Associated Bank v CA; G.R. Nos. 107382 & 107612; 31 Jan 1996; 252 SCRA 620

FACTS:
The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) where the provincial funds – including an appropriation for the Concepcion Emergency Hospital – are deposited. Checks are drawn against such account payable to the order of the said hospital, released by the Provincial Treasurer and received for the hospital by its administrative officer and cashier. Faustino Pangilinan was the hospital’s administrative officer and cashier until his retirement in February 28, 1978. However, it was later discovered that even after retirement Pangilinan was able to collect and encash thirty (30) checks with petitioner Bank by forging the indorsement of the chief of payee hospital. The Province sought from PNB the restoration of the amounts of the checks. PNB in turn demanded reimbursement from petitioner Bank. Both banks resisted payment.

ISSUE(S):
Whether or not petitioner Bank should bear the loss on forged indorsement.

RULING:
YES. A collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement. Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him. his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement.

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Category: Legal Chyme

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