NIL: December 12, 2011 (Monday) Case: Bank of America vs. Philippine Racing Club (k..

we need the sentences before this, ang start sa case until here )The SC said that being in the business of banking .they should have inquired, because of the erroneous filling up of the check. Thus the SC said that, with this on face of the check, the bank should have hold-off Philippine Racing Club, as to whether or not, it is their order because in the first place, if you are a corporation company or partnership, seldom do you use pay to the order of cash. There is always a payee, and apart from that, there was an erroneous filling up of the check, which would tell you that someone, not accustomed to the making of the check has fill it up. So according to the SC, it is the bank that should have inquired as to whether these checks are in order, but they did not. In trial, it was found out that the bank manager did not even call up Philippine Racing Club, to inquire as to whether these checks are valid or not, considering that the amount was a large amount, a hundred ten thousand pesos. So there was a sharing of the loss there. Case: Republic Planters Bank vs. CA We have already discussed that, the case of Canlas, he was a treasurer but there was no disclosure of his principal, so he was made liable. And then the cases under delivery of an instrument, as we have already previously discussed, you have no ownership of the instrument if it is not yet delivered, and so it is very important then that from the time that the instrument is made, it be delivered to the payee, and from the time the payee receives it, the payee becomes the owner of the instrument. Case: De La Victoria vs. Burgos The issue is whether or not the paycheck of the government employee can be subject of garnishment. So the paycheck of this government employee was not yet released, so the SC said that if it not yet released to the payee, then the payee has no control yet as to ownership over the check. That means, the paycheck remains to be public funds, because we are talking here the salary of a government employee. So the SC said, since there is no delivery yet of the check to the payee, then the payee has no ownership yet of the check, and therefore it cannot be subject of garnishment, because this certain employee-payee was involved in a case

wherein it determined that any personal property should be garnished. So kay dili paman niya property, because it not delivered to him yet, it could not be the subject of garnishment. And apart from that public funds cannot be garnished. Case: Lim vs. CA This is a matter of delivery, the matter in fact of issuance. As we have already previously discussed in our last meeting, when we say issuance, that means, that is the first delivery of the instrument from the maker or drawer to the payeefirst delivery. Subsequent to that, those are called deliveries or negotiations, the first delivery is issuance. So the issue here is whether the venue was proper, so there was an issue as to whether or not the collector of the check, in collecting the check in Caloocan City, because the case was filed in Caloocan City, on whether or not the act of collecting by the collector will not be considered issuance, and therefore the venue should be Caloocan. But the payee is located in Malabon, so the SC said that the venue should have been Malabon. Why? Because the intended payee is located in Malabon, so only when the intended payee receives the instrument, that is the time when there is really issuance. So the collector cannot be deemed the payee. Case: DBP vs. Wei Wei---Lee---Plastic Corp.---Producers Bank This is about whether or not DBP has a cause of action against certain parties to whom DBP filed a case against. So you have Wei, Lee, Plastic Corp., and then Producers Bank. Here you have Wei borrowing from Lee, unya nangutang sad siya sa DBP. So she issued checks, the payee was DBP, but according to the facts, for some reasons unknown to all of them, these checks payable to the order of DBP reached Lee, ni-abot ni Lee, so from Lee, to Plastic Corp, then to Producers Bank. But it was supposedly payable to the order of DBP. So the correct flow of the check should have been Wei DBP Lee Plastic Corp. Producers Bank. Unfortunately for DBP, it did not reach DBP. Wala jud ni-agi sa DBP, even if it is payable to the order of DBP. So the Producers Bank allowed the deposit of the check, even without the indorsements of DBP and Lee. Because the manager of Producers Bank just rely on the word also of the manager of Plastic Corp. These checks, they are in order, even if theres no indorsements. Tuo siya nga deposit. So now, here comes DBP, who filed a case against everybody, it filed a case against Wei, Lee, the manager of Plastic Corporation and

Producers Bank. So the question now is, whether or not DBP has a cause of action against these people because Lee, Plastic Corp. and Producers Bank filed a motion to dismiss, because according to them there was no cause of action. The question now is whether or not it was correct for the lower court to have granted the motion to dismiss, nga wala ba gyud cause of action, because DBP felt it was wronged. The check and money, and the money represented by these checks should have gone to DBP kay nakautang gud si Wei nila. The SC said, you DBP, you have no cause of action against Lee, Plastic Corp. and Producers Bank, if you were to base your cause of action on the check. Why? Because in the first place, you never owned the check, wala man gyud nimo siya nadawat in the first place. It would have been different if nadawat niya, nakawat, ni abot ni Lee, then there is cause of action because they owned the check. But since there was no delivery yet to DBP, wala siyay cause of action. The SC went on to saybut you may have cause of action of action against Wei, but not based on this check, but based on the loan of Wei to DBP.

Promissory Note *FORGERY OF A MAKERS SIGNATURE Order Instrument: So remember in sections 14, 15 and 16, the effects differ a little in an order instrument, and in a bearer instrument, so as with your bills of exchange, mulahi sad siya if its an order instrument, or a bearer instrument. M-------P-------A-------B-------C (X)

FORGERY When we say forgery, our common understanding of forgery is that your signature is being imitated. Now forgery under your NIL means that your signature is being imitated by somebody else (sic), or it could be that somebody else created a signature for you, wa siya kahibaw sa imong signature, nag himo-himo lang siya ug signature for you. Or forgery could also mean material alteration, sections 124 and 125. Material alteration, meaning there is already an amount100,000, and then gipun-an nimo ug another zero, so nahimo na siyang 1,000,000, that is still forgery, but that is what we call as material alteration. The effects are not the same as when you enter an amount when there is an amount, that is section 14. Do not confuse that. Lahi ang effect if wala siyay amount, but there was a predetermined amount, only you did not follow it. It is different when there is really now an amount, and then you changed it, that is now forgery, specifically material alteration. So it could be forgery, meaning somebody imitating your signature or it could be, its not really your signature but it was made to appear as your signature, or you have altered a material particular. Alteredyou have changed it, youre now adding something (section 14), you are changing it, so thats forgery. So now lets discuss first the forgery that you commonly understand or know, the forgery wherein youre signature is imitated or a signature that appears to be yours but actually isnt.

You have here the makers signature that is forged by X, it was not actually the maker who made the instrument, but it is X, who made it appear as if its Ms signature. So there was the issuance to P, or to the order of P, since we are now talking about order instrument. P negotiated it to A, of course in an order instrument, you negotiate it through indorsement and delivery, A negotiated it to B, and B negotiated it to C, so C is now your holder. If C is a holder in due course, meaning he was not aware that there was forgery, wa siyay kalibutan, he took the instrument in good faith and for value. When we say for value, meaning he gave up value for it. Nakadawat siya ana nga instrument because maybe naa siyay gi baligya, there was something in exchange for the instrument, so he is a holder in due course. Question, can C compel payment from M? The answer is no, why? What would section 23 tell you? The signature of M is wholly inoperative. If your signature is forged, meaning that signature is not effective at all. It is as if you have not signed it, so M cannot be made liable because in the first place, he did not make that instrument. Since C cannot compel payment from M, and C is a holder in due course, from whom can C collect? Since this is an order instrument, C can collect from P, A and B, why? Because of the warranties of P, A or B, and what section is that? Section 66. Of course do not forget that you can also go against X, why? Because he is the forger, he is the one ultimately liable. Ultimately liable, why do we say ultimately, not primarily? Not secondarily? Because at the end of the day siya man ang liable. Dili man na siya primarily liable because in truth and in fact, he is not a party to the agreement. Naturally what happens is C may file against all of them, but of course they gave up something for value, all of them. So all of them may go against the one liable, its not M, its X, the forger. So X, the forger is the one ultimately

liable. If C is not a holder in due course, all the more C cannot collect from M, because again the signature is wholly inoperative. Can C collect from P, A or B? The answer is still yes, because of the warranty. He can still collect from the order. So basically whether you are a holder in due course or not a holder in due course, in an order instrument, where the makers signature is forged, your rights are the same, why? Because forgery is a REAL defense.

*FORGERY OF AN INDORSERS SIGNATURE Order Instrument: M-------P-------A-------B-------C (X) At the back of the instrument: Pay to A Sgd. P

Bearer Instrument: M-------P-------A-------B-------C (X) The signature of M is forged. Can C compel payment from M? No, because the signature of M, is the same, wholly inoperative. Question, from whom can C collect? From B only, because of the warranty of B under section 65, and the warranty of B extends only to the immediate transferee. Supposing this is a bearer instrument but with indorsements behind the instrument,

Pay to B Sgd. A Pay to C Sgd. B

Forged by X

Pay to B Sgd. A Pay to C Sgd. B

kana siya imong makit-an. Second question, can C collect? Yes, he can go after A and B, only A and B, but he cannot collect from P, do you see the indorsement of P? You do not see the indorsement of P, so you do not know whether P is an indorser. So ang imo rang makiha, si A and B, and of course X. This is the case if there are indorsements, if there are no indorsements? Only B.

It is no longer your makers signature that is being forged, but is any of the signature of these people here (referring to the indorsers). So of course, if it is an order instrument, there are indorsements at the back. Supposing it was As signature that was being forged by X, because in an order instrument, there must be indorsements at the back. At the back of the instrument you have therepay to A, signed P, pay to B signed A, and pay to C signed B (please refer to the figure above). So kani di-ay nga indorsement (refers to the encircled indorsement) was forged by X. Question, can C compel payment from M, why do we always start with M? Because he is the party primarily liable, so the first question of course makapaningil ba ka ni M, can C compel payment from M? No. Why not? ({murmuring} he is a party prior to the forgery) So what if he is a party prior? So C cannot collect because M is a party prior to the forgery and the right of the holder is already CUT OFF from the time of forgery. So all the parties prior to the forgery may have the same rights; the forgery cuts off all the rights of the holder to collect from the parties prior to the forgery. Second question, from whom can C collect? From B and X. C cannot collect from P because he is a party prior to the forgery, the forgery cuts off as against all parties prior to this forgery. C cannot collect from A, why? Because his signature is wholly inoperative. C may still collect from B because B gave warranties under section 66, and C can also go after X because he is the forger, he is the one ultimately liable.

Bearer Instrument: M-------P-------A-------B-------C (X) If this was a bearer instrument, and it so happened that there are indorsements at the back (please refer to the box figure above), but the indorsement is forged, still it is the signature of A that was forged, and this is a bearer instrument. Same question, can C collect payment from M? Yes this time. Yes because the indorsement is not necessary. So this time, pwede maka- collect, why can you collect? Because in the first place, in a bearer instrument, you do not need the indorsements, it would still be valid. And so you can still collect from M, and M cannot interpose the defense of forgery because your instrument may be negotiated by mere delivery only. So indorsements are not necessary, in fact if you read the topic on negotiation, holder can in fact cancel them out. So it is not needed, so even if the signature is forged, the holder can still collect. So if M, like any other reason will not pay, asa man mogukod si C? If there are indorsements, if all of them have indorsed, then C can from all of themP, A or B. Why, why can we still collect from A? Because even if his signature is forged, even if the signature is wholly inoperative, still this is a bearer instrument, it could be negotiated by mere delivery. So its like saying, ngano man di-ay ug na forged na, danghag ka, kay wa nimo gi tarong ug tan-aw, because it can be negotiated by mere delivery. But of course, all of them can go after the forger.

not the counterpart of the maker, who is the counterpart of the maker in the bills of exchange? It is the drawee-acceptor. Drawee-acceptor, not just drawee because the drawee is a stranger to the bill UNTIL he has accepted the order of the drawer. So we have there (please refer to the figure above), the drawer, we have the drawee. The drawer, of course, just like checks, just like bills of exchange, so your drawer in making the check will have to issue and of course deliver it to the payee. Payee negotiated it to A, B and C. Unlike your promissory note, when at maturity, you pay directly to your maker, in a bill of exchange, in ordinary bill of exchange, what you do, is the holder will have to go to the drawee first, and see if he accepts the bill of exchange. If its a check, then the presentation of the check to the bank, to the drawee-bank, if he accepts, then concurrent siya, ang pag present and ang pag accept, right? So the question now is, what would then be the effect if the drawee-bank accept it, when we say accept it, it is from C, the holder, it is paid in cash or credited to the account. So if the drawers signature here was forged by X (please refer to the figure above), blank check, then the signature of the drawer is forged by X, and then it was negotiated to P, negotiated to A, B and C, and C is now the holder, and Z the drawee-bank, and if Z pays and accepts the check, si C iyang nabayran even if forged, the question isif the bank later on discovers the forgery, after having paid, nakabayad na, naka discover cya, kay ni reklamo si drawer ngano imo mang gi-deduct-kan ang akoang account, na Ive got into the check and the check was forged? Can the drawee-bank now say naNo, I will not reimburse you the amount, because, because nindot kaayo pagka-forged, wala namo nabantayan. Can the drawee-bank refuse to re-credit the account of the drawee? No. Why cant it? Why? Because when the drawee-bank accepts the order of the drawer, it warrants the genuineness of the signature of the drawer. Pag accept niya, ni ingon siya nga genuine ni, and he is bound by the signature of his client. So, therefore, imo-ha nang sala, you bear the loss. That means, if na deductkan man ang account ni drawer, so it will have to re-credit, the draweebank. Now, ang bangko dili man gyud na paalkansi, so re-credit, re-credit kay dili di-ay to kang drawer. Can the drawee bank now go after C and can now say to C nga forged man di-ay nang cheke nga gi-present sa ako-a, you pay us back what we paid you, can the drawee-bank do that? kay dili naman ko maka adto sa drawer, adto nalang ko sa akong gibyaran, kato nalang akong ikiha. Why cant the drawee-bank get payment from the holder? Why? Because again, he already warranted the genuineness of the signature of the drawer, it can no longer backtrack and say ay forged diay na, because the time he made the payment, ni warrant na siya, ni

Bills of Exchange Order Instrument: *FORGERY OF A DRAWERS SIGNATURE (X) drawers signature forged by X Dr-------P-------A-------B-------C

Z (drawee-acceptor)
So the drawer is the counterpart of the maker when we speak of a person issuing the instrument but when we speak of liability, then the drawer is

guarantee na siya that the signature of the drawer is genuine. So they cannot now backtrack and say that is not genuine. So unsa naman lang ang buhaton sa bangko? You go after the forger. What happen if the drawee bank discover the forgery, when the check was presented, oi dili na mao, its not the signature of our client, we will not pay, because it is not the order of our client, dili na iyahang signature. Now supposing C there, the holder, wala siyay kalibutan nga forged, because it was negotiated and indorsed to him. What is now the recourse of C? Can C go against the drawer? Definitely not, because the drawers signature is wholly inoperative. So sa kang kinsa naman lang mo collect si C? So same rule as we have there, C can go after P, A and B, and of course he can go after the forger. So murag ni balik nata, wala na ni bayad si drawee kay nabantayan dayon niya nga forged. Unlike our previous example, nga nabayran niya. So that is an order instrument.

*FORGERY OF INDORSERS SIGNATURE Order Instrument: Dr-------P-------A-------B-------C (X) Z

Bearer Instrument: (X) Dr-------P-------A-------B-------C

Z
If its a bearer instrument, still the drawers signature is forged, if Z paid on the check, and then after paying, it realized that the check has a forged drawers signature, can Z refuse to re-credit the account of the drawer? Dili, because they are bound to know the signature of their client, its their loss because its their negligence, not to have discovered it right away. Can Z go after C, and ask reimbursement from the payment it made to C? Dili, because they warranted the signature of the drawer. Still the same rule, if Z does not pay the check, because it already discovered the forgery, then C, of course cannot go after the drawer, because drawers signature is wholly inoperative. Kinsa man ang gukoron ni C? B, the immediate transferor, because its a bearer instrument. If its a bearer instrument with indorsement, then you follow the rule on order instrument.

So it is no longer the one making the check whose signature is forged, but already the indorsers here. So, signature of the indorser here A is forged by X (please refer to the figure above). Z here paid the check, gi bayran niya si C. And then there was a report of forgery, gi tawagan cya ni drawer, Z why did you pay the check to C, when I was told by my payee that it should have been A, but A is now claiming that his signature was forged, you should not have paid it. Can Z now be compelled to reimburse the drawer? Can Z now be compelled by the drawer whose signature was not forged, can the drawer now compel Z to reimburse? Here, the drawers signature was not forged, but an indorsers signature is forged. Should Z re-credit? Yes, because drawer is a party prior to the forgery. So even if his signature was not forged, the right of the holder is already cut off because of the forgery. So dapat uli-an siya ni Z sa nabayad, dapat Z bears the loss. So si Z, dehado napud ni Z, so if you were the lawyer, mangutana ni Z, asa man ko attorney mangolekta ani? Can Z ask reimbursement from C? Here (referring to the previous example), dili pwede, it was the drawers signature that was forged, and so therefore, upon payment of the check, it is already guaranteed, he warranted that his clients signature was genuine. But here, it was not guaranteed, can Z now go after C? The answer is yes. Why is C liable to Z? Nganong mubayad man siya? Because being the last indorser, he warrants that ALL the signatures are genuine, and then dili di-ay. So C will have to reimburse Z. Of course, C, naa sad siyay recourse, C can recover from whom? B or X, but not A. Why not A? Because As signature is wholly inoperative, and you cannot also go after P, because P is a party prior to the forgery, as well as the drawer. Now if Z does not pay, wa siya ni bayad, because he was already alerted that there was forgery on the indorsement, can whom from C collect payment? From B or from the forger, X. Once again, As signature is wholly inoperative, P and the drawer are parties prior to forgery.

Bearer Instrument: Dr-------P-------A-------B-------C (X) Z

In a bearer instrument, As signature was forged by X, at the back of the check, you see the indorsements of P, A and B, but the check is actually paid to the ORDER OF CASH, so bearer siya, paid to a name that does not purport to be a name of a person, so that is already a bearer instrument. But even if its a bearer instrument, at the back you can see the indorsements of P, A and B. Z, upon seeing the check, nakabayad siya, and then naka discover siya nga there was forgery. But of course pag bayad niya na deduct-kan na ang account sa drawer. Should Z re-credit the account of the drawer? Should the money be added back to the drawers account? Can Z re-credit the account of the drawer, bearer instrument? Can he be compelled to re-credit? The answer is no this time, because the indorsers signature is not necessary. Even if its forged, its not necessary. So, si drawer cannot ask Z to reimburse him. So sakto ra nga nibayad siya. Because this time, the indorsement is not necessary. Now what if Z did not accept the check, wala siya nibayad. Can C go after the drawer? The answer is yes, because if the acceptor does not accept the check or the bill of exchange, then its as if its a promissory note, mawagtang ang iyang pag ka bill of exchange. So the rule in a promissory note will have to come in. So C can collect from the drawer. If the drawer does not pay, C can collect from P and B only. So nibalik ta sa rule sa promissory note. So it was the drawees signature that was forged, na forge ang signature ni drawee, this time, dili na ni siya check, it will not be an ordinary bill of exchange, because in an ordinary bill of exchange, mu-agi pa ug acceptance, but of course, the acceptors signature was forged, so dili gyud siya mu bayad kay forged man iyang signature, so what rule will you follow now, theres no rule? So we go back to the rule on promissory note.