Case Summary (G.R. No. 177505)
Facts
- The Province of Tarlac maintained a current account with PNB and issued allotment checks in favor of Concepcion Emergency Hospital, signed by the Provincial Treasurer and countersigned by the Provincial Auditor or Sangguniang Bayan Secretary.
- Fausto Pangilinan, who retired as hospital cashier in February 1978, presented thirty such checks (1978–1981) to Associated Bank, deposited them into his personal savings account, and withdrew funds after PNB paid on forged indorsements of Dr. Canlas.
- Associated Bank stamped each check “All prior indorsements guaranteed,” then presented them to PNB, which paid them and debited the Province’s account.
- In early 1981, a post-audit uncovered the missing checks. The Province demanded restoration from PNB; PNB in turn sought reimbursement from Associated Bank. Both banks resisted, prompting suit by the Province against PNB, impleading Associated Bank; Associated Bank then impleaded Pangilinan and Canlas.
Procedural History
– RTC (Branch 64, Tarlac) held PNB liable to the Province for ₱203,300 with legal interest, and held Associated Bank liable to PNB for reimbursement of the same amount; impleaded individuals were dismissed.
– On appeal, the Court of Appeals affirmed in toto (Sept. 30, 1992).
– Both PNB and Associated Bank filed separate petitions for review before the Supreme Court.
Issue
Who must bear the loss arising from payment of checks bearing forged payee indorsements: the drawer (Province), the drawee bank (PNB), or the collecting bank (Associated Bank)? And in what proportions?
Applicable Law
– 1987 Philippine Constitution (governing disputes decided after 1987)
– Negotiable Instruments Law (NIL):
• Sec. 23 – A forged signature (drawer’s or payee’s) is wholly inoperative; the forger acquires no rights, and no party may enforce the instrument under a forged signature unless precluded.
• Sec. 66 – An indorser of an order instrument warrants the genuineness of all prior indorsements and the validity of the instrument at the time of indorsement.
– Central Bank Circular No. 580 (1981) – requires return of items bearing forged endorsements within 24 hours of discovery, but no later than prescriptive period for legal action.
– Philippine Clearing House Corporation Rules – not applicable to provincial banks at the time.
Analysis of Liability
Nature of Forged Indorsement:
– Checks were order instruments. A forged payee indorsement vitiates transfer of title. Under NIL Sec. 23, only the true payee can raise the defense of forgery, but parties who warrant genuineness (indorsers, including collecting banks) cannot set up forgery against subsequent holders.Drawee Bank’s Duty and Right to Recover:
– PNB, as drawee, is strictly liable to pay only to the lawful payee or holder duly entitled. Payment on forged indorsements is not payment to the payee, so PNB may not debit the drawer’s account but has a right to reimbursement from the presenting bank.
– PNB’s liability to the Province is excused only if the Province’s negligence substantially contributed to the forgeries or if PNB delayed notice such that the collecting bank was prejudiced.Collecting Bank’s Warranty and Liability:
– Associated Bank, by stamping “All prior indorsements guaranteed” and presenting the checks, made the statutory warranty under NIL Sec. 66. It thereby guaranteed the genuineness of all indorsements, including the forged one.
– Liability under Sec. 66 arises irrespective of the collecting bank’s fault: the last indorser bears the loss when a forged indorsement is paid.Drawer’s Negligence:
– The Province released successive allotment checks over nearly three years to Pangilinan, despite his retirement, and allowed two simultaneous representatives (Pangilinan and the duly appointed cashier) to collect. This irregularity should have aroused suspicion.
– Such failure of ordinary care substantially contributed to the loss and precludes the Province from recovering the full amount from PNB.Notice and Return Rules:
– Central Bank Circular No. 580 applied to PNB and Associated Ban
Case Syllabus (G.R. No. 177505)
Facts of the Case
- The Province of Tarlac maintained a current account with Philippine National Bank (PNB) Tarlac Branch, into which provincial funds—including allotments for Concepcion Emergency Hospital—were deposited.
- Allotment checks were issued to “Concepcion Emergency Hospital, Concepcion, Tarlac” or “The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac,” signed by the Provincial Treasurer and countersigned by the Provincial Auditor or Secretary of the Sangguniang Bayan.
- Fausto Pangilinan, former administrative officer and cashier of the hospital (retired February 28, 1978), obtained 30 allotment checks totaling ₱203,300.00 from the Provincial Treasurer’s Office between January 17, 1978 and February 10, 1981.
- Pangilinan forged the signature of Dr. Adena Canlas (hospital chief) on each check, deposited them in his personal savings account with Associated Bank (which stamped each item “All prior endorsements guaranteed ASSOCIATED BANK”), and eventually withdrew the funds after PNB paid the items.
- Discovery of missing checks occurred during a post-audit in January 1981; a formal demand for return of the cleared checks was made by the Provincial Treasurer on February 19, 1981.
Procedural History
- Province of Tarlac sued PNB for reimbursement of ₱203,300.00; PNB impleaded Associated Bank as third-party defendant, and Associated Bank filed a fourth-party complaint against Pangilinan and Canlas.
- The Regional Trial Court (Branch 64, Tarlac) on March 21, 1988:
- Ordered PNB to pay the Province ₱203,300.00 with legal interest from March 20, 1981.
- Ordered Associated Bank to reimburse PNB the same amount with interest.
- Dismissed fourth-party complaint against Canlas and Pangilinan and all counterclaims.
- Both PNB and Associated Bank appealed to the Court of Appeals, which on September 30, 1992 affirmed the trial court decision in toto.
- Consolidated petitions for review were filed with the Supreme Court (G.R. Nos. 107382 and 107612).
Issues Presented
- Who bears the loss when checks payable to order, bearing forged payee endorsements, are paid by the drawee bank?
- Whether the Province of Tarlac’s negligence in releasing checks to a retired cashier precludes its recovery.
- Whether PNB erred in ordering it first to pay the Province and then to seek reimbursement from Associated Bank.
- Whether Associated Bank should bear the entire loss under Central Bank Circular No. 580 rather than under Section 23 of the Philippine Clearing House Rules.
- Whether PNB, having stamped guarantees on prior endorsements, is estopped from claiming breach of warranty by Associated Bank.
Contentions of Philippine National Bank
- The Pr