Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-18657

August 23, 1922

THE GREAT EASTERN LIFE INSURANCE CO., plaintiff-appellant,

vs.
HONGKONG & SHANGHAI BANKING CORPORATION and PHILIPPINE NATIONAL
BANK, defendants-appellees.
Camus and Delgado for appellant.
Fisher and DeWitt and A. M. Opisso for Hongkong and Shanghai Bank.
Roman J. Lacson for Philippine National Bank.
STATEMENT
The plaintiff is an insurance corporation, and the defendants are banking corporations, and each is
duly licensed to do its respective business in the Philippines Islands.
May 3, 1920, the plaintiff drew its check for P2,000 on the Hongkong and Shanghai Banking
Corporation with whom it had an account, payable to the order of Lazaro Melicor. E. M. Maasim
fraudulently obtained possession of the check, forged Melicor's signature, as an endorser, and then
personally endorsed and presented it to the Philippine National Bank where the amount of the check
was placed to his credit. After having paid the check, and on the next day, the Philippine national
Bank endorsed the check to the Hongkong and Shanghai Banking Corporation which paid it and
charged the amount of the check to the account of the plaintiff. In the ordinary course of business,
the Hongkong Shanghai Banking Corporation rendered a bank statement to the plaintiff showing that
the amount of the check was charged to its account, and no objection was then made to the
statement. About four months after the check was charged to the account of the plaintiff, it
developed that Lazaro Melicor, to whom the check was made payable, had never received it, and
that his signature, as an endorser, was forged by Maasim, who presented and deposited it to his
private account in the Philippine National Bank. With this knowledge , the plaintiff promptly made a
demand upon the Hongkong and Shanghai Banking Corporation that it should be given credit for the
amount of the forged check, which the bank refused to do, and the plaintiff commenced this action to
recover the P2,000 which was paid on the forged check. On the petition of the Shanghai Bank, the
Philippine National Bank was made defendant. The Shanghai Bank denies any liability, but prays
that, if a judgment should be rendered against it, in turn, it should have like judgment against the
Philippine National Bank which denies all liability to either party.
Upon the issues being joined, a trial was had and judgment was rendered against the plaintiff and in
favor of the defendants, from which the plaintiff appeals, claiming that the court erred in dismissing
the case, notwithstanding its finding of fact, and in not rendering a judgment in its favor, as prayed
for in its complaint.

JOHNS, J.:
There is no dispute about any of the findings of fact made by the trial court, and the plaintiff relies
upon them for a reversal. Among other things, the trial court says:
Who is responsible for the refund to the drawer of the amount of the check drawn and
payable to order, when its value was collected by a third person by means of forgery of the
signature of the payee? Is it the drawee or the last indorser, who ignored the forgery at the
time of making the payment, or the forger?
To lower court found that Melicor's name was forged to the check. "So that the person to whose
order the check was issued did not receive the money, which was collected by E. M. Maasim," and
then says:
Now then, the National Bank should not be held responsible for the payment of made to
Maasim in good faith of the amount of the check, because the indorsement of Maasim is
unquestionable and his signature perfectly genuine, and 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 question. In other words, the two
defendant banks can not be held civilly responsible for the consequences of the falsification
or forgery of the signature of Lazaro Melicor, the National Bank having had no notice of said
forgery in making payment to Maasim, nor the Hongkong bank in making payment to
National Bank. Neither bank incurred in any responsibility arising from that crime, nor was
either of the said banks by subsequent acts, guilty of negligence or fault.
This was fundamental error.
Plaintiff's check was drawn on Shanghai Bank payable to the order of Melicor. In other words, the
plaintiff authorized and directed the Shanghai Bank to pay Melicor, or his order, P2,000. It did not
authorize or direct the bank to pay the check to any other person than Melicor, or his order, and the
testimony is undisputed that Melicor never did part with his title or endorse the check, and never
received any of its proceeds. Neither is the plaintiff estopped or bound by the banks statement,
which was made to it by the Shanghai Bank. This is not a case where the plaintiff's own signature
was forged to one of it checks. In such a case, the plaintiff would have known of the forgery, and it
would have been its duty to have promptly notified the bank of any forged signature, and any failure
on its part would have released bank from any liability. That is not this case. Here, 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 it banks statement, it had a right to assume that Melicor had personally endorsed the
check, and that, otherwise, the bank would not have paid it.
Section 23 of Act No. 2031, known as the Negotiable Instruments Law, says:
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.
That section is square in point.

The money was on deposit in the Shanghai Bank, and it had no legal right to pay it out to anyone
except the plaintiff or its order. 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.
The judgment of the lower court is reversed, and one will be entered here in favor of the plaintiff and
against the Hongkong and Shanghai Banking Corporation for the P2,000, with interest thereon from
November 8, 1920 at the rate of 6 per cent per annum, and the costs of this action, and a
corresponding judgment will be entered in favor of the Hongkong Shanghai Banking Corporation
against the Philippine National Bank for the same amount, together with the amount of its costs in
this action. So ordered.
Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand and Romualdez, JJ., concur.

BLAKE V. WEIDEN
JOHN A. BLAKE, AS TRUSTEE IN BANKRUPTCY OF R. WEIDEN SONS, INC.,
APPELLANT, V.FRANK WEIDEN, RESPONDENT. (BY ORIGINAL SUMMONS.)
FRANK

WEIDEN,

BANKRUPTCY

OF

PLAINTIFF, V.JOHN
R.

WEIDEN

A.

SONS,

BLAKE,
INC.,

DEFENDANTS. (BY COUNTERCLAIM.)

COURT OF APPEALS OF THE STATE OF NEW YORK.

ARGUED JUNE 8, 1943

DECIDED OCTOBER 21, 1943

*135135

AS

TRUSTEE

APPELLANT,

ET

IN
AL.,

APPEAL FROM THE

SUPREME COURT, APPELLATE

DIVISION, FIRST

DEPARTMENT, CAREW, J.
Thomas L.J. Corcoran, Keith Lorenz and John F.X. Finn for appellant. *136136 Ralph
Stout and Harold A. Gates for respondent.

DESMOND, J.
In 1939, R. Weiden Sons, Inc., became a voluntary bankrupt and plaintiff qualified as its trustee.
From the books of the bankrupt corporation it appeared that there was a balance of $8,103.68 owing
to it on open account from defendant who was one of its stockholders and had been one of its
officers from 1930 to 1938. The trustee sued defendant. The latter's answer contained a number of
counterclaims. Five of the counterclaims involved five negotiable promissory notes, each for $5,000
and each given by the corporation in 1930 to Robert Weiden, defendant's father who died in 1937.
All of the notes remain unpaid. At some time between the father's death and the bankruptcy,
defendant's two brothers, Charles R. Weiden and Hermann J. Weiden, who were the executors of
the father's will, put on the back of each of the notes a form of indorsement, signed by the estate, by
themselves as executors, and worded thus: "Pay to the order of Charles R. Weiden, Hermann J.
Weiden and Frank J. Weiden, share and share alike, as tenants in common." Defendant is the third
named indorsee. The brothers Charles and Hermann Weiden filed in the bankruptcy proceedings
proofs of claim on their purported *137137 individual shares of the five notes, as indorsees. The
record does not show whether those claims in bankruptcy have been allowed, or whether they were
contested by the trustee. Defendant attempted in his five counterclaims to use his purported share of
the five notes as a set-off against the debt for which the trustee is suing, defendant's share of the
notes, including interest, being larger in amount than the debt in suit. Whether defendant has an
interest, available for such use, in the five notes, is the only question before us. The facts are
undisputed. At the close of plaintiff's case, which developed the facts as above recited, plaintiff
moved to dismiss the counterclaims and each side moved for a directed verdict. Plaintiff's motion
was granted and the counterclaims dismissed. The Appellate Division modified (in effect it reversed)
by denying plaintiff's motion to dismiss the counterclaims and by directing judgment for defendant in
amount sufficient to offset plaintiff's claim.
An analysis of section 62 of the Negotiable Instruments Law will, we think, lead us to the answer to
the question we have before us. That section, which is identical with section 31 of the "Uniform
Negotiable Instruments Law" and is found on the statute books of many of our states and of
England, is as follows: "The indorsement must be an indorsement of the entire instrument. An
indorsement, which purports to transfer to the indorsee a part only of the amount payable, or which
purports to transfer the instrument to two or more indorsees severally, does not operate as a
negotiation of the instrument. But where the instrument has been paid in part, it may be indorsed as
to the residue."

The indorsement, or attempted indorsement, of the five notes described in the counterclaims, did
not, of course, offend against the first sentence of section 62, since the form of indorsement used
applies to the whole of each note. The third sentence of the section has no relevancy to this case.
The second sentence, however, does deal with indorsements like those here under scrutiny and
provides that such a writing on the back of a note "does not operate as a negotiation of the
instrument." The meaning of that phrase has been examined in many opinions and texts. Some of
those authorities (see Martin v. Hayes,44 N.C. 423; Conover v. Earl, 26 Iowa 167; Byles on Bills
[20th ed.] p. 161; Brannan on Negotiable Instruments Law *138138 [5th ed.], pp. 426, 427) say, or
seem to say, that such a purported indorsement transfers to the indorsees no title at all, or at least
no title on which they can sue at law. Other writers give section 62 a narrower meaning and hold
that, while such an indorsement "does not operate as a negotiation," it does nevertheless convey to
the indorsee not the rights of a holder in due course but a title of some kind to his share of the note
or, more precisely, to a non-negotiable chose in action, on which he may sue. ( Flint v. Flint,6 Allen
[88 Mass.] 34; Edgar v. Haines, 109 Ohio St. 159.) There seem to be no New York cases directly in
point. Two decisions in this State ( King v. King, 37 Misc. 63, affd. 73 App. Div. 547, appeal
dismissed 172 N.Y. 604, and Barkley v. Muller, 164 App. Div. 351, 168 App. Div. 110) have a bearing.
In the King case one of the beneficiaries of an estate took from the executor a written assignment of
a one-fifth part of a note belonging to the estate. In the Barclay case there had been
an indorsement to plaintiff of one half of a note. In both cases it was held that there could be no
recovery, but it is to be noted that in each of those cases the transfer (indorsement or assignment)
covered only a part of the note and did not, as in the present case, involve a transfer of the whole
instrument in parts.
In our view, the better rule is that when there has been a purported indorsement of the whole
instrument, in separate parts to two or more transferees, the purported indorsees take legal title to
their several shares and may sue together, or any one or more may sue, provided all the other
indorsees are brought in as parties. (In the case before us defendant did bring in the other two
indorsees, alleging without contradiction that they had refused to join with him.)
We reject the view that section 62 makes such an indorsement a nullity. The language of that and
other sections of the Act compel a narrower meaning. The statement in section 62 that the
indorsement does not "operate as a negotiation" suggests that it is not entirely inoperative. "An
instrument is negotiated" says section 60, "when it is transferred from one person to another in such
manner as to constitute the transferee the holder thereof." Reading those two sections with the
references to the word "holder" in other parts of the Act (see 2, 52, 91) makes it clear that the
intent of section 62, *139139 so far as applicable here, is only to deprive the several indorsees of the
special rights which the Act gives to "holders" of properly negotiated instruments. Section 62 does
not, we decide, deprive such indorsees of the rights of ordinary assignees and the irregular
indorsement may be treated as an assignment. ( Kenny v. Hinds, 44 How. Pr. 7; Merchants' Nat.
Bank v. Gregg, 107 Mich. 146.) No reason appears why the misguided use of an indorsement form
should put the purported indorsees entirely outside the protection of the courts. Surely there was in
this case at least a constructive delivery of the note to the three beneficiaries of the estate and, that
being so, the transferees would have taken title to the instrument or to the chose in action without
any written words of transfer at all. (Negotiable Instruments Law, 79; Goshen Nat.

Bank v. Bingham, 118 N.Y. 349, 355; Hooker v. Eagle Bank of Rochester, 30 N.Y. 83.) The use of an
unrecognized form of indorsement should leave them in no worse position.
A study of the history of, and reason for, section 62 leads to the same answer. The common law
looked with disfavor upon any indorsement that did not transfer the whole instrument at one time and
to one person. ( Douglass v. Wilkeson, 6 Wend. 637.) Thus did the law conform to the "custom of
merchants" which was that a holder of a note could not "apportion such personal contract, for he
cannot make a man liable to two actions, where by the contract he is liable but to one."
( Hawkins v. Cardy, 1 Lord Raymond's Reports 360.) The last sentence in the quoted excerpt from
the Hawkins case gives us a valuable clue to such mystery as there is in section 62. The whole
purpose of the restrictions there embodied was to prevent a multiplicity of suits.
(SeeLarson v. Lybyer, 312 Ill. App. 188.) So in earlier days in New York it was the rule at law that the
assignee of part of a chose in action could bring no separate action to collect his part. ( King v.King,
supra.) Equity, as usual, was not so circumscribed and found a way to give the assignee relief, by
devising a practise of bringing in, as added parties, the co-owners of the claim. ( Risleyv. Phenix
Bank of City of New York, 83 N.Y. 318, 329; Dickinson v. Tysen, 125 App. Div. 735. ) Successive
revisions of our practice statutes achieved an assimilation of the practice in suits at law to the
procedures invented by equity. The result is that *140140 under our present practice a suit for money
only by a partial assignee of a claim may be brought at law, provided the plaintiff bring in his coassignees. ( Porter v. Lane Construction Corp., 212 App. Div. 528, affd. 244 N.Y.
523;Grosner v. Abramson, 162 Misc. 731, 733, affd. 248 App. Div. 575; Civ. Prac. Act, 194.) "We
think * * * that the question is one of parties, and not one of jurisdictional facts." (CROUCH, J.,
inPorter v. Lane Construction Corp., supra, 212 App. Div. at p. 531.) This interpretation of
defendant's rights leaves undisturbed the rule of section 62 that the several indorsees do not have
the rights of "holders" of negotiable instruments, the rule of section 79 that delivery of a negotiable
instrument transfers title with or without indorsement, and the rule against splitting causes of action.
Defendant as co-assignee of a non-negotiable chose in action had the right to maintain his
counterclaims so long as he brought his co-assignees into the action.
Even if the enforcement of these counterclaims did involve a splitting of each of the five causes of
action on the separate notes, such splitting could be justified in two ways. First, the record here at
least suggests that the splitting was really done by the other two purported assignees who filed
separate proofs of claim in bankruptcy before this suit was brought ( Gock v. Keneda, 29 Barb.
120; Jackson v. Moore, 94 App. Div. 504), and that plaintiff trustee, by acquiescence, probably
waived the benefits of the rule against splitting. (See Carrington v. Crocker, 37 N.Y.
336.) Second, the rule against splitting does not forbid the use of part of a claim as a set-off,
retaining the rest for later use. ( Gordon v. Van Cott, 38 App. Div. 564; Hett v. Lange, 139 App. Div.
743.) A fair application of that exception permits defendant to use as a set-off an amount which was
equal to the claim in suit but less than his one third of the whole amount due on the notes.
Having held that defendant had legal title to, and causes of action at law on his share of the notes,
we necessarily conclude that he brings himself well within the Bankruptcy Act requirements as to
set-offs, found in section 68 of that Act (U.S. Code, tit. 11, 108): "(a) In all cases of mutual debts or
mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one

debt shall be set off against the other, and the balance only shall be allowed or paid. (b) A set-off
or *141141 counterclaim shall not be allowed in favor of any debtor of the bankrupt which [1] is not
provable against the estate and allowable under subdivision g of section 93 of this title; or [2] was
purchased by or transferred to him after the filing of the petition or within four months before such
filing, with a view to such use and with knowledge or notice that such bankrupt was insolvent or had
committed an act of bankruptcy." Plaintiff's and defendant's claims are mutual and defendant's claim
is by its nature one provable in bankruptcy.
Appellant urges as an authority against this set-off, Gray v. Rollo (85 U.S. 629). In Gray v. Rolloa
bankrupt insurance company held two promissory notes made jointly by Gray and another man, and
was indebted on policy claims to a partnership of which Gray was a member. Gray's partner was not
a party to the notes held by the bankrupt. The opinion says that the "joint" claim of the partnership
could not be set off against Gray's individual liability to the bankrupt estate. In Gray v. Rollo (as it
was in Hopkins v. Lane, 87 N.Y. 501) the word "joint" seems not to be used in the technical sense
but as describing a claim against the bankrupt held by several persons who under local law were
tenants in common. (See Kiersted v. West, [N.Y.] 13 Weekly Digest 106.) Grayv. Rollo, nonetheless,
does not go so far as to hold that such a tenant in common may not use as a set-off his share of the
claim against the bankrupt but only that he may not "appropriate" to himself the claim that belongs to
his partners as well as to himself: "equity will not allow him to pay his separate debt out of the joint
fund." (Opinion, at p. 635.) No such misappropriation has been attempted by defendant here, since
his separate, fractionally determined, share of the five notes was assigned to him before bankruptcy,
and in his counterclaims he is alleging, and using as set-offs, only his own share, not the whole of
the notes. (See discussion in Taylor v. Root, 4 Abb. N.Y. App. 382.)
The judgment should be affirmed, with costs.
LEHMAN, Ch. J., LOUGHRAN, RIPPEY, LEWIS, CONWAY and THACHER, JJ., concur.
Judgment affirmed.