the check for collection, it will pay the instrument without further question; and it would incur
1. ANG TEK LIAN vs. CA (1950)
G.R. No. L-2516
Author: Gutierrez
Petitioner/s: Ang Tek Lian
Respondent/s: Court of Appeals
DOCTRINE: Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the
order of "cash" is a check payable to bearer, and the bank may pay it to the person
presenting it for payment without the drawer's indorsement. A check payable to the order of
cash is a bearer instrument. Where a check is made payable to the order of "cash", the word
cash "does not purport to be the name of any person", and hence the instrument is payable
to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to
the person presenting it without any indorsement.
FACTS:
 In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00.
He said that he meant to withdraw from the bank but the bank’s already closed. In
exchange, he gave Lee Hua a check which is “payable to the order of ‘cash”.
 The next day, Lee Hua presented the check for payment but it was dishonored due to
insufficiency of funds. Lee Hua eventually sued Ang Tek Lian for Estafa. In his defense, Ang
Tek Lian argued that he did not indorse the check to Lee Hua and that when the latter
accepted the check without Ang Tek Lian’s indorsement, he had done so fully aware of
the risk he was running thereby.
ISSUE/S: Whether a check payable to “cash” needs indorsement? NO.
RULING:
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order
of "cash" is a check payable to bearer, and the bank may pay it to the person presenting it for
payment without the drawer's indorsement. A check payable to the order of cash is a bearer
instrument. Where a check is made payable to the order of "cash", the word cash "does not
purport to be the name of any person", and hence the instrument is payable to bearer. The
drawee bank need not obtain any indorsement of the check, but may pay it to the person
presenting it without any indorsement.
However, if the bank is not sure of the bearer's identity or financial solvency, it has
the right to demand identification and /or assurance against possible complications, — for
instance, (a) forgery of drawer's signature, (b) loss of the check by the rightful owner, (c) raising
of the amount payable, etc. The bank may therefore require, for its protection, that the
indorsement of the drawer — or of some other person known to it — be obtained. But where
the Bank is satisfied of the identity and /or the economic standing of the bearer who tenders
no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to holder. Where a check is in the
ordinary form, and is payable to bearer, so that no indorsement is required, a bank, to which it
is presented for payment, need not have the holder identified, and is not negligent in failing to
do so. If the bank has no reasonable cause for suspecting any irregularity, it will be protected in
paying a bearer check, "no matter what facts unknown to it may have occurred prior to the
presentment."
2. DEVELOPMENT BANK OF RIZAL v. SIMA WEI, et. Al
G.R. No. 85419|March 09, 1993
Author: Tawantawan
DOCTRINE: “The payee of a negotiable instrument acquires no interest with respect thereto
until its delivery which must be intended to give effect to the instrument to him. Without the
initial delivery, there can be no liability on the instrument.”
APPLICABLE LAW: Section 16 of the NIL
FACTS
1. Sima Wei obtained a loan from Development Bank of Rizal (“DBR”) and delivered a
promissory note to pay DBR or order.
2. Sime Wei made partial payments leaving a balance issuing two crossed checks
payable to DBR against China Banking Corporation (“CBC”) which were allegedly
issued in full settlement of the drawer’s account evidenced by the PN but not
delivered to DBR or to any of its authorized representatives.
3. For reasons not shown, these checks were possessed by Lee Kian Juat who deposited
the checks without DBR’s indorsement (forged or otherwise) to the account of Plastic
Corporation at the Balintawak Branch, Caloocan City of the Producer’s Bank.
4. Cheng Uy, Branch Manager of the said branch of the Producers Bank, relying on the
assurance of Samson Tung, President of Plastic Corporation, that the transaction was
regular and legal, instructed the cashier of the Producers Bank to accept the checks
for deposit and to credit them to the account of said Plastic Corporation regardless
that the checks were crossed and payable to DBR without indorsement of the latter.
5. Hence, this petition.
TWO CAUSES OF ACTION OF BDR
(1) To enforce payment of the balance on a promissory note executed by Sima Wei; and
(2) To enforce payment of two checks executed by Sima Wei, payable to DBR and drawn
against
the China Banking Corporation, to pay the balance due on the promissory note.
ISSUE: Whether DBR has a cause of action against any or all the defendants, in the alternative
or otherwise. -YES BUT ONLY AGAINST SIMA WEI.

RULINGS+RATIO:
The normal parties to a check are the drawer, the payee and the drawee bank. Recognized is
the business custom of using printed checks where blanks are provided for the date of
issuance, the name of the payee, the amount payable and the drawer's signature. All the
drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it.
However, the mere fact that he has done these does not give rise to any liability, unless the
check is delivered to the payee or his representative. 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 of the Negotiable Instruments Law, which governs checks, provides in part: "Every
contract on a negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. . . ." Thus, the payee of a negotiable
instrument acquires no interest with respect thereto until its delivery which must be intended
to give effect to the instrument to him. Without the initial delivery, there can be no liability on
the instrument. In this case, the allegations of DBR in the original complaint show that the two
China Bank checks were not delivered to DBR so that CBC did not acquire any right or interest
therein and cannot therefore assert any cause of action, founded on said checks, whether
against the drawer Sima Wei or against the Producers Bank or any of the other respondents. In
the original complaint, DBR sued Sima Wei on the promissory note, and the alternative
defendants, including Sima Wei, on the two checks.
On appeal, DBR alleged that its cause of action was not based on collecting the sum of money
evidenced by the negotiable instruments stated but on quasi- delict - a claim for damages on
the ground of fraudulent acts and evident bad faith of the alternative respondents. This was
clearly an attempt by DBR to change not only the theory of its case but the basis of his cause of
action. It is well-settled that a party cannot change his theory on appeal, as this would in effect
deprive the other party of his day in court. However, it does not necessarily follow that the
drawer Sima Wei is freed from liability to DBR under the loan evidenced by the promissory
note agreed to by her. Her allegation that she has paid the balance of her loan with the two
checks payable to DBR has no merit for these checks were never delivered to petitioner
Bank. And even that there was delivery to DBR, the delivery of checks in payment of an
obligation does not constitute payment unless they are cashed or their value is impaired
through the fault of the creditor. None of these exceptions were alleged by respondent Sima
Wei. Therefore, unless respondent Sima Wei proves that she has been relieved from liability on
the promissory note by some other cause, DBR has a right of action against her for the balance
due thereon. However, insofar as the other respondents are concerned, DBR has no privity
with them. Since DBR 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 DBR. DBR 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.
FALLO: the judgment of the Court of Appeals dismissing the petitioner's complaint is
AFFIRMED insofar as the second cause of action is concerned. On the first cause of action, the
case is REMANDED to the trial court for a trial on the merits, consistent with this decision, in
order to determine whether respondent Sima Wei is liable to the Development Bank of Rizal
for any amount under the
promissory note allegedly signed by her.
3. DE LA VICTORIA v. BURGOS
G.R. No. 111190, June 27, 1995
Author: Agorilla
Doctrine:
1. Every contract on a negotiable instrument is incomplete and revocable until delivery of
the instrument for the purpose of giving effect thereto.
2. Delivery means the transfer of the possession of the instrument by the maker or the
drawer with intent to transfer title to the payee and recognize him as the holder thereof.
Name of the parties: (and their respective role in the case):
Petitioner: LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal
capacity as garnishee
Respondents: HON. JOSE BURGOS, Presiding Judge, RTC, and RAUL H. SESBREÑO
Section/s Applicable:
Section 16. Delivery; When Effectual; When Presumed. — Every contract on
a negotiable instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As between immediate parties, and as regards a remote party
other than a holder in due course, the delivery, in order to be effectual, must be made either
by or under the authority of the party making, drawing, accepting, or indorsing, as the case
may be; and in such case the delivery may be shown to have been conditional, or for a special
purpose only, and not for the purpose of transferring the property in the instrument. But
where the instrument is in the hands of a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is conclusively presumed. And where the
instrument is no longer in the possession of a party whose signature appears thereon, a valid
and intentional delivery by him is presumed until the contrary is proved.
Facts:
 Respondent RAUL H. SESBREÑO (Sesbreño) filed a complaint for damages against
Assistant City Fiscals Bienvenido N. Mabanto, Jr. (Mabanto, Jr.), and Dario D. Rama, Jr.
(Rama, Jr.), before the Regional Trial Court of Cebu City. After trial Judgment was rendered
ordering Mabanto, Jr. and Rama, Jr. to pay P11,000.00 to Sesbreño. Thereafter, a writ of
execution was issued, upon motion of Sesbreño. Mabanto, Jr. and Rama, Jr. question the
order of the RTC before the CA, which the CA later on dismissed.
On 4 February 1992 a notice of garnishment was served on petitioner LORETO D. DE
LA VICTORIA (De La Victoria) as City Fiscal of Mandaue City where Mabanto, Jr., was then
detailed. The Notice directed De La Victoria not to disburse, transfer, release or convey to any
other person except to the deputy sheriff concerned the salary checks, monies, or cash due or
belonging to Mabanto, Jr., under penalty of law. On 10 March 1992 Sesbreño filed a motion
before the trial court for examination of the garnishees.
Thus the trial court, finding no more legal obstacle to act on the motion for
examination of the garnishees, directed De La Victoria on November 4, 1992 to submit his
report showing the amount of the garnished salaries of Mabanto, Jr., within 15 days from
receipt taking into consideration the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the
Rules of Court.
Sesbreño filed a motion to require De La Victoria to explain why he should not be
cited in contempt of court for failing to comply with such order.
On the other hand, De La Victoria moved to quash the notice of garnishment
claiming that he was not in possession of any money, funds, credit, property or anything of
value belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks
were not yet properties of Mabanto, Jr., until delivered to him. He further claimed that, as
such, they were still public funds which could not be subject to garnishment.
The trial court denied both motions and ordered De La Victoria to immediately
comply with its order of 4 November 1992. It opined that the checks of Mabanto, Jr., had
already been released through De La Victoria by the Department of Justice duly signed by
the officer concerned. Upon service of the writ of garnishment, De La Victoria, as custodian
of the checks, was under obligation to hold them for the judgment creditor. De La Victoria
became a virtual party to, or a forced intervenor in, the case and the trial court hereby
acquired jurisdiction to bind him to its orders and processes with a view to the complete
satisfaction of the judgment. Additionally there was no sufficient reason for De La Victoria
to hold the checks because they were no longer government funds and presumably
delivered to the payee, conformably with the last sentence of Sec. 16 of the Negotiable
Instruments Law.
The motion for reconsideration was denied. The trial court explained that it was
not the duty of the garnishee to inquire or judge for himself whether the issuance of the
order of execution, writ of execution and notice of garnishment was justified. His only duty
was to turn over the garnished checks to the trial court which issued the order of execution.
Contentions of the PETITIONER (De La Victoria):
De La Victoria contends that the salary checks were not owned by Mabanto, Jr.,
because they were not yet delivered to him, and that he, De La Victoria, as garnishee has no
legal obligation to hold and deliver them to the trial court to be applied to Mabanto, Jr.’s
judgment debt. The thesis of De La Victoria is that the salary checks still formed part of public
funds and therefore beyond the reach of garnishment proceedings.
Issue:
(1) Whether a check still in the hands of the maker or its duly authorized representative is
owned by the payee before physical delivery to the latter.
(2) Whether the salary check of a government official or employee funded with public funds
can be subject to garnishment.
Ruling:
Garnishment is considered as a species of attachment for reaching credits
belonging to the Judgment debtor owing to him from a stranger to the litigation. Emphasis
is laid on the phrase "belonging to the judgment debtor" since it is the focal point in
resolving the issues raised.
As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds.
He receives his compensation in the form of checks from the Department of Justice
through De La Victoria as City Fiscal of Mandaue City and head of office. Under Sec. 16 of
the Negotiable Instruments Law, every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto. As ordinarily understood, delivery means the transfer of the possession of
the instrument by the maker or the drawer with intent to transfer title to the payee and
recognize him as the holder thereof.
According to the trial court, the checks of Mabanto, Jr., were already released by
the Department of Justice duly signed by the officer concerned through petitioner and
upon service of the writ of garnishment by the sheriff petitioner was under obligation to
hold them for the judgment creditor. It recognized the role of petitioner as custodian of
the checks. At the same time however it considered the checks as no longer government
funds and presumed delivered to the payee based on the last sentence of Sec. 16 of the
Negotiable Instruments Law which states: "And where the instrument is no longer in the
possession of a party whose signature appears thereon, a valid and intentional delivery by
him is presumed." Yet, the presumption is not conclusive because the last portion of the
 provision says "until the contrary is proved." However this phrase was deleted by the
trial court for no apparent reason. Proof to the contrary is its own finding that the checks
were in the custody of petitioner. Inasmuch as said checks had not yet been delivered to
Mabanto, Jr., they did not belong to him and still had the character of public funds. In Tiro
v. Hontanosas we ruled that:
The salary check of a government officer or employee such as
a teacher does not belong to him before it is physically delivered to
him. Until that time the check belongs to the government. Accordingly,
before there is actual delivery of the check, the payee has no power over
it; he cannot assign it without the consent of the Government.
As a necessary consequence of being public fund, the checks may not be
garnished to satisfy the judgment. The rationale behind this doctrine is obvious
consideration of public policy. The Court succinctly stated in Commissioner of Public
Highways v. San Diego that:
The functions and public services rendered by the State cannot
be allowed to be paralyzed or disrupted by the diversion of public funds
from their legitimate and specific objects, as appropriated by law.
4. METROPOL (BACOLOD) FINANCING v. SAMBOK MOTORS
120 SCRA 864, G.R. No. L-39641, February 28, 1983
Digest Author: Barredo
PLAINTIFF-APPELLE: Metropol (Bacolod) Financing & Investment Corporation
DEFENDANTS-APPELLANTS: Sambok Motors Company and Ng Sambok Sons Motors Co., Ltd.
DOCTRINE: A person who indorses without qualification engages that on due presentment,
the note shall be accepted or paid, or both as the case may be, and that if it be dishonored,
he will pay the amount thereof to the holder.
APPLICABLE LAWS:
Section 21 (Rule 3 of the Rules of Court)
Sec. 21. Where claim does not survive. – When the action is for recovery of money, debt or
interest thereon, and the defendant dies before final judgment in the Court of First Instance, it
shall be dismissed to be prosecuted in the manner especially provided in these rules.
Section 38 (The Negotiable Instruments Law)
Sec. 38. Qualified indorsement. – A qualified indorsement constitutes the indorser a mere
assignor of the title to the instrument. It may be made by adding to the indorser's signature the
words "without recourse" or any words of similar import. Such an indorsement does not impair
the negotiable character of the instrument.
Section 65 (The Negotiable Instruments Law)
Sec. 65. Warranty where negotiation by delivery and so forth. – Every person negotiating an
instrument by delivery or by a qualified indorsement warrants:
(a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other
than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to a person negotiating public or
corporation securities other than bills and notes.
FACTS:
 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors
Co., Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly
installments with interest at the rate of one (1%) percent per month.
 In case on non-payment of any of the installments, the total principal sum then
remaining unpaid shall become due and payable with an additional interest equal to
twenty-five (25) percent of the total amount due.
 Sambok Motors Company (Sambok), a sister company of Ng Sambok Sons Motors
Co., Ltd., and under the same management as the former, negotiated and indorsed
the note in favor of Metropol Financing & Investment Corporation (Metropol) with
the following indorsement:
Pay to the order of Metropol Bacolod Financing & Investment Corporation
with recourse. Notice of Demand; Dishonor; Protest; and Presentment are
hereby waived.
SAMBOK
MOTORS CO.
(BACOLOD)
By:
RODOLFO G. NONILLO Asst. General Manager
 Dr. Villaruel defaulted in the payment of his installments and failed to pay the
promissory note as demanded.
 Metropol notified Sambok as indorsee that the note has been dishonored and
demanded payment, but Sambok failed to pay.
 Metropol filed a complaint for collection of a sum of money.
 Sambok did not deny its liability but contended that it could not be obliged to pay
until after its co-defendant, Dr. Villaruel, has been declared insolvent.
  During the pendency of the case in the trial court, Dr. Villaruel died.
DECISION OF THE TRIAL COURT (CFI):
 Dismissed the case against Dr. Villaruel (as per Sec. 21 of Rule 3)
 Ordered Sambok to pay Metropol the sum of P15,939.00 plus interest.
CONTENTIONS OF DEFENDANTS:
 By adding the words "with recourse" in the indorsement of the note, Sambok Motors
Company becomes a qualified indorser, so it does not warrant that if said note is
dishonored by the maker on presentment, Sambok Motors Company will pay the
amount to the holder.
ISSUE: Whether Sambok Motors Company is a qualified indorser. – NO.
RULING+RATIO:
Sambok Motors Company is not a qualified indorser.
A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument.
 Made by adding to the indorser's signature the words "without recourse" or any
words of similar import
 Relieves the indorser of the general obligation to pay if the instrument is dishonored
but not of the liability arising from warranties on the instrument as provided in
Section 65 of the Negotiable Instruments Law
"Recourse" means resort to a person who is secondarily liable after the default of the person
who is primarily liable. After an instrument is dishonored by non-payment, the person
secondarily liable thereon ceases to be such and becomes a principal debtor. His liability
becomes the same as that of the original obligor. Consequently, the holder need not even
proceed against the maker before suing the indorser.
In the present case, Sambok indorsed the note "with recourse", thus, Sambok did not make
itself a qualified indorser but a general indorser who is secondarily liable. The effect of such
indorsement is that the note was indorsed without qualification. By such indorsement, Sambok
agreed that if Dr. Villaruel fails to pay the note, Metropol can go after them.
Moreover, Sambok's intention of indorsing the note without qualification is made even more
apparent by the fact that the notice of demand, dishonor, protest and presentment were
waived. The words added do not limit Sambok’s liability but rather confirm its obligation as a
general indorser.
5. NATIVIDAD GEMESPAW v. COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS
G.R. No. 92244, February 9, 1993
Author: Bernal
Doctrine: As a rule, a drawee bank who has paid a check on which an indorsement has been
forged cannot charge the drawer's account for the amount of said check. 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.
FACTS:
 Petitioner is an owner of grocery stores. She is paying her suppliers by issuing checks
which is drawn against her account in respondent bank.
 The checks are prepared by her bookkeeper (her bookkeeper for 8 years) which were
then presented to her for her signature and its corresponding invoice receipts which
indicate the correct obligation due and payable to her suppliers. Petitioner signs each
check without bothering to examine the accuracy of the checks against the
corresponding invoices. The respondent bank credited the amount of the checks to
petitioners account.
 Petitioner does not also verify the returned checks of the bank when the latter
notifies her of the same. In a span of two years, there were multiple instances which
show that the amounts paid for were in excess of what should have been actually
paid. And it was only after the lapse of 2 more years that the petitioner found out
about the fraudulent manipulations of her bookkeeper.
 All 82 checks were with forged signatures of the payees were brought to the Chief
Accountant of the respondent bank, who, without authority, accepted them all for
deposit at the to the credit and/or in the accounts of Alfredo Y. Romero and Benito
Lam. About 30 payees whose name were written specifically on the checks testified
that they did not receive nor even see the subject checks and that the indorsements
appearing at the back of the check were not theirs. Periodic inspections were
conducted upon the respondent bank however, they failed to discover, check or even
stop the unauthorized acts of the Chief Accountant.
 Petitioner demanded for the amount credited to her account which was later on
refused by the respondent bank. Petitioner then filed a complaint with the RTC. RTC
dismissed the complaint. CA affirmed the decision.
ISSUE: Whether or not the petitioner has a right to recover the amount attributable to the
forgeries.
HELD:
Under Sec. 23 of NIL,
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.
Forgery is a real or absolute defense by the party whose signature is forged. A party whose
signature to an instrument was forged was never a party and never gave his consent to the
contract which gave rise to the instrument. Since his signature does not appear in the
instrument, he cannot be held liable thereon by anyone, not even by a holder in due course.
And said section does not refer only to the forged signature of the maker of a promissory note
and of the drawer of a check. It covers also a forged indorsement, i.e., the forged signature of
the payee or indorsee of a note or check. Since under said provision a forged signature is
"wholly inoperative", no one can gain title to the instrument through such forged indorsement.
Such an indorsement prevents any subsequent party from acquiring any right as against any
party whose name appears prior to the forgery. Although rights may exist between and among
parties subsequent to the forged indorsement, not one of them can acquire rights against
parties prior to the forgery. Such forged indorsement cuts off the rights of all subsequent
parties as against parties prior to the forgery. However, the law makes an exception to these
rules where a party is precluded from setting up forgery as a defense.
As a matter of practical significance, problems arising from forged indorsements of checks may
generally be broken into two types of cases: (1) where forgery was accomplished by a person
not associated with the drawer — for example a mail robbery; and (2) where the indorsement
was forged by an agent of the drawer. This difference in situations would determine the effect
of the drawer's negligence with respect to forged indorsements. While there is no duty resting
on the depositor to look for forged indorsements on his cancelled checks in contrast to a duty
imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up
an accounting system and a business procedure as are reasonably calculated to prevent or
render difficult the forgery of indorsements, particularly by the depositor's own employees.
And if the drawer (depositor) learns that a check drawn by him has been paid under a forged
indorsement, the drawer is under duty promptly to report such fact to the drawee bank. For his
negligence or failure either to discover or to report promptly the fact of such forgery to the
drawee, the drawer loses his right against the drawee who has debited his account under a
forged indorsement. In other words, he is precluded from using forgery as a basis for his claim
for re-crediting of his account.
In the case at bar, petitioner admitted that the checks were filled up and completed by her
trusted employee, Alicia Galang, and were given to her for her signature. Her signing the checks
made the negotiable instrument complete. Prior to signing the checks, there was no valid
contract yet. Petitioner completed the checks by signing them and thereafter authorized her
bookkeeper to deliver the same to their respective payees. The checks were then indorsed,
forged indorsements thereon
As a rule, a drawee bank who has paid a check on which an indorsement has been forged
cannot debit the account of a drawer for the amount of said check. An exception to this rule is
when the drawer is guilty of negligence which causes the bank to honor such checks. Petitioner
in this case has relied solely on the honesty and loyalty of her bookkeeper and never bothered
to verify the accuracy of the amounts of the checks she signed the invoices attached thereto.
And though she received her bank statements, she didn't carefully examine the same to
double-check her payments. Petitioner didn't exercise reasonable diligence which eventually
led to the fruition of her bookkeeper’s fraudulent schemes.
Petitioner's negligence was the proximate cause of her loss. And since it was her negligence
which caused the respondent drawee Bank to honor the forged checks or prevented it from
recovering the amount it had already paid on the checks, petitioner cannot now complain
should the bank refuse to re-credit her account with the amount of such checks. Under Section
23 of the NIL, she is now precluded from using the forgery to prevent the bank's debiting of her
account.
Petitioner argues that respondent drawee Bank should not have honored the checks because
they were crossed checks. Issuing a crossed check imposes no legal obligation on the drawee
not to honor such a check. It is more of a warning to the holder that the check cannot be
presented to the drawee bank for payment in cash. Instead, the check can only be deposited
with the payee's bank which in turn must present it for payment against the drawee bank in
the course of normal banking transactions between banks. The crossed check cannot be
presented for payment but it can only be deposited and the drawee bank may only pay to
another bank in the payee's or indorser's account.
Petitioner likewise contends that banking rules prohibit the drawee bank from having checks
with more than one indorsement. The banking rule banning acceptance of checks for deposit
or cash payment with more than one indorsement unless cleared by some bank officials does
not invalidate the instrument; neither does it invalidate the negotiation or transfer of the said
check. In effect, this rule destroys the negotiability of bills/checks by limiting their negotiation
by indorsement of only the payee. Under the NIL, the only kind of indorsement which stops the
further negotiation of an instrument is a restrictive indorsement which prohibits the further
negotiation thereof.
Sec. 36. When indorsement restrictive. — An indorsement is restrictive
which either
(a) Prohibits further negotiation of the instrument; or
xxx xxx xxx
In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written
in express words at the back of the instrument, so that any subsequent party may be
forewarned that ceases to be negotiable. However, the restrictive indorsee acquires the right
to receive payment and bring any action thereon as any indorser, but he can no longer transfer
his rights as such indorsee where the form of the indorsement does not authorize him to do
so.
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.
Disposition: PREMISES CONSIDERED, the case is hereby ordered REMANDED to the trial court
for the reception of evidence to determine the exact amount of loss suffered by the
petitioner, considering that she partly benefited from the issuance of the questioned checks
since the obligation for which she issued them were apparently extinguished, such that only
the excess amount over and above the total of these actual obligations must be considered
as loss of which one half must be paid by respondent drawee bank to herein petitioner.
6. CONSOLIDATED PLYWOOD INDUSTRIES, INC v. IFC LEASING,
- In effect, it caused delay in the petitioner’s operations. Petitioner advised that the
payments on installment as listed in the Promissory note will be delayed until the Seller-
GR NO. 72593,APRIL 30, 1987 (Santiago)
assignor fulfills its obligation under warranty.

DOCTRINE:
- Petitioner suggested the following:
NEGOTIABLITY: 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 - pull out the tractors and have them reconditioned
promissory note in question is not a negotiable instrument. The instrument must contain the
so-called words of negotiability. These words serve as an expression of consent that the - offer them for sale.
instrument may be transferred. Hence, this consent is indispensable since a maker assumes
greater risks under a negotiable instrument. - The proceed will be given to the respondent.

ASSIGNMENT: considering that the subject promissory note is not a negotiable instrument, it - For any excess, is will be divided between petitioner and seller-assignor.
follows that the holder (assignee) can never be a holder in due course but remains a mere
assignee of the note in question. Thus, the petitioner may raise against the respondent all - half amount of the reconditioning cost will be paid by the petitioner
defenses available to it as against the seller-assignor Industrial Products Marketing

FACTS:
- Hence, no response was given by the seller-assignor, until a case was filed in the court.

- Petitioner is a corporation in logging business.

- CONTENTION OF THE IFC:

- Respondent is a financing company.

- Recovery of Principal sum of 1,093,789.7, Interest of 151,618.8, Accruing interest at
12%, Attorney’s fees of 249.081.71 and Cost of suit.
- Seller-assignor IPM (Industrial Products Marketing), who is also the sister company and
marketing arm of the petitioner offered to sell USED two tractors. Seller-assignor assured
the petitioner that the tractors were fit for the job after it was tasked to inspect the tractors
- CONTENTION OF RESPONDENT:

in the jobsite.
- Asking for counter-claim, Dismissal of the complaint, Damages of 20,000. Attorney’s

- With the assurance and warranty, they agreed to purchase the tractors on installment +
fees, Expenses of Litigation for 5,000.

200,000 downpayment. A chattel mortgage + promissory note was also executed.

- RTC and CA ruled in favor of Petitioner.

- The promissory note was discounted or sold to the IFC Leasing and Acceptance Corporation
- According to both lower courts, there is implied warranty despite the absence of
for P800,000.00.
provision of warranty in the deed of sale.

- After 14 days from day of purchase, one of the tractors broke down and 9 days after, the
- The instrument is negotiable
other likewise broke down.

- Under warranty, seller-assignor was advised and immediately conduct the necessary
- IFCis a holder in due course of the promissory note.

repairs. Hence, the tractors did not come out what they should be after the repairs were ISSUES:
undertaken.
1. Whether the Promissory Note is not a negotiable instrument under the law since it is
neither payable to order nor to bearer. - Non-negotiable
2. Whether, respondent is not a holder in due course, merely an assignee of the subject of
the Promissory note. - not a holder in due course
3. Since it is a non-negotiable instrument, the transfer of rights is merely by assignment.
Hence, all defenses are available. - Yes
4. Whether, petitioner is not liable for the payment of Promissory Note because of breach of
warranty and respondent is only entitled reimbursement to seller assignor. - No, still
liable.
5. Whether the Promissory Note is an admissible evidence since documentary stamp tax
have not been affixed or cancelled. - No discussion.
RULING:
1. Negotiability of the Promissory Note - it was ruled non-negotiable. The promissory note
is read 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 EVEN HUNDRED EIGHTY
NINE PESOS & 71/100 only (P1,093,789.71), 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.
- In this case, the court held 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.
- Further, the instrument must contain the so-called words of negotiability. These words
serve as an expression of consent that the instrument may be transferred. Hence, this
consent is indispensable since a maker assumes greater risks under a negotiable
instrument.
- Discussion whether it is payable to order:
- SEC. 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 . . . .
- These are only two ways for it to be made payable to order. 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. Hence, the holder merely stepped into the
shoes of the person designated, subject to all defenses against the latter.
- In this case, it was shown in the testimonies that the respondent is mere assignee of
the promissory note.
2. Discussion on whether respondent is a Holder in Due Course - No.
- Considering that the subject promissory note is not a negotiable instrument, it follows that
the respondent can never be a holder in due course but remains a mere assignee of the
note in question. Thus, the petitioner may raise against the respondent all defenses
available to it as against the seller-assignor Industrial Products Marketing.
- It is patent then, that the IPM is liable for its breach of warranty against the Consolidated.
This liability as a general rule, extends to the corporation to whom it assigned its rights and
interests unless the assignee is a holder in due course of the promissory note in question,
assuming the note is negotiable, in which case the latter's rights are based on the
negotiable instrument and assuming further that the petitioner's defenses may not prevail
against it.
- Further, IFC knew that when the tractors turned out to be defective, it would be subject to
the defense of failure of consideration and cannot recover the purchase price from the
petitioners. Even assuming for the sake of argument that the promissory note is negotiable,
the respondent, which took the same with actual knowledge of the foregoing facts so that
its action in taking the instrument amounted to bad faith, is not a holder in due course.
- Futher, it was admitted during the trial that IFC was a mere assignee of the promissory
note.
3. Discussion on whether the all defenses are available. - Yes
- In this case, there was an evidence in the instant case that prior to the sale on installment,
there was agreement between seller-assignor, and respondent that the entire purchase
price will be paid by the seller-assignor, in turn, the right collect the price to the petitioner.
- Also, all documents were all executed on the same day between all the parties. Therefore,
it affirms that the respondent had actual knowledge of the fact that the seller- assignor's
right to collect the purchase price was not unconditional, and that it was subject to the
condition that the tractors sold were not defective. In the event, tractors are defective,
defenses are available to the petitioner.
- In a US case, it was cited by SC that the finance company was a moving force in the
transaction from its very inception and acted as a party to it.When a finance company
actively participates in a transaction of this type from its inception, it cannot be regarded as
a holder in due course of the note given in the transaction.
4. Discussion whether petitioner is not liable for the payment of Promissory Note because of
breach of warranty and respondent is only entitled reimbursement to seller-assignor.
- Pursuant to 1561, 1562, 1564, 1566 of the civil code, there is breach of implied warranty.
- In this case, the seller-assignor is liable for its breach of warranty against the petitioner. This
liability as a general rule, extends to the corporation to whom it assigned its rights and
interests unless the holder of the instrument is a holder in due course.
5. Discussion on Documentary stamp tax
- No discussion in the case but raised as an issue.
7. JAI-ALAI CORPORATION OF THE PHILIPPINES v. BPI
August 6, 1975
Author: Bulacan
DOCTRINE: Section 23 of NIL provides—"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."
NIL SECTIONS:
Section 23. "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."
Section 65. "Every person negotiating an instrument by delivery . . . warrants (a) That the
instrument is genuine and in all respects what it purports to be." Under that same section this
warranty "extends in favor of no holder other than the immediate transferee,"
Section 66 .A general indorser warrants that the instrument "is genuine and in all respects
what it purports to be."
Section 67. "Where a person places his indorsement on an instrument negotiable by delivery
he incurs all the liability of an indorser,"
Petitioner: JAI-ALAI CORPORATION OF THE PHILIPPINES
Respondent/Collecting Bank: BPI
Fraudulent Indorser: Ramirez (sales agent of Inter-Island Gas)
Inter-Island Gas’ cashiers: Santiago Amplayo and Vicenta Mucor
FACTS:
1. Petitioner deposited 10 checks (total fv:P8,030.58) in its current account with the respondent
bank (From April 2, 1959 - May 18, 1959).
2. All the checks were acquired by the petitioner from one Antonio J. Ramirez, a sales agent of
the Inter-Island Gas and a regular bettor at jai-alai games.( apparently to purchase jai-alai
tickets from the petitioner)
3. These checks were, upon deposit, temporarily credited to the petitioner's account in
accordance with the clause printed on the deposit slips issued by the respondent and which
reads:
"Any credit allowed the depositor on the books of the Bank for checks or drafts hereby
received for deposit, is provisional only, until such time as the proceeds thereof, in current
funds or solvent credits, shall have been actually received by the Bank and the latter reserves
to itself the right to charge back the item to the account of its depositor, at any time before
that event, regardless of whether or not the item itself can be returned."
4. After Ramirez had resigned and after the checks had been submitted to inter-bank clearing,
Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its
cashiers (who were merely authorized to deposit checks issued payable to the said company)
as well as rubber stamp "Inter-Island Gas Service, Inc.," were forgeries
5. In due time, the Inter-Island Gas advised the petitioner, the respondent, the drawers and
the drawee-banks about the forgeries and filed a criminal complaint against Ramirez
6. BPI’s cashier, upon receipt of the advised petitioner’s cashier that he would debit the value of
the checks against the petitioner's account as soon as they were returned by the respective
drawee-banks.
7. Meanwhile, 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.
8. When the drawee-banks returned the checks to the respondent, the latter paid their value
which the former in turn paid to the Inter-Island Gas.
9. The respondent then debited the petitioner's current account and forwarded to the latter the
checks containing the forged indorsements, which the petitioner, however, refused to
accept.
10. Petitioner drew against its current account with the respondent a check for P135,000. The
check was, however, dishonored since after netting out the value of the checks P8,030.58
with the forged indorsements, account had a balance of only P128,257.65.
11. The petitioner then filed a complaint against the respondent which was however dismissed
by the trial court and as well by the Court of Appeals. Hence, this appeal.
CONTENTION OF PETITIONER:
1. Respondent had no right to debit petitioner’s account after 3 months had elapsed from the
date the value was credited to petitioner’s account.
ISSUE: Whether the respondent had the right to debit the petitioner's current account in the
amount corresponding to the total value of the checks in question after more than three months
had elapsed from the date their value was credited to the petitioner's account.--YES
HELD:
RIGHT TO DEBIT
Respondent 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.
Section 23 of NIL provides—
"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."
In accordance with the foregoing provision, it stands to reason 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.
In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, the Court ruled that 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." "It was its duty to know," said the Court, "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.
DEBIT AFTER 3 MONTHS
Not material. The record shows that the respondent had acted promptly after being informed
that the indorsements on the checks were forged. Moreover, having received the checks
merely for collection and deposit, the respondent cannot be expected to know or ascertain the
genuineness of all prior indorsements on the said checks. Having indorsed them to the
respondent in accordance with the rules and practices of commercial banks, the petitioner is
deemed to have given the warranty prescribed in Section 66 of the Negotiable Instruments Law
that every single one of those checks "is genuine and in all respects what it purports to be."
PETITIONER’s LIABILITY
The petitioner was, moreover, grossly recreant in accepting the checks in question from
Ramirez. It could not have escaped the attention of the petitioner that the payee of all the
checks was a corporation — the Inter-Island Gas Service, Inc. Yet, the petitioner cashed these
checks to a mere individual who was admittedly a habitue at its jai-alai games without making
any inquiry as to his authority to exchange checks belonging to the payee-corporation.
In Insular Drug Co. vs. National the Court ruled that ".xxxxx Any person taking checks made
payable to a corporation, which can act only by agents, does so at his peril, and must abide by
the consequences if the agent who indorses the same is without authority.”
Also, three of the checks are crossed checks(which may only be deposited, but not encashed)
yet, the petitioner negligently accepted them for cash. The fact that 2 of these 3 are bearer and
at the same time crossed checks should have aroused the petitioner's suspicion as to the title
of Ramirez over them and his authority to cash them.
Further, under Section 67 of NIL, "Where a person places his indorsement on an instrument
negotiable by delivery he incurs all the liability of an indorser," and under Section 66 of the
same statute a general indorser warrants that the instrument "is genuine and in all respects
what it purports to be." Considering that the petitioner indorsed the said checks when it
deposited them with the respondent, the petitioner as an indorser guaranteed the
genuineness of all prior indorsements thereon. The respondent which relied upon the
petitioner's warranty should not be held liable for the resulting loss.
As for the bearer checks, under Section 65 of NIL. "Every person negotiating an instrument by
delivery . . . warrants (a) That the instrument is genuine and in all respects what it purports to
be." Under that same section this warranty "extends in favor of no holder other than the
immediate transferee," which, in the case at bar, would be the respondent.
The provision in the deposit slip issued by the respondent which stipulates that it "reserves to
itself the right to charge back the item to the account of its depositor," at any time before
"current funds or solvent credits shall have been actually received by the Bank," would not
materially affect the conclusion we have reached. That stipulation prescribes that there must
be an actual receipt by the bank of current funds or solvent credits; but as we have earlier
indicated the transfer by the drawee-banks of funds to the respondent on account of the
checks in question was ineffectual because made under the mistaken and valid assumption
that the indorsements of the payee thereon were genuine.
Under article 2154 of the New Civil Code "If something is received when there is no right to
demand it and it was unduly delivered through mistake, the obligation to return it arises."
There was, therefore, in contemplation of law, no valid payment of money made by the
drawee-banks to the respondent on account of the questioned checks.

DISPOSITION: ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at petitioner's
cost.
8. REPUBLIC v. EQUITABLE BANKING
10 SCRA 8 (1964)
Author: Princess Cariño
Plaintiff-Appellants: Republic of the Philippines
Defendants-Appellee: Equitable Banking Corp. (GR No L-15894) & BPI (GR No L-15895)
Third Party-Defendant-Appellee: Corporacion De Los P. Dominicos De Filipinas (GR No L-
15895)
Doctrine:
 Where a loss, which must be borne by one of two parties alike innocent of forgery, can
be traced to the neglect or fault of either, it is reasonable that it would be borne by him,
even if innocent of any intentional fraud, through whose means it has succeeded.
Articles Applicable: Sec. 23, Negotiable Instrument Law.
Sec. 23. Forged signature; effect of. — When a signature is forged 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 therefore, 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.
FACTS:
 The case is about Republic’s action for recovery from Equitable Banking (EB) P17,100
(aggregate value of 4 treasury warrants) and P342,767.63 from Bank of the Philippine
Island (BPI) (aggregate value of 24 treasury warrants, which were paid by the Treasurer of
the Philippines (Treasurer) thru the Clearing Office of Office of the Central Bank of the
Philippines.
 Corporacion de los Padres Dominicos (Corporacion) acquired 24 treasury warrants by
accommodating its former employee (Jacinto Carranza). The warrants were then
deposited with the care of BPI as one of conditions of the Corporacion. (other conditions
were: (a) the actual payment of the value of the warrants would be made only after the
same had been duly accepted and cleared by the Treasurer; and (b) the proceeds thereof
duly credited to the account of the Corporacion in BPI)
 Subsequently, BPI presented the warrants for payment to the drawee thereof
(Government, thru the Clearing Office of the Central Bank).
 After being cleared, the warrants were paid by the Treasurer.
 BPI credited the proceeds of said warrants to the Corporacion, which, in turn, withdrew
said proceeds by means of its own checks and eventually paid the corresponding amounts
to Carranza.
 Four other treasury warrants were deposited with EB by its customers (Robert Wong, Lu
Chiu Kau and Chung Ching), and after clearance by the Central Bank, said warrants were
paid.
 Later, it was discovered that although the 28 warrants were executed on genuine
government forms, the signatures thereon were forged.
 Hence, the Treasury returned the warrants to the Central Bank and demanded that the
value thereof be charged against the accounts of the two banks.
 Almost all of the warrant involved were for over P5,000 and, hence, beyond the authority
of the auditor of the Treasury, whose signature thereon had been forged, to approve. It
was only after the warrants had been cleared and honored when the Treasury gave notice
of the forgery.
 BPI and EB opposed the return of the warrants or to have the value thereof charged
against its account.
 Hence, the institution of civil case against BPI for the recovery of P342,767.63, and against
the Equitable Bank for the recovery of P17,100.00. (BPI filed a third-party complaint
against Corporacion and Equitable Bank against Robert Wong, Lu Chiu Kau and Chung
Ching for whatever reimbursements the banks may respectively be sentenced to make to
the Gov’t. The two cases were consolidated)
 CFI dismissed
Contentions of the PETITIONERS (Republic of the Phil.):
Gov’t is not bound by 24-hour clearing rule. The Treasurer has objected to an application of
said rule to his office because it is physically impossible for the Treasury to check and verify the
genuineness of treasury warrants within 24 hours, because, during 1952, said office used to
receive daily from 3,000 to 4,000 warrants, which, considering its very limited personnel at that
time, would have required 1 or 2 months to clear.
ISSUE:
Whether the Gov’t can recover the amounts the Treasurer paid in consideration of the 28
treasury warrants – NO.
RULING:
As to the Payment of Checks (Rule on Clearing)
 Circular 9 of the Central Bank, as amended by a letter of the Governor of the Central
Bank, states that “items which should be returned for any reason whatsoever shall be
returned directly to the bank, institution or entity from which the item was received. For
this purpose, the Receipt for Returned Checks (Cash Form No. 9) should be used. The
original and duplicate copies of said Receipt shall be given to the bank, institution or entity
which returned the items and the' triplicate copy should be retained by the bank,
institution or entity whose demand is being returned. At the following clearing, the original
of the Receipt for Returned Checks shall be presented through the Clearing Office as a
demand against the bank, institution or 'entity whose item has been returned. Nothing in
this section shall prevent the returned items from being settled by direct reimbursement to
 the bank, institution or entity returning the items. All items cleared at 11:00 o'clock a.m.
shall be returned not later than 2:00 o'clock p.m. on the same day and all items cleared at
3:00 o'clock p.m. shall be returned not later than 8:30 a.m. of the following business day,
except for items cleared on Saturday which may be returned not later than 8:30 a.m. of the
following day”
 In this case, the clearing of the 28 warrants, thru the Clearing Office, was made pursuant
to the “24-hour clearing house rule” as embodied in the above-mentioned Circular.
 Government’s contentions were untenable because the Treasury was a member of the
Clearing Office.
- It was clearly showed in Exh. A (not described in the case) that Treasury “has agreed
to clear its clearable items through” the Clearing Office “subject to the rules and
regulations of the Central Bank.” Besides, the rule applies not only to banks, but, also,
to the institutions and entities therein alluded to. The opposition of the Treasurer to
the "24-hour clearing house rule" is not sufficient to exempt the Treasury from the
operation thereof.
- The statements of the Treasurer (Exhibits 38 and 38-A to 38-C, also, not described in
the case), showed that on September 15, 23 and 24 and November 25, 1952, his
office had cleared 1,618, 2,851, 1,742 and 2,360 warrants, respectively. Moreover, if
the rule was unwise, the Treasurer could have secured the proper remedy through
the President of the Philippines, since the Treasury and the Central Bank are both
agencies of the Government.
As to Government’s recovery
 The gov’t cannot recover the amount it paid due to its own negligence.
 The 28 warrants were cleared paid by the Treasurer, as established above, in view of
which the PI Bank and the Equitable Bank credited the corresponding amounts to the
respective depositors of the warrants and then honored their checks for said amounts,
 Thus, the Treasury had not only been negligent in clearing its own warrants, but had, also,
thereby induced BPI and EB to pay the amounts thereof to said depositors.
 The gross nature of the negligence of the Treasury becomes more apparent when we
consider that each one of 24 warrants involved in G.R. No. L-15895 was for over P5,000,
and, hence, beyond the authority of the auditor of the Treasury whose signature thereon
had been forged to approve. In other words, the irregularity of said warrants was
apparent on the face thereof, from the viewpoint of the Treasury.
 Moreover, the same had not advertised the loss of genuine forms of its warrants. Neither
had BPI nor EB been informed of any irregularity in connection with any of the warrants
involved in the 2 cases, until after December 23, 1952, or after the warrants had been
cleared and honored when the Treasury gave notice of the forgeries adverted to above. As
a consequence, the loss of the amounts thereof is mainly imputable to acts and omissions
of the Treasury, for which BPI and EB should not and cannot be penalized.
9. MWSS v CA
G.R. No. L-62943 July 14, 1986
Author: Chua
Doctrine:
1. The respondent drawee Bank cannot be faulted for not having detected the
fraudulent encashment of the checks because the printing of the petitioner's
personalized checks was not done under the supervision and control of the
Bank.
2. Forgery cannot be presumed. It should be proven by clear, convincing and
positive evidence.
Name of the parties: (and their respective role in the case):
PETITIONER: METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM
RESPONDENT: COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE
PHILIPPINE NATIONAL BANK
Articles Applicable:
Section 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.
Section 24 of the Negotiable Instruments Law:
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.
Facts:
1. During the months of March, April and May 1969, twenty-three (23)
personalized 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 totaling P 320,636.26
2. During the same months of March, April and May 1969, twenty-three (23) checks bearing
the same numbers as the prior 23 NWSA checks were likewise paid and cleared by PNB and
debited against NWSA Account No. 6 totaling P3,457,903.
3. The foregoing checks were deposited by the 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). the checks were then presented for
payment by PBC and PCIB to the defendant PNB, and paid, also in the months of March,
April and May 1969. 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.
4. During the investigation, NBI discovered that Raul Dizon, Arturo Sison and Antonio
Mendoza were all fictitious persons.
5. NWSA addressed a letter to PNB requesting the immediate restoration to its Account No. 6,
of the total sum of P3,457,903.00 corresponding to the total amount of these twenty-three
(23) checks claimed by NWSA to be forged and/or spurious checks.
6. In view of the refusal of PNB to credit back to Account No. 6 the said total sum of
P3,457,903.00, MWSS filed the instant complaint before the Court of First Instance of
Manila.
7. PNB likewise filed a third party complaint against 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.
Contentions of MWSS:
1. Since the signatures on the checks were forged, PNB is liable for the loss under
section 23 of the Negotiable Instruments Law.
Contention of PNB
1. That the checks in question were regular on its face in all respects, including the
genuineness of the signatures of authorized NWSA signing officers and there was
nothing on its face that could have aroused any suspicion as to its genuineness
and due execution
2. that NWSA was guilty of negligence which was the proximate cause of the loss in
not providing security measures on its own printed personalized check.
Ruling of Lower Courts: Judgment in favor of MWSS and ordered PNB to restore the total sum
of P3,457,903.00 to plaintiff's Account No. 6. The third party complaint was also dismissed due
to lack of evidence. CA reversed the decision in favor of PNB
Issue:
1. Whether in not holding that as the signatures on the checks were forged, the drawee
bank was liable for the loss under Section 23 of the Negotiable Instruments law. - NO
2. Whether the CA failed to consider the proximate negligence of PNB in accepting the
spurious checks despite the obvious irregularity of two sets of checks bearing
identical number being encashed within days of each other. - NO
Ruling:
Issue 1:
a. Basis of the ruling: 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.
b. Application of the ruling in the case: MWSS is barred from applying rule 23 because
it was guilty of negligence not only before the questioned checks were negotiated
but even after the same had already been negotiated. The records show that at the
time the twenty-three (23) checks were prepared, negotiated, and encashed, the
petitioner was using its own personalized checks, instead of the official PNB
Commercial blank checks.
The petitioner failed to give its printer, specific instructions relative to the
safekeeping and disposition of excess forms, check vouchers, and safety papers,
failed to retrieve from its printer all spoiled check forms, failed to provide any control
regarding the paper used in the printing of said checks, failed to 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; and failed to send a representative to the printing office during the printing of
said checks.
c. Ratio: The findings of the National Bureau of Investigation show that the MWSS fraud
was an "inside job" and that the petitioner's delay in the reconciliation of bank
statements and the laxity and loose records control in the printing of its personalized
checks facilitated the fraud. Likewise, report of the National Bureau of Investigation
does not declare or prove that the signatures appearing on the questioned checks are
forgeries. The report merely mentions the alleged differences in the type face,
checkwriting, and printing characteristics appearing in the standard or submitted
models and the questioned typewritings. Forgery cannot be presumed. It should be
proven by clear, convincing and positive evidence.
Issue 2:
a. Basis of the ruling: The ruling in Philippine National Bank v. Court of Appeals (25
SCRA 693) wherein “by not returning the check to the PCIB, by thereby indicating that
the PNB had found nothing wrong with the check and would honor the same, and by
actually paying its amount to the PCIB, the PNB induced the latter, not only to believe
that the check was genuine and good in every respect, but, also, to pay its amount to
Augusto Lim. In other words, the PNB was the primary or proximate cause of the loss,
and, hence, may not recover from the PCIB.” is not applicable in the current case
b. Application of the ruling in the case: The argument has no merit because records
show that the respondent drawee bank, 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 twenty-three (23) checks in question, the
respondent Bank had issued constant reminders to all Current Account Bookkeepers
informing them of the activities of forgery syndicates as provided in the
Memorandum of the Assistant Vice-President and Chief Accountant of the Philippine
National Bank.
 FACTS:
Another factor which facilitated the fraudulent encashment of the twenty-three (23)
checks in question was the failure of the petitioner to reconcile the bank statements
with its own records.
c. Ratio: PNB cannot be at fault for not having detected the fraudulent encashment of
the checks because the printing of the petitioner's personalized checks was not done
under the supervision and control of the Bank. There is no evidence on record
indicating that because of this private printing the petitioner furnished the
respondent Bank with samples of checks, pens, and inks or took other precautionary
measures with the PNB to safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better position to detect
and prevent the fraudulent encashment of its checks.
Disposition: The petition for review on certiorari is DISMISSED for lack of merit. The decision of
the respondent Court of Appeals is AFFIRMED. No pronouncement as to costs.
Other Factor that Caused the fraudulent encashment:
Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks in
question was the failure of the petitioner to reconcile the bank statements with its own
records.
The records show that the petitioner requested the respondent drawee bank to discontinue
the practice of mailing the bank statements, but instead to deliver the same to a certain Mr.
Contention of the Petitioner (Republic Bank):
Emiliano Zaporteza. For reasons known only to Mr. Zaporteza however, he was unreasonably
delayed in taking prompt deliveries of the said bank statements and credit and debit memos.
As a consequence, Mr. Zaporteza failed to reconcile the bank statements with the petitioner's
records.
10. REPUBLIC BANK V. CA and FIRST NATIONAL CITY BANK
Ruling of the Lower Courts:
G.R. No. 42725, April 22, 1991
Author: Cornelio
PETITIONER: Republic Bank
RESPONDENT(S): Court of Appeals and First National City Bank
 San Miguel Corporation (SMC) drew a dividend Check No. 108854 for P240, Philippine
currency, on its account with the respondent First National City Bank (FNCB) in favor
of J. Roberto C. Delgado, a stockholder.
 After the check had been delivered to Delgado, the amount on its face was
fraudulently and without authority of the drawer (SMC) altered by increasing it from
P240 to P9,240.
 The check was indorsed and deposited by Delgado in his account with the petitioner
Republic Bank (Republic).
 Republic accepted the check for deposit without ascertaining its genuineness and
regularity.
 Later, Republic endorsed the check to FNCB by stamping on the back of the check "all
prior and/or lack of indorsement guaranteed" and presented it to FNCB for payment
through the Central Bank Clearing House.
 Believing the check was genuine, and relying on the guaranty and endorsement of
Republic appearing on the back of the check, FNCB paid P9,240 to Republic through
the Central Bank Clearing House.
 SMC notified FNCB of the material alteration in the amount of the check in question.
 FNCB then recredited P9,240 to SMC.
 FNCB informed Republic in writing of the alteration and the forgery of the
endorsement of J. Roberto C. Delgado. However, Delgado had already withdrawn his
account from Republic.
 FNCB demanded that Republic refund the P9,240 on the basis of the latter’s
endorsement and guaranty but Republic refused
 Republic claimed there was delay in giving it notice of the alteration; that it was not
guilty of negligence; that it was the drawer’s (SMC) fault in drawing the check in such
a way as to permit the insertion of numerals increasing the amount; that FNCB, as
drawee, was absolved of any liability to the drawer (SMC), thus, FNCB had no right of
recourse against Republic.
 RTC ordered Republic to pay P9,240 to FNCB with 6% interest per annum from
February 27, 1967 until fully paid, plus P2,000 for attorney’s fees and costs of the
suit.
 CA affirmed.

DOCTRINE: It is true that when an endorsement is forged, the collecting bank or last
ISSUE: Whether Republic, as the collecting bank, is protected, by the 24-hour clearing house
endorser, as a general rule, bears the loss. But the unqualified endorsement of the collecting
rule, found in CB Circular No. 9 from liability to refund the amount paid by FNCB, as drawee of
bank on the check should be read together with the 24-hour regulation on clearing house
the SMC dividend check. - YES
operation. Thus, when the drawee bank fails to return a forged or altered check to the
collecting bank within the 24-hour clearing period, the collecting bank is absolved from
RULING: The 24-hour clearing house rule is a valid rule applicable to commercial banks.
liability.
It is true that when an endorsement is forged, the collecting bank or last endorser, as a general
rule, bears the loss. But the unqualified endorsement of the collecting bank on the check
should be read together with the 24-hour regulation on clearing house operation. Thus, when
the drawee bank fails to return a forged or altered check to the collecting bank within the 24-
hour clearing period, the collecting bank is absolved from liability.

Every bank that issues checks for the use of its customers should know whether or not the
drawer’s signature thereon is genuine, whether there are sufficient funds in the drawers
account to cover checks issued, and it should be able to detect alterations, erasures,
superimpositions or intercalations thereon, for these instruments are prepared, printed and
issued by itself, it has control of the drawer’s account, and it is supposed to be familiar with the
drawer’s signature. It should possess appropriate detecting devices for uncovering forgeries
and/or alterations on these instruments. Unless an alteration is attributable to the fault or
negligence of the drawer himself, such as when he leaves spaces on the check which would
allow the fraudulent insertion of additional numerals in the amount appearing thereon, the
remedy of the drawee bank that negligently clears a forged and/or altered check for payment
is against the party responsible for the forgery or, otherwise, it bears the loss. It may not
charge the amount so paid to the account of the drawer, if the latter was free from blame, nor
recover it from the collecting bank if the latter made payment after proper clearance from the
drawee.

Petition GRANTED.

NOTE:
The 24-hour clearing house rule embodied in Section 4(c) of Central Bank Circular No. 9, as
amended, provides:

"Items which should be returned for any reason whatsoever shall be returned directly to the
bank, institution or entity from which the item was received. For this purpose, the Receipt for
Returned Checks (Cash Form No. 9) should be used. The original and duplicate copies of said
Receipt shall be given to the Bank, institution or entity which returned the items and the
triplicate copy should be retained by the bank, institution or entity whose demand is being
returned. At the following clearing, the original of the Receipt for Returned Checks shall be
presented through the Clearing Office as a demand against the bank, institution or entity whose
item has been returned. Nothing in this section shall prevent the returned items from being
settled by direct reimbursement to the bank, institution or entity returning the items. All items
cleared at 11:00 o’clock A.M. shall be returned not later than 2:00 o’clock P.M. on the same day
and all items cleared at 3:00 o’clock P.M. shall be returned not later than 8:30 A.M. of the
following business day except for items cleared on Saturday which may be returned not later
than 8:30 A.M. of the following day."