Negotiable Instrument; What is the effect of forgery on the instrument?

When a signature is forged or made without the authority of the person whose signature it purports to be, -

• The signature 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.

            The case of Natividad Gempesaw vs. The Honorable Court of Appeals and Philippine Bank of Communications[1], the Supreme Court, speaking through Justice Campos laid down a detailed discussion on the nature and effect of forgery, to wit:

            “Under the aforecited provision, forgery is a real or absolute defense by the party whose signature was forged.  A party whose signature to an instrument was forged was never a party and never gave his consent to the contract which gave rise to the instrument.  Since his signature does not appear in the instrument, he cannot be held liable thereon by anyone, not even by a holder in due course.  Thus, if a person’s signature is forged as a maker of a promissory note, he cannot be made to pay because he never made the promise to pay.  Or where a person’s signature as a drawer of a check is forged, he cannot charge the amount thereof against the drawer’s account because he never gave the bank the order to pay.  And said  section does not refer only to the forged signature of the maker of a promissory note and of the drawer of a check.  It covers also a forged indorsement, i.e., the forged signature of the payee or indorsee of a note or a check.  Since under said provision a forged signature is “wholly inoperative”, no one can gain title to the instrument through such forged indorsement.  Such an indorsement prevents any subsequent party from acquiring any right as against any party whose name appears prior to the forgery.  Although rights may exist between and among parties subsequent to the forged indorsement, not one of them can acquire tights against parties prior to the forgery.  Such forged indorsement cuts off the rights of all subsequent parties as against parties prior to the forgery.  However, the law makes an exception to these rules where a party is precluded from setting up forgery as a defense.”

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[1] G.R. No. 92244, February 9, 1993