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ASSOCIATED BANK v. CA

FACTS:

In the first case, the Province of Tarlac maintained a current account with Philippine National Bank (PNB), where checks issued by the province were deposited. Fausto Pangilinan, the administrative officer and cashier of Concepcion Emergency Hospital, collected 30 checks from the office of the Provincial Treasurer. Pangilinan forged the signature of the chief of the hospital and encashed the checks with Associated Bank. The checks were paid and cleared by PNB. The Province of Tarlac filed a suit against PNB, while PNB impleaded Associated Bank as a third-party defendant. The lower court ruled in favor of the Province of Tarlac, and the appellate court affirmed the decision.

In the second case, the check payable to Millennium Enterprises, Inc. (Millennium) was deposited by Marissa Mayugo, an employee of Metropolitan Bank and Trust Company (Metrobank), who fraudulently indorsed the check and credited the proceeds to her personal account. Millennium demanded reimbursement from Metrobank. Metrobank argued that it should not be held liable for the loss due to the forgery, claiming that the forgery was committed by its own employee and that Millennium failed to exercise ordinary care in the selection and supervision of its employees. The trial court ruled in favor of Millennium, but the Court of Appeals reversed the decision, holding that Millennium's negligence substantially contributed to the forgery. Millennium filed a petition for review before the Supreme Court seeking to hold Metrobank liable for the loss caused by the forged indorsement.

ISSUES:

  1. Can the drawee bank debit the account of the drawer if it paid a check with a forged indorsement?

  2. Who can be held liable for the checks with forged indorsements?

  3. Whether the Province of Tarlac should be held liable for part of the total amount paid on the questioned checks.

  4. Whether PNB breached its duty to pay only according to the terms of the check and should bear part of the loss.

  5. Whether PNB can recover from the collecting bank.

  6. Whether PNB committed a negligent delay by not returning the forged checks to Associated Bank within twenty-four hours after the discovery of the forgery.

  7. Whether PNB is estopped from requiring reimbursement from Associated Bank because it paid and cleared the checks.

  8. Whether the mode of award directing PNB to return the amount of the checks to the Province of Tarlac and then directing Associated Bank to reimburse PNB is acceptable.

RULING:

  1. The drawee bank cannot debit the account of the drawer if it paid a check with a forged indorsement. The drawee bank may not pass liability back to the drawer and is not entitled to indemnification from the drawer.

  2. The collecting bank can be held liable for checks with forged indorsements. The collecting bank guarantees all prior indorsements, including the forged indorsement, and is accountable to the drawee bank. The loss falls on the party who took the check from the forger, or on the forger himself.

  3. The Province of Tarlac should be held liable for part of the total amount paid on the questioned checks. The failure of the Province to exercise due care and the irregularity in the release of the checks contributed to the loss and amounted to negligence.

  4. PNB breached its duty to pay only according to the terms of the check and should bear part of the loss. The checks were deposited by Fausto Pangilinan, who was not the payee, into his personal savings account. PNB should have verified his right to endorse the crossed checks and deposit the proceeds to his own account. PNB cannot escape liability.

  5. PNB can recover from the collecting bank. The collecting bank, Associated Bank, was found to be negligent in accepting the checks with forged endorsements. The collecting bank takes a risk on its depositor and should be held accountable for the checks deposited by its customers.

  6. PNB did not commit negligent delay. Although PNB did not return the questioned checks to Associated Bank within twenty-four hours as mandated by the rule, it provided prompt notice to Associated Bank and the latter bank was not prejudiced in going after the forger. PNB had to inspect the checks and conduct its own investigation, and it requested the Provincial Treasurer's office to return the checks for verification. Associated Bank was also furnished a copy of the Province's letter of demand to PNB. Therefore, PNB's failure to comply with the twenty-four-hour return rule did not prejudice Associated Bank.

  7. PNB is not estopped from requiring reimbursement from Associated Bank. Even if PNB cleared and paid the checks, it can still recover from Associated Bank. PNB's duty was to verify the genuineness of the drawer's signature and not the genuineness of the payee's indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify the genuineness of the payee's indorsement.

  8. The mode of award directing PNB to return the amount of the checks to the Province of Tarlac and then directing Associated Bank to reimburse PNB is acceptable. The Province of Tarlac is a client or customer of PNB, not of Associated Bank. There is no privity of contract between the drawer and the collecting bank.

PRINCIPLES:

  • The drawee bank has no right to reimbursement from the drawer if it paid a check with a forged indorsement.

  • The drawee bank may debit the account of the drawer if the drawer was negligent to the point of substantially contributing to the loss.

  • The drawee bank may pass liability back through the collection chain to the party who took from the forger and to the forger himself, if available.

  • The collecting bank is held liable for checks with forged indorsements and must return the money paid wrongfully by the drawee bank.

  • The collecting bank commits a breach of warranty if it indorses a check with a forged indorsement and will be accountable to the drawee bank regardless of fault.

  • The collecting bank generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements.

  • The drawee bank's duty is to verify the genuineness of the drawer's signature, not the indorsement.

  • The drawee bank can recover from the collecting bank the amount paid on a check with a forged indorsement.

  • The drawee bank must promptly inform the presentor of the forgery upon discovery, and if it delays in doing so, it forfeits its right to reimbursement.

  • If both the drawee bank and the drawer were negligent, the loss should be apportioned between them.

  • The drawee bank has a duty to pay only according to the terms of the check.

  • The collecting bank must verify the right of the depositor to endorse the checks and deposit the proceeds.

  • Negligence on the part of the drawee bank in informing the collecting bank of the forgery precludes it from claiming reimbursement.

  • Central Bank Circular No. 580, which mandates the return of items bearing a forged endorsement within 24 hours, was applicable at the time of the discovery of the forgery.

  • Collecting banks have the duty to promptly return forged checks to the drawee banks within twenty-four hours after the discovery of the forgery to give the collecting bank an opportunity to proceed against the forger. However, if prompt notice is given and the collecting bank is not prejudiced, the non-compliance with the twenty-four-hour return rule does not amount to negligent delay. (Applicable rule: Sec. 23 of the NIL)

  • The duty of the drawee bank is to verify the genuineness of the drawer's signature, while the duty of the collecting bank is to verify the genuineness of the payee's indorsement. If the collecting bank fails to verify the genuineness of the payee's indorsement, it can be held liable for any loss resulting from the forgery. (Applicable principle of bank liability)

  • Even if a check is cleared and paid by a bank, it can still recover from the collecting bank if the payee's indorsement is found to be forged. The duty to verify the genuineness of the payee's indorsement lies with the collecting bank. (Applicable principle of bank liability)

  • The mode of award in a case where there is no privity of contract between the drawer and the collecting bank, directing the drawee bank to return the amount of the checks to the drawer and then directing the collecting bank to reimburse the drawee bank, is acceptable. (Applicable principle in determining liability between drawee and collecting banks)

  • The right to speedy trial is not violated when the delay in the trial is primarily the fault of the accused or when the delay is merely the result of ordinary circumstances.

  • The right against double jeopardy does not apply if the accused has not been acquitted or convicted of the same offense.