Published 1 July 2024, The Daily Tribune

Banks are corporations imbued with public interest. The nature of their functions requires them to always exercise the highest form of diligence in all their dealings and to treat the accounts of their depositors with meticulous care. Failure to do so will render them accountable for any possible damages that their depositors may incur, in addition to other damages sanctioned under the laws.

On the other hand, an ON-US check pertains to a client’s check that is drawn and deposited in the same branch of a bank. Once cleared and credited to a payee’s account, the bank is barred from enforcing a stop-payment order and debiting the payee’s account.

But what happens if a stop-payment order on an ON-US check is made before the check is cleared pursuant to the internal policies of the bank? Can the bank be held liable for damages?

In one case recently decided by the Supreme Court (G.R. 217411, 13 December 2023), the Court resolved this issue in the affirmative. In the said case, A presented to XYZ Bank an XYZ check for payment of One Hundred Thousand Pesos (P100,000) from ABC Corporation.

Upon the instruction of the account officer of XYZ Bank, A opened a savings account, considering that the check was a crossed “ON-US check,” although payable to the order of cash. Simultaneous to the opening of the savings account, the XYZ check was accepted and deposited, as evidenced by the full credit of P100,000 in A’s savings account.

A, however, was prevented by XYZ Bank from making any withdrawals on the ground that the check was still subject to clearing. Nonetheless, A opted to apply for a current account with an automatic fund transfer arrangement from her savings account, and this was approved by XYZ Bank upon her deposit of the maintaining balance required for both the current and savings accounts.

Subsequent to this, A issued another XYZ check in favor of B. However, to A’s surprise, this check was dishonored by XYZ Bank for being drawn against insufficient funds (DAIF). She was then informed by XYZ Bank that a stop-payment order was filed by ABC Corporation before the XYZ check could clear.

Aggrieved, A filed a complaint for damages against XYZ Bank and ABC Corporation, alleging that the acts of the former were 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.

For its part, XYZ Bank resisted any liability and claimed that it merely followed banking procedures that were fully explained to and fully accepted by A upon opening the savings and current accounts.

According to XYZ Bank, the XYZ check would still have to be deposited because it was a crossed check, and it still had to go through a one-day clearing period despite being an ON-US check. In support thereof, XYZ Bank presented as evidence its internal rules, which it claimed to be consistent with the Manual of Regulations for Banks (MORB) of the Bangko Sentral ng Pilipinas.

In resolving the present issue, the Court held that considering the conflicting claims over the clearance requirement of ON-US checks, it was incumbent upon XYZ Bank to present evidence to prove that A was indeed properly informed of the two-day clearing period. Furthermore, XYZ Bank’s presentation of its internal rules and regulations would not help its cause considering that the effectivity of the same was way later than the date A deposited the ON-US check.

More importantly, the Supreme Court re-emphasized that an ON-US check that had been cleared and credited to an account could not be the subject of a stop-payment order anymore. In the event that a 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.

In addition, XYZ Bank is also primarily liable for the face value of the dishonored checks, considering that its liability as a drawee attached when it accepted the check upon its presentation for payment, subject only to the condition that A open a savings account where the proceeds of the check will be credited.

In view of the foregoing, as well as the standard of diligence required of banks, XYZ Bank was also made to pay moral and exemplary damages.

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