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32 Republic v.

Ebrada
Real Defense - Forgery and Want of Authority (Sec. 23, NIL)
Doctrine: It is only the negotiation predicated on the forged indorsement that should be declared
inoperative.

If the drawee-bank discovers that the signature of the payee was forged after it has paid the amount
of the check to the holder thereof, it can recover the amount paid from the said holder.

Facts:
 Respondent Mauricia Ebrada encashed a Back-Pay Check for P1,246.80 at the main branch
of petitioner Republic Bank at Escolta, Manila. The said check was issued by the Bureau
of Treasury.
 The Bureau of Treasury then advised Republic Bank that the indorsement made in the name
of a certain “Martin Lorenzo” was forged, because the said payee Martin Lorenzo was dead
since July 1952.
o The back side of the subject check bears the following signatures:
 Martin Lorenzo (Forged signature, he was dead 11 years before the subject
check was issued)
 Ramon Lorenzo
 Delia Dominguez
 Mauricia T. Ebrada
o The said check was then delivered to Ebrada, by Dominguez for encashment.
o Upon enchashment, Ebrada allegedly gave the amount to Dominguez, who then
delivered the amount to a certain Justina Tinio.
 The Bureau of Treasury then refunded the amount of P1,246.80 from Republic Bank.
 To recover the P1,246.80, Republic Bank then made formal demands from herein
respondent Ebrada. Ebrada refused to pay the amount to Republic Bank. Republic Bank
then filed a suit against Ebrada.
 Ebrada alleged that she’s a holder in due course, or acquired her title from a holder in due
course at least, thus alleging that she is entitled to the proceeds of the Back-Pay check.
 Ebrada also alleged that petitioner Republic Bank has no cause of action because they failed
to ascertain the validity of the instrument before allowing the encashment.
 The Trial Court ruled in favor of Republic Bank.
Issue: Whether or not herein respondent Ebrada is liable for the value of the check worth P1,246.80
Held: Yes.
Ruling: Under Section 23 of the NIL: “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.”
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 other signatures
are also not genuine?
The Supreme Court ruled that where a check has several indorsements on it, it is only
the negotiation based on the forged or unauthorized signature which is inoperative. Applying
this principle to the case, is only the negotiation predicated on the forged indorsement that should
be declared inoperative (From Martin Lorenzo to Ramon Lorenzo). But the negotiation from
Ramon Lorenzo to Adelaida Dominguez, and from Dominguez to Ebrada should be considered
valid and enforceable. Thus, Ebrada is still a holder in due course.
When the drawee bank pays the amount of the check to the holder, and eventually
discovered that the signature of the payee (Martin Lorenzo) was forged, the drawee bank (actually
all drawees in general) can recover the amount upon discovery of the forgery. The recovery is
permitted because although the drawee was in a way negligent in failing to yet if the encasher of
the check had performed his duty, the forgery would in all probability, have been detected and the
fraud defeated.

Defendant 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. 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.

Important!: Also, the plaintiff Republic Bank should suffer the loss when it paid the amount of the
check in question to defendant Ebrada, but it has the remedy to recover from Ebrada 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 last indorser 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.
Note that: 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 also liable under Section 29 of the Negotiable Instruments Law, 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.”

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