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 Martin Lorenzo in
the amount of P1,246.08. The drawee named therein was 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.