Title
Bank of America, NT and SA vs. Associated Citizens Bank
Case
G.R. No. 141001
Decision Date
May 21, 2009
BA-Finance sued Miller, its sureties, and banks after checks issued "For Payee's Account Only" were deposited in a personal account. Courts held Bank of America liable for improper payment, Associated Bank for negligence, and individuals for unjust enrichment.
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Case Digest (G.R. No. 141001)

Facts:

  1. Transaction and Credit Line Facility
    On 6 October 1978, BA-Finance Corporation (BA-Finance) entered into a transaction with Miller Offset Press, Inc. (Miller), granting the latter a credit line facility to assign or discount its trade receivables. Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng, as authorized representatives of Miller, executed a Continuing Suretyship Agreement with BA-Finance, guaranteeing Miller's indebtedness.

  2. Assignment of Trade Receivables and Issuance of Checks
    Miller assigned several trade receivables to BA-Finance, and in consideration, BA-Finance issued four checks payable to "Miller Offset Press, Inc." with the notation "For Payee's Account Only." The checks were drawn against Bank of America and totaled P741,227.78.

  3. Deposit of Checks in Personal Account
    Ching Uy Seng (a.k.a. Robert Ching), Miller's corporate secretary, deposited the checks in a joint account under his name and Uy Chung Guan Seng at Associated Citizens Bank (Associated Bank). The checks were stamped with "all prior endorsements and/or lack of endorsements guaranteed" and cleared by Bank of America.

  4. Failure to Deliver Proceeds and Filing of Complaint
    Miller failed to deliver the proceeds of the assigned trade receivables to BA-Finance. BA-Finance filed a complaint against Miller, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng for collection of the amount paid for the checks. BA-Finance later amended the complaint to include Bank of America for allowing encashment by unauthorized persons.

  5. RTC and Court of Appeals Decisions
    The Regional Trial Court (RTC) ruled in favor of BA-Finance, holding Bank of America liable for the amount of the checks and ordering Associated Bank to reimburse Bank of America. The Court of Appeals affirmed the RTC's decision with modifications, deleting the award of attorney's fees.

Issue:

  1. Whether the Court of Appeals erred in finding Bank of America liable to pay BA-Finance the amount of the four checks.
  2. Whether the Court of Appeals erred in finding Associated Bank liable to reimburse Bank of America the amount of the four checks.
  3. Whether the Court of Appeals erred in finding Ching Uy Seng and/or Uy Chung Guan Seng liable to pay Associated Bank the amount of the four checks.

Ruling:

  1. Bank of America's Liability
    The Supreme Court upheld the Court of Appeals' decision, ruling that Bank of America, as the drawee bank, violated its duty to pay only the payee named on the checks. The checks were crossed and issued "For Payee's Account Only," meaning they were intended for deposit only by Miller. By paying the checks to Ching Uy Seng's personal account, Bank of America breached its obligation and was liable to BA-Finance.

  2. Associated Bank's Liability
    The Court ruled that Associated Bank, as the collecting bank, was negligent in allowing the checks to be deposited in a personal account instead of the payee's account. By stamping "all prior endorsements and/or lack of endorsements guaranteed," Associated Bank assumed the liability of an endorser and was ordered to reimburse Bank of America.

  3. Liability of Ching Uy Seng and Uy Chung Guan Seng
    The Court affirmed that Ching Uy Seng and Uy Chung Guan Seng, who received the proceeds of the checks, were liable to reimburse Associated Bank. The principle of unjust enrichment applies, as they had no right to retain the money paid to them.

  4. Modification of Award
    The Court modified the amount awarded to BA-Finance to P741,227.78, correcting the total value of the four checks. The award of attorney's fees was deleted for lack of justification.

Ratio:

  1. Drawee Bank's Duty
    A drawee bank is strictly liable to pay a check only to the payee or the payee's order. Payment to any other person violates the drawer's instructions and constitutes a breach of the bank's duty.

  2. Crossed Checks
    Crossed checks, especially those marked "For Payee's Account Only," are intended for deposit only by the named payee. Any deviation from this instruction renders the drawee bank liable.

  3. Collecting Bank's Liability
    A collecting bank that endorses a check guarantees the genuineness of all prior endorsements. If it fails to verify the authenticity of the endorsements or allows improper deposit, it is liable for negligence.

  4. Unjust Enrichment
    A person who receives money without legal right or justification must return it to prevent unjust enrichment. Ching Uy Seng and Uy Chung Guan Seng, having received the proceeds of the checks, were obligated to reimburse Associated Bank.

  5. Attorney's Fees
    Attorney's fees must be supported by factual, legal, or equitable justification. In the absence of such justification, the award is improper.


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