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