Forgery in Negotiable Instruments

Forgery
Takes place when the signature in the negotiable instrument is either forged or
made without the authority of the person the signature purports to be. It is
wholly inoperative and no right to retain it, discharge it or enforce its payment
against any party to the instrument can be acquired unless the party against
whom it's enforced is prohibited from raising forgery or lack of authority as a
defense.
It's
done
in
any
of
the
following
ways:
1.) Signing in
another's
name
with
intent
to
defraud
2.) Altering the name, amount, payee's name, etc. with intent to defraud
Take Note:
1.) Only the forged signature is invalid. The instrument itself and the genuine
signatures are valid.
2.) Payment under a forged instrument isn't to the drawer's order. In case of a
forged instrument or one that's payable to order, the person whose signature is
forged isn't liable; the same is true for prior parties.
3.) Even if the signature is forged, there are parties who can't set up forgery or
lack of authority as a defense. These are:
a.) Those who are negligent
b.) Those who expressly or impliedly ratified the forgery (done either by their
acts or by silence)
c.) Those who warrant/admit the genuineness of the signature in question, such
as indorsers, acceptors and persons negotiating by delivery
Be careful about where and/or with whom you leave your checkbook (Ilusorio
vs. CA, GR 139130, November 27, 2002.) You could be held liable if your
secretary forged your signature.
4.) In case of forgery of indorsement of the payee of the check the drawee bank
can't debit the drawer's account and the loss shall be borne by the drawee
bank. The depositary or collecting bank is liable to the drawee in case of a
forged indorsement because it guarantees all previous indorsement. That's the
general rule. It is subject to the qualification that the drawer wasn't negligent or
guilty of such conduct as would estop him from asserting the forged character
of the indorsement as against the drawer. Only the drawee may be held liable if
it isn't established that the checks containing forged instruments passed
through the alleged collecting bank (Traders Royal Bank vs. RPN, GR 138510,
October 10, 2002.) In this case, the drawee encashed the checks (1 of them
was crossed) presented by unknown persons although they were payable to the
BIR (OMG!)
5.) If the drawer's signature is forged, the drawee can't charge the drawer's
account
and
can't
recover
from
the collecting bank.

Forged Promissory Note

A.

Forged

Indorsement

1.) If payable to order: the party whose indorsement is forged and parties prior
to him, including the maker, aren't liable, even to a holder in due course. Forged
instruments are inoperative and can't transfer rights or title over the
instrument.
2.) If payable to bearer: the party whose indorsement is forged and all parties
prior, including the maker, are liable to a holder in due course but not to a
holder who isn't in due course (a holder for value.) The instrument can be
negotiated by mere delivery (because it's payable to bearer) so indorsement
isn't necessary to transfer title. The forgery can be discarded.
B.

Forged

Signature

The maker isn't liable to any holder; it won't matter if it's a holder in due course
or not. The purported maker isn't a party to the instrument because his
signature
was
forged
(and
isn't
operative.)
Forged

Bill

A.

of

Exchange

Forged

Indorsement

1.) If payable to order: the drawee can't charge the drawer's account, the
drawer can't recover from the collecting bank (but the drawee can,) the payee
can recover from the drawer or the recipient of payment (but not from the
drawee) and the collecting bank bears the loss but can recover from the person
to
whom
it
paid
the
check.
2.)
B.)

If

payable

to

bearer:
Forged

same

as

in promissory notes
Signature

1.) With drawee's acceptance: drawee bears the loss; he's bound by warranty.
The
drawer
isn't
liable;
the
signature
isn't
operative.
2.) Without drawee's acceptance, but paid, by drawee: drawee can't recover
from the drawer or the recipient of payment; no warranty, however, he's
constructively
negligent.
The above rules on forged bill of exchange and promissory notes are subject to
the rule precluding the defense of forgery by warranty, as in the case of parties
negotiating an instrument subsequent to the forgery or estoppel, as in the case
of negligence.