061 RBP vs CA, 196 SCRA 100, 1966

FACTS : 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.

Alan A Gultia