REPUBLIC BANK V CA, First Natl City Bank

G.R. No. 42725; April 22, 1991

FACTS
SUBJECT: Demand for refund by FNCB from Republic Bank due to clearing by the former of an altered check
DRAWER: San Miguel Corporation (SMC)
DRAWEE: First National City Bank (FNCB)
PAYEE: J. Roberto Delgado
-SMC drew a divided check worth P240 in favor of Delgado, one of its stockholders.
-After the check had been delivered, the check was altered by increasing the amount on its face from P240 to
P9,240. This was done fraudulently and without the authority of SMC as drawer. The check was indorsed and
deposited on March 14, 1996 by Delgado in his account with Republic Bank.
-Republic accepted the check without ascertaining its genuineness and regularity. It endorsed the check to FNCB
with a stamp on the back of the check, stating: all prior and/or lack of indorsement guaranteed.
-March 15, 1966: FNCB, believing that the check was genuine and relying on the guaranty and endorsement of the
petitioner bank, paid the amount on the face of the check.
-April 19, 1966 -SMC notified FNCB of the material alternation in the check about a month after FNCB had paid
Republic Bank. FNCB recredited P9,240 to SMCs account.
-May 19, 1966 FNCB wrote Republic about the alteration. But at that time, Delgado had already withdrawn the said
amount from his Republic Bank account.
-FCNB demanded that Republic Bank refund the amount of P9,240 on the basis of the latters endorsement and
guaranty. Republic refused, saying that 1) there was delay in giving notice of the alteration, 2) it was SMCs fault in
drawing the heck in such a way as to allow the alteration and 3) that FNCB, as drawee, was absolved of any liability
to SMC thus FNCB had no right to recourse against Republic Bank.
-The trial court ordered Republic Bank to pay P9,240 to PNCB with interest. The CA affirmed the TC ruling.
ISSUE
WON Republic Bank, as clearing bank, is protected from liability by the 24-hour clearing house rule (in CB Circular 9)
HELD: YES
-When an endorsement is forged, the collecting bank or last endorsor bears the loss. However 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 heck to the collecting bank within the 24-hour clearing
period, the collecting bank is absolved from liability.
Jurisprudential rulings on the matter:
-HSBC vs. Peoples Bank: A check was drawn by PLDT on HSBC payable to the same bank. It was mailed to the
payee but landed in the hands of Changco who erased the payees name and replaced it with his own name. He then
deposited the check in Peoples Bank with the indorsement: For clearance, clearing office. This was cleared by the
drawee bank HSBC. Changco withdrew the money and when the alteration was discovered, HSBC sought to recover
the amount from Peoples Bank. HSBC advised Peoples Bank of the alteration 27 days after clearing. The Court
ruled that the said indorsement must be read with the 24-hour regulation.
-Metrobank vs. FNCB (Aha! Gaya nga ng sabi ni Sharon Cuneta, Di na natuto): A check for P50 was drawn by
Cunanan and Co. on its account at FNCB and payable to Manila Polo Club was changed to P50,000. It was
deposited by Sales in his account in Metrobank. The check was cleared by FNCB which paid P50,000 to Metrobank.
The alteration was discovered 9 days later so FNCB sought to recover from Metrobank. The Court upheld the validity
of the 24-hour clearing house regulation. The check was not returned to Metrobank in accordance with the given
period but was cleared by FNCB. Failure of FNCB to call attention to the alteration of the check negates whatever
right it may have had against Metrobank.

-Every bank that issues checks for the use of its customers should know WON the drawers signature is genuine. It
should be able to detect alterations, erasures and other intercalations on the check. It should possess appropriate
detecting devices.
-Unless the alteration is attributable to the fault or negligence of the drawer, the remedy of the drawee bank that
negligently clears a forged/altered check for payment is against the party responsible for the forgery/alteration.
Disposition Petition for review granted.