way changed the repairs and renovations to be performed by payee upon city payable to bearer which have been stolen from the
common law rule, and that both before and after the two dwelling houses owned by makers vault of the city treasurer.
adoption of that uniform statute, fraud in the execution MAKERS: Sps. Panac, illiterate, unable to read or write -After the bearer bonds had been “delivered to the City
was and remained, a real defense. the English language Treasurer as agent” in order to have them registered,
-The applicable rules under the NIL is stated as: PAYEE: Home Improvement Company the Treasurer had completed the issue of fully
“Although there are some decisions to the contrary, the INDORSEE: C.I.T. Corp, a holder for value in due course registered bonds of like amount, but had not
weight of authority holds that if a person intending to -Makers were defrauded by payee in the procurement destroyed or cancelled the bearer bonds nor
sign an instrument of an entirely different character of the notes. William Hart, agent of the payee, gained placed any notation upon them and had kept
places his signature to a negotiable instrument not their trust and confidence and secured their signatures them in his vault.
being due to laches or negligence on the part of the to the notes by false representations w/c induced them -Cohn and company held them, but the City Treasurer
signor, the latter is not liable on the instrument, to believe that they were signing a contract to repair refused to pay on the ground that the amount covered
although it has passed into the hands of a bona fide the houses and nothing else. They were ignorant of the by the bonds had been paid already.
holder for value.” fact that they were signing notes, and were not
-Mr. Brannan quoted in the majority opinion approves negligent in signing the same. ISSUE
the minority rule. WON Cohn et al. were holders in due course, and thus
-The many courts and legal writers have not approved ISSUE entitled to the amount
the rule that fraud in execution, where the maker is not
[ch4-V] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-V]
HELD: YES of $70,000 for Dotterweich within a year. The motion obligation as between the parties to it or others having
Ratio An instrument that has once been issued, was denied, and Dotterweich took an exception. notice.
returned, discharged, and stolen would seem to stand Disposition Judgment excepted from is reversed and a
no differently in the hands of a holder in due course ISSUE new trial ordered.
than an instrument that has been prepared, signed and WON the defendant’s testimony creates a question of
stolen before being issued. fact for a jury
Reasoning The validity of municipal obligations is not PAVILIS V FARMERS UNION LIVESTOCK
affected, in the hands of innocent holders for value, by HELD: YES COMMISSION
facts which concern merely the manner of their passing Ratio If the agreement created a condition precedent 68 S.D. 96, 298, N.W. 732.
from their maker into currency, and which do not (suspensive condition), without the performance of ~monch~
concern the mode of, or the authority for their creation. which the notes never became valid obligations, then
-It would be unfortunate in many respects if bonds of there is a question of fact. If the agreement created a FACTS
municipalities passing by delivery in the market should condition subsequent (resolutory condition), the issue is -Plaintiff Pavilis filed the action to recover upon an
be treated differently in this regard from the negotiable one of law for the decision of the trial judge. (basically – instrument alleged to be a check transferred to plaintiff
paper of other corporations and individuals. i think – the issue is whether the oral agreement meant for value by one C. Hoard who was named as payee
-It is true that the incurring of liability by municipalities that the notes were never valid, in which case there therein. Defendant Farmers Union Livestock
is often strictly regulated by statue, and we need not was never any delivery, or that the notes later became Commission argues that: (a) plaintiff was not HIDC, and
now go far as to say that such statutes could never invalid because of the failure of the condition, in which (b) the instrument signed in blank by defendant and
affect the position of an innocent holder. case there was delivery) having been stolen from his possession prior to delivery
-The case cited by the defendant was decided before Reasoning The oral agreement between the parties had no legal inception or existence as a check. Lower
the negotiable instruments law and at a time when the testified to by Dotterweich was that the note would be court ruled in favor of plaintiff. Defendant appealed.
authorities were divided as to the necessity of an held in Smith’s safe until the loan was procured, -It was practice of defendant’s office manager, who was
authorized delivery of a negotiable instrument. otherwise the note would be returned & the insurance authorized to sign checks, to sign a block of
Disposition Judgment for the plaintiffs in the sum of policy would be null & void. The loan was never made, instruments, printed to be used as check at the
$100 and interest from the date of the writ. therefore there is a failure of the condition which beginning of the business day and deliver the same to
determines the existence of any contract between the the bookkeeper whose regularly duty was to complete
parties. In the case of Jamestown Business College the instruments as checks and deliver the same to
SMITH V DOTTERWEICH Ass’n v Allen, upon which Smith relies to support his customers during the business day. It was also the
200 NY 299, 93 NE 985, 33 LRA (NS) 892; 1911 contentions, the promissory note was rendered practice of such office manager to procure the return of
~jonas~ effective by an unconditional delivery. The agreement such signed instruments not delivered at the close of
of the payee to release the maker and cancel the note business day for the purpose of safekeeping and for the
FACTS upon the happening of a future contingency was a purpose of checking or auditing the same.
-Dotterweich (MAKER-defendant) executed and condition subsequent which brought the case within the -Around February 1939, one C. Hoard was employed by
delivered to Smith (PAYEE-plaintiff) a promissory note general rule that a contract reduced to writing, and defendant as a bookkeeper and clerk. Hoard was
for $3,740 payable in 6 months. When the note became complete in its terms, cannot be contradicted by oral expressly authorized by defendant in the presence of
due, it was renewed by 4 notes payable 6 months from testimony. The oral testimony therein was in direct such other bookkeeper to complete and deliver checks
that date. The renewal notes were not paid at maturity, contradiction of the written contract, as to the only during business hours and only for amounts due
& Smith brought action for payment. existence or validity of which there was no controversy, them as shown by such account of sales. Hoard was not
-Smith introduced evidence to show that the original while in the case at bar the oral testimony tends to entrusted with a key to the defendant’s office although
note was given in payment of premiums on 2 life show that the writing purporting to be a contract is no he did have access to a key kept in a desk in the office
insurance policies to the defendant by the John contract at all. in order to unlock the padlock on the inside of the gate
Hancock Life Insurance Company through Smith, as its On the effect of oral testimony on contracts across the counter between defendant’s office and the
general agent. Dotterweich denied that the notes were which are wholly or partly reduced to writing – hall. On or about Feb 24, 1939, after the close of the
given for value received and that Smith was the lawful When the oral testimony goes to the question whether defendant’s office, Hoard gained access thereto by
holder & owner thereof, alleging an oral agreement there is a written contract or not, it is always unlocking the gate across the counter and climbed over
under which neither the notes nor the insurance competent; but when the effect of the oral testimony is the counter into defendant’s office and then opened
policies were to become valid & enforceable obligations to establish the existence of the written contract which the safe in defendant’s office by using the combination
unless Smith secured for Dotterweich a certain loan of it is designed to contradict or change, then the spoken which he knew, and w/o defendant’s knowledge, took
money. word must yield to the written compact. certain instruments printed for use as checks, blank as
-The trial court granted Smith’s motion to direct a On the rule in Benton v Martin, 52 NY 570 – to amount, date and payee, which had been signed by
verdict, to which Dotterweich excepted and moved to Instruments not under seal may be delivered upon defendant’s office manager authorized to sign checks,
submit to the jury the question whether there was a conditions the observance of which is essential to their and, in one of which instruments Hoard w/o defendant’s
condition that the original note & the insurance policies validity. The annexing of such conditions to the knowledge or express consent, inserted the date,
should be returned in case Smith did not procure a loan delivery is not an oral contradiction of the written amount and payee. Then Hoard placed his name upon
[ch4-W] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-W]
the back of the instrument and delivered the same to bank, now sues defendant as for money had and
plaintiff for value of $102.85. WEINER V PENNSYLVANIA CO. FOR INSURANCE received for the amount of the check.
ISSUE ON LIVES AND GRANTING ANNUITIES
WON the lost check was completed and therefore 160 Pa. Super. 320, 51 A. 2d 385 (1947) ISSUE
giving plaintiff Pavilis title to the instrument ~ice~ WON defendant obtained any title to the check which
as against the plaintiff, was a valid obligation for
HELD: NO FACTS $147.87.
-The check in controversy was an incomplete SUBJECT: Bil of Exchange-Check
instrument when stolen and cannot be enforced in the MAKERS: Weiner HELD: NO
absence of conduct on the part of the drawer creating PAYEE: Blank -In the case of a commercial paper, when by voluntary
estoppel. Weiner signed her name to a blank check. The check act a party instructs another with such paper with a
-It is urged that defendant is chargeable with was stolen. The thief placed the amount $250, the blank thereon designed to be filled up with a stipulated
negligence and is estopped to deny liability. The cases date, and a fictitious name as the payee. The bank paid amount, such party is liable to a bona fide holder, of
cited are those in which the party sought to be charged the check to the fictitious payee who properly indorsed the instrument. As to the basis of (plaintiff’s) liability,
upon a negotiable instrument has entrusted an it. some say that it rests upon an implied authority
instrument signed in blank to an agent or some other Weiner sued the bank to recover the amount taken conferred by the maker upon the person to whom it
person who has wrongfully completed and negotiated saying that the bank was negligent as it failed to was delivered to fill in the blanks, and others upon
the instrument; an agency or trust was created by identify the person paid. estoppel by reason of negligence.
means of which the fraud was committed and the fact -Not upon implied authority: for such doctrine grows
that there was no authority for completing the ISSUE out of principal-agent relationship, and there’s no such
instrument was otherwise wrongfully dealt with was no WON the bank is liable relation between a thief and his victims. The rule that
defense. the bona fide holder of an incomplete instrument,
-In Linick v AJ Nutting Co: blank check signed by HELD negotiable but for some lack capable of being supplied,
plaintiff was stolen by Rycoff and Silbermann, who filled No. The depositor is. has implied authority to supply the omission, and to
the amount and a fictitious name as payee and -Weiner signed the check in blank thus putting it in the hold the maker thereon, only applies when the latter
presented it to drawee bank. They endorsed the name power of an unauthorized person to fill it in and present has by his own act, or the act of another, authorized,
of the payee and transferred the check to defendant for it for payment. The depositor’s act made the loss confided in or invested with apparent authority by him,
value who collected the amount of the check from the possible and caused it, and enabled the thief to commit put the instrument in circulation as a negotiable paper.
bank. Court held that the check was an incomplete the fraud. Weiner’s act was a bar and an estoppel. To -Not upon negligence: since the paper was stolen and
instrument and that negligent custody of the check was hold otherwise would require the bank to communicate the persons guilty of the crime have been convicted.
not borne out by the facts. with the drawer as each check was presented, in order Plaintiff then cannot be charged with negligence giving
-Court concludes: If as a result of negligence such to find out if the delivery was intended. This is too rise to an estoppel, unless a man is guilty of negligence
instrument comes into the hands of a holder in due much to be expected; and to place the burden of loss in writing his name upon a piece of paper which by
course, the latter may recover, yet we cannot say or its chance to the depository if it does not interview some possibility may afterwards be stolen from him,
under the facts and circumstances of the instant case the maker, is neither fair nor compatible with public which paper comes into the hands of a third person
that defendant was negligent. The loss did not result interest. Such would affect the very nature of checks who is an entire stranger to the transaction, with words
from completion and negotiation of the check by one which is convenience. written over the signature which are sufficient in form
entrusted with its possession, and we are not Disposition: Affirmed. to make it a check or note. Actionable negligence
concerned with a breach of duty as between a involves, first, the existence of a duty; second, the
depositor and drawee. It does not appear that omission to exercise ordinary and reasonable care in
defendant company had reason to mistrust its LINICK V A.J. NUTTING & CO. connection therewith; and third, injury resulting in
employee and to anticipate the wrongful taking by him New York SC; 125 N.Y.S. 93, 140 App. Div. 265 (1910) consequence thereof.
of a check signed in blank, the subsequent completion ~rean~ -Sec. 34 (NIL 15) states: Where an incomplete
and negotiation. instrument has not been delivered, it will not, if
-The drawer owes the duty to use due care in the FACTS completed and negotiated, without authority, be a valid
execution of checks, but it does not follow as a legal Plaintiff Linick signed his name to a blank check. contract in the hands of any holder, as against any
conclusion that signers of checks in blank assume the Thereafter Rycoff and Silberman stole the check, filled person whose signature was placed thereon before
risk of liability in all cases where such instruments are in the name of FA Mann as payee and $147.87 as the delivery.
wrongfully taken, completed and negotiated. To hold amount thereof, and presented it to the State Bank, -The next section in the same act to the effect that
that a person is negligent in having in his possession a where plaintiff kept his account, and procured it to be “where the instrument is in the hands of a holder in due
check signed in blank would require something more certified. Thereafter they indorsed said check with the course, a valid delivery thereof by all parties prior to
than the exercise of ordinary care name of FA Mann and passed it to defendant A.J Nutting him so as to make them liable to him is conclusively
Disposition Judgment of lower court is reversed. and Co. for value, who collected the amount from said presumed” must be read with Sec 34 (NIL 15), and this
bank. Plaintiff, having taken up said check from the
[ch4-X] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch4-X]
provision does not apply in the case of an incomplete this case, evidence show that the maker’s intention the genesis of the promise. There is no showing that
instrument completed and negotiated w/o authority. was that the name of the bank was to be filled in the consideration was given
-Court concludes: The delivery of a PN by a maker is blank as payee.
necessary to a valid inception of a contract. The -A person upon whom authority is conferred to
possession of such a note by the payee or indorsee is complete the instrument, is not referred to as the WILLIAM BARCO & SON V FORBES (1927)
prima facie evidence of delivery. But if it appears that holder but as the one in possession. He is only given [place citation here]
the note has never been actually delivered, and that prima facie authority to fill a blank, and that the person ~brian b~
without any confidence, or negligence, or fault of the filling the blank must do so strictly in accordance with
maker, but by force and fraud, it was put in circulation, the authority given. FACTS
there can be no recovery upon it, even when in the Disposition Cause is remanded to allow plaintiff -Plaintiffs brought suit upon a note for $227.25 against
hands of an innocent holder. So, defendant did not opportunity to amend her complaint and thus enter a defendant who issued it for the purchase of fertilizer
obtain any title to the check, and cannot recover upon court of equity. from plaintiff.
it. -The note, dated Jan 10, 1923, was given in renewal of
Disposition Judgment appealed from must be DOUGHERTY V SALT a former note dated July 1, 1922.
reversed, and a new trial ordered. 227 N.Y. 200, 125 N.E. 94 (1919) -Defendant contended that the fertilizer was bought for
~javi~ use in producing a sweet potato crop in 1922, and that
the fertilizer was worthless and had no effect whatever
upon the crop.
SIMPSON V NAT’L BANK OF ROSEBURG FACTS: -This fact notwithstanding, TC ruled in favor of
94 Ore. 147, 185 Pac. 913 (1919) -Action by Charles Doughtery, an infant, instituted by plaintiffs.
~yella~ Susan Teves, his guardian against Emma Salt an
executrix of the last will and testament of Helena ISSUE
FACTS Doughtery (aunt of Charles) WON defendant is liable
SUBJECT: Promisory note -plaintiff received from his aunt a promissory note for
MAKER: Mrs. M. Josephson $3,000 payable at her death or before. Use was made HELD: YES.
PAYEE: (intended to be the banki) of a pronted form which contains the words “value Ratio One who gives a note in renewal of another note,
INDORSEE: National Bank of Roseburg received” with knowledge at the time of partial failure of the
POSSESSOR: Grace Simpson -Salt explained how the note came to be: boy’s aunt consideration for the original note, or of false
-When the note was executed the name of the payee visited one day and commented how she loved the boy representations by the payee, waives such defense and
was left blank, and was still in that condition when the so much to which Salt commented that her love was all cannot set it up to defeat or to reduce the discovery on
plaintiff received it. talk. Aunt replied by saying that she would take care of the renewal note. (Bank v Howard)
-The plaintiff tells about writing the name of the in the boy right at that instant. She asked the guardian to Reasoning The time for harvest was in July or August
blank and avers that the plaintiff is entitled to the make a note for her which she signed. In the note were 1922 and the potatoes were dug at that time. It is
indorsement of the defendant herein upon said note the words “You have always done for me, and I have obvious, therefore, that the defendant knew then that
and was at all times so entitled to the same signed this note for you. Now, do not lose it. Some day the fertilizer was worthless and that there was a total
it will be valuable.” (‘You have always done for me… failure of consideration. Nevertheless, he executed the
ISSUE and I have signed this note for you’….Sabi ko na nga ba renewal note.
WON plaintiff has a right against the defendant and the Pinoy si Susan Teves eh) Disposition Judgment affirmed.
maker of the note
ISSUE: WON there was any consideration for the
HELD: (case was remanded, court merely promised payment
discussed rules of the law of merchant if HELD: no
instrument is incomplete) -TC geld that there was no consideration. Appelate
-When the maker of the note left a blank for the name Division however reversed.
of a payee and delivered the instrument in that -SC reverses appellate court’s decision
condition to another person for value then that person -SC geld that the note was the VOLUNTARY AND
to whom the note was delivered or any subsequent UNINFORCEABLE promise of an executory gift. (no
holder could insert his own name, or that of a explanation why)
transferee, as payee. -the eight year old child was not a debtor, nor dealt
-The plaintiff could not have sued and recovered upon with as one. The aunt was conferring a bounty. The
an incomplete instrument. promise was neither offered nor accepted with any
-Grace Simpson could, in the absence of knowledge of other purpose
special instructions given by the maker, have filled the -the plaintiff, through his own witness, the guardian
blank by writing her own name as payee. However, in who explained how the note came to be, has explained