Section 23

Forgery (in general, sec 23 + sec 124-5 + duress + impersonation+in factum)

- The act of 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

Will alteration of an instrument constitute forgery under Sec 23?

No (unless intent to defraud and involves forged/unauthorized signature)

Application/Scope of Section 23:

forged signature or signatures made without the authority of the person whose
signature purports it to be

Forgery vs Alteration: F with intent to defraud

Forgeries NOT under Sec 23

- Fraud in factum/fraud in esse contractus (REAL DEFENSE)
o ex. Signed in blank with intention to convert it to a negotiable instrument
(Sec 14.2)
o EX if B asked for A’s autograph in a blank paper,
 there is no intent to convert it into to NEGOINS
 Sec 14 will not be applied
 No prima facie authority to fill any amt
 A is NOT bound (not liable even to a HDC)
 Fraud in factum/fraud in esse contractus, a kind of forgery thus a real
defense

- Duress amounting to fraud (ordinarily personal defense but when someone

forcibly takes ones hands and affixes the person’s signature it is real defense since
it produces forgery—
o EX. P forcibly takes M’s hands to affix his signature as maker in PN
payable to P or order. It is a form of forgery because M’s act of affixing his
signature is fraudulent (not the signature of M itself)
- Fraud impersonation when some misrepresent as someone else both with intent
to make it payable to person who is in front/before him and intent to be payable
not to person in front but to the real person-payee who this person claims to
represent himself as being
- Fraudulent alteration Sec 125 with intent to defraud Real defense
o Effect of material alteration
 o GR: DISCHARGE the instrument and all prior parties who did not give
consent to such
o E: if against
 Party who MADE the alteration
 Party who AUTHORIZED/ASSENTED the alteration
 Indorsers SUBSEQUENT to the alteration (cuz sec 66 w that I is
genuine and in all respects what it purports to be)
o EX. I promise to pay B or order 100K on dec 25 2023 Sgd A
o B negotiates to C who, with the consent of B raises the amount to 150K and
thereafter indorses it to D, D to E and E to F,
o The note is discharged as to A (A did not assent to such change)
o hence, F cannot enforce 150K against A.
o even if F is HDC, he still cannot enforce the altered amount since A has real
defense of material alteration against F
o However F as HDC can enforce 100k accdg to its original tenor regardless
of whether the alteration was innocent or fraudulent
o IF F is nonHDC, he cannot enforce 100K.
o C, however would be liable to F for 150K as C is the party who himself
MADE the alteration. Also, C warrants that instrument is genuine and in all
respects what it purports to be
o B is also liable to F for 150K since B is the party who ASSENTED the
alteration
o D and E are also liable for 150K as they are subsequent indorsers from the
alteration
o

Fraud in inducement is NOT FORGERY: PERSONAL DEFENSE; there is intention

to convert it into NI BUT the object of the contract which gave rise to the negotiable
instrument is fraudulent
EX. S sells to B what S represents as a diamond ring, when it is actually made of glass. B
issues a promissory note payable to S or order worth P100K. There is no fraud in the PN
itself but the contract which gave rise to the note has a fraud which it the object

2 kinds of fraud (fraud-intentional use of deceit or some dishonest means to deprive

another’s money, property or legal right)
FRAUD IN FACTUM (Forgery not under FRAUD IN INDUCEMENT
sec 23)
Real defense Personal Defense
 There is no intention to issue an There is intent to issue instrument
instrument
EX. B gave A, a blank paper asking for EX. S sells to B what he represents as a
A’s autograph but made it into a PN diamond ring, when it is actually made of
glass. B issues a check
The PN itself is fraud because A never
intended to execute a PN The check itself is not fraud because B
intends to issue instrument
The transaction which gave rise to the
instrument, particularly the object is fraud

Fraudulent impersonation
- Double intent:
(1) intent to make the instrument payable to the person before him or to the person
writing at the other end of the line; and
(2) intent to make the instrument payable to whom he believes the stranger to be

- 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
o Rationale:
 Theory of actual intent (drawee, in taking it upon indorsement of
impostor, carries out the intention that drawer entertained at the time
of delivery of the paper to impostor)
 Theory of estoppel (one whose act was the cause of the loss should
bear the consequences; drawer’s duty to ascertain identity of party
whom he has dealt)failing to make this discovery, drawer became the
victim of fraud
o Rule is qualified where impostor represents himself as agent of payee (loss
falls on the drawee or purchaser rather than on the drawer)

- EX. 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.

GR: signature which is forged or made without authority is wholly inoperative

Effects of Forgery
- Signature is wholly inoperative
 - No right to retain/give a discharge/enforce payment against any party can be
acquired through or under such signature

What is wholly inoperative? Only the signature itself (the instrument or other signatures
which are genuine are NOT affected; depend on whose signature is forged)
If maker’s signature is forged, instrument is WHOLLY inoperative

To whom it is wholly inoperative? To the person whose signature is forged

Extent of effects of forgery

- Only the forged signature is inoperative, not the NI, not the genuine ones
- The NI can be enforced by holders whose title does not depend on the forged
signature (bearer instruments)—may still recover damages under Quasi-delicts
o Can be enforced against those who are precluded from setting up the
forgery, like: (a) those who by their acts, silence or negligence, are
ESTOPPED from setting up the defense of forgery (b) Those who
WARRANT or admit the genuineness of the SIGNATURE in questions;
including acts or omissions that amount to ratification: indorser, acceptor,
person negotiating by mere delivery

Parties precluded from setting up the defense of forgery Can be enforced against them
a. The forger himself
b. those who by their acts, silence or negligence, are ESTOPPED from setting up the
defense of forgery
c. Those who WARRANT or admit the genuineness of the SIGNATURE in
questions; including acts or omissions that amount to ratification: indorser,
acceptor, person negotiating by mere delivery

EX. Suppose there is a PN which provides as follows:

I promise to pay B or order P100K on Dec 25 2023
Sgd A(forged by B)
Is PN valid? NO, it is totally inoperative against A

IF B-C-D-E-F
C, D &E are precluded to set up the real defense of forgery since as indorsers, they
warrant the validity of the instrument

IF A’s signature was not forged but rather B’s and B-C-D-E-F
 It is inoperative and ineffectual against A and B. Again, C, D &E are precluded to
set up the real defense of forgery since as indorsers, they warrant the validity of the
instrument

EX. Suppose there is a check which provides as follows:

Pay to the order of B P100K
Sgd A(forged)
To X Bank(one who issues the check)
Note: B has account with BPI
Check process: BPI will send the check to X Bank for clearing and X Bank would debit
the account of A
What is the recourse of A? A, maker should approach acceptor X Bank and demand to
credit 100K to his account. Drawee X bank was the proximate cause of the loss of A and
should know the drawer A’s signature. Generally, X Bank is liable when the drawer’s
signature is forged and his account was debited.

Indorsers as warrantors
- Warrant that the instrument indorsed by them is genuine in all respect what it
purports to be (Sec 65)
o Meaning of admission and due execution: that he signed it or it was signed
by another for him and with his authority; that it was in words and figures
exactly as set out

Acceptors as warrantors
- A drawee, by accepting the bill admits genuiness of the signature of the drawer

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 sgd
is genuine and to act upon such belief, CANNOT be permitted to set up the forgery of
such EX. A drawer may be precluded from defense of forgery of payee’s indorsement if
delivery by him to payee is negligent

Cases of forgery in general

(1) Forgery of PN
a. Forgery of indorsement
b. Forgery of the maker’s signature
(2) Forgery of BE
a. Forgery of indorsement
b. Forgery of the drawer’s signature
c. Forgery of acceptance by drawee
PN
- Cut off rule: a party whose indorsement is forged that is payable to order, all
parties PRIOR to him including the maker CANNOT be held liable
- If bearer, all parties prior to the party whose indorsement is forged including
maker, MAY be held liable by HDC because indorsement is not essential to constitute a
valid negotiation of a bearer instrument (Provided that it is mechanically complete before
delivery)
- Maker’s signature is forged, CANNOT be held liable by any holder

BOE
- Drawee CANNOT charge Drawer, if drawer paid; why? Duty of collecting is
only to the payee and drawer suffers no loss since it can recover from drawee
It’s the other way around, drawer can charge drawee
- Drawer CANNOT recover from CB, no privity
- Drawee CAN recover from CB
- Payee CAN recover from drawer
- Payee CAN recover from CB/recipient of amount
- CB bears the loss, but CAN recover from person to whom it paid
- Drawee bears the loss IF he accepted, but CAN recover from FORGER

Forged signature of maker in a note payable to ORDER

- A maker whose signature was forged cannot be held liable by any holder
- EX. PN which provides as follows:
I promise to B or order 100K on 12/25/2023
Sgd A (forged by B)
B-C-D-E-F
o Can F recover from A? NO it is inoperative as to the person whose
signature is forged
o From whom can F recover? B(forger)C, D, E(indorsers) who are also
precluded from setting up the real defense of forgery
o No right against A-maker, whose signature is forged
-

Forged indorsement in a note payable to ORDER (cut off rule only for forged
indorsements)
- The party whose indorsement is forged and parties PRIOR to him including the
maker cannot be held liable by the holder, W HDC or non-HDC
- EX. PN which provides as follows:
I promise to pay B or order 100K 12/25/2023
 Sgd A
Pay to C
Sgd B
Pay to D
Sgd C (forged by D)
Pay to E
Sgd D
Pay F
Sgd E
o C, whose indorsement is forged, is not liable to D, whether HDC or not.
o Apply Cut-Off Rule where all parties prior to whose indorsement is forged
cannot be held liable (exception: when prior parties are precluded from
setting up the defense of forgery)
o Cut off rule: a party whose indorsement is forged on a note payable to
order and all parties prior to him including the maker, CANNOT be held
liable by any holder
o A & B, parties prior to C, whose signature is forged, are also not liable to
D. The indorsement of the note by A

Forged indorsement in a note payable to BEARER

- Only the person whose signature was forged can raise forgery
- Liable To HDC: liable, because indorsement is NOT necessary to pass title
- NOT liable To NonHDC: NOT liable, because the defense is want of delivery of
a mechanically complete instrument (instrument must be complete before the
forgery)
- EX. PN which provides as follows:
I promise to pay B or bearer 100K 12/25/2023
Sgd A
In the hands of B, C stole it and delivered it to D-E-F
o NO issue on FORGERY since INDORSEMENT is NOT NECESSARY
o B is not liable because he can raise the defense of lack of delivery
o Why can B raise this? Cuz he is the party prior to unauthorized delivery
o Can C recover from it? NO, C has no right over the instrument since it was
not delivered to him
o Can C recover from B? YES since he is the possessor. B did not know that
C stole it
o Can F collect from A? YES

IF in the hand of B, C stole the note and made a special indorsement to D, forging B’s
signature; then D madeE-F:
 - Can F collect from B? NO. C can raise the real defense of forgery since his
signature was forged and as to him it is wholly inoperative
- Can F collect from A? YES since indorsement is not necessary to pass title in a
bearer instrument.
- IF C did not indorse the note, Can C recover from A? YES since he is the
possessor and A did not know X only stole it
- B can raise forgery as a defense against D, E and F
- D &E as special indorsers are liable because holder can trace his title back

- EX. PN which provides as follows (originally order) there is cut off rule
I promise to pay B or order 100K 12/25/2023
- Sgd A
Pay to C
Sgd B
Pay to D
Sgd C(forged by X)

Sgd D
Pay to F
Sgd E

Sgd F
G-H

- C, whose signature was forged, is not liable to H

- Applying the cut-off rule, A, & B parties prior to C, whose signature is forged, are
also not liable to F
- H can go after G, as immediate parties
- Additionally, under Sec 40 special indorsers can be liable whose title can be traced
back to him. Therefore, H, if HDC can go after E as special indorser.
- Sec 16: F non HDC, is there presumption of delivery? YES but only prima facie
- F HDC, is there presumption of delivery? YES CONCLUSIVE presumption

Rights of the parties in a forgery of a payee’s indorsement in a bill of exchange payable to

order in the absence of preclusion from setting up forgery by warranty or by estoppels

Forged signature of drawer in CHECK

- When paid, drawee is constructively negligent because drawee bank has sample of
his genuine signature
-
Forged signature of drawer in BE
- Cut off rule if originally payable to order
- Drawee SHOULD know drawer’s signature as its client
- Liabilities of parties when drawer’s sgd is forged
o Drawee for not knowing its clients-drawer’s signature
o Payee for negligence despite supposed knowledge of the circumstances
under which it is drawn and generally of the person drawing it, and is in
better position to judge the genuineness of the paper than indorsees
o Indorser/ Collecting Bank(little opportunity to commit negligence BUT
precluded as one)
o Drawer himself IF negligent or guilty of conduct as would estop him from
raising forgery as real defense

- EX. Suppose there is a check which provides as follows:

Pay to the order of B P100K
Sgd A(forged)
To X Bank(one who issues the check)
Note: B has account with BPI
Check process: BPI will send the check to X Bank for clearing and X Bank would debit
the account of A
- What is the recourse of A? A, maker should approach acceptor X Bank and
demand to credit 100K to his account. Drawee X bank was the proximate cause of
the loss of A and should know the drawer A’s signature. Generally, X Bank is
liable when the drawer’s signature is forged and his account was debited.

Forged indorsement in a BE payable to order

- Rights and liabilities of the parties when indorsement is forged in BE/check
o Drawee is LIABLE to the drawer for the amount of the check
o Collecting Bank is LIABLE to drawee under the warranties of an indorser
o The CB’s remedy is against the forger to whom it paid the money
o The forger is liable both criminally and civilly for the forgery
o Payee is NOT LIABLE on the check because his indorsement, being
forged, is wholly inoperative. Payee has R to demand another check from
the drawer and demand payment from drawee
o Drawer is NOT LIABLE because its order to pay the amount thereof to the
payee or his order not to any other persons
 o
- Drawee cannot charge account of drawer
o Where drawee paid a check on a forged indorsement
o Drawee has no defense against the drawer and drawer may recover from the
drawee for an instrument paid on a forged instrument
o Why: 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
o The duty of the collecting to exercise care in collection is due ONLY to the
payee
o 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
o Allowing the payee to recover from the recipient of the payment under a
forged indorsement
- Payee can recover from receipt of payment
o GR: person who has obtained possession of a check, upon unauthorized or
forged indorsement of payee’s signature and who collects from drawee is
LIABLE for proceeds to payee or other owner, notwithstanding
- Payee cannot recover from drawee UNLESS check has been certified or accepted
by the bank on which it is drawn
- As a rule, a drawee bank who has paid a check on which an indorsement has been
forged cannot debit the account of a drawer for the amount of said check. An
exception to this rule is when the drawer is guilty of negligence which causes the
bank to honor such checks.
- IF A issues a check to the order of B drawn against

Rights of the parties in a forgery of a payee’s indorsement in a bill of exchange

payable to order in the absence of preclusion from setting up forgery by warranty or by
estoppels.
a. Rights of drawer
o To recover from the drawee

b. Rights of drawee
o To recover from collecting bank

c. Rights of collecting bank

o To recover from the person to whom it paid
 d. Rights of payee whose signature is forged
o To recover from the drawer
o To recover from the recipient of the payment, such as the collecting bank

What would be the effect if it was the drawer’s signature on a bill of exchange that
was forged
a. With the drawee accepting the order
b. The drawee without accepting but pays the bill of exchange
- Drawee cannot recover from HDC not chargeable with any act or negligence or
disregard of duty 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

Forged indorsement in a BE payable to bearer

- Drawee may debit the drawer’s account nevertheless (forged indorsement is
not necessary to the title of the holder)
- Drawee cannot recover from the holder

Great Eastern Life Insurance Co., vs. Hong Kong & Shanghai Bank and Philippine
National Bank (43 Phil 678)
(CHECK drawer: GE payee: Lazaro Melicor drawee: HSBC collecting bank:PNB
forger: E.M. Maasim)
- Great Eastern Life Insurance Corporation drew a check worth P2K on HSBC
with whom it had an account, payable to the order of Lazaro Melicor
- This was stolen by E.M. Maasim, who forged the signature of Melicor as
endorser, then personally endorsed and deposited the check to his account in
PNB (collecting bank)
- HSBC rendered a bank statement to GE showing that the amount of the check
was charged to its account, and no objection was then made
- PNB endorsed the check to HSBC, who later debited the account of drawer
GE. The latter believed all along that payee Melicor received the payment
- 4 months later, upon knowledge of the debit HSBC did on its account, GE
demanded HSBC for the same to be credited. HSBC refused
- GE commenced an action to recover the 2k which was paid on the forged
check
- HSBC denied liability and averred that PNB should be the one liable
- TC: ruled against GE finding that PNB should not be responsible the bank was
not obliged to identify the signature of the former indorser. Neither could the
Hongkong and Shanghai Banking Corporation be held responsible in making
payment in good faith to the National Bank, because the latter is a holder in
due course of the check in questio

- W drawee HSBC is liable to drawer GE. YES has obligation to determine

the genuineness of the payee’s signature; had no right to debit the account
of drawer GE; privity with drawer GE

- WCB PNB is liable to HSBC. YES warranty that all prior Is are valid (but
can go against Maasim)

- Rights and liabilities of the parties when indorsement is forged in

BE/check
o Drawee HSBC is LIABLE to the drawer for the amount of the check
o Collecting Bank PNB is LIABLE to drawee under the warranties of an
indorser
o The CB PNB’s remedy is against the forger to whom it paid the money
o The forger is liable both criminally and civilly for the forgery
o Payee Lazao Melicor is NOT LIABLE on the check because his
indorsement, being forged, is wholly inoperative. Payee has R to
demand another check from the drawer and demand payment from
drawee
o Drawer Great Eastern is NOT LIABLE because its order to pay the
amount thereof to the payee or his order not to any other persons
-
- drawer GE can recover from drawee HSBC because drawee HSBC has the
privity with drawer GE to give it to payee Melicor.
- Drawee HSBC has the duty to determine genuineness of drawer (it does not
matter if the payee is the drawee bank’s depositary) HSBC should credit back
the money
- The only remedy of the bank paying a check to a person who has forged the
name of the payee is against the forger
- PNB should return the amount to HSBC because when PNB presented the
check to HSBC, PNB made a warranty that all prior indorsements are valid.
- This is without prejudice to PNB’s right of recourse against Maasim, its own
depositor
- Obligation remains outstanding
 - Ask drawer to issue another check or to pay him in cash for Melicor

- the forgery was that of Melicor, who was the payee of the check, and the legal
presumption is that the bank would not honor the check without the genuine
endorsement of Melicor. In other words, when the plaintiff received its bank
statement, it had a right to assume that Melicor had personally endorsed the
check, and that, otherwise, the bank would not have paid it
- Here, the plaintiff ordered the Shanghai Bank to pay the P2,000 to Melicor, and
the money was actually paid to Maasim and was never paid to Melicor, and he
never paid to Melicor, and he never personally endorsed the check, or
authorized any one to endorse it for him, and the alleged endorsement was a
forgery. Hence, upon the undisputed facts, it must follow that the Shanghai
Bank has no defense to this action.
- It is admitted that the Philippine National Bank cashed the check upon a forged
signature, and placed the money to the credit of Maasim, who was a forger.
That the Philippine National Bank then endorsed the check and forwarded it to
the Shanghai Bank by whom it was paid. The Philippine National Bank had no
license or authority to pay the money to Maasim or anyone else upon a forge
signature. It was its legal duty to know that Melicor's endorsment was genuine
before cashing the check. Its remedy is against Maasim to whom it paid the
money.
- Tc decision REVERSED

National Bank vs. National City Bank of New York, Motor Service Company
Check; drawer: Pangasinan Tranpo Co by J. L. Klar, Manager and Treasurer
(forged by ???)
Drawee: PNB
Payee: International auto repair shop
Collecting Bank: Natl City Bank of NY
Recipient: Motor Service Company
- Some unknown persons negotiated checks with Motor Service Company in
payment for automobile tires purchased from said defendant's stores,
purporting to have been issued by the "Pangasinan Transportation Co., Inc. by
J. L. Klar, Manager and Treasurer", against the Philippine National Bank and
the Motor Service Company believing that J.L’s signature on both checks were
genuine indorsed at Natl City Bank of NY
- in favor of the International Auto Repair Shop, for P144.50 and P215.75;
- Drawee PNB credited Natl City Bank of NY believing that they were genuine
but then found out they were not
- Drawee PNB demanded reimbursement from Natl City Bank of NY but was
refused
- Drawer Pangasinan Tranpo Co objected to have the proceeds deducted from
their deposit
- Tc dismissed giving PNB for total amt of 360.25
- W Natl City Bank of NY-collecting bank has the right to recover from drawee
PNB as to the value of the checks on which the signatures of the drawer were
forged
- W drawee PNB is liable? NO
- W CB NCYNY liable? YES for active negligence of accepting the check from
unknown persons. Recipient-MSC failed to verify identification of those
unknown persons
- whether the appellant's negligence in purchasing the checks in question is such
as to give the appellee the right to recover upon said checks, and on the other
hand, whether the drawee bank was not itself negligent, except for its
constructive fault in not knowing the signature of the drawer and detecting the
forgery.
- Where a bank, without inquiry or identification of the person presenting a
forged check, purchases it, indorses it, generally, and presents it to the drawee
bank, which pays it, the latter may recover if its only negligence was its
mistake in having failed to detect the forgery, since its mistake, did not mislead
the purchaser or bring about a change in position.
- International Auto Repair Shop. The Motor Service Co., Inc., made no inquiry
whatsoever as to the extent of the authority of these unknown persons. Our
Supreme Court said once that "any person taking checks made payable to a
corporation, which can act only by agents, does so at his peril, and must abide
by the consequences if the agent who indorses the same is without authority"
- In the light of the foregoing discussion, we conclude:
1. That where a check is accepted or certified by the bank on which it is drawn,
the bank is estopped to deny the genuineness of the drawer's signature and his
capacity to issue the instrument;
2. That if a drawee bank pays a forged check which was previously accepted or
certified by the said bank it cannot recover from a holder who did not
participate in the forgery and did not have actual notice thereof;
3. That the payment of a check does not include or imply its acceptance in the
sense that this word is used in section 62 of the Negotiable Instruments Law;

4. That in the case of the payment of a forged check, even without former
acceptance, the drawee can not recover from a holder in due course not
chargeable with any act of negligence or disregard of duty;
5. That to entitle the holder of a forged check to retain the money obtained
thereon, there must be a showing that the duty to ascertain the genuineness of
the signature rested entirely upon the drawee, and that the constructive
negligence of such drawee in failing to detect the forgery was not affected by
any disregard of duty on the part of the holder, or by failure of any precaution
which, from his implied assertion in presenting the check as a sufficient
voucher, the drawee had the right to believe he had taken;

6. That in the absence of actual fault on the part of the drawee, his constructive
fault in not knowing the signature of the drawer and detecting the forgery will
not preclude his recovery from one who took the check under circumstances of
suspicion and without proper precaution, or whose conduct has been such as to
mislead the drawee or induce him to pay the check without the usual scrutiny
or other precautions against mistake or fraud;

7. That on who purchases a check or draft is bound to satisfy himself that the
paper is genuine, and that by indorsing it or presenting it for payment or
putting it into circulation before presentation he impliedly asserts that he
performed his duty;

8. That while the foregoing rule, chosen from a welter of decisions on the issue
as the correct one, will not hinder the circulation of two recognized mediums
of exchange by which the great bulk of business is carried on, namely, drafts
and checks, on the other hand, it will encourage and demand prudent business
methods on the part of those receiving such mediums of exchange;

9. That it being a matter of record in the present case, that the appellee bank in
no more chargeable with the knowledge of the drawer's signature than the
appellant is, as the drawer was as much the customer of the appellant as of the
appellee, the presumption that a drawee bank is bound to know more than any
indorser the signature of its depositor does not hold;

10. That according to the undisputed facts of the case the appellant in
purchasing the papers in question from unknown persons without making any
inquiry as to the identity and authority of the said persons negotiating and
indorsing them, acted negligently and contributed to the appellee's constructive
negligence in failing to detect the forgery;
 11. That under the circumstances of the case, if the appellee bank is allowed to
recover, there will be no change of position as to the injury or prejudice of the
appellant.

- Wherefore, the assignments of error are overruled, and the judgment appealed
from must be, as it is hereby, affirmed, with costs against the appellant. So
ordered.

Jai-alai Corp. of the Phil. Vs Bank of Philippine Islands (66 SCRA 29)
Drawers: Delta (5) Enrique 2 Luzon 1 Roxas 2
Drawees: Pacific Banking Corp 7 China Banking Corp 1 PNB 1
Payee: Inter Island Gas—Ramirez(F)—Jai Alai Collecting bank: BPI
- 10 checks were deposited by Jai Alai in its current account with BPI. These
checks were from a certain Ramirez, a consistent better in its games, who was
a sales agent from InterIsland Gas
- InterIsland later found out the forgeries committed in the checks and thus
informed all parties concerned
- Upon demands on the bank, BPI debited the account of Jai Alai
- Jai Alai tried to issue a check for payment of shares of stock but was
dishonored for insufficient funds
- Jai Alai filed a complaint against BPI
- W CB BPI improperly debited Jai Alai’s current account, negligent? NO
- BPI acted within legal bounds. When Jai Alai deposited the checks to its
account, the relationship created was one of agency still and not of creditor-
debtor. BPI was to collect from the drawees of the checks with the
corresponding proceeds
- W CB BPI is liable to drawees for reimbursement for the indorsement?
YES
- BPI as a collecting bank which indorsed the checks to the drawee for clearing,
should be liable to the drawee for reimbursement for the indorsement on the
checks had been forged prior to delivery to Jai Alai. The payments made by the
drawee banks to BPI were ineffective-the cr-dr relationship hadn’t been validly
effected

Republic Bank vs. Ebrada (65 SCRA 680)

Drawer: Bureau of Treasury Drawee: Republic Bank
Payee: Martin Lorenzo(forged by) Holder:Mauricia Ebrada
- Mauricia Ebrada encashed backpay checks with drawee Rep Bank but the
drawee bank was later advised that the alleged indorsement of payee Martin
Lorenzo was forged
 - Drawer BT requested drawee RP to refund P1,248.08. To recover, drawee RP
made demands upon Ebrada to account some amount but the latter refused
- RP sued Ebrada
- TC: in favor of the bank and ordered ebrada to pay
- W bank can recover from last indorser. YES
- Only negotiation based on forged or unauthorized signature is inoperative
- Ebrada had duty to ascertain genuineness before presenting the checks to the
bank for payment
- Bank may recover from ebrada

Metropolitan Waterworks and Sewerage System vs. CA (143 SCRA 157) 23 checks
Drawer: NWSA the successor in interest of MWSS
Drawee: PNB
Payee: Deogracias, Natividad, among others
Holder: Raul Dizon, Arturo Sison and Antonio Mendoza (found to be fictitious persons)
CB: PCIB
- MWSS had an account from PNB. Its treasurer, auditor, and General Manager
are the ones authorized to sign checks.
- During a period of time, 23 checks were drawn and debited against the account
of petitioner. Bearing the same check numbers, the amounts stated therein were
again debited from the account of petitioner.
- The amounts drawn were deposited in the accounts of the payees in PCIB. It
was found out though that the names stated in the drawn checks were all
fictitious. Petitioner demanded the return of the amounts debited but the bank
refused to do so. Thus, it filed a complaint.
- Tc: in favor of (MWSS) by ordering the defendant (PNB) to restore the total
sum of P3,457,903.00 to plaintiff's Account No. 6,
- CA reversed tc’s decision
- Forgery? NO not proven by clear and convincing evidence
- There was no categorical finding that the 23 checks were signed by persons
other than those authorized to sign. On the contrary, the NBI reports shows that
the fraud was an “inside job” and that the delay in the reconciliation of the
bank statements and the laxity and loss of records control in the printing of the
personalized checks facilitated the fraud. It further doesn’t provide that the
signatures were forgeries.
- Forgery cannot be presumed. It should be proven by clear, convincing and
positive evidence. This wasn’t done in the present case.
- The petitioner cannot invoke Section 23 because it was guilty of negligence not
only before the questioned checks but even after the same had already been
negotiated.
Gempesaw vs CA (218 SCRA 682) forged indorsement
Drawer: Natividad Gempesaw (actively negligent)
Drawee: Philippine Bank of Communications
Payee:
- Gempensaw was the owner of many grocery stores. She paid her suppliers
through the issuance of checks drawn against her checking account with
respondent bank PBCom. The checks were prepared by her bookkeeper Alicia
Galang.
- In the signing of the checks prepared by Galang, Gempensaw didn't bother
herself in verifying to whom the checks were being paid and if the issuances
were necessary. She didn't even verify the returned checks of the bank when
the latter notifies her of the same. During her two years in business(82 checks
issued), there were incidents shown that the amounts paid for were in excess of
what should have been paid. It was also shown that even if the checks were
crossed, the intended payees didn't receive the amount of the checks.
- petitioner made a written demand on respondent drawee Bank to credit her
account with the money value of the eighty-two (82) checks totalling
P1,208.606.89 for having been wrongfully charged against her account.
Respondent drawee Bank refused to grant petitioner's demand
- W drawer Gempesaw can set up the defense of forgery. NO
- W there is forgery of drawer’s signature? NO
- In the case at bar the checks were filled up by petitioner’s employee Galang
and were later given to her for signature. Her signing the checks made the
negotiable instruments complete. Prior to signing of the checks, there was no
valid contract yet. Petitioner completed the checks by signing them and
thereafter authorized Galang to deliver the same to their respective payees. The
checks were then indorsed, forged indorsements thereon.
- As a rule, a drawee bank who has paid a check on which an indorsement has
been forged cannot debit the account of a drawer for the amount of said check.
An exception to this rule is when the drawer is guilty of negligence which
causes the bank to honor such checks. Petitioner in this case has relied solely
on the honesty and loyalty of her bookkeeper and never bothered to verify the
accuracy of the amounts of the checks she signed the invoices attached thereto.
And though she received her bank statements, she didn't carefully
examine the same to double-check her payments. Petitioner didn't exercise
reasonable diligence which eventually led to the fruition of her bookkeeper’s
fraudulent schemes.
Ramon Illusorio vs. CA (GR No. 139130, November 27, 2002)
Drawer: Illusorio(active negligence of drawer)
Drawee: Manila Banking Corporation
Payee:____ (Kathrine Eugenio encashed and deposited them to herself)
- Petitioner was a prominent businessman who, because of different business
commitments, entrusted to his then secretary the handling of his credit cards
and checkbooks. For a material period of time, the secretary was able to encash
and deposit in her personal account money from the account of petitioner.
- Upon knowledge of her acts, she was fired immediately and criminal actions
were filed against Katherine Eugene. Thereafter, petitioner requested the bank
to restore its money but the bank refused to do so.
- CA disposed the case held that petitioner’s own negligence was the proximate
cause of his loss
- W drawer Illusorio can set up the defense of forgery. NO
- The petitioner doesn’t have a course of action against the bank. To be entitled
to damages, petitioner has the burden of proving negligence on the part of the
bank for failure to detect the discrepancy in the signatures on the checks. It is
incumbent upon petitioner to establish the fact of forgery.
- Curiously though, petitioner failed to supply additional signature specimens as
requested by the NBI. The bank was not also remiss in performance of its
duties, it practices due diligence in encashing checks. The bank didn’t have any
hint of the modus operandi of Eugenio as she was a regular customer,
designated by the petitioner himself to transact on his behalf.
- It was petitioner who was negligent in this case. He failed to examine his bank
statements and this was the proximate cause of his own damage. Because of
this negligence, he is precluded from setting up the defense of forgery with
regard the checks.

Traders Royal Bank vs. RPN, Inc. (GR No. 138510, October 10, 2002)
Drawer: RPN, IBN
Drawee: Traders Royal Bank
Payee: BIR
Collecting Bank: Security Bank
- RPN, IBC and BBC were all assessed for tax by the BIR. To pay the assessed
taxes, they bought manager’s checks from petitioner bank. None of these
checks were paid to the BIR. They were found to have been deposited in the
account of a third person in Security Bank.
- As the taxes remained unpaid, the BIR issued a levy, distraint and garnishment
against the three networks. An action was filed wherein it was decided that the
 networks should be reimbursed for the amounts of the checks by petitioner
bank and the latter in turn, must be reimbursed by Security Bank.
- In the appellate court, it was held that Traders Bank should be the only bank
liable.
- TRB liable. YES
- Traders royal bank is liable for NOT making sure that the check was duly
indorsed by original payee, the loss falls upon who
- Petitioner ought to have known that where a check is drawn payable to the
order of one person and is presented for payment by another and purports upon
its face to have been duly indorsed by the payee of the check, it is the primary
duty of the petitioner to know that the check was duly indorsed by the original
payee, and it pays the amount of the check to the third person, who has forged
the signature of the payee, the loss falls upon the petitioner who cashed the
check. Its only remedy is against the person to whom it paid the money.
- It should be further noted that one of the checks was a crossed check. The
crossing of the check should have put petitioner on guard; it was dutybound to
ascertain the indorser’s title to the check or the nature of his possession.
- W Collecting bank security bank is liable? NO

Sec 24 provides for prima facie presumption of consideration

Mere introduction of instrument, sufficient for prima facie presumption

Effect of lack of consideration: without effect; not demandable

Sec 25 Value = any consideration sufficient to support a simple contract (eg. Antecedent
or preexisting debt—incurred before transfer or payment of the debtor) capable of
pecuniary estimation
Consideration = inducement—cause or impelling influence which induces a contracting
party to enter into a contract

Sec 26 Holder for value = one who gives valuable consideration for an instrument issued
or negotiated to him
Considered as holder for value in respect to ALL parties who become such PRIOR to that
time

Sec 27 When lien on instrument constitutes holder for value

If one who has taken NI as collateral security for a debt has a lien on the instrument
a) IF amt of instrument > debt secured
 - Pledgee is a holder for value to the EXTENT OF HIS LIEN; he must deliver
the surplus to the pledgor
- EX.
I promise to pay P or order 10K on Dec 25 2023
Sgd. M
- P owes A 7K therefore, A has lien on the note AND is a holder for value only to
the extent of P7K
- Can A as indorsee collect the whole amount of 10K from M or only 7K?
DEPENDS. If M has defenses against P, such as absence of consideration, A
even if a HDC can collect only 7K from M, the extent of his lien.
- Rationale: A is actually a HDC for 7K only. For the balance of 3K he is NOT a
holder for value and it being one of the requisites of HDC.
- IF M has personal defenses, he cannot use such as far as the 7K is concerned
- IF M has real defenses, A cannot collect anything
- IF M has NO DEFENSES against P, indorser. payee then A CAN collect the
whole amount of 10K and hold the 3K for the benefit of P

-
b) IF amt of instrument </= debt secured
- Pledgee is a holder for value for the FULL AMOUNT and may therefore,
recover all
c) IF party liable has defenses
- Pledgee can collect on the instrument only to the extent of the amount of the
debt
- IF REAL defenses, pledgee can recover NOTHING upon the instrument

Sec 28 effect of want of consideration (PERSONAL DEFENSE)

+partial failure is a defense pro tanto (also only partial)
Those precluded to set up such defense: drawee who accepts the bill, accommodated
party (he cannot recover from accommodation party, ang kapal naman KEKW)
Accommodation party: one who sign the instrument as a party, without value for the
purpose of lending his name to some other person

- Absence of consideration
o total lack; transactions where no consideration was intended to pass
o EX
I promise to pay P or order 10M payable on dec 25 2023
 Sgd M

(NOTE! This was made in payment for a parcel of land which DOES
NOT EXIST)
o As between M & P, there can be NO RECOVERY on the note.
o IF P indorses the note to A, a HDC, A can recover from M because
absence of consideration is only a personal defense

- Failure of consideration
o neglect to give, to do or perform consideration agreed upon;
o implying that the giving of consideration was contemplated but it failed
to pass
o EX
I promise to pay P or order 10M payable on dec 25 2023
Sgd M

(NOTE! This was made in payment for a parcel of land but P FAILED
TO DELIVER it to M because P sold it again to X who in good faith
registered the sale)
o AGAIN, As between M & P, there can be NO RECOVERY on the note.
o AGAIN IF P indorses the note to A, a HDC, A can recover from M
because absence of consideration is only a personal defense
o IF only 2/3 portion of the land was delivered, there would be a partial
failure of consideration which would bar recovery only pro tanto
o Thus P could recover only 2/3 of the note as M is not liable to the
extent of 1/3 which is the price of the undelivered portion

Sec 29 Liability of accommodation party (to HV)

- Accommodation party = one who has signed the instrument as maker, drawer,
acceptor or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person
- Requisites of an accommodation party PaWiLe
1. He must be a party to the instrument, signing as maker, drawer, indorser, or
acceptor
2. without receiving any value therefore
3. sign for the purpose of lending his name or credit

- Effect of accommodation party:

o Accommodated party is the one principally liable
  Accommodated party CANNOT enforce payment against the
accommodation party for reimbursement (ang kapal naman)
o Accommodation party is liable (in effect a surety)
 Accommodation party may recover from accommodated party
for reimbursement
o Despite no consideration, NOT a defense!!
o
- EX. P is in immediate need of 10K, but he cannot find anybody lend him
money and no one trusts him because he has no credit. He goes to M, a rich
friend, who is willing to accommodate him by letting him borrow on his (M’s)
credit. M signs a note:
I promise to P(accommodated party) or order 10K
Sgd M (accommodation party)
P indorses the note to PNB which discounts the note because of M’s credit

- The note is an accommodation note, M is the accommodation party and P is the

accommodated party.
- Can P recover from M? NO because P gave no consideration to M and was
merely accommodated by M
- Can holder PNB recover from M? YES
- The fact that M did not receive any consideration for the note would NOT BE
A DEFENSE in an action brought against him by PNB.
- This would still be true even if PNB is nonHDC (knew that M’s signature was
made for P’s accommodation)
- If M were not to be held liable, then the accommodation would not serve any
purpose
- IF after signing the note, M keeps it in his safe but P steals it. P then indorses
the note to PNB who is a nonHDC (know that it was stolen)
- M can raise the DEFENSE OF LACK OF delivery under Sec 16 and is
therefore NOT liable

Maulini vs. Soriano (28 Phil 640)

PN maker: Padern, Moreno & Co
Payee/Indorser: Don Antonio G. Serrano
Indorsee: Don Fernando Maulini (plaintiff)
- This is an appeal from a judgment of the Court of First Instance of the city of
Manila in favor of the plaintiff for the sum of P3,000, with interest thereon at
 the rate of 11⁄2 per cent month from September 5, 1912, together with the
costs.
- The action was brought by the plaintiff upon the contract of indorsement
alleged to have been made in his favor by the defendant upon the following
promissory note:
3,000. Due 5th of September, 1912.
We jointly and severally agree to pay to the order of Don Antonio G.
Serrano on or before the 5th day of September, 1912, the sum of three
thousand pesos (P3,000) for value received for commercial operations.
Notice and protest renounced. If the sum herein mentioned is not
completely paid on the 5th day of September, 1912, this instrument will
draw interest at the rate of 11⁄2 per cent per month from the date when due
until the date of its complete payment. The makers hereof agree to pay the
additional sum of P500 as attorney's fees in case of failure to pay
the note.
Manila, June 5, 1912.
(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For
Jose Padern, by F. Moreno. Angel Gimenez.

The note was indorsed on the back as follows:

Pay note to the order of Don Fernando Maulini, value received. Manila,
June 5, 1912. (Sgd.) A.G. Serrano.

W Payee Serrano was an accommodation indorser. NO not an accommodation under

sec 29; just a mere favor to him and not one which bound serrano
Whether the defendant Serrano, an accommodating party, is liable to the payee. NO

HELD:
1. The accommodation to which reference is made in Section 29 is not one to the person
who takes the note but one to the maker or indorser of the note. It is true, that in the case
at bar, it was an accommodation to the plaintiff, in the popular sense, to have the
defendant indorse the note; but it wasn't the accommodation described in the law but
rather a mere favor to him and one which in no way bound Serrano. In cases of
accommodation indorsement, the indorser makes the indorsement for the accommodation
of the maker. Such an indorsement is generally for the purpose of better securing the
payment of the note—that is, he lends his name to the maker and not the holder.
Sadaya vs. Sevilla (19 SCRA 924)
PN maker: Sadaya, Sevilla (accommodating maker) and Varona (accommodated maker)
Payee: bank
- Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the
bank. Varona was the only one who received the proceeds of the note. Sadaya
and Sevilla both signed as co-makers to accommodate Varona.
- Thereafter, the bank collected from Sadaya. Varona failed to reimburse.
- Consequently, Sevilla died and intestate estate proceedings were established.
- Sadaya filed a creditor’s claim on his estate for the payment he made on the
note. The administrator resisted the claim on the ground that Sevilla didn't
receive any proceeds of the loan. The trial court admitted the claim of Sadaya
though tis was reversed by the CA.

W Sadaya can claim against the estate of Sevilla as co-accomodation party when
Verona as principal debtor is not yet insolvent. NO It was never shown that there was
a judicial demand on Sadaya to pay the obligation and also, it was never proven that
Varona was insolvent. Thus, Sadaya cannot proceed against Sevilla for reimbursement.

On principle, a solidary accommodation maker—who made payment—has the right to

contribution, from his co-accomodation maker, in the absence of agreement to the
contrary between them, subject to conditions imposed by law. This right springs from an
implied promise to share equally the burdens thay may ensue from their having consented
to stamp their signatures on the promissory note.
The following are the rules:
1. A joint and several accommodation maker of a negotiable promissory note may
demand from the principal debtor reimbursement for the amount that he paid to the payee
2. A joint and several accommodation maker who pays on the said promissory note may
directly demand reimbursement from his co-accommodation maker without first directing
his action against the principal debtor provided that
a. He made the payment by virtue of a judicial demand
b. A principal debtor is insolvent.
It was never shown that there was a judicial demand on Sadaya to pay the obligation and
also, it was never proven that Varona was insolvent. Thus, Sadaya cannot proceed against
Sevilla for reimbursement.
Crisologo-Jose vs. CA (177 SCRA 594)
Check drawer: Movers Enterprise (president) (Accomodating maker)
Payee: petitioner Crisologo-Jose for waiver over property which GSIS agreed to sell to
sps ong Drawee: traders royal bank Sps Ong (Accomodated party)
- The president of Movers Enterprises, to accommodate its clients Spouses Ong,
issued a check in favor of petitioner Crisologo-Jose. This was in consideration
of a quitclaim by petitioner over a parcel of land, which the GSIS agreed to sell
to spouses Ong, with the understanding that upon approval of the compromise
agreement, the check will be encahsed accordingly.
- As the compromise agreement wasn't approved during the expected period of
time, the aforesaid check was replaced with another one for the same value.
- Upon deposit though of the checks by petitioner, it was dishonored. This
prompted the petitioner to file a case against Atty. Bernares and Santos for
violation of BP22.
- Meanwhile, during the preliminary investigation, Santos tried to tender a
cashier’s check for the value of the dishonored check but petitioner refused to
accept such. This was consigned by Santos with the clerk of court and he
instituted charges against petitioner. The trial court held that consignation
wasn't applicable to the case at bar but was reversed by the CA.

W Movers Enterprise (drawer) is liable to petitioner-payee as an accommodation

party when the corporate officer issued a check in their personal capacity. NO
- Petitioner averred that it is not Santos who is the accommodation party to the
instrument but the corporation itself. But assuming arguendo that the
corporation is the accommodation party, it cannot be held liable to the check
issued in favor of petitioner. The rule on accommodation party doesn't include
or apply to corporations which are accommodation parties.
- This is because the issue or indorsement of another is ultra vires. Hence, one
who has taken the instrument with knowledge of the accommodation nature
thereof cannot recover against a corporation where it is only an
accommodation party. If the form of the instrument, or the nature of the
transaction, is such as to charge the indorsee with the knowledge that the issue
or indorsement of the instrument by the corporation is for the accommodation
of another, he cannot recover against the corporation thereon.
- By way of exception, an officer or agent of a corporation shall have the power
to execute or indorse a negotiable paper in the name of the corporation for the
accommodation of a third party only is specifically authorized to do so.
Corollarily, corporate officers have no power to execute for mere
accommodation a negotiable instrument of the corporation for their individual
debts and transactions arising frm or in relation to matters in which the
 corporation has no legitimate concern. Since such accommodation paper
cannot be enforced against the corporation, the signatories thereof shall be
personally liable therefore, as well as the consequences arising from their acts
in connection therewith.

Stelco Marketing Corp. vs. CA (210 SCRA 596)

Check drawer: Steelweld Corporation (accommodation maker)
- Petitioner was engaged in the distribution and sale of structiural steel bars.
RYL bought on several occasion large quantities of steel bars but the same
were never paid for despite several demands by petitioner.
- On a relevant date, RYL gave to Armstrong Industries a check in payment of
its obligations. The check was drawn by Steelweld Corporation— allegedly the
owner of RYL persuaded the president of Steelweld to accommodate the
former in its obligation.
- The check, when deposited was thereafter dishonored due to insufficient funds.
A case ensued for violations of BP22 but the case was dismissed as the check
was held to be for accommodation purposes only.Thereafter a complaint was
filed by petitioner against RYL and Steelweld for the recovery of sum of
money in payment of the steel bars ordered. RYL was nowhere to be found that
is why the proceedings commenced as against Steelweld only. The trial court
decided in favor of petitioner but this was reversed by the CA.

Whether Steelweld as an accommodating party can be held liable by Stelco for the
dishonored check. YES BUT NOT BY STELCO
Petitioner contends that the acquittal of Lim and Tianson didn't operate to release
Steelweld from its liability as an accommodation party. Noteworthy is that neither said
pronouncement nor any other part of the judgment of acquittal declared it liable to
petitioner. To be sure, as regards an accommodation party, the condition of lack of notice
of any infirmity or defect in title of the persons negotiating it is of no application since
the law preserves the right of recourse of a holder for value against an accommodation
party notwithstanding knowledge that at the time of taking the instrument, knew him only
as an accommodation party.
Further, there is no evidence to show that petitioner possessed the check before the
instrument’s presentment and dishonor. In what transpired during the transactions
involving the check, evidence and facts show that there was any participation or
intervention on the part of petitioner. What the record shows is that only after the check
was deposited and dishonored, petitioner came into possession of it in some way and was
able to give it in evidence at the trial of the civil case it has instituted against the drawers
of the check.