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BDO UNIBANK v. ENGR. SELWYN LAO

FACTS:

Engineer Selwyn S. Lao filed a complaint for collection of sum of money against Equitable Banking Corporation (now Banco de Oro Unibank), Everlink Pacific Ventures, Inc., and Wu Hsieh aka George Wu. Lao alleged that he entered into a transaction with Everlink, through its authorized representative Wu, wherein Everlink would supply him with "HCG sanitary wares." Lao issued two crossed checks as a down payment for the sanitary wares, payable to Everlink. However, Everlink failed to deliver the sanitary wares and Lao discovered that the checks were deposited in two different bank accounts at International Exchange Bank (now Union Bank). Lao filed a complaint against Everlink, Wu, and BDO for their failure to fulfill their obligations.

BDO claimed that it had no obligation to ascertain the owner of the accounts to which the checks were deposited, and that it paid the checks in accordance with Lao's instruction to deposit them to Everlink's account with Union Bank.

Lao subsequently added Union Bank as an additional defendant for allowing the deposit of crossed checks in bank accounts other than the payee's account.

The trial court ruled in favor of Lao, and the CA affirmed the decision with modification. The RTC found that Union Bank was negligent in allowing the irregular deposit and encashment of one of the checks without proper endorsement. The complaint against BDO was dismissed.

Union Bank filed an appeal to the CA, which affirmed the RTC's ruling but modified the decision by ordering BDO to pay Lao the amount of the check with legal interest. The CA concurred with the RTC that Union Bank was liable for negligence and its guarantee on the validity of prior endorsements.

BDO filed a motion for partial reconsideration, arguing that the RTC decision had already attained finality with respect to its dismissal from the complaint. The CA denied the motion.

Hence, BDO filed the present petition, arguing that the CA's order for it to pay Lao was erroneous since the RTC had already dismissed it from the complaint with finality. BDO also asserted that Union Bank, as the collecting bank, should bear the loss as it had the duty to ascertain the genuineness of all prior endorsements.

The CA held BDO liable for the loss suffered by Lao due to the deposit of a crossed check intended for Everlink to New Wave's account. Lao responded by asserting that the issue of BDO's liability was properly resolved by the CA and was intertwined with the principal issue. Union Bank did not file any comment on BDO's petition.

ISSUES:

  1. Whether the drawee bank may be held liable to the drawer in cases of unauthorized payment of checks to a person other than the payee named therein.

  2. Whether the collecting bank may be held liable to the drawee bank for reimbursement in cases of unauthorized payment of checks.

  3. Whether BDO violated its duty and was negligent in paying the value of the check to Union Bank.

  4. Whether Union Bank can be held liable for negligence in allowing the deposit of the proceeds of the check in the account of New Wave.

  5. Whether the payee of the crossed checks should be allowed to recover directly from the collecting bank regardless of whether or not the checks were actually delivered to the payee.

  6. Whether BDO Unibank, Inc. (BDO) can be held liable to the payee, Selwyn Lao.

RULING:

  1. The drawee bank may be held liable to the drawer in cases of unauthorized payment of checks to a person other than the payee named therein.

  2. The collecting bank may be held liable to the drawee bank for reimbursement in cases of unauthorized payment of checks.

  3. BDO violated its duty and was negligent in paying the value of the check to Union Bank.

  4. Union Bank can be held liable for negligence in allowing the deposit of the proceeds of the check in the account of New Wave.

  5. The payee of the crossed checks should be allowed to recover directly from the collecting bank regardless of whether or not the checks were actually delivered to the payee.

  6. BDO cannot be held liable to the payee, Selwyn Lao, because BDO was not impleaded as a party in the appeal and the issue as to BDO's liability was not raised on appeal.

PRINCIPLES:

  • In cases of unauthorized payment of checks to a person other than the payee named therein, the drawee bank may be held liable to the drawer. The drawee bank may seek reimbursement from the collecting bank for the amount of the check.

  • The liability of the drawee bank is based on its contract with the drawer and its duty to charge to the latter's accounts only those payables authorized by him.

  • A drawee bank is under strict liability to pay the check only to the payee or to the payee's order. When the drawee bank pays a person other than the payee named in the check, it does not comply with the terms of the check and violates its duty to charge the drawer's account only for properly payable items.

  • The liability of the collecting bank is anchored on its guarantees as the last endorser of the check. If any of the warranties made by the collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of the check.

  • Union Bank, as the collecting bank, assumed the warranty of an endorser when it stamped at the back of the check the phrase "all prior endorsements and/or lack of it guaranteed." Union Bank cannot deny liability after the warranty turned out to be false.

  • Union Bank was negligent in allowing the check to be presented by and deposited in the account of New Wave, despite knowledge that it was not the payee named therein. Union Bank should have noticed that the subject checks were crossed checks.

  • A crossed check may not be encashed but only deposited in the bank. It may be negotiated only once - to one who has an account with a bank. The act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose. The effects of crossing a check relate to the mode of payment, indicating that the drawer intended the check for deposit only by the rightful person, i.e., the payee named therein.

  • The aggrieved party may be allowed to recover directly from the person which caused the loss when circumstances warrant, even if there is a sequence of recovery based on jurisprudence.

  • The payee of crossed checks can recover directly from the collecting bank even if the checks were not actually delivered to the payee.

  • A person cannot be prejudiced by a ruling rendered in an action or proceeding in which he has not been made a party. This principle conforms to the constitutional guarantee of due process of law.

  • The non-inclusion of a party in the title of the pleading is not fatal to the case, provided there is a statement in the body indicating that such non-included person is a party to the case.

  • A person cannot be bound by a decision wherein it was not a party. A contrary finding would violate the person's constitutional right to due process.