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VOL. 118, NOVEMBER 19, 1982 537

Metropolitan Bank and Trust Company vs. The First
National City Bank
*
No. L­55079. November 19, 1982.

METROPOLITAN BANK and TRUST COMPANY,

petitioner, vs. THE FIRST NATIONAL CITY BANK and
THE COURT OF APPEALS, respondents.

Mercantile Law; Banks; Checks; Clearing house regulation;

24hour clearing house regulation, validity of.—The validity of the
24hour clearing house regulation has been upheld by this Court in
Republic vs. Equitable Banking Corporation, 10 SCRA 8 (1964).
As held therein, since both parties are part of our banking system,
and both are subject to the regulations of the Central Bank, they
are bound by the 24­hour clearing house rule of the Central Bank.

Same; Same; Same; Same; Altered Checks; Absence of liability

of collecting bank for failure of drawee bank to return an alleged
altered check to the collecting bank within the 24­hour clearing
house period after receipt of check from the Central Bank clearing
house; Remedy of drawee bank is with the party responsible for the
alteration, not with the collecting bank.—In this case, the check
was not returned to Metro Bank in accordance with the 24­hour
clearing house period, but was cleared by FNCB. Failure of
FNCB, therefore, to call the attention of Metro Bank to the
alteration of the check in question until after the lapse of nine
days, negates whatever right it might have had against Metro
Bank in the light of the said Central Bank Circular. Its remedy
lies not against Metro Bank, but against the party responsible for
the changing the name of the payee and the amount on the face of
the check.

Same; Same; Same; Same; Same; Unqualified endorsement of

collecting bank on the check should be read together with the 24­
hour regulation on clearing house operations.—In that connection,
this Court in the Hongkong & Shanghai Bank case, supra, ruled:
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“x x x But Plaintiff Bank insists that Defendant Bank is liable on

its in­

________________

* FIRST DIVISION.

538

538 SUPREME COURT REPORTS ANNOTATED

Metropolitan Bank and Trust Company vs. The First National

City Bank

dorsement during clearing house operations. The indorsement,

itself, is very clear when it begins with 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 indorsement has ceased. This being so,
Plaintiff Bank has not made out a case for relief.” Consistent with
this ruling, Metro Bank can not be held liable for the payment of
the altered check.

Same; Same; Same; Same; Same; Precaution of collecting

bank by verifying from drawee bank the regularity and
genuineness of the check deposit precludes liability of collecting
bank on the altered check.—Moreover, FNCB did not deny the
allegation of Metro Bank that before it allowed the withdrawal of
the balance of P17,920.00 by Salvador Sales, Metro Bank
withheld payment and first verified, through its Assistant
Cashier Federico Uy, the regularity and genuineness of the check
deposit from Marcelo Mirasol, Department Officer of FNCB,
because its (Metro Bank) attention was called by the fast
movement of the account. Only upon being assured that the same
is ‘not unusual’ did Metro Bank allow the withdrawal of the
balance.

Same; Same; Same; Same; Same; Hongkong and Shanghai

Bank’s ruling of the Supreme Court more controlling than
Gallaites vs. RCA of the Court of Appeals.—Reliance by
respondent Court of Appeals, on its own ruling in Gallaites vs.
RCA, CA­G.R. No. 3805, October 23, 1950 x x x is misplaced not
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only because the factual milieu is not four square with this case
but more so because it cannot prevail over the doctrine laid down
by this Court in the Hongkong & Shanghai Bank case which is
more in point and, hence, controlling.

PETITION for review on certiorari of the decision of the

Court of Appeals.

The facts are stated in the opinion of the Court.

     Rosales, Perez & Assoc. for petitioner.
          Siguion Reyna, Montecillo and Ongsiako for
respondent PNCB.

MELENCIO­HERRERA, J.:

This is a Petition for Review on Certiorari of the Decision of

539

VOL. 118, NOVEMBER 19, 1982 539

Metropolitan Bank and Trust Company vs. The First
National City Bank

the Court of Appeals in CA­G.R. No. 57129­R entitled, First

National City Bank vs. Metropolitan Bank and Trust
Company, which affirmed in toto the Decision of the Court
of First Instance of Manila, Branch VIII, in Civil Case No.
61488, ordering petitioner herein, Metropolitan Bank, to
reimburse respondent First National City Bank the
amount of P50,000.00, with legal rate of interest from June
25, 1965, and to pay attorney’s fees of P5,000.00 and costs.
The controversy arose from the following facts:
On August 25, 1964, Check No. 7166 dated July 8, 1964
for P50,000.00, payable to CASH, drawn by Joaquin
Cunanan & Company on First National City Bank (FNCB
for brevity) was deposited with Metropolitan Bank and
Trust Company (Metro Bank for short) by a certain
Salvador Sales. Earlier that day, Sales had opened a
current
1
account with Metro Bank depositing P500.00 in
cash. Metro Bank immediately sent the cash check to the
Clearing House of the Central Bank with the following
words stamped at the back of the check:

“Metropolitan Bank and Trust Company Cleared (illegible) office

All prior endorsements and/or Lack of endorsements
2
Guaranteed.”
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The check was cleared the same day. Private respondent

paid petitioner through clearing the amount of P50,000.00,
and Sales was credited with the said amount in his deposit
with Metro Bank.
On August 26, 1964, Sales made his first withdrawal of
P480.00 from his current account. On August 28, 1964, he
withdrew P32,100.00. Then on August 31, 1964, he
withdrew the balance of P17,920.00 and closed his account
with Metro Bank.
On September 3, 1964, or nine (9) days later, FNCB
returned cancelled Check No. 7166 to drawer Joaquin
Cunanan & Company, together with the monthly
statement of the company’s account with FNCB. That same
day, the company notified

________________

1 p. 58, Record on Appeal.

2 pp. 8, 25 & 60, ibid.

540

540 SUPREME COURT REPORTS ANNOTATED

Metropolitan Bank and Trust Company vs. The First
National City Bank

FNCB that the check had been altered. The actual amount
of P50.00 was raised to P50,000.00, and over the name of
the payee, Manila Polo Club, was superimposed the word
CASH.
FNCB notified Metro Bank of the alteration by
telephone, confirming it the same day with a letter, which
was received by Metro Bank on the following day,
September 4, 1964.
On September 10, 1964, FNCB wrote Metro Bank
asking for reimbursement of the amount of P50,000.00. The
latter did not oblige, so that FNCB reiterated its request on
September 29, 1964. Metro Bank was adamant in its
refusal.
On June 29, 1965, FNCB filed in the Court of First
Instance of Manila, Branch VIII, Civil Case No. 61488
against Metro Bank for recovery of the amount of
P50,000.00.
On January 27, 1975, the Trial Court rendered its
Decision ordering Metro Bank to reimburse FNCB the
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amount of P50,000.00 with legal rate of interest from June

25, 1965 until fully paid, to pay attorney’s fees of
P5,000.00, and costs.
Petitioner appealed said Decision to the Court of
Appeals (CA­G.R. No. 57129­R).
3
On August 29, 1980,
respondent Appellate Court affirmed in toto the judgment
of the Trial Court.
Petitioner came to this instance on appeal by Certiorari,
alleging:

“I

The Respondent Court of Appeals erred in completely ignoring

and disregarding the 24­hour clearing house rule provided for
under Central Bank Circular No. 9, as amended, although:

1. The 24­hour regulation of the Central Bank in clearing

house operations is valid and banks are subject to and are
bound by the same; and
2. The 24­hour clearing house rule applies to the present
case of the petitioner and the private respondent.

________________

3 Per Villaluz, J., Escolin and Villasor, JJ., concurring.

541

VOL. 118, NOVEMBER 19, 1982 541

Metropolitan Bank and Trust Company vs. The First
National City Bank

II

The Respondent Court of Appeals erred in relying heavily on its

decision in Gallaites, et al. vs. RCA, etc., promulgated on October
23, 1950 for the same is not controlling and is not applicable to
the present case.

III

The Respondent Court of Appeals erred in disregarding and in

not applying the doctrines in the cases of Republic of the
Philippines vs. Equitable Banking Corporation (10 SCRA 8) and
Hongkong & Shanghai Banking Corporation vs. People’s Bank
and Trust Company (35 SCRA 140) for the same are controlling

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and apply four square to the present case.

IV

The Respondent Court of Appeals erred in not finding the

private respondent guilty of operative negligence which is the
proximate cause of the loss.”

The material facts of the case are not disputed. The issue
for resolution is, which bank is liable for the payment of the
altered check, the drawee bank (FNCB) or the collecting
bank (Metro Bank)?
The transaction occurred during the effectivity of
Central Bank Circular No. 9 (February 17, 1949) as
amended by Circular No. 138 (January 30, 1962), and
Circular No. 169 (March 30, 1964). Section 4 of said
Circular, as amended, states:

“Section 4. Clearing Procedures.

(c) Procedures for Returned Items
Items which should be returned for any reason whatsoever
shall be delivered to and received through the clearing Office in
the special red envelopes and shall be considered and accounted
as debits to the banks to which the items are returned. Nothing in
this section shall prevent the returned items from being settled by
reimbursement to the bank, institution or entity returning the
items. All items cleared on a particular clearing shall be returned
not later than 3:30 P.M. on

542

542 SUPREME COURT REPORTS ANNOTATED

Metropolitan Bank and Trust Company vs. The First
National City Bank

the following business day.

x x x                x x x”

The facts of this case fall within said Circular. Under the
procedure prescribed, the drawee bank receiving the check
for clearing from the Central Bank Clearing House must
return the check to the collecting bank within the 24­hour
period if the check is defective for any reason.
Metro Bank invokes this 24­hour regulation of the
Central Bank as its defense. FNCB on the other hand,
relies on the guarantee of all previous indorsements made
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by Metro Bank which guarantee had allegedly misled

FNCB into believing that the check in question was regular
and the payee’s indorsements genuine; as well as on “the
general rule of law founded on equity and justice that a
drawee or pay or bank which in good faith pays the amount
of materially altered check to the holder thereof is entitled
to recover its payment
4
from the said holder, even if he be
an innocent holder.”
The validity of the 24­hour clearing house regulation has
been upheld by this Court in Republic vs. Equitable
Banking Corporation, 10 SCRA 8 (1964). As held therein,
since both parties are part of our banking system, and both
are subject to the regulations of the Central Bank, they are
bound by the 24hour clearing house rule of the Central
Bank.
In this case, the check was not returned to Metro Bank
in accordance with the 24­hour clearing house period, but
was cleared by FNCB.Failure of FNCB, therefore, to call
the attention of Metro Bank to the alteration of the check
in question until after the lapse of nine days, negates
whatever right it might have had against Metro Bank in
the light of the said Central Bank Circular. Its remedy lies
not against Metro Bank, but against the 5
party responsible
for the changing the name of the payee and the amount on
the face of the check.
FNCB contends that the stamp reading,

________________

4 Art.2154, Civil Code.

5 Hongkong & Shanghai Banking Corporation vs. People’s Bank &
Trust Co., 35 SCRA 140 (1970).

543

VOL. 118, NOVEMBER 19, 1982 543

Metropolitan Bank and Trust Company vs. The First
National City Bank

“Metropolitan Bank and Trust Company Cleared (illegible) office

All prior endorsements and/or Lack of endorsements
6
Guaranteed.”

made by Metro Bank is an unqualified representation that

the endorsement on the check was that of the true payee,
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and that the amount thereon was the correct amount. In

that connection, this Court in the Hongkong & Shanghai
Bank case, supra, ruled:

“x x 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 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
7
relief.”

Consistent with this ruling, Metro Bank can not be held

liable for the payment of the alteredcheck.
Moreover, FNCB did not deny the allegation of Metro
Bank that before it allowed the withdrawal of the balance
of P17,920.00 by Salvador Sales, Metro Bank withheld
payment and first verified, through its Assistant Cashier
Federico Uy, the regularity and genuineness of the check
deposit from Marcelo Mirasol, Department Officer of
FNCB, because its (Metro Bank) attention was called by
the fast movement of the account. Only upon being assured
that the same is ‘not unusual’ did Metro Bank allow the
withdrawal of the balance.
Reliance by respondent Court of Appeals, on its own
ruling in Gallaites vs. RCA, CA­G.R. No. 3805, October 23,
1950, by stating:

“x x x The laxity of appellant in its dealing with customers,

particularly in cases where the identity of the person is new to
them (as in the case at bar) and in the obvious carelessness of the
appellant in handling checks which can easily be forged or altered
boil down to

________________

6 pp. 8, 25 & 60, Record on Appeal.

7 p. 34, Petitioner’s Brief.

544

544 SUPREME COURT REPORTS ANNOTATED

De Leon vs. Employees’ Compensation Commission

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one conclusion­negligence in the first order. This negligence

enabled a swindler to succeed in fraudulently encashing the check
in question thereby defrauding drawee bank (appellee) in the
amount thereof.”

is misplaced not only because the factual milieu is not four

square with this case but more so because it cannot prevail
over the doctrine laid down by this Court in the Hongkong
& Shanghai Bank case which is more in point and, hence,
controlling:
WHEREFORE, the challenged Decision of respondent
Court of Appeals of August 29, 1980 is hereby set aside,
and Civil Case No. 61488 is hereby dismissed.
Costs against private respondent The First National
City Bank.
SO ORDERED.

          Plana, Vasquez, Relova and Gutierrez, Jr., JJ.,

concur.
     Teehankee** (Chairman), J., took no part.

Decision set aside.

——o0o——

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