FRANCISCO VS CA

FACTS:
June 23, 1977: Adalia Francisco (Francisco) president of A. Francisco Realty & Development Corporation (AFRDC)
and Jaime C. Ong (Ong) President and General Manager of Herby Commercial & Construction Corporation (HCCC),
entered into a contract where HCCC agreed to undertake the construction of 35 housing units and the development
of 35 hectares of land.
HCCC was to be paid on turn-key basis (basis of the completed houses and developed lands delivered to and
accepted by AFRDC and the GSIS)
To facilitate payment, AFRDC executed a Deed of Assignment in favor of HCCC to enable the it to collect payments
directly from the GSIS.
Furthermore, the GSIS and AFRDC put up an Executive Committee Account with the Insular Bank of Asia & America
(IBAA) of P4M from which checks would be issued and co-signed by petitioner Francisco and the GSIS Vice-President
Armando Diaz (Diaz).
February 10, 1978: HCCC filed a complaint w/ the RTC against Francisco, AFRDC and the GSIS for the collection of
the unpaid balance under the Land Development and Construction Contract in the amount of P515,493.89 for
completed and delivered housing units and land development.
Sometime in 1979: Ong discovered that Diaz and Francisco had executed and signed 7 checks drawn against the
IBAA and payable to HCCC but were never delivered to HCCC
GSIS gave Francisco custody of the checks since she promised that she would deliver the same to HCCC.
Francisco forged the signature of Ong, without his knowledge or consent, at the dorsal portion of the said checks to
make it appear that HCCC had indorsed the checks; Francisco then indorsed the checks for a second time by signing
her name at the back of the checks and deposited the checks in her IBAA savings account
June 7, 1979: Ong filed complaints charging Francisco with estafa thru falsification of commercial documents -
dismmised by the Assistant City Fiscal
According to Francisco, she agreed to grant HCCC the loans in the total amount of P585K and covered by 18
promissory notes in order to obviate the risk of the non-completion of the project.
As a means of repayment, Ong allegedly issued a Certification authorizing Francisco to collect HCCCs receivables from
the GSIS
RTC: favored Ong and against IBAA and Francisco
November 21, 1989: IBAA and HCCC entered into a Compromise Agreement which was approved by the trial court,
wherein HCCC acknowledged receipt of the amount of P370,475.00 in full satisfaction of its claims against IBAA,
without prejudice to the right of IBAA to pursue its claims against Francisco.
CA affirmed RTC
Francisco claims that she was, in any event, authorized to sign Ongs name on the checks by virtue of the Certification
executed by Ong in her favor giving her the authority to collect all the receivables of HCCC from the GSIS, including
the questioned checks.
ISSUE: W/N Francisco can sign Ongs name on the checks and it was not forgery
HELD: NO.
Francisco had custody of the checks, as proven by the check vouchers bearing her uncontested signature
Francisco forged the signature of Ong on the checks to make it appear as if Ong had indorsed said checks
The Negotiable Instruments Law provides that where any person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative personal liability
An agent, when so signing, should indicate that he is merely signing in behalf of the principal and must disclose the
name of his principal; otherwise he shall be held personally liable
Instead of signing Ongs name, Francisco should have signed her own name and expressly indicated that she was
signing as an agent of HCCC
Negotiable Instruments Case Digest: San Carlos Milling Co. Ltd V. BPI (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
Negotiable Instruments Case Digest: PNB V. National City Bank New York (1936)
FACTS:
April 7 & 9, 1933: unknown person or persons purchased tires and paid Motor Service Company, Inc.(MSCI)
checks purporting to have been issued by the "Pangasinan Transportation Co., Inc. (Pantranco) by J. L. Klar,
Manager and Treasurer" against PNB and in favor of International Auto Repair Shop.
MSCI indorsed for deposit at the National City Bank of New York and MSCI was accordingly credited with the
amounts thereof, or P144.50 and P215.75
April 8 & 10, 1933: Checks were cleared and PNB credited the National City Bank
PNB found out that the signatures of J. L. Klar, Manager and Treasurer were forged and demanded from MSCI and
National City Bank New York
PNB filed the case in the municipal court of Manila against National City Bank and MSCI.
Pantranco objected to have the proceeds of said check deducted from their deposit.
RTC: Favored PNB
MSCI appealed
ISSUES:
1. W/N acceptance = payment
2. W/N law or business practice prevents the presentation of checks for acceptance before they are paid.
3. W/N MSCI was negligent and therefore PNB should recover
4. W/N the drawee bank should be allowed recovery, as MSCI's position would not become worse than if the drawee
had refused the payment of these checks upon their presentation.
HELD: Affirmed
1. NO.
A check is a bill of exchange payable on demand and only the rules governing bills of exchange payable on demand
are applicable to it, according to section 185 of the Negotiable Instruments Law
Acceptance is a step unnecessary for bills of exchange payable on demand (sec. 143)
Acceptance implies, subsequent negotiation of the instrument
From the moment a check is paid it is withdrawn from circulation.
That the payment of a check does not include or imply its acceptance in the sense that this word is used in section 62
of the Negotiable Instruments Law
Payment (in checks) - final act which extinguishes a bill.
Acceptance (in certified checks) - a promise to pay in the future and continues the life of the bill.
2. NO
section 187, which provides that "where a check is certified by the bank on which it is drawn, the certification is
equivalent to an acceptance", and it is then that the warranty under section 62 exists
That if a drawee bank pays a forged check which was previously accepted or certified by the said bank it cannot
recover from a holder who did not participate in the forgery and did not have actual notice thereof
3. YES.
Circumstances:
check number 637023-D was dated April 6, 1933, whereas check number 637020-D and is dated April 7, 1933. (later
check had prior number)
accepted the 2 checks from unknown persons
check 637023-D was indorsed by a subagent of the agent of the payee, International Auto Repair Shop and cross
generally
 Section 23 of the Negotiable Instruments Act provides that "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.
PNB did not warrant to MCSI the genuineness of the checks in question, by its acceptance thereof, nor did it perform
any act which would have induced MSCI to believe in the genuineness
PNB is NOT precluded from setting up the forgery
4. NO.
A drawee of a check, who is deceived by a forgery of the drawer's signature may recover the payment back, unless
his mistake has placed an innocent holder of the paper in a worse position than he would have been in if the discover
of the forgery had been made on presentation.
MSCI has lost nothing by anything which the drawee has done. It had in its hands some forged worthless papers. It
did not purchase or acquire these papers because of any representation made to it by the drawee
Court concluded:

1. That where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the
genuineness of the drawer's signature and his capacity to issue the instrument;
2. That if a drawee bank pays a forged check which was previously accepted or certified by the said bank it cannot
recover from a holder who did not participate in the forgery and did not have actual notice thereof;
3. That the payment of a check does not include or imply its acceptance in the sense that this word is used in section 62
of the Negotiable Instruments Law;
4. That in the case of the payment of a forged check, even without former acceptance, the drawee can not recover from
a holder in due course not chargeable with any act of negligence or disregard of duty;
5. That to entitle the holder of a forged check to retain the money obtained thereon, there must be a showing that the
duty to ascertain the genuineness of the signature rested entirely upon the drawee, and that the constructive negligence
of such drawee in failing to detect the forgery was not affected by any disregard of duty on the part of the holder, or by
failure of any precaution which, from his implied assertion in presenting the check as a sufficient voucher, the drawee had
the right to believe he had taken;
6. That in the absence of actual fault on the part of the drawee, his constructive fault in not knowing the signature of the
drawer and detecting the forgery will nor preclude his recovery from one who took the check under circumstances of
suspicion and without proper precaution, or whose conduct has been such as to mislead the drawee or induce him to pay
the check without the usual scrutiny or other precautions against mistake or fraud;
7. That on 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 performed his
duty;
8. That while the foregoing rule, chosen from a welter of decisions on the issue as the correct one, will not hinder the
circulation of two recognized mediums of exchange by which the great bulk of business is carried on, namely, drafts and
checks, on the other hand, it will encourage and demand prudent business methods on the part of those receiving such
mediums of exchange;
9. That it being a matter of record in the present case, that the appellee bank in no more chargeable with the knowledge
of the drawer's signature than the appellant is, as the drawer was as much the customer of the appellant as of the
appellee, the presumption that a drawee bank is bound to know more than any indorser the signature of its depositor
does not hold;
10. That according to the undisputed facts of the case the appellant in purchasing the papers in question from unknown
persons without making any inquiry as to the identity and authority of the said persons negotiating and indorsing them,
acted negligently and contributed to the appellee's constructive negligence in failing to detect the forgery;
11. That under the circumstances of the case, if the appellee bank is allowed to recover, there will be no change of
position as to the injury or prejudice of the appellant.
Negotiable Instruments Case Digest: PNB V. CA (1968)
G.R. No. L-26001 October 29, 1968
Lessons Applicable:
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 re-credited 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.
Negotiable Instruments Case Digest: Great Eastern Life Ins. Co. V. Hongkong Shanghai Bank (1922)
FACTS:
May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on the Hongkong and Shanghai Banking
Corporation (HSBC) payable to the order of Lazaro Melicor.

E. M. Maasim fraudulently obtained possession of the check, forged Melicor's signature, as an endorser, and then
personally endorsed and presented it to the Philippine National Bank (PNB) and it was placed to his credit.

Next day: PNB endorsed the check to the HSBC who paid it

HSBC sent a bank statement to the Eastern showing the amount of the check was charged to its account, and no
objection was made

4 months after the check was charged, it developed that Lazaro Melicor, to whom the check was made payable, had
never received it, and that his signature, as an endorser, was forged by Maasim,

Eastern promptly made a demand upon the HSBC to credit the amount of the forged check

Eastern filed against HSBC and PNB

RTC: dismissed the case

ISSUES: W/N Eastern has the right to recover the amount of the forged check

HELD: YES. lower court is reversed. Eastern against HSBC who can claim against PNB
forgery was that of Melicor (payees and NOT the maker)

Eastern received it banks statement, it had a right to assume that Melicor had personally endorsed the check, and
that, otherwise, the bank would not have paid it

Section 23 of Negotiable Instruments Law:

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.
The Philippine National Bank had no license or authority to pay the money to Maasim or anyone else upon a forge
signature.

Its remedy is against Maasim to whom it paid the money

GEMPESAW vs CA
Facts: Gempesaw filed for recovery of the money value of 82 checks charged against her account due to forgery of
indorsements made by Alicia Galang, her trusted bookkeeper. In the normalcourse of her grocery business, it would be
Galang who would write the amounts in the check and Gempesaw would only sign the checks without ascertaining its
contents. The checks were depositedin the accounts of Romero and Lam, with the aggregate total amounting to 1.2
million pesos.

Gempesaw filed a case with the RTC which held that Gempesaw was negligent in handling her affairs by not
ascertaining the values of the payments and if indeed the payments reached the payees making forgery not a defense for
her to recover. The CA affirmed.

Issue: Whether or not the forgery entitles Gempesaw to reimbursement

Held: Partly Yes & No. The SC found that Gempesaw is indeednegligent which precludes her from raising the defense of
forgery. However, the SC, using Art. 1170 of the Civil Code, said that the bank becomes also liable for damages for
accepting the check with a second indorsement. It should be noted that in the current banking system, checks with
second indorsements are not generally accepted and given this fact, the Bank should also shoulder liability. Gempesaw
and the bank are liable 50-50 for the loss.
Associated Bank vs. Court of Appeals
FACTS:

Associated Banking Corporation and Citizens Bank and Trust Company (CBTC) merged to form just one banking
corporation known as Associated Citizens Bank (later renamed Associated Bank), the surviving bank. After the merger
agreement had been signed, but before a certificate of merger was issued, respondent Lorenzo Sarmiento, Jr. executed in
favor of Associated Bank a promissory note, promising to pay the bank P2.5 million on or before due date at 14% interest
per annum, among other accessory dues. For failure to pay the amount due, Sarmiento was sued by Associated Bank.

Respondent argued that the plaintiff is not the proper party in interest because the promissory note was executed in
favor of CBTC. Also, while respondent executed the promissory note in favor of CBTC, said note was a contract pour
autrui, one in favor of a third person who may demand its fulfillment. Also, respondent claimed that he received no
consideration for the promissory note and, in support thereof, cites petitioner's failure to submit any proof of his loan
application and of his actual receipt of the amount loaned.

ISSUE:

1.) Whether or not Associated Bank, the surviving corporation, may enforce the promissory note made by private
respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed, but before a
certificate of merger was issued?

2.) Whether or not the promissory note was a contract pour autrui and was issued without consideration?

HELD:

The petition is impressed with merit.

Associated Bank assumed all the rights of CBTC. Although absorbed corporations are dissolved, there is no winding up of
their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights,
privileges and powers, as well as their liabilities. The merger, however, does not become effective upon the mere
agreement of the constituent corporations. The Securities and Exchange Commission (SEC) and majority of the respective
stockholders of the constituent corporations must have approved the merger. (Section 79, Corporation Code) It will be
effective only upon the issuance by the SEC of a certificate of merger. Records do not show when the SEC approved the
merger.

But assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that petitioner no
longer has any interest in the promissory note. The agreement itself clearly provides that all contracts irrespective of
the date of execution entered into in the name of CBTC shall be understood as pertaining to the surviving bank, herein
petitioner. Such must have been deliberately included in the agreement in order to avoid giving the merger agreement a
farcical interpretation aimed at evading fulfillment of a due obligation. Thus, although the subject promissory note names
CBTC as the payee, the reference to CBTC in the note shall be construed, under the very provisions of the merger
agreement, as a reference to petitioner bank.

On the issue that the promissory note was a contract pour autrui and was issued without consideration, the Supreme
Court held it was not. In a contract pour autrui, an incidental benefit or interest, which another person gains, is not
sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. The "fairest
test" in determining whether the third person's interest in a contract is a stipulation pour autrui or merely an incidental
interest is to examine the intention of the parties as disclosed by their contract. It did not indicate that a benefit or
interest was created in favor of a third person. The instrument itself says nothing on the purpose of the loan, only the
terms of payment and the penalties in case of failure to pay.

Private respondent also claims that he received no consideration for the promissory note, citing petitioner's failure to
submit any proof of his loan application and of his actual receipt of the amount loaned. These arguments deserve no
merit. Res ipsa loquitur. The instrument, bearing the signature of private respondent, speaks for itself. Respondent
Sarmiento has not questioned the genuineness and due execution thereof. That he partially paid his obligation is itself an
express acknowledgment of his obligation.

WHEREFORE, the petition is GRANTED.