La dignidad humana en las declaraciones de derechos

before delivery.

INSTRUMENT NOT VALID AGAINST PARTY BEFORE DELIVERY

Q: A signed a blank check which was stolen by B who filled the amount and a fictitious name as payee. B then indorsed the payee’s name and passed the check to C, C to D, D to E and E to F. Can F enforce the instrument against A? Why?

A: NO, against A, whose signature was placed on check prior to delivery, instrument is not valid.

Q: Suppose F is a HDC. Would answer still be the same?

A: YES, law puts the phrase “any holder”.

BUT INDORSERS ETC ARE LIABLE

Invalidity of instrument only refers to parties whose signatures appear on instrument prior delivery. As to parties whose signatures appear after delivery, instrument may be valid. Thus where B who steals blank check and fills it up, indorses. F can enforce it against BCDE. Instrument is valid as to B because he was the one responsible for the negotiation, theft and filling up and because he is an indorser and as such he warrants that instrument is what it purports to be and as to CDE because they are indorsers.

Fraud in factum The person who signs the instrument lacks knowledge of the character or essential terms of the instrument. But the defense is not available if the party involved ha reasonable opportunity to obtain such knowledge.

NIL has no provision as to fraud in factum. Maker may however be estopped by negligence to deny knowledge of character which he has signed and if he was not negligent, he is not liable. In some cases, use of signature was applied was forgery and analogous to forger under SEC 23.

FRAUD IN FACTUM: cases in which person, without negligence, has signed but was deceived as to character of instrument and without knowledge of it.

Essential element is that maker or indorser must have exercised ordinary diligence and no matter contributed negligently to imposition.

TEST: WON artifice or trick constitutes forgery is WON signature is procured in such manner as to be voluntary act of signer. If procured in such manner, without assent of signer and not a voluntary act, he is not liable.

REASON: instrument never existence; treated as though defendant never signed the instrument and since there is no instrument, defendant cannot be liable

Illustrative cases

1. Where note was signed under belief that he was signing a guardians’ petition 2. Where note was signed under belief that it was a petition for a road

3. Where signature was procured by fraudulent use of carbon paper Forgery and want

of authority SEC 23. Forged signature; effect of—When a signature is forged or made without authority of person whose signature it purports to be, it is wholly inoperative and no right to retain the instrument or to give a discharge there or to enforce payment against any party, 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 forgery or want of authority.

Take note of the following rules:

1. Only the forged signature is wholly inoperative and not the instrument itself, and not the genuine signatures.

2. In case of forgery of an indorsement of an instrument payable to order, it is not only the person whose signature was forged who would be liable but also the parties prior to such person. Payment under a forged indorsement is not to the drawer’s order.

3. Despite the forgery of the signature, there may be parties who shall be precluded from setting up the forgery or want of authority such as:

a. Those who ratified the forgery expressly or impliedly b. Those who were negligence.

i. In one case, the drawer was not allowed to recover although his signature was forged because the person who encashed the checks was his trusted secretary. The drawer’s negligence was considered the proximate cause of his loss because the entrusted his blank checks and credit cards to his secretary.

4. GR: in case of forgery of indorsement of payee of the check, the drawee bank cannot debit the darwer’s account and that loss shall be borne by the drawee bank. The depositary or collecting bank is liable to the drawee because it guarantees all prior indorsement.

a. NOTE: This is subject to qualification that the drawee himself was not negligence or guilty of such conduct as would estop him from asserting the forged character of the indorsement as against the drawer.

i. In another case, SC explained that only the drawee may be held liable if it was not established that the checks containing forged

indorsements passed throught he alleged collecting bank. The drawee in this case encashed the checks (one of which was crossed) presented by unknown persons although said checks were payable to BIR. Hence, the drawee was negligent in encashing the checks.

5. If the signature of the drawer in a check is forged, drawee cannot charge the account of the drawer and the drawee cannot recover from collecting bank.

What is inoperative is only the signature and not the instrument.

Parties precluded from raising forgery as defense:

1. Person negotiating by delivery 2. Prior parties/indorsers

Forgery of maker’s

signature Forgery of indorser’s signature Forgery of drawer’s signature Forgery of bearer instruments Maker cannot be held

liable by any holder, because the purported maker is not a party to the instrument as his forged instrument is inoperative and has no right to retain, enforce or discharge the note.

Indorsement is inoperative, thus it cannot effect any transfer of any rights to the holder.

Q: A (maker) -> B -> C -> D ->E B’s signature was forced. Can A raise the defense of forgery?

A: YES

Q: Can E go after B?

A: NO, his recourse is to go after C or D.

The CUT-OFF RULE is applicable.

Indorsement is necessary for transfer of title.

Q: X-> A -> B -> C -> D ->E

Can acceptor admit the genuineness of the signature of the payee?

A: NO

Q: Can the drawee refuse payment of BE bearing a forced indorsement?

A: YES, Cut-off Rule applies.

 ASSOCIATED BANK vs. CA; PNB vs.

CA; RP vs. EBRADA

In cases involving a forced check, where the drawer’s signature is forged, the drawer can recover from the drawee bank. No drawee has a right to pay a forged check. If it does, it shall have to re-credit the amount of the check to the account of the drawer.

REASON: Drawee bank is bound to know the signature of the drawer since the drawer is its customer.

Q: What is the implication of accepting BE baring a forged signature of the drawer?

A: SEC 62, once accepted, the drawee cannot raise forgery as a defense.

RECOURSE: Go after the last holder/collecting bank

 GEMPESAW vs. CA

Cut- off rule is not applciabe GR: Drawee bank is liable for the loss

 What are the effects of forgery? What is the exception if any?

A: When a signature is forged or made without authority of the person whose signature it purports to be, the check is wholly inoperative. No right to retain the instrument or to give a discharge therefor or to enforce payment thereof against any party can be acquired through or under such signature.

EXCEPTION: Unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.

In a case, the party was precluded from setting up the forgery, assuming there is a forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account.

 If the drawee pays a check with the forged signature of the drawer, who will suffer the loss?

A: GR: Drawee who has paid upon the forged signature bears the loss.

EXCEPTION: When negligence can be traced on the drawer whose signature was forged, and the need arises to weigh the comparative negligence between the drawer and the drawee to determine who should bear the burden of loss.

EXCEPTION TO EXCEPTION: But the mere fact that depositor leaves his checkbook lying around does not constitute such negligence as will free the bank from liability to him, where a clerk of the depositor or other persons, taking advantage of the opportunity, abstracts some of the check blanks, forges the depositor’s signature and collect on the checks from the bank. Drawer cannot be considered negligent if he reported the forgery immediately upon discovery.

 Where both the bank and depositor are negligent, who as between them shall bear the greater proportion of loss?

A: Between the bank and depositor, if the bank’s negligence is the proximate cause of loss and depositor is guilty of contributory negligence, the greater proportion of loss shall be born by the bank. In one of the cases, the bank was negligence because it did not verify the genuineness of signatures in the applications for manager’s checks while depositor was negligent because it clothes its accountant with apparent authority to transact business with the Bank and it did not examine its monthly statement of account and report the discrepancy to the Bank. The court allocated damages on a 60-40 ratio.

 May the bank invoke GF if it pays a forged check?

A: NO, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount to the depositor.

 Kel Bank’s manager encashed manager’s checks which were plainly crossed checks. It was later discovered that the manager forged the signature of the authorized signatories of clients in the application of said checks and that of the payees. Is Kel Bank liable?

A: YES, while its manager forged the signature of the authorized signatories of clients in the application for managers checks and forged the signatures of payees thereof, the drawee bank also failed to exercise the highest degree of diligence required of banks in the case at bar. It allowed its manager to encash the managers checks that were plainly crossed checks.

Problems:

1. M, Maker, prepared a PN payable to the order of A, but he did not sign the same and left it inside his drawer. X, a thief, stole the instrument, forged M’s signature and delivered it to A. A indorsed the instrument to B, B indorsed it to C, C to D, the present holder. Against whom can D enforce payment? Will your answer be the same if it were a bearer instrument?

A: D can enforce payment from X, A, B and C but not against M. Under SEC 23, forged signature of M is wholly inoperative and no right to enforce payment was acquired against M by virtue of his signature.

However, indorsers ABC are liable because they are parties after the forgery and are precluded from setting up such against the present holder D. When ABC indorsed the instrument, they warranted that the instrument is genuine and in all respects what it purports to be.

On the other hand, the forger will be deemed as the principal debtor because his wrongdoing prevented recovery from M. He is effect, the maker of the instrument.

If the instrument is a bearer instrument, the answer would still be the same. The forged signature of M is still inoperative as to him. The indorsers are still secondarily liable because NIL provides that persons who indorse bearer instruments are liable to subsequent parties who acquired title through

indorsement. In this case, D acquired title through indorsement of ABC.

2. Juan dela Cruz signs a PN payable to Pedro Lim or bearer, and delivers it personally to Pedro Lim. The latter misplaced the note and Carlos finds it. Carlos endorses it to Juana for value by forging the signature of Pedro. May Juana hold Juan liable on the note?

A: YES, the PN is payable to bearer hence title is transferred by negotiation through mere delivery. However, Juan may validly invoke defense of non-delivery of complete instrument by Pedro if Juana is not HDC. It does not appear however that Juana is not HDC, so she is presumed as HDC.

3. Fernando forged the name of Daniel, manager of Trading Company, as the drawer of the check. BPI, the drawee, did not detect the forgery and paid the amount. May the bank charge it against the account of the drawer?

A: NO, a bank is charged with the knowledge of the signature of its customer and it should not honor any check bearing a forged signature of the drawer.

4. Hernan issued a check payable to the order of Fernando in the sum of 12,000 and drawn on X Bank. The check was delivered to Lovely by Adriano for encashment. At that time, the check had indorsements of Fernando and Rosa. When Lovely encashed it with

X Bank, she affixed her signature on the check. Upon Lovely’s receipt of cash proceeds of the check, she turned over the amount to Adriano. X Bank was informed that the alleged indorsemet of the payee Fernando was a forgery since the latter had died 2 years ago. X Bank having refunded the amount to Hernan, sued Lovely, who refused to return the money. Was X Bank correct in paying Hernan? Does X Bank have a cause of action against Lovely?

A: YES, X Bank was correct in paying Hernan. The forged signature of the payee is wholly inoperative and was acquired by X Bank through forged signature.

When X Bank paid Lovely, it did not comply with the order of the client. Hence, it is the duty of the bank to reimburse him.

YES, X Bank has a cause of action against Lovely. Lovely is a general indorser and as she warrants that she has good title to the instrument. Having beached the warranty, she is now responsible to the collecting bank. Even if she encashed the check for Adriano, as an accommodation party, her liability as an indorser remains. In fact, she is liable even if she was merely an agent of Adriano as it does not appear that she disclose the fact that the check was delivered to her for encashment.

5. A delivers a bearer instrument to B. B then specially indorses it to C. C indorses it in blank to D. E steals the instrument from D and forging the signature of D, succeeds in negotiating it to F who acquires the instrument in GF and for value. If, for any reason, the drawee bank refuses to honor the check, can F enforce the instrument against the drawer? In case of dishonor of the check by both drawee and drawer, can F hold any of BCD liable secondarily on the instrument?

A: F can enforce it against the drawer but he cannot hold BCD liable. The instrument involved is a negotiable instrument that is payable to bearer. The holder is whoever is in possession of the instrument and indorsement is not necessary for the title of the holder-indorsee. Hence, the drawer is liable to the holder. Nevertheless, persons who indorse the instrument are liable to those who acquired the title through their indorsements. In this case, F did not acquire his title through the indorsements of CD. D did not even indorse the instrument and the title of F cannot be traced from B and C’s indorsement because of the break created by the forged indorsement of D. The fact that F is HDC is not material because forgery is a real defense.

When a signature is forged or made without authority of person whose signature it purports to be:

1. Inoperative

2. No right to retain the instrument 3. No right to give a discharge there

4. No right to enforce payment against any party

SEC 23 applies only to forged signatures or signatures made without authority of person whose signature it purports to be. If forgery consists of amount, SEC 23 not applicable. This is covered by SEC 124 (material alteration).

Indorser cannot set up defense of forgery of signature of maker, drawer or indorsers prior or subsequent to him because of his warranties. Forgery of indorser’s signature, in payable to order, is also available to acceptor or drawer.

REASON: if payee B’s signature is forged, every indorsee such as CDEF would not acquire title to instrument because they are not persons to whom payee B, whose signature is forged, commanded or ordered maker or acceptor to pay. Instrument is supposed to be paid according to order of B, but payment to CDEF is not the order of B, as his signature is forged.

Material alteration SEC 125. What constitutes material alteration—

Any alteration that changes:

a. Date

b. Sum payable, either principal or interest c. Time or place of payment

d. Number or relations of parties e. Medium or currency

f. Adds place of payment where no place of payment is specified

OR ANY OTHER CHANGE OR ADDITION WHICH ALTERS EFFECT OF INSTRUMENT IN ANY RESPECT, IS MATERIAL ALTERATION