SEC 63
Martin Lorenzo in the amount of P1,246.08. The drawee named therein was
ANG TIONG v TING
22 SCRA 713 Commercial Law Negotiable Instruments Law
Accommodation Party General Indorser
FACTS:
In August 1960, Lorenzo Ting issued a check in the amount of P4,000.00
payable to cash or bearer. At the back of the check, Felipe Ang affixed his
signature. The check later on ended up in the hands of Ang Tiong. When
Tiong presented the check with the bank, it was dishonored. Tiong then sued
Lorenzo and Felipe. Tiong won the collection suit. Felipe appealed on the
ground that he should be allowed to recover from Lorenzo because Felipe is
a guarantor and not an indorser. Felipe also avers, in the alternative, that he
is a mere accommodation party and that fact is known by Tiong. As such,
Tiong should make Lorenzo the person directly and primarily liable, not
Felipe.
ISSUE: Whether or not Felipes arguments are correct.
HELD: No. The check is a negotiable instrument. What governs the
transaction is the Negotiable Instruments Law (NIL) and not the Civil Code
provisions on guaranty. Felipe is not a guarantor. Under Section 63 of the
NIL a person signing in blank a negotiable instrument, such as the check in
this case, is considered as a general indorser. All Felipe did is to affix his
signature at the back of the check such already qualifies as a blank
indorsement.
A person placing his signature upon an instrument otherwise than as maker,
drawer or acceptor is a general indorser, unless he clearly indicates
plaintiff appropriate words his intention to be bound in some other capacity,
which he did not do. And section 66 ordains that every indorser who
indorses without qualification, warrants to all subsequent holders in due
course (a) that the instrument is genuine and in all respects what it purports
to be; (b) that he has a good title to it; (c) that all prior parties have capacity
to contract; and (d) that the instrument is at the time of his indorsement valid
and subsisting. In addition, he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, and that if it be dishonored,
he will pay the amount thereof to the holder.
Anent Felipes alternative allegation that he is exempt as an accommodation
party, the same is not tenable. Section 29 of the NIL is clear when it states
that an accommodation party is liable on the instrument to a holder for
value, notwithstanding that such holder at the time of taking the instrument
knew him to be only an accommodation party.
Further, whether or not Felipe should be allowed to recover from the maker,
Lorenzo, does not affect Tiongs right to recover from any of them (Lorenzo
the maker, or Felipe the indorser).
SEC 65 REPUBLIC v EBRADA
65 SCRA 680 Mercantile Law Negotiable Instruments Law
Consideration Forgery Liability of Accommodation Party
On January 15, 1963, the Bureau of Treasury issued a back pay check to
Republic Bank. The check was subsequently indorsed to Ramon Lorenzo,
then to Delia Dominguez and then to Mauricia Ebrada. Ebrada encashed the
check with the Republic Bank. Republic Bank paid the amount of the check
to Ebrada. Ebrada, upon receiving the cash, gave it to Dominguez;
Dominguez in turn gave the cash to Ramon Lorenzo.
Later, the Bureau of Treasury notified that the check was a forgery because
the payee named therein (Martin Lorenzo) was actually dead 11 years ago
before the check was issued. Republic Bank refunded the amount to the
Bureau of Treasury. The bank then demanded Ebrada to refund them.
ISSUE: Whether or not Republic Bank may recover from Ebrada.
HELD: Yes. Ebrada, being the last indorser, warranted the genuineness of
the signatures of the payee and the previous indorsers. The drawee bank is
not duty bound to ascertain whether or not the signatures of the payee and
the indorsers are genuine. 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 (in this case Republic
Bank) who has paid the forged check, without actual negligence on his part,
may recover the money paid from such negligent purchasers.
But Ebrada did not profit from this because she, upon receiving the
encashment, gave the same to Dominguez?
She is still liable because she is considered as an accommodation party
pursuant to Section 29 of the Negotiable Instruments Law. 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.
Republic Bank vs. Ebrada
GR L-40796, 31 July 1975
-forgery
FACTS:
Respondent Ebrada encashed a back pay check dated January 15, 1963 at
Republic Bank. The Bureau of Treasury, which issued the check advised the
bank that the alleged indorsement of the check by one Martin Lorenzo was
a forgery as the latter has been dead since 14 July 1952; and requested that
it be refunded he sum deducted from its account. The bank refunded the
amount to the Bureau and demanded upon Ebrada the sum in question, who
refused.
ISSUES:
1) Whether the bank can recover from Ebrada who was the last
indorser of the check with the forged indorsement.
2) Whether the existence of one forged signature in the check will
render void all the other negotiations of the check with respect to the other
parties whose signature are genuine.
RULING:
1) Republic 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
latter the amount it paid to her because as last indorser of the check, she
has warranted that she has good title to it even if in fact she did not because
the payee of the check was already dead 11 years before the check was
issued.
2) The negotiation of the check in question from Martin Lorenzo, the
original payee whose indorsement was forged, to the second indorser,
should be declared of no affect, but the negotiation of the aforesaid check
from the second indorser to the third indorser, and from the third indorser to
Ebrada who did not know of the forgery, should be considered valid and
enforceable, barring any claim of forgery.
**The existence of one forged signature in the check will not render void all
the other negotiations of the check with respect to the other parties whose
signature are genuine. As last indorser of the check, petitioner warranted
that she has good title to it even if in fact she did not because the payee of
the check was already dead 11 years before the check was issued.
DIGEST #2
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.
REPUBLIC v EBRADA
Facts: Mauricia T. Ebrada (defendant) encashed a check at the Republic
Bank. The check was issued by the Bureau of Treasury and was indorsed
several times before falling into the hands of the defendant. Defendant
managed to cash the check (worth around 1200 pesos). It was however
discovered that the original payee, Martin Lorenzo, was already dead for
more than a decade. Therefore the initial endorsement must have been a
forgery.
Issues:
(1) Whether or not Ebrada is liable to return the amount that shecashed.
(2) Whether or not a drawee of a check (bank) can recover from the holder
(Ebrada) the money paid from a forged instrument.
Held: Sec. 23 of the Negotiable Instruments Law dictates that wherethe
signature on the negotiable instrument is forged then the negotiation of
the check is without force or effect. In this specific case the court held that
since the check was endorsed multiple times already it was not the
responsibility of the bank to ascertain if the signatures of the previous
endorsements were genuine or not. It was the responsibility of the holder of
the check to satisfy himself that the paper is genuine. The acts of presenting
the check for payment or putting it into circulation asserts that the holder has
performed his duty to ascertain the validity of the instrument. Everyone 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. If he is deceived he has suffered a loss of his cash or
goods through his own mistake. Ebrada, upon receiving the check in
question, was duty bound to ascertain if it was genuine or not before
presenting it to plaintiff Bank. The Bank may recover from Ebrada the
amount shereceived for the check.
BANK OF AMERICA v ASSOCIATED CITIZENS BANK
he Bank is under strict liability, based on the contract between the
bank and its customer (drawer), to pay the check only to the payee or
the payees order. The drawers instructions are reflected on the face
and by the terms of the check. When the drawee bank pays a person
other than the payee named on the check, it does not comply with the
terms of the check and violates its duty to charge the drawers account
only for properly payable items.
Facts: BA-Finance Corporation (BA Finance) and Miller Offset Press, Inc.
(Miller) entered into a credit line facility agreement whereby Miller can
discount and assign its trade receivables with the BA Finance. At the same
time, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng, acting for
Miller, executed a Continuing Suretyship Agreement with BA-Finance. Under
the agreement, they jointly and severally guaranteed the full and prompt
payment of any and all indebtedness which Miller may incur with BA-
Finance.
Miller discounted and assigned several trade receivables to BA-Finance by
executing Deeds of Assignment in favor of the latter. In consideration thereof,
BA-Finance issued four checks payable to the order of Miller with the
notation For Payees Account Only. These checks were drawn against
Bank of America. The four checks were deposited by Ching Uy Seng in
Associated Citizens Bank with his joint account with Uy Chung Seng.
Associated Bank stamped the checks and guaranteed all prior endorsements
and/or lack of endorsements and sent them through clearing. Later, Bank of
America as drawee bank honored the checks and paid the proceeds to
Associated Bank as the collecting bank. When Miller failed to deliver to BA-
Finance the proceeds of the assigned trade receivables, BA-Finance filed a
collection suit against Miller and impleaded the three representative of the
latter.
Bank of America filed a third party complaint against Associated Bank. In its
answer to the third party complaint, Associated Bank admitted having
received the four checks for deposit in the joint account of Ching Uy Seng
and Uy Chung Guan Seng, but alleged that Ching Uy Seng, being one of the
corporate officers of Miller, was duly authorized to act for and on behalf of
Miller.
Issues: Whether or not Bank of America is liable to pay BA-Finance and
whether or not Associated Bank should reimburse Bank of America the
amount of the four checks.
Held: The bank on which a check is drawn, known as the drawee bank, is
under strict liability, based on the contract between the bank and its customer
(drawer), to pay the check only to the payee or the payees order. The
drawers instructions are reflected on the face and by the terms of the check.
When the drawee bank pays a person other than the payee named on the
check, it does not comply with the terms of the check and violates its duty to
charge the drawers account only for properly payable items. On the part of
Associated Bank, the law imposes a duty of diligence on the collecting bank
to scrutinize checks deposited with it for the purpose of determining their
genuineness and regularity. The collecting bank being primarily engaged in
banking holds itself out to the public as the expert and the law holds it to a
high standard of conduct. In presenting the checks for clearing and for
payment, the defendant [collecting bank] made an express guarantee on the
validity of all prior endorsements. Thus, stamped at the back of the checks
are the defendants clear warranty. As the warranty has proven to be false
and inaccurate, Associated Bank is liable for any damage arising out of the
falsity of its representation.
Held: A bank that regularly processes checks that are neither payable to
the customer nor duly indorsed by the payee is apparently grossly negligent
in its operations. This Court has recognized the unique public interest
possessed by the banking industry and the need for the people to have full
trust and confidence in their banks. For this reason, banks are minded to
treat their customers accounts with utmost care, confidence, and honesty. In
a checking transaction, the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the check strictly in
accordance with the drawers instructions, i.e., to the named payee in the
check. It should charge to the drawers accounts only the payables
authorized by the latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the amount charged to the
drawers account. Rodriguez checks are payable to order since the bank
failed to prove that the named payees therein are fictitious.
Hence, the fictitious-payee rule which will make the instrument payable to
bearer does not apply. PNB accepted the 69 checks for deposit to the
PEMSLA account even without any indorsement from the named payees. It
bears stressing that order instruments can only be negotiated with a valid
indorsement.