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
 

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