REPUBLIC BANK vs. CA and FIRST NATIONAL CITY BANK - G.R. No. 42725

REPUBLIC BANK vs. CA and FIRST NATIONAL CITY BANK

G.R. No. 42725                        April 22, 1991

San Miguel Corporation issued a dividend check for P240 in favor of J. Roberto Delgado, a stockholder. Delgado altered the amount of the check to P9,240. The check was indorsed and deposited by Delgado with Republic Bank. Republic Bank endorsed the check to First National City Bank (FNCB), the drawee bank, by stamping on the back of the check “all prior and / or lack of indorsements guaranteed. Relying on the endorsement, FNCB paid the amount to Republic Bank. Later on, San Miguel informed FNCB of the material alteration of the amount. FNCB recredited the amount to San Miguel’s account, and demanded refund from Republic Bank. Republic Bank refused. Hence, the present action.

Issue: Whether or not the bank shall bear the loss resulting from the altered check.

Held: Yes. When an indorsement is forged, the collecting bank or last indorser, as a general rule, bears the loss. But the unqualified indorsement 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 fails to return a forged or altered check to the collecting bank within the 24-hour clearing period (as provided by Section 4c of Central Bank Circular 9, as amended), the collecting bank is absolved from liability. The drawee bank, FNCB, should bear the loss for the payment of the altered check for its failure to detect and warn Republic Bank of the fraudulent character of the check within the 24-hour clearing house rule.