Associated Bank vs.

CA Facts: The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks drawn against its account with the Philippine National Bank (PNB). These checks were drawn payable to the order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He used to handle checks issued by the provincial government of Tarlac to the said hospital. However, after his retirement, the provincial government still delivered checks to him until its discovery of this irregularity in 1981. By forging the signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan was able to deposit 30 checks amounting to P203k to his account with the Associated Bank. When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the said amount. PNB in turn demanded Associated Bank to reimburse said amount. PNB averred that Associated Bank is liable to reimburse because of its indorsement borne on the face of the checks: All prior endorsements guaranteed Associated Bank. Issue: What are the liabilities of the parties? Ruling: Liability of Associated Bank Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holders indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. A collecting bank (in this case Associated Bank) where a check is deposited and which indorses the check upon presentment with the drawee bank (PNB), is such an indorser. So even if the indorsement on the check deposited by the bankss client is forged, Associated Bank is bound by its warranties as an indorser and cannot set up the defense of forgery as against the PNB. EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in notifying the collecting bank (Associated Bank) of the fact of the forgery so much so that the latter can no longer collect reimbursement from the depositor-forger. Liability of PNB The bank on which a check is drawn, known as the drawee bank (PNB), is under strict liability to pay the check to the order of the payee (Provincial Government of Tarlac). Payment under a forged indorsement is not to the drawers order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customers (th e drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule then is that the drawee bank may not debit the drawers account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank.

EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer (Tarlac Province) to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. In sum, by reason of Associated Banks indorsement and warranties of prior indorsements as a party after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask reimbursement from PNB because the Province is a party prior to the forgery. Hence, the instrument is inoperative. HOWEVER, it has been proven that the Provincial Government of Tarlac has been negligent in issuing the checks especially when it continued to deliver the checks to Pangilinan even when he already retired. Due to this contributory negligence, PNB is only ordered to pay 50% of the amount or half of P203 K. BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated Banks warranties), PNB can ask the 50% reimbursement from Associated Bank. Associated Bank can ask reimbursement from Pangilinan but unfortunately in this case, the court did not acquire jurisdiction over him.

There is a distinction on forged indorsements with regard bearer instruments and instruments payable to order. With instruments payable to bearer, 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 holder in due course. In instruments payable to order, the signature of the rightful holder is essential to transfer title to the same instrument. When the holders signature is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. In connection to this, an indorser warrants that the instrument is genuine. A collecting bank is such an indorser. So even if the indorsement 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. Furthermore, in cases involving checks with forged indorsements, such as the case at bar, the chain of liability doesn't end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and of course, the forger himself, if available. In other words, the drawee bank can seek reimbursement or a return of the amount it paid from the collecting bank or person. The collecting bank generally suffers the loss because it has te duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the indorsements. With regard the issue of delay, a delay in informing the bank of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence on the part of the drawee bank and will preclude it from claiming reimbursement. In this case, PNB wasn't guilty of any negligent delay. Its delay hasn't prejudiced Associated Bank in any way because even if there wasn't delay, the fact that there was nothing left of the account of Pangilinan, there couldn't be anymore reimbursement.

Dela Victoria vs. Burgos

Facts: Raul Sebreo filed a complaint for damages against Fiscal Bienvenido Mabanto Jr. of Cebu City. Sebreo won and he was awarded the payment of damages. Judge Burgos ordered De La Victoria, custodian of the paychecks of Mabanto, to hold the checks and convey them to Sebreo instead. De La Victoria assailed the order as he said that the paychecks and the amount thereon are not yet the property of Mabanto because they are not yet delivered to him; that since there is no delivery of the checks to Mabanto, the checks are still part of the public funds; and the checks due to the foregoing cannot be the proper subject of garnishment. Ruling: Garnishment is considered as the species of attachment for reaching credits belonging to the judgment debtor owing to him from a stranger in litigation. Emphasis is laid on the phrase belonging to the judgment debtor since it is the focal point of resolving the issues raised. As Assistant City Fiscal, the source of Mabantos salary is public funds. Under Section 16 of the NIL, every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof. The petitioner is the custodian of the checks. Inasmuch as said checks were in the custody of the petitioner and not yet delivered to Mabanto, they didn't belong to him and still had the character of public funds. The salary check of a government officer or employee doesn't belong to him before it has been physically delivered to him. Until that time the check belongs to the government. Accordingly, before there is actual delivery of the check, the payee has no power over it, he cannot assign it without the consent of the government. If public funds would be allowed to be garnished, then basic services of the government may be hampered.

Philippine Commercial International Bank vs. CA Facts: There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford and Citibank), G.R. No. 121479 (Ford vs CA and Citibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA). G.R. No. 121413/G.R. No. 121479 In October 1977, Ford Philippines drew a Citibank check in the amount of P4,746,114.41 in favor of the Commissioner of the Internal Revenue (CIR). The check represents Fords tax payment for the third quarter of 1977. On the face of the check was written Payees account only which means th at the check cannot be encashed and can only be deposited with the CIRs savings account (which is with Metrobank).

The said check was however presented to PCIB and PCIB accepted the same. PCIB then indorsed the check for clearing to Citibank. Citibank cleared the check and paid PCIB P4,746,114.41. CIR later informed Ford that it never received the tax payment. An investigation ensued and it was discovered that Fords accountant Godofredo Rivera, when the check was deposited with PCIB, recalled the check since there was allegedly an error in the computation of the tax to be paid. PCIB, as instructed by Rivera, replaced the check with two of its managers checks. It was further discovered that Rivera was actually a member of a syndicate and the managers checks were subsequently deposited with the Pacific Banking Corporation by other members of the syndicate. Thereafter, Rivera and the other members became fugitives of justice. G.R. No. 128604 In July 1978 and in April 1979, Ford drew two checks in the amounts of P5,851,706.37 and P6,311,591.73 respectively. Both checks are again for tax payments. Both checks are for Payees account only or for the CIRs bank savings account only with Metr obank. Again, these checks never reached the CIR. In an investigation, it was found that these checks were embezzled by the same syndicate to which Rivera was a member. It was established that an employee of PCIB, also a member of the syndicate, created a PCIB account under a fictitious name upon which the two checks, through high end manipulation, were deposited. PCIB unwittingly endorsed the checks to Citibank which the latter cleared. Upon clearing, the amount was withdrawn from the fictitious account by syndicate members. ISSUE: What are the liabilities of each party? Has Ford the right to recover the value of the checks intended as payment to CIR? HELD: G.R. No. 121413/G.R. No. 121479 PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has been negligent in verifying the authority of Rivera to negotiate the check. It failed to ascertain whether or not Rivera can validly recall the check and have them be replaced with PCIBs managers checks as in fact, Ford has no knowledge and did not authorize such. A bank (in this case PCIB) which cashes a check drawn upon another bank (in this case Citibank), without requiring proof as to the identity of persons presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third party. Hence, PCIB is liable for the amount of the embezzled check. G.R. No. 128604 PCIB and Citibank are liable for the amount of the checks on a 50-50 basis. As a general rule, a bank is liable for the negligent or tortuous act of its employees within the course and apparent scope of their employment or authority. Hence, PCIB is liable for the fraudulent act of its employee who set up the savings account under a fictitious name. Citibank is likewise liable because it was negligent in the performance of its obligations with respect to its agreement with Ford. The checks which were drawn against Fords account with Citibank clearly states that they are payable to the CIR only yet Citibank delivered said payments to PCIB. Citibank however argues that the checks were indorsed by PCIB to Citibank and that the latter has nothing to do but to pay it. The Supreme Court cited Section 62 of the Negotiable Instruments Law which mandates the Citibank,

as an acceptor of the checks, to engage in paying the checks according to the tenor of the acceptance which is to deliver the payment to the payees account only. But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are not the only negligent parties. Ford is also negligent for failing to examine its passbook in a timely manner which could have avoided further loss. But this negligence is not the proximate cause of the loss but is merely contributory. Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of interest, with which PCIB and Citibank is to pay Ford, is lowered from 12% to 6% per annum. It should be resolved if Ford is guilty of the imputed contributory negligence that would defeat its claim for reimbursement, bearing in mind that its employees were among the members of the syndicate. It appears although the employees of Ford initiated the transactions attributable to the organized syndicate, their actions were not the proximate cause of encashing the checks payable to CIR. The degree of Fords negligence couldnt be characterized as the proximate cause of the injury to parties. The mere fact that the forgery was committed by a drawer-payors confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, doesnt entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer.