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Negotiable Instruments Case Digest: Republic v. Ebrada (1975)


G.R. No. L-40796 July 31, 1975
Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
  • February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check dated January 15, 1963 for P1,246.08 at Republic Bank 

    • check was issued by the Bureau of Treasury

  • Bureau advised Republic Bank that the indorsement on the reverse side of the check by the payee, "Martin Lorenzo" was a forgery because he died as of July 14, 1952 and requested a refund

  • July 11, 1966: Ebrada filed a Third-Party complaint against Adelaida Dominguez who, in turn, filed on September 14, 1966 a Fourth-Party complaint against Justina Tinio.

  • March 21, 1967: City Court of Manila favored Republic against Ebrada, for Third-Party plaintiff against Adelaida Dominguez, and for Fourth-Party plaintiff against Justina Tinio

  • CA: reversed Mauricia T. Ebrada claim against Adelaida Dominguez and Domiguez against Justina Tinio

W/N: Ebrada should be held liable.

HELD: YES. Affirmed in toto.
  • 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.
  • Martin Lorenzo (forged as original payee) > Ramon R. Lorenzo (2nd indorser) = NO EFFECT

  • Ramon R. Lorenzo(2nd indorser)> Adelaida Dominguez (third indorser)>Adelaida Dominguez to Ebrada who did not know of the forgery = valid and enforceable barring any claim of forgery

  • drawee of a check can recover from the holder the money paid to him on a forged instrument

    • not its duty 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

    • RATIONALE: . 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 the Ebrada the amount it paid

  • Ebrada immediately turning over to Adelaida Dominguez (Third-Party defendant and the Fourth-Party plaintiff) 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.