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PNB v. Bank of NY

PNB filed a case against Motor Service Company and National City Bank of New York seeking reimbursement for amounts credited to their accounts from forged checks. The checks were deposited by Motor Service Company after being endorsed by unknown persons. The court ruled in favor of PNB, finding that Motor Service Company was negligent by failing to verify the checks, particularly since they were endorsed by unknown persons rather than the named payee. The court held that under these circumstances, the party that was negligent must bear the loss according to the Negotiable Instruments Act. Therefore, PNB could recover reimbursements from Motor Service Company.

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42 views

PNB v. Bank of NY

PNB filed a case against Motor Service Company and National City Bank of New York seeking reimbursement for amounts credited to their accounts from forged checks. The checks were deposited by Motor Service Company after being endorsed by unknown persons. The court ruled in favor of PNB, finding that Motor Service Company was negligent by failing to verify the checks, particularly since they were endorsed by unknown persons rather than the named payee. The court held that under these circumstances, the party that was negligent must bear the loss according to the Negotiable Instruments Act. Therefore, PNB could recover reimbursements from Motor Service Company.

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Trinca Diploma
Copyright
© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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PHILIPPINE NATIONAL BANK v.

THE NATIONAL CITY BANK OF NEW YORK,


and MOTOR SERVICE COMPANY, INC.
G.R. No. L-43596
October 31, 1936
FACTS:
In April 1933, unknown persons negotiated with Motor Services Company two
checks, which were part of the stipulation in payment of automobile tires purchased
from the store of the defendant. It was allegedly issued by Pangasinan Transportation
Company against PNB in favor of the International Auto Repair Shop. The said checks
were indorsed at the back however, by said unknown persons. The Motor company
therefore believed at that time that the signatures contained therein were genuine. The
checks were later deposited with the companys account in National City Bank of NY.
The said checks were consequently cleared and PNB credited National City Bank of NY
with the amounts thereof. Thereafter, PNB discovered that the signatures were forged
and it demanded the reimbursement of the amounts for which it credited the other bank.
It demanded from the defendants the reimbursement of the amounts for which it
credited National City Bank of NY and for which the latter credited the Motor Service
Co., but they refused to make such reimbursements. Hence this case filed by PNB.
ISSUE: Whether PNB can recover reimbursements from Motor Service. Co.
HELD: Yes.
In cases like this, the party guilty of negligence bears the loss. In order to entitle a
holder to payment of a forged check, the holder must 1) prove that the responsibility of
determining the genuineness of the signature is upon the drawee 2) he was diligent in
handling the check. In this case, Motor Service Co was negligent. The bank was only
guilty of constructive fault. Motor Service Co on the other hand had several faults. In the
two checks that were indorsed, the check that was later presented to Motor Services
bears a check number that is earlier than the one presented in an earlier transaction.
Motor Services failed to check it. They also took the check from an unknown person.
International Auto Repair Shop is a company and in such situation, it must inquire as to
the authority of the one indorsing.
Section 23 of the Negotiable Instruments Act provides 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. PNB did not warrant to MCSI
the genuineness of the checks in question, by its acceptance thereof, nor did it perform
any act which would have induced MSCI to believe in the genuineness. Therefore, PNB
is not precluded from putting up the defense of forgery. It did not warrant the
genuineness of the signature when it paid the check and it did not induce the appellant
to believe the genuineness of the signature. They can recover reimbursements.

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