CASES OF FORGERY IN GENERAL EFFECTS OF PAMENT OF A BILL/CHECK UNDER A FORGED

Forgery of Promissory Notes Forgery of Bills of Exchange INSTRUMENT (Applies ONLY if ORDER)
a) forgery of an a) forgery of an
indorsement on the indorsement on the bill DRAWEE  GR: Drawee may NOT debit the drawer‘s account
note b) forgery of the drawer‘s BANK (IF order)
b) forgery of the signature  EXs:
maker‘s signature o w/ acceptance by 1. when the drawer‘s negligence is the
the drawee proximate cause of the loss.
o - w/o such 2. if the payee was NOT a client of the
acceptance but bank and there was no way of
the bill is paid by ascertaining the authenticity of the
the drawee payee‘s indorsement on the checks
 Drawee can recover the amount paid from the
Application of Sec. 23 person to whom payment was made since the
1. Sign by one who is NOT really in agent drawee makes no warranty as to the genuineness
2. Sign by one who PURPORTS to be an agent of any indorsement.
 Duties:
Persons Precluded/Estopped from Setting Up the Defense of Forgery 1. to verify the genuineness of the drawer‘s
1. those estopped by their acts, silence, or negligence signature and NOT of the indorsement
a. the FORGER as he cannot raise his own malfeasance as a defense because the drawer is its client
b. ADMIT GENUINENESS of their signature expressly or impliedly 2. to promptly inform the presentor of the
through silence or failure to deny under oath forgery upon discovery
i. indorsers 3. it must be free of any negligence in failing to
ii. acceptors discover the alteration or forgery in order
iii. persons negotiating by delivery that it may claim reimbursement from the
collecting bank.

DRAWER  IF negligent, may generally pass liability back to

the party who took from the forger and the forger
himself.
o BUT NOT to drawee
 Both Drawer & Drawee Negligent: SHARE in the
loss suffered
INDORSER  An indorser subsequent to the forgery of an
instrument could be made liable on the instrument
because by negotiating the instrument, he
warrants it to be genuine and in all respects what it
purports to be.

PAYEE  The payee of a check whose signature has been

RULE: MUST KNOW FIRST if ORDER OR BEARER forged may recover from:
1. the drawer, if the payee is not negligent & if
RIGHTS OF PARTIES IN CASES OF FORGED INDORSEMENTS there is no estoppels on his part
2. an indorsee to whom the check was paid by
NOTE BILL
the drawee bank
PAYABLE TO ORDER PAYABLE TO ORDER
3. the drawee who paid the amount of the
 ALL parties PRIOR to forgery and the  Forged indorsement check to one claiming under a forged
party whose signature is forged is is WHOLLY instrument
NOT liable to ANY holder even in due inoperative 4. the collecting bank responsible for the
course encashment of the check
PAYABLE TO BEARER PAYABLE TO BEARER  If the check was never delivered to the payee, he
 The drawee MAY does not acquire any right or interest therein and
debit the drawer‘s cannot assert any cause of action, founded on the
Party Liable to
account in spite of checks
Whose Holder in due course the forged
indorsement
indorsement is COLLECTING  A collecting bank that guarantees all prior
forged  Reason: the forged BANK indorsements shall be liable to the drawee for
indorsement is not money paid on such indorsements should they
Maker and others ANY holder necessary to the title
PRIOR to forged prove to be forgeries.
of the holder o when the drawee bank fails to return a
indorsement  The drawee forged check or altered check to the
 Reason: the instrument being CANNOT recover collecting bank w/in the 24-hour
originally payable to bearer, it can be from the holder clearing period, the collecting bank is
negotiated by mere delivery; absolved from liability
indorsement is NOT necessary to the  By stamping on checks accepted makes the
title of the holder; even if the assurance that it has ascertained the genuineness
indorsement is forged, the forgery of all prior indorsements
may be disregarded
 The collecting bank or last indorser generally
 Sec. 48 – the forged indorsement suffers the loss. The collecting bank has privity w/
does NOT prevent the transfer of title its depositors who are its clients; hence it is in a
since the holder may just strike out the better position to detect forgery, fraud or
forged indorsement irregularity in the indorsement
 Sec. 16 – the only defense available  Even if the collecting bank was not negligent, it
is want of delivery, but this can be would still be liable to the drawee bank
raised only against a holder NOT in because of its indorsement.
due course
 GR: the collecting bank may recover from the
person who forged the indorsement on the check
& deposited or enchased the same
 E: if the collecting bank is guilty of negligence, it
cannot recover from the innocent person who
deposited/encashed the check.
 If both the collecting bank & drawee bank are both
guilty of negligence, both banks shall share in the
loss.