I'm Giancarlo Enrico S. Pozon, a Wushu instructor, investor and Barrister... That's right, Barrister; I graduated from law school and took the Bar Exams, now I'm waiting for the results. I created this blog to make Philippine Law easy to understand for the average person. It's all about free legal advice. There are many law blogs. But the problem is that many of them are written for lawyers and law students. They use words that can't be understood by ordinary people.
Many lawyers, judges and law students consider themselves as superior to most human beings because of their knowledge of the law. It bothers me since the law is supposed to serve society. Since the law is meant to serve society as a whole, it is important that is must be understood by everybody.
This does not mean that we should all become lawyers. It means that although law is a highly specialized profession, the first duty of everybody in this profession is to make the law understandable to all; that's why all these articles are free legal advice.
Like I said, this blog is about law -but it's for the ordinary people, not the lawyers. It's for the ordinary folk so they will know what is good and bad for them, and that making them aware of the law will help us all improve society as a whole. This is free legal advice for everybody!
So now that you've read the list of defenses for a negotiable instrument, here is one of several defenses that have special treatment.
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
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 of Exchange
A. 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.) If payable to bearer: same as in promissory notes
B.) Forged 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.
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 of Exchange
A. 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.) If payable to bearer: same as in promissory notes
B.) Forged 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.
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