Hongkong & Shanghai Banking Corp. v. Peoples Bank & Trust Co.
REITERATIONFacts
The Antecedents: The Philippine Long Distance Telephone Company (PLDT) drew a check on plaintiff Hongkong & Shanghai Banking Corporation (HSBC) payable to HSBC itself for P14,608.05. The check was sent by mail to HSBC. The check fell into the hands of Florentino Changco, who altered the payee's name to his own. Changco deposited the altered check into his account with defendant Peoples Bank & Trust Company (PBTC). PBTC indorsed the check "For clearance, clearing office. All prior endorsements and/or lack of endorsements guaranteed. Peoples Bank and Trust Company." The check was cleared by HSBC, and PBTC credited Changco's account. Changco subsequently withdrew the entire amount and closed his account. The altered check was returned to PLDT in the regular course of business, and the alteration was discovered. HSBC notified PBTC of the alteration on April 12, 1965, 27 days after clearing, and requested a refund. PBTC refused. Procedural History: The Court of First Instance of Manila dismissed HSBC's complaint, holding that HSBC's failure to notify PBTC of the alteration within the 24-hour period prescribed by Central Bank regulations was decisive. HSBC appealed. The Petition: HSBC argued that the 24-hour clearing house rule was inapplicable to altered checks and that PBTC was liable on its indorsement.
Issue(s)
Whether the 24-hour clearing house rule of the Central Bank applies to altered checks. Whether Peoples Bank & Trust Company is liable on its indorsement despite the lapse of 27 days before notification of the alteration.
Ruling
The Supreme Court affirmed the decision of the Court of First Instance, dismissing the complaint. The Court held that the 24-hour rule applies to altered checks and that HSBC's failure to notify PBTC within the prescribed period extinguished PBTC's liability.
Ratio Decidendi
On the applicability of the 24-hour clearing house rule to altered checks: The Court held that the 24-hour rule, as embodied in Central Bank Circular No. 9, applies to all items cleared through the clearing house, including altered checks. The circular is clear and comprehensive, and there is no warrant to distinguish between forged and altered checks. The rule was adopted after a conference with banking institutions and is designed to facilitate banking transactions. Therefore, the plaintiff bank's attempt to distinguish the rule was unwarranted. On the liability of Peoples Bank & Trust Company: The Court found that PBTC is not liable because HSBC failed to notify it of the alteration within the 24-hour period prescribed by the Central Bank regulation. The indorsement by PBTC was made "For clearance, clearing office," which must be read in conjunction with the 24-hour rule. Once this period has elapsed, the liability on such an indorsement ceases. HSBC discovered the alteration 27 days after clearing, which is well beyond the stipulated period, thus negating any right it might have had against PBTC. The Court reiterated the principle that when banks are equally at fault, the court will leave the parties where it finds them, implying that HSBC's delay contributed to the situation.
Main Doctrine
The 24-hour rule of the Central Bank for returning cleared items in clearing house operations is valid and binding on banks. Failure to comply with this rule within the prescribed period extinguishes the liability on the indorsement, particularly when the drawee bank discovers the alteration after the period has lapsed.