[ch4-A] Law 108: Negotiable Instruments First Semester A !

008-0" #ro$% &ogelio '% (ue)e*o [+h4-A]

+,A#-.& I': /.F.NS.S AN/ .(0I-I.S
[+ases cite* in +am1os]
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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= $saac luc(man
[ch4-:] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-:]
%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
[ch4-+] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-+]
the counting and pac(ing of the money then he gave a
chec(' purporting to be signed by 7aldwin' for P8EE?.
He was also charged P1 for the service wherein he also
came up w& another chec( for P1' again purporting to
be signed by 7aldwin. *This practice of withdrawing
money for shipment was freLuent for plaintiff but never
so large an amount and under the sole supervision of
Aolores..
%Aolores then delivered the money' in plaintiffIs office'
to Wilson where he received his P1E? share. -hortly
thereafter' the crime was discovered' and upon 7P$
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. ,0-
Ratio + 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
[ch4-/] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-/]
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 Postea
1
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.
1
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
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 +I- :AN7 4F N
an* 34-4& S.&'I+. +4%; IN+%
32 PH$L 511K 60"TOK 1923
:chriscaps:
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
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
[ch4-.] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-.]
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
[ch4-F] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-F]
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.&- 81"!19
Rplace citation hereS
:ina:
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.
[ch4-5] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-5]
%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
[ch4-,] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-,]
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.
&.#0:LI+ :AN7 ' .:&A/A
L%GE593K 3D -"6+ 34EK <uly 21' 195D
:cha:
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
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(
[ch4-I] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-I]
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
[ch4-?] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-?]
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
[ch4-7] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-7]
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..
[ch4-L] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-L]
-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 G
th
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
[ch4-3] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-3]
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.
[ch4-N] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-N]
/.-&4I- #IS-4N &IN5 +4% '
CAN. +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.
[ch4-4] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-4]
%>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 $nstruments Law. -ection 28
of the same law provides that Mthe indorsement must
be an indorsement of the entire instrument. +n
indorsement which purports to transfer to the indorsee
a part only of the amount payable does not operate as
a negotiation of the instrument.M >ontinola may
therefore not be regarded as an indorsee. +t most he
may be regarded as a mere assignee of the P2E'EEE
sold to him by 6amos' in which case' as such assignee'
he is subFect to all defenses available to the drawer
Provincial Treasurer of >isamis Oriental and against
6amos.
G. He should have (nown that a chec( for such a large
amount of P1EE? could not have been issued to 6amos
in his private capacity but rather in his capacity as
disbursing officer of the ;-+BB0' and that at the time
that 6amos sold a part of the chec( to him' 6amos was
[ch4-#] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-#]
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
[ch4-(] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-(]
chec( for the same amount. When the -avings 7an(
attempted to collect it' only then did it find out that the
draft was forged.
%$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. $n the present
case' a chec( altered by Aavis from the sum of C88 to
[ch4-&] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-&]
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 National 7an( is entitled to the
repayment.
,.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
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 $taly and Pop(in.
demanding repayment of the amount of the chec(.
Arawee filed action to recover the sum. Talo. -a Aistrict
"ourt of +ppeals' talo rin.
QNote= The alteration was made with such s(ill that it
could not be detected. The person responsible for the
alteration is un(nown.
ISS0.
WON the drawee ban( may recover the money it paid
,.L/: N4
%;nder -ec. 38' the acceptor' by accepting the
instrument' engages to pay according to the tenor of
his acceptance.#
[ch4-S] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-S]
%$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
:aida rose:
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. $t endorsed the chec( to
BN"7 with a stamp on the bac( of the chec(' stating=
all prior and&or lac( of indorsement guaranteed.#
%>arch 1D' 1933= BN"7' believing that the chec( was
genuine and relying on the guaranty and endorsement
of the petitioner ban(' paid the amount on the face of
the chec(.
%+pril 19' 1933 %->" notified BN"7 of the material
alternation in the chec( about a month after BN"7 had
paid 6epublic 7an(. BN"7 recredited P9'8GE to ->"Is
account.
%>ay 19' 1933 BN"7 wrote 6epublic about the
alteration. 7ut at that time' Aelgado had already
withdrawn the said amount from his 6epublic 7an(
account.
%B"N7 demanded that 6epublic 7an( refund the
amount of P9'8GE on the basis of the latterIs
endorsement and guaranty. 6epublic refused' saying
that 1. there was delay in giving notice of the
alteration' 8. it was ->"Is fault in drawing the hec( in
such a way as to allow the alteration and 2. that BN"7'
as drawee' was absolved of any liability to ->" thus
BN"7 had no right to recourse against 6epublic 7an(.
%The trial court ordered 6epublic 7an( to pay P9'8GE to
PN"7 with interest. The "+ affirmed the T" ruling.
ISS0.
WON 6epublic 7an(' as clearing ban(' is protected from
liability by the 8G%hour clearing house rule *in "7
"ircular 9.
,.L/: .S
%When an endorsement is forged' the collecting ban( or
last endorsor bears the loss. However the unLualified
endorsement of the collecting ban( on the chec(
should be read together with the 8G%hour regulation on
clearing house operation.
[ch4--] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4--]
%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#
[ch4-0] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-0]
certainly includes all (inds of fraud in factum. -ince this
is so it is hard to believe that the framers overloo(ed
this particular defense. The eLuities are all in favor of
such interpretation' since the defrauded party really
caused the situation and should be the one to suffer.
%;nder the old common law view fraud in -ec. DD would
be limited to fraud in the inducement and defenses in
-ec' D5 restricted to defenses which were eLuitable at
common law' while fraud in the factum would continue
to be a real defense analogous to forgery under -ec.
82. -uch is the result of a number of cases which have
arisen since the N$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. $n fact' it was his apparent acLuiescence
in the transaction that served to silent any
apprehensions of the ma(ers.
+4,N ' +I- 4F -A0N-4N
2E2 >ass. 148' 81 N.0. *8d. 841 *1929.
:anton:
FA+-S
%+ction by "ohn et al.' innocent purchasers for value
without notice' to prosecute to recover the face amount
of overdue coupons on certain bonds of the defendant
city payable to bearer which have been stolen from the
vault of the city treasurer.
%+fter the bearer bonds had been delivered to the "ity
Treasurer as agent# in order to have them registered'
the Treasurer had completed the issue of fully
registered bonds of li(e amount' but ha* not
*estroBe* or cancelle* the bearer bon*s nor
1lace* anB notation u1on them an* ha* 2e1t
them in his )ault%
%"ohn and company held them' but the "ity Treasurer
refused to pay on the ground that the amount covered
by the bonds had been paid already.
ISS0.
WON "ohn et al. were holders in due course' and thus
entitled to the amount
[ch4-'] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-']
,.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. $t was also the
practice of such office manager to procure the return of
such signed instruments not delivered at the close of
business day for the purpose of safe(eeping and for the
purpose of chec(ing or auditing the same.
%+round Bebruary 1929' one ". Hoard was employed by
defendant as a boo((eeper and cler(. Hoard was
e!pressly authoriJed by defendant in the presence of
such other boo((eeper to complete and deliver chec(s
only during business hours and only for amounts due
them as shown by such account of sales. Hoard was not
entrusted with a (ey to the defendantIs office although
he did have access to a (ey (ept in a des( in the office
in order to unloc( the padloc( on the inside of the gate
across the counter between defendantIs office and the
hall. On or about Beb 8G' 1929' after the close of the
defendantIs office' Hoard gained access thereto by
unloc(ing the gate across the counter and climbed over
the counter into defendantIs office and then opened
the safe in defendantIs office by using the combination
which he (new' and w&o defendantIs (nowledge' too(
certain instruments printed for use as chec(s' blan( as
to amount' date and payee' which had been signed by
defendantIs office manager authoriJed to sign chec(s'
and' in one of which instruments Hoard w&o defendantIs
(nowledge or e!press consent' inserted the date'
amount and payee. Then Hoard placed his name upon
[ch4-C] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-C]
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.& ' #.NNSL'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
[ch4-D] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+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.
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
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,.&- ' SAL-
885 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.