Republic Bank vs. CA

Republic Bank vs. Court of Appeals

GR No. 42725                        April 22, 1991

Grino – Aquino, J.:

Facts:

            San Miguel Corporation drew a dividend check worth P240 on its account in First National City Bank in favor of J. Roberto Delgado, a stock holder. The amount on its face was fraudulently and without authority of the drawer, altered by increasing it from P240 to P9, 240. The check was indorsed and deposited by Delgado to his account with Republic bank. Republic endorsed the check to FNCB and presented I for payment through the Central Bank Clearing House.  FNCB paid P9, 240 to the Republic through the Central Bank Clearing House. SMC notified FNCB of trhe material alteration in the check in question. FNCB informed Republic with regard to the alteration nand forgery of the endorsement of Delgado. By the, Delgado had already withdrawn his account from the republic. FNCB demanded that Republic refund the P9, 240.  Trial court rendered judgment in favor of FNCB and it was affirmed by the Court of Appeals.

Issue:

            Whether Republic, as the collecting bank, is protected, by 24-hour clearing house rule, found in CB circular No. 9, as amended, from liability to refund the amount paid by FNCB, as drawee of the SMC dividend check.

Held:

            No. The 24-hour clearing house rule is valid rule applicable to commercial banks. It is true that when an indorsement is forged, the collecting bank or last endorser, as general rule, bears the loss. But the unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on the clearing house operation. Thus, when the drawee bank fails to return a forged or altered check to the collecting bank is absolved from liability. Unless an alteration is attributable to the fault or negligence of the drawer himself, such as when he leaves spaces on the check which would allow the fraudulent insertion of additional numerals in the amount appearing thereon, the remedy of the drawee bank that negligently clears a forged and/or honor altered check for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss. It may not charge the amount so paid to the account of the drawer, if the latter was free from blame, nor recover it from the collecting bank is the latter made payment after proper clearance from the drawee.