FACTS:

The case involves a dispute between Junnel's Marketing Corporation (JMC), Metropolitan Bank and Trust Company (Metrobank), Asia United Bank (AUB), Purificacion C. Delizo, and Zenaida Casquero. Delizo confessed to stealing JMC's checks and giving them to Casquero and an unidentified bank manager for encashment. AUB allowed Casquero to deposit the stolen checks into her account, despite not being the named payee. Metrobank cleared the checks and authorized payment to Casquero. The Court of Appeals (CA) affirmed the Regional Trial Court's (RTC) decision, holding Delizo, Casquero, and AUB jointly and severally liable to JMC. The CA found that both Metrobank and AUB acted inconsistently with the highest standard of integrity and diligence required of banks. AUB is also liable as an indorser for checks payable to order, while Metrobank is strictly liable to pay the checks to the order of the payee named therein. AUB argued that JMC cannot rely on its indorsement and that crossed checks may be negotiated once to someone with an account with a bank. AUB maintained that it exercised proper diligence and caution by confirming the deposit with Metrobank and requiring Casquero to sign a Deed of Undertaking.

ISSUES:

1. Whether JMC can rely on the indorsement of AUB for the check transactions.

2. Whether the crossed checks can be negotiated multiple times.

3. Whether AUB exercised proper diligence in allowing the deposit of the checks.

4. Whether Metrobank is liable for the irregularities and losses resulting from the clearance of the checks.

5. Whether AUB should be absolved from liability based on the Deed of Undertaking executed by Casquero.

6. Whether JMC's failure to prevent fraud and allow the clearance of the checks makes them solely responsible for the losses incurred.

7. Whether JMC is entitled to attorney's fees.

8. Whether Metrobank is liable for the unauthorized payment of the crossed checks.

9. Whether Metrobank is liable for the payment of the checks payable to the order of specific persons.

10. Whether AUB is liable to reimburse Metrobank for the amount of the checks.

11. Whether AUB can be absolved from liability due to Metrobank's clearance of the checks.

12. Whether AUB is liable as the last indorser of the checks payable to order.

13. Whether Metrobank's depositor, JMC, can be held liable for contributory negligence.

14. Whether Metrobank is liable to JMC for the unauthorized encashment of the seven checks.

15. Whether AUB is liable to Metrobank for the amount it paid to JMC.

16. Whether Casquero and Delizo should reimburse AUB of the amount it paid to Metrobank.

17. Whether the interest imposed by the CA is correct.

RULING:

1. The drawee bank is liable to the drawer for the amount of the checks in cases of unauthorized payment. The drawee bank may seek reimbursement from the collecting bank. Metrobank is liable to JMC for the unauthorized payments made on the checks, even if it acted upon the guarantee of AUB. A crossed check may not be encashed but only deposited. AUB did not exercise proper diligence in allowing the deposit of the checks. Metrobank is not absolved from liability as it cannot claim ignorance of the irregularities and losses. JMC is entitled to attorney's fees.

2. Metrobank is liable for the unauthorized payment of the crossed checks as it violated the instructions of the drawer by paying the checks to a person who was not the named payee. Metrobank should suffer the consequence of this wrongful encashment.

3. Metrobank is liable for the payment of the checks payable to the order of specific persons as it violated the instructions of JMC to pay these checks to the named payee. Metrobank should suffer the consequence of this wrongful encashment.

4. AUB is liable to reimburse Metrobank for the amount of the checks since the checks were paid under false guaranties and AUB warranted that the checks were genuine and with good title.

5. AUB cannot absolve itself from liability by arguing that it credited the amount of the checks to the account only after Metrobank cleared them for payment. AUB had the opportunity to determine whether the checks will be paid to the rightful payee when the checks were deposited into its account.

6. AUB is liable as the last indorser of the checks payable to order, even if the previous indorsements were forged. AUB should be held liable for the payment of the checks as it guaranteed all prior indorsements, including the forged indorsement itself.

7. JMC cannot be held liable for contributory negligence as the alleged contributory negligence was not established. AUB's mere allegation cannot overcome the fact that AUB, as the collecting bank, was remiss in its obligations.

8. Metrobank is liable to JMC for the unauthorized encashment of the seven checks.

9. AUB is liable to Metrobank for the amount it paid to JMC.

10. Casquero and Delizo should reimburse AUB of the amount it paid to Metrobank.

11. The interest imposed by the CA is modified. Metrobank's liability to JMC and AUB's liability to Metrobank are subject to a legal interest rate of 6% per annum from the time of extra-judicial or judicial demand.

PRINCIPLES:

• The drawee bank is bound by its contractual obligation to pay the check only to the named payee or the payee's order.

• A drawee bank is liable for unauthorized payments made on checks and can seek reimbursement from the collecting bank.

• A crossed check may not be encashed but only deposited.

• Proper diligence must be exercised by banks to verify and confirm the deposit of checks.

• Banks cannot claim ignorance of irregularities and losses in check transactions.

• Contracts like the Deed of Undertaking should be upheld unless they contravene public right or welfare.

• The doctrine of contributory negligence may apply to cases of negligence on the part of the claimant.

• The crossing of a check means that the check should be deposited only in the account of the payee. (Doctrine of Crossing of Checks)

• A collecting bank assumes the same warranties assumed by an endorser of a negotiable instrument when it presents a check to the drawee bank for payment. (Section 66 of the Negotiable Instruments Law)

• A collecting bank is liable for the payment of checks deposited with it if any of the warranties assumed by the collecting bank turn out to be false. (Doctrine of Liability of Collecting Bank)

• The banking business is imbued with public interest and banks are required to exercise the highest standard of diligence and integrity in their transactions. (Doctrine of Duty of Banks)

• The collecting bank has a duty of diligence to scrutinize checks deposited with it to determine their genuineness and regularity. (Doctrine of Duty of Collecting Bank)

• The drawer's instruction to pay a check to a named payee should be followed by the drawee bank. (Doctrine of Adherence to Drawer's Instruction)

• The collecting bank is held to a high standard of conduct and is liable for negligence and false guaranty (collecting bank being primarily engaged in banking).

• The collecting bank may seek reimbursement from the persons who caused the checks to be deposited and received the unauthorized payments.

• The interest rate imposed on obligations not constituting a loan or forbearance of money that is breached is 6% per annum.

• The interest begins to run from the time the claim is made judicially or extrajudicially, but when such certainty cannot be reasonably established at the time the demand is made, the interest begins to run only from the date the judgment of the court is made.

• Judgments that have become final and executory prior to July 1, 2013, shall continue to be implemented applying the rate of interest fixed therein.

• Attorney's fees may be granted only when supported by evidence.