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680 SUPREME COURT REPORTS ANNOTATED

Republic Bank vs. Ebrada

*
No. L-40796. July 31, 1975.

REPUBLIC BANK, plaintiff-appellee, vs. MAURICIA T.

EBRADA, defendant-appellant.

Negotiable Instruments Law; Checks; It is only the negotiation

predicated on the forged indorsement that should be declared inoperative.—
It can be safely concluded that it is only the negotiation predicated on the
forged indorsement that should be declared inoperative. This means that the
negotiation of the check in question from Martin Lorenzo, the original
payee, to Ramon R. Lorenzo the second indorser, should be declared of no
effect, but the negotiation of the aforementioned check from Ramon R.
Lorenzo to Adeliada Dominguez, the third indorser, and from Adelaida
Dominguez to the defendant-appellant who did not know of the forgery,
should be considered valid and enforceable, barring any claim of forgery.
Same; Same; If the drawee-bank discovers that the signature of the
payee was forged after it has paid the amount of the check to the

* FIRST DIVISION.

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Republic Bank vs. Ebrada

holder thereof, it can recover the amount paid from the said holder.—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 who has paid the forged check, without
actual negligence on his part, may recover the money paid from such
negligent purchasers. In such cases the recovery is permitted because
although the drawee was in a way negligent in failing to detect the forgery,
yet if the encasher of the check had performed his duty, the forgery would in
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all probability, have been detected and the fraud defeated. x x x Similarly, in
the case before us, the defendant-appellant, 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. Her failure to do so makes her liable for the loss and the plaintiff
Bank may recover from her the money she received for the check.
Same; Same; Fact that the person who encashed the check wherein the
signature of the payee was forged turned over the proceeds to the one who
indorsed said check to the said holder would not exempt the encasher from
liability as by doing so he acted as an accomodation party.—The fact that
immediately after receiving the cash proceeds of the check in question x x x
defendant-appellant immediately turned over said amount to Adelaida
Dominguez (Third-Party defendant and the Fourth-Party Plaintiff) who in
turn hand 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
to the check for which she is also liable under Section 29 of the Negotiable
Instruments Law

APPEAL from a decision of the Court of First Instance of Manila.

Jarencio, J

The facts are stated in the opinion of the Court.

     Sabino de Leon, Jr. for plaintiff-appellee.
     Julio Baldonado for defendant-appellant.

MARTIN, J.:

Appeal on a question of law of the decision of the Court of First

Instance of Manila, Branch XXIII in Civil Case No. 69288, entitled
“Republic Bank vs. Mauricia T. Ebrada.”
On or about February 27, 1963 defendant Mauricia T. Ebrada,
encashed Back Pay Check No. 508060 dated January 15, 1963 for
P1,246.08 at the main office of the plaintiff Republic Bank at

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Republic Bank vs. Ebrada

1
Escolta, Manila. The check was issued by the Bureau of Treasury.
Plaintiff Bank was later advised by the said bureau that the alleged
indorsement on the reverse side of the aforesaid check by the payee,
2
“Martin Lorenzo” was a forgery since the latter had allegedly died
3
as of July 14, 1952. Plaintiff Bank was then requested 4
by the
Bureau of Treasury to refund the amount of P1,246.08. To recover
what it had refunded to the Bureau of Treasury, plaintiff Bank made
verbal and formal demands upon defendant Ebrada to account for
the sum of P1,246.08, but said defendant refused to do so. So

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plaintiff Bank sued defendant Ebrada before the City Court of

Manila.
On July 11, 1966, defendant Ebrada filed her answer denying the
material allegations of the complaint and as affirmative defenses
alleged that she was a holder in due course of the check in question,
or at the very least, has acquired her rights from a holder in due
course and therefore entitled to the proceeds thereof. She also
alleged that the plaintiff Bank has no cause of action against her;
that it is in estoppel,
5
or so negligent as not to be entitled to recover
anything from her.
About the same day, July 11, 1966 defendant Ebrada filed a
Third-Party complaint against Adelaida Dominguez who, in turn,
filed on September 14, 1966 a Fourth-Party complaint against
Justina Tinio.
On March 21, 1967, the City Court of Manila rendered judgment
for the plaintiff Bank against defendant Ebrada; for Third-Party
plaintiff against Third-Party defendant, Adelaida Dominguez, and
for Fourth-Party plaintiff against Fourth-Party defendant, Justina
Tinio.
From the judgment of the City Court, defendant Ebrada took an
appeal to the Court of First Instance of Manila where the parties
submitted a partial stipulation of facts as follows:

“COME NOW the undersigned counsel for the plaintiff, defendant, Third-
Party defendant and Fourth-Party plaintiff and unto this Honorable Court
most respectfully submit the following:

PARTIAL STIPULATION OF FACTS

1. That they admit their respective capacities to sue and be sued;

_______________

1 ROA, p. 2.
2 ROA, p. 2.
3 ROA, p. 2.
4 Exhibit “F-1”.
5 ROA, p. 5.

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Republic Bank vs. Ebrada

2. That on January 15, 1963 the Treasury of the Philippines issued its
Check No. BP-508060, payable to the order of one MARTIN
LORENZO, in the sum of P1,246.08, and drawn on the Republic
Bank, plaintiff herein, which check will be marked as Exhibit “A”
for the plaintiff;

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That the back side of aforementioned check bears the following

3.
signatures, in this order:

1) MARTIN LORENZO;
2) RAMON R. LORENZO;
3) DELIA DOMINGUEZ; and
4) MAURICIA T. EBRADA;

4. That the aforementioned check was delivered to the defendant

MAURICIA T. EBRADA by the Third-Party defendant and
Fourth-Party plaintiff ADELAIDA DOMINGUEZ, for the purpose
of encashment;
5. That the signature of defendant MAURICIA T. EBRADA was
affixed on said check on February 27, 1963 when she encashed it
with the plaintiff Bank;
6. That immediately after defendant MAURICIA T. EBRADA
received the cash proceeds of said check in the sum of P1,246.08
from the plaintiff Bank, she immediately turned over the said
amount to the third-party defendant and fourth-party plaintiff
ADELAIDA DOMINGUEZ, who in turn handed the said amount
to the fourth-party defendant JUSTINA TINIO on the same date, as
evidenced by the receipt signed by her which will be marked as
Exhibit “1-Dominguez”; and
7. That the parties hereto reserve the right to present evidence on any
other fact not covered by the foregoing stipulations. Manila,
Philippines, June 6, 1969.”

Based on the foregoing stipulation of facts and the documentary

evidence presented, the trial court rendered a decision, the
dispositive portion of which reads as follows:

“WHEREFORE, the Court renders judgment ordering the defendant

Mauricia T. Ebrada to pay the plaintiff the amount of ONE THOUSAND
TWO FORTY-SIX 08/100 (P1,246.08), with interest at the legal rate from
the filing of the complaint on June 16, 1966, until fully paid, plus the costs
in both instances against Mauricia T. Ebrada.
The right of Mauricia T. Ebrada to file whatever claim she may have
against Adelaida Dominguez in connection with this case is hereby
reserved. The right of the estate of Dominguez to file the fourth-party
complaint against Justina Tinio is also reserved.
SO ORDERED.”

In her appeal, defendant-appellant presses that the lower court erred:

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“IN ORDERING THE APPELLANT TO PAY THE APPELLEE

THE FACE VALUE OF THE SUBJECT CHECK AFTER
FINDING THAT THE DRAWER ISSUED THE SUBJECT
CHECK TO A PERSON ALREADY DECEASED FOR 11-1/2
YEARS AND THAT THE APPELLANT DID NOT BENEFIT
FROM ENCASHING SAID CHECK.”
From the stipulation of facts it is admitted that the check in
question was delivered to defendant-appellant by Adelaida
Dominguez for the purpose of encashment and that her signature
was affixed on said check when she cashed it with the plaintiff Bank.
Likewise it is admitted that defendant-appellant was the last indorser
of the said check. As such indorser, she was supposed to have
warranted that she has good title to said check; for under Section 65
6
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.”
xxxxxx

and under Section 65 of the same Act:

“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.”

It turned out, however, that the signature of the original payee of the7
check, Martin Lorenzo was a forgery because he was already dead
almost 11 years before the check in question was issued by the
Bureau of Treasury. Under Section 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

_______________

6 Act No. 2031.

7 He died July 14, 1952 as shown by the Certificate of Death issued by the Local Civil
Registrar of the Municipality of Lubao Pampanga (Exhibit B).

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signature unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.”

It is clear from the provision that where the signature on a negotiable

instrument if forged, the negotiation of the check is without force or
effect. But does this mean that the existence of one forged signature
therein will render void all the other negotiations of the check with
respect to the other parties whose signatures are genuine?
In the case of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590,
where a check has several indorsements on it, it was held that it is
only the negotiation based on the forged or unauthorized signature
which is inoperative. Applying this principle to the case before Us, it
can be safely concluded that it is only the negotiation predicated on
the forged indorsement that should be declared inoperative. This ONLY the negotiation based on forged or
unauthorised sig is inoperative
means that the negotiation of the check in question from Martin Negotiation from M. Lorenzo to Ramon
Lorenzo, the original payee, to Ramon R. Lorenzo, the second Lorenzo should be declared no effect
indorser, should be declared of no effect, but the negotiation of the R. Lorenzo to A. Dominguez to defendant
should be valid and enforceable, barring
aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, any claim of forgery
the third indorser, and from Adelaida Dominguez to the defendant-
appellant who did not know of the forgery, should be considered
valid and enforceable, barring any claim of forgery.
What happens then, if, after the drawee bank has paid the amount
of the check to the holder thereof, it was discovered that the
signature of the payee was forged? Can the drawee bank recover
from the one who encashed the check?
In the case of State v. Broadway Mut. Bank, 282 S.W. 196, 197,
it was held that the drawee of a check can recover from the holder
the money paid to him on a forged instrument. It is not supposed to
be its duty to ascertain whether the signatures of the payee or
indorsers are genuine or not. This is because the indorser is
supposed to warrant to the drawee that the signatures of the payee
and previous indorsers are genuine, warranty not extending only to
holders in due course. 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 who has paid the forged check, without actual negligence
on his part, may recover the money paid from such negligent
purchasers. In such cases the recovery is permitted because although
the drawee was in a way negligent in failing to

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detect the forgery, yet if the encasher of the check had performed his
duty, the forgery would in all probability, have been detected and the
fraud defeated. The reason for allowing the drawee bank to recover
from the encasher is:

“Every one with even the least experience in business knows that no
business man would accept a check in exchange for money or goods unless
he is satisfied that the check is genuine. He accepts it only because he has
proof that it is genuine, or because he has sufficient confidence in the
honesty and financial responsibility of the person who vouches for it. If he is
deceived he has suffered a loss of his cash or goods through his own
mistake. His 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
8
forgery when the check was presented?”

Similarly, in the case before Us, the defendant-appellant, 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. Her failure to do
so makes her liable for the loss and the plaintiff Bank may recover
from her the money she received for the check. As reasoned out
above, had she performed the duty of ascertaining the genuineness
of the check, in all probability the forgery would have been detected
and the fraud defeated. 9
In our jurisdiction We have a case of similar import. The Great
Eastern Life Insurance Company drew its check for P2000.00 on the
Hongkong and Shanghai Banking Corporation payable to the order
of Lazaro Melicor. A certain E. M. Maasin

_______________

8 Gloucester Bank v. Salem Bank, 17 Mass. 33; Bank of U. S. Bank of Georgia, 10

Wheat 333, 6 L. Ed. 334; Sional Bank of America v. Bangs, 196 Mass. 441, 8 Am.
Rep. 349; First National Bank of Danvers v. First National Bank of Salem, 151 Mass.
280, 24 N.E. 44, 21 Am. St. Rep. 450; First National Bank v. Ricker, 71 Ill. 439, 22
Am. Rep. 104; Rouvant v. Bank, 63 Tex. 610; Bank, 30 Il. 96 Am. Dec. 554; People’s
Bank v. Franklyn Bank, 88 Tenn. 299, 12 S.W. 716, 6 L.R.A. 724, 17 Am St. Rep.
884; Ellis & Morton v. Trust Co., 4 Ohio St. 682, 64 Am. Dec. 610; Bank v. Bank, 58
Ohio St. 207, 50 N. E. 723; Bank v. Bingham, 30 wash. 484, 71 Pac. 43, 60 L.R.A.
955.
9 Great Eastern Life insurance Company vs. Hongkong and Shanghai Banking
Corporation, 43 Phil. 678.

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fraudulently obtained the check and forged the signature of Melicor,

as an indorser, and then personally indorsed and presented the check
to the Philippine National Bank where the amount of the check was
placed to his (Maasin’s) credit. On the next day, the Philippine
National Bank indorsed the check to the Hongkong and Shanghai
Banking Corporation which paid it and charged the amount of the
check to the insurance company. The Court held that the Hongkong
and Shanghai Banking Corporation was liable to the insurance
company for the amount of the check and that the Philippine
National Bank was in turn liable to the Hongkong and Shanghai
Banking Corporation. Said the Court:

“Where a check is drawn payable to the order of one person and is presented
to a bank by another and purports upon its face to have been duly indorsed
by the payee of the check, it is the duty of the bank to know that the check
was duly indorsed by the original payee, and where the Bank pays the
amount of the check to a third person, who has forged the signature of the
payee, the loss falls upon the bank who cashed the check, and its only
remedy is against the person to whom it paid the money.”

With the foregoing doctrine We are to concede that the plaintiff

Bank should suffer the loss when it paid the amount of the check in
question to defendant-appellant, but it has the remedy to recover
from the latter the amount it paid to her. Although the defendant-
appellant to whom the plaintiff Bank paid the check was not proven
to be the author of the supposed forgery, yet as last10indorser of the
check, she has warranted that she has good title to it even if in fact
she did not have it because the payee of the check was already dead
11 years before the check was issued. The fact that immediately after
receiving the cash proceeds of the check in question in the amount
of P1,246.08 from the plaintiff Bank, defendant-appellant
immediately turned over said amount 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

_______________

10 Sec. 65, par. (b). Negotiable Instruments Law (Act 2031). Every person
negotiating an instrument by delivery or by a qualified instrument warrants:

(a) x x x x x x
(b) That he has a good title to it.”

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688 SUPREME COURT REPORTS ANNOTATED

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also liable under Section 29 of the Negotiable Instruments Law (Act

2031), thus:

“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.”

IN VIEW OF THE FOREGOING, the judgment appealed from is

hereby affirmed in toto with costs against defendant-appellant.
SO ORDERED.

          Makalintal, C.J., Castro, Makasiar and Esguerra, JJ.,

concur.

Decision affirmed.

Notes.—It is the obligation of a collecting bank to reimburse to

the drawee-bank the value of checks found to contain the forged
indorsements of the payee for the reason that the bank with which
the check was deposited has no right to pay the sum stated therein to
the forger or anyone else upon a forged signature. It was the
collecting bank’s duty to know that the endorsement was genuine
before cashing the check. (Great Eastern Life Ins. Co. vs. Hongkong
& Shanghai Bank, 53 Phil. 678).
Any person taking checks made payable to a corporation which
can act only though its agents does so at its or his peril, and must
abide by the consequences if the agent who indorses the same is
without authority. (Insular Drug Co. vs. National, 58 Phil. 685).
The 24-hour regulation of the Central Bank relative to the
clearing of checks is valid (Republic vs. Equitable Banking Corp.,
L-15894, Jan. 30, 1964). Consequently, where a corporation draws a
check on a bank and thereafter said checks falls into the hands of a
person who erases the name of the payee, superimposes his own
name and thereafter deposits said check in his bank, the liability of
the encashing bank on its indorsement to the drawee-bank after the
24-hour period had elapsed would cease. (Hongkong & Shanghai
Banking Corp. vs. People’s Bank & Trust Co., 35 SCRA 143).

——o0o——

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