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REPUBLIC BANK v. CA

FACTS:

On January 25, 1966, San Miguel Corporation (SMC) issued a dividend check worth P240 to J. Roberto C. Delgado. Delgado deposited the check on March 14, 1966, without Republic Bank verifying its genuineness and regularity. Republic Bank endorsed the check to First National City Bank (FNCB) by guaranteeing all prior and/or lack of indorsement. FNCB, believing the check to be genuine, paid P9,240 to Republic Bank through the Central Bank Clearing House on March 15, 1966.

SMC notified FNCB of the material alteration in the check amount on April 19, 1966. As a result, FNCB re-credited P9,240 to SMC and informed Republic Bank about the alteration and fraudulent endorsement on May 19, 1966. Subsequently, on August 15, 1966, FNCB demanded that Republic Bank refund the P9,240, but the bank refused to do so.

The trial court ordered Republic Bank to pay P9,240 to FNCB, a decision which was subsequently affirmed by the Court of Appeals. The issue in this petition for review is whether Republic Bank, as the collecting bank, is protected by the 24-hour clearing house rule and therefore not liable to refund the amount paid by FNCB.

ISSUES:

  1. Whether Republic Bank, as the collecting bank, is protected by the 24-hour clearing house rule from liability to refund the amount paid by FNCB.

RULING:

  1. The petition for review is meritorious and must be granted. The 24-hour clearing house rule, as provided in Section 4(c) of Central Bank Circular No. 9, absolves the collecting bank, Republic Bank, from liability to refund the amount paid by FNCB. When the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability. This rule is applicable to commercial banks and is supported by previous decisions of the Supreme Court.

PRINCIPLES:

  • The unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on clearing house operation. When the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability. (Metropolitan Bank & Trust Co. vs. First National City Bank)

  • When an endorsement is forged, the collecting bank or last endorser, as a general rule, bears the loss. (Banco de Oro Savings & Mortgage Bank vs. Equitable Banking Corp.)

  • The 24-hour clearing house rule is a valid rule applicable to commercial banks. (Republic vs. Equitable Banking Corporation, Metropolitan Bank & Trust Co. vs. First National City Bank)

  • The alteration or forgery of an endorsement in a check must be discovered and reported within a reasonable time in order for the collecting bank to be liable for refund. (Hongkong & Shanghai Banking Corp. vs. People's Bank & Trust Co.)