Carmelo indorsed a check to Linas. Paolo stole the check from Linas, forged the latter’s signature and indorsed it to Johan. Denver Bank encashed the check upon presentment thereof by Johan. Who is the party liable?
The bank is the party liable. It is the primary duty of the bank to know that the check was duly indorsed by the original payee and, where it pays the amount of the checks to a third person who has forged the signature of the payee, the loss falls on such bank who cashed the checks. A bank engaged in business is invested with public interest and it is its duty to protect its clients and all persons who transact business with it. (Traders Royal Bank v. RPN, G.R. No. 138510, Oct. 10, 2002)