campos chap 4

8/12/2019 Campos Chap 4

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[ch4-A] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-A]

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

The original plan was to have these digests merely as case tic2lersnot as substitute for the originals. Please limit your digests to relevantdetails only. We do not need a reproduction of the LON e!cerpts in"ampos.#

$ already lost count how many times sentiments of this sort have beenaired face%to%face w& the people concerned' discussions during bloc(

meetings' message chains over the yahoogroups' etc. )*Ne!t time' unless there are several separate opinions *w&c should +LW+,-be included' please limit length of submissions to one column in thisformat.

P.-. To those who submitted on time and followed the format' than(s/0diting usually ta(es hours. ,ou spared me that. $ appreciate it.

3&&A ' ,3#SN123 Tenn. 114' 144 -.W. 254' L6+' 14157 1158 *1913:ice:

FA+S-;7+?06-= 7ric( companyP+,00= >urray-;7-0@;0NT $NAO6-0>0NT-= Bather of >urray sold to

Thompson.

%>urray received a note from a bric( company insatisfaction to his claim for damages worth C1'5DEbecause of personal inFuries. $t was payable on urray. $t was invested in asaloon business and was lost. There was no actualfraud on the part of >urray in the transaction with

Thompson.%>urray wanted to disaffirm and recover.

ISS.

WON an infantIs indorsement is void or voidable

,.L/: 'oi*able%Ratio -ec. 88. 0ffect of indorsement by infant orcorporation.%The indorsement or assignment of theinstrument by a corporation or by an infant passes theproperty therein' notwithstanding that from want ofcapacity' the corporation or infant may incur no liabilitythereon.%The statement that the infant passes propertytherein# entails that the contract of indorsement is notvoid and that his indorsee has the right to enforcepayment from all parties prior to the infant indorser.

The incapacity of the minor cannot be availed of by theprior parties.

%$t was not intended to provide that the indorsee shouldbecome the owner of the instrument by title

indefeasible as against the infant' or to ma(e the act ofindorsement an irrevocable one. The law would notwant to deprive the infant of the right to reinvest inhimself the title to the instrument against a holder whohad (nowledge of the indorserIs infancy.%The common%law rule is that the purchaser andindorsee of such a note is not a bona%fide holder as

against an infant indorser' and that the latter maydisaffirm and recover the note from the possession ofthe former' who ta(es with constructive notice of theincapacity. This means that the infant could disaffirmand recoverDisposition= "ourt of "ivil +ppeals reversed while thechancellor is affirmed.&/&I5.6 ' 3A&IN.6D Phil 35 *19E3:rean:

FA+S-;7artineJ would not repudiate it for the reason that>artineJ' had assured him before the purchase of thenote that the same was good and that he would it at adiscount. Without such assurance from >artineJ we canhardly believe that 6odrigueJ would have bought thenote. $t is thus inferred from the fact that he'6odrigueJ' inuired from the defendant about thenature of the note before accepting its indorsement.%These facts sufficiently show that 6odrigueJ boughtthe note upon the statement of >artineJ that the samehad no legal defect and that he was thereby induced tobuy the same by the personal act of >artineJ. $n viewof this' >artineJ can not be relieved from the obligation

of paying 6odrigueJ the amount of the note alleged tohave been e!ecuted for an unlawful consideration. $fsuch unlawful consideration did in fact e!ist' >artineJdeliberately and maliciously concealed it from6odrigueJ. Therefore' to hold otherwise would beeuivalent to permitting >artineJ to go against his ownacts to the preFudice of 6odrigueJ. -uch a holdingwould be contrary to the most rudimentary principles of

Fustice and law. Par. 1' -ec. 222 of "ode of "ivilProcedure' applicable to this case' provides as follows=MWhenever a party has' by his own declaration' act' oromission intentionally and deliberately led another tobelieve a particular thing true' and to act upon suchbelief' he can not' in any litigation arising out of suchdeclaration' act' or omission' be permitted to falsity it.M

Disposition artineJ is ordered to pay to the plaintiff6odrigueJ the sum of G'EEE pesos' >e!ican currency'or its euivalent in Phil. currency' with legal interest at3 p.a.

5L+73AN ' /A&LIN5 1"1494D N.


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[ch4-] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-]

%7alene >a! were about to sell to "harles Blynn somereal estate and were to ta(e in part payment thereforenotes made by Blynn and indorsed by defendant. When7alene >a! reuested the defendant to be present atthe transfer and uestioned him about the notes' heattended and e!amined them and said' 0verything isall right.# The notes were then accepted on account of

the purchase price of the property' and the one in suitsubseuently passed by indorsement' for a valuableconsideration' to the plaintiff.%Aefendant at the trial denied his signature as indorser'insisiting that it was a forgery. "ourt denieddefendantIs motion for nonsuit

ISS.WON defendant is stopped from alleging forgery

,.L/: .S%$t is true that silence and acuiescence alone does notestop a defendant in a suit upon an alleged forgedinstrument from proving the forgery' where the plaintiffhad not been preFudiced or damaged thereby. 7ut

where the holder of a note has been willfully misled asto the genuineness of an indorsement thereon by onewho purports to be the indorser and sustains damageor is preFudiced thereby' the alleged indorser will bestopped from denying the validity of the signature.Disposition


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[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 achec(' purporting to be signed by 7aldwin' for P8EE?.He was also charged P1 for the service wherein he alsocame up w& another chec( for P1' again purporting tobe signed by 7aldwin. *This practice of withdrawingmoney for shipment was freuent for plaintiff but neverso 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. -hortlythereafter' the crime was discovered' and upon 7P$refusing to credit plaintiff with the amount of the 8forged chec(s *P8EE?P1' plaintiff sued 7P$ and "7".%T" absolved both defendants.

ISS.S1. WON "7" is liable8. WON 7P$ is liable

,.L/Q-"' first and foremost' declared that the falsity of7aldwinIs signatures is beyond reasonable doubt.

1. NO. + ban( that cashes a chec( must (now to whomit pays. $n connection with the cahierIs chec(' this dutywas therefore upon 7P$' and "7" was not bound toinspect and verify all endorsements of the chec(' evenif some of them were also depositors in that ban(. $thad a right to rely upon 7P$Is endorsement when itgave the latter ban( credit for its own cahierIs chec(8. ,0-. $t is an elementary principle both of ban(ingand the N$L that a ban( is bound to (now thesignatures of its customersK and if it pays a forgedchec(' it must be considered as ma(ing the paymentout of its own funds' and cannot ordinarily charge theamount so paid to the account of the depositor whosename 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 ofdepositor and ban(er' creditor and debtor.%The ban( paid out its money because it relied upon thegenuineness of the purported signatures of 7aldwin.

These' they never uestioned at the time its employeesshould have used care. $n fact' even today the ban(represents that it has a belief that they are genuinesignatures.%The signatures to the chec(s being forged' under -ec.82' N$L' they are not a charge against plaintiff nor arethe chec(s of any value to the defendant. Thepro!imate cause of the loss is 7P$Is negligence.Disposition arch 1G' 1944:mini:

FA+S%Brancisco -. oJon $$' a depositor of the "aloocan7ranch of PN7' went to the ban( accompanied by his

friend 0rnesto -antos whom he left in the car while hetransacted business in the ban(.%-antos too( a chec( from oJonIs chec(boo(' filled itup for the amount of PDT' forged the signature ofoJon' and encashed it in the ban( on the same day.;pon receipt of the statement of account from theban(' oJon as(ed that the amount of PDT be returnedto his account as his signature on the chec( was forgedbut the ban( refused.%-antos was apprehended by the police and headmitted that he stole the chec( of oJon. oJon filedthe complaint for recovery of the amount of PDTagainst the ban( in the "B$ 6iJal.%"B$ ruled in favor of oJon. 7an( then filed petition forreview on certiorari before -".

ISS.S1. WON PN7 was negligent in encashing the forgedchec( without carefully e!amining the signature therein8. WON oJon is precluded from setting up the defenseof forgery or want of authority *since it is his ownnegligent act of leaving the chec(boo( in -antosI handsthat is the pro!imate cause of the loss

,.L/1. ,0-Ratio+ ban( is bound to (now the signatures of itscustomersK and if it pays a forged chec(' it must beconsidered as ma(ing the payment out of its ownfunds' and cannot ordinarily change the amount so

paid to the account of the depositor whose name wasforged. This rule is absolutely necessary to thecirculation of drafts and chec(s' and is based upon thepresumed negligence of the drawee in failing to meetits obligation to (now the signature of itscorrespondent. $f the paper comes to the drawee in theregular course of business' and he' having theopportunity ascertaining its character' pronounces it tobe valid and pays it' it is not only a uestion ofpayment under mista(e' but payment in neglect ofduty which the commercial law places upon him' andthe result of his negligence must rest upon him.8. NO%The act of oJon in leaving his chec(boo( in the carwhile he went out for a short while can not be

considered negligence sufficient to e!cuse thedefendant ban( from its own negligence. oJon could

not have been e!pected to (now that -antos wouldremove a chec( from his chec(boo(. Aefendant hadtrust in his classmate and friend. He had no reason tosuspect that the latter would breach that trust.DispositionPetition is A$->$--0A for lac( of merit.

The Lawphil ProFect %+rellano Law Boundation

#&I+. ' N.AL2 7urr. 12DG *1538:ric(y:

FA+S%+ bill for GE pounds *LGE was purportedly drawn by7enFamin -utton *drawer against


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[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. Theother bill he actually accepts.%$t was a considerable time after payment before Pricefound they were forged and the forger was already tobe hanged. He made no obFection at the time he paidthem. 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. Nealalso paid the whole value bona fide. $t is a misfortunewhich happened without NealIs fault or neglect. 0ven ifthere was no neglect on the part of Price' there is noreason to throw off the loss from one innocent man toanother innocent man.DispositionPostea1delivered to defendant.

FI&S NA=L AN7 F #&LAN/ '%S% NA=L AN7 F #&LAN/1EE Ore. 83G' 193 Pac DG5' 1G +L6 G5E *1981:Foey:

FA+S

-;7otor -vc at theNational "ity 7an( of New ,or( and >otor -vc wascredited w& the amounts.%"hec(s were cleared and PN7 credited the National"ity 7an( of New ,or( for the amounts' believing thatthe signatures of the drawer were genuine' that thepayee is an e!isting entity and the indorsements areregular.%PN7 found out that the purported signatures of ?lar

were forged. $t demanded from >otor -vc thereimbursement 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 fromtheir deposit.

ISS.

WON PN7 has right to recover from National "ity 7an(

,.L/: .S%+cceptance is unnecessary in so far as bills ofe!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 theamount demanded. The holder has no right to demandfrom ban( anything but payment' and the ban( cannotdo anything but pay.%There is however' nothing w&c prohibits presentation ofchec(s for acceptance before they are paid. Where achec( is certified by the ban( on w&c it is drawn'certification is euivalent to an acceptance. The ban(

accepts if it chooses.%The purpose of certification is to import strength to thepaper by obtaining ac(nowledgment from the certifyingban( that the drawer has sufficient funds.%$n this case' there was payment but no acceptance norcertification.%To entitle the holder of forged chec( to retain themoney obtained' he must be able to show that thewhole responsibility of determining validity of thesignature was upon drawee.%The drawee of a chec( who is deceived by forgery ofdrawerIs signature may recover payment' unless hismista(e has placed an innocent holder of paper in aworse position than he could have been in if thediscovery of the forgery had been made on

presentation.%The appellant in purchasing the papers from un(nownperson w&o ma(ing inuiry' acted negligently andcontributed to the appelleeIs constructive negligence infailing to detect the forgery.

&.#LI+ ' .(IAL. AN7IN5 +an* &.#LI+ F ,. #,IL '% #I1E -"6+ 4K "oncepcionK


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[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 ofcommission.%The "orporacion accommodated "arranJaIs reuestsince the latter was a trusted former employee butsubFect to certain conditions=a that the warrants be deposited with 7P$Kb that the actual payment of the value of the

warrants would be made only after the same had beenduly accepted and cleared by the Treasurer and theproceeds thereof duly credited to the 7P$ account ofthe "orporacion.

%-aid conditions were met and deposited with 7P$ whoaccepted the warrants subFect to collection only# andwith each of them *warrants bearing the indorsementof the respective payee and that of the "orporacion.%7P$ presented the warrants for payment to the drawee*the overnment through the "learing Office and uponclearing' was paid by the Treasurer.%7P$ then credited the proceeds to the "orporacionIsaccount' 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 becharged against 7P$Is account with the "learing Officeand credited bac( to the demand deposit of the

Treasury.%0ventually' all warrants were returned by the Treasuryto the "entral 7an( for the same reason and with thesame demand.%"entral 7an( then referred the matter to 7P$ forappropriate action but the latter opposed the return ofthe warrants or to have their value charged against itsaccount and reuested' instead' to the "7 to returnsaid warrants to the Treasurer.R0uitable "aseS%G warrants were deposited with 0uitable by itsdepositors 6obert Wong' Lu "hiu ?au and "hung

"hing .%0uitable cleared said warrants through the "learingOffice and then collected the corresponding amountsfrom the Treasurer' and thereafter' credited those tothe accounts of the depositors.%The Treasurer notified 0uitable that said warrantswere defective and demanded reimbursement of saidamounts' which the latter refused.R"onsolidationS%7y agreement of the parties' said cases were Fointlyheard. *?asi'7P$ filed a complaint against the"orporacionK 0uitable filed a similar complaint forwhatever reimbursements it and 7P$ may be sentencedto give the ovIt.

ISS.WON said ban(s are liable

,.L/: No. The Treasury was the negligent one heresince there was a 8G hour clearing rule'# whereinitems that should be returned for whatever reasonshould be done so within 8G hours. This it failed to do inthese two cases.*Note= there is no mention of the N$L here because the

84 warrants were not negotiableK "ampos posed theuestion 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 toapprove since each of the warrants involved were forover D( pesos. The irregularity of the warrants wasapparent on the face thereof from the TreasuryIsviewpoint yet the ban(s were not informed of any ofthe irregularity in them until after said warrants werecleared and honored. Only then did the Treasury givenotice of the forgeries.%+s was stated' all 84 warrants were cleared and paidby the Treasury' this' then' induced the ban(s to creditthe amounts to the respective depositors. TB' the loss

of amounts was imputable to the acts and omissions ofthe Treasury so the ban(s should not and cannot bepenaliJed.%Treasury should bear the loss' citing PN7 v NatIl "ity7an( of N,' Where a loss' which must be borne by oneof two parties ali(e' innocent of forgery' can be tracedto the neglect or fault of either' it is reasonable that itwould be borne by him' even if innocent of anyintentional fraud' through whose means it hassucceeded.#%enerally' where a drawee ban( otherwise wouldhave a right of recovery against a collecting orindorsing ban( for its payment of a forged chec(' itsaction will be barred if it is guilty of an unreasonabledelay in discovering the forgery and in giving notice

thereof.# *".rs. Noble of the dishonor of the ?ellec(chec( and that it had been charged bac( to the NobleIsaccount.%-ept8G' shortly before 2pm' ;- National 7an( bymessenger presented the chec( over the counter of theBirst National. The teller in the Birst National' to whomthe chec( was presented the second time' mistoo( thereFection symbol which on -ept88' had been placed onthe chec( by another teller of the Birst National' for asymbol authoriJing payment. +cting on this mista(enassumption he prepared a cashierIs chec( dated

-ept8G' payable to order of the ;nited -tates Nationalin the amount of the ?ellec( chec(' had the same dulysigned by an assistant cashier of the drawee anddelivered the same to the messenger from the ;nited-tates National. The ;nited -tates National credited theBirst NationalIs cashierIs chec( to the account of theNobles. The Birst NationalIs cashierIs chec( was mar(edpaid through the clearing house at 4=GD a.m.' -ept8D'to the ;nited -tates National though the courts findsthat the cashierIs chec( was received by the BirstNational on -ept8G and mar(ed paid on that datethough the clearing house transaction too( place on thene!t morning.%-ept8D' the Birst National 7an( discovered its mista(eand before 18 oIcloc( the Birst National retendered the

?ellec( chec( as a dishonored item but the ;nited-tates National refused to receive it and to return the


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[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 andreceived against Lilian Noble and 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 amountwas placed to his credit.%+fter paying >aasim' PN7 endorsed the chec( toH-7". H-7" paid PN7 and then charged the chec( tothe account of reat 0astern.%H-7"' as e!pected in the ordinary course of business'sent reat 0astern a ban( statement which showedthat the chec( was charged to its account. reat0astern did not obFect.%G months later' reat 0astern found out that >elicornever got paid. reat 0astern then made a demand onH-7" that reat 0astern should be given credit for theforged chec( but H-7" refused.%reat 0astern sued H-7" to recover the 8( *so it couldpay >elicor. H-7"' on the other hand' prays that

should Fudgment be rendered against it' it should haveli(e Fudgment against PN7.

ISS.SWON reat 0astern can recover

,.L/,0-. This is not a case where the plaintiffXs ownsignature was forged to one of its chec(s. $n such acase' the plaintiff would have (nown the forgery andwould therefore have the duty to promptly notify theban(. Bailure to do so would release the ban(.%Here' the forgery was that of >elicor' the payee.

Therefore' when reat 0astern' the drawer' received itsban( statement' it had the right to assume that >elicor

had personally endorsed the chec( because otherwise'H-7" would not have paid it.


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[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!ceptreat 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. PN7had 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(. $tsremedy is against >aasim.%reat 0astern can recover from H-7". H-7" canrecover from PN7. +s for PN7' it should go after>aasim.

?AI-ALAI +% F ,. #,IL% ' #I 1"@933 -"6+ 89K "+-T6OK +ugust 3' 195D:apple:

FA+S%1E chec(s with a total face value of P4'E2E.D4 weredeposited by


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[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 thedefendants to have the money refunded, notifyingthem at the same time of the forgery.%;pon plaintiffIs obFections' the circuit Fudge overruledthe defendantIs offer to prove the ff=

*1 That the defendants received the draft from the7an( of New ,or( to collect' as agents for the latter'and that as such they received the money and paid itover to their principals'be$ore notice o$ the $orgerBK*8 That a uniform custom of the ban(s of this state isto receive and collect drafts in the manner this wasdone' without disclosing their agency.

ISS.WON the defendants were bound to return the moneyreceived

,.L/: .SRatio Though the defendants were innocent of anyintended 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 ofthe forgery was not given till more than two monthsafter they had received the money' they alreadyreceived it and transmitted it to their principal.%Where a ban( collects a draft without disclosing to thedrawee that it is merely collecting as agent' and it isafterwards discovered that the indorsement was aforgery' it is liable as principal in an action' by thedrawee.%Where a draft had been fraudulently indorsed with thename of an agent' who is also payee' and put incirculation' bona fide' by the principal of the pretendedagent' without disclosing an agency' the indorsee ofthe 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 fideholder' he will not be allowed afterward to dispute thegenuineness of the drawerXs signature' though he maythat of the endorsersK and payment operates' in thisrespect' the same as an acceptance.%To a note or bill payable to order' none but the payeecan assert any title without the indorsement of suchpayeeK not even a bona fide holder.DispositionNew trial denied.

&.#LI+ AN7 ' .&A/AL%GE593K 3D -"6+ 34EK auricia 0brada%Treasury issued chec( in favor of >artin LorenJo. Thechec( was subseuently indorsed to 0brada forencashment' and so after' she delivered the proceedsto AomingueJ' and AomingueJ delivered the latter to acertain


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[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 theNegotiable $nstruments Law.DispositionanagerXs chec(samounting to PGD'948.82 and payable to certainmember establishments of isa "ard. -ubseuently'the "hec(s were deposited with the 7AO to the creditof its depositor' a certain +ida Trencio.%Bollowing normal procedures' and after stamping atthe bac( of the chec(s the usual endorsements= X+llprior and&or lac( of endorsement guaranteedX' 7AOsent the chec(s for clearing through the P"H".+ccordingly' 07" paid the chec(sK its clearing accountwas debited for the value of the chec(s and

defendantXs clearing account was credited for the sameamount.%Thereafter' 07" discovered that the endorsementsappearing at the bac( of the chec(s and purporting tobe that of the payees were forged and&or unauthoriJedor otherwise belong to persons other than the payees.%07" presented the chec(s directly to 7AO for thepurpose of claiming reimbursement from the latter.However' 7AO refused to accept such directpresentation and to reimburse the 07" for the value ofthe "hec(s.

ISS.WON 7AO was negligent and thus responsible for anyundue payment

,.L/: .S%$n presenting the "hec(s for clearing and for payment'7AO made an e!press guarantee on the validity of Xallprior endorsementsX. Thus' stamped at the ban( of thechec(s are the defendantXs clear warranty= +LL P6$O60NAO6-0>0NT- +NA&O6 L+"? OB 0NAO6-0>0NT-;+6+NT00A. Without such warranty' 0A" would nothave paid on the chec(s.%No amount of legal Fargon can reverse the clearmeaning of 7AOXs warranty. +s the warranty hasproven to be false and inaccurate' the 7AO is liable forany damage arising out of the falsity of itsrepresentation.%The principle of estoppel effectively prevents 7AO

from denying liability for any damages sustained by07" which' relying upon an action or declaration of the

7AO' paid on the chec(s. The same principle ofestoppel effectively prevents the 7AO from denying thee!istence of the chec(s.%Whether the chec(s have been issued for valuableconsiderations or not is of no serious moment to thiscase. These chec(s have been made the subFect ofcontracts of endorsement wherein 7AO made

e!pressed warranties to induce payment by the drawerof the "hec(sK and the defendant cannot now refuseliability for breach of warranty as a conseuence ofsuch forged endorsements. 7AO has falsely warrantedin favor of 07" the validity of all endorsements and thegenuineness of the chec(s in all respects what theypurport to be.%The damage that will result if Fudgment is notrendered for 07" is irreparable. The collecting ban( hasprivity with the depositor who is the principal culprit inthis case. 7AO (nows the depositorK her address andher history' Aepositor is 7AOXs client. $t has ta(en a ris(on its depositor when it allowed her to collect on thecrossed%chec(s.%Having accepted the crossed chec(s from persons

other than the payees' 7AO is guilty of negligenceK theris( of wrongful payment has to be assumed by 7AO.

#I ' +A; +,INA AN7IN5 +L%1E8242K 813 -"6+ D1K November 83' 1998:(iyo:

FA+S-;7


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[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 fordeposit at the 7uendia branch to the credit and&or inthe 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 thepayees as first indorsers were forged. The record fails

to show the identity of the party who made the forgedsignatures. The chec(s were then indorsed for thesecond time with the names of +lfredo ,. 6omero and7enito Lam' and were deposited in the latterXs accountsas earlier noted. The second indorsements were allgenuine signatures of the alleged holders.%The total amount of P1'8E4'3E3.49' represented byeighty%two *48 chec(s' were credited and paid out byrespondent drawee 7an( to +lfredo ,. 6omero and7enito Lam' and debited against petitionerXs chec(ingaccount ' "aloocan branch.%$t was only after the lapse of more than two *8 yearsthat petitioner found out about the fraudulentmanipulations of her boo((eeper *payees did notreceive nor see the subFect chec(s. 7ecause of this'

the petitioner demanded from the drawee 7an( tocredit her account with the money value of the 48chec(s for having been wrongfully charged against heraccount. The 7an( refused.P6O"0A;606T" "aloocan "omplaint for recovery of the moneyvalue of the 48 chec(s= dismissed"+ +ppeal= affirmed the decision of the 6T" on twogrounds' namely *1 that the plaintiffIs *petitionerherein gross negligence in issuing the chec(s was thepro!imate cause of the loss and *8 assuming that theban( was also negligent' the loss must nevertheless beborne by the party whose negligence was thepro!imate cause of the loss.-"% Petition under 6ule GD

ISS.S*issues relevant to the topic1. WON the "+ erred in ruling that the negligence of the

drawer is the pro!imate cause of the resulting inFuryto the drawee ban(

8.WON the drawer is precluded from setting up theforgery or want of authority as a defense WON therespondent drawee 7an( should not have honoredthe chec(s because they were crossed chec(s.

*other issues2.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!imatecause of her loss.ReasoningOne thing is clear from the records %that the petitionerfailed to e!amine her records with reasonable diligencewhether before she signed the chec(s or after receivingher ban( statements. Had the petitioner e!amined her

records more carefully' particularly the invoicereceipts' cancelled chec(s' chec( boo( stubs' and hadshe compared the sums written as amounts payable inthe eighty%two *48 chec(s with the pertinent salesinvoices' she would have easily discovered that insome chec(s' the amounts did not tally with thoseappearing in the sales invoices. Had she noticed thesediscrepancies' she should not have signed thosechec(s' and should have conducted an inuiry as to thereason for the irregular entries. Li(ewise' had petitionerbeen more vigilant in going over her current account byta(ing careful note of the daily reports made byrespondent drawee 7an( on her issued chec(s' or atleast made random scrutiny of her cancelled chec(sreturned by respondent drawee 7an( at the close of

each month' she could have easily discovered the fraudbeing perpetrated by +licia alang' and could havereported the matter to the respondent drawee 7an(.

The respondent drawee 7an( then could have ta(enimmediate steps to prevent further commission of suchfraud.

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 whichprovides=MWhen a signature is forged or made without theauthority of the person whose signature it purports tobe' it is wholly inoperative' and no right to retain theinstrument' or to give a discharge therefor' or to

enforce payment thereof against any party thereto' canbe acuired through or under such signature' unlessthe party against whom it is sought to enforce suchright is precluded from setting up the forgery or wantof authority.M%eneral 6ule= Borgery is a real or absolute defense bythe party whose signature is forged. + party whosesignature to an instrument was forged was never aparty and never gave his consent to the contract whichgave rise to the instrument. -ince his signature doesnot appear in the instrument' he cannot be held liablethereon by anyone' not even by a holder in due course.%This section covers both the forged signature of thema(er of a promissory note&drawer of a chec( andforged 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 paybecause he never made the promise to pay. Or where apersonXs signature as a drawer of a chec( is forged' thedrawee ban( cannot charge the amount thereof againstthe 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 achec( or chec(s.%0!ample= $f a chec( is stolen from the payee' it isuite obvious that the drawer cannot possibly discoverthe forged indorsement by mere e!amination of hiscancelled chec(. This accounts for the rule thatalthough a depositor owes a duty to his drawee ban( toe!amine his cancelled chec(s for forgery of his ownsignature' he has no similar duty as to forgedindorsements. + different situation arises where theindorsement was forged by an employee or agent ofthe drawer' or done with the active participation of thelatter. >ost of the cases involving forgery by an agentor employee deal with the payeeXs indorsement. Thedrawer and the payee oftentimes have business

relations of long standing. The continued occurrence ofbusiness transactions of the same nature provides theopportunity for the agent&employee to commit thefraud after having developed familiarity with thesignatures of the parties.Reasoning $n the case at bar' the agent was the onewho perpetrated the series of forgeries. Had thepetitioner been more prudent under the circumstances'she could have discovered the fraud earlier.

2. NO.Ratio $ssuing a crossed chec( imposes no legalobligation on the drawee not to honor such a chec(. $tis 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 withthe payeeXs ban( which in turn must present it forpayment against the drawee ban( in the course ofnormal ban(ing transactions between ban(s. Thecrossed chec( cannot be presented for payment but itcan only be deposited and the drawee ban( may onlypay to another ban( in the payeeXs or indorserXsaccount.

G. NO.RatioThe ban(ing rule banning acceptance of chec(sfor deposit or cash payment with more than oneindorsement unless cleared by some ban( officials doesnot invalidate the instrumentK neither does it invalidatethe negotiation or transfer of the said chec(. $n effect'

this rule destroys the negotiability of bills&chec(s bylimiting their negotiation by indorsement of only the


11/24


payee. ;nder the N$L' the only (ind of indorsementwhich stops the further negotiation of an instrument isa restrictive indorsement which prohibits the furthernegotiation thereof *-ec. 23' N$L. $n this (ind ofrestrictive indorsement' the prohibition to transfer ornegotiate must be written in e!press words at the bac(of the instrument' so that any subseuent party may

be forewarned that it ceases to be negotiable.However' the restrictive indorsee acuires the right toreceive payment and bring any action thereon as anyindorser' but he can no longer transfer his rights assuch indorsee where the form of the indorsement doesnot authoriJe him to do so.%+lthough the holder of a chec( cannot compel adrawee ban( to honor it because there is no privitybetween them' as far as the drawer%depositor isconcerned' such ban( may not legally refuse to honor anegotiable bill of e!change or a chec( drawn against itwith more than one indorsement if there is nothingirregular with the bill or chec( and the drawer hassufficient funds. The drawee cannot be compelled toaccept 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 itselfliable to a suit for damages at the instance of thedrawer for wrongful dishonor of the bill or chec(.

D. ,0-. +rticle 115E of the New "ivil "odeprovides %%Those who in the performance of their obligations areguilty of fraud' negligence or delay' and those who inany manner contravene the tenor thereof' are liable fordamages.MReasoning There is no uestion that there is acontractual relation between petitioner as depositor*obligee and the respondent drawee ban( as theobligor. $n the performance of its obligation' the drawee

ban( is bound by its internal ban(ing rules andregulations which form part of any contract it entersinto with any of its depositors. When it violated itsinternal rules that second endorsements are not to beaccepted without the approval of its branch managersand it did accept the same upon the mere approval of7oon' a chief accountant' it contravened the tenor ofits obligation at the very least' if it were not actuallyguilty of fraud or negligence.We hold that ban(ing business is so impressed withpublic interest where the trust and confidence of thepublic in general is of paramount importance such thatthe appropriate standard of diligence must be a highdegree of diligence' if not the utmost diligence. $tsliability as obligor is not merely vicarious but primary

wherein the defense of e!ercise of due diligence in theselection and supervision of its employees is of no

moment.Disposition= 60>+NA0A to the trial court for thereception of evidence to determine the e!act amountof loss suffered by the petitioner *which one half mustbe paid by respondent drawee ban( to hereinpetitioner%DE&DE ratio based on +rticle 1158.


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[ch4-L] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-L]

L3AN ' A3.&I+AN NA=L AN7G4 +tl G4E' D8 L6+ 455 *19E1:giulia:

FA+STolman sues to recover money paid out by thedefendant on his account' upon his chec(' under a

forged indorsement. Potter' representing himself asHas(ell' went to the plaintiff to get a loan of money'giving the residence and occupation of Has(ell as hisown. The plaintiff made an inuiry on Has(ell andfounding that the residence and occupation correctthereby agreed to na(e the loan. Potter' under thename of Has(ell' gave the note to the plaintiff' and theplaintiff gave him a chec( on the defendant payable tothe order of Has(ell' delivering it to Potter' supposinghim to be Has(ell. Potter indorsed Has(ellXs name onthe bac( of the chec(' and gave it to +7 Homes' whocollected it from the ban(. When the note given to theplaintiff became due' fraud was discovered. Hethereupon notified the an(' and demanded the returnof the amount paid on the chec( to the credit of his

account.

ISS.WON the ban( is liable for the payment which it madeon the chec('

,el*Ratio

,es. When a ban( receives money to be chec(ed out bya depositor' it is to be paid only as the depositor shallorder. The ban( assumes this duty in receiving thedeposit. $f the ban( pays money out on a forgedsignature' the depositor being free from balme ornegligence' it must bear the loss.

Reasoning$n this case the money was intended to Haas(ell'because his was the only name suggested. He hadbeen loo(ed up and found to be responsible. $t is aperversion of words to say that it was intended forPotter simply because he had fraudulentlyimpersonated Has(ell' and led the plaintiff to believethe he was Has(ell. The plaintiff did not intend Potter tohave the money. When Potter fraudulently indorsedHas(ellXs name on the chec(' it was a typical case offorgery.When a signature is forged or made out without theauthority of the person whose signature it purports tobe' it is wholly inoperative' and no right to retain theinstrument' or to give discharge therefor' or to enforce

payment thereof' against a party thereto' can beacuired through or under such signature' unless a

party against whom it is sought to enforce such right isprecluded from setting up forgery or want of authority

SN/.& ' +&N .D+,AN5. NA=L AN75E +tl. 453 *19E4:aFang:

FA+S%+ction was filed by -nyder' individually and trading asHarrison' -nyder -on against "orn 0!change National7an(. -nyder wants to recover the amount of thechec(s which were wrongfully paid by the ban(.%eorge -nyder is a bro(er' trading and doing businessunder the name of Harrison' -nyder -on. He is adepositor at the "orn 0!change National 7an(. He hadin his employ a cler( named 0dwin reenfield' anattorney' who was authoriJed to draw chec(s in hisname against his deposit in the said ban(. reenfielddrew G chec(s payable to the order of "harles Niemannwith a total amount of C 14' 245.DE. These chec(swere paid by the ban( and charged to the account of-nyder.

%The chec(s were said to have been indorsed byNeimann' but these indorsements were forgeries andwere never authoriJed by him or -nyder. They weresaid to have been indorsed in blan( to 6.>. >iner "o.' a copartnership purporting to caryy on a stoc( andgrain bro(erage business but is actually conducting agambling establishment popularly (nown as a buc(etshop.#%The G chec(s were deposited by 6.>. >iner to 6eal0state Title $nsurance Trust "ompany of Philadelphia.

The trust company then indorsed 2 of the G chec(s toguarantee previous indorsements to certain ban(s inPhiladelphia for collection. The Gth chec( was alsoindorsed by the trust company but withoutguaranteeing the previous indorsements.

%"orn 0!chagne 7an(' relying upon the guaranty by thetrust company' paid each of the chec(s to the trustcompany through its collecting agents.%7ased on the averments that' the indorsementspurporting to be those of "harles Niemann wereforgeriesK that the trust company collected theproceeds of the chec(s without actual (nowledge of thecharacter of the business of 6.>. >inerK that "orn0!change NatIl 7an( had constructive notice of thebusiness of the firmK and that the said chec(s were notgiven in due course of the business.%-nyder wants to recover from the ban( the amountsdrawn from its account.

ISS.

WON -nyder may recover

,.L/: N%%The ban( said that Neimann was not a real' bona fidepayee' but was in legal contemplation' a fictitiouspersonYand such fact was (nown to reenfield whenhe drew the chec(s' in his capacity as -nyderIsattorney&agent. Neimann may have been an e!istingperson' but nevertheless' he was a fictitious name

within the meaning of the act of assembly as reenfieldonly intended to use this name and never intended forhim to receive the chec(s or have any right to them.%+ chec( is payable to bearer when it is payable to theorder of a fictitious or none!isting person' and such factwas (nown to the person ma(ing it so payable.%The intent of the drawer in inserting the name of thepayee is the sole test of whether the payee is afictitious person.%$n such case' there could be no recovery.%When the chec(s were delivered to 6.>. >iner' theywere shown as payable to bearer and nothing thereforeneed be said in the contention of -nyder as to theliability of the trust company to the ban( upon theguaranty of the indorsements on the chec(s.

%The chec(s drawn by reenfield are made as if drawnby -nyder himself. +nd when -nyder lodged withreenfield with this power' it is as if he said to the ban(that any chec( drawn by reendield should be paid byit as if it was made and issued by him. The court saidthat if this is not enough to protect the ban( fromliability for mispayments from his account' it is not easyto conceive what else would be.

+L.A&FI.L/ &S + ' NI./ SA.S214 ;- 232' 32 -.-. "t. D52 *19G2:glaisa:

FA+S%+ chec( was drawn on the Treasurer of the ;- throughthe Bederal 6eserve 7an( of Philadelphia to the order of"lair 7arner in the amount of C8G.8E.%$t was dated aat Harrisburg' Pennsylvania and wasdrawn for the services rendered by 7arner to the Wor(sProgress +dministration.%The chec( was placed at the mail addressed to 7arnerbut he did not receive the chec(.%-ome un(nown person obtained it and presented it to


13/24


follows= Pay to the order of Bederal 6eserve 7an('Prior endorsements guaranteed#%"learfield collected chec( from the ;- and paid the fullamount to


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[ch4-N] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-N]

/.&I #ISN &IN5 +% 'CAN. +N E ,3. SA'IN5S AN78D8 >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 thechec(s corresponding therewith. -he would then havethese signed by the officer of the "ompany who wouldsign the same without uestion. ;nbe(nown to the"ompany' "ulbert was also preparing chec(s to theorder of non%e!isting persons or former employeeswhich she subseuently indorsed in the names of thepayees and negotiate them to other ban(s or stores.

The drawee ban( would then pay the same and debitAetroit for the corresponding amount.%The cancelled chec(s were then returned to thecompany on the first of each month. the boo((eeperwould then compare the balance on the ban(statement with AetroitIs own boo(. -he would then signa receipt containing the stipulation if no error is

reported in ten days the account will be consideredcorrect.%7ecause of the increased cost due to the activities of"ulbert' the "ompany employed auditors to ascertainthe reason for said increased costs. However' theauditors *it should have employed 6ic(y if they reallywanted to get to the bottom of the problem failed todiscover the cause.%+s it turned out' the fraud could have been easilydiscovered if someone Fust compared the payroll sheetwith the time cards punched by employees in the timecloc(.%The company finally discovered the defalcationamounting to C84'E33.33. The "ompany sued Wayne"ounty Home -avings alleging negligence in paying

the uestioned chec(s and claiming reimbursement ofthe above amount plus interests thereon.%The lower court found for Aetroit. Hence theappeal.

ISS.WON Aetroit was negligent in the issuance of thechec(s and thus estopped from asserting claimsagainst the 7an(

,.L/: .SRatioThe estoppel of the depositor' on the ground ofnegligence' to recover for an unauthoriJed payment' isbased on the failure of the depositor to act as a prudentbusinessman in issuing his chec(s.

Reasoning+t the beginning of the period during whichthe fraudulent chec(s were issued' the only negligence

on the part of the "ompany consisted in the failure ofits officers to ma(e a thorough chec( of the payroll.0ach time the chec(s were issued' the officers signingthem would compare the chec(s with the payroll' but atno time was a complete investigation made' i.e.' acomparison of the chec(s with the time cards' nor wasan audit of the payroll ever made. $t is perfectly clear

that a complete investigation would have disclosed thefraud at once.%+ depositor may not sit idly by after (nowledge hascome to him that his funds seem to be disappearing orthat there may be a lea( in his business' and refrainta(ing steps that a careful and prudent businessmanwould ta(e in such circumstances' w&c if ta(en wouldresult in stopping the issuances of fraudulent chec(s.Dispositionisamis Oriental and e! officio agent of PN7 branch in>isamis Oriental' to encash the chec( for PDEE? whichhe had received from 0ncarnacion. 6amos wor(edunder him as assistant agent in the ban( branch and6amos got the Fob as disbursing officer from therecommendation of Laya. Note that the currency beingused in >isamis Oriental and Lanao which had not yetbeen occupied by the ontinola alleges that in 19GG' 6amos'needing money to buy foodstuffs and medicine' offeredto sell him the chec(. >ontinola' with his agents and

6amos' went to see President "armona of PN7 >anilato chec( the genuineness of said chec(K after

e!amining it President "armona told him that it wasnegotiable but that he should not let the ontinolaX' in typewriting are the words and figuresalso in typewriting' XD15 $sabel -treetX and about 1&4 ofan inch therefrom' the edges of the chec( appear to

have been burned' but there are words stampedapparently in rubber stamp which' according to>ontinola' are a facsimile of the signature of 6amos.

There is a signature which apparently reads X>. .6amosX also in green in( but made in handwriting.M%>. . 6amos is handprinted in green in(' under thesignature. +ccording to >ontinola' he as(ed 6amos tohandprint it because 6amosX signature was not clear.6amos in his turn told the court that the agreementbetween himself and >ontinola regarding the transferof the chec( was that he was selling only P2E'EEE ofthe chec( and for this reason' at the bac( of thedocument he wrote in longhand the following=

MPay to the order of 0nriue P. >ontinola P2E'EEEonly. The balance to be deposited in the Philippine

National 7an( to the credit of >. . 6amos.M%6amos further said that in e!change for thisassignment of P2E'EEE >ontinola would pay himP9E'EEE in ontinolagave him only two chec(s of P8E'EEE and P8D'EEE'leaving a balance unpaid of PGD'EEE. $n this he wascorroborated by +tty. 6amos . . 6amoswhich had been written by him at the bac( of the chec(does not now appear at the bac( of said chec(. Whatappears thereon is the indorsement testified to by>ontinola and described by the trial court asreproduced above. 7efore going into a discussion of themerits of the version given by 6amos and >ontinola asto the indorsement or writing at the bac( of the chec('

it is well to give a further description of it as we shall dolater.


15/24


%>ontinola filed a complaint in the "B$ >anila againstPN7 and the Provincial Treasurer of >isamis Oriental tocollect the sum of P1EE? the amount of a chec( issuedon 19G8 by the Provincial Treasurer of >isamis Orientalto 6amos and supposedly indorsed to >ontinola.$. When >ontinola filed his complaint in 19G5 he statedtherein 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 itsface mar(ed and the bac( thereof. 7ut the chec( isbadly mutilated' blotted' torn and partly burned' and itscondition can best be appreciated by seeing it. $ne!planation of the mutilation of the chec( >ontinolatold the court that several months after indorsing anddelivering the chec( to him' 6amos demanded thereturn of the chec( to him' threatening >ontinola withbodily harm' even death by himself or his guerrillaforces if he did not return said chec(' and that in orderto Fustify the non%delivery of the document and todiscourage 6amos from getting it bac(' he *>ontinolahad 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 inparenthesis M+gent' Phil. National 7an(M now appearingunder his signature did not appear on the chec( whenhe issued the same. The words X+gent' Phil. National7an(X which now appear on the chec( were nottypewritten below his signature when he signed thesaid chec( and delivered the same to 6amos.+ccording to Laya' when he issued chec(s in hiscapacity as agent of PN7 >isamis Oriental the saidchec( must be countersigned by the cashier of the saidagency %not by the provincial auditor. >ontinola on theother hand said that when he received the chec( italready bore the words X+gent' Phil. National 7an(Xbelow the signature of Laya and the printed wordsXProvincial TreasurerX.

%T"= dismissed the complaint. >ontinola appealeddirectly to this "ourt because the amount e!ceedsPDE'EEE

ISS.S1. WON the photostatic copy of the chec( is acceptablegiven its mutilated condition8. WON the words' X+gent' Phil' National 7an(X wereadded after Laya had issued the chec( TB issued in thecapacity as agent of PN72. WON 6amos added or placed those words Min hiscapacity as Provincial Treasurer of >isamis OrientalM*obviously' not as agent of the 7an( below thesignature of Laya before transferring the chec( to>ontinola

G. WON there was valid negotiation *P2E'EEE onlyindorsed

,.L/1. NO%a comparison between the photostatic copy and theoriginal chec( reveals discrepancies between the two.

The condition of the chec( as it was produced is suchthat it was partially burned' partially blotted' badlymutilated' discolored and pasted with cellophane. What

is worse is that >ontinolaXs e!cuse as to how it waslost' that it was mi!ed up with household effects is notplausible' considering the fact that it involves his lifesavings' and that before the alleged loss' he too(e!treme pains and precautions to save the chec( fromthe possible ravages of the war' had it photographed'registered said chec( with the eneral +uditing Officeand he (new that 6amos' since liberation' was not afterthe possession of that chec(.

8. NO%$f he issued the chec( as agent of the PN7' then theban( is not only drawee but also a drawer of the chec('and >ontinola evidently is trying to hold PN7 liable inthat capacity of drawer' because as drawee alone'

inasmuch as the ban( has not yet accepted or certifiedthe chec(' it may yet avoid payment.%What renders more probable the testimony of Layaand 6amos the money for which the chec( was issuedwas e!pressly for the use of ;-+BB0 of which 6amoswas then disbursing officer. +nd upon delivery ofPGEE? in emergency notes and the P1EE? chec( to6amos' Laya credited his depository accounts asprovincial treasurer with the corresponding credit entry.$n the normal course of events the chec( could nothave been issued by the ban(' and this is borne by thefact that the signature of Laya was countersigned bythe provincial auditor' not the ban( cashier.%said chec( was issued by the provincial treasurer ofLanao to 6amos who reuisitioned the said funds in his

capacity as disbursing officer of the ;-+BB0. The chec(is not' in business parlance' Xcertified chec(X orXcashierXs chec(.X

2. NO%Naturally' 6amos must have (nown the procedurefollowed as to the issuance of chec(s' namely' thatwhen a chec( is issued by the Provincial Treasurer' it iscountersigned by the Provincial +uditor as was done onthe chec(. +nd that if the Provincial Treasurer issues achec( as agent of the PN7' the chec( is countersignednot by the Provincial +uditor who has nothing to do withthe ban(' but by the ban( cashier' which was not donein this case. $t is not li(ely' therefore' that 6amos hadmade the insertion of the words M+gent' Phil. National7an(M after he received the chec(' because he should

have realiJed that following the practice alreadydescribed' the chec( having been issued by Laya asProvincial Treasurer' and not as agent of the ban(' andsince the chec( bears the countersignature not of the7an( cashier but of the Provincial +uditor' the additionof the words M+gent' Phil. National 7an(M could notchange the status and responsibility of the ban(. $t is

therefore more logical to believe and to find that theaddition of those words was made after the chec( hadbeen transferred by 6amos to >ontinola.

G. NO%The chec( was not legally negotiated within themeaning of the Negotiable $nstruments Law. -ection 28of the same law provides that Mthe indorsement mustbe an indorsement of the entire instrument. +nindorsement which purports to transfer to the indorseea part only of the amount payable' . . . *as in this casedoes not operate as a negotiation of the instrument.M>ontinola may therefore not be regarded as anindorsee. +t most he may be regarded as a mereassignee of the P2E'EEE sold to him by 6amos' in which

case' as such assignee' he is subFect to all defensesavailable to the drawer Provincial Treasurer of >isamisOriental and against 6amos.$N -;>>+6,%>ontinolaIs complaint cannot prosper because1 "hec( long overdue by about 8 1&8 years. $t maytherefore be considered even then' a stale chec(.8 The insertion of the words M+gent' Phil. National7an(M which converts the ban( from a mere drawee toa drawer and therefore changes its liability' constitutesa material alteration of the instrument without theconsent of the parties liable thereon' and so dischargesthe instrument. *-ection 18G of the Negotiable$nstruments Law.2 The chec( was not legally negotiated within the

meaning of the Negotiable $nstruments Law. -ection 28of the same law provides that Mthe indorsement mustbe an indorsement of the entire instrument. +nindorsement which purports to transfer to the indorseea part only of the amount payable does not operate asa negotiation of the instrument.M >ontinola maytherefore not be regarded as an indorsee. +t most hemay be regarded as a mere assignee of the P2E'EEEsold to him by 6amos' in which case' as such assignee'he is subFect to all defenses available to the drawerProvincial Treasurer of >isamis Oriental and against6amos.G He should have (nown that a chec( for such a largeamount of P1EE? could not have been issued to 6amosin his private capacity but rather in his capacity as

disbursing officer of the ;-+BB0' and that at the timethat 6amos sold a part of the chec( to him' 6amos was


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[ch4-#] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-#]

no longer connected with the ;-+BB0 but already acivilian who needed the money only for himself and hisfamily.D 6amos had he retained the chec( may not nowcollect its value because it had been issued to him asdisbursing officer. +s observed by the trial court' thechec( was issued to >. . 6amos not as a person but >.. 6amos as the disbursing officer of the ;-+BB0.

Therefore' he had no right to indorse it personally toplaintiff. $t was negotiated in breach of trust' hence hetransferred nothing to the plaintiff.3 $t is absolutely necessary for the court to e!aminethe original in order to see the actual alterationssupposedly made thereon' and that should this "ourtgrant the prayer contained in the ban(Xs brief that thechec( be later referred to the city fiscal for appropriateaction' said chec( may no longer be available if theappellant is allowed to withdraw said document.Disposition Aecision affirmed

AN7 F +33.&+. F SL#,& ' C.S.&

5E O(la. 52' 158 9G8 *1914:maia:

FA+S-;7olace(P+,00= -ecurity -tate 7an($NAO6-00= 7an( of "ommerce of -ulphur *currentholder%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 theguarantors' the guarantors interposed the defense thatthey were relieved of liability since the note issued by"rafton had been materially altered. The alterationconsists 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 theguaranty. *note= it seems that in effect' LiJJie became aco%ma(er to the note%Trial court held that the signing of LiJJie at theinstance of the 7an( of "ommerce' without (nowledgeand consent of the guarantors' was an alteration thatdefeated the guaranty

ISS.

WON the signing of the notes by LiJJie "rafton after thee!ecution and delivery of the contract of guarantywithout the consent and (nowledge of the guarantorsreleased and discharged the guarantors from thecontract of guaranty

,.L/: .S%the adding of an additional party to a negotiableinstrument subseuent to its e!ecution and deliverydischarges the original parties when such change ismade 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' isbecause it changes the number of parties and theirrelative rights' the rate of contribution' and thecharacter and description of the instrument%a guarantor is e!onerated' e!cept as far as he may beindemnified by the principal' if by any act of thecreditor' without the consent of the guarantor' theoriginal obligation of the principal is altered in anyrespect' or the remedies or rights of the creditoragainst the principal in respect thereto' in any way

impaired or suspended. %the addition of the name of LiJJie to the note' paymentof which the guarantors guaranteed' changed theidentity of the said note and its effect and operation'and such alteration being made without the consentand (nowledge of the guarantors' the guarantors aredischarged from their liability on the guaranty'DispositionassieIs moral and financial

strength' the -+$N- 7+N? OB 6$"H>ONA purchasedthe draft for C4'G5E giving him in e!change a cashierIs


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[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 thedraft was forged.%$n this suit' the -avings 7an( insists that the National7an( of oldsboro *TH0 A6+W06 should be liable onthe theory that it was negligent or amiss in its duty toensure that the draft is safe from every reasonablechance of alteration. Ordinary paper was used and thatthere was no protectograph or other safety device toprevent alteration. Aaniel' a commentator on thenegotiable instruments law is cited as authority for theliability of the drawer of a bill or the ma(er of a notewho by careless e!ecution of the instrument left roomfor any alteration' insertion or erasure' which wouldpreFudice the bona fide holderIs rights.%The oldsboro 7an( counters that with a completeddraft' losses arising from its subseuent alteration andforgery do not fall upon it but rather upon those whohave chosen to accept the same as changed. +ssumingthat the argument of -avings 7an( to be valid' it willnot be liable because it is not the pro!imate cause ofthe loss.

ISS.S1. WON -avings 7an( can recover from point of view oftort or negligence.8. WON 7an( can recover from the draft as a contractbtwn the parties.2. WON -avings 7an( can recover from the negotiableinstrument.

,.L/1. NO. The issuing of the note could in no sense beconsidered as pro!imate cause of the loss. Where anegotiable note was delivered in completed form' thepossibility that it might be altered by the willful fraud orforgery 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 acontract of the ma(er of the instrument. Thus' a suitbased on contract can neither prosper.2. ,0-' but only as to the original face value of thedraft. -ection 21E3 of the Negotiable $nstruments Lawof North "arolina provides=Where a negotiable instrument is materially alteredwithout the assent of all parties liable thereon' it isavoided e!cept as against the party who has himselfmade' authoriJed or assented to the alteration andsubseuent indorsers. 7ut when the instrument hasbeen materially altered and is in the hands of a holderin due course' not a party to the alteration' he mayenforce payment thereof according to the original

tenor.#

7-< "omment= $n other words' H$A" enFoys status assuch only to the e!tent of the original amount aswritten by drawer or ma(er in a proper case. The "ourtseems to consider it as a fair rule that nobody shouldbe liable for more than what s&he originally bargainedfor. $mpliedly' it seems to say that the H$A" albeitprotected by the law still has some duty to conductreasonable inuiry especially when transactions involvehuge sums of money. "ertainly 4'EEE dollars is a hugeamount in the 198Es. The "ourtIs ruling here could be

Fustified under the common law rule= as between twoinnocent persons' the one whose acts occasioned theloss shall suffer the conseuences. Here' -avings7an(Is own negligence is the pro!imate cause of theloss.S

+&I.N ' +,.3I+AL NA=L AN7 1"0!9N, "ourt of +ppealsK 151 N, 819K 32 N.0. 939' D5 L6+

D89:mel:

FA+S%Plaintiff (ept a large and active account with thedefendant. The Plaintiffs employed a cler( namedAavis. $t was the duty of Aavis to fill up the chec(swhich it might be necessary for the plaintiffs to give inthe course of business' top ma(e corresponding entriesin the stubs of the chec( boo(' and present the chec(sso prepared to >r. "ritten' one of the plaintiffs' forsignaturem together with the bills in payment of whichthey were drawn. +fter signing a chec( "ritten wouldplace it and the bill in an envelope addressed to theproper party' seal the envelope and put it in the mailingdrawer.%in 8G separate instances' Aavis abstracted one of theenvelopes from the mailing drawer' opened it'

obliterated by acids the name of the payee and theaccount specified in the chec(s' then made the chec(payable to cash and raised its amount' in the maForityof cases' by the sum of C1EE. he would draw the moneyon the chec(s so altered from the defendant ban(' paythe bill for which the chec( was drawn in cash' andappropriate the e!cess. On one occasion Aavid did notcollect the altered chec( from the defendant' butdeposited it to his own credit in another ban(. When achec( was presented to "ritten for signature thenumber of dollars for which it was drawn would be cutin the chec( by a punching instrument. When Aavisaltered a chec( he would punch a new figure in front ofthose already appearing in the chec(. This wor( hasbeen entrusted to another person in AavisI absence'

hence the forgeries were discovered and Aavis wasarrested and punished. Hence this action to recover the

amount of these forged chec(s' over and above thesums for which they were originally drawn

ISS.S1. WON plaintiff is guilty of negligence8. WON by negligence in its discharge or by the failureto discover and notify the ban(' the depositor *plaintiffis estopped from asserting that they are forgeries2. WON defendant ban( can claim relief from plaintiffIsnegligence

,.L/1. ,0- $n this case' Aavis falsified the additions or totalsat the foor of the pages in the chec( boo(. 7ut with afew e!ceptions he did not alter the amounts e!pressedin the stubs. $n no case did he change in the stubs thename of the payee of the chec(. $t is clear thereforethat at all times a comparison of the returned chec(swith the stubs in the chec(boo(s would have e!posedthe alterations made in the chec(s. Of course the(nowledge of the forgeries that davis possessed fromthe fact that he himself was the forger' was in no

respect to be attributed to the plaintiffs. the "ourt seesno reason why they were not chargeable with suchinformation as a comparison of the chec(s with thechec( boo( would have imparted to an innocent partypreviously unaware of the forgeries. +s regards thefailure to discover the forgeries after the return of thechec(s and the balancing of the account in thepassboo(. +s held in WeisserIs admIrs vs Aenison' therule is settled that the depositor owes his ban( the dutyof a reasonable verification of the returned chec(s.# . $fthe depositor has by his negligence in failing to detectforgeries in his chec(s and give notice thereof causedloss to his ban(' either by enabling the forger to repeathis fraud or by depriving the ban( of an opportunity toobtain restitution' he should be responsible for the

damage caused by his default but beyond this hisliability should not e!tend. >oreover' the court sees noreason why the ban( should be entitled to anythingmore than indemnity for the loss the depositorIsnegligence has caused it QThe "ourt also made afinding that the ordinary rule of principal and agent ormaster and servant that the principal or master is liablefor the fault of his servant or agent in the masterIsbusiness apply in this case.8. NO .While the "ourt hold that this duty rests uponthe depositor' it does not accept the doctrine assertedin some of the cases that' by negligence in itsdischarge or by the failure to discover and notify theban(' the depositor either adopts the chec(s asgenuine and ratifies their payment or estops himself

from asserting that they are forgeries. $n the presentcase' a chec( altered by Aavis from the sum of C88 to


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[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( inwhich Aavis had deposited it. +gainst the ban( thedefendant has ample recourse. $f it were to be held thatthe plaintiffs are estopped from denying thegenuineness of that chec( as against the defendant'the latter could have no claim against the "olonial7an(' nor is it clear that the plaintiffs would have anydirect right of action against that 7an(. The "olonialban( too( the chec( solely on the responsibility ofAavis. To it the plaintiffs owed no duty. + rule whichmight operate to relieve the ban( from the liability itassumed when it collected an altered chec(' merelybecause the plaintiffs failed in their duty' not ti it' but toa third party should not be upheld. Nor would it operate

Fustly in a case in which the ban( had paid a singleforgery unless by the depositorIs default and delay theban( had lost its opportunity to secure restitution.2. NO. $t was held that the defendant was also guilty ofnegligence in paying the chec(. The si!th in seuenceof these forgeries was a chec( with the name of thepayee 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( showedon its face that the word cash# had been written in theplace for the payeeIs name over an erasureK that it wasin such mutilated condition when it was presented tohim that' before paying it he reuired Aavis to indorseupon the chec( a receipt for its amount. Had Aavisbeen reuired to obtain the indorsement or guaranty ofthe plaintiffs as to its correctness' the forgeries of Aaviswould have been e!posed' and their repetition wouldnot have occurred.The action brought by plaintiffs wasbrought on contract' not on tort for the allegation ofnegligence on the part of the defendant is used only todefeat its claim for relief on account of the plaintiffIsnegligence.DispositionThe Fudgment should be reversed' and a

new trial granted.A$--0NT$N OP$N$ON -ince plaintiffs entrusted thewor( to a competent agent and' as established byevidence' too( other precautions' there was evidenceto support the finding in their favor. The rule whichimputes to a principal (nowledge acuired by his agentrest upon the presumption that the latter has disclosedall the material facts to the former. This presumptiondoes not e!tend to a fact which' if disclosed wouldsubFect the agent to a prosecution for crime or defeat ascheme in which he was engaged to defraud hisemployer.

3A&IN. NA=L AN7 ' NA=L +I AN7 18@49

"ourt of +ppeals of N,' D9 N, 35 *145G:eva:

FA+S-;7


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[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 negotiablepaper to construe the words according to the tenor ofhis acceptance# as referring to the instrument as it wasat the time it came into the hands of the acceptor foracceptance' for he accepts no other instrument otherthan the one presented to him%the altered form%and italone he engages to pay.%The presentation of a chec( to a drawee for paymentis not a negotiation. $t involves no warranties as thedrawee is not a holder in due course. + drawee who haspaid the instrument is not a transferee of title as thelast holderIs indorsement does not transfer the chec(but converts it into a voucher.%7an(ing institutions can readily protect themselvesagainst liability on altered instruments either byualifying their acceptance or certification or by relyingon forgery insurance and special paper' which willma(e alterations obvious.Dispositionar 4' 193D' PLAT drew a chec( on H-7" in favorof the same ban( in the sum of P1G'3E4.ED. PLAT sentthis 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 andinstead typed his name. Bour days before' "hangco hadopened a current account with P7T"' where hedeposited the altered chec(.%The chec( was presented by P7T" for clearing' withthe following indorsement= MBor clearance' clearingoffice. +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 thensubseuently closed it.%On +pr 18' 193D it was returned to PLAT' and thealteration in the name of the payee was discovered. Onthat same date' P7T" was notified of the alteration' andH-7" reuested P7T" to refund to it the sum ofP1G'3E4.ED. P7T" refused.%H-7" relies on the indorsement *above' arguing thatsince such an indorsement carries with it a concomitantguarantee of genuineness' P7T" is liable to H-7" foralteration.

%P7T" relies on the M8G hourM regulation of the "entral7an( that reuires after a clearing' that all cleared

items must be returned not later than 2=EE P> of thefollowing business day. -ince H-7" advised P7T" 85days after clearing' P7T" claims that it is now too lateto do so.%"B$ dismissed the complaint based on the fact thatH-7" allowed 85 days to elapse after clearing beforenotifying P7T" as to such alteration' the applicable"entral 7an( regulation providing for a 8G%hour period.

ISS.=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. 0uitable7an(ing "orporation. The rule is embodied in sec G*cof "ircular No. 9 of the "entral 7an( and reads thus=M$tems which should be returned for any reasonwhatsoever shall be returned directly to the ban('institution or entity from which the item was received.[ +ll items cleared at 11=EE oXcloc( a.m. shall bereturned not later than 8=EE oXcloc( p.m. on the sameday and all items cleared at 2=EE oXcloc( p.m. shall bereturned not later than 4=2E a.m. of the followingbusiness day' e!cept for items cleared on -aturdaywhich may be returned not later than 4=2E of thefollowing day.M The circular is clear and comprehensiveKthe facts of the present case fall within it.%>oreover' as mentioned in a case cited by H-7"' M$t isa settled rule that a person who presents for paymentchec(s such as are here involved guarantees thegenuineness of the chec(' and the drawee ban( needconcern itself with nothing but the genuineness of thesignature' and the state of the account with it of the

drawee.M $f at all' then' whatever remedy H-7" haswould lie not against P7T" but as against the partyresponsible for changing the name of the payee. $tsfailure to call the attention of P7T" as to such alterationuntil after the lapse of 85 days would' in the light of theabove "entral 7an( circular' negate whatever right itmight have had against defendant 7an(.DispositionAecision affirmedN.= +s per "ampos' this case illustrates the fact thatthe -" comes to the same conclusion' but on an etirelydifferent basis' as the minority view regarding theeffect of draweeIs payment or acceptance of alteredchec(.

&.#LI+ AN7 ' +A; First Nat=l +itB an2.6. No. G858DK +pril 88' 1991

:aida rose:

FA+S-;7iguel "orporation *->"A6+W00= Birst National "ity 7an( *BN"7P+,00= " drew a divided chec( worth P8GE in favor ofAelgado' one of its stoc(holders.%+fter the chec( had been delivered' the chec( wasaltered by increasing the amount on its face from P8GEto P9'8GE. This was done fraudulently and without theauthority of ->" as drawer. The chec( was indorsedand deposited on >arch 1G' 1993 by Aelgado in hisaccount with 6epublic 7an(.%6epublic accepted the chec( without ascertaining itsgenuineness and regularity. $t endorsed the chec( toBN"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( wasgenuine and relying on the guaranty and endorsementof the petitioner ban(' paid the amount on the face ofthe chec(.%+pril 19' 1933 %->" notified BN"7 of the materialalternation in the chec( about a month after BN"7 hadpaid 6epublic 7an(. BN"7 recredited P9'8GE to ->"Isaccount.%>ay 19' 1933 BN"7 wrote 6epublic about thealteration. 7ut at that time' Aelgado had alreadywithdrawn the said amount from his 6epublic 7an(account.%B"N7 demanded that 6epublic 7an( refund theamount of P9'8GE on the basis of the latterIsendorsement and guaranty. 6epublic refused' sayingthat 1 there was delay in giving notice of thealteration' 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 ->" thusBN"7 had no right to recourse against 6epublic 7an(.%The trial court ordered 6epublic 7an( to pay P9'8GE toPN"7 with interest. The "+ affirmed the T" ruling.

ISS.WON 6epublic 7an(' as clearing ban(' is protected fromliability by the 8G%hour clearing house rule *in "7"ircular 9

,.L/: .S%When an endorsement is forged' the collecting ban( orlast endorsor bears the loss. However the unualifiedendorsement of the collecting ban( on the chec(

should be read together with the 8G%hour regulation onclearing house operation.


20/24


%When the drawee ban( fails to return a forged oraltered hec( to the collecting ban( within the 8G%hourclearing period' the collecting ban( is absolved fromliability.

etroban( vs. BN"7 *+ha/ aya nga ng sabi ni -haron"uneta' Ai na natuto[#= + chec( for PDE was drawnby "unanan and "o. on its account at BN"7 andpayable to >anila Polo "lub was changed to PDE'EEE. $twas 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 laterso BN"7 sought to recover from >etroban(. The "ourtupheld the validity of the 8G%hour clearing houseregulation. The chec( was not returned to >etroban(in accordance with the given period but was cleared byBN"7. Bailure of BN"7 to call attention to the alterationof the chec( negates whatever right it may have hadagainst >etroban(.%0very ban( that issues chec(s for the use of itscustomers should (now WON the drawerIs signature isgenuine. $t should be able to detect alterations'erasures and other intercalations on the chec(. $tshould possess appropriate detecting devices.

%;nless the alteration is attributable to the fault ornegligence of the drawer' the remedy of the draweeban( that negligently clears a forged&altered chec( forpayment is against the party responsible for theforgery&alteration.DispositionPetition for review granted.

+%L%% +&AIN ' #ANA+*Aistrict "+' "aliforniaK 19GG1G9 P. *8d 9E1 *19GGK W+6A' rs. Panac stating that she did notread it and wished to see an attorney. Hart assured herthat it was not necessary' that the contract has to besigned at once to get the wor( started. $n doing so' heread the items of wor( entered in his note boo(' statingthat they were in agreement and urged again thedefendants to sign. They still obFected but theirscruples were overcome by HartIs assurance that allthe wor( shall be done to their satisfaction and that itwas necessary to start at once. >artin thereuponaffi!ed his signature to the contract.%Hart then presented to them another paper' dividedinto 2 parts by perforated lines' one part being anapplication for credit' the second a form of promissorynote and the third a declaration that the wor( for whichthe credit was reuired had been satisfactorilycompleted. The defendants placed their signatures atthe point indicated by Hart upon his assurance that itwas part of the contract for the wor( to be done and

without having Hart read it to them. The second notewas e!ecuted under the same circumstances.%There were present during the proceedings 8 otherpersons beside ?raFer but neither the defendantsreuested any of them to read aloud the document orto e!plain the contents thereof.%The defendants testified that they understood fromHart that the wor( was to be paid for in monthlyinstallments' but had not contemplated giving notes.%The wor( was never completed notwithstandingvigorous efforts made by the plaintiff and thedefendants to induce Home $mprovement "ompany todo so' with the conseuence that when the firstinstallment became due on the notes the defendantsrefused to pay.

%The trial court found that "LT is a holder in due coursehowever' it also held that fraud was perpetuated

against the defendants hence' plaintiff ta(es nothing byits action.%Plaintiffs appealed from the Fudgment.

ISS.S1. WON plaintiff is a holder in due course.8. WON defendants are free from negligence.2. WON the defendants can plead the defense of fraudagainst the plaintiff.

,.L/1. ,0-. Aefendants do not contend that the plaintiff isnot a holder in due course. No evidence was introducedthat ".L.T. had actual (nowledge of a defect in theinstruments or any fact that would Fustify a finding thatthe plaintiffIs acceptance of the instruments amountedto bad faith on their part.8. ,0-. The trial court determined that' notwithstandingthe possession of some (nowledge of the 0nglishlanguage on the part of the defendants' their neglect tocall upon others present to read to them thedocuments' and their failure to insist on their reuestfor time to see( independent legal advice' they are freefrom negligence. + reading of the record alone mightwell disapprove this finding' but' bearing in mind thatthe trial court had an opportunity to view the witnesses'note their demeanor' the "ourt refrained from statingas a matter of law that there is insufficient evidence touphold it.2. NO. 7rannanIs Negotiable $nstrument= +t commonlaw a real defense was held in most Furisdictions toe!ist in those cases in which a person' withoutnegligence' has signed an instrument' which was' infact a negotiable instrument' but was deceived as tothe character of the instrument and without (nowledgeof it. $n such cases' there is no contract because therewas no consenting mind' but the signer may be

estopped by negligence to deny (nowledge of thecharacter of the instrument which he has signed. $f hewas not negligent he is not liable.%$n Wisconsin' >innesota and $llinois' the N$L or otherlegislation e!pressly ma(es fraud in the factum a realdefense. The ;niform +ct does not cover the uestionin so many words. $t is possible however' that suchconduct is fraud within -ec. DD and hence causesmerely a defective title' or that it is one of the defensesunder -ec. D5. $t might also be assimilated to want ofdelivery' which was made an euitable defense by -ec.13. 0ither possibility would change the common lawand protect the holder in due course.%$n further support of this position it should be notedthat the other real defenses are covered by the act and

broad interpretation of -ec. DD' especially the lastclause under such circumstances as amount to fraud#


21/24


certainly includes all (inds of fraud in factum. -ince thisis so it is hard to believe that the framers overloo(edthis particular defense. The euities are all in favor ofsuch interpretation' since the defrauded party reallycaused the situation and should be the one to suffer.%;nder the old common law view fraud in -ec. DD wouldbe limited to fraud in the inducement and defenses in-ec' D5 restricted to defenses which were euitable atcommon law' while fraud in the factum would continueto be a real defense analogous to forgery under -ec.82. -uch is the result of a number of cases which havearisen 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(ershas never been regarded in "alifornia in following thecommon law rule' or made by statute a defense' real orpersonal' against a claim of a holder of a negotiableinstrument in due course. $f the legislature hadintended such defense it would undoubtedly have soprovided in no uncertain terms' as the courts of thisstate have not' at any time' recogniJed such a defense.%$t follows that the defendants were not in position toset up as a defense in this case any euities e!istingbetween them and the Home $mprovement "ompanyeven if' as found by the court' they were free fromnegligence in e!ecuting notes.Disposition+?06-= -ps. Panac' illiterate' unable to read or writethe 0nglish languageP+,00= Home $mprovement "ompany$NAO6-00= ".$.T. "orp' a holder for value in due course%>a(ers were defrauded by payee in the procurementof the notes. William Hart' agent of the payee' gainedtheir trust and confidence and secured their signaturesto the notes by false representations w&c induced themto believe that they were signing a contract to repairthe houses and nothing else. They were ignorant of thefact that they were signing notes' and were notnegligent in signing the same.

ISS.

WON the defense put up by the ma(ers is a realdefense' good even against indorsee as a holder in duecourse

,.L/: .S%+ negotiable instrument which is void *as when thereis in fact no contract or there is fraud in the e!ecutionis not enforceable by a holder in due course in theabsence of negligence on the part of the ma(er.%+ person who cannot read is not always negligent innot calling on a third person to read the instrument tohim. The uestion as to his negligence is one for the

Fury *that is' the courts to decide."ircumstances showing that ma(ers were notnegligent=%-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 legaladvice be obtained%Witnesses to the signing were all friends of Hart. 0ven?raFer' whom ma(ers personally (new couldnIt haveobFected to such fraud since he was promisedcommission. $n fact' it was his apparent acuiescencein the transaction that served to silent anyapprehensions of the ma(ers.

+,N ' +I F ANN2E2 >ass. 148' 81 N.0. *8d 841 *1929:anton:

FA+S%+ction by "ohn et al.' innocent purchasers for valuewithout notice' to prosecute to recover the face amountof overdue coupons on certain bonds of the defendantcity payable to bearer which have been stolen from thevault 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 fullyregistered bonds of li(e amount' but ha* not*estroBe* or cancelle* the bearer bon*s norlace* anB notation uon them an* ha* 2etthem in his )ault%%"ohn and company held them' but the "ity Treasurerrefused to pay on the ground that the amount coveredby the bonds had been paid already.

ISS.WON "ohn et al. were holders in due course' and thus

entitled to the amount


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[ch4-'] Law 108: Negotiable Instruments First Semester A !008-0" #ro$% &ogelio '% (ue)e*o [+h4-']

,.L/: .SRatio +n instrument that has once been issued'returned' discharged' and stolen would seem to standno differently in the hands of a holder in due coursethan an instrument that has been prepared' signed andstolen before being issued.ReasoningThe validity of municipal obligations is notaffected

campos chap 4

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