606 Phil.

35

FIRST DIVISION

[ G.R. No. 141001, May 21, 2009 ]

BANK OF AMERICA, NT & SA, PETITIONER, VS. ASSOCIATED CITIZENS BANK,

BA-FINANCE CORPORATION, MILLER OFFSET PRESS, INC., UY KIAT CHUNG,
CHING UY SENG, UY CHUNG GUAN SENG, AND COURT OF APPEALS,
RESPONDENTS.

[G.R. NO. 141018]

ASSOCIATED CITIZENS BANK (NOW UNITED OVERSEAS BANK PHILS.),

PETITIONER, VS. BA-FINANCE CORPORATION, MILLER OFFSET PRESS, INC.,
UY KIAT CHUNG, CHING UY SENG, UY CHUNG GUAN SENG, AND BANK OF
AMERICA, NT & SA, RESPONDENTS.

DECISION
CARPIO, J.:

The Case

Before the Court are consolidated cases docketed as G.R. No. 141001 and G.R. No. 141018. These two cases
are petitions for review on certiorari[1] of the Decision[2] dated 26 February 1999 and the Resolution dated 6
December 1999 of the Court of Appeals in CA-G.R. CV No. 48821. The Court of Appeals affirmed with
modifications the Decision of the Regional Trial Court of Makati, Branch 64 (RTC).

The Antecedent Facts

On 6 October 1978, BA-Finance Corporation (BA-Finance) entered into a transaction with Miller Offset Press,
Inc. (Miller), through the latter's authorized representatives, i.e., Uy Kiat Chung, Ching Uy Seng, and Uy Chung
Guan Seng. BA-Finance granted Miller a credit line facility through which the latter could assign or discount its
trade receivables with the former. On 20 October 1978, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan
Seng executed a Continuing Suretyship Agreement with BA-Finance whereby they jointly and severally
guaranteed the full and prompt payment of any and all indebtedness which Miller may incur with BA-Finance.

Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of Assignment 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 and had the following details:[3]

Check No. Date Amount

128274 13 February 1981 P222,363.33
129067 26 February 1981 252,551.16
 132133 20 April 1981 206,450.57
133057 7 May 1981 59,862.72
----------------
Total P741,227.78

The four checks 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). Account No. 989 is a joint bank account
under the names of Ching Uy Seng and Uy Chung Guan Seng. Associated Bank stamped the checks with the
notation "all prior endorsements and/or lack of endorsements guaranteed," and sent them through clearing. Later,
the drawee bank, Bank of America, honored the checks and paid the proceeds to Associated Bank as the
collecting bank.

Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables. Consequently, BA-Finance
filed a Complaint against Miller for collection of the amount of P731,329.63 which BA-Finance allegedly paid
in consideration of the assignment, plus interest at the rate of 16% per annum and penalty charges.[4] Likewise
impleaded as party defendants in the collection case were Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan
Seng.

Miller, Uy Kiat Chung, and Uy Chung Guan Seng filed a Joint Answer (to the BA-Finance's Complaint) with
Cross-Claim against Ching Uy Seng, wherein they denied that (1) they received the amount covered by the four
Bank of America checks, and (2) they authorized their co-defendant Ching Uy Seng to transact business with
BA-Finance on behalf of Miller. Uy Kiat Chung and Uy Chung Guan Seng also denied having signed the
Continuing Suretyship Agreement with BA-Finance. In view thereof, BA-Finance filed an Amended Complaint
impleading Bank of America as additional defendant for allegedly allowing encashment and collection of the
checks by person or persons other than the payee named thereon. Ching Uy Seng, on the other hand, did not file
his Answer to the complaint.

Bank of America filed a Third Party Complaint against Associated Bank. In its Answer to the Third Party
Complaint, Associated Bank admitted having received the four checks for deposit in the joint account of Ching
Uy Seng (a.k.a. Robert Ching) and Uy Chung Guan Seng, but alleged that Robert Ching, being one of the
corporate officers of Miller, was duly authorized to act for and on behalf of Miller.

On 28 September 1994, the RTC rendered a Decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered against defendant Bank of
America to pay plaintiff BA Finance Corporation the sum of P741,277.78, the value of the four (4)
checks subject matter of this case, with legal interest thereon from the time of the filing of this
complaint until payment is made and attorney's fees corresponding to 15% of the amount due and to
pay the costs of the suit.

Judgment is likewise rendered ordering the third-party defendant Associated Citizens Bank to
reimburse Bank of America, the defendant third-party plaintiff, of the aforestated amount.

SO ORDERED.[5]

The Court of Appeals' Ruling

On appeal, the Court of Appeals rendered judgment,[6] affirming with modifications the decision of the RTC,
thus:

WHEREFORE, judgment is hereby rendered, as follows:

(1) Defendant and third-party plaintiff-appellant, Bank of America, NT & SA, is ordered to pay
plaintiff-appellee BA-Finance Corporation the sum of P741,277.78, with legal interest thereon from
 the time of the filing of the complaint until the whole amount is fully paid;

(2) Third-party defendant-appellant Associated Citizens Bank is likewise ordered to reimburse Bank
of America the aforestated amount;

(3) Defendants Ching Uy Seng and/or Uy Chung Guan Seng are also ordered to pay Associated
Citizens Bank the aforestated amount; and

(4) The award of attorney's fees is ordered deleted.

SO ORDERED.[7]

Associated Bank and Bank of America filed their respective Motions for Reconsideration, but these were denied
by the Court of Appeals in its Resolution of 6 December 1999.[8]

Hence, these petitions.

The Issue

The issues raised in these consolidated cases may be summarized as follows:

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

The Court's Ruling

We find the petitions unmeritorious.

The Court of Appeals did not err in finding Bank of America

liable to pay BA-Finance the amount of the four checks.

Bank of America denies liability for paying the amount of the four checks issued by BA-Finance to Miller,
alleging that it (Bank of America) relied on the stamps made by Associated Bank stating that "all prior
endorsement and/or lack of endorsement guaranteed," through which Associated Bank assumed the liability of a
general endorser under Section 66 of the Negotiable Instruments Law. Moreover, Bank of America contends that
the proximate cause of BA-Finance's injury, if any, is the gross negligence of Associated Bank which allowed
Ching Uy Seng (Robert Ching) to deposit the four checks issued to Miller in the personal joint bank account of
Ching Uy Seng and Uy Chung Guan Seng.

We are not convinced.

The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on the 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 the terms of the check. When the drawee bank pays a
person other than the payee named on 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.[9] Thus, we ruled in Philippine National
Bank v. Rodriguez[10] that a drawee should charge to the drawer's accounts only the payables authorized by the
latter; otherwise, the drawee will be violating the instructions of the drawer and shall be liable for the amount
charged to the drawer's account.

Among the different types of checks issued by a drawer is the crossed check. The Negotiable Instruments Law
is silent with respect to crossed checks, although the Code of Commerce[11] makes reference to such
instruments.[12] This Court has taken judicial cognizance of the practice that a check with two parallel lines in
the upper left hand corner means that it could only be deposited and could not be converted into cash.[13] Thus,
the effect of crossing a check relates to the mode of payment, meaning that the drawer had intended the check
for deposit only by the rightful person, i.e., the payee named therein.[14] The crossing may be "special" wherein
between the two parallel lines is written the name of a bank or a business institution, in which case the drawee
should pay only with the intervention of that bank or company, or "general" wherein between two parallel
diagonal lines are written the words "and Co." or none at all, in which case the drawee should not encash the
same but merely accept the same for deposit.[15] In Bataan Cigar v. Court of Appeals,[16] we enumerated the
effects of crossing a check as follows: (a) the check may not be encashed but only deposited in the bank; (b) the
check may be negotiated only once - to one who has an account with a bank; and (c) the act of 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 to that purpose; otherwise, he is not a holder in due course.[17]

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 Payee's Account Only." Clearly, the drawer intended the
check for deposit only by 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
(Ching Uy Seng's joint account with Uy Chung Guan Seng), 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.

The Court of Appeals did not err in finding Associated

Bank liable to reimburse Bank of America the
amount of the four checks.

A collecting bank where a check is deposited, and which endorses the check upon presentment with the drawee
bank, is an endorser.[18] Under Section 66 of the Negotiable Instruments Law, an endorser warrants "that the
instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties
had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting." 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.[19]

When Associated Bank stamped the back of the four checks with the phrase "all prior endorsements and/or lack
of endorsement guaranteed," that bank had for all intents and purposes treated the checks as negotiable
instruments and, accordingly, assumed the warranty of an endorser. Being so, Associated Bank cannot deny
liability on the checks. In Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation,[20] we
held that:

x x x 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. x x x In presenting the checks for clearing and for payment, the defendant
[collecting bank] made an express guarantee on the validity of "all prior endorsements." Thus,
stamped at the back of the checks are the defendant's clear warranty: ALL PRIOR
ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such
warranty, plaintiff [drawee] would not have paid on the checks. No amount of legal jargon can
reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and
inaccurate, the defendant is liable for any damage arising out of the falsity of its representation.
Associated Bank was also clearly negligent in disregarding established banking rules and regulations by
allowing the four checks to be presented by, and deposited in the personal bank account of, a person who was
not the payee named in the checks. The checks were issued to the "Order of Miller Offset Press, Inc.," but were
deposited, and paid by Associated Bank, to the personal joint account of Ching Uy Seng (a.k.a. Robert Ching)
and Uy Chung Guan Seng. It could not have escaped Associated Bank's attention that the payee of the checks is
a corporation while the person who deposited the checks in his own account is an individual. Verily, when the
bank allowed its client to collect on crossed checks issued in the name of another, the bank is guilty of
negligence.[21] As ruled by this Court in Jai-Alai Corporation of the Philippines v. Bank of the Philippine
Islands,[22] one who accepts and encashes a check from an individual knowing that the payee is a corporation
does so at his peril. Accordingly, we hold that Associated Bank is liable for the amount of the four checks and
should reimburse the amount of the checks to Bank of America.

The Court of Appeals did not err in finding Ching Uy Seng

and/or Uy Chung Guan Seng liable to pay Associated
Bank the amount of the four checks.

It is well-settled that a person who had not given value for the money paid to him has no right to retain the
money he received.[23] This Court, therefore, quotes with approval the ruling of the Court of Appeals in its
decision:

It appearing, however, from the evidence on record that since Ching Uy Seng and/or Uy Chung
Guan Seng received the proceeds of the checks as they were deposited in their personal joint
account with Associated Bank, they should, therefore, be obliged to reimburse Associated Bank for
the amount it has to pay to Bank of America, in line with the rule that no person should be allowed
to unjustly enrich himself at the expense of another.[24]

As regards the trial court's grant of attorney's fees to BA-Finance, the Court of Appeals found that there was no
sufficient justification therefor; hence, the deletion of the award is proper. An award of attorney's fees
necessitates a factual, legal, or equitable justification. Without such justification, the award is a conclusion
without a premise, its basis being improperly left to speculation and conjecture.[25]

We note that the Decision of the Court of Appeals provides for the amount of P741,277.78 as the sum of the
four checks subject of this case.[26] This amount should be modified as records show that the total value of the
four checks is P741,227.78.[27]

WHEREFORE, we DENY the petitions. We AFFIRM the Court of Appeals' Decision dated 26 February 1999
in CA-G.R. CV No. 48821 with the MODIFICATION that Bank of America, NT & SA is ordered to pay BA-
Finance Corporation the amount of P741,227.78, with legal interest from the time of filing of the complaint until
the amount is fully paid. Associated Citizens Bank is ordered to reimburse Bank of America the
abovementioned amount. Ching Uy Seng and/or Uy Chung Guan Seng are also ordered to pay Associated
Citizens Bank the abovementioned amount.

SO ORDERED.

Puno, C.J., (Chairperson), Corona, Leonardo-De Castro, and Bersamin, JJ., concur.