Case Summary (G.R. No. 18657)
Key Dates and Applicable Law
- Drawing of check: May 3, 1920
- Discovery of forgery and demand for reimbursement: approximately four months after the transaction
- Applicable law: The Negotiable Instruments Law (Act No. 2031), specifically Section 23, governs the handling of forged signatures on negotiable instruments.
Factual Background and Transactions
The plaintiff drew a check for ₱2,000 payable to the order of Lazaro Melicor, drawn on HSBC, where the plaintiff held an account. Maasim obtained the check through fraudulent means, forged Melicor’s signature as endorser, and endorsed the check himself before depositing it at PNB. PNB credited Maasim’s account with the amount after cashing the check. The next day, PNB endorsed the check to HSBC, which then paid it and debited the plaintiff’s account accordingly. HSBC provided a bank statement to the plaintiff reflecting the debit, but no objections were raised at that time. Later, it was discovered that Melicor never received the check, and his endorsement was forged.
Legal Issues Presented
The central legal question is who bears responsibility for refunding the drawer—the plaintiff—when the check was paid after passing through a forged endorsement by a third party. Specifically, whether liability rests with the drawee bank (HSBC) or the last endorser bank (PNB), or the forger (Maasim).
Court’s Findings on the Forgery and Bank Responsibilities
The trial court found that Melicor's name was forged on the check and that Maasim unlawfully collected the proceeds. The court held that PNB could not be held liable because it accepted Maasim’s endorsement in good faith, and likewise, HSBC was not liable because it paid PNB, which was a holder in due course without notice of forgery. The court concluded that neither bank was responsible for the forgery or negligent in their respective transactions.
Legal Analysis of Liability under the Negotiable Instruments Law
The Supreme Court identified a fundamental error in the trial court's ruling, emphasizing that the check was drawn payable solely to Lazaro Melicor or his order, and the plaintiff did not authorize payment to any other person. The forgery of Melicor’s endorsement invalidated Maasim’s claim to the instrument. Under Section 23 of the Negotiable Instruments Law, a forged signature is wholly inoperative; no rights can be acquired under it against a party who was not complicit or estopped.
The bank statement reflecting the debit to the plaintiff’s account did not estop the plaintiff because the plaintiff had a right to assume Melicor's genuine endorsement, as the bank should not have paid without it. Unlike forgery of the drawer's signature—which requires prompt notification to release the bank from liability—here, the forgery is on the payee’s endorsement, and the burden lies with the endorsing banks to verify genuineness.
Obligations and Liabilities of Banks Involved
HSBC, as the drawee bank, had no legal right to pay the check to anyone other than the plaintiff or Melicor or his authorized endorser. Payment to Maasim,
...continue readingCase Syllabus (G.R. No. 18657)
Parties and Context of the Case
- The plaintiff is The Great Eastern Life Insurance Company, an insurance corporation licensed to do business in the Philippine Islands.
- The defendants are the Hongkong and Shanghai Banking Corporation (Hongkong Shanghai Bank) and the Philippine National Bank, both duly licensed banking corporations operating in the Philippines.
- The case arises from a forged endorsement and subsequent payment on a check drawn by the plaintiff on the Hongkong Shanghai Bank, payable to the order of Lazaro Melicor.
Facts of the Case
- On May 3, 1920, the plaintiff drew a check for P2,000 on its account with the Hongkong Shanghai Bank, payable to Lazaro Melicor or order.
- E. M. Maasim fraudulently obtained possession of the check, forged Lazaro Melicor's signature as endorser, personally endorsed the check, and presented it to the Philippine National Bank.
- The Philippine National Bank credited Maasim's private account with the amount from the check.
- The next day, the Philippine National Bank endorsed the same check to the Hongkong Shanghai Bank.
- The Hongkong Shanghai Bank paid the check and subsequently debited the plaintiff's account for P2,000.
- The Hongkong Shanghai Bank sent a bank statement to the plaintiff showing the debit, with no immediate objection from the plaintiff.
- Approximately four months later, the plaintiff discovered that Melicor had neither received the check nor endorsed it; the endorsement was a forgery by Maasim.
- Upon the plaintiff's demand for credit of the P2,000 from the Hongkong Shanghai Bank, the bank refused.
- The plaintiff filed this suit to recover the amount paid on the forged check.
- The Hongkong Shanghai Bank brought Philippine National Bank into the suit as an additional defendant.
- Both defendants deny liability; Hongkong Shanghai Bank sought indemnity from Philippine National Bank if found liable.
Issues Presented
- Who is responsible for reimbursing the drawer of a check drawn payable to order when a third party obtains payment by forging the payee’s endorsement?
- Is liability incumbent upon the drawee bank (Hongkong Shanghai Bank), the last indorser bank (Philippine National Bank), or solely upon the forger (E. M. Maasim)?
- Does the plaintiff’s failure to object to the bank statement that charged the forged check to its account estop it from contesting the payment?
Findings of the Trial Court
- The signature of Lazaro Melicor, the payee, was forged on the check.
- The check proceeds were collected by Maasim and never paid to Melicor.
- The Philippine National Bank, as payor to Maasim, had a genuine sign