REPUBLIC BANK VS EBRADA

FACTS:
On January 15, 1963, the Bureau of Treasury issued a back pay check to Martin
Lorenzo in the amount of P1,246.08. The drawee named therein was Republic
Bank. The check was subsequently indorsed to Ramon Lorenzo, then to Delia
Dominguez and then to Mauricia Ebrada. Ebrada encashed the check with the
Republic Bank. Republic Bank paid the amount of the check to Ebrada. Ebrada,
upon receiving the cash, gave it to Dominguez; Dominguez in turn gave the
cash to Ramon Lorenzo.
Later, the Bureau of Treasury notified that the check was a forgery because the
payee named therein (Martin Lorenzo) was actually dead 11 years ago before
the check was issued. Republic Bank refunded the amount to the Bureau of
Treasury. The bank then demanded Ebrada to refund them.
ISSUES:
1. Whether or not Republic Bank may recover from Ebrada?
2. Whether or not Ebrada could be held liable?
HELD:
1. Yes. Under Section 65 of the Negotiable Instruments Law:
Every person negotiating an instrument by delivery or by qualified
indorsement, warrants:
(a) That the instrument is genuine and in all respects what it purports
to be.
(b) That she has good title to it.
xxx xxx xxx

Every indorser who indorses without qualification warrants to all

subsequent holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and
(c) of the next preceding sections;
(b) That the instrument is at the time of his indorsement valid and
subsisting.

Under action 23 of the Negotiable Instruments Law (Act 2031):

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 instruments, or to give a discharge 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.
 The drawee of a check can recover from the holder the money
paid to him on a forged instrument. It is not the duty of drawee to
ascertain whether the signatures of the payee or indorsers are genuine or
not. Indorser is supposed to warrant to the drawee that the signatures of
the payee and previous indorsers (NOT only holders in due course) are
genuine. One who purchases a check or draft is bound to satisfy himself
that the paper is genuine and that by indorsing it or presenting it for
payment or putting it into circulation before presentation he impliedly
asserts that he has performed his duty and the drawee (in this case
Republic Bank) who has paid the forged check, without actual
negligence on his part, may recover the money paid from such negligent
purchasers. The reason is that indorsers own credulity or recklessness, or
misplaced confidence was the sole cause of the loss. Why should he be
permitted to shift the loss due to his own fault in assuming the risk, upon
the drawee, simply because of the accidental circumstance that the
drawee afterwards failed to detect the forgery when the check was
presented?

Ebrada , upon receiving the check in question from Adelaida

Dominguez, was duty-bound to ascertain whether the check in question
was genuine before presenting it to plaintiff Bank for payment. Based on
the doctrine from Great Eastern Life Ins. Co. v. Hongkong Shanghai Bank
(1922) , bank should suffer the loss when it paid the amount of the check
in question to Ebrada, but it has the remedy to recover from Ebrada the
amount it paid.

2. Yes. Ebrada immediately turning over to Adelaida Dominguez who in turn

handed the amount to Justina Tinio on the same date would not exempt
her from liability because by doing so, she acted as an accommodation
party in the check for which she is also liable under Section 29 of the
Negotiable Instruments Law (Act 2031):
An accommodation party is one who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor,
and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument knew him to be only an
accommodation party.