CROSSED CHECK

The Negotiable Instruments Law (NIL) is silent with respect to crossed checks, although the Code of Commerce makes reference to such i...

The Negotiable Instruments Law (NIL) is silent with respect to crossed checks, although the Code of Commerce makes reference to such instruments. 

Article 541 of the Code of Commerce states: “The maker or any legal holder of a check shall be entitled to indicate therein that it be paid to a certain banker or institution, which he shall do by writing across the face the name of said banker or institution, or only the words ‛and company.”  

A crossed check is one where two parallel lines are drawn across its face or across the corner thereof. It may be crossed generally or specially.
A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is crossed generally when only the words “and company” are written or nothing is written at all between the parallel lines, as in this case. It may be issued so that presentment can be made only by a bank.
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check has the following effects: (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 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.
The 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  not  converted  into cash.  The effect of crossing a check, thus, 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. The crossing of a check  is a warning that the check should be deposited only in the account of the payee. Thus, it is the duty of the collecting bank to ascertain that the check be deposited to the payee’s account only.   Vicente Go vs. Metropolitan Bank and Trust Co., G.R. No. 168842, August 11, 2010.

Thus, a crossed check is a check with two (2) parallel lines, written diagonally on the upper right corner thereof. It is a warning to the drawee bank that payment must be made to the right party; otherwise the bank has no authority to use the drawer's funds deposited with the bank. (State Investment House vs. IAC, 1989). 

To be assured that it will avoid any mistake in paying to the wrong party, banks adopted the policy that crossed checks must be deposited in the payee's account. When withdrawal is made, the banks can be sure that they are paying to the right party. 

The crossing becomes a warning also to whoever deals with the said instrument to inquire as to the purpose of its issuance. Otherwise, if something wrong happens to the payment thereof, that person cannot claim to be a holder in due course. Hence, he is subject to the personal defense on the part of the drawer that there is breach of trust committed by the payee in not complying with the drawer's instruction. (Ocampo & Co. v. Gatchalian, 3 SCRA 603, 1961)

CASES:

1. NSW received three post‐dated and crossed checks issued on the condition that the drawer on due date would make sufficient deposits to cover the checks. NSW did not wait for the maturity and indorsed the check to an investment house, which deposited the same. The checks bounced. Is the investment house a holder in due course?

          No, that the checks had been issued subject to the condition that the drawer on due date would make the back up deposit for said check which condition was not made, constitutes a good defense against the holder who is not a HIDC, particularly when the check was crossed. The crossing of a check serves a warning to the holder that the check had been issued for a definite purpose so that he must inquire if received the check pursuant to that purpose, otherwise, he is not a holder in due course. (State Investment House v. IAC, G.R. No. 72764, July 13, 1989) 

2. Is a corporation to which four crossed checks were indorsed by the payee corporation a holder in due course and hence entitled to recover the amount of the checks when the same had been dishonored for the reason of “payment stopped”? 

            The checks were crossed checks and specifically indorsed for deposit to payee’s account only. From the beginning, the corporation was aware of the fact that the checks were all for deposit only to payee’s account. Clearly then, it could not be considered a HIDC. However, it does not follow as a legal proposition that simply because it was not a HIDC for having taken the instruments in question, w/ notice that the same was for deposit only, that it was altogether precluded from recovering on the instrument. The disadvantage in not being a HIDC is that the negotiable instrument is subject to defenses as if it were non‐negotiable. (Atrium Management Corp. v. CA, G.R. No. 109491, Feb. 28, 2001)
The author takes no responsibility for the validity, correctness and result of this work. The information provided is not a legal advice and it should not be used  as a substitute for a competent legal advice from a licensed lawyer. See the disclaimer

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