G.R. No. 141408 & G.R. No. 141429; October 18, 2007
Metropolitan Bank and Trust Company and Solid Bank Corporation, Petitioners, vs. Philippine Bank of Communications, Filipinas Orient Finance Corporation, Pipe Master Corporation and Tan Juan Lian, Respondents.
FACTS
Filipinas Orient Finance Corporation granted a check discounting facility to Pipe Master Corporation. Under this arrangement, Pipe Master, through its president Yu Kio, sold four MetroBank checks to Filipinas Orient. In exchange, Filipinas Orient issued four crossed Philippine Bank of Communications (PBCom) checks payable to “Pipe Master Corporation” and marked “for payee’s account only.” Yu Kio, however, endorsed these PBCom checks and deposited three into his personal account at MetroBank and one into his personal account at Solid Bank. The collecting banks, MetroBank and Solid Bank, accepted the deposits, credited Yu Kio’s accounts, and presented the checks to PBCom, which paid them.
Subsequently, the four MetroBank checks initially sold by Yu Kio to Filipinas Orient were dishonored. Filipinas Orient demanded reimbursement from PBCom, which in turn sought reimbursement from the collecting banks, MetroBank and Solid Bank. They refused. Filipinas Orient then filed a complaint. The Regional Trial Court ruled against the collecting banks, a decision affirmed by the Court of Appeals, prompting these consolidated petitions.
ISSUE
Whether petitioners Metropolitan Bank and Trust Company and Solid Bank Corporation, as collecting banks, are liable to respondent Filipinas Orient Finance Corporation for accepting and collecting the crossed checks payable to Pipe Master Corporation but deposited into the personal account of its president, Yu Kio.
RULING
Yes, the collecting banks are liable. The Supreme Court denied the petitions, affirming the lower courts’ decisions. The legal logic centers on the significance of a crossed check and the duties of a collecting bank. A check crossed with the phrase “for payee’s account only” is a clear instruction that it is for deposit solely to the account of the named payee, not for negotiation or encashment by another. This crossing serves as a warning to all subsequent parties, especially collecting banks.
Petitioners, as collecting banks, had the primary duty to scrutinize the checks and ensure the endorsements were proper and that the deposit complied with the restrictive instruction. By accepting the checks for deposit into Yu Kio’s personal account despite them being payable to Pipe Master Corporation, petitioners breached this duty and were negligent. Their indorsement guarantee to the drawee bank, PBCom, that “all prior indorsements and/or lack of indorsement [are] guaranteed” attests to their assumption of responsibility for the validity of the chain of title. PBCom, as drawee, rightly relied on this guarantee. Consequently, the proximate cause of Filipinas Orient’s loss was the collecting banks’ failure to observe banking rules and exercise due diligence. Their liability is direct to Filipinas Orient, without prejudice to their right to pursue action against the wrongdoer, Yu Kio.