ASSOCIATED BANK vs. CA - G.R. No. 107382/G.R. No. 107612

ASSOCIATED BANK vs. CA,

PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK

G.R. No. 107382/G.R. No. 107612             January 31, 1996

The Province of Tarlac maintains a current account with the Philippine National Bank (PNB Tarlac Branch) where the provincial funds are deposited. Portions of the funds were allocated to the Concepcion Emergency Hospital. Checks were issued to it and were received by the hospital’s administrative officer and cashier (Fausto Pangilinan). Pangilinan, through the help of Associated Bank but after forging the signature of the hospital’s chief (Adena Canlas), was able to deposit the checks in his personal account. All the checks bore the stamp “All prior endorsement guaranteed Associated Bank.” Through post-audit, the province discovered that the hospital did not receive several allotted checks, and sought the restoration of the debited amounts from PNB. In turn, PNB demanded reimbursement from Associated Bank. Both banks resisted payment. Hence, the present action.

Issue: Who shall bear the loss resulting from the forged checks.

Held: PNB is not negligent as it is not required to return the check to the collecting bank within 24 hours as the banks involved are covered by Central Bank Circular 580 and not the rules of the Philippine Clearing House. Associated Bank, and not PNB, is the one duty-bound to warrant the instrument as genuine, valid and subsisting at the time of indorsement pursuant to Section 66 of the Negotiable Instruments Law. The stamp guaranteeing prior indorsement is not an empty rubric; the collecting bank is held accountable for checks deposited by its customers. However, due to the fact that the Province of Tarlac is equally negligent in permitting Pangilinan to collect the checks when he was no longer connected with the hospital, it shares the burden of loss from the checks bearing a forged indorsement. Therefore, the Province can only recover 50% of the amount from the drawee bank (PNB), and the collecting bank (Associated Bank) is liable to PNB for 50% of the same amount.