Section 23- Forged Signature; effect of Double intent in fraudulent impersonation: Forgery, in general- the counterfeit making or fraudulent

alteration of any writing, and may consist in 1. 2. the signing of anothers name with intent to defraud; or the alteration of an instrument in the name, amount, description of the person and the like, with intent to defraud 1 intention- the maker/ drawer intends to make the instrument payable to the person before him or to the person writing at the other end of the line, in case the negotiation is by correspondence. The maker/ drawer bears the loss. 2 intention- the maker/ drawer intends to make the instrument payable to the person whom he believes the stranger to be. General Rule: The 1 intention is controlling; the maker/ drawer bears the loss. Exception: Where the name of the payee was already known to the maker or drawer, or was more particularly identified nd in some manner, the 2 intention is controlling. Example: X represents himself to be Juan Cruz, when in fact he is not. By this misrepresentation, X obtains from Y a note payable to the order of Juan Cruz. Then X indorses the note, signing Juan Cruz. Q: Is there forgery? A: It depends on the intention of Y If Y intends that the proceeds of the note will go to X, the person dealing with him, named at the time Juan Cruz, then Xs signature of the name of Juan Cruz is not a forgery. Here, X is the intended payee. Following the general rule, the intention of the maker/ drawer is to make the note payable to the person before him, thus there is not forgery but the signature of an assumed name. If Y intends that the proceeds of the note will go to the real Juan Cruz and not to X, but to whom Y issued the note on the belief that X was Juan Cruz, Xs signature of Juan Cruz would be a forgery.
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Here, Juan Cruz, not X, is the intended payee. The intention of the maker/ drawer is to make the note payable to the person whom he believes the stranger to be. Reason for the Rule (maker/drawer bears the loss): 1. Theory of actual intent- the drawee, in paying paper, or the holder, in taking it upon the indorsement of the impostor in the name of which the payee was described, carries out the intention that the drawer entertained at the time of the delivery of the paper to the impostor. Theory of estoppel- as between two innocent persons, the one whose act was the cause of the loss should bear the consequences thus it was the drawers duty to use diligence to ascertain the identity of the party with whom he dealt.

Forgery in Section 23 of the NIL- applies only to forged signatures or signatures made without authority of the person whose authority of the person whose signature it purports to be. Forms of forgery: 1. Fraud in factum or fraud in esse contractus- there is no intention to issue an instrument; amounts to forgery and is a real defense (available against a holder in due course) Example: B obtains the signature of A by telling A that it is only for autograph purposes. Then B writes above the signature a negotiable instrument. Fraud in inducement- there is an intention to issue an instrument; does not amount to forgery and is only a personal defense. Example: A sells to B what he represents to B as a diamond ring, which in fact is only glass. B issues to A a check. The check is not a forgery. The fraud here is in inducing B to issue the check. 2. Duress amounting to forgery- ordinarily, duress is a personal defense but where it amount to forgery, it is a real defense. Example: A takes Bs hand and forces him to sign his name. 3. Fraudulent impersonation- whether or not it amounts to forgery depends on the intention of the maker/ drawer

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Rule qualified where impostor represent himself to be the agent of the payee The loss falls on the drawee or the purchaser rather than the drawer where the impostor upon whose indorsement the paper was purchased or paid, represented himself to be the agent of the payee, and not the payee himself. The doctrine of actual intent does not apply because the drawer did not regard the individual to whom he delivered the check as the payee but merely as the agent of the payee. Admission of genuineness and due execution When an action or defense is founded upon a written instrument, such as negotiable instrument, copied in or attached to the corresponding pleading, the genuiness and due execution of the instrument shall be deemed admitted unless specifically denied under oath by the adverse party.

Meaning of genuineness and due execution The party whose signature the instrument bears admits 1. 2. 3. That he signed it or that it was signed by another for him and with his authority; That at the time it was signed, it was in words and figures as exactly set out in the pleading of the party relying upon it; That any formal requisites required by law, such as swearing and acknowledgment, or revenue stamp which it requires, are waived by him.

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That, nevertheless, as against a party precluded from setting up the forgery or want of authority the signature forged or made without authority is operative, and rights to retain the instrument, to give discharge therefor, or to enforce payment thereof, can be acquired through or under the signature forged or made without authority. 3.

Example: A makes a note payable to B or bearer. X obtains the note fraudulently and indorses the same to C by forging Bs signature. Can C hold A liable? Yes, because instruments payable to bearer can be negotiated by mere delivery. The forged indorsement is not necessary to the title of C. The instrument can be enforced against those who are precluded from setting up the defense of forgery, even against those whose signatures are forged.

Example: B makes a note, making it appear that A is the maker thereof, by forging the signature of A. B makes himself the payee. Thereafter, he indorses the note to C, a holder in due course. Q: Can C enforce the note against A?

Defense cut off by admission of genuineness, etc. (defenses which are inconsistent with the admission of genuineness, etc) 1. 2. 3. Forgery Signature was unauthorized That the party charged signed the instrument in some other capacity than that alleged

Persons precluded from setting up the defense of forgery 1. Those who warrant or admit the genuineness of the signature in question a. Indorsers- whether qualified or general, warrant that the instrument indorsed by them is genuine in all respects what it purports to be. They cannot interpose that signatures prior to them are forged. Example: A, maker. B, payee. X fraudulently obtains possession of the note and indorses the same to C, forging Bs signature. C indorses the note to D, D to E and E to F, the present holder. F can enforce the note against C, D and E, who being indorsers, cannot interpose the defense that Bs signature is forged. b. Persons negotiating delivery- also warrant that the instrument negotiated by them is genuine in all respects what it purports to be. Acceptors- a drawee, by accepting the bill, admits the genuineness of the signature of the drawer. Example: A, drawer. B, payee. X, drawee. But As signature is really a forgery made by Y. On presentment for acceptance, X accepts the bill. B then negotiates the bill to C, C to D, D to E and E to F, present holder. When F demands payment from X, the latter cannot refuse to pay on the ground

A: No, because As signature is inoperative and it did make A party to the instrument nor bind him therein. As against A, C acquired no right to retain, discharge or enforce payment on the note. Q: But suppose that C showed A the instrument before buying it and A tells C to go ahead and but it as it is alright. Can C enforce the note against A? A: Yes, As signature is operative and C acquired the right to retain, discharge and enforce payment on the note. By his declaration, A is precluded from setting up the forgery of his signature. Extent of the effect of forgery: 1. Only the signature forged or made without authority is inoperative but neither the instrument itself nor the genuine signatures are rendered inoperative. Example: A makes a note payable to the order of B. Y obtains the note fraudulently and indorses the note to C, by forging Bs signature. Suppose that C indorses the note to D. D can recover from C whose signature is genuine and therefore operative. C is bound as an indorser of the note and has a right of recourse against the forger (Y). 2. The instrument can be enforced by holders to whose title over the instrument the forged signature is not necessary such as an indorsement of an instrument payable to bearer.

Defenses not cut off (defenses which are not inconsistent with the admission of genuineness, etc) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Payment Statute of limitations Illegality or want of consideration Fraud Mistake Compromise Estoppels Coercion Imbecility Etc.

Effects of forgery: 1. 2. That the signature forged or made without authority is wholly inoperative; That no right to retain the instrument, or to give discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature forged or made without authority; and

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that As signature is forged. By accepting the bill, X admitted the genuineness of the drawers signature and is therefore, precluded from setting up the defense of forgery. 2. Those who, by their acts, silence or negligence, are stopped from setting up the defense of forgery Estoppels may arise from 1. A declaration 2. An act 3. Omission or negligence Estoppel by omission or negligence 1. Unreasonable delay in giving notice of the forgery Requisites: 1. The delay must be unreasonable 2. That the one who ought to be apprised of the forgery must have been prejudiced Example: Y, agent of B, comes into possession of a check with B as payee and indorses and cashes the same. B, however, delays in complaining to the collecting bank of the forgery for three years. B is barred by his delay in complaining the forgery, which amount to ratification of the agents unauthorized acts. Reasonably prompt notice of forgery- depends upon the circumstances of the case and the situation of the parties with reference to the remedies against any party is a proper element to enter into the estimate of the reasonableness of the notice. 2. Negligence in delivery Example: A has accounts with two persons named B, one in Oklahoma and the other in Texas. A closed its accounts with the Texas B. Subsequently, A sold securities for the Oklahoma B and drew a check against X in favor of Oklahoma B but the check was, by mistake, mailed to the Texas B who indorsed it to C who in turn, cashed the same at Y Bank. The Oklahoma B then assigned whatever claims he had on the check to A. Can A, the drawer,

recover from Y bank? No. A was stopped by its negligence in the delivery of the check to dispute the forgery, if it existed. Cases of forgery in general 1. Forgery of promissory notes a. Forgery of an indorsement in the note b. Forgery of the makers signature Forgery of bills of exchange a. Forgery of an indorsement on the bill b. Forgery of the drawers signature aa. with acceptance by the drawee bb. without acceptance by the draw

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Qualifications to the rules on rights of parties in forgery of instruments 1. 2. Rules precluding the setting up of the defense of forgery by warranty Estoppel as in the case of negligence

2. The drawers negligence must be the proximate cause of the payment by the drawee upon the forged indorsement. Thus, there must be on the part of the drawer 1. 2. Negligence by delivery Unreasonable delay in the giving of notice

who is a stranger to B, without requiring proof as to identity or making inquiries in regards to Y. Then B collects from X, drawee bank. In this case, X can recover from B bank which has been negligent. Indorsers negligence (holder receiving payment) If it appears that one to whom payment was made was not an innocent sufferer but guilty of negligence in not doing something which plain duty demanded and which if it had been done, would not have entailed loss on anyone, he is not entitled to retain the moneys pad through a mistake on the part of the drawee bank. Purchaser of check or bill 1. If drawee is merely constructively negligent, he may recover from the recipient who must actually be negligent provided that the drawee has promptly notified the recipient of the forgery If drawee is actively negligent, then his active negligence will offset the active negligence of the recipient and in such a case, the drawee cannot recover from the recipient what he has paid

Indorsers and parties negotiating subsequent to the forgery Precluded from setting up the defense of forgery as they may be held liable under warranties and liabilities stated in Section 65 and 66 Example: 1. As signature is forged as maker. B payee. He indorses to C, C to D, D to E and E to F. F can hold B, C, D and E liable because as indorsers, they warrant that the note is genuine and in all respects what it purports to be. If they are general indorsers, they also warrant that the note is valid and subsisting. A, drawer, B payee, X drawee. Y steals the bill and forges Bs signature and indorses the bill to C. C to D. D to E. E to F. F can hold C, D and E liable.

3. Drawers duty does not extend to the examination and verification of the genuineness of the indorsements on the checks or to the discovery of forgeries therein because a depositor is not required and may not be expected to know the signature of the payee and of the various indorsers 4. A drawer is under the duty towards the drawee to examine the returned vouchers and notify the drawee within reasonable time of any mistakes or inaccuracies in the amounts of the check or forgeries of the depositors signature. Example: If A, whose signature is forged as the drawer, fails to examine statements of accounts or checks returned by the drawee bank X, A would be considered negligent and may be barred from recovery of the amount paid if the drawee has already charged his account. Payees negligence in forgery of drawers signature The payee in a check or draft may be supposed to have knowledge of the circumstances under which it is drawn and generally, of the person drawing it, and is in a better situation to judge the genuiness of the paper than are indorsees. Doctrine of comparative negligence- constructive negligence of the drawee bank is overcome by the active negligence of the paying bank in not using the ordinary precautions used by banks in determining the identity of the person presenting the check the genuineness of such check Example: Y forges the signature of A, making A appear as drawer in a check. X, drawee bank. B bank is the payee. B bank pays for the check to Y,

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Negligence in forgery of indorsements in bill GR: Drawee bears the loss 1. The duty of verifying the genuineness of the indorsements rests on the drawee.

EXC: Drawer, payee or indorser may bear the loss Drawers negligence in forgery of his own signature 1. The drawer himself must not be negligent or guilty as would estop him from asserting the forged character of the indorsement as against the drawee, and that if he was negligent or guilty of such conduct, the loss must fall on him.

Example: As signature is forged by strangers in two checks. B is payee. The strangers negotiated the checks to C for tire purchases, pretending to be agents of B. C did not make any inquiries whatsoever. One check was crossed generally. The check with a prior number to the other was issued on a later date. A is a good customer of C which receives checks from A every month in payment of account. C indorsed the checks to D bank for deposit and was credited with the amount. Thereafter, the checks were credited at the clearing house and X, drawee, credited D bank with the amount. When X bank found that As signature was forged, it demanded payment from C. Held: C was negligent and had no right to retain the proceeds of the check. X can recover from it what is has paid. Forgery of both drawers and payees signature 1. The indorser is liable on his warranty to all to whom it runs if the indorsement of the payee is forged

Reason: The indorser guarantees the genuineness of prior indorsements 2. The drawees right to recover depends on the presence or absence of negligence on the part of one who negotiated the paper and the presence or absence of his own negligence Reason: The drawee is held not to be a holder in due course and therefore is not entitled to the benefit of the indorsers warranty. The result is that, the situation is the same as though the paper bore no idorsement, but was payable to bearer. Other rules change of position When negligence of the recipient has been established, the right of the drawee to recover depends upon the existence of negligence in his part. The negligent recipient is still entitled to receive prompt notice of the forgery from the drawee. Penal liabilities incurred from forgery of signature 1. Falsification of private document element of damage or intent to cause damage is not necessary; forger need not imitate genuine signature Swindling/ estafa through posr-dating of checks failure of the drawer to deposit the amount necessary to cover his check within 3 dyas from notice from the bank/payee/holder that said check has been dishonored for insufficiency of funds shall be prima facie evidence of deceit constituting false pretence or fraudulent act. Estafa by falsification of signature- where because of the forgers representation, the offended party is induced to issue the check in exchange for the value of the merchandise which he purchased

impostor who could not even acquire ownership through acquisitive prescription. 2. The person who identifies an impostor to whom the amount of a check is paid is co-principal by direct participation in the commission of the crime if he has knowledge of the case. Commercial documents- documents or instruments which are used by merchants or businessmen to promote or facilitate trade or credit.

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Encashment of check by impostor 1. Money paid through check to an impostor still belongs to the legal owner or possessor thereof. Its delivery through estafa does not transmit ownership of the amount to the