04 BDO v. EQUITABLE BANKING CORP.
The court stated that there are four kinds of checks in
G.R. No. 74917, January 20, 1988
Per J. Gancayco, First Division
TOPIC: Applicability of NIL
DOCTRINE: A check is a bill of exchange drawn on a
bank payable on demand. Except as herein otherwise
provided, the provisions of this act applicable to a bill of
exchange payable on demand apply to a check. (Sec.
185)
FACTS: Equitable Banking Corp. (EBC), through its Visa
Card Department drew six cross managers check
payable to certain member establishments of the Visa
Card. The checks were deposited with BDO to the
account of its depositor, Aida Trencio. After following
usual procedures and stamping endorsements at the
back of the check, BDO sent the check for clearing to the
Philippine Clearing House Corporation (PCHC).
EBC paid the checks and the amount was credited to the
account of BDO. However, it was later found out that the
signatures of the payees at the back of the checks were
forged. EBC presented the checks to BDO to claim
reimbursement but BDOrefused to pay.
EBC filed a complaint against BDO for payment of the
sum of the checks plus interest. Pursuant to the PHCH
rules, the complaint underwent arbitration. The Arbiter
ruled in favor of BDO. This was affirmed by the Board of
Directors of PCHC and, later, the RTC.
BDO now assails the jurisdiction of the PCHC arguing
that its rules only apply to genuinely negotiable checks. It
cites the definition of a check as a “bill of echange” in
Section 185 of the NIL and that it should be payable to
“order” or “bayer” pursuant to Section 126. BDO argues
that with the cancellation of the words “or bearer”
on the face of the check, it becomes non-negotiable.
RTC explained that the use of the term “check” in
PCHC’s Articles of Incorporation (AOI) is not limited to
negotiable checks but includes all checks generally used
in commercial or business transactions. Also, while the
NIL does not contain any provision on crossed checks, it
is common practice to issue checks of this character.
Also, by stamping “all prior endorsements or lack of
endorsements guaranteed” at the back of the checks,
BDO made an express guarantee on the MCs’ validity.
Hence, estoppel prevents BDO from avoiding liability
ISSUE & RULING:
1. WON the NIL applies in the case. YES.
Sec. 185 of the NIL defines check as a bill of exchange
drawn on a bank payable on demand. Further, it states
that provisions of NIL which are applicable to a bill of
exchange payable on demand, also apply to a check.
this jurisdiction; the regular check, the cashier's check,
the traveller's check and the crossed check.
While the NIL does not contain any provision on crossed
checks, it is common practice in commercial and banking
operations to issue checks of this character, in
accordance with Article 541 of the Code of Commerce.
As such, the provisions of NIL apply to crossed checks
such as the ones issued by EBC in this case.
2. WON the PCHC has jurisdiction over the case. YES
PCHC’s operation extend to “clearing checks and other
clearing items.” Hence, transactions on non-negotiable
checks are within the ambit of its jurisdiction. The term,
check as used in the AOI of PCHC can only connote
checks in general use in commercial, and business
activities. It cannot be conceived to be limited to
negotiable checks only.
Further, the participation of the two banks, petitioner and
private respondent, in the clearing operations of PCHC is
a manifestation of their submission to its jurisdiction.
Lastly, BDO is estopped from raising the defense of non-
negotiability of the checks. When it stamped its
guarantee on the back of the checks and subsequently
presented them, it has for all legal intents and purposes
treated the checks as negotiable instruments and
accordingly assumed the warranty of the endorser.
While the drawer generally owes no duty of diligence to
the collecting bank, the law imposes a duty of diligence
on the collecting bank to scrutinize checks deposited
with it for the purpose of determining their genuineness
and regularity. The collecting bank being primarily
engaged in banking holds itself out to the public as the
expert and the law holds it to a high standard of conduct.
DISPOSITIVE: WHEREFORE, the petition is
DISMISSED for lack of merit without pronouncement as
to costs. The decision of the respondent court of 24
March 1986 and its order of 3 June 1986 are hereby
declared to be immediately executory.
SO ORDERED.