Forgery of Signature in

Negotiable Instruments
Sec. 23. Forged signature; effect of. - When a signature is forged or
made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or
under such signature, unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want
of authority.

FORGERY, DEFINED AND EXPLAINED

Counterfeit making or fraudulent alteration of any writing, and
may consist in the signing of another’s name, or the alteration of an
instrument, in the name, amount, description of the person and the like,
with the intent to defraud
Section 23 only applies to forged signatures or signatures made
without the authority of the person whose signature purports it to be

FRAUD AMOUNTING TO FORGERY

Fraud in factum or fraud in esse contractus
There is no intention to issue an instrument

FRAUDULENT IMPERSONATION
• Suppose X represents himself as Juan Cruz when he is not to Y. Due to
such misrepresentation, he obtained from Y a note payable to the order of
Juan Cruz. If Y intends that the proceeds of the note will go to the real Juan
Cruz and not X, but to whom Y issued the note on the belief that X was Juan
Cruz, would be a forgery.

DOUBLE INTENT IN FRAUDULENT

IMPERSONATION
1. He 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
2. He intends to make the instrument payable to the person whom he
believes the stranger to be

GENERAL RULE IN FRAUDULENT

IMPERSONATION
• The first one is the controlling intent except where the name of the
payee was already known to the maker or drawer or was particularly
identified in some manner

REASON FOR RULE: THEORY OF ACTUAL

INTENT
• Throws the loss on the drawer
• In the absence of anything to show that the drawer had any doubt as to
the identity of the person to whom he delivered the paper as payee—
the drawee, in paying the 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 delivery
of the paper to the impostor, although that intention was conceived in
consequence of the fraud of the impostor as
to his identity and ownership of the property which represented the
consideration

ANOTHER REASON FOR THE RULE: THEORY

OF ESTOPPEL
• As between two innocent persons, the one whose act was the cause of the
loss should bear the consequences
• It was the drawer’s duty to use diligence to ascertain the identity of
the party with whom he has dealt. Failing to make this discovery, he became
the victim of the fraud. The impostor having succeeded in this first and
essential step in the practice of the fraud, the next was comparatively an
easy one.

RULE IS QUALIFIED WHERE IMPOSTOR

REPRESENTS HIMSELF AS AGENT OF
PAYEE
• There is a distinction between cases where the paper is delivered to
the impostor as payee, in the belief that he is the person to whom the
instrument it would be paid, and cases where the paper is delivered to the
impostor upon his representation, in the belief that he is agent of the person
named as payee
• The loss falls on the drawee or purchaser, as the case may be, rather than
on 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

ADMISSION OF GENUINENESS AND DUE

EXECUTION
• When an action or defense is founded upon a written instrument such as
a negotiable instrument, copied in or attached to the corresponding pleading,
the genuineness and due execution of the instrument shall be deemed
admitted unless specifically denied under oath by the adverse party
• Consequently, the genuineness and due execution of the written
instrument or document copied in or attached to the opponent’s
pleading as the basis of his claim or defense, should be denied
specifically under oath, otherwise they are deemed admitted.
MEANING OF ADMISSION OF GENUINENESS
AND DUE EXECUTION
1. That he signed it or that it was signed by another for him and with his
authority
2. That at the time it was signed, it was in words and figures exactly as set
out in the pleading of the party relying upon it,
3. That any formal requisites required by law, such as swearing and
acknowledgment, or revenue stamp which it requires, are waived by him

DEFENSES CUT OFF BY ADMISSION OF

GENUINENESS, ETC.
1. The defense that the signature is a forgery

2. That it was unauthorized, as in the case of an agent signing for his

principal, or one signing on behalf of a partnership or corporation or
that in case of the latter, that the corporation was not authorized under
its charter to sign the instrument
3. That the party charged signed the instrument in some other capacity than
that alleged in the pleading setting it out

FAILURE TO IDENTIFY PROMISSORY NOTE WILL NOT

NECESSARILY DEFEAT CLAIM

EFFECT OF FORGERY IN GENERAL

1. That the signature forged or made without authority is wholly
inoperative
2. That no right to retain the instrument, or to give discharge thereof, or to
enforce payment thereof against any party thereto, can be acquired through
or under such a signature forged or made without authority
3. 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 therefore, or to enforce payment thereof, can be acquired
through or under the signature forged or made without authority

EXTENT OF THE EFFECT OF THE FORGERY

1. Only the signature forged or made without authority is stated by the law
to be inoperative but neither the instrument itself is, nor the genuine
signatures are, rendered inoperative
2. The instrument can be enforced by holders to whose title over the
instrument the forged signature is not necessary, such as, the
indorsement of an instrument which on its face is payable to bearer
3. The instrument can be enforced against those who are precluded from
setting up the defense of forgery, even against those whose signatures have
been forged

PERSONS PRECLUDED FROM SETTING UP

DEFENSE OF FORGERY
1. Those who warrant or admit to the genuineness of the signature in
question—indorsers, persons negotiating by delivery, and acceptors
2. Those who, by their acts, silence or negligence, are estopped from
setting up the defense of forgery

INDORSERS AS WARRANTORS
• Whether general or qualified
• Warrant that the instrument indorsed by them is genuine in all
respects what it purports it to be

PERSONS NEGOTIATING BY DELIVERY AS

WARRANTORS
• Persons negotiating by mere delivery also warrant that the instrument
negotiated by them is genuine and in all respects what it purports to be
• They are consequently precluded from setting up the defense of
forgery

ACCEPTORS AS WARRANTORS
• A drawee, by accepting the bill, admits the genuineness off the
signature of the drawer

PRECLUDED
• Includes those cases where they are estoppels against the party
desiring to set up the forgery

ESTOPPEL AS TO FORGERY OF
INSTRUMENTS
• Whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe that his or another’s
signature in an instrument is genuine, and to act upon such
belief, he cannot, in any litigation arising out of such declaration, act, or
omission, be permitted to set up the forgery of such signature/s
• Estoppel may arise from a declaration, act or omission/negligence

UNREASONABLE DELAY
• Unreasonable delay, after his discovery of the forgery, on the part of one
having the opportunity and duty to speak, in disclosing the forgery upon
commercial paper to the one who ought to be apprised thereof, estops the
former from thereafter asserting the forgery as against the latter where the
latter is prejudiced by such delay or failure
• Requisites:
o That the delay be unreasonable
o That the one who ought to be apprised of the forgery has been
prejudiced

REASONABLY PROMPT NOTICE

• 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

WHEN PREJUDICED AND WHEN NOT

PREJUDICED
• A bank is prejudiced—at the time one discovered that his attorney
forged his indorsement to a draft in his favor, it had assets of the
attorney in its possession to protect itself but at the time it was notified
of the forgery, it has parted with such assets
• It is not prejudiced by the delay where at no time after the discovery of
the forgery did the cashier have any property with which to indemnify
the bank

ESTOPPEL BY NEGLIGENCE IN DELIVERY

• A drawer may be precluded from defense of forgery of the payee’s
indorsement if delivery by him to the payee is negligent

CASES OF FORGERY IN GENERAL

1. Forgery of promissory notes which may be further subdivided into—
forgery of indorsement in the note; forgery of the maker’s signature
2. Forgery of bills of exchange which may be further classified into—
forgery of an indorsement on the bill; forgery of the drawer’s signature,
either with acceptance by the drawee, or without such acceptance but the
bill is paid by the drawee
RIGHTS OF PARTIES IN FORGERY OF
INDORSEMENT IN NOT 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:
1. The reason is that, inasmuch as the indorsement is forged, it is
inoperative. But since the note is payable to order, it can be negotiated
only by indorsement completed by delivery, and therefore, the forged
instrument is the only means one could acquire any rights to it or its proceeds
2. The law further provides that no right to retain the note, give
discharge thereof, or enforce payment thereof, could be acquired
through and under the forged signature. Hence the holder didn’t
acquire at least those rights as against the party whose signature is
forged and parties prior to him, including the maker
3. The forger usually obtains possession of the note by fraudulent or
other unlawful means and therefore, he has no right whatsoever in the note

RIGHTS OF PARTIES IN FORGERY OF

INDORSEMENT IN A NOTE PAYABLE TO
BEARER
• May be held liable by a holder in due course but not by the one who is not
a holder in due course
• Provided that the note was mechanically complete before the forgery
• Forged instrument is not necessary to the title of a holder since
instruments payable by bearer can be negotiated by mere delivery

RIGHTS OF PARTIES IN 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
• 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

DRAWEE CANNOT CHARGE ACCOUNT OF

DRAWER
• In an action by the drawee against the drawer for the amount charged by
the drawee against the account of the drawer where the drawee paid a
check on a forged indorsement, the drawee has no defense against the
drawer and the drawer may recover from the drawee for an instrument paid
on a forged indorsement
• Depository owes to the depositor an absolute and contractual duty to pay
the check only to the person to whom it is made payable or upon his genuine
indorsement

DRAWER CANNOT RECOVER FROM THE

COLLECTING BANK
• Drawer has no right to recover the amount paid from the collecting
bank as the duty of the collecting to exercise care in collection is due only to
the payee, and as the drawer suffers no loss since it can recover the
amount paid from the drawee bank which has no right to charge the drawer’s
account

DRAWEE CAN RECOVER FROM COLLECTING

BANK
• The drawee may recover from the recipient of payment, such as the
collecting bank, under a forged indorsement
• Rule allowing the payee to recover from the recipient of the payment
under a forged indorsement
PAYEE CAN RECOVER FROM RECEIPT OF
PAYMENT
• According to the general rule, a bank or other corporation or an
individual, who has obtained possession of a check, upon an
unauthorized or forged indorsement of the payee’s signature and who
collects the amount of the check from the drawee, is liable for the
proceeds thereof to the payee or other owner, notwithstanding that they
have been paid to the person whom the check was obtained
• The possession of the check on the forged indorsement is wrongful and
when the money had been collected on the check, the bank or other person or
corporation, can be held as far as moneys had and received and the proceeds
are held for the rightful owners of the payment and may be recovered by them

COLLECTING BANK BOUND TO SCRUTINIZE CHECKS DEPOSITED

WITH IT TO DETERMINE GENUINENESS AND REGULARITY

CONVERSION
• An unauthorized assumption and exercise of the right of ownership
over goods or personal chattels belonging to another, to the alteration of their
condition or exclusion of the owner’s right

AS AFFECTED BY QUESTION OF DELIVERY

TO PAYEE
• The checks didn’t reach the hands of the payee. The bearing of such
absence of delivery is considered in some cases and held not to be
material
• Where there is no delivery to the payee and no title vests upon him, he
ought not to be allowed to recover on the ground that he lost nothing
because he never became owner of the check and still retained his claim
against the drawer
PAYEE CANNOT RECOVER FROM THE
DRAWEE
• An action cannot be maintained by a payee of a check against the
bank on which it is drawn unless the check has been certified or
accepted by the bank on which it is drawn, without acceptance or
certification, as provided by the statute, there is no privity of contract
between the drawee bank and the payee, or holder of the check

RIGHTS OF PARTIES IN FORGERY OF

INDORSEMENT IN BILL PAYABLE TO
BEARER
• Holder may recover if he is a holder in due course

RIGHTS OF PARTIES IN FORGERY OF

DRAWER’S SIGNATURE WHERE DRAWEE
HASN’T ACCEPTED BILL BUT PAID IT
• In the case of the payment of a forged check even without former
acceptance, the drawee cannot recover from a holder in due course not
chargeable with any act or negligence or disregard of duty
• As between equally innocent parties, the drawee who pays money on a
check the signature to which is forged, cannot recover the money from the
one who received it

BUT PAYMENT NOT EQUIVALENT TO

ACCEPTANCE OR CERTIFICATION
• The payment of a forged check doesn’t include or imply its acceptance in
the sense that this word is used in Section 62 of NIL
• Basis of the general rule is not that the drawee is precluded from
setting up forgery because, by paying the check, it has accepted the check
and therefore admitted the genuineness of the drawer’s signature

• By paying the check the drawer is presumed negligent or deemed

constructively negligent

NEGLIGENCE IN FORGERY OF
INDORSEMENTS IN BILL
• It presupposes that the drawer himself wasn’t negligent or guilty of
such conduct as would estop him from asserting the forged character of the
indorsement as against the depository and that if he was negligent or
guilty of such conduct, the loss must fall on him

WHERE A DEPOSITOR IS USING ITS OWN PERSONALIZED

CHECKS, ITS FAILURE TO PROVIDE ADEQUATE SECURITY
MEASURES TO PREVENT FORGERIES OF ITS CHECKS
CONSTITUTES GROSS NEGLIGENCE AND BARS IT FROM SETTING UP
THE DEFENSE OF FORGERY

BUT FAILURE OF DEPOSITOR TO MAKE PROMPT RECONCILIATION OF

THE MONTHLY BANK STATEMENTS FURNISHED BY THE BANK
CONSTITUTES NEGLIGENCE FOR WHICH THE BANK CANNOT BE
BLAMED IN CASE DEPOSITOR’S CASE ARE FORGED

BUT DRAWER NOT GENERALLY NEGLIGENT WHERE HIS CHECK IS

STOLEN

PAYEE’S NEGLIGENCE IN FORGERY OF

DRAWER’S SIGNATURE
• The payee in a check 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 position to judge the genuineness of the paper
than are indorsees.
• And there is a tendency to place greater responsibility upon him and he
is much more likely to be required to return the proceeds of the paper
than are the indorsees

INDORSER’S NEGLIGENCE
• After a draft or check has once been negotiated so that it is in
circulation, there is little opportunity for negligence on the part of those
through whose hands it passes; but as to them, in most cases, the rule will
apply that, as between innocent parties, the loss must fall on the drawee

DUTY OF PURCHASER OF CHECK OR BILL

• One who purchases a bill or check is bound to satisfy himself that the
paper is genuine; and that by indorsing or presenting it for payment or
putting it in circulation before presentation, he impliedly asserts that he
has performed his duty and the drawee who has without actual
negligence on his part, paid the forged demand, may recover the money
paid from such negligent purchaser

PAPER FORWARDED FOR COLLECTION

• The fact that the paper wasn’t cashed and indorsed with unrestricted
indorsement but was taken for collection and forwarded for that purpose
under an indrosement giving notice of that fact, may place a greater burden
upon the drawee than it would otherwise bear

FORGERY OF SIGNATURE IN INSTRUMENT IS FALSIFACTION OF

PRIVATE DOCUMENT

FORGER NEED NOT IMITATE GENUINE

SIGNATURE
• One who signs in the name of another without the latter’s authority, as
drawer in a check, and thereby makes it appear falsely that the alleged
drawer of the check was a real party thereto, when as a matter of fact he
didn’t participate in the transaction, is guilty of falsification

COMMERCIAL DOCUMENTS
• Documents or instruments which are used by businessmen or
merchants to promote or facilitate trade or credit transactions