Crossed checks. - A crossed check with the notation “account payee only” can only be deposited in the named payee’s account. It is gross negligence for a bank to ignore this rule solely on the basis of a third party’s oral representations of having a good title thereto. - G.R. No. 175350

G.R. No. 175350

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The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPI’s order, and contained the notation “account payee only.”  This creates a reasonable expectation that the payee alone would receive the proceeds of the checks and that diversion of the checks would be averted.  This expectation arises from the accepted banking practice that crossed checks are intended for deposit in the named payee’s account only and no other.[56]  At the very least, the nature of crossed checks should place a bank on notice that it should exercise more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a different account.  It is well to remember that “[t]he banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society.  Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of business and commerce, banks have attained an [sic] ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, above all, trust and confidence.  In this connection, it is important that banks should guard against injury attributable to negligence or bad faith on its part.  As repeatedly emphasized, since the banking business is impressed with public interest, the trust and confidence of the public in it is of paramount importance.  Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are required of it.”[57]

            Equitable did not observe the required degree of diligence expected of a banking institution under the existing factual circumstances. 

            The fact that a person, other than the named payee of the crossed check, was presenting it for deposit should have put the bank on guard.  It should have verified if the payee (SSPI) authorized the holder (Uy) to present the same in its behalf, or indorsed it to him.  Considering however, that the named payee does not have an account with Equitable (hence, the latter has no specimen signature of SSPI by which to judge the genuineness of its indorsement to Uy), the bank knowingly assumed the risk of relying solely on Uy’s word that he had a good title to the three checks.  Such misplaced reliance on empty words is tantamount to gross negligence, which is the “absence of or failure to exercise even slight care or diligence, or the entire absence of care, evincing a thoughtless disregard of consequences without exerting any effort to avoid them.”[58]

             Equitable contends that its knowledge that Uy is the son-in-law of the majority stockholder of the drawer, Interco, made it safe to assume that the drawer authorized Uy to countermand the order appearing on the check.  In other words, Equitable theorizes that Interco reconsidered its original order and decided to give the proceeds of the checks to Uy.[59]  That the bank arrived at this conclusion without anything on the face of the checks to support it is demonstrative of its lack of caution.  It is troubling that Equitable proceeded with the transaction based only on its knowledge that Uy had close relations with Interco.  The bank did not even make inquiries with the drawer, Interco (whom the bank considered a “valued client”), to verify Uy’s representation.  The banking system is placed in peril when bankers act out of blind faith and empty promises, without requiring proof of the assertions and without making the appropriate inquiries.  Had it only exercised due diligence, Equitable could have saved both Interco and the named payee, SSPI, from the trouble that the bank’s mislaid trust wrought for them.

            Equitable’s pretension that there is nothing under the circumstances that rendered Uy’s title to the checks questionable is outrageous.  These are crossed checks, whose manner of discharge, in banking practice, is restrictive and specific.  Uy’s name does not appear anywhere on the crossed checks. Equitable, not knowing the named payee on the check, had no way of verifying for itself the alleged genuineness of the indorsement to Uy.  The checks bear nothing on their face that supports the belief that the drawer gave the checks to Uy.  Uy’s relationship to Interco’s majority stockholder will not justify disregarding what is clearly ordered on the checks.    

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