Republic Bank vs CA

Republic Bank vs. CA

GR No 42725, 196 SCRA 100

-forgery

FACTS:

San Miguel Corporation (SMC) drew a check amounting to P240.00 on its account in First National City Bank (FNCB) in favor of Delgado, a stockholder.  Delgado fraudulently altered the amount of the check to P9,240 after which he endorsed and deposited it 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 indorsement guaranteed".  Based on such 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, claiming there was delay in giving it notice of the alteration.

ISSUE:

Whether petitioner Republic Bank as the collecting bank should bear the loss resulting from the altered check.

RULING:

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.  Republic Bank, as the collecting bank, is protected by the 24-hour clearing house rule found in Central Bank Circular No. 9.  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. Hence, when a 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.