GR L-40796, 31 July 1975

-forgery

FACTS:
Respondent Ebrada encashed a back pay check dated January 15, 1963 at Republic
Bank. The Bureau of Treasury, which issued the check advised the bank that the
alleged indorsement of the check by one “Martin Lorenzo” was a forgery as the latter
has been dead since 14 July 1952; and requested that it be refunded he sum deducted
from its account. The bank refunded the amount to the Bureau and demanded upon
Ebrada the sum in question, who refused.

ISSUES:
1) Whether the bank can recover from Ebrada who was the last indorser of
the check with the forged indorsement.
2) Whether the existence of one forged signature in the check will render
void all the other negotiations of the check with respect to the other parties whose
signature are genuine.

RULING:
1) Republic Bank should suffer the loss when it paid the amount of the check
in question to Ebrada but it has the remedy to recover from the latter the amount it
paid to her because as last indorser of the check, she has warranted that she has good
title to it even if in fact she did not because the payee of the check was already dead
11 years before the check was issued.
2) The negotiation of the check in question from Martin Lorenzo, the original
payee whose indorsement was forged, to the second indorser, should be declared of
no affect, but the negotiation of the aforesaid check from the second indorser to the
third indorser, and from the third indorser to Ebrada who did not know of the forgery,
should be considered valid and enforceable, barring any claim of forgery.

MWSS vs. COURT OF APPEALS (G.R. No. L-62943 July 14, 1986)
Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB.
When it was still called NAWASA, MWSS made a special arrangement with PNB so
that it may have personalized checks to be printed Mesina Enterprises. These
personalized checks are the ones being used by MWSS in its business transactions.

From March to May 1969, MWSS issued 23 checks to various payees in the
aggregate amount of P320,636.26. During the same months, another set of 23 checks
containing the same check numbers earlier issued were forged. The aggregate amount
of the forged checks amounted to P3,457,903.00. This amount was distributed to the
bank accounts of three persons: Arturo Sison, Antonio Mendoza, and Raul Dizon.

MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused.
The trial court ruled in favor of MWSS but the Court of Appeals reversed the trial
court’s decision.

ISSUE: Whether or not PNB should restore the said amount.

HELD: No. MWSS is precluded from setting up the defense of forgery. It has been
proven that MWSS has been negligent in supervising the printing of its personalized
checks. It failed to provide security measures and coordinate the same with PNB.
Further, the signatures in the forged checks appear to be genuine as reported by the
National Bureau of Investigation so much so that the MWSS itself cannot tell the
difference between the forged signature and the genuine one. The records likewise
show that MWSS failed to provide appropriate security measures over its own records
thereby laying confidential records open to unauthorized persons. Even if the twenty-
three (23) checks in question are considered forgeries, considering the MWSS’s gross
negligence, it is barred from setting up the defense of forgery under Section 23 of the
Negotiable Instruments Law.
The Supreme Court further emphasized that forgery cannot be presumed. It must be
established by clear, positive, and convincing evidence. This was not done in the
present case.