BDO UNIBANK, INC v. LAO

BDO UNIBANK, INC vs. ENGR. SELWYN LAO, doing business under the name and style "SELWYN F. LAO CONSTRUCTION" AND "WING AN CONSTRUCTION AND DEVELOPMENT CORPORATION" and INTERNATIONAL EXCHANGE BANK 

G.R. No. 227005

June 19, 2017

Facts:

On March 9, 1999, respondent Engineer Selwyn S. Lao (Lao) filed before the RTC a complaint for collection of sum of money against Equitable Banking Corporation, now petitioner Banco de Oro Unibank (BDO), Everlink Pacific Ventures, Inc. (Ever/ink), and Wu Hsieh a.k.a.George Wu (Wu). Lao alleged that he was doing business under the name and style of "Selwyn Lao Construction"; that he was a majority stockholder of Wing An Construction and Development Corporation that he entered into a transaction with Ever link, through its authorizedrepresentative Wu, under which, Everlink would supply him with "HCG sanitary wares".

Lao further averred that when the checks were encashed, he contacted Everlink for the immediate delivery of the sanitary wares, but the latter failed to perform its obligation. Later, Lao learned that the checks were deposited in two different bank accounts at respondent International Exchange Bank, now respondent Union Bank of the Philippines (UnionBank). He was later informed that the two bank accounts belonged to Wuand a company named New Wave Plastic (New Wave), represented by a certain Willy Antiporda (Antiporda). Consequently, Lao was prompted to file a complaint against Everlink and Wu for their failure to comply with their obligation and against BDO for allowing the encashment of the two (2) checks. He later withdrew his complaint against Everlink as the corporation had ceased existing.

BDO asserted that it had no obligation to ascertain the owner of the account/s to which the checks were deposited because the instruction to deposit the said checks to the payee's account only was directed to the payee and the collecting bank, which in this case was Union Bank; that as the drawee bank, its obligations consist in examining the genuineness of the signatures appearing on the checks, and paying the same if there were sufficient funds in the account under which the checks were drawn; and that the subject checks were properly negotiated and paid in accordance with the instruction of Lao in crossing them as they were deposited to the account of the payee Ever link with Union Bank, which then presented them for payment with BDO.

On August 24, 2001, Lao filed an Amended Complaint, wherein he impleaded Union Bank as additional defendant for allowing the deposit of the crossed checks in two bank accounts other than the payee's, in violation of its obligation to deposit the same only to the payee's account.

The RTC observed that there was nothing irregular with the transaction of Check No. 0127-242249 because the same was deposited in Everlink's account with Union Bank. It, however, found that Check No. 0127-242250 was irregularly deposited and encashed because it was not issued for the account of Everlink, the payee, but for the account of New Wave. The trial court noted further that Check No. 0127-242250 was not even endorsed by Everlink to New Wave. Thus, it opined that Union Bank was negligent in allowing the deposit and encashment of the said check without proper endorsement. The R TC wrote that considering that the subject check was a crossed check, Union Bank failed to take reasonable steps in order to determine the validity of the representations made by Antiporda. In the end, it adjudged that BDO could not be held liable because of Union Bank's warranty when it stamped on the check that "all prior endorsement and/or lack of endorsement guaranteed." The CA affirmed, with modification, the ruling of the R TC.

Issue:

Whether or not petitioner BDO Unibank, Inc. Is liable to pay Selwyn Lao the amount of Check No. 0127-242250.

Ruling:

The petition is meritorious.

The Court agrees with the appellate court that 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, in turn, may seek reimbursement from the collecting bank for the amount of the check. This rule on the sequence of recovery in case of unauthorized check transactions had already been deeply embedded in jurisprudence.

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.

Nevertheless, even with such clear violation by BDO of its duty, the loss would have ultimately pertained to Union Bank. By stamping at the back of the subject check the phrase "all prior endorsements and/or lack of it guaranteed," Union Bank had, for all intents and purposes treated the check as a negotiable instrument and, accordingly, assumed the warranty of an endorser. Without such warranty, BDO would not have paid the proceeds of the check. Thus, Union Bank cannot now deny liability after the aforesaid warranty turned out to be false.

Union Bank was clearly negligent when it allowed the check to be presented by, and deposited in the account of New Wave, despite knowledge that it was not the payee named therein.

WHEREFORE, the petition is GRANTED. The October 14, 2015 Decision and the September 5, 2016 Resolution of the Court of Appeals in CA-G.R. CV No. 100351 are hereby REVERSED and SET ASIDE insofar as it ordered petitioner BDO Unibank, Inc. to pay Selwyn Lao the amount of Check No. 0127-242250. The rest of the decision is AFFIRMED.