252 SCRA 620 (1996)
The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) . A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. The allotment checks for said government hospital are drawn to the order of “Concepcion Emergency Hospital, Concepcion, Tarlac” or “The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac.” The checks are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and cashier. The books of account of the Provincial Treasurer were post-audited by the Provincial Auditor. It was then discovered that the hospital did not receive several allotment checks drawn by the Province. the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued from 1977 to 1980 in order to verify the regularity of their encashment. After the checks were examined, the Provincial Treasurer learned that 30 checks encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank.
It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital collected the questioned checks from the office of the Provincial Treasurer. Pangilinan sought to encash the first check with Associated Bank. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank, PNB. After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same procedure for the second check as well as for twenty-eight other checks of various amounts and on various dates. While both banks are innocent of the forgery, Associated Bank claims that PNB was at fault and should solely bear the loss because it cleared and paid the forged checks.
Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank?
A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not operate as the payee’s indorsement. The exception to the general rule in Section 23 is where “a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority.” Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument.
An indorser of an order instrument warrants “that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting.” He cannot interpose the defense that signatures prior to him are forged. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the banks’s client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank.
*Case digest by Stephanie C. Castillo, JD-IV, Andres Bonifacio College, SY: 2019-2020