1.

Metrobank vs CA

Metropolitan Bank & Trust Company vs. Court of Appeals

G.R. No. 88866 February 18, 1991
-negotiability

FACTS:
Eduardo Gomez opened an account with Golden Savings and Loan Association and deposited over a period of two
months 38 treasury warrants with a total value of P1,755,228.37. All these warrants were subsequently indorsed by
Gloria Castillo as Cashier of Golden Savings and deposited to its savings account in the Metrobank branch in
Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which
forwarded them to the Bureau of Treasury for special clearing. Before they were cleared, petitioner decided to allow
Golden Savings to withdraw from the proceeds of the warrants. Golden Savings in turn subsequently allowed Gomez
to make withdrawals from his own account. Subsequently, Metrobank informed Golden Savings that 32 of the
warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the
amount it had previously withdrawn, to make up the deficit in its account. Metrobank contends that by indorsing the
warrants in general, Golden Savings assumed that they were "genuine and in all respects what they purport to be," in
accordance with Section 66 of the Negotiable Instruments Law.

ISSUE:
Whether petitioner can hold Golden Savings liable as an indorser of the treasury warrants based on the predication
that the treasury warrants involved in this case are negotiable instruments.

RULING:
Clearly stamped on the face of the treasury warrants is the word "non-negotiable." It is also indicated that they are
payable from a particular fund, to wit, Fund 501. The indication of Fund 501 as the source of the payment to be
made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves
non-negotiable. Petitioner cannot hold Golden Savings liable as an indorser under Section 66 of the NIL for the
simple reason that this law is not applicable to the non-negotiable treasury warrants.

2. CONSOLIDATED PLYWOOD v IFC LEASING

G.R. No. 72593 April 30, 1987

CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T. VERGARA, petitioners,

vs. IFC LEASING AND ACCEPTANCE CORPORATION, respondent.

FACTS

Consolidated Plywood (CPI), a company engaged in logging business, had a project in 1978 for the opening of
additional roads, and simultaneous logging operations along the route of said roads, in its logging concession area at
Baganga, Manay, and Caraga, Davao Oriental. For this purpose, it needed two (2) additional units of tractors.

The said company then bought two (2) "Used" Allis Crawler Tractors from Industrial Products Marketing (IPM)
which dealt in tractors and other heavy equipment business. IPM assured CPI that the said tractors were fit for the job.
Relying on the assurance, the tractors were purchased on installment basis with Php210k as down payment. The deed of
sale was accompanied by a chattel mortgage and a promissory note. The pertinent portion of the note is as follows:

FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the
sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P 1,093,789.71),
Philippine Currency, the said principal sum, to be payable in 24 monthly installments starting July 15, 1978 and every 15th of
the month thereafter until fully paid.

Simultaneously, with the execution of the deed of sale with chattel mortgage with promissory note, IPM assigned
its rights and interest in the chattel mortgage in favor of IFC Leasing and Acceptance Corporation.
 Barely 14 days after delivery of the tractors, one of the tractors broke down, with the second following after a
further 9 days. The mechanics sent by IPM found that the tractors could not be repaired and were no longer serviceable.
Thus, the operations were delayed and as such Vergara, the VP of CPI, advised IPM that the payments for the installments
in the promissory note will also be delayed.

Wee, CPI’s President, requested IPM to pull out the units and have them reconditioned for subsequent sale, with
the proceeds given to IPM. The letter was not responded to by the latter despite follow ups.

Thereafter, IFC Leasing filed a case against CPI for principal of about Php 1.1m, accrued interest of P151k, and
P249k of attorney’s fees and costs of suit. (≈Php 1.5m). The petitioners sought to dismiss and prayed for other reliefs.
However, the trial court rendered judgment in favor of IFC Leasing and ordered CPI to pay the amount.

In its appeal to the IAC, CPI argued that the trial court erred in not approving its claim of warranty and finding
that IFC Leasing as a holder in due course of the promissory note, and suing under the said note as holder in due course.
The IAC, however, affirmed the trial court’s decision.

On the second issue, the IAC ruled that the promissory note satisfied the requirements of a negotiable
instrument which was discounted or sold to IFC Leasing which was engaged in financing and receivable discounting for
extending credit facilities, and a holder in due course.

ISSUE

Whether or not the promissory note in question is a negotiable instrument

HELD

No. The trial court and IAC erred. The promissory note is NOT a negotiable instrument.

RATIO

Section 1(d) of the NIL requires that the promissory note must be payable to order or bearer. The instrument, in
order to be considered negotiable, must contain the so-called 'words of negotiable, must be payable to 'order' or 'bearer'.
These words serve as an expression of consent that the instrument may be transferred. This consent is indispensable
since a maker assumes greater risk under a negotiable instrument than under a non-negotiable one.

Under Section 8, When Payable to Order. — The instrument is payable to order where it is drawn payable
to the order of a specified person or to him or his order. There must always be a specified person named in the
instrument. It means that the bill or note is to be paid to the person designated in the instrument or to any person to
whom he has indorsed and delivered the same. Without the words "or order" or "to the order of," the instrument is
payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not
enjoy the advantages of being a holder of a negotiable instrument but will merely "step into the shoes" of the person
designated in the instrument and will thus be open to all defenses available against the latter."

Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note
"must be payable to order or bearer," it cannot be denied that the promissory note in question is not a negotiable
instrument. Thus, the CPI may raise against the IFC Leasing all defenses available to it as against the seller-assignor IPM.

3. DEVELOPMENT BANK OF RIZAL (DBR), plaintiff-petitioner,

vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION
and PRODUCERS BANK OF THE PHILIPPINES, defendants-respondents.

FACTS:
Sima Wei executed a promissory note in consideration of a loan secured from DBR in the amount of
P1,820,000. Sima Wei was able to pay partially for the loan but failed to pay the balance. Subsequently, Sima Wei issued
two crossed checks payable to DBR. These two checks however were not delivered to the DBR but instead came into the
possession of respondent Lee Kian Huat, who deposited the checks without DBR's indorsement to the account of
respondent Plastic Corporation with Producers Bank. Inspite of the fact that the checks were crossed and payable to DBR
and bore no indorsement of the latter, the Branch Manager of Producers Bank authorized the acceptance of the checks for
deposit and credited them to the account of said Plastic Corporation. DBR instituted actions against the Sima Wei and the
other defendants. The trial court dismissed the case stating that DBR had no cause of action against the defendants-
respondents.
CA affirmed this decision.

ISSUE:
Whether petitioner Bank has a cause of action against any or all of the defendants-respondents.

RULING:

A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of
property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so
must a negotiable instrument be delivered to the payee in order to
evidence its existence as a binding contract. Section 16 provides that every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect
thereto. Thus, the payee of the negotiable instrument acquires no interest with respect thereto until its delivery to
him. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the
instrument. Moreover, such delivery must be intended to give effect to the instrument.

Since petitioner Bank never received the checks on which it based its action against said respondents, it never owned
them (the checks) nor did it acquire any interest therein. Thus, anything which the respondents may have done with
respect to said checks could not have prejudiced petitioner Bank. It had no right or interest in the checks which could
have been violated by said respondents. Petitioner Bank has therefore no cause of action against said respondents, in the
alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action against her co-respondents,
if the allegations in the complaint are found to be true.

4. Natividad Gempesaw vs Court of Appeals

218 SCRA 682 – Mercantile Law – Negotiable Instruments Law – Liabilities of Parties – Forgery – Forged
Indorsements
Natividad Gempesaw is a businesswoman who entrusted to her bookkeeper, Alicia Galang, the preparation of checks
about to be issued in the course of her business transactions. From 1984 to 1986, 82 checks amounting to
P1,208,606.89, were prepared and were supposed to be delivered to Gempesaw’s clients as payees named thereon.
However, through Galang, these checks were never delivered to the supposed payees. Instead, the checks were
fraudulently indorsed to Alfredo Romero and Benito Lam.
ISSUE: Whether or not the bank should refund the money lost by reason of the forged indorsements.
HELD: No. Gempesaw cannot set up the defense of forgery by reason of her negligence. As a rule, a drawee bank
(in this case the Philippine Bank of Communications) who has paid a check on which an indorsement has been
forged cannot charge the drawer’s (Gempesaw’s) account for the amount of said check. An exception to this rule is
where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. If a check is
stolen from the payee, it is quite obvious that the drawer cannot possibly discover the forged indorsement by mere
examination of his cancelled check. A different situation arises where the indorsement was forged by an employee or
agent of the drawer, or done with the active participation of the latter.
The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the
depositor to act as a prudent businessman would under the circumstances. In the case at bar, Gempesaw relied
implicitly upon the honesty and loyalty of Galang, and did not even verify the accuracy of amounts of the checks she
signed against the invoices attached thereto. Furthermore, although she regularly received her bank statements, she
apparently did not carefully examine the same nor the check stubs and the returned checks, and did not compare
them with the same invoices. Otherwise, she could have easily discovered the discrepancies between the checks and
the documents serving as bases for the checks. With such discovery, the subsequent forgeries would not have been
accomplished. It was not until two years after Galang commenced her fraudulent scheme that Gempesaw discovered
that eighty-two (82) checks were wrongfully charged to her account, at which she notified the Philippine Bank of
Communications.

5.Republic Planters Bank vs Court of Appeals

on February 29, 2012

Negotiable Instruments in General – 216 SCRA 738 – Signature of Makers

In 1979, World Garment Manufacturing, through its board authorized Shozo Yamaguchi (president) and Fermin

Canlas (treasurer) to obtain credit facilities from Republic Planters Bank (RPB). For this, 9 promissory notes were

executed. Each promissory note was uniformly written in the following manner:

___________, after date, for value received, I/we, jointly and severally promise to pay to the ORDER of the

REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(….) Philippine

Currency…

Please credit proceeds of this note to:

________ Savings Account ______XX Current Account

No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP.

Sgd. Shozo Yamaguchi

Sgd. Fermin Canlas

The note became due and no payment was made. RPB eventually sued Yamaguchi and Canlas. Canlas, in his

defense, averred that he should not be held personally liable for such authorized corporate acts that he performed

inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment

Manufacturing.
ISSUE: Whether or not Canlas should be held liable for the promissory notes.

HELD: Yes. The solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for

ambiguity, by the presence of the phrase “joint and several” as describing the unconditional promise to pay to the

order of Republic Planters Bank. Where an instrument containing the words “I promise to pay” is signed by two or

more persons, they are deemed to be jointly and severally liable thereon.

Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons:

The promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law.

Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers

and are liable as such. By signing the notes, the maker promises to pay to the order of the payee or any holder

according to the tenor thereof.

6. Philippine Bank of Commerce vs. Aruego

GR L-25836-37, 31 January 1981, 102 scra 530

--agents

FACTS:
To facilitate payment of the printing of a periodical called “World Current Events.”, Aruego, its publisher, obtained a
credit accommodation from the Philippine Bank of Commerce. For every printing of the periodical, the printer
collected the cost of printing by drawing a draft against the bank, said draft being sent later to Aruego for acceptance.
As an added security for the payment of the amounts advanced to the printer, the bank also required Aruego to
execute a trust receipt in favor of the bank wherein Aruego undertook to hold in trust for the bank the periodicals and
to sell the same with the promise to turn over to the bank the proceeds of the sale to answer for the payment of all
obligations arising from the draft. The bank instituted an action against Aruego to recover the cost of printing of the
latter’s periodical. Aruego however argues that he signed the supposed bills of exchange only as an agent of the
Philippine Education Foundation Company where he is president.

ISSUES:
Whether Aruego can be held liable by the petitioner although he signed the supposed bills of exchange only as an
agent of Philippine Education Foundation Company.

RULING:
Aruego did not disclose in any of the drafts that he accepted that he was signing as representative of the Philippine
Education Foundation Company. For failure to disclose his principal, Aruego is personally liable for the drafts he
accepted, pursuant to Section 20 of the NIL which provides that when a person adds to his signature words indicating
that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was
duly authorized; but the mere addition of words describing him as an agent or as filing a representative character,
without disclosing his principal, does not exempt him from personal liability.

7. JAI-ALAI VS BANK OF THE PHILIPPINE ISLANDS

GR NO. L-29432 August 6, 1975

FACTS: From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58 were deposited by the
petitioner Jai-Alai in its current account with the respondent bank BPI, which the former acquired from one Antonio
Ramirez who was a sales agent of Inter-Island Gas Corporation and a regular bettor at jai-alai games.

Drawn By: (drawer) Drawn Upon: (drawee) Payable to: (payee)

5 checks: Delta Engineering Service Pacific Banking Corporation Inter-Island Gas
Service or ORDER

2 checks: Enrique Cortiz & Co, Pacific Banking Corporation Inter-Island Gas Service or
BEARER

1 check: Luzon Tinsmith & Co. China Banking Corporation I nter-Island Gas Service or
BEARER

2 checks: Roxas Manufacturing Inc Philippine National Bank Inter-Island Gas Service or ORDER

After Ramirez had resigned from the Inter-Island Gas and after the checks had been submitted to inter-bank clearing,
the Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers as well as
the rubber stamp impression thereon reading "Inter-Island Gas Service, Inc.," were forgeries. Inter-Island Gas notified
the petitioner, the respondent, the drawers and the drawee-banks of the said checks about the forgeries, and filed a
criminal complaint against Ramirez with the Office of the City Fiscal of Manila. The drawers demanded
reimbursement from the drawee-banks, which in turn demanded from the respondent, as collecting bank, the return
of the amounts they had paid on account thereof. When the drawee-banks returned the checks to the respondent
BPI, the latter paid their value which the former in turn paid to the Inter-Island Gas.

Repondent BPI debited petitioner’s current account and forwarded to the latter the checks containing the forged
indorsements, which the petitioner refused to accept. So when petitioner drew against its current account with
respondent a check for P135,000 payable to the order of Mariano Olondriz, the same was dishonored for the
insufficiency of funds.

The petitioner filed a complaint against the respondent with CFI Manila but it was dismissed by the trial court as well
as by Court of Appeals.

ISSUE:

Whether or not the BPI had the right to debit from petitioner’s current account the value of the checks with the forged
endorsements?

HELD:

YES. The respondent BPI acted within legal bounds when it debited the petitioner's account. When the petitioner
deposited the checks with the respondent, the nature of the relationship created at that stage was one of agency, that
is, the bank was to collect from the drawees of the checks the corresponding proceeds.

Pursuant to Sec. 23 of the NIL, a forged signature in a negotiable instrument is wholly inoperative and no right to
discharge it or enforce its payment can be acquired through or under the forged signature except against a party who
cannot invoke the forgery. It stands to reason, upon the facts of record, that the respondent, as a collecting bank
which indorsed the checks to the drawee-banks for clearing, should be liable to the latter for reimbursement, for the
indorsements on the checks had been forged prior to their delivery to the petitioner. In legal contemplation, therefore,
the payments made by the drawee-banks to the respondent on account of the said checks were ineffective; and, such
being the case, the relationship of creditor and debtor between the petitioner and the respondent had not been validly
effected, the checks not having been properly and legitimately converted into cash.

It is the obligation of the collecting bank to reimburse the drawee-bank the value of the checks subsequently found to
contain the forged indorsement of the payee. The reason is that the bank with which the check was deposited has no
right to pay the sum stated therein to the forger "or anyone else upon a forged signature."

In contrast, it was petitioner’s duty to that the payee's endorsement was genuine before cashing the check. The
petitioner must in turn shoulder the loss of the amounts which the respondent; as its collecting agent, had to
reimburse to the drawee-banks. Having indorsed the checks to respondent bank, petitioner is deemed to have given
the warranty prescribed in Section 66 of the NIL that every single one of those checks "is genuine and in all respects
what it purports to be." Respondent which relied upon the petitioner's warranty should not be held liable for the
resulting loss. (Issue on Indorsement)

Jai Alai Corporation is negligent in accepting the checks without question from Antonio Ramirez notwithstanding that
the payee was the Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it.

8. Republic Bank vs Mauricia Ebrada

65 SCRA 680 – Mercantile Law – Negotiable Instruments Law – Consideration – Forgery –

Liability of Accommodation Party
On January 15, 1963, the Bureau of Treasury issued a back pay check to Martin Lorenzo in
the amount of P1,246.08. The drawee named therein was Republic Bank. The check was
subsequently indorsed to Ramon Lorenzo, then to Delia Dominguez and then to Mauricia
Ebrada. Ebrada encashed the check with the Republic Bank. Republic Bank paid the
amount of the check to Ebrada. Ebrada, upon receiving the cash, gave it to Dominguez;
Dominguez in turn gave the cash to Ramon Lorenzo.
Later, the Bureau of Treasury notified that the check was a forgery because the payee
named therein (Martin Lorenzo) was actually dead 11 years ago before the check was
issued. Republic Bank refunded the amount to the Bureau of Treasury. The bank then
demanded Ebrada to refund them.
ISSUE: Whether or not Republic Bank may recover from Ebrada.
HELD: Yes. Ebrada, being the last indorser, warranted the genuineness of the signatures of
the payee and the previous indorsers. The drawee bank is not duty bound to ascertain
whether or not the signatures of the payee and the indorsers are genuine. One who
purchases a check or draft is bound to satisfy himself that the paper is genuine and that by
indorsing it or presenting it for payment or putting it into circulation before presentation he
impliedly asserts that he has performed his duty and the drawee (in this case Republic
Bank) who has paid the forged check, without actual negligence on his part, may recover
the money paid from such negligent purchasers.
But Ebrada did not profit from this because she, upon receiving the encashment, gave the
same to Dominguez?
She is still liable because she is considered as an accommodation party – pursuant to
Section 29 of the Negotiable Instruments Law. An accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value, notwithstanding such holder at the time of
taking the instrument knew him to be only an accommodation party.

9.The Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Banking Corp.
[GR 18657, 23 August 1922]

Facts:
The Great Eastern Life Insurance Co. (GELIC) is an insurance corporation, while
Hongkong & Shanghai Banking Corp. (HSBC) and Philippine National Bank (PNB)
are banking corporations, and each is duly licensed to do its respective business in
the Philippine Islands.

On 3 May 1920, GELIC drew its check payable to the order of Lazaro Melicor for
P2,000 on HSBC with whom it had an account.

E.M. Maasim fraudulently obtained possession of the check, forged Melicor's

signature, as an endorser, and then personally endorsed and presented it to PNB.
The latter bank placed the said amount on Maasim’s account.

PNB endorsed the check to HSBC, which paid it, and charged the amount of the
check to the account of GELIC.

In the ordinary course of business, HSBC rendered a bank statement to GELIC

showing that the amount of the check was charged to its account

About 4 months after the check was charged to the account of GELIC, It was
discovered that Melicor, to whom the check was made payable, had never
received it, and that his signature, as an endorser, was forged by Maasim. With
this knowledge, GELIC promptly made a demand upon HSBC that it should be
given credit for the amount of the forged check, which the bank refused to do,
and GELIC commenced the action to recover the P2,000 which was paid on the
forged check.

Upon the issues being joined, a trial was had and judgment was rendered against
the plaintiff and in favor of the defendants, from which the plaintiff appeals,
claiming that the court erred in dismissing the case, notwithstanding its finding of
fact, and in not rendering a judgment in its favor, as prayed for in its complaint.

On the petition of HSBC, PNB was made defendant. HSBC denies any liability,
but prays that, if a judgment should be rendered against it, in turn, it should have
like judgment against PNB which denies all liability to either party. Upon the
issued being joined, a trial was had and judgment was rendered against GELIC and
in favor HSBC and PNB from which GELIC appealed.

Issue: Whether or not GELIC can recover inasmuch as Melicor’s indorsement was
forged.

Ruling:

Plaintiff's check was drawn on Shanghai Bank payable to the order of Melicor. In
other words, the plaintiff authorized and directed the Shanghai Bank to pay
Melicor, or his order, P2,000. It did not authorize or direct the bank to pay the
check to any other person than Melicor, or his order, and the testimony is
undisputed that Melicor never did part with his title or endorse the check, and
never received any of its proceeds.

Section 23 of the Negotiable Instruments Law is square in point.

“When a signature is forged or made without the authority of the person whose signature it purports to be,
it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or under such signature, unless the
party against whom it is sought to enforce such right is precluded from setting up the forgery or want of
authority.”

The money was on deposit in HSBC, and it had no legal right to pay it out to
anyone except GELIC or its order. Here, GELIC ordered HSBC to pay the P2,000
to Melicor, and the money was actually paid to Maasim and was never paid to
Melicor, and he never personally endorsed the check, or authorized any one to
endorse it for him, and the alleged endorsement was a forgery.

Hence, HSBC has no defense to the present action.

PNB cashed the check upon a forged signature, and placed the money to the credit
of Maasim, who was the forger. That PNB then endorsed the check and forwarded
it to HSBC by whom it was paid. PNB had no license or authority to pay the
money to Maasim or anyone else upon a forged signature. It was its legal duty to
know that Melicor's endorsement was genuine before cashing the check. PNB’s
remedy is against Maasim to whom it paid the money.

The Supreme Court reversed the lower court's judgment, and entered another in
favor of GELIC and against HSBC for P2,000, with interest thereon from 8
November 1920, at the rate of 6% per annum, and the costs of the action, and a
corresponding judgment will be entered in favor of HSBC against PNB for the
same amount, together with the amount of its costs in the action.

10. Negotiable Instruments Case Digest: MWSS V. CA (1986)

G.R. No. L-62943 July 14, 1986

Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:

 Metropolitan Waterworks and Sewerage System (MWSS) is a GOCC and successor-in- interest of
the defunct NWSA.
 The authorized signature for PNB Account No. 6 were those of MWSS treasurer Jose Sanchez, its
auditor Pedro Aguilar, and its acting General Manager Victor L. Recio.
 Specimen signatures were submitted by the MWSS to and on file with the PNB
 By special arrangement with the PNB, the MWSS used personalized checks in drawing from this
account.
 printed for MWSS by its printer, F. Mesina Enterprises
 March, April and May 1969: 23 checks were prepared, processed, issued and released by NWSA,
all of which were paid and cleared by PNB and debited by PNB against NWSA Account No. 6
 deposited by the fictitious payees Raul Dizon, Arturo Sison and Antonio Mendoza in their
respective current accounts with the Philippine Commercial and Industrial Bank (PCIB) and
Philippine Bank of Commerce (PBC)
 At the time of their presentation to PNB these checks bear the standard indorsement which reads
'all prior indorsement and/or lack of endorsement guaranteed'
 NWSA filed against PNB before the CFI
 PNB also filed a 3rd party complaint against the negotiating banks PBC and PCIB on the ground
that they failed to ascertain the Identity of the payees and their title to the checks which were
deposited in the respective new accounts of the payees with them
 February 6, 1976: CFI favored MWSS
 CA: reversed and favored PNB
 applied Section 24 of the Negotiable Instruments Law

ISSUE: W/N MWSS can can claim against PNB

HELD: NO. CA reversed.

Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and
every person whose signature appears thereon to have become a party thereto for value
 A bank is bound to know the signatures of its customers; and if it pays a forged check it must be
considered as making the payment out of its obligation funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged.

 NBI showed that the MWSS fraud was an "inside job" and that the MWSS' delay in the
reconciliation of bank statements and the laxity and loose records control in the printing of its
personalized checks facilitated the fraud. These reports did not touch on the inherent qualities of
the signatures which are indispensable in the determination of the existence of forgery. There
must be conclusive findings that there is a variance in the inherent characteristics of the
signatures and that they were written by 2 or more different persons.

 Forgery cannot be presumed. It must be established by clear, positive, and convincing evidence.
This was not done in the present case.

SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or made without authority
of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto
can be acquired through or under such signature unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or want of authority.

 Gross negligence in the printing of its personalized checks - MWSS failed to

1. give its printer, Mesina Enterprises, specific instructions relative to the safekeeping and
disposition of excess forms, check vouchers, and safety papers

2. retrieve from its printer all spoiled check forms

3. provide any control regarding the paper used in the printing of said checks

4. furnish the respondent drawee bank with samples of typewriting, cheek writing, and print used
by its printer in the printing of its checks and of the inks and pens used in signing the same

5. send a representative to the printing office during the printing of said checks
 6. to reconcile the bank statements with its own records

 MWSS requested the PNB to discontinue the practice of mailing the bank statements, but instead
to deliver it to Mr. Emiliano Zaporteza. However, he was unreasonably delayed in taking prompt
deliveries of the bank statements and credit and debit memos. As a consequence, Mr. Zaporteza
failed to reconcile the bank statements. If Mr. Zaporteza had not been remiss in his duty of
taking the bank statements and reconciling them with the petitioner's records, the fraudulent
encashments of the first checks should have been discovered, and further frauds prevented. This
negligence was, therefore, the proximate cause of the failure to discover the fraud.
 One factor which facilitate this fraud was the delay in the reconciliation of PNB statements with
the NAWASA bank accounts. x x x. Had the NAWASA representative come to the PNB early for the
statements and had the bank been advised promptly of the reported bogus check, the negotiation
of practically all of the remaining checks on May, 1969 could have been prevented.
 The records likewise show that the petitioner failed to provide appropriate security measures over
its own records thereby laying confidential records open to unauthorized persons. The petitioner's
own Fact Finding Committee, in its report submitted to their General manager underscored this
laxity of records control. It observed that the "office of Mr. Ongtengco (Cashier No. VI of the
Treasury Department at the NAWASA) is quite open to any person known to him or his staff
members and that the check writer is merely on top of his table
 Even if the 23 checks in question are considered forgeries, considering the petitioner's gross
negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable
Instruments Law

 PNB had taken the necessary measures in the detection of forged checks and the prevention of
their fraudulent encashment. In fact, long before the encashment of the 23 checks in question,
the it had issued constant reminders to all Current Account Bookkeepers informing them of the
activities of forgery syndicates.
 Under the circumstances, MWSS was in a better position to detect and prevent the fraudulent
encashment of its checks.