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Crossed checks

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Atty. Jun de Zuñiga

Atty. Jun de Zuñiga

The issuance of bank checks is a popular mode of settling financial transactions and offers the advantages of security and expediency since it dispenses with the handling and transport of cash. A check is a bill of exchange drawn against a deposit in a bank to pay a specified sum. It is understood that checks are mere substitutes for money and are not equivalent to cash unless they have been cleared. This means that the collecting bank with which a check is deposited by the holder or payee shall transmit the check through clearing so that the account of the issuer in his bank (drawee bank) can be debited.

For issuers of checks who would want their financial transactions to be limited between them and the payees, they avail of the safeguard of “crossing” their checks. It is done by drawing two parallel lines or across its face or across the corner thereof. Once a check is crossed, it produces the following effects: (1) the check cannot be encashed with the drawee bank but can only be deposited in the bank; (2) the check can be negotiated only once – to the payee who must have an account with the bank; and (3) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose – that of being deposited in the account of the payee.

Thus, when a bank accepts a crossed check and allows it to be deposited to an account, which is not that of the payee, that bank is negligent and liable for the loss suffered by the aggrieved party. Such bank violated the order of the issuer that the check should be deposited only in the account of the payee and should not be indorsed and credited to the account of a third person.

As held by the Supreme Court, the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high degree of conduct. In the case referred to, the Supreme Court said that the collecting bank was “clearly negligent in disregarding established banking rules and regulations by allowing the four checks to be presented by, and deposited in the personal bank account of, a person who was not the payee named in the checks”, and that it could not have escaped the bank’s attention “that the payee of the checks is a corporation while the person who deposited the checks in his own account is an individual. Verily, when the bank allowed its client to collect on crossed checks issued in the name of another, the bank is guilty of negligence” (Bank of America vs. Associated Citizens Bank, et al., G.R. No. 141001, May 21, 2019; BDO Unibank vs. Engr. Selwyn Lao, et al., G.R. No. 227005, June 19, 2017).

It may be added that a collecting bank is considered an endorser. When it sends the check through clearing it is required, under clearing rules, to stamp on the check the phrase “all prior endorsements and/or lack of endorsement guaranteed.” Such stamp is a warranty of an endorser and, by virtue thereof, the collecting bank cannot deny liability on the check.

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The above comments are the personal views of the writer. His email address is jzuniga@bsp.gov.ph

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