REPUBLIC vs.

EBRADA
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 (ThirdParty 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.