DEVELOPMENT BANK OF RIZAL v.
SIMA WEI Sima Wei is not freed from liability to DBP under the loan evidenced by
219 SCRA 736
FACTS
DBP extended a loan to Sima Wei, who executed and delivered to
PNB a promissory note
o Promissory note pay DBP or order Php1,820,000 on or
before June 24, 1983 with interest at 32% p.a.
Sima Wei made partial payments on the note but left a balance of
Php1,032,450,02
For the balance, Sima Wei issued two crossed checks payable to
DBP drawn against China Banking Corporation
o These checks were not delivered to DBP
The checks came into the possession of Lee Kian Huat, who
despoited the checks without DBPs indorsement to the account of
Plastic Corporation at Producers Bank
Producers Banka accepted the checks for deposit and credited them
to the account of Plastic Corporation
DBP filed a complaint for the sum of money covered by the two
checks against Sima Wei, Lee Kian Huat, Cheng Uy (Balintawak
branch manager of Producers Bank), Samson Tung (president of
Plastic Corporation), Plastic Corporation, and Producers Bank
o Against Sima Wei to enforce payment of balance of
PHp1,032,450.02 on her promissory note
o Against other respondents to enforce payment of two
checks
ISSUE
W/N DBP has a cause of action against any or all of the defendants
HELD/RATIO
DBP has no cause of action founded on the checks against all
defendants because it never acquired any right or interest in the
checks.
A negotiable instrument is a species of property and must be
delivered to the payee (in this case, DBP) in order to evidences its
existence as a binding contract
o Section 16 of NIL Every contract on a negotiable
instrument is incomplete and revocable until delivery of
the instrument for the purpose of giving effect thereto.
The two checks were not delivered to payee DBP and therefore
DBP did not acquire any right or interest therein and cannot therefore
assert any cause of action founded on said checks whether against
drawer Sima Wei or any of the respondents
the promissory note.
Anent Sima Weis allegation that she paid the outstanding balance
with the two checks
o The two checks were never delivered to DBP
o Even if they were delivered, the checks do not constitute
payment of an obligation unless they are cashed or their
value is impaired through the fault of the creditor.
Sima Wei did not allege any of these exceptions
Thus DBP has a right of action against her for the outstanding
balance.
But as against other respondents, DBP has no privity with them
o Anything which respondents may have done with respect to
said checks could not have prejudiced DBP
LIM v. COURT OF APPEALS
251 SCRA 408
FACTS
Spouses Lim are President and Treasurer of RIGI and were allowed
credit with LINTON up to 30, 60, or sometimes even 90 days
The Lims ordered mild steel plates and issued seven (7) Solidbank
checks therefor
LINTON Vice President and Sales Manager William Yu Bin testified
that the checks were deposited with Rizal Commercial Banking
Corporation (RCBC) and were dishonoured for insufficiency of funds
with the additional notation payment stopped stamped thereon
The Lims refused to make good the checks despite demands by
LINTON alleging that RIGI had sufficient funds and that payment was
ordered stopped because LINTON delivered supplies not in
accordance with the specifications in the purchase orders
Trial court held spouses Lim guilty of estafa and a violation of BP 22
(Bouncing Checks Law)
Spouses Lim assailed decision and CA acquitted them of estafa on
the ground that the checks were not made in payment of an
obligation contracted at the time of their issuance but found them
guilty of having violated BP 22
Spouses Lim contended that the prosecution failed to prove that any
of the essential elements of the crime punishable by BP 22 was
committed within the jurisdiction of the RTC of Malabon
o Checks were issued at their place of business, received by a
LINTON collector, and dishonoured by drawee bank all in
Kalookan City
 o RTC of Malabon exceeded its jurisdiction in trying the case
and rendering judgment thereon
ISSUE
W/N RTC of Malabon exceeded its jurisdiction when it tried the case and
rendered judgment thereon
HELD/RATIO
RTC of Malabon had acquired jurisdiction over the cases because of
the nature of BP 22 as a transitory or continuing crime.
Transitory/continuing crimes are those in which some acts materials
and essential to the crimes and requisite to their consummation
occur in one municipality/territory and some in another
Court of either municipality or territory had jurisdiction to try the
cases, with the first court taking cognizance of the case excluding
the other
BP 22 is one such transitory or continuing crime
Although the LINTON collector received the checks in Kalookan City,
such receipt was not the issuance and delivery to the payee LINTON
in contemplation of the law
o Sec 191 of NIL issue = first delivery of the instrument
complete in form to a person who takes it as a holder
o The collector was not the person who could take the
checks as a holder, i.e. as a payee or indorsee thereof
o Neither could the collector be deemed an agent of
LINTON
The checks were actually issued and delivered to LINTON at its
place of business in Balut, Navotas
Consequently, jurisdiction lies either in RTC of Kalookan City or in
RTC of Malabon
o Venue or jurisdiction is determined by the allegations in the
Information
o The Informations allege that the offenses were committed in
the Municpality of Navotas, which is controlling and sufficient
to vest jurisdiction upon the RTC of Malabon
FINAL RULING
Decision of RTC of Malabon finding spouses Lim guilty of violating BP 22 is
affirmed.
GEMPESAW v. COURT OF APPEALS
218 SCRA 682
KEY TAKEAWAYS
Negligence on the part of the drawer as regards the checks issued in
her name preclude said drawer from setting up forgery on said
checks as per Section 23 of the NIL.
However, drawer can still claim damages from drawee bank if it
contravenes the tenor of its obligations as per Article 1170 of the Civil
Code and if drawee bank fails to exercise the diligence required of it
as per Article 1173 of the Civil Code.
FACTS
Gempesaw owns and operates four (4) grocery stores and maintains
a checking account with the Caloocan City Branch of drawee
Philippine Bank of Communications (PBC)
Gempesaws customary practice of issuing checks in payment of
suppliers
o Checks prepared and filled up as to all material particulars
by trusted bookkeeper Alicia Galang
o Completed checks submitted to Gempesaw for her
signature, together with invoice receipts indicating correct
obligations due and payable to her suppliers
o Gempesaw signed each and every check without verifying
accuracy of checks against invoices because she reposed
full and implicit trust and confidence on Galang
o Issuance and delivery of checks to payee suppliers were left
to Galang
o Gemepsaw did not make any verification as to W/N checks
were actually delivered to payee suppliers
Over a period of two (2) years, Gempesaw issued eighty-two (82)
checks in favour of payee suppliers
The checks were presented by the indorsees as holders thereof and
honoured by drawee PBC
Drawee PBC debited amounts of checks against Gempesaws
checking account
Most of the checks were for amounts in excess of Gempesaws
actual obligations to the various payees (ex. One check in amount of
Php11,895.23 issued in favour of Kawsek, Inc. when Gempesaws
actual obligation to Kawsek was only Php 895.33)
Drawee PBC gave daily notices to Gempesaw as well as monthly
statements of her bank transactions, attaching thereto all the
cancelled checks she had issued
It was only after two (2) years that Gempesaw discovered the fraud
of Galang
All 82 checks with forged signatures of payee suppliers were brought
to Chief Accountant of the Buendia branch of drawee PBC, Ernest
Boon (close friend of Alfredo Romero)
 o Boon accepted all the checks for deposit and the checks
were deposited in the accounts of Alfredo Romero and
Benito Lam at various PBC branches
o This was in spite of PBC rules that only a Branch Manager
and no other official of PBC may accept a second
indorsement on a check for deposit
Payee suppliers testified they never received nor even saw the
subject checks and that the indorsements were not theirs
Drawee PBCs team of auditors, despite conducting periodical
inspection of branches operations, failed to discover, check or, stop
the unauthorized acts of Boon
Gempesaw made a written demand on drawee PBC to credit her
account with the money value of the 82 checks totalling Php
1,208,606.89 for having been wrongfully charged against her
account
PBC refused to grant Gempesaws demand
ISSUE
W/N drawee
HELD/RATIO
Gempesaw is precluded from setting up the forgery (forged
indorsements) to prevent drawee PBC debiting her account.
Section 23 of NIL covers also a forged indorsement forged
signature of payee or indorsee of a note or check
o A forged signature is wholly inoperative and therefore no one
can gain title to the instrument through such forged
indorsement
o A forged indorsement prevents any subsequent party from
acquiring any right against any part whose name appears
prior to the forgery
Gempesaws signing the checks as drawer made the negotiable
instruments complete
The signatures of the payee suppliers as first indorsers were forged
The checks were indorsed for the second time with names of Alfredo
Romero and Benito Lam
o The second indorsements were all genuine signatures of
Romero and Lam
Generally, a drawee bank who has paid a check with a forged
indorsement cannot charge the drawers account for the amount of
said check
o An exception to this rule is when the drawer is guilty of
negligence which causes the bank to honor such checks
o It is highly improbable that none of Gempesaws suppliers
complained of non-payment
o Furthermore, Gempesaw failed to examine her records with
reasonable diligence whether before she signed the checks
or after receiving her bank statements
Thus, Gempesaws negligence was the proximate cause of her loss
and she cannot now complain should drawee PBC refuse to recredit
her account with the amount of the 82 checks
o Under Section 23 of NIL, Gempesaw is precluded from
setting up the forgering to prevent the banks debiting on her
account because of her negligence
However, Gempesaw can recover damages from drawee PBC.
There is a contractual relation between Gempesaw as depositor and
PBC as obligor.
In the performance of its obligations, PBC is bound by its internal
banking rules and regulations which form part of any contract it
enters into with any of its depositors.
o Sec 196 of NIL any case not provided for in the Act shall
be governed by provision of existing legislation
o Article 1170 of the Civil Code says that PBC may be held
iable for damages
Those who in the performance of their obligations
those who in any manner contravene the tenor
thereof, are liable for damages
o PBC violated its internal rules that second indorsements are
not to be accepted without approval of its branch managers
PBC accepted the 82 checks with approval of Boon,
a chief accountant
Thus, PBC contravened the tenor of its
obligations
PBC did not discover the irregularity with respect to the acceptance
of the checks with second indorsement despite periodic inspections
conducted by the team of auditors
o Article 1173 of the Civil Code: The fault or negligence of the
obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with
the circumstance of the persons, of the time and of the place
o Banking business is impressed with public interest such that
what is required of it is a high degree of diligence
o PBC cannot claim it exercised that high degree of diligence
FINAL RULING
Case is remanded to the trial court to determine the exact amount of losses
suffered by Gempesaw.
MWSS v. COURT OF APPEALS
143 SCRA 20
FACTS
The MWSS was a depositor of PNB, where it maintained Account
No. 6 which had three (3) asignatories the MWSS Treasurer,
Auditor, and acting General Manager
It did not use the standard checks of the PNB but instead, used
personalized checks printed by Mesina Enterprises
It was later found out that 23 checks bearing the same numbers
as those already issued were paid and cleared by the PNB and
debited against Account No. 6 of MWSS
o They checks were made payable to Sison, Mendoza, and
Dizon who were later found out to be fictitious persons
o The checks however, seemed regular, the genuineness of
the signatures was hardly doubted, and there was nothing in
the face of the instruments w/c could have aroused
suspicion.
Nevertheless, the MWSS sought the restoration of the said funds
from the PNB alleging that the drawee bank should be liable for
cashing a check with a forged signature; the latter refused.
The CFI of Manila decided in favour of MWSS
The Court of Appeals reversed the CFIs decision and decided in
favour of PNB
HELD/RATIO
Granting that forgery was committed, MWSS is barred from setting up
the defense of forgery because it acted negligently.
Forgery cannot be presumed. It must be established by clear,
positive, and convicing evidence. This was not done in the
present case.
o There was no express and categorical finding that the
authorized signatories signatures were forged.
o The NBI reports failed to establish that the signatures were
forgeries because there was no conclusive finding as to the
variance between the signatures.
MWSS officials admitted that the checks can easily be passed on as
genuine.
o Even the concerned officials coud not tell the differences
between the genuine checks and alleged forged checks.
MWSS was guilty of negligence before and after the checks were
negotiated.
o They failed to monitor the printing of their customized
checks and to set up security measures
They did not provide Mesina instructions relative to
the safekeeping and disposition of their checks
They did not furnish PNB with samples of
typewriting, check writing, and print used by Mesina,
nor of the inks and pens used in signing the checks
They did not send a representative to Mesina during
the printing of the checks
o Also, the MWSS failed to monitor and reconcile the bank
statements
MWSS requested PNB to discontinue mailing bank
statements but to deliver them to Emiliano
Zaporteza, who unreasonable delayed in taking
prompt deliveries of the bank statements
His negligence was the proximate cause of the
failure to discover the fraud
PNB cannot be blamed for not detecting fraudulent issuance of
checks where MWSS used its own personalized checks.
o MWSS was in a better position to detect and prevent the
fraudulent encashment of its checks as opposed to PNB.
FINAL RULING
Decision of the CA
ILUSORIO v. COURT OF APPEALS
393 SCRA 89
FACTS
Ilusorio was a very prominent businessman
He trusted his secretary, Eugenio, so much that he left to her
control his credit cards and his checkbook with blank checks
Eugenio was able to encash and deposit in her account 17 checks
drawn against Manila Bank and from the account of Ilusorio
Ilusorio did not check his statement of account until a business
partner told him that he [business parner] saw Eugenio using his
[Ilusorios] credit cards
Ilusorio fired Eugenio immediately and instituted a criminal action
against her for estafa through falsification
Ilusorio then requested drawee Manila Banking Corporation to credit
back and restore to his account the value of the checks
Manila Bank refused; hence, this suit
ISSUE
W/N Ilusorio has a cause of action against Manila Bank
HELD/RATIO
Ilusorio has no cause of action against Manila Bank.
 To be entitled to damages, Ilusorio has the burden of proving the
negligence of Manila Bank for failure to detect the discrepancy in the
signatures on the checks
Court of Appeals, however, found that Ilusorio was precluded from
setting up forgery by his own inaction (exception to the general
rule that a forged signature is inoperative, as provided for in Section
23 of the NIL)
o Ilusorio did not present any other evidence to prove the fact
of forgery, he did not even submit his own specimen
signatures
o Manila Bank, on the other hand, presented specimen
signature cards of Ilusrio taken in 1976, 1979, and 1981
CA and RTC found that Manila Bank employees exercised due
diligence in cashing the checks
o Manila Banks verifiers first verified the drawers signatures
as against his specimen signature cards
o When in doubt, the verifiers referred to a more experienced
verifier
o In some instance, the verified even made a confirmation by
calling Ilusorio by phone (although it was Eugenio who would
answer and confirm the checks)
o Manila Bank took all the precautions
It was Ilusorio, and not Manila Bank, who was negligent
o Ilusorios negligence was the proximate cause of his own
damage
o As per Article 2179 of the Civil Code, when the plaintiffs own
negligence was the immediate and proximate cause of his
injury, no recovery could be had for damages