G.R. No. L-55079 - Metropolitan Bank and Trust Co. vs. 1st National City Bank

On August 25, 1964, Salvador Sales deposited Check No. 7166 (dated July 8, 1964) for P50,000.00 into his newly opened current account with Metropolitan Bank and Trust Company (Metro Bank).
Prior to this, Sales had deposited P500.00 in cash when opening the said account.

Metro Bank immediately sent the check to the Central Bank Clearing House.
At the back of the check, Metro Bank stamped the words “Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or Lack of endorsements Guaranteed,” indicating its endorsement and guarantee to the clearing house.
The check was cleared the same day, and the amount of P50,000.00 was paid to First National City Bank (FNCB).
Subsequently, Salvador Sales’ account was credited with P50,000.00, which he partially withdrew regularly over the following days (first withdrawal on August 26, 1964, followed by withdrawals on August 28, 1964 and August 31, 1964).

On September 3, 1964, FNCB returned the cancelled check, accompanying it with the monthly statement of Joaquin Cunanan & Company’s account (the drawer) at FNCB.
On the same day, the drawer notified FNCB that the check had been altered. The alteration involved:

Changing an actual amount of P50.00 to P50,000.00.
Superimposing the word “CASH” over the payee’s name, originally “Manila Polo Club.”

FNCB promptly notified Metro Bank of the alteration by telephone and confirmed the communication with a letter received by Metro Bank on September 4, 1964.

FNCB requested reimbursement for the P50,000.00 on September 10, 1964 and reiterated its demand on September 29, 1964, but Metro Bank refused to oblige.
On June 29, 1965, FNCB filed a complaint in the Court of First Instance of Manila, Branch VIII, in Civil Case No. 61488, seeking the reimbursement of the altered check amount, along with legal interest from June 25, 1965, attorney’s fees, and costs.

On January 27, 1975, the Trial Court ordered Metro Bank to pay FNCB P50,000.00 with legal interest from June 25, 1965, plus attorney’s fees and costs.
Metro Bank appealed the decision, and on August 29, 1980, the Court of Appeals (in CA-G.R. No. 57129-R) affirmed the Trial Court’s judgment in toto.
The case ultimately reached the Supreme Court through a Petition for Review on Certiorari, leading to the present deliberation.

Metro Bank argued that the 24-hour clearing house rule under Central Bank Circular No. 9 (as amended) should have been applied, which mandates the return of defective checks within 24 hours.
Metro Bank contended that the Court of Appeals’ reliance on its previous case in Gallaites vs. RCA was misplaced and that the doctrines established in Republic of the Philippines vs. Equitable Banking Corporation and Hongkong & Shanghai Banking Corporation vs. People’s Bank and Trust Co. were controlling.
The bank also maintained that any negligence on its part was not the proximate cause of the loss, positing that FNCB’s delay in notifying of the alteration (nine days after clearing) barred any claim against Metro Bank.

Whether the 24-hour clearing house rule under Central Bank Circular No. 9 (and its amendments) applies to the present case, thereby exempting Metro Bank from liability.
Whether the Court of Appeals erred in relying on its decision in Gallaites vs. RCA, rendering it inapplicable in the current context.
Whether the doctrines established in Republic of the Philippines vs. Equitable Banking Corporation and Hongkong & Shanghai Banking Corporation vs. People’s Bank and Trust Co., which confine a bank’s liability in clearing house operations beyond the stipulated period, are controlling in this case.
Whether it was proper to dismiss the claim against Metro Bank on the basis that FNCB delayed its notification of the alteration beyond the prescribed 24-hour period.