Sec. 23. Forged signature; effect of.

- 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.

FORGERY, DEFINED AND EXPLAINED

Counterfeit making or fraudulent alteration of any writing, and may consist in the signing of anothers
name, or the alteration of an instrument, in the name, amount, description of the person and the like, with the
intent to defraud

Section 23 only applies to forged signatures or signatures made without the authority of the person whose
signature purports it to be

FRAUD AMOUNTING TO FORGERY

Fraud in factum or fraud in esse contractus

There is no intention to issue an instrument

FRAUDULENT IMPERSONATION

Suppose X represents himself as Juan Cruz when he is not to Y. Due to such misrepresentation, he obtained from Y
a note payable to the order of Juan Cruz. If Y intends that the proceeds of the note will go to the real Juan Cruz and not
X, but to whom Y issued the note on the belief that X was Juan Cruz, would be a forgery.

DOUBLE INTENT IN FRAUDULENT IMPERSONATION

1. He intends to make the instrument payable to the person before him or to the person writing at the other end of
the line, in case the negotiation is by correspondence
2. He intends to make the instrument payable to the person whom he believes the stranger to be

GENERAL RULE IN FRAUDULENT IMPERSONATION

The first one is the controlling intent except where the name of the payee was already known to the maker or
drawer or was particularly identified in some manner

REASON FOR RULE: THEORY OF ACTUAL INTENT

Throws the loss on the drawer

In the absence of anything to show that the drawer had any doubt as to the identity of the person to whom he
delivered the paper as payeethe drawee, in paying the paper, or the holder, in taking it upon the indorsement of
the impostor in the name of which the payee was described, carries out the intention that the drawer entertained at the
time of delivery of the paper to the impostor, although that intention was conceived in consequence of the fraud of
the impostor as
to his identity and ownership of the property which represented the consideration

ANOTHER REASON FOR THE RULE: THEORY OF ESTOPPEL

As between two innocent persons, the one whose act was the cause of the loss should bear the consequences

It was the drawers duty to use diligence to ascertain the identity of the party with whom he has dealt. Failing
to make this discovery, he became the victim of the fraud. The impostor having succeeded in this first and essential
step in the practice of the fraud, the next was comparatively an easy one.

RULE IS QUALIFIED WHERE IMPOSTOR REPRESENTS

HIMSELF AS AGENT OF PAYEE
1


There is a distinction between cases where the paper is delivered to the impostor as payee, in the belief that
he is the person to whom the instrument it would be paid, and cases where the paper is delivered to the impostor upon his
representation, in the belief that he is agent of the person named as payee

The loss falls on the drawee or purchaser, as the case may be, rather than on the drawer where the impostor upon
whose indorsement the paper was purchased or paid, represented himself to be the agent of
the payee and not the payee himself

ADMISSION OF GENUINENESS AND DUE EXECUTION

When an action or defense is founded upon a written instrument such as a negotiable instrument, copied in or
attached to the corresponding pleading, the genuineness and due execution of the instrument shall be deemed
admitted unless specifically denied under oath by the adverse party

Consequently, the genuineness and due execution of the written instrument or document copied in or
attached to the opponents pleading as the basis of his claim or defense, should be denied specifically under
oath, otherwise they are deemed admitted.

MEANING OF ADMISSION OF GENUINENESS AND DUE EXECUTION

1. That he signed it or that it was signed by another for him and with his authority
2. That at the time it was signed, it was in words and figures exactly as set out in the pleading of the party relying upon
it,
3. That any formal requisites required by law, such as swearing and acknowledgment, or revenue stamp which
it requires, are waived by him

DEFENSES CUT OFF BY ADMISSION OF GENUINENESS, ETC.

1. The defense that the signature is a forgery
2. That it was unauthorized, as in the case of an agent signing for his principal, or one signing on behalf of
a partnership or corporation or that in case of the latter, that the corporation was not authorized under its charter
to sign the instrument
3. That the party charged signed the instrument in some other capacity than that alleged in the pleading setting it out
FAILURE TO IDENTIFY PROMISSORY NOTE WILL NOT NECESSARILY DEFEAT CLAIM

EFFECT OF FORGERY IN GENERAL

1. That the signature forged or made without authority is wholly inoperative
2. That no right to retain the instrument, or to give discharge thereof, or to enforce payment thereof against any party
thereto, can be acquired through or under such a signature forged or made without authority
3. That nevertheless, as against a party precluded from setting up the forgery or want of authority, the
signature forged or made without authority is operative, and rights to retain the instrument, to give discharge
therefore, or to enforce payment thereof, can be acquired through or under the signature forged or made without
authority

EXTENT OF THE EFFECT OF THE FORGERY

1. Only the signature forged or made without authority is stated by the law to be inoperative but neither the
instrument itself is, nor the genuine signatures are, rendered inoperative
2. The instrument can be enforced by holders to whose title over the instrument the forged signature is not
necessary, such as, the indorsement of an instrument which on its face is payable to bearer
3. The instrument can be enforced against those who are precluded from setting up the defense of forgery, even against

those whose signatures have been forged

PERSONS PRECLUDED FROM SETTING UP DEFENSE OF

FORGERY
1. Those who warrant or admit to the genuineness of the signature in questionindorsers, persons negotiating
by delivery, and acceptors
2. Those who, by their acts, silence or negligence, are estopped from setting up the defense of forgery

INDORSERS AS WARRANTORS

Whether general or qualified

Warrant that the instrument indorsed by them is genuine in all respects what it purports it to be

PERSONS NEGOTIATING BY DELIVERY AS WARRANTORS

Persons negotiating by mere delivery also warrant that the instrument negotiated by them is genuine and in all
respects what it purports to be

They are consequently precluded from setting up the defense of forgery

ACCEPTORS AS WARRANTORS

A drawee, by accepting the bill, admits the genuineness of the signature of the drawer

PRECLUDED

Includes those cases where they are estoppels against the party desiring to set up the forgery

ESTOPPEL AS TO FORGERY OF INSTRUMENTS

Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to
believe that his or anothers signature in an instrument is genuine, and to act upon such
belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to set up the forgery of
such signature/s

Estoppel may arise from a declaration, act or omission/negligence

UNREASONABLE DELAY

Unreasonable delay, after his discovery of the forgery, on the part of one having the opportunity and duty to speak, in
disclosing the forgery upon commercial paper to the one who ought to be apprised thereof, estops the former from
thereafter asserting the forgery as against the latter where the latter is prejudiced by such delay or failure

Requisites:
o
That the delay be unreasonable
o
That the one who ought to be apprised of the forgery has been prejudiced

REASONABLY PROMPT NOTICE

Depends upon the circumstances of the case, and the situation of the parties with reference to the remedies
against any party is a proper element to enter into the estimate of the reasonableness of the notice

WHEN PREJUDICED AND WHEN NOT PREJUDICED

A bank is prejudicedat the time one discovered that his attorney forged his indorsement to a draft in his
favor, it had assets of the attorney in its possession to protect itself but at the time it was notified of the forgery,
it has parted with such assets


It is not prejudiced by the delay where at no time after the discovery of the forgery did the cashier have any
property with which to indemnify the bank

ESTOPPEL BY NEGLIGENCE IN DELIVERY

A drawer may be precluded from defense of forgery of the payees indorsement if delivery by him to the payee
is negligent

CASES OF FORGERY IN GENERAL

1. Forgery of promissory notes which may be further subdivided intoforgery of indorsement in the note; forgery
of the makers signature
2. Forgery of bills of exchange which may be further classified intoforgery of an indorsement on the bill;
forgery of the drawers signature, either with acceptance by the drawee, or without such acceptance but the bill is
paid by the drawee

RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN NOT

PAYABLE TO ORDER
Where the indorsement is forged and the note is payable to order, the party whose indorsement is forged and
parties prior to him including the maker cannot be held liable by the holder, whether that holder is a holder in due
course or not:
1. The reason is that, inasmuch as the indorsement is forged, it is inoperative. But since the note is payable
to order, it can be negotiated only by indorsement completed by delivery, and therefore, the forged instrument is the
only means one could acquire any rights to it or its proceeds
2. The law further provides that no right to retain the note, give discharge thereof, or enforce payment thereof,
could be acquired through and under the forged signature. Hence the holder didnt acquire at least those rights
as against the party whose signature is forged and parties prior to him, including the maker
3. The forger usually obtains possession of the note by fraudulent or other unlawful means and therefore, he has
no right whatsoever in the note

RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN A NOTE

PAYABLE TO BEARER

May be held liable by a holder in due course but not by the one who is not a holder in due course

Provided that the note was mechanically complete before the forgery

Forged instrument is not necessary to the title of a holder since instruments payable by bearer can be
negotiated by mere delivery

RIGHTS OF PARTIES IN FORGERY OF MAKERS SIGNATURE

Where the makers signature is forged, he cannot be held liable by any holder, whether the holder is in due course or
not

Purported maker is not a party to the instrument as his forged signature is inoperative and no right to
retain, enforce, or discharge the note, may be acquired against him

DRAWEE CANNOT CHARGE ACCOUNT OF DRAWER

In an action by the drawee against the drawer for the amount charged by the drawee against the account of the
drawer where the drawee paid a check on a forged indorsement, the drawee has no defense against the drawer
and the drawer may recover from the drawee for an instrument paid on a forged indorsement

Depository owes to the depositor an absolute and contractual duty to pay the check only to the person to whom it is

made payable or upon his genuine indorsement

DRAWER CANNOT RECOVER FROM THE COLLECTING BANK

Drawer has no right to recover the amount paid from the collecting bank as the duty of the collecting to
exercise care in collection is due only to the payee, and as the drawer sufers no loss since it can recover the
amount paid from the drawee bank which has no right to charge the drawers account

DRAWEE CAN RECOVER FROM COLLECTING BANK

The drawee may recover from the recipient of payment, such as the collecting bank, under a forged
indorsement

Rule allowing the payee to recover from the recipient of the payment under a forged indorsement

PAYEE CAN RECOVER FROM RECEIPT OF PAYMENT

According to the general rule, a bank or other corporation or an individual, who has obtained possession
of a check, upon an unauthorized or forged indorsement of the payees signature and who collects the amount of
the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that
they have been paid to the person whom the check was obtained

The possession of the check on the forged indorsement is wrongful and when the money had been collected on the
check, the bank or other person or corporation, can be held as far as moneys had and received and the proceeds are held
for the rightful owners of the payment and may be recovered by them
COLLECTING BANK BOUND TO SCRUTINIZE CHECKS DEPOSITED WITH IT TO DETERMINE GENUINENESS AND
REGULARITY

CONVERSION

An unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to
another, to the alteration of their condition or exclusion of the owners right

AS AFFECTED BY QUESTION OF DELIVERY TO PAYEE

The checks didnt reach the hands of the payee. The bearing of such absence of delivery is considered in some
cases and held not to be material

Where there is no delivery to the payee and no title vests upon him, he ought not to be allowed to recover on
the ground that he lost nothing because he never became owner of the check and still retained his claim against the
drawer

PAYEE CANNOT RECOVER FROM THE DRAWEE

An action cannot be maintained by a payee of a check against the bank on which it is drawn unless the
check has been certified or accepted by the bank on which it is drawn, without acceptance or certification, as
provided by the statute, there is no privity of contract between the drawee bank and the payee, or holder of the check

RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN BILL

PAYABLE TO BEARER

Holder may recover if he is a holder in due course

RIGHTS OF PARTIES IN FORGERY OF DRAWERS SIGNATURE

WHERE DRAWEE HASNT ACCEPTED BILL BUT PAID IT

In the case of the payment of a forged check even without former acceptance, the drawee cannot recover
from a holder in due course not chargeable with any act or negligence or disregard of duty

As between equally innocent parties, the drawee who pays money on a check the signature to which is forged, cannot
recover the money from the one who received it

BUT PAYMENT NOT EQUIVALENT TO ACCEPTANCE OR

CERTIFICATION

The payment of a forged check doesnt include or imply its acceptance in the sense that this word is used in Section
62 of NIL

Basis of the general rule is not that the drawee is precluded from setting up forgery because, by paying the
check, it has accepted the check and therefore admitted the genuineness of the drawers signature

By paying the check the drawer is presumed negligent or deemed constructively negligent

NEGLIGENCE IN FORGERY OF INDORSEMENTS IN BILL

It presupposes that the drawer himself wasnt negligent or guilty of such conduct as would estop him from
asserting the forged character of the indorsement as against the depository and that if he was negligent or guilty of
such conduct, the loss must fall on him
WHERE A DEPOSITOR IS USING ITS OWN PERSONALIZED CHECKS, ITS FAILURE TO PROVIDE
ADEQUATE SECURITY MEASURES TO PREVENT FORGERIES OF ITS CHECKS CONSTITUTES GROSS
NEGLIGENCE AND BARS IT FROM SETTING UP THE DEFENSE OF FORGERY
BUT FAILURE OF DEPOSITOR TO MAKE PROMPT RECONCILIATION OF THE MONTHLY BANK STATEMENTS
FURNISHED BY THE BANK CONSTITUTES NEGLIGENCE FOR WHICH THE BANK CANNOT BE BLAMED IN
CASE DEPOSITORS CASE ARE FORGED
BUT DRAWER NOT GENERALLY NEGLIGENT WHERE HIS CHECK IS STOLEN

PAYEES NEGLIGENCE IN FORGERY OF DRAWERS SIGNATURE

The payee in a check may be supposed to have knowledge of the circumstances under which it is drawn
and generally, of the person drawing it, and is in a better position to judge the genuineness of the paper than are
indorsees.

And there is a tendency to place greater responsibility upon him and he is much more likely to be required to
return the proceeds of the paper than are the indorsees

INDORSERS NEGLIGENCE

After a draft or check has once been negotiated so that it is in circulation, there is little opportunity for
negligence on the part of those through whose hands it passes; but as to them, in most cases, the rule will apply that,
as between innocent parties, the loss must fall on the drawee

DUTY OF PURCHASER OF CHECK OR BILL

One who purchases a bill or check is bound to satisfy himself that the paper is genuine; and that by indorsing or
presenting it for payment or putting it in circulation before presentation, he impliedly asserts that he has performed

his duty and the drawee who has without actual negligence on his part, paid the forged demand, may recover
the money paid from such negligent purchaser

PAPER FORWARDED FOR COLLECTION

The fact that the paper wasnt cashed and indorsed with unrestricted indorsement but was taken for collection
and forwarded for that purpose under an indrosement giving notice of that fact, may place a greater burden upon the
drawee than it would otherwise bear
FORGERY OF SIGNATURE IN INSTRUMENT IS FALSIFACTION OF PRIVATE DOCUMENT

FORGER NEED NOT IMITATE GENUINE SIGNATURE

One who signs in the name of another without the latters authority, as drawer in a check, and thereby makes it
appear falsely that the alleged drawer of the check was a real party thereto, when as a matter of fact he didnt participate
in the transaction, is guilty of falsification

COMMERCIAL DOCUMENTS

Documents or instruments which are used by businessmen or merchants to promote or facilitate trade or
credit transactions