M made a promissory note to the order of P for P10,000. P indorsed the note to A. X forged A’s signature and indorsed it to B. B indorsed the note to C as holder in due course. Who among the parties can be held liable to C?

M made a promissory note to the order of P for P10,000. P indorsed the note to A. X forged A’s signature and indorsed it to B. B indorsed the note to C as holder in due course. Who among the parties can be held liable to C?

• A. M, P, X, A and B
• B. P, X, A and B only
• C. X, A and B only
• D. X and B only

Answer: (D)

When a signature on a negotiable instrument is forged, the person whose name was forged is not liable on the instrument. The forgery therefore breaks the chain of liability and the forger becomes the one who bears the risk of the forgery. In this scenario, X forged A’s signature on the indorsement to B. Because A’s signature is forged, A cannot be held liable on the instrument. The chain of valid endorsements stops at the point of the forgery, so M, P, and A are not liable to the holder in due course. The forger, X, is responsible for the forgery itself and can be liable to the holder for damages caused by that forgery. The endorser who actually transmitted the instrument onward to the next holder (B’s endorsement to C) remains subject to liability as an endorser if the instrument is dishonored by those who are obligated to pay before it. Since C is a holder in due course, X’s forgery is the key defect, and X bears liability to C. B, as the subsequent endorser, also faces potential liability to C if the instrument is not paid by the prior party. Thus, the only parties who can be held liable to C are the person who forged the signature (the forger) and the subsequent endorser who transmitted the instrument onward. That matches X and B.

When a signature on a negotiable instrument is forged, the person whose name was forged is not liable on the instrument. The forgery therefore breaks the chain of liability and the forger becomes the one who bears the risk of the forgery.

In this scenario, X forged A’s signature on the indorsement to B. Because A’s signature is forged, A cannot be held liable on the instrument. The chain of valid endorsements stops at the point of the forgery, so M, P, and A are not liable to the holder in due course.

The forger, X, is responsible for the forgery itself and can be liable to the holder for damages caused by that forgery. The endorser who actually transmitted the instrument onward to the next holder (B’s endorsement to C) remains subject to liability as an endorser if the instrument is dishonored by those who are obligated to pay before it. Since C is a holder in due course, X’s forgery is the key defect, and X bears liability to C. B, as the subsequent endorser, also faces potential liability to C if the instrument is not paid by the prior party.

Thus, the only parties who can be held liable to C are the person who forged the signature (the forger) and the subsequent endorser who transmitted the instrument onward. That matches X and B.