Law 2: Negotiable Instruments Law

4. SECTION 23: FORGERY

Sec. 23. Forged signature; effect of. - When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority.

1. Concept: Forgery is the counterfeit-making or fraudulent alteration of a writing and may consist
in the signing of another’s name without authority or the alternation of an instrument in the
name, amount, description of the person and the like, with intent thereby to defraud

Legal consequence:

1. Only the forged SIGNATURE is inoperative.

2. Instrument remains operative, meaning, it remains enforceable against all parties except the
party whose signature is forged

Example:

12 December 2016

I, Guada Estacion, hereby promise to pay P or order P20,000.00.

Guada Estacion

A. Assuming that Guada Estacion did not actually sign the instrument, instead P forged Guada’s
signature. Thereafter, P negotiated the note to A, then A to B and B to C. Here’s the
consequence:

ORDER instrument

a. HIDC and HNIDC, forgery is a real defense

(Guada)
M - P - A - B - C
x / / / HIDC

Meaning, C cannot collect from M but he can collect from P or A or B; M is not liable
because M’s signature is inoperative or has not effect, whatsoever. P is liable because P
is the guilty party and an indorse who promises to pay despite the defect, A and B
because they are indorsers like P.

b. HNIDC: Same as HIDC

 B. Assuming that Guada Estacion actually signed the instrument and she delivered it to P. P
negotiated the order instrument to A. In the hands of A, B stole the instrument from him (A), B
then negotiated the instrument to C then C to D.

Here’s the consequence:

(forged)
M - P - A - B - C - D
x x x / / HIDC/HNIDC

(i) Why is M, P or A not liable to D? The forgery cuts off the right of the holder (D)
against all parties before the forgery, and all parties before the forgery are M, P and A

(ii) If A claims that he was the last holder of the instrument (as it was stolen from him
(A)), can A claim from M the value of the instrument? Answer is YES, because the
contracts between M and P, and, P and A, and M and P are all valid.

This is the CUT-OFF RULE – only if forged signature is necessary to vest title to subsequent
parties will prior parties be excused from liability.

BEARER instrument

A. Assuming that Guada Estacion actually signed the instrument and she delivered it to P. P
negotiated the order instrument to A. In the hands of A, B stole the instrument from him (A), B
then negotiated the instrument to C then C to D.

M - P - A - B - C - D
/ / / / / HIDC/HNIDC

Why? Because the signature of A is, in the first, place not required to negotiate a bearer
instrument. Whether or not the signature of A is forged is immaterial or not important, after all,
the instrument can be negotiated even without such signature.

5. SECTION 125: MATERIAL ALTERATION

Sec. 125. What constitutes a material alteration. - Any alteration which changes:
(a) The date;

(b) The sum payable, either for principal or interest;

(c) The time or place of payment:

(d) The number or the relations of the parties;

(e) The medium or currency in which payment is to be made;

(f) Or which adds a place of payment where no place of payment is specified, or any
other change or addition which alters the effect of the instrument in any respect, is a
material alteration.
 1. Concept: See Section 125
2. Legal consequence:

Assuming the note is for P3,000.00, altered by A, a party to the instrument, to P8,000.00 with
the consent of P, assuming C is a HNIDC

M - P - A - B - C
x / / / HNIDC

(b) By a stranger, in this case, alteration is called spoliation

M - P - A - B - C
/ / / / HIDC
Orig. tenor ß------------- altered amount----------à

B. SECTIONS 18 – 22

Sec. 18. Liability of person signing in trade or assumed name. - No person is liable on the
instrument whose signature does not appear thereon, except as herein otherwise
expressly provided. But one who signs in a trade or assumed name will be liable to the
same extent as if he had signed in his own name.

Sec. 19. Signature by agent; authority; how shown. - The signature of any party may be
made by a duly authorized agent. No particular form of appointment is necessary for this
purpose; and the authority of the agent may be established as in other cases of agency.

Sec. 20. Liability of person signing as agent, and so forth. - Where the instrument contains
or a person adds to his signature words indicating that he signs for or on behalf of a
principal or in a representative capacity, he is not liable on the instrument if he was duly
authorized; but the mere addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal, does not exempt him from
personal liability.

Sec. 21. Signature by procuration; effect of. - A signature by "procuration" operates as

notice that the agent has but a limited authority to sign, and the principal is bound only in
case the agent in so signing acted within the actual limits of his authority.

Sec. 22. Effect of indorsement by infant or corporation.- The indorsement or assignment of

the instrument by a corporation or by an infant passes the property therein,
notwithstanding that from want of capacity, the corporation or infant may incur no
liability thereon.

Rule:

General Rule: No person is liable on the instrument whose signature does not appear thereon
(Sec. 18)

Exceptions: (By exceptions, we mean that even if a person does not sign the instrument, he is still
 liable). Instances when a person does not sign the instrument but is still liable on the instrument:

1. One who signs in a trade or assumed name will be liable to the same extent as if he had
signed in his own name. (Sec 18, (2))
2. The principal is bound by the signature of his duly authorized agent (Sec 19)
3. Forgery (Sec 23)
4. Acceptance by the acceptor in a separate paper (Sec 134)
5. Written promise by a person to accept the bill before it is drawn. (Sec 135)

C. SECTION 17

Sec. 17. Construction where instrument is ambiguous. - Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of construction
apply:

(a) Where the sum payable is expressed in words and also in figures and there is a
discrepancy between the two, the sum denoted by the words is the sum payable; but if
the words are ambiguous or uncertain, reference may be had to the figures to fix the
amount;

(b) Where the instrument provides for the payment of interest, without specifying the
date from which interest is to run, the interest runs from the date of the instrument, and if
the instrument is undated, from the issue thereof;

(c) Where the instrument is not dated, it will be considered to be dated as of the time it
was issued;

(d) Where there is a conflict between the written and printed provisions of the instrument,
the written provisions prevail;

(e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note,
the holder may treat it as either at his election;

(f) Where a signature is so placed upon the instrument that it is not clear in what
capacity the person making the same intended to sign, he is to be deemed an indorser;

(g) Where an instrument containing the word "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.