A.

FORGERY OF MAKERS SIGNATURE

1. The maker, Mr. M, prepared a promissory note that is payable to the
order of Mr. P. Mr. M did not sign the promissory note and instead, he
kept the unsigned promissory note in his drawer. Mr. P stole and forged
the signature of Mr. M and thereafter indorsed and delivered it to Mr. A
who is the present holder.
a. Can Mr. A recover from Mr. M? What if Mr. A is a holder in due
course?
No. The signature being forged is inoperative. Mr. M is not liable to
any holder even a holder in due course.
b. In case of dishonor, can Mr. A recover Mr. P?
Yes, Mr. P being the forger is liable to Mr. A.
Suppose Mr. A negotiated the instrument to Mr. B who is now the
present holder in due course, from whom can Mr. B recover?
Mr. B can enforce note from Mr. A, an endorser and holder prior to
him he warrants that the instrument was genuine, therefore
operative. Of course, Mr. B and Mr. A has a right of recourse against
Mr. P.
2. The maker, Mr. M, prepared a promissory note that is payable to
bearer. Mr. M did not sign the promissory note and instead, he kept
the unsigned promissory note in his drawer. Mr. P stole the note and
forged the signature of Mr. M and thereafter indorsed and delivered it
to Mr. A who is the present holder.
a. Can Mr. A recover from Mr. M? What if Mr. A is holder in due course?
No, Mr. A cannot recover from Mr. M even if he is a holder in due
course. Mr. Ms signature, being forged is wholly inoperative in the
hands of any holder.
In case of dishonor, can Mr. A recover from Mr. P?
Yes, the only remedy of the Mr. A is against Mr. P. Mr. P is liable not
merely because he is an endorser but also because he is the one
responsible for the theft, and the completion and negotiation of the
instrument.
b. Suppose Mr. A negotiated the instrument to Mr. B who is now the
present holder in due course, from whom can Mr. B recover?
Mr. B can enforce payment to Mr. A, who negotiated the instrument
to him therefore warrants that the instrument is genuine. Of course,
Mr. A and Mr. B have recourse against Mr. P, the forger.
B. FORGERY OF DRAWERS SIGNATURE
1. Mr. DR prepared a bill of exchange payable to the order of Mr. P but he
(DR) did not sign it. The bill of exchanged is addressed to the drawee,

Mr. DW. Later, Mr. P, stole the promissory note and forged the
signature of Mr. DR. thereafter, Mr. P negotiated the instrument by
indorsement and delivery to Mr. A.
a. Can Mr. A recover from Mr. DW? What if Mr. A is holder in due
course?
No, Mr. A cannot recover from Mr. DW because Mr. DW did not yet
accept the note therefore he is not bound to pay the bill. However, if
Mr. DW accepts the bill then he admits the genuineness of Mr. DRs
signature and therefore he cannot refuse to pay Mr. A.
b. Can Mr. A recover from Mr. DR? What if Mr. A is a holder in due
course?
No, Mr. A cannot recover from Mr. DR even if he (A) is a holder in
due course. Forgery is a real defense which can be set up against
any holder. The signature is inoperative and, therefore, it did not
operate to make Mr. DR a party to the instrument.
c. In case of dishonor, can Mr. A recover from Mr. P?
Yes, Mr. A can recover from Mr. P. because by endorsing the bill to
Mr. A Mr. P warrants the genuineness of the bill.
d. Suppose Mr. A negotiated the instrument to Mr. B who is now the
present holder in due course, from can Mr. B recover?
Mr. B can recover from Mr. P and Mr. A who are endorsers
subsequent to forgery. As endorsers, they warrant that the
instrument is genuine and in all respects what is purports to be.
e. Would your answers be the same if the bill of exchange in the given
problem is payable to bearer and Mr. P indorsed the instrument to
A and A indorsed it to B?
Yes, given that the forged signature is Mr. DR, it does not hold the
fact that Mr. P do not have the ability to bind Mr. DR to the
instrument.
f. In an instrument payable to order, suppose DW did not notice that
the signature of DR was forged and paid the holder; can he (DW)
recover what he paid or ask for reimbursement from DR?
With drawee's acceptance, he is bound by warranty that the
signature of the drawer is genuine therefore he bears the loss.
Mr. DR prepared a check payable to the order of Mr. P but he (DR)
did not sign it. The check is addressed to the drawee, DW bank.
Later, Mr. P, stole the check and forged the signature of Mr. DR.
thereafter, Mr. P deposited the check in his account with CB bank
and CB bank presented the check to DW
bank for clearing. DW
bank cleared the check and paid CB bank. Later, Mr. DR discovered
the forgery of his signature.

a. Can Mr. DR ask DW bank to credit his account with the amount of
the check? In other words, can DR ask for the return of the amount
deducted by DW bank from his account?
Yes, Mr. DR can ask DW bank to credit his account with the amount
of the check because of the forgery. As the law provided, 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. It is also provided that 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.
b. If the answer to the previous problem is yes, can DW recover the
amount from CB?
Yes, DW can recover the amount from CB. 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 is obtained. Be noted that collecting bank
bound to scrutinize checks deposited with it to determine
genuineness and regularity.
C. FORGERY OF INDORSERS SIGNATURE
1. Mr. DR issued a negotiable bill of exchange payable to the order of Mr.
P with Mr. DW as drawee. After the delivery to Mr. P by Mr. DR, Mr. A
stole the bill of exchange, forged the signature of Mr. P and delivered
the instrument to Mr. B who is the present holder.
a. Can Mr. B recover from Mr. DW? What if Mr. B is a holder in due
course?
No, Mr. B cannot recover from Mr. DW because under the law, the
party whose indorsement is forged and parties prior to him,
including the maker, aren't liable, even to a holder in due course.
Forged instruments are inoperative and can't transfer rights or title
over the instrument.
Can Mr. B recover from Mr. DR? What if Mr. B is a holder in due
course?

b.

c.

d.

e.

No, Mr. B cannot recover from Mr. DR even if he is a holder in due

course. Mr. DR is not liable because its order is to pay the amount
thereof to Mr. P or his order and not to any other persons order.
In case of dishonor, can Mr. B recover from Mr. P?
No, Mr. B cannot recover from Mr. P. He (P) is not liable because his
indorsement was being forged, it is wholly inoperative.
Can Mr. B recover from Mr. A in case of dishonor?
Yes, Mr. B only remedy is against Mr. A, the forger. Aside from being
the forger, he also warrants that the instrument is genuine by
means of indorsement.
Would your answer be the same if the bill of exchange in the given
problem is payable to bearer (with the same forged indorsement
of the signature of Mr. P and indorsement from A to B)?
No, Mr. DW may charge the amount thereof to the account of Mr.
DR. In this case, Mr. DW would not be able to recover from Mr. B of
the bearer bill since the forged indorsement of P by Mr. A did not
prevent the transfer of title. The only remedy of the drawer is
against the forger.
Suppose the instrument is payable to order but DW did not notice
that the signature of DR was forged and paid the holder, can he
recover what he paid from DR?
No, Mr. DW cannot recover what he has paid from DR. Under the
law, if the drawee pays under a forged indorsement, the drawer is
not liable on the bill and the drawee may not debit the drawers
account.