G.R. No. L-42725 - Republic Bank vs. Court of Appeals

On January 25, 1966, San Miguel Corporation (SMC) drew dividend Check No. 108854 for P240, payable to its stockholder, J. Roberto C. Delgado.
After delivery, the amount written on the check was fraudulently altered from P240 to P9,240 without the drawer’s (SMC’s) authorization.

Delgado endorsed and deposited the altered check on March 14, 1966 into his account with Republic Bank, the petitioner.
Republic Bank accepted the check for deposit without verifying its genuineness or detecting the alteration.
Subsequently, Republic Bank endorsed the check to First National City Bank (FNCB) by stamping “all prior and/or lack of indorsement guaranteed” on the back before presenting it for payment via the Central Bank Clearing House.

Trusting the check’s authenticity and relying on Republic Bank’s guaranty, FNCB paid P9,240 to Republic Bank on March 15, 1966 through the clearing process.
On April 19, 1966, SMC notified FNCB of the alteration on the dividend check, prompting FNCB to recredit SMC with the disputed P9,240.
FNCB later informed Republic Bank, on May 19, 1966, in writing that the endorsement of Delgado was fraudulent and that the check had been materially altered.

Prior to the receipt of FNCB’s notification, Delgado had already withdrawn the deposited funds from his account at Republic Bank.
On August 15, 1966, FNCB demanded Republic Bank to refund the P9,240, relying on Republic’s endorsement and guaranty on the check.

The trial court rendered judgment on April 8, 1968, ordering Republic Bank to pay FNCB P9,240 with interest (6% per annum from February 27, 1967), plus attorney’s fees and costs.
The Court of Appeals affirmed the decision, though it reduced the award for attorney’s fees, awarding P1,000 instead of P2,000, and made no pronouncement on costs.

The sole issue in the petition for review was whether Republic Bank, as the collecting bank, is protected by the 24‑hour clearing house rule (as embodied in CB Circular No. 9, Section 4(c)) from liability to refund the altered check amount paid by FNCB.

Whether the 24‑hour clearing house rule as stipulated in Section 4(c) of Central Bank Circular No. 9 (as amended) protects Republic Bank from liability for refunding the altered amount.

Specifically, whether the failure of the drawee bank (FNCB) to notify Republic Bank about the alteration within the prescribed 24-hour period absolves Republic Bank of liability.
Whether the liability should fall on FNCB instead, due to its delay in detecting and communicating the material alteration of the check.