HSBC Vs People's Bank and Trust

G.R. No.
L-28226 September 30, 1970

HONGKONG & SHANGHAI BANKING CORPORATION, plaintiff-appellant,
vs.
PEOPLES BANK & TRUST COMPANY, defendant-appellee.
FACTS:
On March 8, 1965, the Philippine Long Distance Telephone Company drew the check on the Hongkong & Shanghai
Banking Corporation and in favor of the same bank in the sum of P14,608.05.
This check was sent by mail to the Payee. Somehow or other, the check fell in the hands of a certain Florentino
Changco, who was able to erase the name of the payee Bank and instead typed his own name on the check.
Four days before, Changco had opened a current account with Defendant Peoples Bank and Trust Company and on
March 16, 1965, he deposited the altered check in his name.
This check was presented by the Peoples Bank for clearing wherein the Peoples Bank made the following
indorsement: "For clearance, clearing office. All prior endorsements and/or lack of endorsements guaranteed. Peoples
Bank and Trust Company."
The check was duly cleared by the Hongkong Shanghai Bank, so that the Peoples Bank credited Changco with the
amount of the check. Beginning March 17, 1965, Changco began to withdraw from his account and on March 31, 1965
he closed his account. In the meantime, the cancelled check went the route of the regular routine and on April 12, 1965
it was returned to the Philippine Long Distance Telephone Company when the alteration in the name of the payee was
discovered.
On that same date, Peoples Bank was notified of the alteration, so that the Hongkong Shanghai Bank requested
Peoples Bank to refund to it the sum of P14,608.05 which had been previously credited by Plaintiff Bank in favor of
Defendant Bank. Upon its refusal to do so, this case has been filed."
ISSUE:
Whether or not HSBC should bear the loss due its non-conformity with the 24-hour period in returning of all cleared
items rule.
HELD: (YES)
Why the complaint had to be dismissed was made clear in such decision. Thus: "The entire case of Plaintiff is based on
the indorsement that has been heretofore copied namely, 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 Hongkong Shanghai Bank for alteration made in the name of payee.
On the other hand, the People 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 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.
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.
In fact, our Supreme Court has already held that the 24-hour regulation of the Central Bank in clearing house
operations is valid and if banks feel the 24-hour period is unwise, they should make proper representations
with the Central Bank. But until they do so, they are bound by such 24-hour period (Republic v. Equitable Banking
Corporation, GR No. L-15894; January 30, 1964).
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 24-hour 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."
The complaint was therefore dismissed, resulting in this appeal to us on a question of law, which, as set forth in the
principal assigned error is predicated on the inapplicability of the 24-hour clearing house rule of the Central Bank.
Plaintiff does not deny that in Republic v. Equitable Banking Corporation, this Honorable Court, through the then
Justice, now Chief Justice Concepcion, applied the "24-hour" clearing house rule issued by the Central Bank in
accordance with its rule-making authority. As noted in the aforesaid decision, its adoption came after a conference with
representatives and officials of different banking institutions in the Philippines. It is embodied in section 4, subsection
(c) of Circular No. 9 of the Central Bank dated February 17, 1949, as amended by the then Governor of the Central
Bank on June 4, 1949, and reads thus:
"xxx All items cleared at 11:00 o'clock a.m. shall be returned not later than 2:00 o'clock p.m. on the same day
and all items cleared at 3:00 o'clock 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 .
(Emphasis supplied)"
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. The circular is clear and comprehensive; the facts of the present
case fall within it. The lower court acted correctly in relying on the doctrine announced in the above Republic v.
Equitable Banking Corporation decision.
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."
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."
WHEREFORE, the appealed decision of April 24, 1967, dismissing the complaint, is affirmed. With costs against
plaintiff Hongkong & Shanghai Banking Corporation.

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G.R. No.

L-28226 September 30, 1970

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