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 another’s 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 payee—the 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 drawer’s 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
• 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 opponent’s 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 question—indorsers, 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 off 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 another’s 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 prejudiced—at 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 payee’s 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 into—forgery of indorsement in the note; forgery of the maker’s signature
2. Forgery of bills of exchange which may be further classified into—forgery of an indorsement on the bill; forgery of the drawer’s 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 didn’t 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 MAKER’S SIGNATURE
• Where the maker’s 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 suffers no loss since it can recover the amount paid from the drawee bank which has no right to charge the drawer’s 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 payee’s 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 owner’s right
AS AFFECTED BY QUESTION OF DELIVERY TO PAYEE
• The checks didn’t 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 DRAWER’S SIGNATURE WHERE DRAWEE HASN’T 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 doesn’t 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 drawer’s 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 wasn’t 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 DEPOSITOR’S CASE ARE FORGED
BUT DRAWER NOT GENERALLY NEGLIGENT WHERE HIS CHECK IS STOLEN
PAYEE’S NEGLIGENCE IN FORGERY OF DRAWER’S 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
INDORSER’S 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 wasn’t 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 latter’s 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 didn’t 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
