REPUBLIC OF THE PHILIPPINES, PLAINTIFF AND APPELLANT, VS. EQUITABLE BANKING CORPORATION, DEFENDANT AND APPELLEE.

Appeal from a decision of the Court of First Instance of Manila
dismissing the complaints and the third-party complaints in the above
entitled cases, without special pronouncement as to costs. The cases
are before us, only questions of law being raised in the appeal, apart
from the fact that the amount involved in G. R. No. L-15895 exceeds
P200,000, and that the evidence introduced therein is the same evidence
in G. R. No. L-15894.

The Republic of the Philippines, hereinafter referred to as the
Government, seeks to recover: (1) from the Equitable Banking
Corporation—hereinafter referred to as the Equitable Bank—in case G. R.
No. L-15894, the sum of P17,100, representing the aggregate value of
four (4) treasury warrants—hereinafter referred to as warrants.— paid
to said bank by the Treasurer of the Philippines—hereinafter referred
to as the Treasurer—thru the Clearing Office of the Central Bank of the
Philippines; and (2) from the Bank of the Philippine
Islands—hereinafter referred to as the PI Bank—in G. R. No. L-15895,
the total sum of P342,767.63, representing the aggregate value of
twenty-four (24) warrants similarly paid by the Treasurer to the PI
Bank. These claims for refund are based upon a common ground—although
said twenty-eight (28) warrants were executed on genuine government
forms, the signature thereon of the drawing office and that of the
representative of the Auditor General in that office are forged.

It is not disputed that, from July to December 1952, the Corporation
de los Padres Dominicos—hereinafter referred to as the Corporacion—had
acquired the twenty-four (24) treasury warrants involved in case G. R.
No. L-15895 by accommodating its former trusted employee—one Jacinto
Carranza—who asked the Corporacion to cash the warrants, alleging that
it was difficult to do so directly with the Government and that his
wife expected a sort of commission for the encashment; that the
Corporacion acceded to Carranza’s request, provided that the warrants
would first be deposited with the PI Bank, and that actual payment of
the value of the warrants would be made only after the same had been
duly accepted and cleared by the Treasurer and the proceeds thereof
duly credited to the account of the Corporacion in the PI Bank; that
the warrants were, accordingly, deposited by the Corporacion with said
bank, which accepted them “subject to collection only”; that when the
warrants were deposited with the PI Bank, each bore the indorsement of
the respective payees and that of the Corporacion; that subsequently,
the PI Bank presented the warrants for payment to the drawee
thereof—the Government;—thru the Clearing Office of the Central
Bank—hereinafter referred to as the Clearing Office; that after being
cleared, the warrants were paid by the Treasurer as follows:

T/W No.	Payee	Date Issued	Amount	Date Cleared
2132655	Marcela Antonio Domingo	6-18-52	P8,722.37	7-1-52
2132650	Gregoria Santos Castro	6-23-52	14,605.91	7-8-52
2468943	Josefa Castro de Villanueva	10-24-52	14,250.16	11-14-52
2159698	Anacleta Santos de Angeles	10-18-52	15,800.00	12-5-52
2159668	Virginia Salem de Marcelino	11-13-52	16,900.00	12-10-52
2159692	Brigida San Luis de Santos	9-15-52	13,900.00	11-3-52
2159673	Silva Sanches de Apolinario	10-14-52	14,810.00	11-11-52
2159667	Francisca Gomez de Galvez	10-12-52	16,200.75	11-11-52
2451488	Gaudencia Ruiz Alvarez	7-1-52	12,702.76	7-15-52
2132653	Anastacia Capili Trinidad	6-25-52	8,794.21	7-15-52
2468979	Monica Ansehno de Pascua	7-12-52	13,870.24	9-8-52
2468944	Rosalia Manalo de Nazario	7-10-52	14,701.76	9-8-52
2159682	Luisa Santos de Arellano	11-18-52	16,400.50	12-8-52
2169669	Leticia Moreno de Ocampo	11-16-62	15,880.75	12-8-52
2159670	Juana Castro de Jesus	10-12-62	16,200.00	12-16-52
2159671	Antonia Sison de Mauricio	9-9-52	12,900.75	11-10-52
2159660	Rosario Pilapil de Rodrigo	9-4-62	13,950.39	9-23-52
2159668	Mauricia Sison de Angeles	9-12-52	15,200.76	9-28-52
2159686	Lucia Angeles de Natalio	9-12-52	12,890.74	10-27-52
2468977	Nicolasa Alvares Jaranilla	7-2-52	15.340.76	7-25-62
2468978	Maria Antonio de los Reyes	7-2-52	14,722.31	7-25-52
2159659	Je Jastive de Fernandez	8-16-52	14,820.00	8-27-52
2159656	Gregoria Pascual de Lira	8-16-52	12,900.75	8-27-52
2169666	Luisa Dancel de Mendoza	10-11-58	16,300.75	12-2-52

and that, accordingly, the PI Bank credited the proceeds of aaid
warrants to the Corporaeion, which, in turn, withdrew said proceeds by
means of its own checks and eventually paid the corresponding amounts
to Jacinto Carranza.

On December 23, 1952, the Treasurer returned three (3) of said
warrants (Nos. 2159659, 2159656, and 2159666) to the Central Bank, and
demanded, on the ground that they had been forged, that the value
thereof be charged against the accounts of the PI Bank in the Clearing
Office and credited back to the demand deposit of the Bureau of the
Treasury, hereinafter referred to as the Treasury. Four (4) days later,
two (2) more warrants (Nos. 2468977 and 2468S78), and, finally, on
January 16, 1953, the remaining nineteen (19) warrants were returned by
the Treasury to the Central Bank for the same reason and with the same
demand. The Central Bank in turn referred said warrants, together with
the letters of demand of the Treasurer, for appropriate action to the
PI Bank, which opposed the return of the warrants or to have the value
thereof charged against its account in the Clearing Office and
requested the Central Bank to return the warrants to the Treasurer.

The records of G. R. No. L-15894 show that the four (4) warrants
involved therein were deposited with the Equitable Bank by persons
known thereto as its depositors or customers, namely, Robert Wong, Lu
Chiu Kau and Chung Ching; that, in due course, the Equitable Bank
cleared said warrants, thru the Clearing Office, then collected the
corresponding amounts from the Treasurer and thereafter credited said
amounts to the accounts of the respective depositors; that on January
15, 1953, the Treasurer notified the Equitable Bank of the alleged
defect of said warants and demanded reimbursement of the amounts
thereof; and that this demand was rejected by the Equitable Bank.
Hence, the institution of G. R. No. L-15895 (Civil Case No. 19599 of
the Court of First Instance of Manila), against the PI Bank, for the
recovery of P342.767.63, and of G. R. No. L-15894 (Civil Case No. 19600
of the Court of First Instance of Manila), against the Equitable Bank
or, the recovery of P17,100.00.

Upon leave of the lower court, the PI Bank filed a third-party
complaint against the Corporation in G. R. No. L-15895, and the
Equitable Bank filed a similar complaint against Robert Wong, Lu Chiu
Kau and Chung Ching in G. R. No. L-15894, for whatever reimbursements
the PI Bank and the Equitable Bank may respectively be sentenced to
make to the Government. By agreement of the parties, the two (2) cases
were jointly heard, and after appropriate proceedings, the lower court
rendered the decision adverted to above.

The clearing of the aforementioned twenty-eight (28) warrants thru
the Clearing Office was made pursuant to the “24-hour clearing house
rule”, which had been adopted by the Central Bank in a conference with
representatives and officials of the different banking institutions in
the Philippines. The rule is embodied in Section 4, subsection (c) of
Circular No. 9 of the Central Bank, dated February 17, 1949 (Exhibit
B), as amended by a letter of the Governor of the Central Bank, dated
June 4, 1949 (Exhibit D), reading:

“Items which should be returned for any reason
whatsoever shall be returned directly to the bank, institution or
entity from which the Hem was received. For this purpose, the Receipt
for Returned Cheeks (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
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 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 a.m. of the
following day.” (Italics supplied.)

The Government maintains that it is ,not bound by this rule because:
(1) the Treasury is1 not a bank; and (2) the Treasurer has objected to
the application of said rule to his office. This contention is,
however, untenable for, admittedly, the Treasury is a member of the
aforementioned Clearing Office and Exh. A clearly shows that the former
“has agreed to clear its clearable items through” the latter “subject
to the rules and regulations of the Central Bank.” Besides, the above
quoted rule applies not only to banks, but, also, to the institutions
and entities. therein alluded to. Then, too, the opposition of the
Treasurer to the “24-hour clearing house rule” is not sufficient to
exempt the Treasury from the operation thereof.

Upon the other hand, said opposition is predicated upon the
allegation that it is physically impossible for the Treasury to check
and verify the genuineness of treasury warrants within twenty-four (24)
hours, because, during 1952, said office used to receive daily from
3,000 to 4,000 warrants, which, considering its very limited personnel
at that time, would have required one (1) or two (2) months to clear.
This claim is belied, however, by the statements of the Treasurer,
Exhibits 38 and 38-A to 38-C, showing that on September 15, 23 and 24
and November 25, 1952, his office had cleared 1,618, 2,851, 1,742 and
2,360 warrants, respectively. Moreover, if the rule was unwise, the
Treasurer could have secured the proper remedy through the President of
the Philippines, since the Treasury and the Central Bank are both
agencies of the Government.

At any rate, the aforementioned twenty-eight (28) warrants were
cleared and paid by the Treasurer, in view of which the PI Bank and the
Equitable Bank credited the corresponding amounts to the respective
depositors of the warrants and then honored their checks for said
amounts. Thus, the Treasury had not only been negligent in clearing its
own warrants, but had, also, thereby induced the PI Bank and the
Equitable Bank to pay the amounts thereof to said depositors. The gross
nature of the negligence of the Treasury becomes more apparent when we
consider that each one of the twenty-four (24) warrants involved in G.
R. No. L-15895 was for over P5,000, and, hence, beyond the
authority of the auditor of the Treasury—whose signature thereon had
been forged—to approve. In other words, the irregularity of said
warrants was apparent on the face thereof, from the viewpoint of the
Treasury. Moreover, the same had not advertised the loss of genuine
forms of its warrants. Neither had the PI Bank nor the Equitable Bank
been informed of any irregularity in connection with any of the
warrants involved in, these two (2) cases, until after December 23,
1952—or after the warrants had been cleared and honored—when the
Treasury gave notice of the forgeries adverted to above. As a
consequence, the loss of the amounts thereof is mainly imputable to
acts and omissions of the Treasury, for which the PI Bank and the
Equitable Bank should not and cannot be penalized.

“Where a loss, which must be borne by one of two
parties alike innocent of forgery, can be traced to the neglect of
fault of either, it is reasonable that it would be borne by him, even
if innocent of any intentional fraud, through whoso means it has
succeeded.” (Phil. National Bank vs. National City Bank of New York, 63
Phil. 711, 728.)

“Generally, where a drawee bank otherwise
would have a right of recovery against a collecting or indorsing bank
for its payment of a forged check, its action will be barred if it is
guilty of an unreasonable delay in discovering the forgery and in
giving notice thereof.” (C. J. S. 769-700.)

“Where defendant
bank, on presentation to it on September 2, of forged check drawn on
another bank, paid part of amount to presenter, drawee paying check
through clearing house on said day, held that the latter, not giving
notice of forgery until December 5, could not hold defendant for amount
so paid.” (First State Bank & Trust Co. vs. First Nat. Bank, 145 N.
E. 388, 314 111. 269, affirming 234, 111. App. 39.)

Wherefore, the decision appealed from is hereby affirmed, without special pronouncement as to cost. It is so ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Reyes, J. B. L., Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.