VISDA, JAN CARMEL S.

April 1,
2020
NEGOLAW / 3:00 - 4:30/ TTH
Assignment #2

CASE:
A draws a check for P50,000 in favor of "B or order" against his account with X Bank. C
steals the check and erases the name of B by means of chemicals and places his own, thereafter
indorses it at the back and deposits it with Y Bank. After receiving the check, Y Bank stamped it
for Central Bank clearing "all prior endorsements xxx guaranteed, Y Bank," After it was cleared,
Y Bank allows C to withdraw the amount. C then absconds. Upon discovery by A of the material
alteration, he complains to X Bank who then credits the amount of A. X Bank demands
reimbursement from Y Bank. Y Bank refuses, claiming it acted as an agent for collection. Who
shall bear the loss? Reason.

ANSWER:
Under Section 23 of the Negotiable Instruments Law, a forged signature in a check,
whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to
the instrument through it. A person whose signature was forged was never a party and never
consented to the contract. Thus, a forged endorsement does not operate as the payee’s
endorsement. That is why Y Bank shall bear the loss and is under liability to X bank for
reimbursement of the credited amount of A as Y Bank failed to verify the genuineness of the
drawer's signature.