The Concept of ‘Crossed Checks’ and General vs Special Crossing

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SUBJECT: The Concept of ‘Crossed Checks’ and General vs Special Crossing

I. Introduction

This memorandum provides an exhaustive analysis of the concept of crossed checks under Philippine mercantile law, with particular focus on the distinction between general crossing and special crossing. The discussion is anchored primarily on the Negotiable Instruments Law (Act No. 2031, hereinafter “NIL”) and pertinent jurisprudence. The crossing of a check is a significant banking practice and legal mechanism designed to enhance the security of the instrument by directing its collection through banking channels, thereby reducing the risk of fraud and wrongful payment.

II. Statutory Foundation: The Negotiable Instruments Law

The governing law for checks, as negotiable instruments, is the NIL. Specific provisions on crossing are found in Section 185 of the NIL. This section provides the legal definition and effect of crossing a check. It states that where a check is crossed specially, the drawee bank must pay it only to the bank to which it is crossed, or if the latter is also the drawee, then to its customer. The statute implicitly recognizes general crossing by establishing the special crossing rule in contrast to the general practice.

III. Definition and Purpose of a Crossed Check

A crossed check is a check upon the face of which two parallel transverse lines are drawn, either with or without the words “and company” or any abbreviation thereof. The crossing may be general or special. The paramount purpose of crossing is safety. It serves as a warning to the drawee bank and instructions that the check should not be paid over the counter in cash to the presentor. Instead, it must be deposited only into an account with a bank. This ensures a clear audit trail, as the proceeds must pass through the banking system, making the recipient’s identity easier to trace. It is a precaution against theft, loss, or misappropriation.

IV. General Crossing

A general crossing exists when a check bears across its face two parallel transverse lines only, or the addition of the words “and company” or “& Co.” between the lines, with or without the words “not negotiable.” The legal effect of a general crossing is that the check is rendered non-negotiable in the sense that a transferee cannot acquire a better title than that of the transferor. More critically for banking operations, it instructs the drawee bank not to pay the check except to a collecting bank. It can be paid only through a bank account. Any person holding such a check must collect its proceeds via a banking institution.

V. Special Crossing

A special crossing is established when a check bears across its face the name of a specific bank, either with or without the two parallel transverse lines. The legal effect, per Section 185 of the NIL, is more restrictive. The drawee bank is mandated to pay the check only to the bank whose name appears in the crossing. If the specially named bank is also the drawee, payment may be made to its own customer presenting the check. This type of crossing designates a particular collecting bank, thereby providing an even higher degree of security and control for the drawer over the payment process.

VI. Legal Effects and Obligations

The crossing of a check, once made, is a material part of the instrument and cannot be lawfully obliterated or altered except as authorized by law. The key legal effects and corresponding obligations are:

Duty of the Drawee Bank: The drawee bank must adhere strictly to the instructions implied by the crossing. Payment of a generally crossed check over the counter constitutes negligence and may render the bank liable to the true owner for any loss. Payment of a specially crossed check to a bank other than the one named is a direct violation of Section 185.

Protection for the Drawee Bank: A drawee bank that pays a crossed check in accordance with the crossing (i.e., to another bank for general crossing, or to the specified bank for special crossing) is discharged from liability and is deemed to have paid the check in due course.

Effect of “Not Negotiable” Words: When the words “not negotiable” are added to a crossing, the instrument, while still transferable, loses its feature of negotiability. No transferee can acquire the rights of a holder in due course even if the transfer is for value and in good faith. The title of the transferee is always subject to the defects in title of prior parties.

Liability for Disregarding the Crossing: A bank that pays a crossed check in violation of the crossing assumes the risk and may be held liable for conversion. The drawer or the rightful owner of the check may recover from the bank that made the improper payment.

VII. Comparative Analysis: General vs. Special Crossing

The following table delineates the critical distinctions between general crossing and special crossing.

Feature	General Crossing	Special Crossing
Physical Appearance	Two parallel transverse lines, with or without “& Co.” or “not negotiable.”	The name of a specific bank written across the face, with or without the two parallel lines.
Statutory Provision	Implicitly recognized under the NIL, governed by the principles derived from Section 185.	Explicitly defined and governed by Section 185 of the NIL.
Primary Instruction	“Pay only to a bank.” (i.e., through banking channels)	“Pay only to [Named Bank].”
Flexibility for the Holder	The holder may deposit the check in any bank of their choice for collection.	The holder must deposit or present the check for collection through the bank specifically named in the crossing.
Level of Security	Provides a basic level of security by ensuring payment through the banking system.	Provides a higher, more specific level of security by designating the exact bank through which proceeds must pass.
Drawee Bank’s Duty	Must pay only to a collecting bank, not over the counter to the presenter.	Must pay only to the bank specifically named in the crossing. Payment to any other entity is a violation of the law.
Usual Purpose	Common practice for routine business and personal transactions to ensure basic safety.	Used when the drawer wishes to route payment through a particular bank, often for accounting purposes or when dealing with a specific payee’s bank.

VIII. Jurisprudential Application

The Supreme Court has consistently upheld the sanctity of check crossings. In Philippine National Bank v. Court of Appeals (G.R. No. 107508, 1996), the Court emphasized that the negligence of a drawee bank in paying a check contrary to the crossing is the proximate cause of the loss, making it liable to the drawer. Furthermore, in State Investment House, Inc. v. Court of Appeals (G.R. No. 101163, 1992), the Court ruled that a check with a general crossing and the words “not negotiable” is not a negotiable instrument, and a person who accepts it merely steps into the shoes of the assignor and is subject to all defenses available against the latter.

IX. Practical Implications for Banking and Commerce

For drawers, crossing a check is a simple yet powerful risk mitigation tool. For payees and holders, it necessitates the use of a bank account for collection. For banks, it imposes a strict duty of care in processing payment. The practice underpins trust in the check payment system by reducing opportunities for fraud. The special crossing is particularly useful in corporate transactions, government payments, or any scenario where the flow of funds must be directed through a particular financial institution for reconciliation or control purposes.

X. Conclusion

In summary, the crossing of a check is a vital security feature in Philippine mercantile law. A general crossing, indicated by parallel lines, mandates collection through any bank, while a special crossing, indicating a specific bank’s name, restricts collection to that named institution. The legal effects are stringent, imposing clear duties on drawee banks and providing significant protection to drawers. Disregard of these crossings by a paying bank results in liability for any ensuing loss. Understanding the distinction and legal consequences of each type of crossing is essential for all parties involved in check transactions.