DRAWER/MAKER AGENT/ P A B C D E Collecting Drawee Bank

ACCOMODATION PARTY Bank CB DB

INCOMPLETE, UNDELIVERED I. P forged M I. A made material I. B aware of P 1. C forged B 1. D is a minor CB credited DB cleared and debited
II. bill payable alteration, 10M 2. C indorse to D 2. D strike out P signature
D delivered for safekeeping to P to P or II. A indorse to B 3. D deposited to CB
checks incomplete BEARER for
(not to convert as NI) 1M
III. P indorse to
A
Only the person whose signature A person whose signature does not appear on  Material B cannot enforce against DB or D The indorser whose indorsement If a bank pays on a forged check, it is
is forged can raise defense of the instrument is not liable alterations in case of dishonor, even a HIDC is struck out, and all indorsers considered as paying out of its funds and
forgery against HIDC exceptions? avoids the cannot enforce subsequent to him, are thereby cannot charge the account of the depositor
instrument relieved from liability on the
Incomplete and undelivered 1. Duly authorized agent signing for except against If holder signature forged, parties instrument. Sec. 48
instrument is not valid contract principal forger, persons prior to forgery can raise forgery
against any person who signed 2. Forger liable for signature he forges who authorized, against parties subsequent to Maker of a PN cannot refuse to
the instrument before the 3. Signature in separate paper (“allonge”) assented, and forgeries pay to a holder on the ground that
unauthorized delivery because the instrument has no more subsequent the indorser is a minor.
space indorser. Sec
Four general rules for forgeries: 4. Estoppel 124 Sec. 54. Notice before full Neither can he raise the defense
1. A party whose signature is 5. Signing under trade/assumed name  HID may amount is paid. – that the prior indorsee is a minor.
forged is not liable unless he’s 6. Instrument can be negotiated by mere enforce. Sec 124  transferee receives notice of any
estopped delivery  Instrument is null 1. infirmity in the instrument or ONLY the minor can raise the
2. An acceptor who pays on a and void 2. defect in the title of the person defense of minority, no one else.
BOE cannot recover the money because of negotiating the same
agent to avoid personal liability?
because he admits the material  before he has paid the full
1. must disclose he is an agent Can apply this principle by
genuineness of the signature of alteration unless amount agreed to be paid
2. Disclose his principal analogy to other incapacitated
the drawer it reaches the therefor
3. He has authority persons (Ex. corporation action
3. A Holder in Due Course hands of HIDC  deemed a holder in due course
acquires good title if forged ultra vires)
Sec. 29. Liability of accommodation party who can enforce only to the extent of the amount
indorsement is not necessary for it according to therefore paid by him.
An accommodation party is
his title the tenor of the
1. one who has signed the instrument
Ex. in a bearer instrument instrument Sec. 56. What constitutes notice of
2. as maker, drawer, acceptor, or indorser,
4. A person negotiating an BEFORE it was defect.
3. without receiving value therefor,
instrument after forgery is liable altered the person to whom it is negotiated
4. and for the purpose of lending his name to
(due to warranties)  Payment under must have had
some other person.
material altered 1. actual knowledge of the infirmity
Such a person is liable on the instrument instrument is not or defect,
1. to a holder for value, payment done in 2. or knowledge of such facts that
2. notwithstanding such holder, accordance with his action in taking the instrument
3. at the time of taking the instrument, drawer’s amounted to bad faith.
4. knew him to be only an accommodation instruction
party.

M payable to P P endorse to A A B forged A C endorse to D D

B endorse to C
COMPLETE, DELIVERED, When drawee bays a materially altered
MATERIAL ALTERATION checks, it violates the terms of the checks as
well as its duty to charge its clients account
for bona fide disbursements he had made.
Since the drawee bank did not pay according
to the original tenor of the instrument, as
directed by the drawer, then it has not right to
claim reimbursement from the drawer, much
less the right to deduct the erroneous
payment it made from drawer’s account
which it was expected to treat with utmost
 fidelity Metrobank vs. Cablizo 510 SCRA 259

DRAWER/MAKER AGENT/ P A B C D E Collecting Drawee Bank

ACCOMODATION Bank CB DB
PARTY
I. PN ORDER INSTRUMENT: P forged M A transfer for value without indorsement to B B indorse to C C indorse to D D indorse to E E cannot collect from M (not bound)
M makes PN P indorse to A E can collect from ABCD as indorsers,
Transfer vests in the transferee warranted the instrument
[Link] title as the transferor had therein
[Link] right to have it indorse by transferor. Sec. 49
Equitable assignment
Transferee cannot negotiate by indorsing to another
Transferee maybe determined if HIDC or not at the time of actual
indorsement when negotiation takes effect
GR: Every Holder prima facie HIDC,
EXCEPT: under Sec. 49
 Before indorsement, A is not a holder, or bearer under Sec. 191.
II. PN BEARER INSTRUMENT: P forged M A indorse to B B indorse to C C indorse to D D indorse to E
P indorse to A
M makes PN Indorsing an instrument that
need not be indorsed leads
to a warrant of such
III. PN ORDER INSTRUMENT: P indorse to A A indorse to B B indorse to C D forged C E cannot collect from A or B (since it is an
D indorse to E order instrument, there is a cut-off to A
M makes PN payable to P or order and B, since C’s signature is forged)
E cannot collect from C (no consent)
E can collect from D as indorser/forger
IV. PN BEARER INSTRUMENT: P indorse to A A indorse to B B indorse to C D forged C If E not HIDC A may claim non delivery of
M make PN payable to C or bearer D indorse to E complete IN
N.B. This is an instrument payable to P liable to A. Sec. 40 A liable to B. Person indorsing specifically liable as indorser to only such B liable to C. No delivery by C to D
bearer; delivery is sufficient, no need for holders as make title through his endorsement. Sec. 40 Sec 40 If E HIDC, can collect from M since NI
indorsement. where an instrument, Person payable to bearer
N.B. if a bearer instrument is indorsed PAYABLE TO BEARER, indorsing E cannot collect form C, whose signature
even if it is not needed, the indorser 1. is INDORSED specifically forged
warrants the instrument as what it SPECIALLY, liable as E cannot claim from B, because he cannot
purports to be. 2. it may nevertheless be indorser to trace his right to him [cut off by the
FURTHER NEGOTIATED only such forgery].
BY DELIVERY holders as E can collect from D, because by indorsing
person indorsing specially make title the instrument (even if bearer), he
[Link] as indorser through his warranted it.
[Link] only such holders as endorsement.
make title through his Sec. 40
indorsement. Sec 40
V. Bill of Exchange: P forged D A indorse to B B indorse to C C indorse to D D indorse to E E can collect form CB, by accepting it CB accepted
DW draws BOE payable to P or P indorse to A admits the instrument is genuine
ORDER E can collect form P forger CB can sue P forger
E can collect from ABCD as indorser
VI. DW draws BOE payable to P or P forged D A indorse to B B indorse to C C indorse to D D indorse to E E can collect form P forger CB did not accept
ORDER P indorse to A E can collect from ABCD as indorser
E cannot collect from CB, it did not accept

VII. DW draws BOE payable to P or P forged D A indorse to B B indorse to C C indorse to D D indorse to E

 BEARER P indorse to A

Same rules on indorsement of a bearer

instrument  if there was indorsement
even if there is no need to do so, there
is warrant of the genuineness of the
instrument by the indorsers.
VIII. DW draws BOE payable to P or P indorse to A A indorse to B B indorse to C D forged C  Even if C’s indorsement to D is forged, E Remedy of the acceptor is to
BEARER D indorse to E holder can still collect from D (because D just run after the thief.
Bearer instrument, but an indorser’s just promised to pay the bearer).
signature was forged
IX. DW draws BOE payable to P or P indorse to A A indorse to B B indorse to C D forged C  E cannot collect from PABC, cut off by D’s CB accepted and paid
ORDER D indorse to E forgery of C CB cannot debit DW ‘s
 E can claim from D forger account
It went against DW ‘s order to
pay P or order, which was
cut off by the forgery of C’s
signature.
CB can get money back from
E because CB only admits
DW’s signature as genuine
(it was) and not the
indorsers’ signatures.
X. DW draws BOE payable to P or P indorse to A A indorse to B B indorse to C D forged C  CD accepted and paid
BEARER D indorse to E  CB can debit DW’s
C can run after account, DW promised to
D, the forger. pay the bearer
 CB cannot get back
money from E bearer
XI. DW draws BOE payable to P or P indorse to A A indorse to B D forged C E cannot claim from CB, did not accept, no CB did NOT ACCEPT
BEARER D indorse to E privity
E cannot claim from C, did not consent
E can claim from D forger, warranted the
instrument
E cannot claim from B, cut off by d forgery
of C
E can claim from DW if HIDC ( complete;
undelivered instrument personal defense)
 M makes note payable to P P to A A to B B to C C to D D to B B to E E

B may not sue C and D to  B is remitted to his for rights as regards E can sue
whom he is liable before he prior parties, MPA MPABC and D
reacquires the NI  May strike out his own and all
subsequent indorsement and negotiate it
B is limited to MPA. Sec 121 further to E under Sec. 121
 If B strikes out C under Sec 48; Sec 121,
But C and D are not C and D will be released
discharged  C and D indorsements are no longer
needed for B’s title. Sec. 48.
 If B was a HIDC, may recover prior
parties MPA even if at that time he
already had notice of defenses

If NI is BOE P indorse to A A indorse to B B indorse to C C DRAWEE

D draws payable to P

If BOE Drawer who pays may recover If P is an accommodation If A pays the bill, it is not DB accepted
from Drawee party he cannot renegotiate discharged
the bill under Sec. 121 (b) It is discharged as to A and B
If bill is paid by D under Sec 121 (a) D and C to whom A is liable
may renegotiate it
Payment at or after maturity
Exception under a and b of Sec 121 by party secondarily liable
APPLIES the to rule: does not discharge the
[Link] NI may be again negotiated instrument but only cancels
NOT his liability and that of parties
[Link] the rule that the NI is not subsequent to him
discharged A is remitted to his former
position as regards D and P
Prior Party may not again negotiate if: A may strike out B and C and
a) Payable to order to third person and renegotiate it
the has drawer paid
b) NI was accepted for accommodation
and the accommodation party has
paid
c) Where NI is discharged and
acquired by a prior party under Sec.
119
 incomplete but delivered instruments wanting of a material particular – the
person possessing it has prima facie
authority to fill up the blanks

The blank or incomplete instrument

must have been delivered with intent
that the holder turn it into a
negotiable instrument

incomplete and undelivered not be a valid contract in the hands of

instruments any holder, as against the person
whose signature was placed on the
instrument prior to delivery (real
defense)
 BUT indorsers are
liable
complete but undelivered The NI is incomplete until delivered,
instruments but this does not prejudice a HIDC

HIDC will not be subject to this

defense – it is a personal defense

Sec. 48. Striking out indorsement. - The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument.

M P A B C
M makes note P indorse to A A indorse to B B indorse to C  If C cancels P
payable to P  A, B subsequent to P are released
 They are deprived of their right of recourse against P
C could claim only against M

 A holder of incomplete instrument has prima facie authority to complete it. (Sec. 14)
 Maker delivered the incomplete Instrument to holder with intent to convert it to NI. (Sec. 14)
 To enforce the incomplete instrument against parties prior to completion, must completed with authority and within a reasonable time. (Sec. 14)
 If incomplete instrument is negotiated to HIDC after completion, HIDC may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. (Sec. 14)