PHILIPPINE NATIONAL BANK v.THE NATIONAL CITY BANK OF NEW YORK, and MOTOR SERVICE COMPANY, INC.G.R. No. L-43596 October 31, 1936

FACTS: In April 1933, unknown persons negotiated with Motor Services Company two

checks, which were part of the stipulation in payment of automobile tires purchased from the store of the defendant. It was allegedly issued by Pangasinan Transportation Company against PNB in favor of the International Auto Repair Shop. The said checks were indorsed at the back however, by said unknown persons. The Motor company therefore believed at that time that the signatures contained therein were genuine. The checks were later deposited with the company’s account in National City Bank of NY. The said checks were consequently cleared and PNB credited National City Bank of NY with the amounts thereof. Thereafter, PNB discovered that the signatures were forged and it demanded the reimbursement of the amounts for which it credited the other bank. It demanded from the defendants the reimbursement of the amounts for which it credited National City Bank of NY and for which the latter credited the Motor Service Co., but they refused to make such reimbursements. Hence this case filed by PNB.

ISSUE: Whether PNB can recover reimbursements from Motor Service. Co.

HELD: Yes.In cases like this, the party guilty of negligence bears the loss. In order to entitle a

holder to payment of a forged check, the holder must 1) prove that the responsibility of determining the genuineness of the signature is upon the drawee 2) he was diligent in handling the check. In this case, Motor Service Co was negligent. The bank was only guilty of constructive fault. Motor Service Co on the other hand had several faults. In the two checks that were indorsed, the check that was later presented to Motor Services bears a check number that is earlier than the one presented in an earlier transaction. Motor Services failed to check it. They also took the check from an unknown person. International Auto Repair Shop is a company and in such situation, it must inquire as to the authority of the one indorsing.

Section 23 of the Negotiable Instruments Act provides that "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. PNB did not warrant to MCSI the genuineness of the checks in question, by its acceptance thereof, nor did it perform any act which would have induced MSCI to believe in the genuineness. Therefore, PNB is not precluded from putting up the defense of forgery. It did not warrant the genuineness of the signature when it paid the check and it did not induce the appellant to believe the genuineness of the signature. They can recover reimbursements.