WESTMONT BANK V. ONG

FACTS:

Ong  was  supposed  to  be  the  payee  of  the  checks  issued  by  Island Securities.  Ong has a current account with petitioner bank.  He opted to sell  his  shares  of  stock  through  Island  Securities.    The  company  in  turn issued checks in favor of Ong but unfortunately, the latter wasn't able to receive any.  His signatures were forged by Tamlinco and the checks were deposited  in  his  own  account  with  petitioner.    Ong  then  sought  to  collect the money from the family of Tamlinco first before filing a complaint with the Central Bank.  As his efforts were futile to recover his money, he filed an  action  against  the  petitioner.    The  trial  and  appellate  court  decided  in favor of Ong.
 

HELD:

Since  the  signature  of  the  payee  was  forged,  such  signature  should  be deemed  inoperative  and  ineffectual.    Petitioner,  as  the  collecting  bank, grossly erred in making payment by virtue of said forged  signature.  The payee, herein respondent, should therefore be allowed to collect from the collecting bank.
 
It should be liable for the loss because it is its legal duty to ascertain that the  payee’s  endorsement  was  genuine  before  cashing  the  check.    As  a general rule, a bank or corporation who has obtained possession of a check with an unauthorized or forged indorsement of the payee’s signature and who collects the amount of the check other from the drawee, is liable for the proceeds thereof to the payee or the other owner, notwithstanding that the  amount  has  been  paid  to  the  person  from  whom  the  check  was obtained.  
 
DOCTRINE OF DESIRABLE SHORT CUT—plaintiff uses one action to reach, by  desirable  short  cut,  the  person  who  ought  to  be  ultimately  liable  as among the innocent persons involved in the transaction.  In other words, the payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not.
 
On the issue of laches, Ong didn't sit on his rights.  He immediately sought the intervention of Tamlinco’s family to collect the sum of money, and later the  Central  Bank.    Only  after  exhausting  all  the  measures  to  settle  the issue amicably did he file the action.