G.R. No. 179952; December 4, 2009
METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK CORPORATION), Petitioner, vs. BA FINANCE CORPORATION and MALAYAN INSURANCE CO., INC., Respondents.

FACTS

Lamberto Bitanga obtained a loan from BA Finance, secured by a chattel mortgage on his car. The mortgage required Bitanga to insure the vehicle, with loss payable to BA Finance. Bitanga procured insurance from Malayan Insurance, which issued a policy with a loss payable clause in favor of BA Finance. The car was subsequently stolen. Malayan Insurance issued a crossed check for the insurance proceeds amounting to ₱224,500, payable to the order of “B.A. Finance Corporation and Lamberto Bitanga,” with the notation “For Deposit Payees’ Account Only.” Without the endorsement or authority of BA Finance, Bitanga deposited the check into his account with Asianbank (now Metrobank) and withdrew the entire proceeds.
BA Finance, upon learning of these events, demanded payment from Asianbank. When the demand was unheeded, BA Finance filed a complaint for sum of money and damages against Asianbank and Bitanga before the Regional Trial Court (RTC). The RTC held Asianbank and Bitanga jointly and severally liable to BA Finance. It found Asianbank negligent for allowing the deposit and withdrawal without the necessary endorsement from its co-payee, BA Finance. The RTC dismissed Asianbank’s third-party complaint against Malayan Insurance. Asianbank appealed to the Court of Appeals.

ISSUE

Whether Asianbank (Metrobank) is liable to BA Finance for the full value of the insurance proceeds check it accepted for deposit without the endorsement of the co-payee, BA Finance.

RULING

Yes, Asianbank is liable. The Supreme Court affirmed the lower courts’ decisions. The legal logic centers on the nature of the check as a negotiable instrument payable to two joint payees. Under Section 41 of the Negotiable Instruments Law, an instrument payable to the order of two or more persons jointly, like the check payable to “BA Finance Corporation and Lamberto Bitanga,” requires the endorsement of all payees for valid negotiation. Asianbank, as the collecting bank, was grossly negligent in accepting the check for deposit to Bitanga’s account without the indispensable endorsement of its co-payee, BA Finance. This negligence was compounded by the check being crossed and marked “For Deposit Payees’ Account Only,” which served as a warning that the proceeds were for the named payees alone. By violating this clear directive and the endorsement requirement, Asianbank became liable for the resulting loss. The Court rejected Asianbank’s defenses, including the lack of privity with BA Finance and the alleged negligence of the drawee bank, holding that a collecting bank owes a duty of care to the rightful payee of a check. Consequently, Asianbank was solidarily liable with Bitanga to BA Finance for the full amount of the check, with interest.