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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
Doctrine
An “ON-US check” refers to a client’s check drawn and deposited on the same branch of a bank. Once an ON-US check is cleared and credited to a payee’s account, the bank can no longer enforce a stop payment order and debit the payee’s account. When the late stop payment order is enforced and the payee’s account is debited, resulting in the dishonor of the check drawn from such account, the bank is deemed to have committed a breach of contract which makes it liable for damages.
Facts
On March 6, 2001, Ria de Guzman Rivera (Rivera) presented for payment with PBCOM General Santos City Branch PBCOM Check No. 056196 (PBCOM Check) dated January 4, 2001 in the sum of PhP100,000.00 issued by Gabriel Estopacio, Sr., an officer of LK Fishing Corporation.
Upon instructions of account officers of PBCOM, Rivera opened a Savings Account since the check was a crossed “ON-US check”, although payable to the order of cash. Simultaneous with Rivera’s opening of a savings account, the PBCOM check was accepted and deposited since a full credit of PhP100,000.00 was made to her savings account on the same date.
However, PBCOM did not allow her to withdraw from her savings account because the PBCOM check was still subject to clearing. She was surprised that PBCOM disallowed such withdrawal, as she knew that although ON-US check is only for deposit, the amount can be immediately withdrawn upon the option of the account holder.
Nonetheless, she applied for a current account with an automatic fund transfer arrangement from her savings account. PBCOM approved the same upon her deposit of the maintaining balance of PhP5,000.00 in her current account and PhPl0,000.00 in her savings account on the same date. On the following day, March 7, 2001, Rivera issued PBCOM Check No. 088401 in the sum of PhP100,000.00 in favor of Riester Tan (Tan). However, said check was dishonored by PBCOM for the reason of Drawn Against Insufficient Funds (DAIF).
Rivera was later informed that a stop payment order was made by LK Fishing Corp. before the PBCOM Check was cleared. Rivera alleged that the stop payment order was fictitious, non-existent, and simulated to accommodate LK Fishing Corp., and that the need to further clear the PBCOM Check, an ON-US check, is dubious and illegal. She further asserted that PBCOM debited the sum of PhP100,000.00 from her savings account, despite the fact that the said amount had already been cleared and credited to her savings account.
Rivera filed a Complaint for damages and attorney’s fees against PBCOM, and LK Fishing Corp. She alleged that the acts of PB COM and LK Fishing Corp. are contrary to banking practices and done with malice and bad faith, which caused damage to her reputation and business standing, and brought her anxiety, embarrassment, and humiliation. She thus prayed that they be held jointly and severally liable for moral and exemplary damages, as well as for attorney’s fees. She further prayed that LK Fishing Corp. be ordered to pay her the amount of PhP100,000.00 representing the face value of the dishonored check, plus interest.
Issues
- Can an ON-US check which has been cleared and credited to an account still be the subject of a stop payment order?
- Is the bank liable for damages in case a check is dishonored due to the execution of a late stop payment order?
Ruling
(1) No. An ON-US check which has been cleared and credited to an account can no longer be the subject of a stop payment order.
A check is a mere order on a bank to pay money from the drawer’s account; as such, it is subject to revocation by the drawer at any time before it is accepted. Under Sec. 189 of the Negotiable Instruments Law, “a check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check.” If a bank pays a check after it has been notified to stop payment, it pays on its own responsibility and will not be permitted to charge the account.
The fixed savings and current deposits of money in banks and similar institutions are governed by the provisions concerning simple loan. The relationship between the bank and the depositor is that of a debtor and creditor. By virtue of the contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank.
Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages.
Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the day. Before a bank depositor may maintain a suit to recover a specific amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand.
PBCOM is primarily liable for the face value of the dishonored check. As drawee, PBCOM’s liability attached when it accepted the check upon presentment for payment, subject to the condition that Rivera would open a savings account where the proceeds of said check would be credited.
(2) Yes. When a late stop payment order is enforced and the payee’s account is debited, resulting in the dishonor of the check withdrawn from such account, the bank is deemed to have committed a breach of contract which makes it liable for damages.
In the face of conflicting claims over the clearance requirement of ON-US checks, it was incumbent upon PBCOM to present its bank manager to testify on whether Rivera was indeed properly informed of the two-day clearing period, and to submit in evidence the SBBS which provides for PBCOM’s clearing policy of ON-US checks. However, PBCOM failed to do so. Instead, it only presented its unit clearing officer as witness, and failed to present the SBBS. As aptly pointed out by Rivera, PBCOM was given adequate time and opportunity to present the SBBS to prove the two-day clearing requirement for ON-US checks. Instead of presenting the SBBS, PBCOM sough to excuse the presentation therefor on the premise that it would undermine the bank’s internal security.
“ON-US checks” refer to the client’s checks drawn and deposited on the same branch. The crossed PBCOM drawn in the same PBCOM branch where Rivera presented it and where she subsequently opened her savings account.
As such, the Court sees nothing in the records that would explain why the PBCOM Check cannot be cleared and the amount it covers, be credited to Rivera’s savings account on the same day. For the same reason, the Court finds no merit in PBCOM’s argument that there was no “link” among the accounts of the bank, and that it only went “online” three months after the PBCOM Check was presented for payment.
The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have attained an ubiquitous presence among the people who have come to regard them with respect and even gratitude and most of all, confidence.
For this reason, banks should guard against injury attributable to negligence with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding taxation and taxpayer’s remedies, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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