Nego Cases 091615

Marine National v. Natl City

Wells Fargo v. Union Trust
HSBC v. Peoples Bank
Republic v. CA and FNCB

Marine National Bank (appellant) vs. The

National City Bank (respondent) (Nov 17, 1874)
CA of NY
FACTS:

Dec 1, 1869: Lunt Brothers, merchants in New

York, gave to a stranger, in exchange for $25,
a check for that amount, drawn upon Marine
National Bank, payable to the order of Henry
Smith.

The next day, a person called upon Derippe &

Co., gold brokers in New York, stating that he
wished to buy some gold for Lunt Brothers, and
asked the price of $3,334 gold in currency

A memorandum, giving the amount as

$4,079.96, was delivered to him.

Soon after, he returned with the check

above mentioned, which had been altered
by erasing the date, payee and amount,
and inserting date December 2d, 1869,
payee Derippe & Co., amount $4,079.96.

Derippe & Co. sent the check to Marine

National Bank's bank for certification, and upon
presentation it was duly certified, and
thereupon, Derippe & Co., without notice, and
being ignorant of the alteration, and relying
upon the certification, gave to the said person
the sum of $3,334 American gold, receiving in
payment the certified check.

Derippe & Co. indorsed the check and

deposited it the same day in the National
City Bank with which they kept an account.
Their account was overdrawn to an amount
less than the amount of said altered check, at
the time of the deposit of the check, and that
deposit made their account good.

Dec 3, 1869, morning: Marine National

Bank paid the check to National City Bank

Same day: immediately after discovering the

alterations, Marine National Bank notified
National City Bank, offered to return the check,
and requested repayment of the amount.
National City Bank refused to repay.

This action was brought to recover a sum of

money alleged to have been paid by Marine
National Bank to National City Bank by
mistake.

Referee (lower court): Marine National Bank

did not guarantee the genuineness of the filling
up of the check by certifying, and so was not
estopped from showing the alteration, and was
entitled to judgment for the amount paid.

General Term of the Superior Court of NY:

reversed
Arguments
Marine National Bank (citations omitted):

When, in consequence of a mutual mistake of

fact, one party has received the property of
another he must refund

The certification of a check by a bank

imposes upon it no greater liability than
is incurred by the acceptance of a bill of
exchange. The acceptance of a bill of
exchange is not an admission or a
certificate that the body of the bill is
genuine.

A drawee who has paid a bill believing it to be

genuine, whereas it has been fraudulently
altered, can recover the amount paid if the
drawer's signature remained genuine.

National City Bank not having had title to the

check Marine National Bank can recover back
the money paid on it.

National City Bank (and another defendant not

mentioned) were not bona fide holders of the
check for value.

The acceptor of a bill speaks only to the

genuineness of the drawer's signature.

A party who indorses a forged check and gives

it currency must bear the loss.
National City Bank (citations omitted):

The certification by Marine National Bank was

an original undertaking to pay the check and
bound it to an innocent holder.

Certification that a check is good is

equivalent to payment.

Marine National Bank is estopped by its own

acts from denying the validity of the check in
question, for the amount and to the payee
therein expressed.

Marine National Bank by delay in commencing

this action lost the right to prosecute National
City Bank, and its only right of action was
against the payees of the check.

Marine National Bank had no right of action

against National City Bank without returning or
tendering said check.
ISSUE + RULING:
Is Marine National Bank entitled to a refund? YES.
Sub-question: What did Marine National Bank warrant
when it made the certification? Only the
genuineness of the drawers signature and the
sufficiency of its credit, NOT the genuineness of
the check in all its parts.
In order to sustain the judgment of the General
Term, the National City Bank must make out
that it has parted with its money in reliance
upon some assertion of the Marine National
Bank in respect to the check, and which the
Marine National Bank is, therefore, bound to
make good.
What did the Marine National Bank assert? The
court agrees with the referee. When a check
is presented for certification to a bank on
which it is drawn, the purpose is to
ascertain, with certainty, what the bank
alone can know, and that is, whether the
drawers of the check have funds
sufficient to meet it and, further, to
obtain the engagement of the bank that
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those funds shall not be withdrawn from

the bank by the drawers of the check.
To this extent the knowledge of the bank must,
of necessity, enable it safely to go, in the way
of assertion and its own power over its own
funds will suffice to protect it as to its
obligation.
If the doctrine contended for by the National
City Bank is correct, and the certifying bank is
bound to warrant, not only the genuineness of
the drawers' signature and the sufficiency of
their credit, but also the genuineness of
the check in all its parts, including the
specification of the amount to be paid, and the
names and identity of the payees, then
obviously there must occur an immediate and
complete change in the modes of doing
business, which would defeat and practically
put an end to the use of certified checks.
For no bank, under such a rule, could safely
certify a check without, in the first instance,
investigating its origin and history by inquiry of
its makers and payees. The burden of such
inquiries could not be borne without
interfering with, or interrupting the other
necessary business of the bank, and the
practice of certifying checks would have to be
abandoned, or a staff of inquirers instituted in
every bank, specially charged with these
duties.
It is plain that banks, in self-protection,
would be compelled to refuse altogether
to certify checks, and that this convenient
and useful invention of modern business
would come to an end. The mischief would
arise from charging the banks with a
knowledge that, in the nature of things,
they cannot possess.
DISPOSITION: The order of the General Term granting
a new trial should be reversed, and the judgment
entered on the report of the referee affirmed.
Motion for Reargument
ALLEN, J.

National City Bank: insists on the enlarged

liability of banks in certifying checks

Court: There is no pretence that the enlarged

liability now sought to be fixed upon a bank
certifying a check has ever been recognized,
acknowledged, or acted upon.

There is no fact, custom, or usage to show

that by the custom of bankers or merchants
the certificate had acquired a different
signification, and imported a different
obligation.
o If, perchance, we have unduly limited
the liability of the certifying bank, a
slight modification in the form of
the certificate will fully express
the enlarged obligation, and meet
the views of those who differ with
the court in the interpretation of
the contract in the form now
made.

If National City Bank is correct, then

banks and bankers will at once
conform to the necessities of the case,
and adopt a form of certification
which will meet the views of those
interested, and make the certifying
bank not only a voucher, and liable for
the genuineness of the signature of
the drawer of the check, and the
sufficiency of his account to meet it,
when it shall be presented for
payment but also for the
genuineness of the body of the
instrument, the indorsement of the
payee, and every other indorser, and
the title of the holder.
o There is no legal objection to
banks assuming a liability to this
extent if they please to do so, but
the intent should be plainly
manitested by the terms of their
undertaking.

Courts have given the certification of a check

the same effect as the acceptance of a bill of
exchange by the drawee.
o They have also regarded the act of
certifying a check as the equivalent of
a payment to a holder, and have held
that, when a payment actually made
could be recovered back as made by
mistake, there was no liability by
reason of the certificate that could be
enforced by law.
o To hold that the act of certifying a
check is an act of graver import
than the acceptance of a bill of
exchange, or the actual payment
of the same check, would be a
violation of all the analogies of
the law, and unreasonable.
o Whether it should be the duty of the
person taking a check (who knows or
may know the individual with whom
he deals, and may easily trace the
title and ascertain the genuineness of
the check in all its parts) or the bank
to whom it is presented in the hurry of
business, to ascertain all the extrinsic
facts which are now claimed to be
implied and warranted by the act of
certification, may not be for us to
determine.
o But to us it seemed more
reasonable that that duty should
rest upon the one receiving the
check.
o Banks do not always demand
identification or proof of title in the
person presenting a check for
certification and if they merely certify
to the genuineness of the signature of
the drawer and the sufficiency of the
fund, the other matters can safely be
left until payment is demanded.
But upon the theory of the National City
Bank's counsel a bank must ascertain to
o

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a certainty, before certifying, that the

check has not been altered or tampered
with, and that the indorsements are
genuine, that is, that the check is
genuine in all its parts, and that the
apparent holder has a valid title. It is
evident that to cast all this responsibility
upon the certifying bank would put a
stop to the certifying of checks, except
when presented by the drawer or under
very peculiar circumstances.

Judge STORY: the acceptor cannot be

presumed to have any such knowledge of the
other facts upon which the rights of the holder
may depend (other than the handwriting of
the drawer)

The certificate only holds the bank for

the truth of the facts presumed to be
within its own knowledge, i.e., the
genuineness of the signature of the drawer
and the state of his account.

Judge RUGGLES: There is no ground for

presuming the body of the bill to be in the
drawer's handwriting, or in any handwriting
known to the acceptor.
o But to require the drawee to
know the handwriting of the
residue of the bill is
unreasonable.
Espy v. Bank of Cincinnati: the law
presumes that the bank has knowledge of the
drawer's signature, and of the state of his
account. Unless there is something in the
terms in which information is asked that
points the attention of the bank officer
beyond these two matters, his response
that the check is good will be limited to
them, and will not extend to the genuineness
of the filling in of the check as to payee or
amount.
It makes no difference whether the
certification was verbal or in writing
An inquiry may reasonably and properly be
made of the drawee as to the genuineness of
the signature of the drawer and the state of
his account, but a resort would be had to
other sources of information to learn the
consideration of the check, by whom the body
was written, the genuineness of the
indorsement and the title of the payee. As to
such matters the drawee could not be
supposed, ordinarily, to have any information,
and would not be called upon or expected to
give answer in respect to them.
Hence, in all reason, as well as legally,
the inquiring of a drawee in respect to a
check, and the response, whether
verbally or in writing, that it is good,
must be held, in the absence of
circumstances indicating a wider reach
of inquiry and a broader answer, to
relate to those facts, and those only, of
which the drawee is presumed to have
knowledge, viz., the two facts before

mentioned (genuineness of signature of

drawer and the state of his account).

All the decisions stand upon the same general

principle, first authoritatively decided in Price
v. Neal, applied to meet the varying
circumstances of individual cases, and they
are all harmonious and consistent with each
other, and the well-established doctrine upon
which they rest.
DISPOSITION: Motion for reargument denied.
Wells Fargo Bank & Union Trust v. Bank of Italy (1931)
Waste, CJ
FACTS:

McCormick Steamship Co., a depositor of Wells

Fargo Nevada National Bank of San Francisco,
drew its check upon said bank for $1400,
payable to the order of Albert Meyer & Co.
o Without the consent of the drawer, the
name of the payee was erased
therefrom and the name of Harry W.
Behling was substituted
o The alteration was made with such skill
that it could not be detected and it was
not detected by the drawee or by
either of the defendants.

The check was then certified (certification is

the equivalent of acceptance under their
civil code) by the drawee and there was
afterwards endorsed thereon the name of
Behling, said endorsement not being made by
the original payee, but by some unknown
person

The check was then endorsed to Popkin and

presented to the Bank of Italy, which paid the
amount thereof
o Bank of Italy transmitted it through the
clearing house to the drawee, which in
turn credited or paid the amount of the
check to the Bank of Italy

When the monthly accounts were rendered, the

Steamship Company received from the drawee
a statement showing that this check had been
paid, but did not received the cancelled check
o It was the custom of the drawee to
retain all certified checks and forward
to its depositors slips in lieu thereof
which indicated by number the checks
certified and paid, but not the names
of the payees.

The steamship company did not discover

the alteration until an inquiry was made
by the original payee several months
after the check had been paid.
o The original payee later demanded
repayment of the amount of the check

The Facts according to Popkin:

o Harry W. Behling was at the time in the
employ of the steamship company, and
Popkin was the manager of a retail
clothing concern in San Francisco.
o Behling purchased certain articles of
clothing from Popkin and in the course
of the transaction stated that he had a
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check drawn upon the Wells Fargo Bank

and requested Popkin to identify him.
The two went to the drawee bank,
where Popkin introduced Behling
o The check was then presented and
certified by the drawee, but, according
to his testimony, Popkin did not
endorse or examine the check at the
time
o Behling then requested payment, but it
was suggested by an officer of the
drawee bank that Popkin being a
depositor of the defendant bank, the
check should be cashed by the latter.
o Later at the banking house of
defendant bank Behling was again
identified by Popkin, who at this time at
the request of the bank endorsed the
check and the same was paid to
Behling.

The endorsement of the name

of Behling preceded that of
Popkin, but by whom it was
made does not appear.
Judgment was for the Bank of Italy
o Wells Fargo contends that certain
findings are unsupported and that the
court erred in its conclusions that the
drawee by its certifiacation admitted
the genuineness of the body of the
check, that the payee named therein
had capacity to endorse, and that the
defendant bank (Italy) was a holder in
due course

ISSUES + RULING:
Is an acceptor or certifier liable on his acceptance or
certification, according to the tenor of the instrument
as originally drawn, or as of the time of his acceptance
or certification? Acceptors or certifiers are liable to
holders in due course according to the tenor of the
instrument at the time of acceptance or certification.

A check is a bill of exchange and where it is

certified by a bank on which it is drawn the
certification is equivalent to an acceptance

Prior to the Uniform Negotiable Instruments

Act, the code provided that the acceptance of
a bill of exchange admits the signature of the
drawer, but does not admit the signature of
any endorser to be genuine.
o According to the new Act: The
acceptor by accepting the instrument
engages that he will pay it according to
the tenor of his acceptance and admits
(1) the existence of the drawer, the
genuineness of his signature, and his
capacity and authority to draw the
instrument; and (2) the existence of
the payee and his then capacity to
endorse.

In the case of National Reserve Bank v Corn

Exchange Bank:
o It is settled by statute, as well as by
authority, that a bank in certifying a
check in the usual form does no more

than to affirm the genuineness of the

signature of the drawer, and that he
has funds on deposit to meet it, and
that the funds will not be permitted to
be withdrawn, to the prejudice of the
holder of the check. But a bank, by its
certification does not warrant the
genuineness of the body of the check.
In National City Bank of Chicago v National
Bank:
o By its (drawee) acceptance it admitted
that Andrew H. Manning was in
existence and that Andrew H. Manning
at the time of acceptance was not
suffering any legal disability which
would affect his ability to pass title to
the instrument accepted by means of
endorsement. According to the plain
language of this section appellee by its
general acceptance bound itself to pay
a draft for $629.80, payable to the
order of Andrew H. Manning.
o After the draft was accepted by
appellee the drawer was discharged
from liability thereon. When appellant
took the draft it was complete and
regular upon its face. It had been duly
accepted by the drawee.
o Appellant relied upon the general
acceptance of appellee, and under the
Negotiable Instruments Law was
protected by it.
o This construction of section 62 is in
accordance with that sound principle
which declares that where one of two
innocent parties must suffer a loss the
law will leave the loss where it finds it.
Brannan
o It is difficult to see how he (the
acceptor) can escape liability if any
meaning is to be given to the words
engages that he will pay according to
the tenor of his acceptance.
o The tenor of the acceptance is
determined by the terms of the bill as it
is when the drawee accepts and that is
a bill for the raised amount.
o That is the bill he accepted and no
other, and according to its tenor he has
engaged that he will pay it.
However, as has been pointed out by Brannan
in his work, the presentation of a check to a
drawee for payment is not a negotiation and
involves no warranties as the drawee is not a
holder in due course under section 52 of the
Negotiable Instruments Law, nor a holder as
defined in section 191 thereof
o The warranties of a general endorser
as provided by section 66 of that law
are based upon a transfer of title and
run only to holders in due course
o Consequently, a drawee who has paid
the instrument is not a transferee of
title as the last holder's endorsement
does not transfer the check but
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converts what was a check into a

voucher
The liability to refund rests upon the quasicontractual duty to return money received
under mistake and not upon warranty, nor is an
action therefor founded upon the instrument
which the drawee has paid.
The above rules apply to Popking, in that in
order to establish any obligation on his part to
reimburse Wells Fargo, it would be necessary to
allege and prove that he received a benefit
from Wells Fargo
o Testimony shows that any benefit he
derived from the transaction was
received either from his co-defendant
(Bank of Italy), or from Behling
It was not the legislative intent that the
obligation of the acceptor should be limited to
the tenor of the instrument as drawn by the
maker, as was the rule at common law, but
that it should be enforceable in favor of a
holder in due course against the acceptor
according to its tenor at the time of its
acceptance or certification.
o The court must take the act as it is
written and should give to the words
their natural and common meaning
... if the language of the act conflicts
with statutes or decisions in force
before its enactment the courts should
not give the act a strained construction
in order to make it harmonize with
earlier statutes or decisions.
o The wording of the act suggests a
change in the common law rule
o A careful reading thereof, independent
of any commonlaw influence, requires
that the words according to the tenor
of his acceptance be construed as
referring to the instrument as it
was at the time it came into the
hands of the acceptor for
acceptance, for he accepts no other
instrument than the one presented
to him the altered formand it alone he
engages to pay.
It makes for the usefulness and currency of
negotiable paper without seriously
endangering accepted banking practices, for
banking institutions can readily protect
themselves against liability on altered
instruments either by qualifying their
acceptance or certification or by relying on
forgery insurance and special paper which will
make alterations obvious

DISPOSITION: Judgment Affirmed

HSBC v.Peoples Bank & Trust Co.
Fernando,
FACTS:

On March 8, 1965, PLDT drew the check on the HSBC

and in favor of the same bank in the sum of
P14,608.05.
This check was sent by mail to the Payee. But the
check fell in the hands of Florentino Changco, who
was able to erase the name of the payee Bank and
instead typed his own name on the check.
On March 16, 1965, Changco deposited the altered
check in his name in his current account with Peoples
Bank and Trust Company
(opened 4 days ago)
This check was presented by the Peoples Bank for
clearing wherein it made the indorsement:
o For clearance, clearing office. All prior
endorsements and/or lack of endorsements
guaranteed. Peoples Bank and Trust Company.
HSBC cleared the check and Peoples Bank credited
Changco
Beginning March 17, 1965, Changco began to withdraw
from his account and on March 31, 1965, he closed it.
On April 12, 1965, the cancelled check was finally
returned to PLDT. It discovered the alteration and on
the same day duly informed HSBC, who in turn
demanded refund from Peoples Bank.
Upon refusal this case was filed by HSBC.
HSBCs Contention: The indorsement that has been
heretofore copiednamely, a guarantee of all prior
indorsements made by Peoples Bank and since such
an indorsement carries with it a concomitant
guarantee of genuineness, the Peoples Bank is liable
to the HSBC.
Peoples Banks Contention: 24hour regulation of
the Central Bank that requires after a clearing, that
all cleared items must be returned not later than
3:00 PM of the following business day. And since the
Hongkong Shanghai Bank only advised the Peoples
Bank as to the alteration on April 12, 1965 or 27 days
after clearing, the Peoples Bank claims that it is now
too late to do so.
TC: Complaint dismissed, HSBC allowed 27 days to
elapse after clearing before notifying Peoples Bank as
to such alteration, the applicable Central Bank
regulation providing for a 24hour period.
ISSUE + RULING:
Whether or not HSBC can ask for reimbursement? - NO
Both banks are part of our banking system and both
are subject to regulations of the Central Bank
The 24hour regulation of the Central Bank in clearing
house operations is valid and if banks feel the 24hour
period is unwise, they should make proper
representations with the Central Bank. But until they
do so, they are bound by such 24hour period
But HSBC insists that PeoplesBank is liable on its
indorsement during clearing house operations. The
indorsement, itself, is very clear when it begins with
the words For clearance, clearing office * * *'. In
other words, such an indorsement must be read
together with the 24hour regulation on clearing
House Operations of the Central Bank. Once that 24hour period is over, the liability on such an
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indorsement has ceased. This being so, HSBC has not

made out a case for relief."
Republic v. Equitable Banking Corporation:
o Justice Concepcion, applied the 24 hour
clearing house rule issued by the Central Bank in
accordance with its rulemaking authority.
o It is embodied in section 4, subsection (c) of
Circular No. 9 of the Central Bank, and reads
thus:

Items which should be returned for any

reason whatsoever shall be returned
directly to the bank, institution or entity
from which the item was received. For
this purpose, the Receipt for Returned
Checks (Cash Form No. 9) should be
used. The original and duplicate copies of
said Receipt shall be given to the bank,
institution or entity which returned the
items and the triplicate copy should be
retained by the bank, institution or entity
whose demand is being returned. At the
following clearing, the original of the
Receipt for Returned Checks shall be
presented through the Clearing Office as
a demand against the bank, institution or
entity whose item has been returned.
Nothing in this section shall prevent the
returned items from being settled by
direct reimbursement to the bank,
institution or entity returning the items.
All items cleared at 11:00 oclock a.m.
shall be returned not later than 2:00
oclock p.m. on the same day and all
items cleared at 8:00 oclock p.m. shall
be returned not later than 8:30 a.m. of
the following business day, except for
items cleared on Saturday which may be
returned not later than 8:30 of the
following day.
It is apparent from the above that the attempted
distinction sought to be made by plaintiff to the
effect that it refers to forged, but not to altered
checks is not warranted.
Moreover, in one of the very cases relied upon by
plaintiff, as appellant, mention is made of a principle
on which defendant Bank could have acted without
incurring the liability now sought to be imposed by
plaintiff. Thus: It is a settled rule that a person who
presents for payment checks such as are here
involved guarantees the genuineness of the check,
and the drawee bank need concern itself with
nothing but the genuineness of the signature, and
the state of the account with it of the drawee."7 It at
all, then, whatever remedy the plaintiff has would lie
not against defendant Bank but as against the party
responsible for changing the name of the payee.
Its failure to call the attention of defendant Bank as to
such alteration until after the lapse of 27 days would,
in the light of the above Central Bank circular, negate
whatever right it might have had against defendant
Bank. While not exactly in point, a later decision of

the Chief Justice announced in 1968, involving a

forged check, argues for the correctness of the
conclusion reached by the lower court even
assuming that a fault could be imputed to defendant
Bank. Thus: Then, again, it has, likewise, been held
that, where the collecting (PCIB) and the drawee
(PNB) banks are equally at fault, the court will leave
the parties where it finds them."
DISPOSITION: TC affirmed.
REPUBLIC BANK, Petitioner, v. COURT OF
APPEALS and FIRST NATIONAL CITY BANK,
Respondents. (1991)
GRIO-AQUINO, J.
FACTS:

January 25, 1966: San Miguel Corporation

(SMC), drew a dividend Check No. 108854 for
P240 on its account in First National City Bank
(FNCB) in favor of J. Roberto C. Delgado, a
stockholder.

After the check had been delivered to Delgado,

the amount on its face was, fraudulently and
without authority of the drawer, altered by
increasing it from P240 to P9,240. The check
was indorsed and deposited by Delgado in his
account with Republic Bank on March 14.
o Drawer: SMC
o Drawee: First National
o Payee: Delgado
o Collecting Bank: Republic Bank

Republic accepted the check for deposit

without ascertaining its genuineness and
regularity, and later stamped on the back of
the check "all prior and/or lack of indorsement
guaranteed" and presented it to FNCB for
payment through the Central Bank
Clearing House.

March 15: Believing the check was genuine,

and relying on the guaranty and endorsement
of Republic appearing on the back of the check,
FNCB paid P9,240 to Republic.

April 19: SMC notified FNCB of the material

alteration in the amount. FNCB recredited SMC
the amount of P9,240.

May 19: FNCB informed Republic in writing of

the alteration and the forgery of the
endorsement of Delgado. Delgado had already
withdrawn his account from Republic.

August 15: FNCB then demanded that Republic

refund the P9,240 on the basis of its
endorsement and guaranty. Republic refused,
claiming that:
o there was delay in giving it notice
of the alteration;
o that it was not guilty of negligence;
o that it was SMCs fault in drawing the
check in such a way as to permit the
insertion of numerals increasing the
amount;
o that FNCB, as drawee, was absolved of
any liability to the drawer, thus, FNCB
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had no right of recourse against

Republic.
Trial court rendered judgment in favor of FNCB,
ordering Republic to pay. CA affirmed.

ISSUES + RULING:
W/N Republic, as the collecting bank, is protected from
liability by the 24-hour clearing house rule, to refund
the amount paid by FNCB as drawee of the SMC
dividend check (YES)

The 24-hour clearing house rule embodied in

Section 4(c) of Central Bank Circular No. 9
provides:
o "Items which should be returned for
any reason whatsoever shall be
returned directly to the bank,
institution or entity from which the
item was received. [x x x] All items
cleared at 11:00 oclock A.M. shall be
returned not later than 2:00 oclock
P.M. on the same day and all items
cleared at 3:00 oclock P.M. shall be
returned not later than 8:30 A.M. of the
following business day except for items
cleared on Saturday which may be
returned not later than 8:30 A.M. of the
following day."

The 24-hour clearing house rule is a valid rule

applicable to commercial banks. It is true that
when an endorsement is forged, the collecting
bank or last endorser, as a general rule, bears
the loss. However, 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 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.

The case cited HSBC v. Peoples Bank and

Trust, where the SC ruled that:
o "The entire case of plaintiff is based on
[xxx] a guarantee of all prior
indorsement, made by Peoples Bank
and since such an indorsement carries
with it a concomitant guarantee of
genuineness, the Peoples Bank is
liable to the Hongkong Shanghai Bank
for alteration made in the name of
payee. On the other hand, the Peoples
Bank relies on the 24-hour regulation
of the Central Bank that requires after
a clearing, that all cleared items must
be returned not later than 3:00 P.M. of
the following business day. And since
the Hongkong Shanghai Bank only
advised the Peoples Bank as to the
alteration on April 12, 1965 or 27 days
after clearing, the Peoples Bank claims
that it is now too late to do so. This
regulation of the Central Bank as to 24
hours is challenged by Plaintiff Bank as

being merely part of an ingenious

device to facilitate banking
transactions. Be that what it may
as both Plaintiff as well as
Defendant Banks are part of our
banking system and both are
subject to regulations of the
Central Bank they are both
bound by such regulations. . . . But
Plaintiff Bank insists that Defendant
Bank is liable on its indorsement during
clearing house operations. The
indorsement, itself, is very clear
when it begins with the words `For
clearance, clearing office . . . In
other words, such an indorsement
must be read together with the 24hour regulation on clearing House
Operations of the Central Bank.
Once that 24-hour period is over, the
liability on such an indorsement has
ceased. This being so, Plaintiff Bank
has not made out a case for relief.
o Whatever remedy the plaintiff has
would lie not against defendant Bank
but as against the party responsible for
[the alteration].
This case also cited Metrobank v. FNCB, with a
similar ruling that banks are bound by the 24hour clearing house rule of the Central Bank.
Every bank that issues checks for the use
of its customers should know whether or not
the drawers signature is genuine, whether
there are sufficient funds in the drawers
account to cover checks issued, and it should
be able to detect alterations, erasures,
superimpositions or intercalations
thereon, for these instruments are
prepared, printed and issued by itself, it
has control of the drawers account, and it is
supposed to be familiar with the drawers
signature.
It should possess appropriate detecting
devices for uncovering forgeries and/or
alterations on these instruments. Unless
an alteration is attributable to the fault or
negligence of the drawer himself, such as
when he leaves spaces on the check which
would allow the fraudulent insertion of
additional numerals in the amount appearing
thereon, the remedy of the drawee bank
that negligently clears a forged and/or
altered check for payment is against the
party responsible for the forgery or
alteration. Otherwise, it bears the loss. It may
not charge the amount so paid to the account
of the drawer, if the latter was free from blame,
nor recover it from the collecting bank if the
latter made payment after proper clearance
from the drawee.
Where a loss, which must be borne by one of
two parties alike innocent of forgery, can be
traced to the neglect or fault of either, it is
reasonable that it would be borne by him, even
if innocent of any intentional fraud, through
whose means it has succeeded.
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DISPOSITION: Judgment reversed. Republic absolved.

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