Haystack: Hongkong and Shanghai Bank vs. People’s Bank and Trust (GR L-28226, 30 September 1970)

Hongkong and Shanghai Bank vs. People’s Bank and Trust
[G.R. No. L-28226. September 30, 1970.]
First Division, Fernando (J): 8 concurring, 1 on leave, 1 took no part

Facts: On 8 March 1965, the Philippine Long Distance Telephone Company (PLDT) drew the check on the Hongkong & Shanghai Banking Corporation (HSBC) 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. 4 days before, Changco had opened a current account with the Peoples Bank and Trust Company (PBTC) and on 16 March 1965, he deposited the altered check in his name. This check was presented by PBTC for clearing wherein it 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 (HSBC), so that PBTC credited Changco with the amount of the check. Beginning 17 March 1965, Changco began to withdraw from his account and on 31 March 1965 he closed his account. In the meantime, the cancelled check went the route of the regular routine and on 12 April 1965 it was returned to the PLDT when the alteration in the name of the payee was discovered. On that same date, PBTC was notified of the alteration, so that the HSBC requested PBTC to refund to it the sum of P14,608.05 which had been previously credited by HSBC in favor of PBTC.

Upon its refusal to do so, the case was filed by HSBC against PBTC before the CFI Manila (Judge Jesus de Veyra presiding). The trial court, on 24 April 1967, dismissed the complaint. Hence, the appeal.

The Supreme Court affirmed the appealed decision, dismissing the complaint; with costs against HSBC.

1. Republic vs. Equitable Banking Corp.; 24 hour clearing house rules (CB Circular 9)
In Republic v. Equitable Banking Corporation, the Court, applied the "24-hour" clearing house rule issued by the Central Bank in accordance with its rule-making authority. As noted, 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 9 of the Central Bank dated 17 February 1949, as amended by the then Governor of the Central Bank on 4 June 1949, 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 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 o'clock a.m. shall be returned not later than 2:00 o'clock p.m. on the same day and an 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.’” The circular is clear and comprehensive; the facts of the present case fall within it.

2. HSBC’s remedy may be against the party responsible for changing the name of the payee
A person who presents for payment checks 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 HSBC has would lie not against PBTC but as against the party responsible for changing the name of the payee. Its failure to call the attention of PBTC as to such alteration until after the lapse of 27 days would, in the light of the Central Bank circular, negate whatever right it might have had against PBTC.

	This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.