Case Summary (G.R. No. 128567)
Key Dates
Issuance of check: January 15, 1963.
Encashment by Ebrada: February 27, 1963.
Filing of complaint by Republic Bank: June 16, 1966.
City Court judgment: March 21, 1967.
Stipulation filed/dated June 6, 1969.
Decision on appeal by the Court of First Instance rendered by Justice Martin: July 31, 1975.
Applicable Law and Constitutional Context
Primary statutory law applied: Negotiable Instruments Law (Act No. 2031), specifically Sections 5, 23, 29, and 65 as cited in the decision.
Constitutional context: decision date 1975 — the applicable constitution at the time was the 1973 Philippine Constitution (notwithstanding the statutory analysis focused exclusively on Act No. 2031).
Facts Admitted by Stipulation
The parties stipulated: (1) the Treasury issued Check No. BP-508060 payable to MARTIN LORENZO for P1,246.08 drawn on Republic Bank; (2) the check bore indorsements in the sequence MARTIN LORENZO, RAMON R. LORENZO, DELIA (ADELAIDA) DOMINGUEZ, and MAURICIA T. EBRADA; (3) Adelaida Dominguez delivered the check to Ebrada for the purpose of encashment; (4) Ebrada affixed her signature when she encashed the check on February 27, 1963; (5) Ebrada received the cash from Republic Bank and immediately turned it over to Adelaida Dominguez, who in turn handed the amount to Justina Tinio on the same date; and (6) the Treasury later advised Republic Bank that the indorsement of MARTIN LORENZO was a forgery and that the purported payee had died in 1952.
Procedural Posture
Republic Bank, having refunded the Treasury upon learning of the forgery, sued Ebrada to recover the P1,246.08 it had paid. Ebrada denied material allegations and asserted affirmative defenses, including that she was a holder in due course or that she derived rights from a holder in due course, and raised estoppel and negligence defenses. After judgment for Republic Bank in the City Court, Ebrada appealed to the Court of First Instance; the parties submitted a partial stipulation of facts and documentary evidence in the appellate proceedings.
Issue on Appeal
Whether Republic Bank could recover from Ebrada the face amount of the check after it was established that the original payee’s signature (Martin Lorenzo’s) was a forgery and that Ebrada did not personally benefit from encashing the check (because she immediately turned the cash over to Dominguez and ultimately to Tinio).
Legal Principles Applied by the Court — Forgery and Negotiation
Section 23 of the Negotiable Instruments Law was applied: a forged signature is wholly inoperative and cannot confer rights unless the opposing party is precluded from asserting forgery. The Court distinguished between a forged indorsement and subsequent genuine indorsements, relying on authority (Beam v. Farrel) to hold that a forged signature invalidates only the negotiation based on that forged signature, not necessarily all subsequent negotiations by genuine indorsers. Thus, the transaction from the forged payee to the second indorser (Ramon R. Lorenzo) was inoperative, but the subsequent transfers from Ramon R. Lorenzo to Adelaida Dominguez and from Dominguez to Ebrada were treated as valid negotiations insofar as they involved genuine indorsements.
Legal Principles Applied by the Court — Indorser Warranties and Liability
The Court relied on Sections 5 and 65 of the Negotiable Instruments Law to emphasize indorsers’ warranties: every person negotiating an instrument by indorsement warrants that the instrument is genuine and that he has good title (Section 5), and an indorser warrants to subsequent holders in due course that the instrument is valid and subsisting (Section 65). Because Ebrada was the last indorser who presented the instrument for payment, she warranted good title and genuineness to Republic Bank as drawee when she encashed the check.
Drawee’s Right of Recovery Against Encashers When Payee’s Signature Is Forged
The Court analyzed and applied authorities holding that a drawee bank which has paid a forged or unauthorized instrument may recover from the person to whom it paid the proceeds. The rationale presented: a person who accepts or presents an instrument for payment is under a duty to satisfy himself of its genuineness; by indorsing or presenting the instrument he impliedly warrants its genuineness, and his failure to perform this duty makes him liable for the loss suffered by the drawee bank that paid the instrument. The Court cited comparative precedents (including an analogous Philippine case, Great Eastern Life Insurance Co
...continue readingCase Syllabus (G.R. No. 128567)
Case Title, Citation, Panel, and Decision Date
- Republic Bank v. Mauricia T. Ebrada; 160 Phil. 703; First Division; G.R. No. L-40796; Decision by Justice Martin, dated July 31, 1975.
- Concurring Justices: Makalintal, C.J., Ruiz Castro, Makasiar, and Esguerra, JJ.
Parties and Capacity
- Plaintiff-Appellee: Republic Bank (drawee bank on which the Treasury check was drawn).
- Defendant-Appellant: Mauricia T. Ebrada (last indorser and encasher of the check).
- Third-Party Defendant / Fourth-Party Plaintiff: Adelaida Dominguez (delivered the check to Ebrada for encashment; received proceeds from Ebrada; filed third-party and fourth-party pleadings).
- Fourth-Party Defendant: Justina Tinio (recipient of proceeds from Dominguez as asserted in stipulation and trial record).
- All parties admitted their capacities to sue and be sued in the partial stipulation of facts.
Procedural History
- Check encashed by defendant-appellant on or about February 27, 1963 at Republic Bank main office, Escolta, Manila.
- Plaintiff Bank later informed by the Bureau of Treasury that payee indorsement "Martin Lorenzo" was a forgery and was requested by the Bureau to refund P1,246.08.
- Plaintiff Bank refunded the Bureau of Treasury and, after verbal and formal demands upon defendant Ebrada to account for the refunded sum, filed suit to recover the amount.
- Suit originally filed before the City Court of Manila (Civil Case No. 69288 as captioned "Republic Bank vs. Mauricia T. Ebrada").
- On March 21, 1967, the City Court rendered judgment for plaintiff Bank against defendant Ebrada and for related third- and fourth-party claims; defendant Ebrada appealed to the Court of First Instance of Manila.
- Parties submitted a partial stipulation of facts on June 6, 1969 during proceedings in the Court of First Instance.
- The Court of First Instance rendered a decision ordering Ebrada to pay P1,246.08 plus legal interest from filing of the complaint (June 16, 1966) and costs; rights to pursue claims against Dominguez and Tinio were reserved.
- On appeal to the Supreme Court, the judgment of the lower court was affirmed in toto with costs against defendant-appellant.
Factual Summary (As Stipulated and Established in Record)
- The Bureau of Treasury issued Check No. BP-508060 dated January 15, 1963, payable to the order of MARTIN LORENZO, for P1,246.08, drawn on Republic Bank (Exhibit "A").
- The back of the check bore, in order, the following signatures: 1) MARTIN LORENZO; 2) RAMON R. LORENZO; 3) DELIA DOMINGUEZ; and 4) MAURICIA T. EBRADA.
- The check was delivered to Mauricia T. Ebrada by Adelaida Dominguez for the purpose of encashment.
- The signature of Mauricia T. Ebrada was affixed on the check on February 27, 1963 when she encashed it with Republic Bank.
- Immediately after receiving the cash proceeds (P1,246.08) from Republic Bank, Ebrada immediately turned over the amount to Adelaida Dominguez, who in turn handed the amount to Justina Tinio on the same date; this transfer was evidenced by a receipt signed by Dominguez (Exhibit "1-Dominguez").
- The payee signature of MARTIN LORENZO was later determined to be a forgery; documentary proof showed he died July 14, 1952 (Certificate of Death, Exhibit B).
- The parties reserved the right to present evidence on other facts not covered by the stipulation.
Central Legal Issue Presented on Appeal
- Whether the drawee bank (Republic Bank) may recover from the person who encashed the check (Ebrada) the amount paid on a check that bore a forged payee indorsement, when (a) the original payee's signature was forged and that person had been deceased since 1952, (b) the defendant-appellant was the last indorser who encashed the check and immediately turned over the proceeds to third parties, and (c) the defendant-appellant contended she did not benefit from encashing the check.
Appellant’s Principal Argument
- Defendant-appellant contended the lower court erred in ordering her to pay the face value of the check because: (a) the drawer issued the check to a person already deceased for approximately 11½ years (Martin Lorenzo), and (b) she did not benefit from encashing the check.
Statutory Provisions and Doctrines Cited
- Negotiable Instruments Law (Act No. 2031) provisions invoked by the Court and parties:
- Section 5: Warranty by person negotiating an instrument by delivery or by qualified indorsement includes that the instrument is genuine and that the indorser has good title thereto.
- Section 65: Every indorser who indorses without qualification warrants to all subsequent holders in due course matters in preceding sections and that the instrument is at the time of indorsement valid and subsisting.
- Section 23: A forged signature is wholly inoperative; no right to retain or discharge the instrument can be acquired through such forged signature unless the party seeking to enforce it is precluded from setting up the forgery or want of authority.
- Section 29: Definition and liability of an accommodation party—one who signs without receiving value and for the purpose of lending his name to another; such person is liable on the instrument to a holder for value.