VOL.

66, AUGUST 6, 1975 29

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Is.

*
No. L-29432. August 6, 1975.

JAI-ALAI CORPORATION OF THE PHILIPPINES, petitioner, vs.

BANK OF THE PHILIPPINE ISLANDS, respondent.

Negotiable Instruments Law; Checks; Banks; Agency; Where check is

deposited with a collecting bank relationship created is that of agency, not
creditor-debtor. Same rule follows where after drawee-bank paid the
collecting bank, it was found that signature of payee of checks was forged
by one who previously encashed them.—When the petitioner deposited the
checks with the respondent, the nature of the relationship created at that
stage was one of agency, that is, the bank was to collect from the drawee of
the checks the corresponding proceeds. It is true that the respondent had
already collected the proceeds of the checks when it debited the petitioner’s
account, so that following the rule in Gullas vs. Philippine National Bank it
might be argued that the relationship between the parties had become that of
creditor and debtor as to preclude the respondent from using the petitioner’s
funds to make payments not authorized by the latter. It is our view
nonetheless that no creditor-debtor relationship was created between the
parties. x x x Since under the foregoing provision of Section 23 of the
Negotiable Instruments Law, a forged signature in a negotiable instrument is
wholly inoperative and no right to discharge it or enforce its payment can be
acquired through or under the forged signature except against a party who
cannot invoke the forgery, it stands to reason, upon the facts of record, that
the respondent, as a collecting bank which indorsed the checks to the
drawee-banks for clearing, should be liable to the latter for reimbursement,
for, as found by the court a quo and by the appellate court, the indorsements
on the checks had been forged prior to their delivery to the petitioner. In
legal contemplation, therefore, the payments made by the drawee-banks to
the respondent on account of the said checks were ineffective; and, such
being the case, the relationship of creditor and debtor between petitioner and
the respondent had not been validly effected, the checks not having been
properly and legitimately converted into cash. In Great Eastern Life Ins. Co.
vs. Hongkong & Shanghai Bank, the Court rule that it is the obligation of
the collecting bank to reimburse the drawee-bank the value of the checks
subsequently found to contain the forged indorsement of the payee. The
reason is that the bank with which the check was deposited has, no right to
pay the sum stated therein to the forger “or anyone else upon a forged
signature.” x x x The petitioner must in turn shoulder the

_______________
 * FIRST DIVISION

30

30 SUPREME COURT REPORTS ANNOTATED

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Is.

loss of the amounts which the respondent, as its collecting agent, had to
reimburse to the drawee-banks.
Same; Same; Same; Same; Lapse of 3 months after collecting bank
obtained proceeds of checks from drawee-bank before it informed depositor
of fact checks were forged not material where collecting bank acted
promptly upon being informed of forgery. Moreover, depositor of a check as
indorser warrants that it is genuine and in all respects what it purports to
be.—We do not consider material for the purposes of the case at bar that
more than three months had elapsed since the proceeds of the checks in
question were collected by respondent. The records shows that the
respondent had acted promptly after being informed that the indorsements
on the checks were forged. Moreover having received the checks merely for
collection and deposit, the respondent cannot be expected to know or
ascertain the genuineness of all prior indorsements on the said checks.
Indeed, having itself indorsed them to the respondent in accordance with the
rules and practices of commercial banks, of which the Court takes due
cognizance, the petitioner is deemed to have given the warranty prescribed
in Section 66 of the Negotiable Instruments Law that every single one of
those checks “is genuine and in all respects what it purports to be.”
Same; Same; Same; Same; One who accepts and encashes a check
from an individual knowing that the payee is a corporation does so at his
peril.—The petitioner was, moreover, grossly recreant in accepting the
checks in questions from Ramirez. It could not have escaped the attention of
the petitioner that the payee of all the checks was a corporation—the Inter-
Island Gas Service, Inc. Yet, the petitioner cashed these checks, to a mere
individual who was admittedly a habitue at its jai-alai games without
making any inquiry as to his authority to exchange checks belonging to the
payee-corporation. x x x Any person taking checks made payable to a
corporation, which can act only by agents, does so at his peril, and must
abide by the consequences if the agent who indorses the same is without
authority. It must be noted further that three of the checks in question are
crossed checks, namely, exhs. 21, 25 and 27, which may only be deposited,
but not encashed; yet, petitioner negligently accepted them for cash. That
two of the crossed checks, namely, exhs. 21 and 25, are bearer instruments
would not, in our view, exculpate the petitioner from liability with respect to
them. The fact that they are bearer checks and at the same time crossed
checks should have aroused the petitioner’s suspicion as to the title of
Ramirez over them and his authority to cash them (apparently to purchase
jai-alai tickets from the petitioner), it appearing on their face that a corporate
entity—the Inter-Island Gas Service, Inc.—was the payee thereof.
 31

VOL. 66, AUGUST 6, 1975 31

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Is.

Same; One who indorses a bearer instrument incurs liability of general

indorser that instrument is genuine.—At all events, under Section 67 of the
Negotiable Instruments Law, “Where a person places his indorsement on an
instrument negotiable by delivery he incurs all the liability of an indorser,”
and under Section 66 of the same statute a general indorser warrants that the
instrument” is genuine and in all respects what it purports to be.”
Same; Contracts; Banks; Checks; Provision in deposit slip that bank
reserves to itself right to charge back item to account of its depositor at any
time before current funds actually received by Bank does not negate right of
Bank to debit depositor’s account for value of forged checks after drawee-
bank had paid the collecting bank because the transfer of funds from
drawee-bank to collecting bank in such cases is ineffectual.—The provision
in the deposit slip issued by the respondent which stipulates that it “reserves
to itself, the right to charge back the item to the account of its depositor”, at
any time before “current funds or solvent credits shall have been actually
received by the Bank,” would not materially affect the conclusion we have
reached. That stipulation prescribes that there must be an actual receipt by
the bank of current funds or solvent credits; but as we have earlier indicated
the transfer by the drawee-banks of funds to the respondent on account of
the checks in question was ineffectual because made under the mistaken and
valid assumption that the indorsements of the payee thereon were genuine. x
x x There was, therefore, in contemplation of law, no valid payment of
money made by the drawee-banks to the respondent on account of the
questioned checks.

PETITION for review of the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Bausa, Ampil & Suarez for petitioner.
     Aviado & Aranda for respondent.

CASTRO, J.:

This is a petition by the Jai-Alai Corporation of the Philippines

(hereinafter referred to as the petitioner) for review of the decision
of the Court of Appeals in C.A.-G.R. 34042-R dated June 25, 1968
in favor of the Bank of the Philippine Islands (hereinafter referred to
as the respondent).
From April 2, 1959 to May 18, 1959, ten checks with a total face
value of P8,030.58 were deposited by the petitioner in its current
account with the respondent bank. The particulars of these checks
are as follows:

32
32 SUPREME COURT REPORTS ANNOTATED
Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Is.

1. Drawn by the Delta Engineering Service upon the Pacific

Banking Corporation and payable to the Inter-Island Gas
Service, Inc. or order:

Date Check Exhibit Amount

Deposited Number Number
4/2/59 B-352680 P 500.00 18
4/20/59 A-156907 372.32 19
4/24/59 A-156924 397.82 20
5/4/59 B-364764 250.00 23
5/6/59 B-364775 250.00 24

2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking
Corporation and payable to the Inter-Island Gas Service, Inc. or
bearer:

4/13/59 B-335063 P2108.70 21

4/27/59 B-335072 P2210.94 22

3. Drawn by the Luzon Tinsmith & Company upon the China

Banking Corporation and payable to the Inter-Island Gas Service,
Inc. or bearer:

5/18/59 VN430188 P 940.80 25

4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine

National Bank and payable to the Inter-Island Gas Service, Inc. or
oder:

5/14/59 1860160 P 500.00 26

5/18/59 1860660 P 500.00 27

All the foreoing checks, which were acquired by the petitioner from
one Antonio J. Ramirez, a sales agent of the Inter-Island Gas and a
regular bettor at jai-alai games, were, upon deposit, temporarily
credited to the petitioner’s account in accordance with the clause
printed on the deposit slips issued by the respondent and which
reads:

“Any credit allowed the depositor on the books of the Bank for checks or
drafts hereby received for deposit, is provisional only, until such time as the
proceeds thereof, in current funds or solvent credits, shall have been actually
received by the Bank and the latter reserves to itself the right to charge back
the item to the account of its depositor, at any time before that event,
regardless of whether or not the item itself can be returned.”

33
 VOL. 66, AUGUST 6, 1975 33
Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Is.

About the latter part of July 1959, after Ramirez had resigned from
the Inter-Island Gas and after the checks had been submitted to inter-
bank clearing, the Inter-Island Gas discovered that all the
indorsements made on the checks purportedly by its cashiers,
Santiago Amplayo and Vicenta Mucor (who were merely authorized
to deposit checks issued payable to the said company) as well as the
rubber stamp impression thereon reading “Inter-Island Gas Service,
Inc.,” were forgeries. In due time, the Inter-Island Gas advised the
petitioner, the respondent, the drawers and the drawee-banks of the
said checks about the forgeries, and filed a criminal complaint1
against Ramirez with the Office of the City Fiscal of Manila.
The respondent’s cashier, Ramon Sarthou, upon receipt of the
latter of Inter-Island Gas dated August 31, 1959, called up the
petitioner’s cashier, Manuel Garcia, and advised the latter that in
view of the circumstances he would debit the value of the checks
against the petitioner’s account as soon as they were returned by the
respective drawee-banks.
Meanwhile, the drawers of the checks, having been notified of
the forgeries, demanded reimbursement to their respective accounts
from the drawee-banks, which in turn demanded from the
respondent, as collecting bank, the return of the amounts they had
paid on account thereof. When the drawee-banks returned the checks
to the respondent, the latter paid their value which the former in turn
paid to the Inter-Island Gas. The respondent, for its part, debited the
petitioner’s current account and forwarded to the latter the checks
containing the forged indorsements, which the petitioner, however,
refused to accept.
On October 8, 1959 the petitioner drew against its current
account with the respondent a check for P135,000 payable to the
order of the Mariano Olondriz y Cia. in payment of certain shares of
stock. The check was, however, dishonored by the respondent as its
records showed that as of October 8, 1959 the current account of the
petitioner, after netting out the value of the checks P8,030.58) with
the forged indorsements, had a balance of only P128,257.65.

_______________

1 The City Fiscal dropped the charges on the ground that the Inter-Island Gas
which was later reimbursed by the drawee-banks, was no longer qualified to be
regarded as an offended party which could properly file a complaint against Ramirez
because it had not suffered any damage at all.

34

34 SUPREME COURT REPORTS ANNOTATED

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Is.
The petitioner then filed a complaint against the respondent with the
Court of First Instance of Manila, which was however dismissed by
the trial court after due trial, and as well by the Court of Appeals, on
appeal.
Hence, the present recourse.
The issues posed by the petitioner in the instant petition may be
briefly stated as follows:

(a) Whether the respondent had the right to debit the

petitioner’s current account in the amount corresponding to
the total value of the checks in question after more than
three months had elapsed from the date their value was
credited to the petitioner’s account:
(b) Whether the respondent is estopped from claiming that the
amount of P8,030.58, representing the total value of the
checks with the forged indorsements, had not been properly
credited to the petitioner’s account, since the same had
already been paid by the drawee-banks and received in due
course by the respondent; and
(c) On the assumption that the respondent had improperly
debited the petitioner’s current account, whether the latter is
entitled to damages.

These three issues interlock and will be resolved jointly.

In our opinion, the respondent acted within legal bounds when it
debited the petitioner’s account. When the petitioner deposited the
checks with the respondent, the nature of the relationship created at
that stage was one of agency, that is, the bank was to collect from
the drawees of the checks the corresponding proceeds. It is true that
the respondent had already collected the proceeds of the checks
when it debited the petitioner’s account, so that following the rule in
2
Gullas vs. Philippine National Bank it might be argued that the
relationship between the parties had become that of creditor and
debtor as to preclude the respondent from using the petitioner’s
funds to make payments not authorized by the latter. It is our view
nonetheless that no creditor-debtor relationship was created between
the parties.
Section 23 of the Negotiable Instruments Law (Act 2031) states
3
that —

_______________

2 62 Phil. 519 (1935).

3 A bank check is a negotiable instrument and is governed by the Negotiable
Instruments Law (Ang Tiong vs. Ting, 22 SCRA 713).

35

VOL. 66, AUGUST 6, 1975 35

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Is.
“When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.”

Since under the foregoing provision, a forged signature in a

negotiable instrument is wholly inoperative and no right to discharge
it or enforce its payment can be acquired through or under the forged
signature except against a party who cannot invoke the forgery, it
stands to reason, upon the facts of record, that the respondent, as a
collecting bank which indorsed the checks to the drawee-banks for
clearing, should be liable to the latter for reimbursement, for, as
found by the court a quo and by the appellate court, the
indorsements on the checks had been forged prior to their delivery to
the petitioner. In legal contemplation, therefore, the payments made
by the draweebanks to the respondent on account of the said checks
were ineffective; and, such being the case, the relationship of
creditor and debtor between the petitioner and the respondent had
not been validly effected, the checks
4
not having been properly and
legitimately converted into cash.
5
In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank,
the Court ruled that it is the obligation of the collecting bank to
reimburse the drawee-bank the value of the checks subsequently
found to contain the forged indorsement of the payee. The reason is
that the bank with which the check was deposited has no right to pay
the sum stated therein to the forger “or anyone else upon a forged
signature.” “It was its duty to know,” said the Court, “that [the
payee’s] endorsement was genuine before cashing the check.” The
petitioner must in turn shoulder the loss of the amounts which the
respondent, as its collecting agent, had to reimburse to the drawee-
banks.
We do not consider material for the purposes of the case at bar
that more than three months had elapsed since the proceeds of the
checks in question were collected by the respondent. The

_______________

4 The collecting bank may certainly set up as defense the socalled “24-hour
clearing house rule” of the Central Bank. This rule is not, however, invoked here. See
Hongkong & Shanghai Banking Corp. vs. People’s Bank & Trust Co., 35 SCRA 141.
5 43 Phil. 678 (1922).

36

36 SUPREME COURT REPORTS ANNOTATED

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Is.

record shows that the respondent had acted promptly after being
informed that the indorsements on the checks were forged.
Moreover, having received the checks merely for collection and
deposit, the respondent cannot be expected to know or ascertain the
genuineness of all prior indorsements on the said checks. Indeed,
having itself indorsed them to the respondent in accordance with the
rules and practices of commercial banks, of which the Court takes
due cognizance, the petitioner is deemed to have given the warranty
prescribed in Section 66 of the Negotiable Instruments Law that
every single one of those checks “is genuine and in all respects what
it purports to be.”
The petitioner was, moreover, grossly recreant in accepting the
checks in question from Ramirez. It could not have escaped the
attention of the petitioner that the payee of all the checks was a
corporation—the Inter-Island Gas Service, Inc. Yet, the petitioner
cashed these checks to a mere individual who was admittedly a
habitue at its jai-alai games without making any inquiry as to his
authority to exchange checks belonging
6
to the payee-corporation. In
Insular Drug Co. vs. National the Court made the pronouncement
that

“. . . The right of an agent to indorse commercial paper is a very responsible

power and will not be lightly inferred. A salesman with authority to collect
money belonging to his principal does not have the implied authority to
indorse checks received in payment. Any person taking checks made
payable to a corporation, which can act only by agents, does so at his peril,
and must abide by the consequences if the agent who indorses the same is
without authority.” (underscoring supplied)

It must be noted further that three of the checks in question are

crossed checks, namely, exhs. 21, 25 and 27, which may only be
deposited, but not encashed; yet, the petitioner negligently accepted
them for cash. That two of the crossed checks, namely, exhs. 21 and
25, are bearer instruments would not, in our view, exculpate the
petitioner from liability with respect to them. The fact that they are
bearer checks and at the same time crossed checks should have
aroused the petitioner’s suspicion as to the title of Ramirez over
them and his authority to cash them (apparently to purchase jai-alai
tickets from the petitioner), it appearing on their face that a
corporate entity—the Inter-

_______________

6 58 Phil. 685 (1933).

37

VOL. 66, AUGUST 6, 1975 37

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Is.

Island Gas Service, Inc.—was the payee thereof and Ramirez

delivered the said checks to the petitioner ostensibly on the strength
of the payee’s cashiers’ indorsements.
At all events, under Section 67 of the Negotiable Instruments
Law, “Where a person places his indorsement on an instrument
negotiable by delivery he incurs all the liability of an indorser,” and
under Section 66 of the same statute a general indorser warrants that
the instrument “is genuine and in all respects what it purports to be.”
Considering that the petitioner indorsed the said checks when it
deposited them with the respondent, the petitioner as an indorser
guaranteed the genuineness of all prior indorsements thereon. The
respondent which relied upon the petitioner’s warranty should not be
held liable for the resulting loss. This conclusion applied similarly to
exh. 22 which is an uncrossed bearer instrument, for under Section
65 of the Negotiable Instrument Law. “Every person negotiating an
instrument by delivery. . . warrants (a) That the instrument is
genuine and in all respects what it purports to be.” Under that same
section this warranty “extends in favor of no holder other than the
immediate transferee,” which, in the case at bar, would be the
respondent.
The provision in the deposit slip issued by the respondent which
stipulates that it “reserves to itself the right to charge back the item
to the account of its depositor,” at any time before “current funds or
solvent credits shall have been actually received by the Bank,”
would not materially affect the conclusion we have reached. That
stipulation prescribes that there must be an actual receipt by the
bank of current funds or solvent credits; but as we have earlier
indicated the transfer by the drawee-banks of funds to the
respondent on account of the checks in question was ineffectual
because made under the mistaken and valid assumption that the
indorsements of the payee thereon were genuine. Under article 2154
of the New Civil Code “If something is received when there is no
right to demand it and it was unduly delivered through mistake, the
obligation to return it arises.” There was, therefore, in contemplation
of law, no valid payment of money made by the drawee-banks to the
respondent on account of the questioned checks.
ACCORDINGLY, the judgment of the Court of Appeals is
affirmed, at petitioner’s cost.

     Makasiar, Esguerra, Muñoz Palma and Martin, JJ., concur.

38

38 SUPREME COURT REPORTS ANNOTATED

Almeda vs. Villaluz

     Teehankee, J., is on leave.

Judgment affirmed.

Notes.—Under Section 17(g) of the Negotiable Instruments Law

and Article 1216 of the new Civil Code, where a promissory note
was executed jointly and severally by two or more persons, the
payee of the promissory note has the right to hold any one or any
two of the signers responsible for the payment of the amount of the
said note. (Philippine National Bank vs. Concepcion Mining Co.,
Inc., 5 SCRA 745).
 Section 63 of the Negotiable Instruments Law makes a person
“placing his signature upon an instrument otherwise than that as
maker, drawer or acceptor” a general indorser “unless he clearly
indicates by appropriate words his intention to be bound in some
other capacity.” (Ang Tiong vs. Ting, 22 SCRA 713).
It is not a valid defense that the accommodation party did not
receive any valuable consideration when he executed the instrument.
It is not correct to say either that the holder for value is not a holder
in due course merely because at the time he acquired the instrument,
he knew that the indorser was only an accommodation party. (Ibid.)
A promissory note payable “on demand” is immediately
demandable and action thereon prescribes within ten years. (Pay vs.
vda. de Palanca, 57 SCRA 618).
Postal money orders are not negotiable instruments. (Philippine
Education Co., Inc. vs. Soriano, 39 SCRA 587).

——o0o——

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