66 SCRA 29 (1975)


Petitioner deposited in its current account with respondent bank several checks with a total face value of P8,030.58, all acquired from Antonio J. Ramirez, a regular bettor at the jai-alai games and a sale agent of the Inter-Island Gas Service, Inc., the payee of the checks. The deposits were all temporarily credited to petitioner’s account in accordance with the clause printed on the bank’s deposit slip.

Subsequently, Ramirez resigned and after the checks had been submitted to inter-bank clearing, the Inter-Island Gas discovered that all the indorsement made on the cheeks purportedly by its cashiers, as well as the rubber stamp impression thereon reading “Inter-Island Gas Service, Inc.”, were forgeries.

It informed petitioner, the respondent, the drawers and the drawee banks of the said checks and forgeries and filed a criminal complaint against its former employee. In view of these circumstances, the respondent Bank debited the petitioner’s current account and forwarded to the latter the checks containing the forged indorsements, which petitioner refused to accept. Later, petitioner drew against its current account a check for P135,000.00.

This check was dishonored by respondent as its records showed that petitioner’s balance after netting out the value of the checks with the forged indorsement, was insufficient to cover the value of the check drawn.

A complaint was filed by petitioner with the Court of First Instance of Manila. The same was dismissed by the said court after due trial, as well as by the Court of Appeals, on appeal.

Hence, this petition for review.


Whether or not the respondent had the right to debit the petitioner’s current account in the amount corresponding to the total value of the checks in question.


The Supreme Court ruled that respondent acted within legal bounds when it debited petitioner’s account; that the payments made by the drawee banks to the respondent on account of the checks with forged indorsements were ineffective; that on account thereof, no creditor-debtor relationship was created between the parties; that petitioner was grossly recreant in accepting the checks in question from Ramirez without making any inquiry as to authority to exchange checks belonging to the payee-corporation; and that petitioner, in indorsing the said checks when it deposited them with respondent, guaranteed the genuineness of all prior indorsement thereon so that the respondent, which relied upon its warranty, cannot be held liable for the resulting loss.

Section 23 of the Negotiable Instruments Law (Act 2031) states that —

“When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.”

Since under the foregoing provision, a forged signature in a negotiable instrument is wholly inoperative and no right to discharge it or enforce its payment can be acquired through or under the forged signature except against a party who cannot invoke the forgery, it stands to reason, upon the facts of record, that the respondent, as a collecting bank which indorsed the checks to the drawee-banks for clearing, should be liable to the latter for reimbursement, for, as found by the court a quo and by the appellate court, the indorsements on the checks had been forged prior to their delivery to the petitioner.

In legal contemplation, therefore, the payments made by the drawee-banks to the respondent on account of the said checks were ineffective; and, such being the case, the relationship of creditor and debtor between the petitioner and the respondent had not been validly effected, the checks not having been properly and legitimately converted into cash.

*Case digest by Bryne Angelo M. Brillantes, LLB IV, Andres Bonifacio College – School of Law, SY 2019-2020