PNB V. NATIONAL CITY BANK OF NY
63 PHIL 711
FACTS:Unknown persons negotiated with Motor Services Company checks, which were part of the stipulation in payment of automobile tires purchased from the latter’s store. It purported to have been issued by Pangasinan Transportation Company. The said checks were indorsed at the back by said unknown persons, the Motor company believing 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 with the amounts. Thereafter, PNB discovered that the signatures were forged and it demanded the reimbursement of the amounts for which it credited the other bank.
HELD:A check is a bill of exchange payable on demand and only the rules governing bills of exchanges payable on demand are applicable to it. in view of the fact that acceptance is a step necessary insofar as negotiable instruments are concerned, it follows that the provisions relative to acceptance are without application to checks. Acceptance implies subsequent negotiation of the instrument, which is not true in the case of checks because from the moment it is paid, it is withdrawn from circulation. When the drawee banks cashes or pays a check, the cycle of negotiation is terminated and it is illogical thereafter to speak of subsequent holders who can invoke the warrant against the drawee.
Further, in determining the relative rights of a drawee who under a mistake of fact, has paid, a holder who has received such payment, upon a check to which the name of the drawer has been forged, it is only fair to consider the question of diligence and negligence of the parties in respect thereto. The responsibility of the drawee who pays a forged check, for the genuineness of the drawer’s signature is absolute only in favor of one who has not, by his own fault or negligence, contributed to the success of the
fraud or to mislead the drawee.
According to the undisputed facts, National City Bank in purchasing the papers in question from unknown persons without making any inquiry as to the identity and authority of said persons negotiating and indorsing them, acted negligently and contributed to the constructive loss of PNB in failing to detect the forgery. Under the circumstances of the case, if the appellee bank is allowed to recover, there will be no change in position as to the injury or prejudice of the appellant.