Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-37467

December 11, 1933

SAN CARLOS MILLING CO., LTD., plaintiff-appellant,

vs.
BANK OF THE PHILIPPINE ISLANDS and CHINA BANKING
CORPORATION, defendants-appellees.
Gibbs and McDonough and Roman Ozaeta for appellant.
Araneta, De Joya, Zaragosa and Araneta for appellee Bank of the Philippine Islands.
Marcelo Nubla and Guevara, Francisco and Recto for appellee China Banking
Corporation.

HULL, J.:
Plaintiff corporation, organized under the laws of the Territory of Hawaii, is
authorized to engaged in business in the Philippine Islands, and maintains its main
office in these Islands in the City of Manila.
The business in the Philippine Islands was in the hands of Alfred D. Cooper, its agent
under general power of attorney with authority of substitution. The principal
employee in the Manila office was one Joseph L. Wilson, to whom had been given a
general power of attorney but without power of substitution. In 1926 Cooper,
desiring to go on vacation, gave a general power of attorney to Newland Baldwin
and at the same time revoked the power of Wilson relative to the dealings with the
Bank of the Philippine Islands, one of the banks in Manila in which plaintiff
maintained a deposit.
About a year thereafter Wilson, conspiring together with one Alfredo Dolores, a
messenger-clerk in plaintiff's Manila office, sent a cable gram in code to the
company in Honolulu requesting a telegraphic transfer to the China Banking
Corporation of Manila of $100,00. The money was transferred by cable, and upon its
receipt the China Banking Corporation, likewise a bank in which plaintiff maintained
a deposit, sent an exchange contract to plaintiff corporation offering the sum of
P201,000, which was then the current rate of exchange. On this contract was forged
the name of Newland Baldwin and typed on the body of the contract was a
note:lawphil.net
Please send us certified check in our favor when transfer is received.

A manager's check on the China Banking Corporation for P201,000 payable to San
Carlos Milling Company or order was receipted for by Dolores. On the same date,
September 28, 1927, the manger's check was deposited with the Bank of the
Philippine Islands by the following endorsement:
For deposit only with Bank of the Philippine Islands, to credit of account of
San Carlos Milling Co., Ltd.
By (Sgd.) NEWLAND BALDWIN
For Agent
The endorsement to which the name of Newland Baldwin was affixed was spurious.
The Bank of the Philippine Islands thereupon credited the current account of plaintiff
in the sum of P201,000 and passed the cashier's check in the ordinary course of
business through the clearing house, where it was paid by the China Banking
Corporation.
On the same day the cashier of the Bank of the Philippine Islands received a letter,
purporting to be signed by Newland Baldwin, directing that P200,000 in bills of
various denominations, named in the letter, be packed for shipment and delivery
the next day. The next day, Dolores witnessed the counting and packing of the
money, and shortly afterwards returned with the check for the sum of P200,000,
purporting to be signed by Newland Baldwin as agent.
Plaintiff had frequently withdrawn currency for shipment to its mill from the Bank of
the Philippine Islands but never in so large an amount, and according to the record,
never under the sole supervision of Dolores as the representative of plaintiff.
Before delivering the money, the bank asked Dolores for P1 to cover the cost of
packing the money, and he left the bank and shortly afterwards returned with
another check for P1, purporting to be signed by Newland Baldwin. Whereupon the
money was turned over to Dolores, who took it to plaintiff's office, where he turned
the money over to Wilson and received as his share, P10,000.
Shortly thereafter the crime was discovered, and upon the defendant bank refusing
to credit plaintiff with the amount withdrawn by the two forged checks of P200,000
and P1, suit was brought against the Bank of the Philippine Islands, and finally on
the suggestion of the defendant bank, an amended complaint was filed by plaintiff
against both the Bank of the Philippine Islands and the China Banking Corporation.
At the trial the China Banking Corporation contended that they had drawn a check
to the credit of the plaintiff company, that the check had been endorsed for deposit,
and that as the prior endorsement had in law been guaranteed by the Bank of the
Philippine Islands, when they presented the cashier's check to it for payment, the

China Banking Corporation was absolved even if the endorsement of Newland

Baldwin on the check was a forgery.
The Bank of the Philippine Islands presented many special defenses, but in the main
their contentions were that they had been guilty of no negligence, that they had
dealt with the accredited representatives of the company in the due course of
business, and that the loss was due to the dishonesty of plaintiff's employees and
the negligence of plaintiff's general agent.
In plaintiff's Manila office, besides the general agent, Wilson, and Dolores, most of
the time there was employed a woman stenographer and cashier. The agent did not
keep in his personal possession either the code-book or the blank checks of either
the Bank of the Philippine Islands or the China Banking Corporation. Baldwin was
authorized to draw checks on either of the depositaries. Wilson could draw checks in
the name of the plaintiff on the China Banking Corporation.
After trial in which much testimony was taken, the trial court held that the deposit
of P201,000 in the Bank of the Philippine Islands being the result of a forged
endorsement, the relation of depositor and banker did not exist, but the bank was
only a gratuitous bailee; that the Bank of the Philippine Islands acted in good faith
in the ordinary course of its business, was not guilty of negligence, and therefore
under article 1902 of the Civil Code which should control the case, plaintiff could not
recover; and that as the cause of loss was the criminal actions of Wilson and
Dolores, employees of plaintiff, and as Newland Baldwin, the agent, had not
exercised adequate supervision over plaintiff's Manila office, therefore plaintiff was
guilty of negligence, which ground would likewise defeat recovery.
From the decision of the trial court absolving the defendants, plaintiff brings this
appeal and makes nine assignments of error which we do not deem it necessary to
discuss in detail.
There is a mild assertion on the part of the defendant bank that the disputed
signatures of Newland Baldwin were genuine and that he had been in the habit of
signing checks in blank and turning the checks so signed over to Wilson.
The proof as to the falsity of the questioned signatures of Baldwin places the matter
beyond reasonable doubt, nor is it believed that Baldwin signed checks in blank and
turned them over to Wilson.
As to the China Banking Corporation, it will be seen that it drew its check payable to
the order of plaintiff and delivered it to plaintiff's agent who was authorized to
receive it. A bank that cashes a check must know to whom it pays. In connection
with the cashier's check, this duty was therefore upon the Bank of the Philippine
Islands, and the China Banking Corporation was not bound to inspect and verify all
endorsements of the check, even if some of them were also those of depositors in
that bank. It had a right to rely upon the endorsement of the Bank of the Philippine

Islands when it gave the latter bank credit for its own cashier's check. Even if we
would treat the China Banking Corporation's cashier's check the same as the check
of a depositor and attempt to apply the doctrines of the Great Eastern Life
Insurance Co. vs. Hongkong & Shanghai Banking Corporation and National Bank (43
Phil., 678), and hold the China Banking Corporation indebted to plaintiff, we would
at the same time have to hold that the Bank of the Philippine Islands was indebted
to the China Banking Corporation in the same amount. As, however, the money was
in fact paid to plaintiff corporation, we must hold that the China Banking
Corporation is indebted neither to plaintiff nor to the Bank of the Philippine Islands,
and the judgment of the lower court far as it absolves the China Banking
Corporation from responsibility is affirmed.
Returning to the relation between plaintiff and the Bank of the Philippine Islands, we
will now consider the effect of the deposit of P201,000. It must be noted that this
was not a presenting of the check for cash payment but for deposit only. It is a
matter of general knowledge that most endorsements for deposit only, are informal.
Most are by means of a rubber stamp. The bank would have been justified in
accepting the check for deposit even with only a typed endorsement. It accepted
the check and duly credited plaintiff's account with the amount on the face of the
check. Plaintiff was not harmed by the transaction as the only result was the
removal of that sum of money from a bank from which Wilson could have drawn it
out in his own name to a bank where Wilson would not have authority to draw
checks and where funds could only be drawn out by the check of Baldwin.
Plaintiff in its letter of December 23, 1928, to the Bank of the Philippine Islands said
in part:
". . . we now leave to demand that you pay over to us the entire amount of
said manager's check of two hundred one thousand (P201,000) pesos,
together with interest thereon at the agreed rate of 3 per cent per annum
on daily balances of our credit in account current with your bank to this date.
In the event of your refusal to pay, we shall claim interest at the legal rate of
6 per cent from and after the date of this demand inasmuch as we desire to
withdraw and make use of the money." Such language might well be treated
as a ratification of the deposit.
The contention of the bank that it was a gratuitous bailee is without merit. In the
first place, it is absolutely contrary to what the bank did. It did not take it up as a
separate account but it transferred the credit to plaintiff's current account as a
depositor of that bank. Furthermore, banks are not gratuitous bailees of the funds
deposited with them by their customers. Banks are run for gain, and they solicit
deposits in order that they can use the money for that very purpose. In this case the
action was neither gratuitous nor was it a bailment.
On the other hand, we cannot agree with the theory of plaintiff that the Bank of the
Philippine Islands was an intermeddling bank. In the many cases cited by plaintiff

where the bank that cashed the forged endorsement was held as an intermeddler,
in none was the claimant a regular depositor of the bank, nor in any of the cases
cited, was the endorsement for deposit only. It is therefore clear that the relation of
plaintiff with the Bank of the Philippine Islands in regard to this item of P201,000
was that of depositor and banker, creditor and debtor.
We now come to consider the legal effect of payment by the bank to Dolores of the
sum of P201,000, on two checks on which the name of Baldwin was forged as
drawer. As above stated, the fact that these signatures were forged is beyond
question. It is an elementary principle both of banking and of the Negotiable
Instruments Law 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. (7 C.J., 683.)
There is no act of the plaintiff that led the Bank of the Philippine Islands astray. If it
was in fact lulled into a false sense of security, it was by the effrontery of Dolores,
the messenger to whom it entrusted this large sum of money.
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 relief that they are genuine signatures.
The signatures to the check being forged, under section 23 of the Negotiable
Instruments Law they are not a charge against plaintiff nor are the checks of any
value to the defendant.
It must therefore be held that the proximate cause of loss was due to the
negligence of the Bank of the Philippine Islands in honoring and cashing the two
forged checks.
The judgment absolving the Bank of the Philippine Islands must therefore be
reversed, and a judgment entered in favor of plaintiff-appellant and against the
Bank of the Philippine Islands, defendant-appellee, for the sum of P200,001, with
legal interest thereon from December 23,1928, until payment, together with costs
in both instances. So ordered.
Malcolm, Villa-Real, Vickers, and Imperial, JJ., concur.

CASE DIGEST

G.R. No. L-37467

December 11, 1993
Lessons Applicable: Forgery (Negotiable Instruments Law)
FACTS:

San Carlos Milling Co. Ltd. (San Carlos) was in the hands of Alfred D. Cooper,
its agent under general power of attorney with authority of substitution

The principal employee in the Manila office was Joseph L. Wilson, to whom
had been given a general power of attorney but without power of substitution.

1926: Cooper, desiring to go on vacation, gave a general power of attorney to

Newland Baldwin and at the same time revoked the power of Wilson relative to
the dealings with BPI

Wilson, conspiring together with Alfredo Dolores, a messenger-clerk in

San Carlos' Manila office, sent a cable gram in code to the company in Honolulu
requesting a telegraphic transfer to the China Banking Corporation (China Bank)
of Manila of $100,00.

The money was transferred by cable, and upon its receipt China Bank
sent an exchange contract to San Carlos offering the sum of P201K, which was
then the current rate of exchange.

September 28, 1927: A manager's check on the China Banking Corporation

for P201K payable to San Carlos Milling Company or order was receipted for by
Dolores

deposited with the BPI having a fake endorsement (Baldwin forged as

drawer)

For deposit only with Bank of the Philippine Islands, to credit of account of San
Carlos Milling Co., Ltd.
By (Sgd.) NEWLAND BALDWIN
For Agent

San Carlos had frequently withdrawn currency for shipment to its mill but
never in so large an amount, and never under the sole supervision of Dolores

Before delivering the money, the bank asked Dolores for P1 to cover the cost
of packing the money, and he left the bank and shortly afterwards returned with
another check for P1, purporting to be signed by Newland Baldwin

the crime was discovered and San Carlos filed against the BPI and China Bank
(after ammendment complaint)

China Bank: as the prior endorsement had in law been guaranteed by

the BPI, they are absolved even if the endorsement of Newland Baldwin on the
check was a forgery

BPI: guilty of no negligence, loss was due to the dishonesty of San

Carlos employees and the negligence of San Carlos general agent
RTC: BPI in GF and San Carlos could not recover

ISSUE: W/N BPI was bound to inspect the checks and shall therefore be liable in case
of forgery
HELD: YES. judgment absolving the Bank of the Philippine Islands must therefore be
reversed

duty was upon the BPI, and the China Banking Corporation was not bound to
inspect and verify all endorsements of the check, even if some of them were also
those of depositors in that bank

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.

under section 23 of the Negotiable Instruments Law they are not a charge
against San Carlos nor are the checks of any value to the BPI.

proximate cause of loss was due to the negligence of the Bank of the
Philippine Islands in honoring and cashing the two forged checks

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
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. 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.4Said warranty is irrelevant, therefore, to the PNB's alleged right to recover
from the PCIB. It could have been availed of by a subsequent indorsee 5 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
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.
Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles, Fernando and Capistrano,
JJ., concur.
Zaldivar, J., took no part.

Footnotes
1

First National Bank of Wichita Falls v. First National Bank of Borger, 37 S.W.
(2d) 802.
2

VI Banks & Banking, Zollmann, 378.

First National Bank of Marshalltown v. Marshalltown State Bank, 77 N.W.

1045.
4

First National Bank of Wichita Falls v. First National Bank of Borger, supra.

American Hominy Co. v. Millikin National Bank, 273 F. 550, 556.

Wells Fargo Bank & Union Trust Co. v. Bank of Italy, 4 P (2d) 781, 784-785.

The PNB had previous notice of the infirmity of the check when it came into
its possession. Art. 52 (d), Act No. 2031.
8

National Bank of Commerce of Seattle v. Seattle Nat. Bank, 187 P. 342, 346.

Section 132, Act No. 2031.

10

Sections 143 and 185, Act No. 2031; Phil. Nat. Bank v. Nat. City Bank of
New York, 63 Phil. 711; I Morse on Banks and Banking, 6th ed. 898, 899;
Wachtel v. Rosen, 249 N. Y. 386, 164 N.E. 326.
11

First National Bank of Washington v. Whitman, 94 U.S. 343, 347, 24 L. ed.

229.

12

Section 132 thereof.

13

Marlin National Bank v. Reed, 164 S.W. (2d) 260; First National Bank of
Wichita Falls v. First National Bank of Borger, 37 S.W. (2d) 802. See, also,
Commerce-Guardian Bank v. Toledo Trust Co., 21 N.E. (2d) 173, 176; National
Bank of Rolla v. First National Bank of Salem, 125 S.W. 513, 516; Philippine
National Bank v. National City Bank of NY, supra; VIII Banks and Banking,
Zollman, 421.
14

Blondeau v. Nano, 61 Phil. 625, 631, 632.

15

VI Banks and Banking by Zollman, 416.

16

First National Bank of Portland v. United States National Bank of Portland,

197 P. 547; Fidelity & Casualty Co. of New York v. Planenscheck, 227 NW 387;
US v. Bank of NY, National Banking Association, 219 F. 648; US Fidelity &
Guaranty Co. v. First Nat. Bank of Omaha, 260 NW 798; First National Bank of
Cottage Grove v. Bank of Cottage Grove, 117 F. 293.

G.R. No. L-26001

Lessons Applicable:

October 29, 1968

Forgery (Negotiable Instruments Law)

Liabilities of the parties (Negotiable Instruments Law)

FACTS:

January 15, 1962: Augusto Lim deposited in his current account with the PCIB
branch at Padre Faura, Manila a GSIS Check of P57,415.00 drawn against the
PNB

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

Same date: following an established banking practice in the Philippines, the

check was forwarded for clearing through the Central Bank to the PNB

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

PNB received a formal notice from the GSIS that the check had been
lost, with the request that payment thereof be stopped

January 31, 1962: Upon demand from the GSIS, the P57,415.00 was recredited to them bec. the signatures of its officers on the check were forged

signatures of the General Manager and the Auditor of the GSIS on the
check, as drawer, are forged

payee Mariano D. Pulido indorsed it to Manuel Go and then indorsed by

Manuel Go to Augusto Lim

February 2, 1962: PNB demanded from the PCIB the refund

PNB filed against the PCIB

CA affirmed CFI: dismissed

ISSUE: W/N PCIB as indorser is liable despite the fact that the check is forged when
PNB is also negligent
HELD: NO. Affirmed

PCIB stamped on the back of the check: "All prior indorsements and/or Lack
of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre
Faura Branch, Manila

indorsements falsified is immaterial to the 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.

Guaranteed not the authenticity of the signatures of the officers of the GSIS
who signed because the GSIS is not an indorser of the check, but its drawer

warranty is irrelevant to the PNB's alleged right to recover from the PCIB

in general, "acceptance" is not required for checks since they are payable on
demand
acceptance
promise to perform an act
the acceptance of a bill is the signification by the drawee of his
assent to the order of the drawer
payment

actual performance

compliance with obligation

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

PNB's negligence was the main or proximate cause for the

corresponding loss
PNB did not return the check

when 1 of 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

where the collecting (PCIB) and the drawee (PNB) banks are equally at fault,
the court will leave the parties where it finds them

applies in the case of a drawee who pays a bill without having

previously accepted it
Section 62 of Act No. 2031 provides

The acceptor by accepting the instrument engages that he will pay it according to
the tenor of hisacceptance; 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.

G.R. No. L-34539 July 14, 1986

LessonsApplicable:ConsiderationandAccomodationParty;HolderinDueCourse(NegotiableInstruments)

FACTS:

Oct71954:EulalioandElisaPrudencios,registeredownersofaparceloflandmortgagedto
PhilippineNationalBank(PNB)to guarantee a loan of P1,000.00 extended to Domingo
Prudencio

1955:Concepcion&TamayoConstructionCompany(Concepcion)hadapendingcontractwiththe
BureauofPublicWorks(Bureau)for the construction of the municipal building in Puerto
Princess, Palawan amounting to P36,800.00

Inneedoffunds,JoseToribio,Concepcions'relative,andattorneyinfactoftheCompany,
approachedPNBtomortgagetheirpropertytosecuretheloanofP10,000.00w/PNB.

ThetermsandconditionsoftheoriginalmortgageforPl,000.00weremadeintegralpartof
thenewmortgageforP10,000.00andbothdocumentswereregisteredwiththeRegisterofDeeds

Dec231955:

promissorynotecoveringtheloanofP10,000.00datedDec291955,maturingon
Apr271956,wassignedbyJoseToribio,asattorneyinfactoftheCompany,andbythePrudencios'

DeedofAssignmentassigningallpaymentstobemadebytheBureautotheCo.on
accountofthecontractfortheconstructioninfavorofthePNB.

PNBapprovedtheBureau'sreleaseof3paymentsdirectlytoConcepcionfor
materialandlaborinsteadofpayingthesametotheBankonaccountofthecontractpricetotalling
P11,234.40withouttheknowledgeofthePrudencios'

PNBdidnotapplytheinitialandsubsequentpaymentstothePrudencios'
debtasprovidedforinthedeedofassignment

Jun301956:ConcepcionabandonedtheirworksoBureaurescindedtheconstructioncontractand
assumedtheworkofcompleting

Jun271959:Concepcionfiledtocancelledtheirmortgage

complaintwasamendedtoexcludetheCompanyasdefendant,ithavingbeenshownthatits
lifeasapartnershiphadalreadyexpiredand,inlieuthereof,RamonConcepcionandManuelM.Tamayo,
partnersofthedefunctCompany,wereimpleadedintheirprivatecapacityasdefendants.

CAaffirmedRTC:Denied

nostipulationinthedeedmakingitobligatoryonthepartofthePNBtonotifythepetitioners
everytimeitauthorizespaymenttotheCompany

Prudencios'contendthatasaccommodationmakers,thenatureoftheirliabilityisonlythatofmere
suretiesinsteadofsolidarycodebtorssuchthat"amaterialalterationintheprincipalcontract,effectedby
thecreditorwithouttheknowledgeandconsentofthesureties,completelydischargesthesuretiesfromall
liabilityonthecontractofsuretyship.
ISSUE:

W/NthePrudencios'asaccomodatingpartyareliableassolidarydebtorssorealestatemortgage
executedbythemCANNOTbecancelled
2.
W/NPNBwasaholderinduecourse
1.

HELD:PetitionisGranted.CAreversed.

1.YES

Section29oftheNegotiableInstrumentLaw
Liabilityofaccommodationparty.Anaccommodationpartyisonewhohassignedthe
instrumentasmaker,drawer,acceptor,orindorser,withoutreceivingvaluetherefor,andforthepurpose
oflendinghisnametosomeotherperson.Suchapersonisliableontheinstrumenttoaholderforvalue,
notwithstandingsuchholderatthetimeoftakingtheinstrumentknewhimtobeonlyanaccommodation
party.

PhilippineBankofCommercev.Aruego:liabilityoftheaccommodationpartyremainsnotonly
primarybutalsounconditionaltoaholderforvalue

remedyisamatterofconcernexclusivelybetweenaccommodationindorserandaccommodatedparty
2.NO

payeePNBisanimmediatepartyand,therefore,isNOTaholderinduecourseandstandsonno
betterfootingthanamereassignee
holderinduecoursepayeeeitheracquiredthenotefromanotherholderorhasnotdirectly
dealtwiththemakerthereof
PNB,ineffect,waivedpaymentsofthefirstthreereleases
PNBcannotberegardedashavingactedingoodfaithwhichisalsooneoftherequisitesofa
holderinduecourseunderSection52oftheNegotiableInstrumentsLaw
Itwasonlywhenthedeedofassignmentwasshowntothespousesthattheyconsentedtothe
mortgageandsignedthepromissorynoteintheBank'sfavor.