G.R. No. 42725 – 196 SCRA 100 – Mercantile Law – Negotiable Instruments Law – Liabilities of Parties – Forgery – 24 Hour Clearing House Rule
On January 25, 1966, San Miguel Corporation (SMC) issued a P240.00 check in favor of Roberto Delgado against SMC’s account with the First National City Bank (FNCB). Delgado fraudulently changed the amount written on the check to P9,240.00. Delgado made a check deposit with Republic Bank. Republic Bank accepted the check and endorsed it to FNCB by stamping on the back of the check “”all prior and/or lack of indorsement guaranteed“”. The check cleared and FNCB paid Republic Bank P9,240.00.
On April 19, 1966, SMC notified FNCB that the check involved was forged. FNCB refunded SMC the amount of the check. On May 19, 1966, FNCB informed Republic bank about the forgery, by then Delgado withdrew his account from Republic Bank. On August 15, 1966, FNCB demanded Republic Bank to refund the amount of the check.
ISSUE: Whether or not Republic Bank should refund the amount to FNCB.
HELD: No. The 24-hour clearing house rule embodied in Section 4(c) of Central Bank Circular No. 9, as amended, applies to this case. This rule mandates banks that after a clearing, all cleared items must be returned not later than 3:00 PM of the following business day.
It is true that when an endorsement is forged, the collecting bank or last endorser, as a 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 clearing house operation. Thus, when the drawee bank (FNCB) fails to return a forged or altered check to the collecting bank (Republic Bank) within the 24-hour clearing period, the collecting bank is absolved from liability.
