4/12/2021 PHILIPPINE REPORTS ANNOTATED VOLUME 043

[No. 18657. August 23, 1922]

THE GREAT EASTERN LIFE INSURANCE Co., plaintiff

and appellant, vs. HONGKONG & SHANGHAI BANKING
CORPORATION and PHILIPPINE NATIONAL BANK,
defendants and appellees.

1. LIABILITY OF BANKS ON THE FORGED

INDORSEMENT OF THE PAYEE OF A CHECK.—Where
an insurance company drew its check for P2,000 on the H,
& S. B. Corporation payable to the order of M, and a third
person fraudulently obtained possession of the check and
forged M's signature, as an endorser, and then per

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Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank

sonally endorsed and presented it to the P. N. Bank, by

which it was honored and the amount of the check placed
to his credit, and on the next day the P. N. Bank endorsed
the check to the H. & S. B. Corporation, which paid it and
charged the amount of the check to the insurance
company; Held: That the H. & S. B. Corporation was liable
to the insurance company for the amount of the check, and
that the P. N. Bank was in turn liable to the H. & S. B.
Corporation.

2. THE ONLY REMEDY OF A BANK PAYING A CHECK

TO A PERSON WHO HAS FORGED THE NAME OF
THE PAYEE IS AGAINST THE FOKGER.— Where a
check is drawn payable to the order of one person and is
presented to a bank by another and purports upon its face
to have been duly endorsed by the payee of the check, it is
the duty of the bank to know that the check was duly
endorsed by the original payee, and where the bank pays
the amount of the check to a third person, who has forged
the signature of the payee, the loss falls upon the bank
who cashed the check, and its only remedy is against the
person to whom it paid the money.

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APPEAL from a judgment of the Court of First lnstance of

Manila. Concepcion, J.
The facts are stated in the opinion of the court.
     Camus & Delgado for appellant.
     Fisher & DeWitt and A. M. Opisso for Hongkong and
Shanghai Bank.
     Roman J. Lacson f or Philippine National Bank.

STATEMENT

The plaintiff is an insurance corporation, and the

defendants are banking corporations, and each is duly
licensed to do its respective business in the Philippine
Islands.
May 3, 1920, the plaintiff drew its check for P2,000 on
the Hongkong and Shanghai Banking Corporation with
whom it had an account, payable to the order of Lazaro
Melicor. E. M. Maasim fraudulently obtained possession of
the check, forged Melicor's signature, as an endorser, and
then personally endorsed and presented it to the Philippine
National Bank where the amount of the check was placed
to his credit. After having paid the check, and on the next
day, the Philippine National Bank endorsed the check
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Great Eastern Life 1ns. Co. vs. Hongkong & Shanghai
Bank

to the Hongkong and Shanghai Banking Corporation,

which paid it, and charged the amount of the check to the
account of the plaintiff. In the ordinary course of business,
the Hongkong and Shanghai Banking Corporation
rendered a bank statement to the plaintiff showing that the
amount of the check was charged to its account, and 110
objection was then made to the statement. About four
months after the check was charged to the account of the
plaintiff, it developed that Lazaro Melicor, to whom the
check was made payable, had never received it, and that
his signature, as an endorser, was forged by Maasim, who
presented and deposited it to his private account in the
Philippine National Bank. With this knowledge, the
plaintiff promptly made a demand upon the Hongkong and
Shanghai Banking Corporation that it should be given
credit for the amount of the forged check, which the bank
refused to do, and the plaintiff commenced this action to
recover the P2,000 which was paid on the f orged check. On
the petition of the Shanghai Bank, the Philippine National
Bank was made defendant. The Shanghai Bank denies any
liability, but prays that, if a judgment should be rendered
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against it, in turn, it should have like judgment against the

Philippine National Bank which denies all liability to
either party.
Upon the issues being joined, a trial was had and
judgment was rendered against the plaintiff and in favor of
each of the def endants, f rom which the plaintiff appeals,
claiming that the court erred in dismissing the case,
notwithstanding its finding of fact, and in not rendering a
judgment in its f avor, as prayed f or in its complaint.

JOHNS, J.:

Thefe is no dispute about any of the findings of. fact made

by the trial court, and the plaintiff relies upon them f or a
reversal. Among other things, the trial court says:

"Who is responsible for the refund to the drawer of the amount of

the check drawn and payable to order, when its value was
collected by a third person by means of forgery of the signature of
the payee? Is it the drawee or the last

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Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank

indorser, who ignored the forgery at the time of making the

payment, or the forger?"

The lower court found that Melicor's name was forged to

the check. "So that the person to whose order the check was
issued did not receive the money, which was collected by E.
M. Maasim," and then says:

"Now then, the National Bank should not be held responsible for
the payment made to Maasim in good faith of the amount of the
check, because the indorsement of Maasim is unquestionable and
his signature perfectly genuine, and the bank was not obliged to
identify the signature of the former indorser. Neither could the
Hongkong and Shanghai Banking Corporation be held responsible
in making payment in good faith to the National Bank, because
the latter is a holder in due course of the check in question. In
other words, the two defendant banks can not be held civilly
responsible for the consequences of the falsification or forgery of
the signature of Lazaro Melicor, the National Bank having had no
notice of said f orgery in making payment to Maasim, nor the
Hongkong Bank in making payment to National Bank. Neither
bank incurred in any responsibility arising from that crime, nor
was either of the said banks by subsequent acts, guilty of
negligence or f ault."

This was fundamental error.

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Plaintiff's check was drawn on the Shanghai Bank

payable to the order of Melicor. In other words, the plaintiff
authorized and directed the Shanghai Bank to pay Melicor,
or his order, P2,000. It did not authorize or direct the bank
to pay the check to any other person than Melicor, or his
order, and the testimony is undisputed that Melicor never
did part with his title or endorse the check, and never
received any of its proceeds. Neither is the plaintiff
estopped or bound by the bank statement, which was made
to it by the Shanghai Bank. This is not a case where the
plaintiff's own signature was forged to one of its checks. In
such a case, the plaintiff would have known of the forgery,
and it would have been its duty to have promptly
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Great Eastern Life Ins. Co. vs. Hongkong & Shanghai
Bank

notified the bank of any forged signature, and any failure

on its part would have released the bank f rom any
liability. That is not this case. Here, the f orgery was that
of Melicor, who was the payee of the check, and the legal
presumption is that the bank would not honor the check
without the genuine endorsement of Melicor. In other
words, when the plaintiff received its bank statement, ,it
had a right to assume that Melicor had personally endorsed
the check, and that, otherwise, the bank would not have
paid it.
Section 23 of Act No. 2031, known as the Negotiable
Instruments Law, says:

"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."

That section is square in point.

The money was on deposit in the Shanghai Bank, and it
had no legal right to pay it out to anyone except the
plaintiff or its order. Here, the plaintiff ordered the
Shanghai Bank to pay the P2,000 to Melicor, and the
money was actually paid to Maasim and was never paid to
Melicor, and he never personally endorsed the check, or
authorized any one to endorse it for him, and the alleged
endorsement was a forgery. Hence, upon the undisputed
facts, it must follow that the Shanghai Bank has no defense
to this action.
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It is admitted that the Philippine National Bank cashed

the check upon a f orged signature, and placed the money
to the credit of Maasim, who was the forger. That the
Philippine National Bank then endorsed the check and
forwarded it to the Shanghai Bank by whom it was paid.
The Philippine National Bank had no license or authority
to pay the money to Maasim or anyone else upon a f orged
signature. It was its legal duty to know that Melicor's
endorsement

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People vs. Baguio

was genuine before cashing the check. Its remedy is

against Maasim to whom it paid the money.
The judgment of the lower court is reversed, and one will
be entered here in favor of the plaintiff and against the
Hongkong and Shanghai Banking Corporation for P2,000,
with interest thereon from November 8, 1920, at the rate of
6 per cent per annum, and the costs of this action, and a
corresponding judgment will be entered in favor of the
Hongkong and Shanghai Banking Corporation against the
Philippine National Bank for the same amount, together
with the amount of its costs in this action. So ordered.

     Araullo, C. J., Johnson, Street, Malcolm, Avanceña,

Villamor, Ostrand, and Romualdez, JJ., concur.

Judgment reversed.

___________

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