C.

FORGERY IN NOTES

A. FORGERY OF MAKER’S SIGNATURE

• The MAKER is NOT liable to all subsequent parties whether the holder is in due course or not
and whether the instrument is an order or bearer instrument.
REASON: The purported maker is not a party to the instrument as his forged signature is
inoperative and no right to retain, enforce or discharge the note, may be acquired against
him.
• However, INDORSERS after the forgery are still SECONDARILY LIABLE to the holder by
virtue of their warranty.

B. FORGERY OF INDORSER’S SIGNATURE

 ORDER INSTRUMENTS
• The PARTY WHOSE INDORSEMENT IS FORGED in a note payable to order, and
ALL PARTIES PRIOR TO HIM/HER, including the MAKER, are NOT liable to any
holder, whether that holder is a holder in due course or not. But the INDORSERS after the
forgery are LIABLE because they warrant that they have good title to the instrument.
• A FORGED INDORSEMENT becomes INOPERATIVE, thus, it cannot operate to
transfer any right or title over the instrument.
• The holder can go after forger. His/Her cause of action would be enforcement of warranites
under Section 66 or a criminal action for falsification of commercial document. In fact, the
holder can file an action to all parties after the forgery in one suit.

 BEARER INSTRUMENTS
• The PARTY WHOSE INDORSEMENT IS FORGED in a note payable to bearer is
LIABLE to a HOLDER IN DUE COURSE, but NOT to one who is NOT A HOLDER
IN DUE COURSE. The OTHER PARTIES, including the MAKER, prior to the party
whose signature is forged, may also be held LIABLE by one who is NOT A HOLDER IN
DUE COURSE, provided that the note was MECHANICALLY COMPLETE before the
forgery.
• The SIGNATURE of the payee or holder is UNNECESSARY to pass title to the
instrument. Hence, the maker may still be liable to a holder in due course even if an
indorsement was forged after the issuance of the note.
• The undertaking of the maker is to pay the instrument “according to its tenor” and
considering that the “tenor” of the instrument is that he engages to pay any bearer of the
instrument. (Section 60, NIL)
 • If the HOLDER IS NOT A HOLDER IN DUE COURSE, the person whose signature is
forged may raise the defense of NON-DELIVERY OF A COMPLETE INSTRUMENT.
• When the instrument is a forgery (in a bearer instrument), only the person whose signature
is forged can raise the defense of forgery against a holder in due course. (Associated Bank
vs Court of Appeals, G.R. No. 107382/G.R. No. 107612, January 31, 1996)

SEC. 66. Liability of general indorser.—Every indorser who indorses without qualification, warrants to all subsequent
holders in due course—(a) The matters and things mentioned in subdivisions (a), (&), and (c) of the next preceding
section; and

(b) That the instrument is at the time of his indorsement valid and subsisting.

And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case

may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken,
he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to Pay it.

FORGERY OF NOTES

Forgery of promissory notes may be further subdivided into forgery of an indorsement in the note and forgery the
maker’s signature.

Forgery of Maker’s Signature

Where the maker’s signature is forged, he cannot be held liable by any holder, whether the holder is in due course or
not. The reason is that the purported maker is not a party to the instrument as his forged signature is inoperative and
no right to retain, enforce or discharge the note, may be acquired against him.

Forged Indorsement of Note Payable to Order

Where the indorsement is forged and the note is payable to order, the party whose indorsement is forged and parties
prior to him including the maker cannot be held liable by the holder, whether that holder is a holder in due course or
not.

Normally, the holder must first collect from his immediate indorser and the latter must first collect from his immediate
indorser and so on and so forth until it reaches the forger. However, because of the forgery, the law allows a shortcut
where the holder can go after forger. His cause of action would be enforcement of warranites under Section 66 or a
criminal action for falsification of commercial document. In fact, the holder can file an action to all parties after the
forgery in one suit.

Forged Indorsement of Note Payable to Bearer

In case the note is originally payable to bearer, the party whose indorsement is forged and parties prior to him
including the maker, may be held liable by a holder in due course provided that the note was mechanically complete
before the forgery.

Sebastian:

A bearer instruments need not be signed because they only need to be delivery to be negotiated. Warranties under
Section 65 will apply. By mere delivery a holder is already a holder in due course even if there was no indorsement.
Thus, the holder can enforce the note against the maker because an indorsement is irrelevant in a bearer instrument.
However, when the check is stolen the holder cannot make a claim against the maker because the instrument was not
properly discharged. But theft is only a personal defense and cannot be used against a holder in due course. Instead,
the holder can go after forger civilly for recovery of sum of money and/or criminally for theft or qualified theft