Campos Chapter 4 Digests

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Law 108: Negotiable Instruments First Semester
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#ro$% &ogelio '% (ue)e*o
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+,A#-.& I': /.F.NS.S AN/ .(0I-I.S [+ases cite* in +am1os]

The original plan was to have these digests merely as case tic2lers not as substitute for the originals. Please limit your digests to relevant details only. We do not need a reproduction of the LON e!cerpts in "ampos.# $ already lost count how many times sentiments of this sort have been aired face%to%face w& the people concerned' discussions during bloc( meetings' message chains over the yahoogroups' etc. )* Ne!t time' unless there are several separate opinions *w&c should +LW+,be included.' please limit length of submissions to one column in this format. P.-. To those who submitted on time and followed the format' than(s/ 0diting usually ta(es hours. ,ou spared me that. $ appreciate it.
30&&A ' -,43#S4N 123 Tenn. 114' 144 -.W. 254' L6+' 14157 1158 *1913. :ice: FA+-S -;7<0"T= 7il of 0!change%"hec( >+?06-= 7ric( company P+,00= >urray -;7-0@;0NT $NAO6-0>0NT-= Bather of >urray sold to Thompson. %>urray received a note from a bric( company in satisfaction to his claim for damages worth C1'5DE because of personal inFuries. $t was payable on <une 1' 191D because he was still a minor. On October 13' 191G' W.+. >urray' his father' with the consent of the minor' sold the note to Thompson. He indorsed the name of his son without apprising Thompson that he himself was not the payee. The proceeds were deposited to the account of >urray. $t was invested in a saloon business and was lost. There was no actual fraud on the part of >urray in the transaction with Thompson. %>urray wanted to disaffirm and recover. ISS0. WON an infantIs indorsement is void or voidable ,.L/: 'oi*able% Ratio -ec. 88. 0ffect of indorsement by infant or corporation.%The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein' notwithstanding that from want of capacity' the corporation or infant may incur no liability thereon. %The statement that the infant passes property therein# entails that the contract of indorsement is not void and that his indorsee has the right to enforce payment from all parties prior to the infant indorser. The incapacity of the minor cannot be availed of by the prior parties. %$t was not intended to provide that the indorsee should become the owner of the instrument by title
indefeasible as against the infant' or to ma(e the act of indorsement an irrevocable one. The law would not want to deprive the infant of the right to reinvest in himself the title to the instrument against a holder who had (nowledge of the indorserIs infancy. %The common%law rule is that the purchaser and indorsee of such a note is not a bona%fide holder as against an infant indorser' and that the latter may disaffirm and recover the note from the possession of the former' who ta(es with constructive notice of the incapacity. This means that the infant could disaffirm and recover Disposition= "ourt of "ivil +ppeals reversed while the chancellor is affirmed. &4/&I50.6 ' 3A&-IN.6 D Phil 35 *19E3. :rean: FA+-S -;7<0"T= promissory note dated Oct. 15' 19E8' for G'EEE >e!ican pesos -igned by >artineJ' payable to one >ontalvo. %>ontalvo' for value received' sold and transferred the said PN to 6odrigueJ before maturity. 6odrigueJ received the same w&o notice of any conditions e!isting against the note. 6odrigueJ' before having the note' went to >artineJ and as(ed him in respect thereto' and was informed by him that the note was good and that he would pay the same at a discountK and that the note was delivered by >artineJ to said >ontalvo in payment of the gambling debt which >artineJ owed >ontalvo. This note was presented to the court as evidence of that debt without the stamp reLuired by law' and no stamp had ever been attached thereto. +fter the trial 6odrigueJ offered to put the necessary stamp on the note' and tendered such stamp. ISS0. WON defendant >artineJ is liable to pay 6odrigueJ on the instrument. ,.L/: .S %-" did not discuss whether the game at which this debt was incurred is a prohibited game or not. $n view of the fact that the Fudgment of the court below contains no finding as to the name or nature of the game' -" applied +1855 of ""= the consideration of the contract must be presumed to be lawful and valid until the contrary is provedK and without considering as we have said these Luestions which we do not thin( necessary to discuss for the purposes of this decision' yet there are other grounds upon which this case can be decided.
%Brom the facts set out in the Fudgment of the court below' plaintiff 6odrigueJ acLuired the ownership of the note in Luestion by virtue of its indorsement' he having paid the value thereof to its former holder. He did so without being aware of the fact that the note had an unlawful origin' since he was not given notice' as the court found' of any conditions e!isting against the note. Burthermore' he accepted it in good faith' believing the note was valid and absolutely good' and that defendant >artineJ would not repudiate it for the reason that >artineJ' had assured him before the purchase of the note that the same was good and that he would it at a discount. Without such assurance from >artineJ we can hardly believe that 6odrigueJ would have bought the note. $t is thus inferred from the fact that he' 6odrigueJ' inLuired from the defendant about the nature of the note before accepting its indorsement. %These facts sufficiently show that 6odrigueJ bought the note upon the statement of >artineJ that the same had no legal defect and that he was thereby induced to buy the same by the personal act of >artineJ. $n view of this' >artineJ can not be relieved from the obligation of paying 6odrigueJ the amount of the note alleged to have been e!ecuted for an unlawful consideration. $f such unlawful consideration did in fact e!ist' >artineJ deliberately and maliciously concealed it from 6odrigueJ. Therefore' to hold otherwise would be eLuivalent to permitting >artineJ to go against his own acts to the preFudice of 6odrigueJ. -uch a holding would be contrary to the most rudimentary principles of Fustice and law. Par. 1' -ec. 222 of "ode of "ivil Procedure' applicable to this case' provides as follows= MWhenever a party has' by his own declaration' act' or omission intentionally and deliberately led another to believe a particular thing true' and to act upon such belief' he can not' in any litigation arising out of such declaration' act' or omission' be permitted to falsity it.M Disposition <udgment of lower court is reversed. Aefendant >artineJ is ordered to pay to the plaintiff 6odrigueJ the sum of G'EEE pesos' >e!ican currency' or its eLuivalent in Phil. currency' with legal interest at 3 N p.a. 5L0+73AN ' /A&LIN5 81"149 4D N.<.L. GD5' 49 +tl. 1E13 *191G. :yella: FA+-S -;7<0"T= Promisory note >+?06= "harles Blynn P+,00= 7alene O >a! $NAO6-00= H.L. Aarling HOLA06 BO6 P+L;0= $saac
luc(man
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%7alene O >a! were about to sell to "harles Blynn some real estate and were to ta(e in part payment therefore notes made by Blynn and indorsed by defendant. When 7alene O >a! reLuested the defendant to be present at the transfer and Luestioned him about the notes' he attended and e!amined them and said' 0verything is all right.# The notes were then accepted on account of the purchase price of the property' and the one in suit subseLuently passed by indorsement' for a valuable consideration' to the plaintiff. %Aefendant at the trial denied his signature as indorser' insisiting that it was a forgery. "ourt denied defendantIs motion for nonsuit ISS0. WON defendant is stopped from alleging forgery ,.L/: .S %$t is true that silence and acLuiescence alone does not estop a defendant in a suit upon an alleged forged instrument from proving the forgery' where the plaintiff had not been preFudiced or damaged thereby. 7ut where the holder of a note has been willfully misled as to the genuineness of an indorsement thereon by one who purports to be the indorser and sustains damage or is preFudiced thereby' the alleged indorser will be stopped from denying the validity of the signature. Disposition <udgment affirmed. S-&A/.& ' ,AL. 813 >inn. 21D' 18 N.W. *8d. 3E4 *19G2. :Favi: FA+-S %Haley and his wife lived with plaintiff -trader. 7etween <uly 11' 1923 and <une 1G' 19G1' 39 chec(s were negotiated by Haley. -trader claimed that Haley forged her name as drawer for 8 chec(s and as indorser in a total of D5 chec(s. "hec(s varied amounts. Par( 6ecreation Parlor' LuJ' 0aslinger' Liberty -tate 7an( were those who cashed the chec(s. %Plaintiff claimed she never made such indorsements or signed as drawer. %Plaintiff brought separate actions against Haley' parties who were alleged to have cashed chec(s for Haley and Liberty -tate 7an(. %Aefense claimed that the chec(s were indorsed by plaintiff herself' that she delivered them to Haley with instructions to cash them' to purchase supplies' and return the change to her. %T" said that there was no finding that plaintiff authoriJed Haley to sign her name on any chec(. T" also said that plaintiff received from Haley all the
proceeds of the chec(s with (nowledge that such proceeds came from the chec(s. T" found that plaintiff had ratified HaleyIs actions and conduct in cashing the chec(s. Plaintiff appealed ISS0. WON plaintiff is liable for HaleyIs acts by ratification ,.L/: .S Q"ourt first determined WON precluded# in sec.82 of the N$L includes ratification *in this case receiving proceeds of the chec(s. %precluded# includes ratification. N$L is based largely on the 0nglish 7ills of 0!change +ct. The 0nglish law contains a proviso that nothing in this section shall affect the ratification of an unauthoriJed signature not amounting to a forgery.# This proviso was not included in the N$L but a footnote was added that a forged signature may be ratified. The dropping of such proviso did not indicate any intention of changing the meaning adopted from the 0nglish law. 0stablished rule was that an unauthoriJed signature not amounting to forgery could be so ratified. %-" concluded that the framers of the N$L intended that under the act' the same as under the prior law' a party may be precluded# by ratification. Qcase had a discussion on WON precluded# was eLuivalent to estoppel# as some authors conclude. However the "ourt said that although precluded# denotes the conseLuence of an estoppel' it is not eLuivalent and its meaning should not be so limited because 1.it is not the intention of the framersK 8. it is opposed to the prior law which N$L adopted. Q"ourt then determined WON a forgery may be ratified %7y a forgery is meant an unauthoriJed signature on an instyument or a material alteration thereof in violation of a criminal statute. 6ule is that an unauthoriJed signature on a note' chec( or other instrument under circumstances not constituting the crime of forgery may be ratified. %in the instant case' there was no forgery committed as an essential element' the intent to fraud' was not proven. QWON plaintiff ratified acts of Haley= ,0%where the principal accepts and retains the benefits of an unauthoriJed act of an agent with full (nowledge of all the facts' he thereby ratifies the act. %in the instant case' the evidence sustains the finding that plaintiff received the proceeds of the chec(s in cash and with full (nowledge of all the facts. This was proven by= proceeds of the chec( were definitely identified and tracedK corroboration of HaleyIs wifeK the fact that -trader did not complain to her attorneys that
she did not receive any chec(s' which was her usual routine. %"ourt concluded that plaintiff ratified all the unauthoriJed signatures in these casesK that by reason of such ratification she is precluded from setting up the fact that her signatures were unauthoriJed in the actions against Haley. Disposition affirmed SAN +A&L4S 3ININ5 +4; L-/% ' :#I; +,INA:AN7 +4&# 81"<<9 Rplace citation hereS :brian b: FA+-S %Plaintiff corporation is organiJed under Hawaiian law and is authoriJed to engage business in the Phils. *>anila. %The business in the Phils. was handled by +lfred "ooper' its agent *under P+. w& authority of substitution. The principal employee in the >anila office is <oseph Wilson who also has a P+ but w&out substitution. 7efore "ooper left in 1983' he gave a P+ to Newland 7aldwin and at the same time revo(ed WilsonIs P+ relative to dealing with 7P$' a ban( where plaintiff has an account. %+fter a year' Wilson' conspiring w& +lfredo Aolores' a messenger%cler( in PlaintiffIs >anila office' sent a cablegram to the company in Hawaii reLuesting a telegraphic transfer of C1EE? to "hina 7an(ing "orp. *"7".' where plaintiff also has an account. %+fter receipt of the money' "7" sent an e!change contract to plaintiff offering P8E1? *current rate.. On this contract was forged the name of 7aldwin. $t also contained a reLuest for a certified chec( from "7" upon receipt of the money. %+ managerIs chec( on "7" for P8E1? payable to plaintiff was receipted for by Aolores. W&c chec( was deposited to 7P$ by the following indorsement= Bor deposit only with 7P$' to credit account of *plaintiff.. 7y *-gd.. N0WL+NA 7+LAW$N Bor +gent# This endorsement was spurious. %7P$ credited plaintiffIs account for P8E1? and passed the cashierIs chec( through the clearing house' where it was paid by "7". %The same day' 7P$ received a letter' purporting to be signed by 7aldwin' directing that P8EE? in bills of various denominations be pac(ed for shipment and delivery the ne!t day. The ne!t day' Aolores witnessed
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the counting and pac(ing of the money then he gave a chec(' purporting to be signed by 7aldwin' for P8EE?. He was also charged P1 for the service wherein he also came up w& another chec( for P1' again purporting to be signed by 7aldwin. *This practice of withdrawing money for shipment was freLuent for plaintiff but never so large an amount and under the sole supervision of Aolores.. %Aolores then delivered the money' in plaintiffIs office' to Wilson where he received his P1E? share. -hortly thereafter' the crime was discovered' and upon 7P$ refusing to credit plaintiff with the amount of the 8 forged chec(s *P8EE?TP1.' plaintiff sued 7P$ and "7". %T" absolved both defendants. ISS0.S 1. WON "7" is liable 8. WON 7P$ is liable ,.L/ Q-"' first and foremost' declared that the falsity of 7aldwinIs signatures is beyond reasonable doubt. 1. NO. + ban( that cashes a chec( must (now to whom it pays. $n connection with the cahierIs chec(' this duty was therefore upon 7P$' and "7" was not bound to inspect and verify all endorsements of the chec(' even if some of them were also depositors in that ban(. $t had a right to rely upon 7P$Is endorsement when it gave the latter ban( credit for its own cahierIs chec( 8. ,0-. $t is an elementary principle both of ban(ing and the N$L that a ban( is bound to (now the signatures of its customersK and if it pays a forged chec(' it must be considered as ma(ing the payment out of its own funds' and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged. %The ban( in the case at bar was neither a gratuitous bailee *as contended by 7P$. nor an intermeddler ban( *as contended by plaintiff.. Their relation is that of depositor and ban(er' creditor and debtor. %The ban( paid out its money because it relied upon the genuineness of the purported signatures of 7aldwin. These' they never Luestioned at the time its employees should have used care. $n fact' even today the ban( represents that it has a belief that they are genuine signatures. %The signatures to the chec(s being forged' under -ec. 82' N$L' they are not a charge against plaintiff nor are the chec(s of any value to the defendant. The pro!imate cause of the loss is 7P$Is negligence. Disposition <udgment modified affirmed as to "7"' reversed as to 7P$.
#,IL% NA-=L :AN7 ' (0I3#4 .6. No. L%D219GK ancaycoK >arch 1G' 1944 :mini: FA+-S %Brancisco -. oJon $$' a depositor of the "aloocan 7ranch of PN7' went to the ban( accompanied by his friend 0rnesto -antos whom he left in the car while he transacted business in the ban(. %-antos too( a chec( from oJonIs chec(boo(' filled it up for the amount of PDT' forged the signature of oJon' and encashed it in the ban( on the same day. ;pon receipt of the statement of account from the ban(' oJon as(ed that the amount of PDT be returned to his account as his signature on the chec( was forged but the ban( refused. %-antos was apprehended by the police and he admitted that he stole the chec( of oJon. oJon filed the complaint for recovery of the amount of PDT against the ban( in the "B$ 6iJal. %"B$ ruled in favor of oJon. 7an( then filed petition for review on certiorari before -". ISS0.S 1. WON PN7 was negligent in encashing the forged chec( without carefully e!amining the signature therein 8. WON oJon is precluded from setting up the defense of forgery or want of authority *since it is his own negligent act of leaving the chec(boo( in -antosI hands that is the pro!imate cause of the loss. ,.L/ 1. ,0Ratio + ban( is bound to (now the signatures of its customersK and if it pays a forged chec(' it must be considered as ma(ing the payment out of its own funds' and cannot ordinarily change the amount so paid to the account of the depositor whose name was forged. This rule is absolutely necessary to the circulation of drafts and chec(s' and is based upon the presumed negligence of the drawee in failing to meet its obligation to (now the signature of its correspondent. $f the paper comes to the drawee in the regular course of business' and he' having the opportunity ascertaining its character' pronounces it to be valid and pays it' it is not only a Luestion of payment under mista(e' but payment in neglect of duty which the commercial law places upon him' and the result of his negligence must rest upon him. 8. NO %The act of oJon in leaving his chec(boo( in the car while he went out for a short while can not be considered negligence sufficient to e!cuse the defendant ban( from its own negligence. oJon could
not have been e!pected to (now that -antos would remove a chec( from his chec(boo(. Aefendant had trust in his classmate and friend. He had no reason to suspect that the latter would breach that trust. Disposition Petition is A$->$--0A for lac( of merit. The Lawphil ProFect %+rellano Law Boundation #&I+. ' N.AL 2 7urr. 12DG *1538. :ric(y: FA+-S %+ bill for GE pounds *LGE. was purportedly drawn by 7enFamin -utton *drawer. against <ohn Price *drawee. in favor of 6ogers 6uding *payee.. $t appeared from the bill that it was indorsed to +nthony Topham' then Hammon and Laroche and finally' for a valuable consideration' to Watson and -on whose representative' 0dward Neal' received it. Neal gave notice to Price. On the day it was due' Price sent his servant to Neal to pay the LGE and ta(e up the bill. %+ second bill for LGE was again purportedly drawn by -utton *drawer. against Price *drawee. in favor of 6uding *payee.. $t appeared from this bill that it was indorsed by 6uding to Watson and -on. This second bill was accepted by Price upon presentment by writing on it= +ccepted <ohn Price.# The bill being accepted' it was indorsed by Neal for a valuable consideration and left at PriceIs ban(ers for payment. $t was paid upon PriceIs order. %;nfortunately for Price' both these bills were actually fa(es. They were done by a certain Lee who was later hanged for the crime of forgery. %Wanting to recover the amount he paid' Price sued Neal. $t was proven that Neal acted innocently and bona fide' without any suspicion of the forgeries and that he paid the whole value of those bills. 7ut the Fury found a verdict for Price. ISS0. WON Price may recover from Neal the money he paid on the two bills. ,.L/: N4% Ratio Price cannot recover the money paid from Neal because the latter received it upon a bill of e!change indorsed to him for a fair and valuable consideration' which he had bona fide paid' without the least privity or suspicion of any forgery. Reasoning Here was no fraud= no wrong. $t was incumbent upon Price *drawee. to be satisfied that the bill drawn upon him was the drawerIs hand'# before ha accepted or paid it. $t was not NealIs duty to do so. Notice was given upon Price of a bill drawn upon himK
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and he sends his servant to pay and ta(e it up. The other bill he actually accepts. %$t was a considerable time after payment before Price found they were forged and the forger was already to be hanged. He made no obFection at the time he paid them. Whatever neglect there was' it was on his side. %Neal had no reason to doubt the second bill after Price' without any scruple or hesitation' paid the first. Neal also paid the whole value bona fide. $t is a misfortune which happened without NealIs fault or neglect. 0ven if there was no neglect on the part of Price' there is no reason to throw off the loss from one innocent man to another innocent man. Disposition Postea1 delivered to defendant. FI&S- NA-=L :AN7 4F #4&-LAN/ ' 0%S% NA-=L :AN7 4F #4&-LAN/ 1EE Ore. 83G' 193 Pac DG5' 1G +L6 G5E *1981. :Foey: FA+-S -;7<0"T= 14 forged chec(s A6+W06= Willamette $ron O -teel Wor(s A6+W00= Birst National 7an( of Portland P+,00-= 6ose and -hea' separately $NAO6-00-= various merchants ;nited -tates National 7an( of Portland %6ose and -hea confederated to obtain 14 blan( chec(s bearing the lithographed signature of 7all' president of -teel Wor(s' and forge therein the signature of $nsley' secretary%treasurer. %The chec(s were negotiated by the two to various merchants' all of whom deposited the chec(s in their accounts in the ;nited -tates National 7an(. %Aefendant ban( collected from drawee&plaintiff ban(. %Borgery was discovered and drawee was immediately notified. %Plaintiff ban( wants to recover from defendant ban( on the theory that *1. the latter was negligent in not detecting the forgery *apparently' drawer also had a chec(ing account in defendant ban(' so they should have been aware of the reLuired signatures.' and *8. even if not negligent' the indorsement of the chec(s and presentment for payment' followed by actual payment' oblige the defendant to refund.
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ISS0. WON defendant ban( is liable to plaintiff ban( ,.L/: N4 % 0N 6;L0= Where a holder for value in due course presents to the drawee a bill of e!change to which the name of the drawer has been forged' and the drawee pays the instrument' the holder and drawee ali(e ignorant that the signature of the ostensibly drawer was forged' and it is subseLuently discovered that the signature of the drawer was forged' the drawee cannot recover payment made to the holder. %0U"0PT$ON-= This defense is not available to a holder who *1. is guilty of bad faith' or *8. has been negligent. %Was the defendant negligentV NO. There was nothing upon the face of any of the chec(s to e!cite suspicion' and it is not claimed that any of the 14 merchants (new or had any reason to suspect the chec(s were forgeries. %The fact that the defendant had in its files the genuine signature of a drawer might' if there are other circumstances tending to show negligence be considered in determining whether the defendant was negligentK but it cannot be said that the failure to compare the signatures was' as a matter of law' negligence on the part of the defendant. Disposition <udgment affirmed. #,IL% NA-=L :AN7 ' NA-=L +Ian* 34-4& S.&'I+. +4%; IN+% 32 PH$L 511K 60"TOK 1923 :chriscaps: :AN7 4F N
National "ity 7an( and for w&c the National "ity 7an( credited >otor -vc. %>otor -ervic refused to reimburse. Pangasinan Transport refused to have proceeds deducted from their deposit. ISS0. WON PN7 has right to recover from National "ity 7an( ,.L/: .S %+cceptance is unnecessary in so far as bills of e!change payable on demand are concerned *e.g.' chec(s.. %+ chec( being payable immediately and on demand' ban( can fulfill its duty to depositor only by paying the amount demanded. The holder has no right to demand from ban( anything but payment' and the ban( cannot do anything but pay. %There is however' nothing w&c prohibits presentation of chec(s for acceptance before they are paid. Where a chec( is certified by the ban( on w&c it is drawn' certification is eLuivalent to an acceptance. The ban( accepts if it chooses. %The purpose of certification is to import strength to the paper by obtaining ac(nowledgment from the certifying ban( that the drawer has sufficient funds. %$n this case' there was payment but no acceptance nor certification. %To entitle the holder of forged chec( to retain the money obtained' he must be able to show that the whole responsibility of determining validity of the signature was upon drawee. %The drawee of a chec( who is deceived by forgery of drawerIs signature may recover payment' unless his mista(e has placed an innocent holder of paper in a worse position than he could have been in if the discovery of the forgery had been made on presentation. %The appellant in purchasing the papers from un(nown person w&o ma(ing inLuiry' acted negligently and contributed to the appelleeIs constructive negligence in failing to detect the forgery. &.#0:LI+ ' .(0I-A:L. :AN7IN5 +4&# an* &.#0:LI+ 4F -,. #,IL '% :#I 1E -"6+ 4K "oncepcionK <an 2E' 193G :Idel: FA+-S R7P$ caseS %<acinto "arranJa as(ed the "orporacion de los Padres Aominicos to cash 8G treasury warrants from which
7lac(Is Law Aictionary= $n the common%law practice' a formal statement' indorsed on the nisi prius record' which gives an account of the proceedings at the trial of the action.# The term nisi prius# means the court in which the cause was tried to a Fury' as distinguished from the appellate court.# R-o it appears that in common%law practice' the victor will be entitled to a formal statement of the proceedings. Probably so he could use it to prove his acLuittal or for e!ecution of his claim.S
FA+-S %;n(nown person negotiated w& >otor -vc the chec(s in payment for tires purchased fr >otor -vc' purporting to have been issued by Pangasinan Transport "o. against PN7 and in favor of $ntIl +uto 6epair -hop. %-aid chec(s were indorsed by un(nown person at the bac(' >otor -vc believing that the signatures of ?lar *>anager and Treasurer of Pangasinan Transport. were genuine. %"hec(s were indorsed for deposit by >otor -vc at the National "ity 7an( of New ,or( and >otor -vc was credited w& the amounts. %"hec(s were cleared and PN7 credited the National "ity 7an( of New ,or( for the amounts' believing that the signatures of the drawer were genuine' that the payee is an e!isting entity and the indorsements are regular. %PN7 found out that the purported signatures of ?lar were forged. $t demanded from >otor -vc the reimbursement of amounts for w&c it credited the
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encashment his wife e!pected to earn a sort of commission. %The "orporacion accommodated "arranJaIs reLuest since the latter was a trusted former employee but subFect to certain conditions= a. that the warrants be deposited with 7P$K b. that the actual payment of the value of the warrants would be made only after the same had been duly accepted and cleared by the Treasurer and the proceeds thereof duly credited to the 7P$ account of the "orporacion. %-aid conditions were met and deposited with 7P$ who accepted the warrants subFect to collection only# and with each of them *warrants. bearing the indorsement of the respective payee and that of the "orporacion. %7P$ presented the warrants for payment to the drawee *the overnment. through the "learing Office and upon clearing' was paid by the Treasurer. %7P$ then credited the proceeds to the "orporacionIs account' which was then withdrawn by the "orporacion. %The Treasurer returned 2 of the warrants to the "entral 7an( on the ground that those were forged and then demanded that the value of said warrants be charged against 7P$Is account with the "learing Office and credited bac( to the demand deposit of the Treasury. %0ventually' all warrants were returned by the Treasury to the "entral 7an( for the same reason and with the same demand. %"entral 7an( then referred the matter to 7P$ for appropriate action but the latter opposed the return of the warrants or to have their value charged against its account and reLuested' instead' to the "7 to return said warrants to the Treasurer. R0Luitable "aseS %G warrants were deposited with 0Luitable by its depositors 6obert Wong' Lu "hiu ?au and "hung "hing . %0Luitable cleared said warrants through the "learing Office and then collected the corresponding amounts from the Treasurer' and thereafter' credited those to the accounts of the depositors. %The Treasurer notified 0Luitable that said warrants were defective and demanded reimbursement of said amounts' which the latter refused. R"onsolidationS %7y agreement of the parties' said cases were Fointly heard. *?asi'7P$ filed a complaint against the "orporacionK 0Luitable filed a similar complaint for whatever reimbursements it and 7P$ may be sentenced to give the ovIt.. ISS0. WON said ban(s are liable
,.L/: No. The Treasury was the negligent one here since there was a 8G hour clearing rule'# wherein items that should be returned for whatever reason should be done so within 8G hours. This it failed to do in these two cases. *Note= there is no mention of the N$L here because the 84 warrants were not negotiableK "ampos posed the Luestion that had the said warrants been negotiable' would the "ourtIs ruling be differentV. %Negligence in clearing= The +uditor of the Treasury' whose signature was forged' e!ceeded his authority to approve since each of the warrants involved were for over D( pesos. The irregularity of the warrants was apparent on the face thereof from the TreasuryIs viewpoint yet the ban(s were not informed of any of the irregularity in them until after said warrants were cleared and honored. Only then did the Treasury give notice of the forgeries. %+s was stated' all 84 warrants were cleared and paid by the Treasury' this' then' induced the ban(s to credit the amounts to the respective depositors. TB' the loss of amounts was imputable to the acts and omissions of the Treasury so the ban(s should not and cannot be penaliJed. %Treasury should bear the loss' citing PN7 v NatIl "ity 7an( of N,' Where a loss' which must be borne by one of two parties ali(e' innocent of forgery' can be traced to the neglect or fault of either' it is reasonable that it would be borne by him' even if innocent of any intentional fraud' through whose means it has succeeded.# % enerally' where a drawee ban( otherwise would have a right of recovery against a collecting or indorsing ban( for its payment of a forged chec(' its action will be barred if it is guilty of an unreasonable delay in discovering the forgery and in giving notice thereof.# *".<.-. 539%55E. %Birst -tate 7an( O Trust v. Birst NatIl 7an(= *restated lang Wto ha/. Where a defendant ban(' on presentation to it of a forged chec( drawn on another ban(' paid part of amount to presenter' drawee having had the chec( cleared through the clearing house' with no notice of forgery given' said ban( cannot be held liable for amount so paid. Disposition Aecision appealed from is +ffirmed. FI&S- NA-=L :AN7 4F #4&-LAN/ ' N4:L. 81"4>9 159 Ore. 83' 134 P. *8d. 2DG *19G3. :FaFa: FA+-S
-;7<0"T= chec( drawn as a refund of the payment made by <ohn and Lilian Noble for the property purchased and subseLuently reconveyed to T.A. Lee through the drawer A6+W06= ?ellec(' a bro(er A6+W00= Birst National 7an( of Portland Oregon P+,00= Lilian -. Noble -;7-0@;0NT $NAO6-0>0NT-= >rs. Noble indorsed the chec( in blan( and deposited it in the ;nited -tates National 7an( of Portland. The deposit' on the same day' was entered as credits in the NobleIs savings account and chec(ing account. %The ;- National 7an(' on -ept81' placed its clearing house indorsement' as of -ept88' on the chec(. The chec( reached the drawee' the Birst National 7an( of Portland on -ept88. The account of the drawer' ?ellec(' then had but C8EE to his credit. On discovery of this fact a teller in the Birst National 7an( placed a small symbol on the chec( which indicated that the chec( was to be reFected for want of sufficient funds. The chec( was then returned through the clearing house to the forwarding ban(' the ;- National' at 11 am' -ept82' with the advice that it was being dishonored for insufficient funds in the drawerIs account. The credit to the ;- National 7an( was canceled by the Birst National. The ;- National' by letter dated -ept82' informed >rs. Noble of the dishonor of the ?ellec( chec( and that it had been charged bac( to the NobleIs account. %-ept8G' shortly before 2pm' ;- National 7an( by messenger presented the chec( over the counter of the Birst National. The teller in the Birst National' to whom the chec( was presented the second time' mistoo( the reFection symbol which on -ept88' had been placed on the chec( by another teller of the Birst National' for a symbol authoriJing payment. +cting on this mista(en assumption he prepared a cashierIs chec( dated -ept8G' payable to order of the ;nited -tates National in the amount of the ?ellec( chec(' had the same duly signed by an assistant cashier of the drawee and delivered the same to the messenger from the ;nited -tates National. The ;nited -tates National credited the Birst NationalIs cashierIs chec( to the account of the Nobles. The Birst NationalIs cashierIs chec( was mar(ed paid through the clearing house at 4=GD a.m.' -ept8D' to the ;nited -tates National though the courts finds that the cashierIs chec( was received by the Birst National on -ept8G and mar(ed paid on that date though the clearing house transaction too( place on the ne!t morning. %-ept8D' the Birst National 7an( discovered its mista(e and before 18 oIcloc( the Birst National retendered the ?ellec( chec( as a dishonored item but the ;nited -tates National refused to receive it and to return the
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proceeds of the cashierIs chec(. The Birst National 7an( brought an action of assumpsit for money had and received against Lilian Noble and <ohn Noble and the ;nited -tates National 7an( to recover the amount of the cashierIs chec(' i.e.' C1E' D52.DE. The ;- National 7an( filed its bill of interpleader and tendered the money into court. The plaintiff recovered Fudgment in the trial court against the Nobles. The Nobles appealed. %The court concluded that the asserted right of plaintiff to restitution must be considered e!actly as if the ?ellec( chec( and had been paid over the counter in cash. ISS0. WON the trial court erred in discharging the ;- National from liability ,.L/: N4 %6ule 22 of the 6estatement on 6estitution must control the decision of this case. $t is as follows= %The payee is entitled to retain the money which he has received as a bona fide purchaser. The typical cases are those where an employee of a ban( pays the holder of a chec( in the mista(en belief that the drawer has sufficient funds on deposit to meet it or in forgetfulness of the fact that the drawer has directed that payment should not be made. %The forgery cases are said to rest' in part at least' upon the ma!im that where the eLuities are eLual the legal title must prevail. That ma!im appears applicable where a drawee ban( pays a chec( so s(illfully forged as to defy detection. The holder and the drawee are eLually without fault' and the holder has the money. %The position of the defendants in the case at bar is in this respect stronger than that of the one who has received payment of a forged chec(. Here the eLuities are not eLual. The representative of the plaintiff was clearly negligent. He acted in reliance on a symbol which he had never before seen the meaning of which he had no reason to (now. + momentIs inLuiry would have informed him fully concerning the meaning of the symbol and the state of ?ellec(Is account. 7ut no inLuiry was made. %The defendants Noble are not chargeable with any neglect or ineLuitable conduct. Neither they nor their collecting agent (new or were entitled to (now the state of the ?ellec( account' and the fact that the ?ellect chec( was N-B on -ept88 did not render it unconscionable to present it again on -ept8G' Breeport 7an( of Breeport. Disposition The decree in favor of the Birst National 7an( is reversed. $t is ordered that the defendants Noble recover the sum C1E'D52.DE paid into the registry of the court !!! The decree is affirmed as to
the ;nited -tates National 7an(. The defendants Noble may have their costs and disbursements from the plaintiff Birst National 7an(. LI:.&- -&0S- +4 ' ,A55.&Rplace citation hereS :ina: 81"!19
FA+-S %Haggerty' a manlolo(o' had a chec(ing account with Liberty Trust "o. He induced a boo((eeper of the ban( to manipulate the ban(Xs boo(s to ma(e it appear that he had credit in the ban( so that the chec(s he drew on the ban( would be honored. They were successful for about D months' when a ban( official accidentally discovered the falsification. Haggerty and boo((eeper succeeded in obtaining overdrafts of about CD2( of the ban(Xs funds. %Haggerty was arrested. He was also declared ban(rupt and a trusty was appointed. His total realiJed assets was C9DEE and the claims filed with the trustee totaled more than C1DE(. %>ayhew was one of the claimants. He loaned Haggerty some money with 8E%GEN interest. Haggerty paid him with chec(s drawn on Liberty. The ban( paid a total of C19( to >ayhew during the time the boo(s were being magic(ed. >ayhew was not aware of the fact that HaggertyXs account was being falsified. %Liberty wants to recover the money it paid to >ayhew. ISS0.S WON Liberty can recover what it paid >ayhew ,.L/: N4% >ayhew was a bona fide holder for value. +s such' he did not have a right to e!act payment from Liberty because there was no contract between them. Liberty' on the other hand' had the right to determine WON to pay him. When the ban( decided to pay' it was bound to (now the state of its account with Haggerty. Having e!ercised its option to pay or not to pay by honoring the chec(s' Liberty canXt recover the money bac( from the payee. This is under the general rule that payment of a chec( by a ban( upon which it is drawn' under the mista(en belief that the ma(er of the chec( has sufficient funds to his credit to pay the chec(' is a finality' and the ban( canXt recover from the payee of the chec( the amount so paid. %The reasons for this rule are= 1. thereXs no privity between the payee and the ban(K 8. the ban( always has the means of (nowing the state of the depositorXs account by an e!amination of its boo(s' and therefore the payment is not a mista(e
within the meaning of the general rule which permits the recovery of money paid under a mista(e of factK and 2. to permit the ban( to repudiate the payment would destroy the certainty that must pertain to commercial transactions and give way to uncertainty' delay and annoyance. %$tXs a rule that a person receiving stolen money innocently in due course of business' in payment of a pre%e!isting debt' is a holder for value as against the former owner. 5&.A- .AS-.&N LIF. INS% ' ,S:+ 81"!!9 G2 Phil 354 *1988.K <ohns :chrislao: FA+-S % reat 0astern' an insurance company' drew a chec( for 8( on H-7" payable to the order of >elicor. %>aasim fraudulently obtained possession of said chec( and forged >elicorXs signature' as an endorser. He then endorsed and presented it to PN7 where the amount was placed to his credit. %+fter paying >aasim' PN7 endorsed the chec( to H-7". H-7" paid PN7 and then charged the chec( to the account of reat 0astern. %H-7"' as e!pected in the ordinary course of business' sent reat 0astern a ban( statement which showed that the chec( was charged to its account. reat 0astern did not obFect. %G months later' reat 0astern found out that >elicor never got paid. reat 0astern then made a demand on H-7" that reat 0astern should be given credit for the forged chec( but H-7" refused. % reat 0astern sued H-7" to recover the 8( *so it could pay >elicor.. H-7"' on the other hand' prays that should Fudgment be rendered against it' it should have li(e Fudgment against PN7. ISS0.S WON reat 0astern can recover ,.L/ ,0-. This is not a case where the plaintiffXs own signature was forged to one of its chec(s. $n such a case' the plaintiff would have (nown the forgery and would therefore have the duty to promptly notify the ban(. Bailure to do so would release the ban(. %Here' the forgery was that of >elicor' the payee. Therefore' when reat 0astern' the drawer' received its ban( statement' it had the right to assume that >elicor had personally endorsed the chec( because otherwise' H-7" would not have paid it.
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%H-7" had no legal right to pay it out to anyone e!cept reat 0astern or its order. reat 0astern ordered H-7" to pay the 8( to >elicor but the money was paid to >aasim. H-7" has no defense to this action. %PN7 cashed the chec( upon a forged signature. PN7 had no license or authority to pay the money to >aasim. $t was its legal duty to (now that >elicorXs endorsement was genuine before cashing the chec(. $ts remedy is against >aasim. % reat 0astern can recover from H-7". H-7" can recover from PN7. +s for PN7' it should go after >aasim. ?AI-ALAI +4&#% 4F -,. #,IL% ' :#I 81"@A9 33 -"6+ 89K "+-T6OK +ugust 3' 195D :apple: FA+-S %1E chec(s with a total face value of P4'E2E.D4 were deposited by <ai%+lai "orporation in its current account with 7P$ %+ll the chec(s *all payable to $nter%$sland as or order. were acLuired by the <ai%+lai "orporation from one +ntonio <. 6amireJ' a sales agent of the $nter%$sland as and a regular bettor at Fai%alai games %;pon deposit to 7P$' the chec(s were temporarily credited to <ai%+lai "orporationXs account with the condition that any credit allowed...is provisional only' until such time as the proceeds thereof' in current funds or solvent credits' shall have been actually received by the 7an(' and the latter reserves to itself the right to charge bac( the item to the account of its depositor' at any time before that event' regardless of whether or not the item itself can be returned...# %+fter 6amireJ had resigned from the $nter%$sland as and after the chec(s had been submitted to inter%ban( clearing' $nter%$sland as discovered that all the indorsements made on the chec(s purportedly by its cashiers' as well as the rubber stamp impression thereon reading M$nter%$sland as -ervice' $nc.'M were forgeries. %$nter%$sland as advised <ai%+lai "orp' 7P$' the drawers and the drawee%ban(s of the said chec(s about the forgeries %Arawers of the chec(s demanded reimbursement to their respective accounts from the drawee%ban(s %Arawee%ban(s demanded from 7P$' as collecting ban(' the return of the amounts they had paid on account thereof %7P$' for its part' debited <ai%+lai "orpXs current account %On October 4' 19D9' <ai%+lai "orp drew against its current account with 7P$ a chec( for P12D'EEE payable
to the order of the >ariano OlondriJ y "ia in payment of certain shares of stoc(. %The chec( was dishonored by 7P$ as its records showed that the current account of the petitioner' after netting out the value of the chec(s P4'E2E.D4 with the forged indorsements' had a balance of only P184'8D5.3D. %<ai%+lai "orp filed a complaint with "B$' which was dismissedK "+ affirmed dismissal ISS0. WON 7P$ had the right to debit the petitionerXs current account in the amount corresponding to the total value of the chec(s with the forged indorsements ,.L/: .S% The respondent acted within legal bounds when it debited the petitionerXs account. %When the petitioner deposited the chec(s with the respondent' the nature of the relationship created at that stage was one of agency%%the ban( was to collect from the drawees of the chec(s the corresponding proceeds. $t is true that the respondent had already collected the proceeds of the chec(s when it debited the petitionerXs account' so that following the rule in ullas vs. Philippine National 7an(' it might be argued that the relationship between the parties had become that of creditor and debtor as to preclude the respondent from using the petitionerXs funds to ma(e payments not authoriJed by the latter. %-ection 82 of the Negotiable $nstruments Law provides= MWhen 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 acLuired 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.M %7P$' as a collecting ban( which indorsed the chec(s to the drawee%ban(s for clearing' should be liable to the latter for reimbursement' for' as found by the court a Luo and by the appellate court' the indorsements on the chec(s had been forged %$n legal contemplation' therefore' the payments made by the drawee%ban(s to the 7P$' on account of the said chec(s' were ineffectiveK and' such being the case' the relationship of creditor and debtor between the petitioner and the respondent had not been validly effected' the chec(s not having been properly and legitimately converted into cash. %Having received the chec(s merely for collection and deposit' 7P$ cannot he e!pected to (now or ascertain the genuineness of all prior indorsements on the said
chec(s. $ndeed' <ai%+lai' having indorsed the chec(s to 7P$ in accordance with the rules and practices of commercial ban(s' is deemed to have given the warranty prescribed in -ection 33 of the Negotiable $nstruments Law that every single one of those chec(s Mis genuine and in all respects what it purports to be.M %+lso' <ai%+lai was grossly recreant in accepting the chec(s in Luestion from 6amireJ. $t could not have escaped itXs attention that the payee of all the chec(s was a corporation Y the $nter%$sland as -ervice' $nc. ,et' the petitioner cashed these chec(s to a mere individual who was admittedly a habitue at its Fai%alai games without ma(ing any inLuiry as to his authority to e!change chec(s belonging to the payee%corporation. %$t must be noted further that three of the chec(s in Luestion are crossed chec(s' which may only be deposited' but not encashedK yet' the petitioner negligently accepted them for cash. %;nder -ection 35 of the Negotiable $nstruments Law' MWhere a person places his indorsement on an instrument negotiable by delivery he incurs all the liability of an indorser'M and under -ection 33 of the same statute a general indorser warrants that the instrument Mis genuine and in all respects what it purports to be.M "onsidering that the petitioner indorsed the said chec(s when it deposited them with the respondent' the petitioner as an indorser guaranteed the genuineness of all prior indorsements thereon. The respondent which relied upon the petitionerXs warranty should not be held liable for the resulting loss. %+lso' under article 81DG of the New "ivil "ode M$f something is received when there is no right to demand it and it was unduly delivered through mista(e' the obligation to return it arises.M There was' therefore' in contemplation of law' no valid payment of money made by the drawee%ban(s to the respondent on account of the Luestioned chec(s. Disposition Petition denied. "+ Fudgment affirmed. +ANAL :AN7 ' :AN7 4F AL:AN -upreme "ourt of New ,or(K 1 Hill 845 *14G1. :rach: FA+-S %This is a case to recover money paid on a draft. The ground on which the plaintiffs sought to recover bac( the money was that the endorsement purporting to be that of 7entley was a forgery' which fact was proved by 7entley and others on the trial. %The draft was drawn on the plaintiffs *+anal :an2. by the 3ontgomerB +ountB :an2' payable to the order of .% :entleB. $t purported to have been endorsed successively by 7entley' then by one 7udd' afterward
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by the 7an( of New%,or(' and lastly by the defendants *:an2 o$ AlbanB.' to whom the plaintiffs paid it. -Two months after payment, plaintiffs asked the defendants to have the money refunded, notifying them at the same time of the forgery. %;pon plaintiffIs obFections' the circuit Fudge overruled the defendantIs offer to prove the ff= *1. That the defendants received the draft from the 7an( of New ,or( to collect' as agents for the latter' and that as such they received the money and paid it over to their principals' be$ore notice o$ the $orgerBK *8. That a uniform custom of the ban(s of this state is to receive and collect drafts in the manner this was done' without disclosing their agency. ISS0. WON the defendants were bound to return the money received ,.L/: .S Ratio Though the defendants were innocent of any intended wrong' they had obtained money of the plaintiffs on an instrument to which they had no title' and were therefore bound to refundK though notice of the forgery was not given till more than two months after they had received the money' they already received it and transmitted it to their principal. %Where a ban( collects a draft without disclosing to the drawee that it is merely collecting as agent' and it is afterwards discovered that the indorsement was a forgery' it is liable as principal in an action' by the drawee. %Where a draft had been fraudulently indorsed with the name of an agent' who is also payee' and put in circulation' bona fide' by the principal of the pretended agent' without disclosing an agency' the indorsee of the principal' discovering the forgery two months after might recover the money advanced to the principal. %$f one accepts a draft in the hands of a bona fide holder' he will not be allowed afterward to dispute the genuineness of the drawerXs signature' though he may that of the endorsersK and payment operates' in this respect' the same as an acceptance. %To a note or bill payable to order' none but the payee can assert any title without the indorsement of such payeeK not even a bona fide holder. Disposition New trial denied.
FA+-S -;7<0"T= + forged chec( A6+W06= 7ureau of Treasury *treasury. A6+W00= 6epublic 7an( *67. P+,00= >artin LorenJo' who was already dead 11 years before the chec( was e!ecuted $NAO6-00= 6amon LorenJo' Aelia AomingueJ' then lastly >auricia 0brada %Treasury issued chec( in favor of >artin LorenJo. The chec( was subseLuently indorsed to 0brada for encashment' and so after' she delivered the proceeds to AomingueJ' and AomingueJ delivered the latter to a certain <ustinia Tinio. When Treasury found out that the chec( was forged' they demanded 67 to refund the chec( proceeds. 67 demanded refund from 0brada. T" ruled for 67. ISS0. WON 0brada' the last indorser' was liable to pay the chec( on its face although she did not benefit from it ,.L/: .S% 0brada liable to 67' 67 liable to Treasury Ratio. Where a chec( is drawn payable to the order of one person and is presented to a ban( by another and purports upon its face to have been duly indorsed by the payee of the chec(' it is the duty of the ban( to (now that the chec( was duly indorsed by the original payee' and where the 7an( pays the amount of the chec( to a third person' who has forged the signature of the payee' the loss falls upon the ban( who cashed the chec(' and its only remedy is against the person to whom it paid the money. 6e= effect of forged instrument= Where the signature on a negotiable instrument if forged' the negotiation of the chec( is without force or effect *from -ection 82 of the Negotiable $nstruments Law *+ct 8E21... $t is only the negotiation based on the forged or unauthoriJed signature which is inoperative *7eam vs. Barrel.. 6e= draweeIs recovery when he paid based on a forged instrument= the drawee of a chec( can recover from the holder the money paid to him on a forged instrument. $t is not supposed to be its duty to ascertain whether the signatures of the payee or indorsers are genuine or not. This is because the indorser is supposed to warrant to the drawee that the signatures of the payee and previous indorsers are genuine' warranty not e!tending only to holders in due course. One who purchases a chec( or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the drawee who has paid the
&.#0:LI+ :AN7 ' .:&A/A L%GE593K 3D -"6+ 34EK <uly 21' 195D
forged chec(' without actual negligence on his part' may recover the money paid from such negligent purchasers. $n such cases the recovery is permitted because although the drawee was in a way negligent in failing to detect the forgery' yet if the encasher of the chec( had performed his duty' the forgery would in all probability' have been detected and the fraud defeated. Ratio for allowing recovery= 0very one with even the least e!perience in business (nows that no business man would accept a chec( in e!change for money or goods unless he is satisfied that the chec( is genuine. He accepts it only because he has proof that it is genuine' or because he has sufficient confidence in the honesty and financial responsibility of the person who vouches for it. $f he is deceived he has suffered a loss of his cash or goods through his own mista(e. His own credulity or rec(lessness' or misplaced confidence was the sole cause of the loss. Why should he be permitted to shift the loss due to his own fault in assuming the ris(' upon the drawee' simply because of the accidental circumstance that the drawee afterwards failed to detect the forgery when the chec( was presentedV Reasoning.-ince 0brada was the last indorser of the chec(' she was supposed to have warranted that she has good title to said chec(. -he was duty%bound to ascertain whether the chec( in Luestion was genuine before presenting it to plaintiff 7an( for payment. Her failure to do so ma(es her liable for the loss and the plaintiff 7an( may recover from her the money she received for the chec(. +s reasoned out above' had she performed the duty of ascertaining the genuineness of the chec(' in all probability the forgery would have been detected and the fraud defeated. %+s regards 67' the plaintiff 7an( should suffer the loss when it paid the amount of the chec( in Luestion to defendant%appellant' but it has the remedy to recover from the latter the amount it paid to her. %as regards the argument that 0brada did not benefit from the chec(' although the defendant%appellant to whom the plaintiff 7an( paid the chec( was not proven to be the author of the supposed forgery' yet as last indorser of the chec(' she has warranted that she has good title to it even if in fact she did not have it because the payee of the chec( was already dead 11 years before the chec( was issued. The fact that immediately after receiving the cash proceeds of the chec( in Luestion in the amount of P1'8G3.E4 from the plaintiff 7an(' defendant%appellant immediately turned over said amount to +delaida AomingueJ *Third%Party defendant and the Bourth%Party plaintiff. who in turn handed the amount to <ustina Tinio on the same date would not e!empt her from liability because by doing so' she acted as an accommodation party in the chec(
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Law 108: Negotiable Instruments
First Semester
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for which she is also liable under -ection 89 of the Negotiable $nstruments Law. Disposition <udgment affirmed. :AN+4 /. 4&4 ' .(0I-A:L. :AN7 +4&# 1D5 -"6+ 144K ancaycoK <anuary 8E' 1944 :FoFo: FA+-S %-ometime in 1942' 07" thru its Pisa "ard Aepartment' drew 3 crossed >anagerXs chec(s amounting to PGD'948.82 and payable to certain member establishments of Pisa "ard. -ubseLuently' the "hec(s were deposited with the 7AO to the credit of its depositor' a certain +ida Trencio. %Bollowing normal procedures' and after stamping at the bac( of the chec(s the usual endorsements= X+ll prior and&or lac( of endorsement guaranteedX' 7AO sent the chec(s for clearing through the P"H". +ccordingly' 07" paid the chec(sK its clearing account was debited for the value of the chec(s and defendantXs clearing account was credited for the same amount. %Thereafter' 07" discovered that the endorsements appearing at the bac( of the chec(s and purporting to be that of the payees were forged and&or unauthoriJed or otherwise belong to persons other than the payees. %07" presented the chec(s directly to 7AO for the purpose of claiming reimbursement from the latter. However' 7AO refused to accept such direct presentation and to reimburse the 07" for the value of the "hec(s. ISS0. WON 7AO was negligent and thus responsible for any undue payment ,.L/: .S %$n presenting the "hec(s for clearing and for payment' 7AO made an e!press guarantee on the validity of Xall prior endorsementsX. Thus' stamped at the ban( of the chec(s are the defendantXs clear warranty= +LL P6$O6 0NAO6-0>0NT- +NA&O6 L+"? OB 0NAO6-0>0NT;+6+NT00A. Without such warranty' 0A" would not have paid on the chec(s. %No amount of legal Fargon can reverse the clear meaning of 7AOXs warranty. +s the warranty has proven to be false and inaccurate' the 7AO is liable for any damage arising out of the falsity of its representation. %The principle of estoppel effectively prevents 7AO from denying liability for any damages sustained by 07" which' relying upon an action or declaration of the
7AO' paid on the chec(s. The same principle of estoppel effectively prevents the 7AO from denying the e!istence of the chec(s. %Whether the chec(s have been issued for valuable considerations or not is of no serious moment to this case. These chec(s have been made the subFect of contracts of endorsement wherein 7AO made e!pressed warranties to induce payment by the drawer of the "hec(sK and the defendant cannot now refuse liability for breach of warranty as a conseLuence of such forged endorsements. 7AO has falsely warranted in favor of 07" the validity of all endorsements and the genuineness of the chec(s in all respects what they purport to be. %The damage that will result if Fudgment is not rendered for 07" is irreparable. The collecting ban( has privity with the depositor who is the principal culprit in this case. 7AO (nows the depositorK her address and her history' Aepositor is 7AOXs client. $t has ta(en a ris( on its depositor when it allowed her to collect on the crossed%chec(s. %Having accepted the crossed chec(s from persons other than the payees' 7AO is guilty of negligenceK the ris( of wrongful payment has to be assumed by 7AO. :#I ' +A; +,INA :AN7IN5 +4&# L%1E8242K 813 -"6+ D1K November 83' 1998 :(iyo: FA+-S -;7<0"T= 8 chec(s for the pretermination of a money mar(et placement A6+W06&A6+W00= 7P$ P+,00= 0ligia Bernando' impersonated by -usan LopeJ $NAO6->0NT= "hina 7an(ing "orp.' collecting ban( of the 7P$ chec(s %LopeJ impersonated Bernando' preterminated the latterIs money mar(et placement evidenced by a promissory note *P8'G38'8G2.19. from and through 7P$' who issued her 8 chec(s. -he later opened an account at "7" and endorsed the chec(s thereK "7" stamped them with guaranty of prior endorsements and&or lac( of endorsementK 7P$ cleared them. LopeJ withdrew nearly the whole amount. The real Bernando came on the maturity date of the placement for rollover and claimed forgery of endorsements. ISS0. WON in the event that the payeeIs signature is forged' 7P$ may claim reimbursement from "7" ,.L/: N4
%;nder -ec. 82' the general rule is that forged signatures are wholly inoperative and payments through such are ineffectualK the e!ception is where the party relying on the forgery is precluded from setting up the forgery or want of authority. The court recogniJes negligence of the party invo(ing forgery as an e!ceptionK hence general rule does not apply here. 7P$ claims the clearing guaranty ma(es "7" wholly liable for forged chec(s. 6ecords show both 7P$ *not calling Bernando to confirm preterminationK not verifying BernandoIs signaturesK not as(ing for the promissory note upon pic(up of chec(s. and "7" *opening account for LopeJ with only BernandoIs ta! account number as $A' not Luestioning LopeJI huge deposit and withdrawals. were negligent in the selection&supervision of their employees and thus both liable. Disposition 7P$ is liable 3EN' "7" is liable GEN 5.3#.SAC ' +A; #:+43 814 -"6+ 348K "ampos' <r.K Beb 9' 1992 :athe: FA+-S %Petitioner Natividad O. empesaw *petitioner. owns and operates four grocery stores in "aloocan "ity. Petitioner maintains a chec(ing account with the "aloocan "ity 7ranch of the respondent drawee 7an( *P7".. To facilitate payment of debts to her suppliers' petitioner draws chec(s against her chec(ing account with P7" as drawee. Her customary practice of issuing chec(s in payment of her suppliers was as follows= The chec(s were prepared and filled up as to all material particulars by her trusted boo((eeper' +licia alang' an employee for more than eight *4. years. +fter the boo((eeper prepared the chec(s' the completed chec(s were submitted to the petitioner for her signature' together with the corresponding invoice receipts which indicate the correct obligations due and payable to her suppliers. Petitioner signed each and every chec( without bothering to verify the accuracy of the chec(s against the corresponding invoices because she reposed full and implicit trust and confidence on her boo((eeper. The issuance and delivery of the chec(s to the payees named therein were left to the boo((eeper. %$n the course of her business operations covering a period of two years' petitioner issued' following her usual practice stated above' a total of eighty%two *48. chec(s in favor of several suppliers. %$t appears that instead of issuing the chec(s to the payees as named in the chec(s' +licia alang delivered them to the "hief +ccountant of the 7uendia branch of
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Law 108: Negotiable Instruments
First Semester
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the respondent drawee 7an(' a certain 0rnest L. 7oon' who' without authority therefor' accepted them all for deposit at the 7uendia branch to the credit and&or in the accounts of +lfredo ,. 6omero and 7enito Lam. 0rnest L. 7oon was a very close friend of +lfredo ,. 6omero. $t was established that the signatures of the payees as first indorsers were forged. The record fails to show the identity of the party who made the forged signatures. The chec(s were then indorsed for the second time with the names of +lfredo ,. 6omero and 7enito Lam' and were deposited in the latterXs accounts as earlier noted. The second indorsements were all genuine signatures of the alleged holders. %The total amount of P1'8E4'3E3.49' represented by eighty%two *48. chec(s' were credited and paid out by respondent drawee 7an( to +lfredo ,. 6omero and 7enito Lam' and debited against petitionerXs chec(ing account ' "aloocan branch. %$t was only after the lapse of more than two *8. years that petitioner found out about the fraudulent manipulations of her boo((eeper *payees did not receive nor see the subFect chec(s.. 7ecause of this' the petitioner demanded from the drawee 7an( to credit her account with the money value of the 48 chec(s for having been wrongfully charged against her account. The 7an( refused. P6O"0A;60 6T" "aloocan "omplaint for recovery of the money value of the 48 chec(s= dismissed "+ +ppeal= affirmed the decision of the 6T" on two grounds' namely *1. that the plaintiffIs *petitioner herein. gross negligence in issuing the chec(s was the pro!imate cause of the loss and *8. assuming that the ban( was also negligent' the loss must nevertheless be borne by the party whose negligence was the pro!imate cause of the loss. -"% Petition under 6ule GD ISS0.S *issues relevant to the topic. 1. WON the "+ erred in ruling that the negligence of the drawer is the pro!imate cause of the resulting inFury to the drawee ban( 8. WON the drawer is precluded from setting up the forgery or want of authority as a defense WON the respondent drawee 7an( should not have honored the chec(s because they were crossed chec(s. *other issues. 2. WON ban(ing rules prohibit the drawee ban( from having chec(s with more than one indorsement. G. WON the drawee 7an( may be held liable for damages under any law aside from N$L ,.L/
1. NO. The petitionerIs negligence was the pro!imate cause of her loss. Reasoning One thing is clear from the records %that the petitioner failed to e!amine her records with reasonable diligence whether before she signed the chec(s or after receiving her ban( statements. Had the petitioner e!amined her records more carefully' particularly the invoice receipts' cancelled chec(s' chec( boo( stubs' and had she compared the sums written as amounts payable in the eighty%two *48. chec(s with the pertinent sales invoices' she would have easily discovered that in some chec(s' the amounts did not tally with those appearing in the sales invoices. Had she noticed these discrepancies' she should not have signed those chec(s' and should have conducted an inLuiry as to the reason for the irregular entries. Li(ewise' had petitioner been more vigilant in going over her current account by ta(ing careful note of the daily reports made by respondent drawee 7an( on her issued chec(s' or at least made random scrutiny of her cancelled chec(s returned by respondent drawee 7an( at the close of each month' she could have easily discovered the fraud being perpetrated by +licia alang' and could have reported the matter to the respondent drawee 7an(. The respondent drawee 7an( then could have ta(en immediate steps to prevent further commission of such fraud. 8. ,0-. +s a general rule' forgery is a defense. However' the plaintiff falls under the e!ception. %The applicable law is -ection 82 of the N$L which provides= MWhen 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 acLuired 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.M % eneral 6ule= Borgery is a real or absolute defense by the party whose signature is forged. + party whose signature to an instrument was forged was never a party and never gave his consent to the contract which gave rise to the instrument. -ince his signature does not appear in the instrument' he cannot be held liable thereon by anyone' not even by a holder in due course. %This section covers both the forged signature of the ma(er of a promissory note&drawer of a chec( and forged indorsement' i.e.' the forged signature of the payee or indorsee of a note or chec(. %0!ample= $f a personXs signature is forged as a ma(er
of a promissory note' he cannot be made to pay because he never made the promise to pay. Or where a personXs signature as a drawer of a chec( is forged' the drawee ban( cannot charge the amount thereof against the drawerXs account because he never gave the ban( the order to pay. %0!ception= Where the drawer is guilty of such negligence which causes the ban( to honor such a chec( or chec(s. %0!ample= $f a chec( is stolen from the payee' it is Luite obvious that the drawer cannot possibly discover the forged indorsement by mere e!amination of his cancelled chec(. This accounts for the rule that although a depositor owes a duty to his drawee ban( to e!amine his cancelled chec(s for forgery of his own signature' he has no similar duty as to forged indorsements. + different situation arises where the indorsement was forged by an employee or agent of the drawer' or done with the active participation of the latter. >ost of the cases involving forgery by an agent or employee deal with the payeeXs indorsement. The drawer and the payee oftentimes have business relations of long standing. The continued occurrence of business transactions of the same nature provides the opportunity for the agent&employee to commit the fraud after having developed familiarity with the signatures of the parties. Reasoning $n the case at bar' the agent was the one who perpetrated the series of forgeries. Had the petitioner been more prudent under the circumstances' she could have discovered the fraud earlier. 2. NO. Ratio $ssuing a crossed chec( imposes no legal obligation on the drawee not to honor such a chec(. $t is more of a warning to the holder that the chec( cannot be presented to the drawee ban( for payment in cash. $nstead' the chec( can only be deposited with the payeeXs ban( which in turn must present it for payment against the drawee ban( in the course of normal ban(ing transactions between ban(s. The crossed chec( cannot be presented for payment but it can only be deposited and the drawee ban( may only pay to another ban( in the payeeXs or indorserXs account. G. NO. Ratio The ban(ing rule banning acceptance of chec(s for deposit or cash payment with more than one indorsement unless cleared by some ban( officials does not invalidate the instrumentK neither does it invalidate the negotiation or transfer of the said chec(. $n effect' this rule destroys the negotiability of bills&chec(s by limiting their negotiation by indorsement of only the
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payee. ;nder the N$L' the only (ind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof *-ec. 23' N$L.. $n this (ind of restrictive indorsement' the prohibition to transfer or negotiate must be written in e!press words at the bac( of the instrument' so that any subseLuent party may be forewarned that it ceases to be negotiable. However' the restrictive indorsee acLuires the right to receive payment and bring any action thereon as any indorser' but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authoriJe him to do so. %+lthough the holder of a chec( cannot compel a drawee ban( to honor it because there is no privity between them' as far as the drawer%depositor is concerned' such ban( may not legally refuse to honor a negotiable bill of e!change or a chec( drawn against it with more than one indorsement if there is nothing irregular with the bill or chec( and the drawer has sufficient funds. The drawee cannot be compelled to accept or pay the chec( by the drawer or any holder because as a drawee' he incurs no liability on the chec( unless he accepts it. 7ut the drawee will ma(e itself liable to a suit for damages at the instance of the drawer for wrongful dishonor of the bill or chec(. D. ,0-. +rticle 115E of the New "ivil "ode provides % %Those who in the performance of their obligations are guilty of fraud' negligence or delay' and those who in any manner contravene the tenor thereof' are liable for damages.M Reasoning There is no Luestion that there is a contractual relation between petitioner as depositor *obligee. and the respondent drawee ban( as the obligor. $n the performance of its obligation' the drawee ban( is bound by its internal ban(ing rules and regulations which form part of any contract it enters into with any of its depositors. When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of 7oon' a chief accountant' it contravened the tenor of its obligation at the very least' if it were not actually guilty of fraud or negligence. We hold that ban(ing business is so impressed with public interest where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be a high degree of diligence' if not the utmost diligence. $ts liability as obligor is not merely vicarious but primary wherein the defense of e!ercise of due diligence in the selection and supervision of its employees is of no
moment. Disposition= 60>+NA0A to the trial court for the reception of evidence to determine the e!act amount of loss suffered by the petitioner *which one half must be paid by respondent drawee ban( to herein petitioner%DE&DE ratio based on +rticle 1158..
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-4L3AN ' A3.&I+AN NA-=L :AN7 G4 +tl G4E' D8 L6+ 455 *19E1. :giulia: FA+-S Tolman sues to recover money paid out by the defendant on his account' upon his chec(' under a forged indorsement. Potter' representing himself as Has(ell' went to the plaintiff to get a loan of money' giving the residence and occupation of Has(ell as his own. The plaintiff made an inLuiry on Has(ell and founding that the residence and occupation correct thereby agreed to na(e the loan. Potter' under the name of Has(ell' gave the note to the plaintiff' and the plaintiff gave him a chec( on the defendant payable to the order of Has(ell' delivering it to Potter' supposing him to be Has(ell. Potter indorsed Has(ellXs name on the bac( of the chec(' and gave it to +7 Homes' who collected it from the ban(. When the note given to the plaintiff became due' fraud was discovered. He thereupon notified the an(' and demanded the return of the amount paid on the chec( to the credit of his account. ISS0. WON the ban( is liable for the payment which it made on the chec(' ,el* Ratio ,es. When a ban( receives money to be chec(ed out by a depositor' it is to be paid only as the depositor shall order. The ban( assumes this duty in receiving the deposit. $f the ban( pays money out on a forged signature' the depositor being free from balme or negligence' it must bear the loss. Reasoning $n this case the money was intended to Haas(ell' because his was the only name suggested. He had been loo(ed up and found to be responsible. $t is a perversion of words to say that it was intended for Potter simply because he had fraudulently impersonated Has(ell' and led the plaintiff to believe the he was Has(ell. The plaintiff did not intend Potter to have the money. When Potter fraudulently indorsed Has(ellXs name on the chec(' it was a typical case of forgery. When a signature is forged or made out 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 discharge therefor' or to enforce payment thereof' against a party thereto' can be acLuired through or under such signature' unless a
party against whom it is sought to enforce such right is precluded from setting up forgery or want of authority SN /.& ' +4&N .D+,AN5. NA-=L :AN7 5E +tl. 453 *19E4. :aFang: FA+-S %+ction was filed by -nyder' individually and trading as Harrison' -nyder O -on against "orn 0!change National 7an(. -nyder wants to recover the amount of the chec(s which were wrongfully paid by the ban(. % eorge -nyder is a bro(er' trading and doing business under the name of Harrison' -nyder O -on. He is a depositor at the "orn 0!change National 7an(. He had in his employ a cler( named 0dwin reenfield' an attorney' who was authoriJed to draw chec(s in his name against his deposit in the said ban(. reenfield drew G chec(s payable to the order of "harles Niemann with a total amount of C 14' 245.DE. These chec(s were paid by the ban( and charged to the account of -nyder. %The chec(s were said to have been indorsed by Neimann' but these indorsements were forgeries and were never authoriJed by him or -nyder. They were said to have been indorsed in blan( to 6.>. >iner O "o.' a copartnership purporting to caryy on a stoc( and grain bro(erage business but is actually conducting a gambling establishment popularly (nown as a buc(et shop.# %The G chec(s were deposited by 6.>. >iner to 6eal 0state Title $nsurance O Trust "ompany of Philadelphia. The trust company then indorsed 2 of the G chec(s to guarantee previous indorsements to certain ban(s in Philadelphia for collection. The Gth chec( was also indorsed by the trust company but without guaranteeing the previous indorsements. %"orn 0!chagne 7an(' relying upon the guaranty by the trust company' paid each of the chec(s to the trust company through its collecting agents. %7ased on the averments that' the indorsements purporting to be those of "harles Niemann were forgeriesK that the trust company collected the proceeds of the chec(s without actual (nowledge of the character of the business of 6.>. >inerK that "orn 0!change NatIl 7an( had constructive notice of the business of the firmK and that the said chec(s were not given in due course of the business. %-nyder wants to recover from the ban( the amounts drawn from its account. ISS0. WON -nyder may recover
,.L/: N4% %The ban( said that Neimann was not a real' bona fide payee' but was in legal contemplation' a fictitious personYand such fact was (nown to reenfield when he drew the chec(s' in his capacity as -nyderIs attorney&agent. Neimann may have been an e!isting person' but nevertheless' he was a fictitious name within the meaning of the act of assembly as reenfield only intended to use this name and never intended for him to receive the chec(s or have any right to them. %+ chec( is payable to bearer when it is payable to the order of a fictitious or none!isting person' and such fact was (nown to the person ma(ing it so payable. %The intent of the drawer in inserting the name of the payee is the sole test of whether the payee is a fictitious person. %$n such case' there could be no recovery. %When the chec(s were delivered to 6.>. >iner' they were shown as payable to bearer and nothing therefore need be said in the contention of -nyder as to the liability of the trust company to the ban( upon the guaranty of the indorsements on the chec(s. %The chec(s drawn by reenfield are made as if drawn by -nyder himself. +nd when -nyder lodged with reenfield with this power' it is as if he said to the ban( that any chec( drawn by reendield should be paid by it as if it was made and issued by him. The court said that if this is not enough to protect the ban( from liability for mispayments from his account' it is not easy to conceive what else would be.
+L.A&FI.L/ -&0S- +4 ' 0NI-./ S-A-.S 214 ;- 232' 32 -.-. "t. D52 *19G2. :glaisa: FA+-S %+ chec( was drawn on the Treasurer of the ;- through the Bederal 6eserve 7an( of Philadelphia to the order of "lair 7arner in the amount of C8G.8E. %$t was dated aat Harrisburg' Pennsylvania and was drawn for the services rendered by 7arner to the Wor(s Progress +dministration. %The chec( was placed at the mail addressed to 7arner but he did not receive the chec(. %-ome un(nown person obtained it and presented it to <" Penney "o. store representing that he was the payee and endorsed the chec( in the name of 7arner and transferred it to <" Penney "o. in e!change for cash and merchandise. %<" Penney "o. endorsed the chec( to "learfiled Trust "o. which accepted it as an agent and endorsed it as
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follows= Pay to the order of Bederal 6eserve 7an(' Prior endorsements guaranteed# %"learfield collected chec( from the ;- and paid the full amount to <" Penney. %Neither "learfield nor <" Penney had any (nowledge or suspicion of forgery %;- filed a case against "learfield based on the e!press guaranty of prior endorsements made by "learfield. %Aistrict "ourt held that the rights of the parties were to be determined by the law of Pennsylvania and since the ;- unreasonably delayed in giving notice to the forgery to "learfield' it was barred from recovery. "ircuit "+ reversed. ISS0. WON ;- is barred from recovery ,.L/: N4 %He who presents a chec( for payment warrants that he has title to it and the right to receive payment. $f he has acLuired the chec( through forged endorsement' the warranty is breached at the time the chec( is cashed. The draweeIs right to recover accrues when the payment is made. There is no other barrier to the maintenance of cause of action. The theory of the draweeIs responsibility where the drawerIs signature is forged is inapplicable here. The drawee' whether it be the ;- or another' is not chargeable with the (nowledge of the signature of the payee. %Prompt notice of discovery of forgery was not a condition precedent to suit. $f it shown that the drawee on learning of the forgery did not give prompt notice of it and that damages resulted' recovery by the drawee is barred. %7ut we do not thin( that he who accepts a forged signature of a payee deserves a preferential treatment. $t is his neglect or error in accepting the forgerIs signature which occasions the loss. He should be allowed to shift that loss to the drawee only upon clear showing that the draweeIs delay in notifying him of the forgery caused him damage. No such damage has been shown by "learfield.
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/.-&4I- #IS-4N &IN5 +4% ' CA N. +40N- E ,43. SA'IN5S :AN7 8D8 >ich. 132' 822 N.W. 14D *192E. :titoZromy: FA+-S %Helen "ulbert was a trusted payroll cler( of Aetroit Piston. -he prepared the biwee(ly payroll and the chec(s corresponding therewith. -he would then have these signed by the officer of the "ompany who would sign the same without Luestion. ;nbe(nown to the "ompany' "ulbert was also preparing chec(s to the order of non%e!isting persons or former employees which she subseLuently indorsed in the names of the payees and negotiate them to other ban(s or stores. The drawee ban( would then pay the same and debit Aetroit for the corresponding amount. %The cancelled chec(s were then returned to the company on the first of each month. the boo((eeper would then compare the balance on the ban( statement with AetroitIs own boo(. -he would then sign a receipt containing the stipulation if no error is reported in ten days the account will be considered correct. %7ecause of the increased cost due to the activities of "ulbert' the "ompany employed auditors to ascertain the reason for said increased costs. However' the auditors *it should have employed 6ic(y if they really wanted to get to the bottom of the problem. failed to discover the cause. %+s it turned out' the fraud could have been easily discovered if someone Fust compared the payroll sheet with the time cards punched by employees in the time cloc(. %The company finally discovered the defalcation amounting to C84'E33.33. The "ompany sued Wayne "ounty O Home -avings alleging negligence in paying the Luestioned chec(s and claiming reimbursement of the above amount plus interests thereon. %The lower court found for Aetroit. Hence the appeal. ISS0. WON Aetroit was negligent in the issuance of the chec(s and thus estopped from asserting claims against the 7an( ,.L/: .S Ratio The estoppel of the depositor' on the ground of negligence' to recover for an unauthoriJed payment' is based on the failure of the depositor to act as a prudent businessman in issuing his chec(s. Reasoning +t the beginning of the period during which the fraudulent chec(s were issued' the only negligence
on the part of the "ompany consisted in the failure of its officers to ma(e a thorough chec( of the payroll. 0ach time the chec(s were issued' the officers signing them would compare the chec(s with the payroll' but at no time was a complete investigation made' i.e.' a comparison of the chec(s with the time cards' nor was an audit of the payroll ever made. $t is perfectly clear that a complete investigation would have disclosed the fraud at once. %+ depositor may not sit idly by after (nowledge has come to him that his funds seem to be disappearing or that there may be a lea( in his business' and refrain ta(ing steps that a careful and prudent businessman would ta(e in such circumstances' O w&c if ta(en would result in stopping the issuances of fraudulent chec(s. Disposition <udgment reversed. 34N-IN4LA ' #,IL% NA-=L :AN7 44 PH$L 154K >ontemayorK Bebruary 83' 19D1 :owen: FA+-S %6amos is disbursing officer of ;-+BB0. +s such' he went to the Province of Lanao to procure a cash advance in the amount of P4EE? for the use of ;-+BB0. 0ncarnacion' Provincial Treasurer of Lanao did not have that amount in cash. -o' he gave 6amos P2EE? in emergency notes and a chec( for PDEE?. 6amos went to the office of Laya' the Provincial Treasurer of >isamis Oriental and e! officio agent of PN7 branch in >isamis Oriental' to encash the chec( for PDEE? which he had received from 0ncarnacion. 6amos wor(ed under him as assistant agent in the ban( branch and 6amos got the Fob as disbursing officer from the recommendation of Laya. Note that the currency being used in >isamis Oriental and Lanao which had not yet been occupied by the <apanese invading forces' was the emergency currency. Laya did not have enough cash to cover the chec( so he gave 6amos PGEE? in emergency notes and a chec( for P1EE'EEE drawn on PN7. +ccording to Laya' he had previously deposited PDEE'EEE emergency notes in PN7 "ebu and he e!pected to have the chec( issued by him cashed in "ebu against said deposit. 6amos had no opportunity to cash the chec( because in the evening of the same day the chec( was issued to him' the <apanese forces entered the capital of >isamis Oriental' and the ;-+BB0 forces surrendered. 6amos was made a prisoner of war until 19G2. $n 19GD' 6amos allegedly indorsed this chec( *P1EE?. to >ontinola. %However' >ontinola alleges that in 19GG' 6amos' needing money to buy foodstuffs and medicine' offered to sell him the chec(. >ontinola' with his agents and 6amos' went to see President "armona of PN7 >anila to chec( the genuineness of said chec(K after
e!amining it President "armona told him that it was negotiable but that he should not let the <apanese catch him with it because possession of the same would indicate that he was still waiting for the return of the +mericans to the Philippines. He and 6amos finally agreed to the sale of the chec( for P4DE'EEE <apanese military notes' payable in installmentsK that of this amount' PGDE'EEE was paid to 6amos in <apanese military notes in five installments' and the balance of PGEE'EEE was paid in (ind' *G bottles of sulphatiasole' each bottle containing 1'EEE tablets' and each tablet valued at P1EE.. ;pon payment of the full price' 6amos duly indorsed the chec( which now appears on the bac( of the document= %MThe words' Xpay to the order of X %in rubber stamp and in violet color are placed about one inch from the top. This is followed by the words X0nriLue P. >ontinolaX in typewriting which is appro!imately D&4 of an inch below the stamped words Xpay to the order ofX. 7elow X0nriLue P. >ontinolaX' in typewriting are the words and figures also in typewriting' XD15 $sabel -treetX and about 1&4 of an inch therefrom' the edges of the chec( appear to have been burned' but there are words stamped apparently in rubber stamp which' according to >ontinola' are a facsimile of the signature of 6amos. There is a signature which apparently reads X>. P. 6amosX also in green in( but made in handwriting.M %>. P. 6amos is handprinted in green in(' under the signature. +ccording to >ontinola' he as(ed 6amos to handprint it because 6amosX signature was not clear. 6amos in his turn told the court that the agreement between himself and >ontinola regarding the transfer of the chec( was that he was selling only P2E'EEE of the chec( and for this reason' at the bac( of the document he wrote in longhand the following= MPay to the order of 0nriLue P. >ontinola P2E'EEE only. The balance to be deposited in the Philippine National 7an( to the credit of >. P. 6amos.M %6amos further said that in e!change for this assignment of P2E'EEE >ontinola would pay him P9E'EEE in <apanese military notes but that >ontinola gave him only two chec(s of P8E'EEE and P8D'EEE' leaving a balance unpaid of PGD'EEE. $n this he was corroborated by +tty. 6amos <r %The indorsement or writing described by >. P. 6amos which had been written by him at the bac( of the chec( does not now appear at the bac( of said chec(. What appears thereon is the indorsement testified to by >ontinola and described by the trial court as reproduced above. 7efore going into a discussion of the merits of the version given by 6amos and >ontinola as to the indorsement or writing at the bac( of the chec(' it is well to give a further description of it as we shall do later.
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%>ontinola filed a complaint in the "B$ >anila against PN7 and the Provincial Treasurer of >isamis Oriental to collect the sum of P1EE? the amount of a chec( issued on 19G8 by the Provincial Treasurer of >isamis Oriental to 6amos and supposedly indorsed to >ontinola. $. When >ontinola filed his complaint in 19G5 he stated therein that the chec( had been lost' and so in lieu thereof he filed a supposed photostatic copy. However' at the trial' he presented the chec( itself and had its face mar(ed and the bac( thereof. 7ut the chec( is badly mutilated' blotted' torn and partly burned' and its condition can best be appreciated by seeing it. $n e!planation of the mutilation of the chec( >ontinola told the court that several months after indorsing and delivering the chec( to him' 6amos demanded the return of the chec( to him' threatening >ontinola with bodily harm' even death by himself or his guerrilla forces if he did not return said chec(' and that in order to Fustify the non%delivery of the document and to discourage 6amos from getting it bac(' he *>ontinola. had to resort to the mutilation of the document. $$. Laya stated that he issued the chec( only his capacity as Provincial Treasurer' and that the words in parenthesis M+gent' Phil. National 7an(M now appearing under his signature did not appear on the chec( when he issued the same. The words X+gent' Phil. National 7an(X which now appear on the chec( were not typewritten below his signature when he signed the said chec( and delivered the same to 6amos. +ccording to Laya' when he issued chec(s in his capacity as agent of PN7 >isamis Oriental the said chec( must be countersigned by the cashier of the said agency %not by the provincial auditor. >ontinola on the other hand said that when he received the chec( it already bore the words X+gent' Phil. National 7an(X below the signature of Laya and the printed words XProvincial TreasurerX. %T"= dismissed the complaint. >ontinola appealed directly to this "ourt because the amount e!ceeds PDE'EEE ISS0.S 1. WON the photostatic copy of the chec( is acceptable given its mutilated condition 8. WON the words' X+gent' Phil' National 7an(X were added after Laya had issued the chec( TB issued in the capacity as agent of PN7 2. WON 6amos added or placed those words Min his capacity as Provincial Treasurer of >isamis OrientalM *obviously' not as agent of the 7an(. below the signature of Laya before transferring the chec( to >ontinola G. WON there was valid negotiation *P2E'EEE only indorsed.
,.L/ 1. NO %a comparison between the photostatic copy and the original chec( reveals discrepancies between the two. The condition of the chec( as it was produced is such that it was partially burned' partially blotted' badly mutilated' discolored and pasted with cellophane. What is worse is that >ontinolaXs e!cuse as to how it was lost' that it was mi!ed up with household effects is not plausible' considering the fact that it involves his life savings' and that before the alleged loss' he too( e!treme pains and precautions to save the chec( from the possible ravages of the war' had it photographed' registered said chec( with the eneral +uditing Office and he (new that 6amos' since liberation' was not after the possession of that chec(. 8. NO %$f he issued the chec( as agent of the PN7' then the ban( is not only drawee but also a drawer of the chec(' and >ontinola evidently is trying to hold PN7 liable in that capacity of drawer' because as drawee alone' inasmuch as the ban( has not yet accepted or certified the chec(' it may yet avoid payment. %What renders more probable the testimony of Laya and 6amos the money for which the chec( was issued was e!pressly for the use of ;-+BB0 of which 6amos was then disbursing officer. +nd upon delivery of PGEE? in emergency notes and the P1EE? chec( to 6amos' Laya credited his depository accounts as provincial treasurer with the corresponding credit entry. $n the normal course of events the chec( could not have been issued by the ban(' and this is borne by the fact that the signature of Laya was countersigned by the provincial auditor' not the ban( cashier. %said chec( was issued by the provincial treasurer of Lanao to 6amos who reLuisitioned the said funds in his capacity as disbursing officer of the ;-+BB0. The chec( is not' in business parlance' Xcertified chec(X or XcashierXs chec(.X 2. NO %Naturally' 6amos must have (nown the procedure followed as to the issuance of chec(s' namely' that when a chec( is issued by the Provincial Treasurer' it is countersigned by the Provincial +uditor as was done on the chec(. +nd that if the Provincial Treasurer issues a chec( as agent of the PN7' the chec( is countersigned not by the Provincial +uditor who has nothing to do with the ban(' but by the ban( cashier' which was not done in this case. $t is not li(ely' therefore' that 6amos had made the insertion of the words M+gent' Phil. National 7an(M after he received the chec(' because he should
have realiJed that following the practice already described' the chec( having been issued by Laya as Provincial Treasurer' and not as agent of the ban(' and since the chec( bears the countersignature not of the 7an( cashier but of the Provincial +uditor' the addition of the words M+gent' Phil. National 7an(M could not change the status and responsibility of the ban(. $t is therefore more logical to believe and to find that the addition of those words was made after the chec( had been transferred by 6amos to >ontinola. G. NO %The chec( was not legally negotiated within the meaning of the Negotiable $nstruments Law. -ection 28 of the same law provides that Mthe indorsement must be an indorsement of the entire instrument. +n indorsement which purports to transfer to the indorsee a part only of the amount payable' . . . *as in this case. does not operate as a negotiation of the instrument.M >ontinola may therefore not be regarded as an indorsee. +t most he may be regarded as a mere assignee of the P2E'EEE sold to him by 6amos' in which case' as such assignee' he is subFect to all defenses available to the drawer Provincial Treasurer of >isamis Oriental and against 6amos. $N -;>>+6, %>ontinolaIs complaint cannot prosper because 1. "hec( long overdue by about 8 1&8 years. $t may therefore be considered even then' a stale chec(. 8. The insertion of the words M+gent' Phil. National 7an(M which converts the ban( from a mere drawee to a drawer and therefore changes its liability' constitutes a material alteration of the instrument without the consent of the parties liable thereon' and so discharges the instrument. *-ection 18G of the Negotiable $nstruments Law.. 2. The chec( was not legally negotiated within the meaning of the Negotiable $nstruments Law. -ection 28 of the same law provides that Mthe indorsement must be an indorsement of the entire instrument. +n indorsement which purports to transfer to the indorsee a part only of the amount payable does not operate as a negotiation of the instrument.M >ontinola may therefore not be regarded as an indorsee. +t most he may be regarded as a mere assignee of the P2E'EEE sold to him by 6amos' in which case' as such assignee' he is subFect to all defenses available to the drawer Provincial Treasurer of >isamis Oriental and against 6amos. G. He should have (nown that a chec( for such a large amount of P1EE? could not have been issued to 6amos in his private capacity but rather in his capacity as disbursing officer of the ;-+BB0' and that at the time that 6amos sold a part of the chec( to him' 6amos was
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no longer connected with the ;-+BB0 but already a civilian who needed the money only for himself and his family. D. 6amos had he retained the chec( may not now collect its value because it had been issued to him as disbursing officer. +s observed by the trial court' the chec( was issued to >. P. 6amos not as a person but >. P. 6amos as the disbursing officer of the ;-+BB0. Therefore' he had no right to indorse it personally to plaintiff. $t was negotiated in breach of trust' hence he transferred nothing to the plaintiff. 3. $t is absolutely necessary for the court to e!amine the original in order to see the actual alterations supposedly made thereon' and that should this "ourt grant the prayer contained in the ban(Xs brief that the chec( be later referred to the city fiscal for appropriate action' said chec( may no longer be available if the appellant is allowed to withdraw said document. Disposition Aecision affirmed :AN7 4F +433.&+. 4F S0L#,0& ' C.:S-.& 5E O(la. 52' 158 9G8 *1914. :maia: FA+-S -;7<0"T= a note of guaranty *this is the negotiable instrument in Luestion. was e!ecuted by Webster and >olace( as guarantors' guaranteeing to the 7an( of "ommerce of -ulphur the payment of two notes issued by "rafton *C1'GDE and C8EG. >+?06-= of the 8 notes "raftonK Note of uarantee *guaranteeing the notes. Webster and >olace( P+,00= -ecurity -tate 7an( $NAO6-00= 7an( of "ommerce of -ulphur *current holder. %The note of guarantee was e!ecuted when the notes *to be guaranteed. were transferred from -ecurity -tate 7an( to 7an( of "ommerce. When 7an( of "ommerce sued for the fulfillment against the guarantors' the guarantors interposed the defense that they were relieved of liability since the note issued by "rafton had been materially altered. The alteration consists of having the wife of ma(er "rafton *LiJJie "rafton. sign the note at the instance of the 7an( of "ommerce after e!ecution and delivery of the guaranty. *note= it seems that in effect' LiJJie became a co%ma(er to the note. %Trial court held that the signing of LiJJie at the instance of the 7an( of "ommerce' without (nowledge and consent of the guarantors' was an alteration that defeated the guaranty ISS0.
WON the signing of the notes by LiJJie "rafton after the e!ecution and delivery of the contract of guaranty without the consent and (nowledge of the guarantors released and discharged the guarantors from the contract of guaranty ,.L/: .S %the adding of an additional party to a negotiable instrument subseLuent to its e!ecution and delivery discharges the original parties when such change is made without their (nowledge or consent %the reason why the addition of a name to a note as a Foint ma(er' after its issuance' materially alters it' is because it changes the number of parties and their relative rights' the rate of contribution' and the character and description of the instrument %a guarantor is e!onerated' e!cept as far as he may be indemnified by the principal' if by any act of the creditor' without the consent of the guarantor' the original obligation of the principal is altered in any respect' or the remedies or rights of the creditor against the principal in respect thereto' in any way impaired or suspended. %the addition of the name of LiJJie to the note' payment of which the guarantors guaranteed' changed the identity of the said note and its effect and operation' and such alteration being made without the consent and (nowledge of the guarantors' the guarantors are discharged from their liability on the guaranty' Disposition <udgment affirmed. F40-+, ' AL.DAN/&IA :AN7 E -&0S- +4 155 Tenn 2G4K *19G1. :da: FA+-S W.L. Boutch purchased a cow from 7.W. Boutch for C14 for which he gave a chec( to 7.W. Boutch' payable to his order. This chec( was wholly written by the payee *because it was W.L.Xs practice to have the chec(s filled filled out by the parties to whim the chec( was made.. $n the chec( in issue= there was a space between the dollar sign and the amount in numbers and the amount in words was written midway of the line provided for it and in the lower left corner for cow# and when presented it already bore CG14' four hundred eighteen dollars and for cow and note#. +ll the figures and writings in the chec( were in the same writing e!cept for the signature when it was presented to the ban(.The ban( paid to 7.W. Boutch the sum CG14 called for by the chec(' and charged it to the account of the drawer.
$ssue= WON the the ban( is liable for the overdraft *or should W.L. Boutch bear the loss. Held= The ban( is not liable because it was the plaintiff Xs negligence which appro!imately caused the loss and the ban( is not guilty of any negligence that contributed to the loss. There is a distinction between ban( chec(s and negotiable instruments of the note and bill class. One who purchases a note' or li(e negotiable instrument' is under no manner of compulsion and acts purely at his option or election' under which circumstances it is not inappropriate to apply' by analogy the caveat emptor ruleK whereas' the 7an( is under a direct and peculiarly delicate obligation'which reLuires prompt discharge' usually with little opportunity for investigation to pay the chec( of its depositor 'upon presentation' or subFect itself to the ris( f damages. Burthermore the depositor on the other hand'owes to his ban( the duty to e!ercise care in drawing chec(s in order to avoid possible loss. The drawer of this chec( in this case authoriJed the payee to fill out the chec('not only in pencil'which made the added words and figures raising the chec( particularly easy to insert and well high impossible to detect'there being no such variation as freLuently appears when different in( is used' but the payee having been authoriJed to fill out the chec( in his handwriting'with the words and figures placed as herein before shown' no possibility of detection of the chec( having been thus raised was left open to the 7an(. SA'IN5S :AN7 4F &I+,34N/ ' NA-=L :AN7 4F 54L/S:4&4 29 +.L.6. 125G *198D. :bryZsF: FA+-S %+.". Norwood *A6+W06.' President of the National 7an( of oldsboro issued a certain draft dated >arch 89' 1914 for the sum of C3' drawn against the B$6-T N+T$ON+L 7+N? OB N0W ,O6? *the A6+W00. payable to the order of N.L. >assie. %The said draft was thereafter unlawfully and without the (nowledge or consent of +.". Norwood or the oldsboro 7an(' fraudulently forged and altered in material respects. The date was changed from >arch 89' 1914 to <une 81' 1914' and the amount thereof from C3 to C4'G5E. %>assie sold the altered draft to the -+P$N - 7+N? OB 6$"H>ONA' with whom he had been transacting with for two years. Trusting >assieIs moral and financial strength' the -+P$N - 7+N? OB 6$"H>ONA purchased the draft for C4'G5E giving him in e!change a cashierIs
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chec( for the same amount. When the -avings 7an( attempted to collect it' only then did it find out that the draft was forged. %$n this suit' the -avings 7an( insists that the National 7an( of oldsboro *TH0 A6+W06. should be liable on the theory that it was negligent or amiss in its duty to ensure that the draft is safe from every reasonable chance of alteration. Ordinary paper was used and that there was no protectograph or other safety device to prevent alteration. Aaniel' a commentator on the negotiable instruments law is cited as authority for the liability of the drawer of a bill or the ma(er of a note who by careless e!ecution of the instrument left room for any alteration' insertion or erasure' which would preFudice the bona fide holderIs rights. %The oldsboro 7an( counters that with a completed draft' losses arising from its subseLuent alteration and forgery do not fall upon it but rather upon those who have chosen to accept the same as changed. +ssuming that the argument of -avings 7an( to be valid' it will not be liable because it is not the pro!imate cause of the loss. ISS0.S 1. WON -avings 7an( can recover from point of view of tort or negligence. 8. WON 7an( can recover from the draft as a contract btwn the parties. 2. WON -avings 7an( can recover from the negotiable instrument. ,.L/ 1. NO. The issuing of the note could in no sense be considered as pro!imate cause of the loss. Where a negotiable note was delivered in completed form' the possibility that it might be altered by the willful fraud or forgery of another was too remote to afford basis of an action either in tort or in contract. 8. NO. The note in its forged and altered state is not a contract of the ma(er of the instrument. Thus' a suit based on contract can neither prosper. 2. ,0-' but only as to the original face value of the draft. -ection 21E3 of the Negotiable $nstruments Law of North "arolina provides= Where a negotiable instrument is materially altered without the assent of all parties liable thereon' it is avoided e!cept as against the party who has himself made' authoriJed or assented to the alteration and subseLuent indorsers. 7ut when the instrument has been materially altered and is in the hands of a holder in due course' not a party to the alteration' he may enforce payment thereof according to the original tenor.#
7-< "omment= $n other words' H$A" enFoys status as such only to the e!tent of the original amount as written by drawer or ma(er in a proper case. The "ourt seems to consider it as a fair rule that nobody should be liable for more than what s&he originally bargained for. $mpliedly' it seems to say that the H$A" albeit protected by the law still has some duty to conduct reasonable inLuiry especially when transactions involve huge sums of money. "ertainly 4'EEE dollars is a huge amount in the 198Es. The "ourtIs ruling here could be Fustified under the common law rule= as between two innocent persons' the one whose acts occasioned the loss shall suffer the conseLuences. Here' -avings 7an(Is own negligence is the pro!imate cause of the loss.S +&I--.N ' +,.3I+AL NA-=L :AN7 81"0!9 N, "ourt of +ppealsK 151 N, 819K 32 N.0. 939' D5 L6+ D89 :mel: FA+-S %Plaintiff (ept a large and active account with the defendant. The Plaintiffs employed a cler( named Aavis. $t was the duty of Aavis to fill up the chec(s which it might be necessary for the plaintiffs to give in the course of business' top ma(e corresponding entries in the stubs of the chec( boo(' and present the chec(s so prepared to >r. "ritten' one of the plaintiffs' for signaturem together with the bills in payment of which they were drawn. +fter signing a chec( "ritten would place it and the bill in an envelope addressed to the proper party' seal the envelope and put it in the mailing drawer. %in 8G separate instances' Aavis abstracted one of the envelopes from the mailing drawer' opened it' obliterated by acids the name of the payee and the account specified in the chec(s' then made the chec( payable to cash and raised its amount' in the maFority of cases' by the sum of C1EE. he would draw the money on the chec(s so altered from the defendant ban(' pay the bill for which the chec( was drawn in cash' and appropriate the e!cess. On one occasion Aavid did not collect the altered chec( from the defendant' but deposited it to his own credit in another ban(. When a chec( was presented to "ritten for signature the number of dollars for which it was drawn would be cut in the chec( by a punching instrument. When Aavis altered a chec( he would punch a new figure in front of those already appearing in the chec(. This wor( has been entrusted to another person in AavisI absence' hence the forgeries were discovered and Aavis was arrested and punished. Hence this action to recover the
amount of these forged chec(s' over and above the sums for which they were originally drawn ISS0.S 1. WON plaintiff is guilty of negligence 8. WON by negligence in its discharge or by the failure to discover and notify the ban(' the depositor *plaintiff. is estopped from asserting that they are forgeries 2. WON defendant ban( can claim relief from plaintiffIs negligence ,.L/ 1. ,0- $n this case' Aavis falsified the additions or total sat the foor of the pages in the chec( boo(. 7ut with a few e!ceptions he did not alter the amounts e!pressed in the stubs. $n no case did he change in the stubs the name of the payee of the chec(. $t is clear therefore that at all times a comparison of the returned chec(s with the stubs in the chec(boo(s would have e!posed the alterations made in the chec(s. Of course the (nowledge of the forgeries that davis possessed from the fact that he himself was the forger' was in no respect to be attributed to the plaintiffs. the "ourt sees no reason why they were not chargeable with such information as a comparison of the chec(s with the chec( boo( would have imparted to an innocent party previously unaware of the forgeries. +s regards the failure to discover the forgeries after the return of the chec(s and the balancing of the account in the passboo(. +s held in WeisserIs admIrs vs Aenison' the rule is settled that the depositor owes his ban( the duty of a reasonable verification of the returned chec(s.# . $f the depositor has by his negligence in failing to detect forgeries in his chec(s and give notice thereof caused loss to his ban(' either by enabling the forger to repeat his fraud or by depriving the ban( of an opportunity to obtain restitution' he should be responsible for the damage caused by his default but beyond this his liability should not e!tend. >oreover' the court sees no reason why the ban( should be entitled to anything more than indemnity for the loss the depositorIs negligence has caused it QThe "ourt also made a finding that the ordinary rule of principal and agent or master and servant that the principal or master is liable for the fault of his servant or agent in the masterIs business apply in this case. 8. NO .While the "ourt hold that this duty rests upon the depositor' it does not accept the doctrine asserted in some of the cases that' by negligence in its discharge or by the failure to discover and notify the ban(' the depositor either adopts the chec(s as genuine and ratifies their payment or estops himself from asserting that they are forgeries. $n the present case' a chec( altered by Aavis from the sum of C88 to
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C388 was paid by the defendant to the "olonial 7an( in which Aavis had deposited it. +gainst the ban( the defendant has ample recourse. $f it were to be held that the plaintiffs are estopped from denying the genuineness of that chec( as against the defendant' the latter could have no claim against the "olonial 7an(' nor is it clear that the plaintiffs would have any direct right of action against that 7an(. The "olonial ban( too( the chec( solely on the responsibility of Aavis. To it the plaintiffs owed no duty. + rule which might operate to relieve the ban( from the liability it assumed when it collected an altered chec(' merely because the plaintiffs failed in their duty' not ti it' but to a third party should not be upheld. Nor would it operate Fustly in a case in which the ban( had paid a single forgery unless by the depositorIs default and delay the ban( had lost its opportunity to secure restitution. 2. NO. $t was held that the defendant was also guilty of negligence in paying the chec(. The si!th in seLuence of these forgeries was a chec( with the name of the payee erased and cash# written in the place thereof. The teller of the defendant who paid the chec( and was a witness on its behalf testified that the chec( showed on its face that the word cash# had been written in the place for the payeeIs name over an erasureK that it was in such mutilated condition when it was presented to him that' before paying it he reLuired Aavis to indorse upon the chec( a receipt for its amount. Had Aavis been reLuired to obtain the indorsement or guaranty of the plaintiffs as to its correctness' the forgeries of Aavis would have been e!posed' and their repetition would not have occurred.The action brought by plaintiffs was brought on contract' not on tort for the allegation of negligence on the part of the defendant is used only to defeat its claim for relief on account of the plaintiffIs negligence. Disposition The Fudgment should be reversed' and a new trial granted. A$--0NT$N OP$N$ON -ince plaintiffs entrusted the wor( to a competent agent and' as established by evidence' too( other precautions' there was evidence to support the finding in their favor. The rule which imputes to a principal (nowledge acLuired by his agent rest upon the presumption that the latter has disclosed all the material facts to the former. This presumption does not e!tend to a fact which' if disclosed would subFect the agent to a prosecution for crime or defeat a scheme in which he was engaged to defraud his employer. 3A&IN. NA-=L :AN7 ' NA-=L +I- :AN7 818@49 "ourt of +ppeals of N,' D9 N, 35 *145G. :eva:
FA+-S -;7<0"T= + chec( for C8D *but was altered later. A6+W06= Lunt 7rothers A6+W00= >arine National 7an( P+,00= To the order of Henry -mith %Lunt 7rothers who were merchants in N, gave a stranger the C8D%chec( in e!change for the same amount. %The ne!t day' a person called upon Aerippe O "o *gold bro(ers in N,. stating that he wished to buy some gold for Lunt 7rothers' and as(ed C222G gold in currency. + memo' giving the amount as CGE59.93 was delivered to him. %The person then altered the C8D%chec( by erasing the date' payee' and amount' and inserting Aec.8'1939' payee Aerippe O "o' amount CGE59.93' sent the chec( to >arine for certification' and upon presentation it was duly certified' and thereupon' Aerippe without notice' and being ignorant of the alteration and relying upon the certification' gave to the person the sum of C222G +merican gold' receiving in payment the certified chec(. %Aerippe indorsed the chec( and deposited it in National "ity 7an(. >arine 7an( paid the chec( to NatIl "ity 7an(' but reLuested repayment of the amount immediately when it discovered the alterations. NatIl "ity 7an( refused to repay the same. 7efore the discovery of the alteration' both ban(s believed the chec( to be genuine. %<udgment was rendered for >arine 7an( on the ground that it did not guarantee the genuineness of the filling out of the chec( by certifying' and so it was not estopped from showing the alteration' and was entitled to the repayment. ISS0. WON >arine repayment. National 7an( is entitled to the
drawn' and also to those in which the name of the payee has been feloniously changed. %The drawee is presumed to be acLuainted with the drawerIs signature' but to reLuire the drawee to (now the handwriting of the residue of the bill is unreasonable. $t would' in most cases' be reLuiring an impossibility. -uch a rule would be not only arbitrary and rigorous' but unFust. Disposition <udgment affirmed. C.LLS FA&54 :AN7 E 0NI4N -&0S- +4 ' :AN7 4F I-AL -" of "aliforniaK 81G "al. 1D3' G P. 8d 541 *19GG. :Fat: FA+-S -;7<0"T= + chec( drawn on Wells Bargo 7an( by >c"ormic( "o. made payable to order of +lbert >eyer "o. was altered. The name of the payee thereon was erased and the name of one Harry 7ehling# was substituted. A6+W06= >c"ormic( -teamship "ompany A6+W00= Wells Bargo 7an( P+,00= +lbert >eyer and "ompany %7ehling' an employee of steamship co.' purchased clothes from a store owned by a certain Pop(in' and offered the chec( in Luestion as payment. *$t is not (nown how 7ehling got hold of the chec(.. The 8 then went to drawee ban( to have the chec( cashed. +fter presentment' the drawee ban( certified the chec( but suggested that Pop(in' being a depositor of defendant ban(' should cash it there instead. -o defendant ban(' after the chec( was presented to it' paid the amount thereof and transmitted it to drawee ban(' which in turn paid the amount of the chec( to defendant ban(. %Arawer did not discover the alteration until the original payee made an inLuiry several months after the chec( had been paid. Arawer notified drawee. Arawee then notified defendants *7an( of $taly and Pop(in. demanding repayment of the amount of the chec(. Arawee filed action to recover the sum. Talo. -a Aistrict "ourt of +ppeals' talo rin. QNote= The alteration was made with such s(ill that it could not be detected. The person responsible for the alteration is un(nown. ISS0. WON the drawee ban( may recover the money it paid ,.L/: N4 %;nder -ec. 38' the acceptor' by accepting the instrument' engages to pay according to the tenor of his acceptance.#
,.L/: .S %That an acceptor of a bill of e!change by acceptance only admits the genuineness of the signature of the drawer' and does not admit the genuineness of the indorsements...or any other part of the bill' is elementary and sustained by an unbro(en current of authority. The reason is that when the bill is presented for acceptance the acceptor loo(s to the handwriting of the drawer with which he is presumed to be acLuainted...7ut the acceptor cannot be presumed to have any such (nowledge of the other facts upon which the rights of the holder may depend. %The doctrine is applied to cases of bills altered in the body' by the raising of the amount for which they were
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%$t ma(es for the usefulness and currency of negotiable paper to construe the words according to the tenor of his acceptance# as referring to the instrument as it was at the time it came into the hands of the acceptor for acceptance' for he accepts no other instrument other than the one presented to him%the altered form%and it alone he engages to pay. %The presentation of a chec( to a drawee for payment is not a negotiation. $t involves no warranties as the drawee is not a holder in due course. + drawee who has paid the instrument is not a transferee of title as the last holderIs indorsement does not transfer the chec( but converts it into a voucher. %7an(ing institutions can readily protect themselves against liability on altered instruments either by Lualifying their acceptance or certification or by relying on forgery insurance and special paper' which will ma(e alterations obvious. Disposition <udgment affirmed ,S:+ ' #.4#L.=S :AN7 AN/ -&0S- +4 .6. No. L%84883K BernandoK -ept 2E' 195E :(oo(y: FA+-S= %On >ar 4' 193D' PLAT drew a chec( on H-7" in favor of the same ban( in the sum of P1G'3E4.ED. PLAT sent this chec( to H-7" by mail. %Blorentino "hangco somehow got hold of the chec(' and was able to erase the name of H-7" as payee and instead typed his name. Bour days before' "hangco had opened a current account with P7T"' where he deposited the altered chec(. %The chec( was presented by P7T" for clearing' with the following indorsement= MBor clearance' clearing office. +ll prior endorsements and&or lac( of endorsements guaranteed. Peoples 7an( and Trust "ompany.M %The chec( was duly cleared by H-7"' and P7T" credited "hangco with the amount of the chec(. "hangco began to withdraw from the account then subseLuently closed it. %On +pr 18' 193D it was returned to PLAT' and the alteration in the name of the payee was discovered. On that same date' P7T" was notified of the alteration' and H-7" reLuested P7T" to refund to it the sum of P1G'3E4.ED. P7T" refused. %H-7" relies on the indorsement *above.' arguing that since such an indorsement carries with it a concomitant guarantee of genuineness' P7T" is liable to H-7" for alteration. %P7T" relies on the M8G hourM regulation of the "entral 7an( that reLuires after a clearing' that all cleared
items must be returned not later than 2=EE P> of the following business day. -ince H-7" advised P7T" 85 days after clearing' P7T" claims that it is now too late to do so. %"B$ dismissed the complaint based on the fact that H-7" allowed 85 days to elapse after clearing before notifying P7T" as to such alteration' the applicable "entral 7an( regulation providing for a 8G%hour period. ISS0.= WON the "entral 7an( regulation should be applied' and would thus preclude or allow recovery by H-7" from P7T" ,.L/= ,0-' it should apply %The 8G%hour# clearing house rule issued by the "entral 7an( was applied in 6epublic v. 0Luitable 7an(ing "orporation. The rule is embodied in sec G*c. of "ircular No. 9 of the "entral 7an( and reads thus= M$tems which should be returned for any reason whatsoever shall be returned directly to the ban(' institution or entity from which the item was received. [ +ll items cleared at 11=EE oXcloc( a.m. shall be returned not later than 8=EE oXcloc( p.m. on the same day and all items cleared at 2=EE oXcloc( p.m. shall be returned not later than 4=2E a.m. of the following business day' e!cept for items cleared on -aturday which may be returned not later than 4=2E of the following day.M The circular is clear and comprehensiveK the facts of the present case fall within it. %>oreover' as mentioned in a case cited by H-7"' M$t is a settled rule that a person who presents for payment chec(s such as are here involved guarantees the genuineness of the chec(' and the drawee ban( need concern itself with nothing but the genuineness of the signature' and the state of the account with it of the drawee.M $f at all' then' whatever remedy H-7" has would lie not against P7T" but as against the party responsible for changing the name of the payee. $ts failure to call the attention of P7T" as to such alteration until after the lapse of 85 days would' in the light of the above "entral 7an( circular' negate whatever right it might have had against defendant 7an(. Disposition Aecision affirmed N4-.= +s per "ampos' this case illustrates the fact that the -" comes to the same conclusion' but on an etirely different basis' as the minority view regarding the effect of draweeIs payment or acceptance of altered chec(. &.#0:LI+ :AN7 ' +A; First Nat=l +itB :an2 .6. No. G858DK +pril 88' 1991
FA+-S -;7<0"T= Aemand for refund by BN"7 from 6epublic 7an( due to clearing by the former of an altered chec( A6+W06= -an >iguel "orporation *->". A6+W00= Birst National "ity 7an( *BN"7. P+,00= <. 6oberto Aelgado %->" drew a divided chec( worth P8GE in favor of Aelgado' one of its stoc(holders. %+fter the chec( had been delivered' the chec( was altered by increasing the amount on its face from P8GE to P9'8GE. This was done fraudulently and without the authority of ->" as drawer. The chec( was indorsed and deposited on >arch 1G' 1993 by Aelgado in his account with 6epublic 7an(. %6epublic accepted the chec( without ascertaining its genuineness and regularity. $t endorsed the chec( to BN"7 with a stamp on the bac( of the chec(' stating= all prior and&or lac( of indorsement guaranteed.# %>arch 1D' 1933= BN"7' believing that the chec( was genuine and relying on the guaranty and endorsement of the petitioner ban(' paid the amount on the face of the chec(. %+pril 19' 1933 %->" notified BN"7 of the material alternation in the chec( about a month after BN"7 had paid 6epublic 7an(. BN"7 recredited P9'8GE to ->"Is account. %>ay 19' 1933 BN"7 wrote 6epublic about the alteration. 7ut at that time' Aelgado had already withdrawn the said amount from his 6epublic 7an( account. %B"N7 demanded that 6epublic 7an( refund the amount of P9'8GE on the basis of the latterIs endorsement and guaranty. 6epublic refused' saying that 1. there was delay in giving notice of the alteration' 8. it was ->"Is fault in drawing the hec( in such a way as to allow the alteration and 2. that BN"7' as drawee' was absolved of any liability to ->" thus BN"7 had no right to recourse against 6epublic 7an(. %The trial court ordered 6epublic 7an( to pay P9'8GE to PN"7 with interest. The "+ affirmed the T" ruling. ISS0. WON 6epublic 7an(' as clearing ban(' is protected from liability by the 8G%hour clearing house rule *in "7 "ircular 9. ,.L/: .S %When an endorsement is forged' the collecting ban( or last endorsor bears the loss. However the unLualified endorsement of the collecting ban( on the chec( should be read together with the 8G%hour regulation on clearing house operation.
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%When the drawee ban( fails to return a forged or altered hec( to the collecting ban( within the 8G%hour clearing period' the collecting ban( is absolved from liability. <urisprudential rulings on the matter= %H-7" vs. PeopleIs 7an(= + chec( was drawn by PLAT on H-7" payable to the same ban(. $t was mailed to the payee but landed in the hands of "hangco who erased the payeeIs name and replaced it with his own name. He then deposited the chec( in PeopleIs 7an( with the indorsement= Bor clearance' clearing office.# This was cleared by the drawee ban( H-7". "hangco withdrew the money and when the alteration was discovered' H-7" sought to recover the amount from PeopleIs 7an(. H-7" advised PeopleIs 7an( of the alteration 85 days after clearing. The "ourt ruled that the said indorsement must be read with the 8G%hour regulation. %>etroban( vs. BN"7 *+ha/ aya nga ng sabi ni -haron "uneta' Ai na natuto[#.= + chec( for PDE was drawn by "unanan and "o. on its account at BN"7 and payable to >anila Polo "lub was changed to PDE'EEE. $t was deposited by -ales in his account in >etroban(. The chec( was cleared by BN"7 which paid PDE'EEE to >etroban(. The alteration was discovered 9 days later so BN"7 sought to recover from >etroban(. The "ourt upheld the validity of the 8G%hour clearing house regulation. The chec( was not returned to >etroban( in accordance with the given period but was cleared by BN"7. Bailure of BN"7 to call attention to the alteration of the chec( negates whatever right it may have had against >etroban(. %0very ban( that issues chec(s for the use of its customers should (now WON the drawerIs signature is genuine. $t should be able to detect alterations' erasures and other intercalations on the chec(. $t should possess appropriate detecting devices. %;nless the alteration is attributable to the fault or negligence of the drawer' the remedy of the drawee ban( that negligently clears a forged&altered chec( for payment is against the party responsible for the forgery&alteration. Disposition Petition for review granted. +%L%-% +4&#4&A-I4N ' #ANA+ *Aistrict "+' "aliforniaK 19GG. 1G9 P. *8d. 9E1 *19GG.K W+6A' <. :lora: FA+-S %Plaintiff *"LT%holder. brought this action to recover from the defendants *Panacs%ma(er. the amount of 8 promissory notes' negotiable in form' e!ecuted in favor
of Home $mprovement "ompany *payee. in payment of certain repairs and renovations to be performed by the payee upon two dwelling houses owned by the defendants. %The notes were indorsed by the payee to the plaintiff which claims to be holder in due course. %Aefendants denied that the plaintiff was such a holder and as a separate defense' pleaded fraud on the part of the payee in the procurement of the notes by its agent %William Hart. The defendants were alleged to be illiterate. %Hart was introduced to the defendants by a friend of theirs' ?raFer' for whom Home $mprovement "ompany had done repair wor( similar to that proposed to be done by defendants. %Hart prepared a document which purported to embody the understanding arrived at on the wor( to be performed and the cost. He as(ed defendants to sign it. 7oth demurred' >rs. Panac stating that she did not read it and wished to see an attorney. Hart assured her that it was not necessary' that the contract has to be signed at once to get the wor( started. $n doing so' he read the items of wor( entered in his note boo(' stating that they were in agreement and urged again the defendants to sign. They still obFected but their scruples were overcome by HartIs assurance that all the wor( shall be done to their satisfaction and that it was necessary to start at once. >artin thereupon affi!ed his signature to the contract. %Hart then presented to them another paper' divided into 2 parts by perforated lines' one part being an application for credit' the second a form of promissory note and the third a declaration that the wor( for which the credit was reLuired had been satisfactorily completed. The defendants placed their signatures at the point indicated by Hart upon his assurance that it was part of the contract for the wor( to be done and without having Hart read it to them. The second note was e!ecuted under the same circumstances. %There were present during the proceedings 8 other persons beside ?raFer but neither the defendants reLuested any of them to read aloud the document or to e!plain the contents thereof. %The defendants testified that they understood from Hart that the wor( was to be paid for in monthly installments' but had not contemplated giving notes. %The wor( was never completed notwithstanding vigorous efforts made by the plaintiff and the defendants to induce Home $mprovement "ompany to do so' with the conseLuence that when the first installment became due on the notes the defendants refused to pay. %The trial court found that "LT is a holder in due course however' it also held that fraud was perpetuated
against the defendants hence' plaintiff ta(es nothing by its action. %Plaintiffs appealed from the Fudgment. ISS0.S 1. WON plaintiff is a holder in due course. 8. WON defendants are free from negligence. 2. WON the defendants can plead the defense of fraud against the plaintiff. ,.L/ 1. ,0-. Aefendants do not contend that the plaintiff is not a holder in due course. No evidence was introduced that ".L.T. had actual (nowledge of a defect in the instruments or any fact that would Fustify a finding that the plaintiffIs acceptance of the instruments amounted to bad faith on their part. 8. ,0-. The trial court determined that' notwithstanding the possession of some (nowledge of the 0nglish language on the part of the defendants' their neglect to call upon others present to read to them the documents' and their failure to insist on their reLuest for time to see( independent legal advice' they are free from negligence. + reading of the record alone might well disapprove this finding' but' bearing in mind that the trial court had an opportunity to view the witnesses' note their demeanor' the "ourt refrained from stating as a matter of law that there is insufficient evidence to uphold it. 2. NO. 7rannanIs Negotiable $nstrument= +t common law a real defense was held in most Furisdictions to e!ist in those cases in which a person' without negligence' has signed an instrument' which was' in fact a negotiable instrument' but was deceived as to the character of the instrument and without (nowledge of it. $n such cases' there is no contract because there was no consenting mind' but the signer may be estopped by negligence to deny (nowledge of the character of the instrument which he has signed. $f he was not negligent he is not liable. %$n Wisconsin' >innesota and $llinois' the N$L or other legislation e!pressly ma(es fraud in the factum a real defense. The ;niform +ct does not cover the Luestion in so many words. $t is possible however' that such conduct is fraud within -ec. DD and hence causes merely a defective title' or that it is one of the defenses under -ec. D5. $t might also be assimilated to want of delivery' which was made an eLuitable defense by -ec. 13. 0ither possibility would change the common law and protect the holder in due course. %$n further support of this position it should be noted that the other real defenses are covered by the act and broad interpretation of -ec. DD' especially the last clause under such circumstances as amount to fraud#
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certainly includes all (inds of fraud in factum. -ince this is so it is hard to believe that the framers overloo(ed this particular defense. The eLuities are all in favor of such interpretation' since the defrauded party really caused the situation and should be the one to suffer. %;nder the old common law view fraud in -ec. DD would be limited to fraud in the inducement and defenses in -ec' D5 restricted to defenses which were eLuitable at common law' while fraud in the factum would continue to be a real defense analogous to forgery under -ec. 82. -uch is the result of a number of cases which have arisen since the N$L' most of which do not cite the act' but there is a strong line of well reasoned cases contra. %Breedom from negligence on the part of the ma(ers has never been regarded in "alifornia in following the common law rule' or made by statute a defense' real or personal' against a claim of a holder of a negotiable instrument in due course. $f the legislature had intended such defense it would undoubtedly have so provided in no uncertain terms' as the courts of this state have not' at any time' recogniJed such a defense. %$t follows that the defendants were not in position to set up as a defense in this case any eLuities e!isting between them and the Home $mprovement "ompany even if' as found by the court' they were free from negligence in e!ecuting notes. Disposition <udgment 6eversed. P0T06- *Aissenting. %The type of fraud here involved has been referred to as fraud in esse contractus' fraud in the factum' fraud in the inception or fraud in e!ecution' to distinguish it from fraud in the inducement which is a mere personal defense. +t common law the cases were practically unanimous that fraud in the e!ecution was a real defense. %The overwhelming weight of authority is to the effect that the adoption of the N$L in now way changed the common law rule' and that both before and after the adoption of that uniform statute' fraud in the e!ecution was and remained' a real defense. %The applicable rules under the N$L is stated as= +lthough there are some decisions to the contrary' the weight of authority holds that if a person intending to sign an instrument of an entirely different character places his signature to a negotiable instrument not being due to laches or negligence on the part of the signor' the latter is not liable on the instrument' although it has passed into the hands of a bona fide holder for value.# %>r. 7rannan Luoted in the maFority opinion approves the minority rule. %The many courts and legal writers have not approved the rule that fraud in e!ecution' where the ma(er is not
negligent' is a real defense' by blindly following the common law rule. "ogent and compelling reasons e!ist for this approval. %$t must be remembered that N$L is not an entirely new statute' nor did it purport to repeal the entire law of contracts. $t purported to codify the law of merchant and where there was a conflict to adopt what was considered to be the better rule. Where the N$L has no e!cess provision' or where its meaning is ambiguous' cases decided under the law merchant and fundamental rules of contract should be loo(ed to in arriving at a proper interpretation. %-o far as the present problem is concerned' the N$L has no e!press provision covering the subFect. There are provisions' however which tend to show that the drafter of the act intended fraud in the e!ecution to be real defense. %-ec. D5 of N$L' -ec. 2124 of the "ivil "oe' provides that the holder in dues course free from any defect of title of prior parties' and free from defenses available prior parties among themselves.# When a party' without negligence' signs a document by reason of fraud of another and honestly and reasonably believes it to be something else other than a negotiable instrument' the document' when e!ecuted is not merely voidable it is void.# Braud of this type is not a mere defense nor a mere defect of title such as referred to in -ec. D5. $t is a factor which renders the instrument non%e!istent as a binding obligation. Disposition <udgment +ffirmed +%I%-% +4&#4&A-I4N ' #ANA+ -upreme "ourt of "alifornia 8D "al. *8d. DG5' 1DG P. *8d. 51E' 13E +L6 184D *19GG. :marge: FA+-S *as found by the Aistrict "ourt of +ppeals. -;7<0"T= 8 promissory notes in payment of certain repairs and renovations to be performed by payee upon two dwelling houses owned by ma(ers >+?06-= -ps. Panac' illiterate' unable to read or write the 0nglish language P+,00= Home $mprovement "ompany $NAO6-00= ".$.T. "orp' a holder for value in due course %>a(ers were defrauded by payee in the procurement of the notes. William Hart' agent of the payee' gained their trust and confidence and secured their signatures to the notes by false representations w&c induced them to believe that they were signing a contract to repair the houses and nothing else. They were ignorant of the fact that they were signing notes' and were not negligent in signing the same. ISS0.
WON the defense put up by the ma(ers is a real defense' good even against indorsee as a holder in due course ,.L/: .S %+ negotiable instrument which is void *as when there is in fact no contract or there is fraud in the e!ecution. is not enforceable by a holder in due course in the absence of negligence on the part of the ma(er. %+ person who cannot read is not always negligent in not calling on a third person to read the instrument to him. The Luestion as to his negligence is one for the Fury *that is' the courts. to decide. "ircumstances showing that ma(ers were not negligent= %-ps. Panac were illiterate %Hart employed high pressure method %Only contract for repair was read' not the notes %Hart insisted an immediate e!ecution %Hart brushed aside >rs. PanacIs suggestion that legal advice be obtained %Witnesses to the signing were all friends of Hart. 0ven ?raFer' whom ma(ers personally (new couldnIt have obFected to such fraud since he was promised commission. $n fact' it was his apparent acLuiescence in the transaction that served to silent any apprehensions of the ma(ers. +4,N ' +I- 4F -A0N-4N 2E2 >ass. 148' 81 N.0. *8d. 841 *1929. :anton: FA+-S %+ction by "ohn et al.' innocent purchasers for value without notice' to prosecute to recover the face amount of overdue coupons on certain bonds of the defendant city payable to bearer which have been stolen from the vault of the city treasurer. %+fter the bearer bonds had been delivered to the "ity Treasurer as agent# in order to have them registered' the Treasurer had completed the issue of fully registered bonds of li(e amount' but ha* not *estroBe* or cancelle* the bearer bon*s nor 1lace* anB notation u1on them an* ha* 2e1t them in his )ault% %"ohn and company held them' but the "ity Treasurer refused to pay on the ground that the amount covered by the bonds had been paid already. ISS0. WON "ohn et al. were holders in due course' and thus entitled to the amount
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,.L/: .S Ratio +n instrument that has once been issued' returned' discharged' and stolen would seem to stand no differently in the hands of a holder in due course than an instrument that has been prepared' signed and stolen before being issued. Reasoning The validity of municipal obligations is not affected' in the hands of innocent holders for value' by facts which concern merely the manner of their passing from their ma(er into currency' and which do not concern the mode of' or the authority for their creation. %$t would be unfortunate in many respects if bonds of municipalities passing by delivery in the mar(et should be treated differently in this regard from the negotiable paper of other corporations and individuals. %$t is true that the incurring of liability by municipalities is often strictly regulated by statue' and we need not now go far as to say that such statutes could never affect the position of an innocent holder. %The case cited by the defendant was decided before the negotiable instruments law and at a time when the authorities were divided as to the necessity of an authoriJed delivery of a negotiable instrument. Disposition <udgment for the plaintiffs in the sum of C1EE and interest from the date of the writ. S3I-, ' /4--.&C.I+, 8EE N, 899' 92 N0 94D' 22 L6+ *N-. 498K 1911 :Fonas: FA+-S %Aotterweich *>+?06%defendant. e!ecuted and delivered to -mith *P+,00%plaintiff. a promissory note for C2'5GE payable in 3 months. When the note became due' it was renewed by G notes payable 3 months from that date. The renewal notes were not paid at maturity' O -mith brought action for payment. %-mith introduced evidence to show that the original note was given in payment of premiums on 8 life insurance policies to the defendant by the <ohn Hancoc( Life $nsurance "ompany through -mith' as its general agent. Aotterweich denied that the notes were given for value received and that -mith was the lawful holder O owner thereof' alleging an oral agreement under which neither the notes nor the insurance policies were to become valid O enforceable obligations unless -mith secured for Aotterweich a certain loan of money. %The trial court granted -mithIs motion to direct a verdict' to which Aotterweich e!cepted and moved to submit to the Fury the Luestion whether there was a condition that the original note O the insurance policies should be returned in case -mith did not procure a loan
of C5E'EEE for Aotterweich within a year. The motion was denied' and Aotterweich too( an e!ception. ISS0. WON the defendantIs testimony creates a Luestion of fact for a Fury ,.L/: .S Ratio $f the agreement created a condition precedent *suspensive condition.' without the performance of which the notes never became valid obligations' then there is a Luestion of fact. $f the agreement created a condition subseLuent *resolutory condition.' the issue is one of law for the decision of the trial Fudge. *basically i think the issue is whether the oral agreement meant that the notes were never valid, in which case there was never any delivery, or that the notes later became invalid because of the failure of the condition, in which case there was delivery) Reasoning The oral agreement between the parties testified to by Aotterweich was that the note would be held in -mithIs safe until the loan was procured' otherwise the note would be returned O the insurance policy would be null O void. The loan was never made' therefore there is a failure of the condition which determines the e!istence of any contract between the parties. $n the case of Jamestown Business ollege !ss"n v !llen' upon which -mith relies to support his contentions' the promissory note was rendered effective by an unconditional delivery. The agreement of the payee to release the ma(er and cancel the note upon the happening of a future contingency was a condition subseLuent which brought the case within the general rule that a contract reduced to writing' and complete in its terms' cannot be contradicted by oral testimony. The oral testimony therein was in direct contradiction of the written contract' as to the e!istence or validity of which there was no controversy' while in the case at bar the oral testimony tends to show that the writing purporting to be a contract is no contract at all. 4n the e$$ect o$ oral testimonB on contracts which are whollB or 1artlB re*uce* to writing When the oral testimony goes to the Luestion whether there is a written contract or not' it is always competentK but when the effect of the oral testimony is to establish the e!istence of the written contract which it is designed to contradict or change' then the spo(en word must yield to the written compact. 4n the rule in :enton ) 3artin; A! N A@0 $nstruments not under seal may be delivered upon conditions the observance of which is essential to their validity. The anne!ing of such conditions to the delivery is not an oral contradiction of the written
obligation as between the parties to it or others having notice. Disposition <udgment e!cepted from is reversed and a new trial ordered. #A'ILIS ' FA&3.&S 0NI4N LI'.S-4+7 +433ISSI4N 34 -.A. 93' 894' N.W. 528. :monch: FA+-S %Plaintiff Pavilis filed the action to recover upon an instrument alleged to be a chec( transferred to plaintiff for value by one ". Hoard who was named as payee therein. Aefendant Barmers ;nion Livestoc( "ommission argues that= *a. plaintiff was not H$A"' and *b. the instrument signed in blan( by defendant and having been stolen from his possession prior to delivery had no legal inception or e!istence as a chec(. Lower court ruled in favor of plaintiff. Aefendant appealed. %$t was practice of defendantIs office manager' who was authoriJed to sign chec(s' to sign a bloc( of instruments' printed to be used as chec( at the beginning of the business day and deliver the same to the boo((eeper whose regularly duty was to complete the instruments as chec(s and deliver the same to customers during the business day. $t was also the practice of such office manager to procure the return of such signed instruments not delivered at the close of business day for the purpose of safe(eeping and for the purpose of chec(ing or auditing the same. %+round Bebruary 1929' one ". Hoard was employed by defendant as a boo((eeper and cler(. Hoard was e!pressly authoriJed by defendant in the presence of such other boo((eeper to complete and deliver chec(s only during business hours and only for amounts due them as shown by such account of sales. Hoard was not entrusted with a (ey to the defendantIs office although he did have access to a (ey (ept in a des( in the office in order to unloc( the padloc( on the inside of the gate across the counter between defendantIs office and the hall. On or about Beb 8G' 1929' after the close of the defendantIs office' Hoard gained access thereto by unloc(ing the gate across the counter and climbed over the counter into defendantIs office and then opened the safe in defendantIs office by using the combination which he (new' and w&o defendantIs (nowledge' too( certain instruments printed for use as chec(s' blan( as to amount' date and payee' which had been signed by defendantIs office manager authoriJed to sign chec(s' and' in one of which instruments Hoard w&o defendantIs (nowledge or e!press consent' inserted the date' amount and payee. Then Hoard placed his name upon
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the bac( of the instrument and delivered the same to plaintiff for value of C1E8.4D. ISS0. WON the lost chec( was completed and therefore giving plaintiff Pavilis title to the instrument ,.L/: N4 %The chec( in controversy was an incomplete instrument when stolen and cannot be enforced in the absence of conduct on the part of the drawer creating estoppel. %$t is urged that defendant is chargeable with negligence and is estopped to deny liability. The cases cited are those in which the party sought to be charged upon a negotiable instrument has entrusted an instrument signed in blan( to an agent or some other person who has wrongfully completed and negotiated the instrumentK an agency or trust was created by means of which the fraud was committed and the fact that there was no authority for completing the instrument was otherwise wrongfully dealt with was no defense. %$n Linic( v +< Nutting "o= blan( chec( signed by plaintiff was stolen by 6ycoff and -ilbermann' who filled the amount and a fictitious name as payee and presented it to drawee ban(. They endorsed the name of the payee and transferred the chec( to defendant for value who collected the amount of the chec( from the ban(. "ourt held that the chec( was an incomplete instrument and that negligent custody of the chec( was not borne out by the facts. %"ourt concludes= $f as a result of negligence such instrument comes into the hands of a holder in due course' the latter may recover' yet we cannot say under the facts and circumstances of the instant case that defendant was negligent. The loss did not result from completion and negotiation of the chec( by one entrusted with its possession' and we are not concerned with a breach of duty as between a depositor and drawee. $t does not appear that defendant company had reason to mistrust its employee and to anticipate the wrongful ta(ing by him of a chec( signed in blan(' the subseLuent completion and negotiation. %The drawer owes the duty to use due care in the e!ecution of chec(s' but it does not follow as a legal conclusion that signers of chec(s in blan( assume the ris( of liability in all cases where such instruments are wrongfully ta(en' completed and negotiated. To hold that a person is negligent in having in his possession a chec( signed in blan( would reLuire something more than the e!ercise of ordinary care Disposition <udgment of lower court is reversed.
C.IN.& ' #.NNS L'ANIA +4% F4& INS0&AN+. 4N LI'.S AN/ 5&AN-IN5 ANN0I-I.S 13E Pa. -uper. 28E' D1 +. 8d 24D *19G5. :ice: FA+-S -;7<0"T= 7il of 0!change%"hec( >+?06-= Weiner P+,00= 7lan( Weiner signed her name to a blan( chec(. The chec( was stolen. The thief placed the amount C8DE' the date' and a fictitious name as the payee. The ban( paid the chec( to the fictitious payee who properly indorsed it. Weiner sued the ban( to recover the amount ta(en saying that the ban( was negligent as it failed to identify the person paid. ISS0. WON the ban( is liable ,.L/ No. The depositor is. -Weiner signed the chec( in blan( thus putting it in the power of an unauthoriJed person to fill it in and present it for payment. The depositorIs act made the loss possible and caused it' and enabled the thief to commit the fraud. WeinerIs act was a bar and an estoppel. To hold otherwise would reLuire the ban( to communicate with the drawer as each chec( was presented' in order to find out if the delivery was intended. This is too much to be e!pectedK and to place the burden of loss or its chance to the depository if it does not interview the ma(er' is neither fair nor compatible with public interest. -uch would affect the very nature of chec(s which is convenience. Disposition= +ffirmed. LINI+7 ' A%?% N0--IN5 E +4% New ,or( -"K 18D N.,.-. 92' 1GE +pp. Aiv. 83D *191E. :rean: FA+-S Plaintiff Linic( signed his name to a blan( chec(. Thereafter 6ycoff and -ilberman stole the chec(' filled in the name of B+ >ann as payee and C1G5.45 as the amount thereof' and presented it to the -tate 7an(' where plaintiff (ept his account' and procured it to be certified. Thereafter they indorsed said chec( with the name of B+ >ann and passed it to defendant +.< Nutting and "o. for value' who collected the amount from said ban(. Plaintiff' having ta(en up said chec( from the
ban(' now sues defendant as for money had and received for the amount of the chec(. ISS0. WON defendant obtained any title to the chec( which as against the plaintiff' was a valid obligation for C1G5.45. ,.L/: N4 %$n the case of a commercial paper' when by voluntary act a party instructs another with such paper with a blan( thereon designed to be filled up with a stipulated amount' such party is liable to a bona fide holder' of the instrument. +s to the basis of *plaintiffIs. liability' some say that it rests upon an implied authority conferred by the ma(er upon the person to whom it was delivered to fill in the blan(s' and others upon estoppel by reason of negligence. %Not upon implied authority= for such doctrine grows out of principal%agent relationship' and thereIs no such relation between a thief and his victims. The rule that the bona fide holder of an incomplete instrument' negotiable but for some lac( capable of being supplied' has implied authority to supply the omission' and to hold the ma(er thereon' only applies when the latter has by his own act' or the act of another' authoriJed' confided in or invested with apparent authority by him' put the instrument in circulation as a negotiable paper. %Not upon negligence= since the paper was stolen and the persons guilty of the crime have been convicted. Plaintiff then cannot be charged with negligence giving rise to an estoppel' unless a man is guilty of negligence in writing his name upon a piece of paper which by some possibility may afterwards be stolen from him' which paper comes into the hands of a third person who is an entire stranger to the transaction' with words written over the signature which are sufficient in form to ma(e it a chec( or note. +ctionable negligence involves' first' the e!istence of a dutyK second' the omission to e!ercise ordinary and reasonable care in connection therewithK and third' inFury resulting in conseLuence thereof. %-ec. 2G *N$L 1D. states= Where an incomplete instrument has not been delivered' it will not' if completed and negotiated' without authority' be a valid contract in the hands of any holder' as against any person whose signature was placed thereon before delivery. %The ne!t section in the same act to the effect that where the instrument is in the hands of a holder in due course' a valid delivery thereof by all parties prior to him so as to ma(e them liable to him is conclusively presumed# must be read with -ec 2G *N$L 1D.' and this
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[+h4-D]
provision does not apply in the case of an incomplete instrument completed and negotiated w&o authority. %"ourt concludes= The delivery of a PN by a ma(er is necessary to a valid inception of a contract. The possession of such a note by the payee or indorsee is prima facie evidence of delivery. 7ut if it appears that the note has never been actually delivered' and that without any confidence' or negligence' or fault of the ma(er' but by force and fraud' it was put in circulation' there can be no recovery upon it' even when in the hands of an innocent holder. -o' defendant did not obtain any title to the chec(' and cannot recover upon it. Disposition <udgment appealed from must be reversed' and a new trial ordered.
this case' evidence show that the ma(erIs intention was that the name of the ban( was to be filled in the blan( as payee. %+ person upon whom authority is conferred to complete the instrument' is not referred to as the holder but as the one in possession. He is only given prima facie authority to fill a blan(' and that the person filling the blan( must do so strictly in accordance with the authority given. Disposition "ause is remanded to allow plaintiff opportunity to amend her complaint and thus enter a court of eLuity. /405,.&- ' SAL885 N.,. 8EE' 18D N.0. 9G *1919. :Favi: FA+-S= %+ction by "harles Aoughtery' an infant' instituted by -usan Teves' his guardian against 0mma -alt an e!ecutri! of the last will and testament of Helena Aoughtery *aunt of "harles. %plaintiff received from his aunt a promissory note for C2'EEE payable at her death or before. ;se was made of a pronted form which contains the words value received# %-alt e!plained how the note came to be= boyIs aunt visited one day and commented how she loved the boy so much to which -alt commented that her love was all tal(. +unt replied by saying that she would ta(e care of the boy right at that instant. -he as(ed the guardian to ma(e a note for her which she signed. $n the note were the words ,ou have always done for me' and $ have signed this note for you. Now' do not lose it. -ome day it will be valuable.# *W,ou have always done for me[ and $ have signed this note for youI[.-abi (o na nga ba Pinoy si -usan Teves eh. ISS0.= WON there was any consideration for the promised payment ,.L/= no %T" geld that there was no consideration. +ppelate Aivision however reversed. %-" reverses appellate courtIs decision %-" geld that the note was the POL;NT+6, +NA ;N$NBO6"0+7L0 promise of an e!ecutory gift. *no e!planation why. %the eight year old child was not a debtor' nor dealt with as one. The aunt was conferring a bounty. The promise was neither offered nor accepted with any other purpose %the plaintiff' through his own witness' the guardian who e!plained how the note came to be' has e!plained
the genesis of the promise. There is no showing that consideration was given CILLIA3 :A&+4 E S4N ' F4&:.S 81"!@9 Rplace citation hereS :brian b: FA+-S %Plaintiffs brought suit upon a note for C885.8D against defendant who issued it for the purchase of fertiliJer from plaintiff. %The note' dated <an 1E' 1982' was given in renewal of a former note dated <uly 1' 1988. %Aefendant contended that the fertiliJer was bought for use in producing a sweet potato crop in 1988' and that the fertiliJer was worthless and had no effect whatever upon the crop. %This fact notwithstanding' T" ruled in favor of plaintiffs. ISS0. WON defendant is liable ,.L/: .S% Ratio One who gives a note in renewal of another note' with (nowledge at the time of partial failure of the consideration for the original note' or of false representations by the payee' waives such defense and cannot set it up to defeat or to reduce the discovery on the renewal note. *7an( v Howard. Reasoning The time for harvest was in <uly or +ugust 1988 and the potatoes were dug at that time. $t is obvious' therefore' that the defendant (new then that the fertiliJer was worthless and that there was a total failure of consideration. Nevertheless' he e!ecuted the renewal note. Disposition <udgment affirmed.
SI3#S4N ' NA-=L :AN7 4F &4S.:0&5 9G Ore. 1G5' 14D Pac. 912 *1919. :yella: FA+-S -;7<0"T= Promisory note >+?06= >rs. >. <osephson P+,00= *intended to be the ban(i. $NAO6-00= National 7an( of 6oseburg PO--0--O6= race -impson %When the note was e!ecuted the name of the payee was left blan(' and was still in that condition when the plaintiff received it. %The plaintiff tells about writing the name of the in blan( and avers that the plaintiff is entitled to the indorsement of the defendant herein upon said note and was at all times so entitled to the same ISS0. WON plaintiff has a right against the defendant and the ma(er of the note ,.L/: 8case was reman*e*; court merelB *iscusse* rules o$ the law o$ merchant i$ instrument is incom1lete9 %When the ma(er of the note left a blan( for the name of a payee and delivered the instrument in that condition to another person for value then that person to whom the note was delivered or any subseLuent holder could insert his own name' or that of a transferee' as payee. %The plaintiff could not have sued and recovered upon an incomplete instrument. % race -impson could' in the absence of (nowledge of special instructions given by the ma(er' have filled the blan( by writing her own name as payee. However' in

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Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

+,A#-.& I': /.F.NS.S AN/ .(0I-I.S [+ases cite* in +am1os]

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

Law 108: Negotiable Instruments First Semester

#ro$% &ogelio '% (ue)e*o

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