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Q: Lao drew a crossed check against his account in BDO payable to Wu for
the delivery of sanity wares. Wu then delivered the check to New Wave
Corporation (NWC) who has an account in Union Bank. NWC deposited
the check to his account in Union Bank, prompting the bank to
accommodate the check.

Upon seeing the check and Union Bank’s accommodation, BDO encashed
the check and credited it to NWC’s Union Bank account. Wu failed to
deliver the sanity wares, which prompted Lao to go to BDO for the
stoppage of payment, only to find out about the negotiation, encasement,
and deposit of the check.

Is BDO liable to account for the encasement of the crossed check to


A: NO. 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. Further, it could
not have escaped its attention that the subject checks were crossed

(BDO Unibank, Inc. Vs. Engr. Selwyn Lao, G.R. No. 227005; June 19,

Q: Wesleyan University, for its annual giving of bonuses, issued crossed-

checks payable to its employees. Wesleyan’s treasurer, Reyes, encashed
these checks to the employees using the company’s treasury due to the
employees’ request to receive the bonus in cash. She accommodated the
check for its encasement in the bank and alleged that this action is the
usual company practice.
Is the action of Reyes correct?

A: NO. Jurisprudence has pronounced that the crossing of a check means

that the check may not be encashed but only deposited in the bank. As
Treasurer, respondent knew or is at least expected to be aware of and
abide by this basic banking practice and commercial custom. Clearly, the
issuance of a crossed check reflects management’s intention to safeguard
the funds covered thereby, its special instruction to have the same
deposited to another account and its restriction on its encashment.

(Wesleyan University Philippines v. Novella Reyes, G.R. No. 208321; July

30, 2014)

Q: (a) Can good faith, because of considering trusted third person’s

statements, be a defense against lack of diligence in wrongfully encasing
crossed checks?

(b) Can banks recover from the cash recipient of wrongfully encased

A: (a) NO. Good Faith cannot be a defense.

The fact that a person, other than the named payee of the crossed check,
was presenting it for deposit should have put the bank on
guard. Banksshould verify if the payee authorized the holder to present
the same in its behalf, or indorsed it to him. Such misplaced reliance on
empty words is tantamount to gross negligence, which is the absence
of or failure to exercise even slight care or diligence, or the entire
absence of care, evincing a thoughtless disregard of consequences
without exerting any effort to avoid them.

(Equitable Banking Corporation v. Special Steel Products Inc., G.R.

No. 175350; June 13, 2012)

(b) YES. Banks can reimburse from the recipient of wrongfully encashed

There is unjust enrichment when (1) a person is unjustly benefited, and (2)
such benefit is derived at the expense of or with damages to another.

Should the requisites be apparent or fulfilled in the case, the recipient has
an obligation to reimburse whatever the bank has paid to the drawer.
(Equitable Banking Corporation v. Special Steel Products Inc., G.R.
No. 175350; June 13, 2012)