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G.R. No. L-26001 October 29, 1968

PHILIPPINE NATIONAL BANK, petitioner, vs.THE COURT OF APPEALS and PHILIPPINE COMMERCIAL AND
INDUSTRIAL BANK, respondents.
Tomas Besa, Jose B. Galang and Juan C. Jimenez for petitioner.
San Juan, Africa & Benedicto for respondents.
CONCEPCION, C.J.:

The Philippine National Bank — hereinafter referred to as the PNB — seeks the review by certiorari of a
decision of the Court of Appeals, which affirmed that of the Court of First Instance of Manila, dismissing
plaintiff's complaint against the Philippine Commercial and Industrial Bank — hereinafter referred to as
the PCIB — for the recovery of P57,415.00.

A partial stipulation of facts entered into by the parties and the decision of the Court of Appeals show
that, on about January 15, 1962, one Augusto Lim deposited in his current account with the PCIB branch
at Padre Faura, Manila, GSIS Check No. 645915- B, in the sum of P57,415.00, drawn against the PNB;
that, following an established banking practice in the Philippines, the check was, on the same date,
forwarded, for clearing, through the Central Bank, to the PNB, which did not return said check the next
day, or at any other time, but retained it and paid its amount to the PCIB, as well as debited it against the
account of the GSIS in the PNB; that, subsequently, or on January 31, 1962, upon demand from the
GSIS, said sum of P57,415.00 was re-credited to the latter's account, for the reason that the signatures
of its officers on the check were forged; and that, thereupon, or on February 2, 1962, the PNB demanded
from the PCIB the refund of said sum, which the PCIB refused to do. Hence, the present action against
the PCIB, which was dismissed by the Court of First Instance of Manila, whose decision was, in turn,
affirmed by the Court of Appeals.

It is not disputed that the signatures of the General Manager and the Auditor of the GSIS on the check,
as drawer thereof, are forged; that the person named in the check as its payee was one Mariano D.
Pulido, who purportedly indorsed it to one Manuel Go; that the check purports to have been indorsed by
Manuel Go to Augusto Lim, who, in turn, deposited it with the PCIB, on January 15, 1962; that,
thereupon, the PCIB stamped the following on the back of the check: "All prior indorsements and/or Lack
of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila;
that, on the same date, the PCIB sent the check to the PNB, for clearance, through the Central Bank; and
that, over two (2) months before, or on November 13, 1961, the GSIS had notified the PNB, which
acknowledged receipt of the notice, that said check had been lost, and, accordingly, requested that its
payment be stopped.

In its brief, the PNB maintains that the lower court erred:

(1) in not finding the PCIB guilty of negligence;

(2) in not finding that the indorsements at the back of the check are forged;
(3) in not finding the PCIB liable to the PNB by virtue of the former's warranty on the back of the check;
(4) in not holding that "clearing" is not "acceptance", in contemplation of the Negotiable Instruments law;
(5) in not finding that, since the check had not been accepted by the PNB, the latter is entitled to
reimbursement therefor; and
(6) in denying the PNB's right to recover from the PCIB.

The first assignment of error will be discussed later, together with the last,with which it is interrelated.

As regards the second assignment of error, the PNB argues that, since the signatures of the drawer are
forged, so must the signatures of the supposed indorsers be; but this conclusion does not necessarily follow
from said premise.
Besides, there is absolutely no evidence, and the PNB has not even tried to prove that the aforementioned
indorsements are spurious. Again, the PNB refunded the amount of the check to the GSIS, on account of the
forgery in the signatures, not of the indorsers or supposed indorsers, but of the officers of the GSIS as
drawer of the instrument.
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In other words, the question whether or not the indorsements have been falsified is immaterial to the PNB's
liability as a drawee, or to its right to recover from the PCIB,1 for, as against the drawee, the indorsement of
an intermediate bank does not guarantee the signature of the drawer,2 since the forgery of the indorsement
is not the cause of the loss.3

With respect to the warranty on the back of the check, to which the third assignment of error refers, it
should be noted that the PCIB thereby guaranteed "all prior indorsements," not the authenticity of the
signatures of the officers of the GSIS who signed on its behalf, because the GSIS is not an indorser of the
check, but its drawer.4 Said warranty is irrelevant, therefore, to the PNB's alleged right to recover from the
PCIB. It could have been availed of by a subsequent indorsee5 or a holder in due course6 subsequent to the
PCIB, but, the PNB is neither.7 Indeed, upon payment by the PNB, as drawee, the check ceased to be a
negotiable instrument, and became a mere voucher or proof of payment.8

Referring to the fourth and fifth assignments of error, we must bear in mind that, in general, "acceptance",
in the sense in which this term is used in the Negotiable Instruments Law9 is not required for checks, for the
same are payable on demand.10
Indeed, "acceptance" and "payment" are, within the purview of said Law, essentially different things, for the
former is "a promise to perform an act," whereas the latter is the "actual performance" thereof.11 In the
words of the Law,12 "the acceptance of a bill is the signification by the drawee of his assent to the order of
the drawer," which, in the case of checks, is the payment, on demand, of a given sum of money. Upon the
other hand, actual payment of the amount of a check implies not only an assent to said order of the drawer
and a recognition of the drawer's obligation to pay the aforementioned sum, but, also, a compliance with
such obligation.

Let us now consider the first and the last assignments of error. The PNB maintains that the lower court erred
in not finding that the PCIB had been guilty of negligence in not discovering that the check was forged.
Assuming that there had been such negligence on the part of the PCIB, it is undeniable, however, that the
PNB has, also, been negligent, with the particularity that the PNB had been guilty of a greater degree of
negligence, because it had a previous and formal notice from the GSIS that the check had been lost, with the
request that payment thereof be stopped. Just as important, if not more important and decisive, is the fact
that the PNB's negligence was the main or proximate cause for the corresponding loss.

In this connection, it will be recalled that

 the PCIB did not cash the check upon its presentation by Augusto Lim;
 that the latter had merely deposited it in his current account with the PCIB;
 that, on the same day, the PCIB sent it, through the Central Bank, to the PNB, for clearing;
 that the PNB did not return the check to the PCIB the next day or at any other time;
 that said failure to return the check to the PCIB implied, under the current banking practice, that the
PNB considered the check good and would honor it;
 that, in fact, the PNB honored the check and paid its amount to the PCIB;
 and that only then did the PCIB allow Augusto Lim to draw said amount from his aforementioned
current account.

Thus, 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.13

It is a well-settled maxim of law and equity that when one of two (2) innocent persons must suffer by the
wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause
of the loss or who put it into the power of the third person to perpetrate the wrong.14
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Then, again, it has, likewise, been held that, where the collecting (PCIB) and the drawee (PNB) banks are
equally at fault, the court will leave the parties where it finds them.15

Lastly, Section 62 of Act No. 2031 provides:

The acceptor by accepting the instrument engages that he will pay it according to the tenor of his
acceptance; and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw
the instrument; and
(b) The existence of the payee and his then capacity to indorse.

The prevailing view is that the same rule applies in the case of a drawee who pays a bill without having
previously accepted it.16

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the Philippine National Bank.
It is so ordered.

25 SCRA 693 – Mercantile Law – Negotiable Instruments Law – Liabilities of Parties – Forgery
– Forged Check – Warranties
In November 1961, GSIS advised PNB that a check bearing check number 645915- B has been
lost.
On January 15, 1962, Augusto Lim, holding GSIS Check No. 645915- B which was in the
amount of P57,415.00, went to PCIB to have the check deposited in his PCIB account.
Apparently, the check was indorsed to him by Manuel Go, which was previously indorsed by
Mariano Pulido to Go. Pulido was the named payee in the check.
PCIB did not encash the check in favor of Augusto Lim but rather it deposited the amount to
Lim’s PCIB account. Lim cannot withdraw the amount yet as it needs clearing. PCIB stamped
the check with “All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine
Commercial and Industrial Bank”. PCIB then sent the check to PNB for clearing. PNB did not act
on the check but it paid PCIB the amount of the check. PCIB considered this as a manifestation
that the check was good hence it cleared Lim to withdraw the amount.
On January 31, 1962, GSIS demanded PNB to restore the amount and PNB complied. PNB
then demanded PCIB to refund the amount of the check. PCIB refused. The lower court ruled in
favor of PCIB. This was affirmed by the Court of Appeals. PNB argued that the indorsements
are forged hence it has no liability.
ISSUE: Whether or not PCIB should refund the amount to PNB.
HELD: No. The question whether or not the indorsements have been falsified is immaterial to
PNB’s liability as a drawee or to its right to recover from the PCIB for, as against the drawee,
the indorsement of an intermediate bank does not guarantee the signature of the drawer, since
the forgery of the indorsement is not the cause of the loss.
With respect to the warranty on the back of the check, it should be noted that the PCIB thereby
guaranteed “all prior indorsements,” not the authenticity of the signatures of the officers of the
GSIS who signed on its behalf, because the GSIS is not an indorser of the check, but its drawer.
Further, PNB has been negligent. It has been notified months before about the lost check.
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G.R. No. 107382/G.R. No. 107612 January 31, 1996
Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
 The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch
where the provincial funds are deposited.

 Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial
Auditor or the Secretary of the Sangguniang Bayan.
 A portion of the funds of the province is allocated to the Concepcion Emergency Hospital
 drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion
Emergency Hospital, Concepcion, Tarlac."
 The checks are released by the Office of the Provincial Treasurer and received for the hospital by its
administrative officer and cashier.
 January 1981:Upon post-audit by the Provincial Auditor, it was discovered that the hospital did not
receive several allotment checks
 February 19, 1981: After the checks were examined, they learned that 30 checks of P203,300 were
encashed by Fausto Pangilinan, with the Associated Bank acting as collecting bank.

 Fausto Pangilinan
 administrative officer and cashier of payee hospital until his retirement on February 28, 1978, collected
the questioned checks from the office of the Provincial Treasurer
 sought to encash the 1st check with Associated Bank

 Jesus David, manager of Associated Bank refused and suggested that Pangilinan deposit the check in his
personal savings account with the same bank
 Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank,
PNB.

 PNB did not return the questioned checks within twenty-four hours, but several days later
 After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed
the same procedure for the other checks.
 All the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed
ASSOCIATED BANK.
 CA affrimed RTC: Associated to reimburse PNB and ordering PNB to pay Province of Tarlac

ISSUE: W/N PNB and Associated Bank should be held liable

HELD: YES. PARTIALLY GRANTED. The collecting bank, Associated Bank, shall be liable
to PNB for 50% of P203,300

Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a 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.

 GRule

 A forged signature, whether it be that of the drawer or the payee, is wholly inoperative
and no one can gain title to the instrument through it.

 A person whose signature to an instrument was forged was never a party and never
consented to the contract which allegedly gave rise to such instrument.
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 EX: where "a party against whom it is sought to enforce a right is precluded from
setting up the forgery or want of authority."

 Parties who warrant or admit the genuineness of the signature in question and those
who, by their acts, silence or negligence are estopped from setting up the defense of
forgery, are precluded from using this defense.

 Indorsers, persons negotiating by delivery and acceptors are warrantors of the

genuineness of the signatures on the instrument

 In bearer instruments, the signature of the payee or holder is unnecessary to pass

title to the instrument. Hence, when the indorsement is a forgery, only the person
whose signature is forged can raise the defense of forgery against a holder in due
course

 In order instruments, the signature of its rightful holder (here, the payee hospital) is
essential to transfer title to the same instrument.

 When the holder's indorsement is forged all parties prior to the forgery may raise
the real defense of forgery against all parties subsequent thereto.

 An indorser of an order instrument warrants "that the instrument is genuine and in all
respects what it purports to be; that he has a good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his indorsement valid and
subsisting

 A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank = indorser

 So even if the indorsement on the check deposited by the banks's client is forged, the
collecting bank is bound by his warranties as an indorser and cannot set up the defense
of forgery as against the drawee bank.

 The bank on which a check is drawn, known as the drawee bank, is under strict
liability to pay the check to the order of the payee.

 The drawer's instructions are reflected on the face and by the terms of the check.

 Payment under a forged indorsement is not to the drawer's order. then is that the
drawee bank may not debit the drawer's account and is not entitled to indemnification
from the drawer. 25 The risk of loss must perforce fall on the drawee bank.

 GR: drawee bank may not debit the drawer's account and is not entitled to
indemnification from the drawer - risk of loss must perforce fall on the drawee bank

 EX:

 if the drawee bank can prove a failure by the customer/drawer to exercise ordinary
care that substantially contributed to the making of the forged signature, the
drawer is precluded from asserting the forgery

 If at the same time the drawee bank was also negligent to the point of
substantially contributing to the loss, then such loss from the forgery can be
apportioned between the negligent drawer and the negligent bank
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 In cases involving a forged check, where the drawer's signature is forged, the
drawer can recover from the drawee bank.

 In cases involving checks with forged indorsements, the drawee bank can seek
reimbursement or a return of the amount it paid from the presentor bank or person

 However, a drawee bank has the duty to promptly inform the presentor of the forgery
upon discovery. If the drawee bank delays in informing the presentor of the forgery,
thereby depriving said presentor of the right to recover from the forger, the former is
deemed negligent and can no longer recover from the presentor

 Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be
returned within twenty-Sour (24) hours after discovery of the forgery but in no event
beyond the period fixed or provided by law for filing of a legal action by the returning
bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a forged
endorsement should be returned within twenty-four hours.

 Since PNB did not return the questioned checks within twenty-four hours, but several
days later, Associated Bank alleges that PNB should be considered negligent and not
entitled to reimbursement of the amount it paid on the checks.

 More importantly, by reason of the statutory warranty of a general indorser in section

66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing
a forged indorsement and presents it to the drawee bank guarantees all prior
indorsements, including the forged indorsement

 In this case, the checks were indorsed by the collecting bank (Associated Bank) to the
drawee bank (PNB)

 The stamp guaranteeing prior indorsements is not an empty rubric which a bank must
fulfill for the sake of convenience

 It is within the bank's discretion to receive a check for no banking institution would
consciously or deliberately accept a check bearing a forged indorsement. When a check
is deposited with the collecting bank, it takes a risk on its depositor.