Metrobank vs.

PBCOM (2007)
Digest maker: Clar

SUMMARY: PMC sold 4 Metrobank checks to Filipinas Orient, and, in exchange, Filipinas Orient issued 4
PBCOM crossed checks to PMC with the statement, "for payee's account only." PMC President (Yu Kio)
deposited the 4 PBCom crossed checks into his Metrobank and Solid accounts. The 4 Metrobank checks
were dishonored. Filipinas Orient demanded PMC to return PBCOM checks but PMC refused. So
Filipinas Orient sued PMC & PBCom. PMC & PBCOM say that Metrobank and Solidbank (as collecting
banks) should be liable. RTC & CA held Metrobank & Solidbank liable. SC affirmed. The checks
deposited to Metrobank & Solidbank are CROSSED CHECKS ISSUED FOR PAYEE'S ACCOUNT ONLY
(This means that the checks are for deposit only in the account of the named payee). Despite this, the
banks accepted the checks from PMC President Yu Kio and indorsed them. Hence, they became liable
as indorsers.

 Pipe Master Corporation (PMC), through its President Yu Kio, applied for check discounting with
Filipinas Orient, which was granted.
o Tan Juan Lian (VP of PMC) executed in favor of Filipinas Orient a continuing guaranty (that
he shall pay at maturity all evidence of indebtedness of PMC, not exceeding P1M)
 Under the check discounting agreement, PMC (through Pres. Yu Kio) sold 4 Metrobankchecks
amounting to P1M to Filipinas Orient
o In exchange for these 4 Metrobank checks, Filipinas Orient issued to PMC 4 Philippine Bank
of Communications (PBCom) crossed checks totaling P964,303.62, payable to PMC with
the statement, “for payee’s account only.”
o Pres. Yu Kio indorsed and deposited 3 checks (P721,596.95) in his Metrobank personal
account and 1 check (P242,706.667) in his Solid Bank personal account
 When Filipinas Orient presented the 4 Metrobank checks for encashment, these were dishonored.
 PMC refused to pay Filipinas Orient because it claimed it never received the proceeds of the PBCom
checks, as the proceeds were delivered to the wrong party who is not the payee, Pres. Yu Kio
 Filipinas Orient demanded that PBCom restore to Filipinas Orient’s account the value of the PBCom
checks.
 PBCom sought reimbursement from Metro Bank and Solid Bank, being the collecting banks, but they
refused to do so.
 So Filipinas Orient filed a complaint for a sum of money against PMC, VP Tan Juan Lian, and/or
PBCom with RTC Manila
o PBCom filed 3rd party complaints against Metrobank and Solid Bank (the collecting banks)
 PMC and Tan Juan Lian's Answer: Pres. Yu Kio was not authorized to indorse PMC's checks in his
personal capacity.
o Also filed a crossclaim against Metrobank and Solidbank, claiming the banks were negligent
in allowing Yu Kio to deposit the PBCom checks in his account.
 PBCom (drawee bank)'s Answer: in clearing the checks, it relied on the express guarantee made by
Metrobank and Solidbank that the checks were validly indorsed.
 RTC held Metrobank and Solidbank liable for the value of the checks.
 CA affirmed.
 Hence, this petition for review on certiorari by Metrobank and Solidbank. Argument:
o PMC, VP Tan Juan Lian and/or PBCOM should be liable to Filipinas Orient for the value of
the checks.

Whether Metro Bank and Solid Bank are liable to Filipinas Orient for accepting the PBCom
crossed checks payable to PMC – YES

 A check is defined by law as a bill of exchange drawn on a bank payable on demand.

 The NIL is silent with respect to crossed checks, BUT this Court has taken judicial cognizance of the
practice that a check with two parallel lines on the upper left hand corner means that it could
only be deposited and not converted into cash.
 The crossing of a check with the phrase Payees Account Only is a warning that the check should be
deposited in the account of the payee. It is the collecting bank which is bound to scrutinize the check
and to know its depositors before it can make the clearing indorsement, all prior indorsements and/or
lack of indorsement guaranteed.
 CASE AT BAR:
o Metrobank and Solidbank have the obligation to ensure that the PBCom checks were
deposited in accordance with the instructions stated in the checks.
o The 4 PBCom checks had been crossed and issued for payees account only. This means
that the drawer (Filipinas Orient) intended the same for deposit only by the payee, PMC. The
effect of crossing a check means that the drawer had intended the check for deposit only by
the rightful person, i.e., the payee named therein (PMC)
o But Metrobank and Solidbank accommodated Yu Kio and accepted the crossed checks. They
stamped at the back thereof that all prior indorsements and/or lack of indorsements are
guaranteed. In so doing, they became general endorsers.
 Section 66 NIL: an endorser warrants that the instrument is genuine and in all
respects what it purports to be; that he has a good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his indorsement valid
and subsisting.
o As endorsers, Metrobank and Solidbank cannot deny liability.
 Associated Bank v. CA: the collecting bank or last endorser generally suffers the
loss because it has the duty to ascertain the genuineness of all prior indorsements
and is privy to the depositor who negotiated the check.
o PBCom (drawee bank) cannot be held liable since it mainly relied on the express guarantee
made by the collecting banks (Metrobank and Solidbank) of all prior indorsements.
o Evidently, Metrobank and Solidbank disregarded established banking rules and
procedures. They were negligent in accepting the checks and allowing the transaction to
push through. Hence, they are liable.
 The law imposes on the collecting bank the duty to diligently scrutinize the 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 on this field, and the law thus holds it
to a high standard of conduct.
 Since the negligence of Metrobank and Solidbank was the direct cause of the misappropriation of the
checks, they should bear and answer for Filipinas Orient's loss, without prejudice to their filing of an
appropriate action against Yu Kio.

PETITION DENIED. CA AFFIRMED.