Bank of America V Associated Citizens Bank (Lacurom)
Bank of America V Associated Citizens Bank (Lacurom)
Bank of America V Associated Citizens Bank (Lacurom)
could assign or discount its trade receivables with the former. Miller discounted and
GR NO. 141001 | MAY 21, 2009 assigned several trade receivables to BA-‐‑Finance by executing Deeds of Assignment
Lacurom | Group 3 in favor of the latter. In consideration of the assignment, BA-‐‑ Finance issued four
checks payable to the Order of Miller Offset Press, Inc. with the notation “For Payee’s
Account Only” These checks were drawn against Bank of America. The four checks
PETITONERS/PROSECUTORS: BANK OF AMERICA, NT & SA
were deposited by Ching Uy Seng (a.k.a. Robert Ching), then the corporate secretary
of Miller, in Account No. 989 in Associated Citizens Bank (Associated Bank), which
RESPONDENTS/DEFENDANTS: ASSOCIATED CITIZENS BANK, BA-‐‑FINANCE
was his personal account. Associated Bank stamped the checks with the notation “all
CORPORATION, MILLER OFFSET PRESS, INC., UY KIAT CHUNG, CHING UY
prior endorsements and/or lack of endorsements guaranteed,” and sent them through
SENG, UY CHUNG GUAN SENG, and COURT OF APPEALS
clearing. Later, the drawee bank, Bank of America, honored the checks and paid the
proceeds to Associated Bank as the collecting bank. When Miller failed to deliver to
BA Finance the proceeds of the assigned trade receivables, BA Finance filed a
collection suit against Miller.
CASE SUMMARY:
BA-‐‑Finance issued four crossed-‐‑checks with Miller as the payee. However, the checks ISSUES: Who is liable for the four checks?
were deposited by Chung Uy Seng in his personal account. The bank on which a
check is drawn, known as the drawee bank, is under strict liability, based on the
RULING:
contract between the bank and its customer (drawer), to pay the check only to the
payee or the payee’s order. The drawer’s instructions are reflected on the face and by 1. The bank on which a check is drawn, known as the drawee bank, is under strict
the terms of the check. When the drawee bank pays a person other than the payee liability, based on the contract between the bank and its customer (drawer), to pay
named on the check, it does not comply with the terms of the check and violates its the check only to the payee or the payee’s order. The drawer’s instructions are
duty to charge the drawer’s account only for properly payable items. On the part of reflected on the face and by the terms of the check. When the drawee bank pays a
Associated Bank, the law imposes a duty of diligence on the collecting bank to person other than the payee named on the check, it does not comply with the terms
scrutinize checks deposited with it for the purpose of determining their genuineness of the check and violates its duty to charge the drawer’s account only for properly
and regularity. The collecting bank being primarily engaged in banking holds itself payable items.
out to the public as the expert and the law holds it to a high standard of conduct. In
presenting the checks for clearing and for payment, the defendant [collecting bank] Among the different types of checks issued by a drawer is the crossed check. The
made an express guarantee on the validity of “all prior endorsements.” Thus, Negotiable Instruments Law is silent with respect to crossed checks, although the
stamped at the back of the checks are the defendant’s clear warranty. As the warranty Code of Commerce makes reference to such instruments. This Court has taken
has proven to be false and inaccurate, Associated Bank is liable for any damage judicial cognizance of the practice that a check with two parallel lines in the upper left
arising out of the falsity of its representation. hand corner means that it can only be deposited only by the rightful person (the
payee named therein) and could not be converted into cash.
The effects of crossing a check are as follows:
TOPIC: Right of payee, Effect of crossed-‐‑checks
a) the check may not be encashed but only deposited in the bank; (b) the check may
TERMS: be negotiated only once to one who has an account with a bank; and (c) the act of
NA crossing the check serves as a warning to the holder that the check has been issued
for a definite purpose so that he must inquire if he has received the check pursuant
PRECEDENTS: to that purpose; otherwise, he is not a holder in due course.
NA
In this case, the four checks were drawn by BA-‐‑Finance and made payable to the
“Order of Miller Offset Press, Inc” The checks were also crossed and issued “For
FACTS: Payee’s Account Only.”Clearly, the drawer intended the check for deposit only by
BA Finance granted Miller Company a credit line facility through which the latter
Miller Offset Press, Inc. in the latter’s bank account. Thus, when a person other than
Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching, presented and deposited the checks in
his own personal account, and the drawee bank, Bank of America, paid the value of
the checks and charged BA-‐‑Finance’s account therefor, the drawee Bank of America is
deemed to have violated the instructions of the drawer, and therefore, is liable for the
amount charged to the drawer’s account.
2. The court ruled that Associated bank is liable to the Bank of America, as the
endorser (A collecting bank where a check is deposited, and which endorses the check upon
presentment with the drawee bank ). It was negligent in allowing the checks to be
presented by and deposited in the personal bank account of a person who was not the
payee in the checks: This Court has repeatedly held that in check transactions, the
collecting bank or last endorser generally suffers the loss because it has the duty to
ascertain the genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making
the presentment has done its duty to ascertain the genuineness of the endorsements.
PROVISIONS: