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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 petitionerÊs
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 petitionerÊs 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

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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

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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

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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 petitionerÊs 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

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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 depositorÊs 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.

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The particulars of these checks are as follows:

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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

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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 petitionerÊs
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 complaint against
1
Ramirez
with the Office of the City Fiscal of Manila.
The respondentÊs cashier, Ramon Sarthou, upon receipt
of the latter of Inter-Island Gas dated August 31, 1959,
called up the petitionerÊs cashier, Manuel Garcia, and
advised the latter that in view of the circumstances he
would debit the value of the checks against the petitionerÊs
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

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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 petitionerÊs 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.

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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

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petitionerÊs 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
petitionerÊs 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
petitionerÊs 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 petitionerÊs 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 petitionerÊs 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 petitionerÊs account, so that
2
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 petitionerÊs 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
3
of the Negotiable Instruments Law (Act 2031)
states 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

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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 not4 having been properly
and legitimately converted into cash.
In Great
5
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 payeeÊs] 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

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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. PeopleÊs
Bank & Trust Co., 35 SCRA 141.
5 43 Phil. 678 (1922).

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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 to the6
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

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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 petitionerÊs 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 payeeÊs cashiersÊ
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

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as an indorser guaranteed the genuineness of all prior

indorsements thereon. The respondent which relied upon
the petitionerÊs 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 petitionerÊs cost.

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

concur.

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38 SUPREME COURT REPORTS ANNOTATED

Almeda vs. Villaluz

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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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