Banking, Mercantile Law

GO v. METROBANK G.R. No. 168842 August 11, 2010 Crossed Check

FACTS:

Petitioner filed two separate cases, one was filed against Chua and Tabañag for a sum of money with preliminary attachment, and the other one was for a sum of money with damages against herein respondent Metrobank and Chua.
Petitioner alleged that he was doing business under the name “Hope Pharmacy” which sells medicine and other pharmaceutical products. Chua was his pharmacist and trustee or caretaker of the business. Tabañag, on the other hand, took care of the receipts and invoices and assisted Chua in making deposits for petitioner’s accounts in the business operations of Hope Pharmacy.

Petitioner claimed that there were unauthorized deposits and encashments made by Chua and Tabañag in the total sum of ₱109,433.30.
Petitioner averred that there were 32 crossed checks with Hope Pharmacy as payee, for varying sums, amounting to ₱1,492,595.06, that were not endorsed by him but were deposited under the personal account of Chua with respondent bank.
The RTC rendered a Joint Decision, dismissing Go’s complaint against Chua and Glyndah Tabañag for lack of merit, and declaring respondent bank liable for being negligent in allowing the deposit of crossed checks without the proper indorsement.
The CA affirmed the trial court’s decision.
Hence, this petition.

ISSUE:
Whether or not Metrobank is liable for allowing the deposit of crossed checks which were issued in favor of and payable to petitioner and without being indorsed by the petitioner, to the account of Maria Teresa Chua.

RULING:
A check is a bill of exchange drawn on a bank payable on demand. A crossed check is a kind of check where two parallel lines are drawn across its face or across the corner thereof. It may be crossed generally or specially.
A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is crossed generally when only the words “and company” are written or nothing is written at all between the parallel lines, as in this case. It may be issued so that presentment can be made only by a bank.
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once — to one who has an account with a bank; and (c) the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course.
While there is no dispute that the subject 32 checks were crossed checks with petitioner as the named payee, respondent bank should not be held liable for the entire amount of the checks considering that, as found by the RTC and affirmed by the CA, the checks were actually given to Chua as payments by petitioner for loans obtained from the parents of Chua. Therefore, petitioner suffered no pecuniary loss in the deposit of the checks to the account of Chua.
However, we affirm the finding of the RTC that respondent bank was negligent in permitting the deposit and encashment of the crossed checks without the proper indorsement. An indorsement is necessary for the proper negotiation of checks specially if the payee named therein or holder thereof is not the one depositing or encashing it. Knowing fully well that the subject checks were crossed, that the payee was not the holder and that the checks contained no indorsement, respondent bank should have taken reasonable steps in order to determine the validity of the representations made by Chua.

The law imposes a duty of extraordinary diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity.

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