G.R. No. L-26001 - Philippine National Bank vs. Court of Appeals

Case Summary (G.R. No. L-26001)

Facts

Augusto Lim deposited GSIS Check No. 645915‑B for P57,415.00 in his current account with PCIB on January 15, 1962. PCIB stamped a back‑of‑check warranty reading, “All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank, Padre Faura Branch, Manila,” and forwarded the check for clearing through the Central Bank to the PNB (the drawee). PNB did not return the check and paid its amount to PCIB, debiting GSIS’s account. It was later determined that the signatures of the GSIS officers on the check were forged; accordingly, PNB re‑credited GSIS’s account on January 31, 1962 and, on February 2, 1962, demanded refund from PCIB. PCIB refused; PNB sued for recovery of P57,415.00. The trial court dismissed the complaint; the Court of Appeals affirmed. PNB sought review by certiorari.

Procedural Posture

The action originated in the Court of First Instance of Manila, which dismissed PNB’s complaint. The Court of Appeals affirmed the dismissal. PNB filed a petition for certiorari with the Supreme Court seeking reversal of the Court of Appeals’ decision.

Issues Presented

PNB raised six principal contentions: (1) PCIB was negligent in failing to discover the forgery; (2) the indorsements on the check’s back were forged; (3) PCIB’s back‑of‑check warranty renders PCIB liable to PNB; (4) “clearing” is not equivalent to “acceptance” under the Negotiable Instruments Law; (5) because the PNB had not accepted the check, it is entitled to reimbursement after discovery of forgery; and (6) PNB is therefore entitled to recover the paid amount from PCIB.

Indorsement Forgery Claim — Court’s Analysis

The Court rejected PNB’s contention that forged drawer signatures necessarily mean the indorsements were forged. The record contained no evidence proving the indorsements were spurious and PNB made no attempt to prove forgery of indorsements. Moreover, as a matter of law and banking practice, a drawee’s liability and right to recovery are not dependent on whether intermediate indorsements are forged, because the forgery of an indorsement is not the proximate cause of the loss to the drawee. The Court cited authorities supporting the proposition that the indorsement of an intermediate bank does not guarantee the signature of the drawer and that forgery of indorsements does not establish the drawee’s loss causation.

Warranty on the Back of the Check — Court’s Analysis

The PCIB’s stamped warranty guaranteed “all prior indorsements,” not the authenticity of the drawer’s signatures. GSIS was the drawer of the check, not an indorser; therefore the PCIB’s warranty could not be read as a guarantee of the genuineness of the drawer’s signatures. The warranty could have been invoked by a subsequent indorsee or holder in due course after the PCIB, but the PNB was neither. Once the drawee (PNB) paid the check, the instrument ceased to be a negotiable instrument for the drawee and became merely a voucher or proof of payment; the warranty on the check’s back was irrelevant to PNB’s position as drawee who paid and later refunded GSIS.

Acceptance, Clearing, and Payment — Court’s Analysis

The Court distinguished “acceptance” under the Negotiable Instruments Law from “payment” and from the act of clearing. Checks are payable on demand and ordinarily do not require acceptance in the statutory sense. Acceptance is the drawee’s signification of assent to the drawer’s order (a promise), whereas payment is the actual performance of that obligation. Clearing through the Central Bank and non‑return of a check under ordinary banking practice signified to the presenting bank that the drawee considered the check good and would honor it; but clearing per se is not equivalent to statutory acceptance. Actual payment by the drawee, however, constitutes performance and creates the legal consequences of payment.

Negligence and Proximate Cause — Court’s Analysis

Even if PCIB had been negligent in not detecting the forgery, the Court found that PNB was also negligent and more culpable. Critical facts: PNB had received GSIS’s prior formal notice (November 13, 1961) that the check was lost and a request to stop payment, and PNB acknowledged that notice. Despite this, when PCIB forwarded the check for clearing and PNB failed to return it, the PNB thereby indicated the check was good and would be honored; PNB then paid PCIB. PCIB permitted Lim to withdraw his credited funds only after PNB had paid. The Court held that PNB’s failure to act on the prior stop‑payment notice and its payment were the proximate cause of the loss, and that the loss must be borne by the party whose negligence was the proximate cause or who enabled the third party (the forger) to perpetrate the wrong. The Court further noted established pr

Case Syllabus (G.R. No. L-26001)

Citation and Procedural Posture

Reported as 134 Phil. 829, G.R. No. L-26001, decided October 29, 1968.
Petition for certiorari filed by Philippine National Bank (PNB) seeking review of a Court of Appeals decision which affirmed the dismissal by the Court of First Instance (CFI) of Manila of PNB’s complaint against Philippine Commercial and Industrial Bank (PCIB).
Trial court and Court of Appeals dismissed PNB’s action for recovery of P57,415.00; the Supreme Court (Concepcion, C.J.) affirmed with costs against PNB.

Parties and Roles

Petitioner: Philippine National Bank (PNB) — drawee bank and payor of the check in question.
Respondents: The Court of Appeals (as respondent in the certiorari proceeding) and Philippine Commercial and Industrial Bank (PCIB) — collecting/indorsing bank which presented the check for clearing and received payment.
Other relevant party: Government Service Insurance System (GSIS) — drawer of the check and original alleged payee’s employer; claimed the check was lost and that its officers’ signatures were forged.
Third persons named in the instrument: Mariano D. Pulido (payee named on face), Manuel Go (intermediate indorser), Augusto Lim (final holder who deposited the check).

Stipulated and Material Facts

On or about January 15, 1962, Augusto Lim deposited in his current account with PCIB (Padre Faura Branch, Manila) GSIS Check No. 645915-B for P57,415.00 drawn against PNB.
On the same date (Jan. 15, 1962) the PCIB forwarded the check, for clearing, through the Central Bank to PNB.
The PNB did not return the check the next day, or at any other time; instead it retained the check and paid its amount to PCIB and debited GSIS’s account in PNB.
Subsequently, on January 31, 1962, upon demand from GSIS, PNB re‑credited the sum of P57,415.00 to GSIS’s account because the signatures of GSIS officers on the check were forged.
On February 2, 1962, PNB demanded refund of the P57,415.00 from PCIB; PCIB refused.
The PCIB, upon receipt of the deposited check, stamped on its back: “All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank, Padre Faura Branch, Manila.”
Over two months earlier, on November 13, 1961, GSIS had notified PNB that the said check had been lost and requested that its payment be stopped; PNB acknowledged receipt of that notice.
It is undisputed that the signatures of the General Manager and the Auditor of GSIS on the check (as drawer) are forged.
It is also undisputed that the check purports to have been indorsed by Manuel Go to Augusto Lim, who deposited it with PCIB on January 15, 1962.
No evidence was offered, and PNB made no attempt to prove, that the indorsements on the back of the check were forged.

Relief Sought by Petitioner (PNB)

Recovery from PCIB of P57,415.00 allegedly paid to PCIB by PNB.
PNB’s assignments of error alleged below and pressed on appeal:
- (1) The lower courts erred in not finding PCIB guilty of negligence.
- (2) The lower courts erred in not finding that the indorsements on the back of the check are forged.
- (3) The lower courts erred in not finding PCIB liable to PNB by virtue of PCIB’s warranty stamped on the back of the check.
- (4) The lower courts erred in not holding that “clearing” is not “acceptance” under the Negotiable Instruments Law.
- (5) The lower courts erred in not finding that, since the check had not been accepted by PNB, PNB is entitled to reimbursement.
- (6) The lower courts erred in denying PNB’s right to recover from PCIB.

Court’s Findings on Indorsements and Forgery

The signatures of the drawer (GSIS officers) are forged; however, the conclusion that indorsements are likewise forged does not necessarily follow and there is no evidence proving such forgery.
PNB did not attempt to prove the indorsements were spurious.
The fact of forgery of the drawer’s signatures, and PNB’s refund to GSIS on that account, does not make forgery of the indorsements material to PNB’s liability as drawee or to its right to recover from PCIB.
As against the drawee, an indorsement by an intermediate bank does not guarantee the authenticity of the drawer’s signature; forgery of an indorsement is not the cause of the loss to the drawee in this case.

Court’s Analysis of the Warranty on the Back of the Check

The PCIB’s stamped warranty guaranteed “all prior indorsements and/or lack of endorsement,” i.e., it guaranteed the prior indorsements, not t