Crossed Checks Serve as Conclusive Evidence of Debt in Philippine Jurisprudence

Sally Go-Bangayan v. Spouses Leoncio and Judy Cham Ho, G.R. No. 203020, June 28, 2021

Imagine lending money to a friend or business partner, only to face denial and legal battles when you try to recover your funds. This scenario is not uncommon, and the case of Sally Go-Bangayan against the Spouses Leoncio and Judy Cham Ho sheds light on how crucial documentation, particularly crossed checks, can be in proving a debt. This Supreme Court decision from the Philippines underscores the importance of understanding legal instruments and their implications in financial transactions.

In this case, Sally Go-Bangayan filed a complaint against the Spouses Ho for failing to repay a P700,000 loan. The central legal question was whether Go-Bangayan could prove the existence of the loan through the crossed checks issued by the respondents. This ruling not only resolved the dispute but also set a precedent on the evidentiary value of crossed checks in proving debt obligations.

The Legal Context of Crossed Checks and Debt

In the Philippines, the Negotiable Instruments Law (NIL) governs the use and effects of checks and other negotiable instruments. Under Section 24 of the NIL, every negotiable instrument, such as a check, is presumed to have been issued for a valuable consideration. This means that when a check is presented as evidence, it is assumed that it was issued in exchange for something of value, unless proven otherwise.

Crossed checks are checks with two parallel lines drawn across them, indicating that the check should only be deposited into a bank account and not cashed over the counter. This feature adds an extra layer of security and control over the check’s negotiation. According to the Supreme Court, crossing a check serves as a warning that it has been issued for a definite purpose, often related to a specific transaction or debt.

Additionally, the Statute of Frauds, as mentioned in the case, typically requires certain contracts, like those involving loans, to be in writing to be enforceable. However, the Supreme Court clarified that the checks themselves can serve as the required written evidence of indebtedness, negating the need for a separate written agreement.

The Journey of Sally Go-Bangayan’s Case

Sally Go-Bangayan lent P700,000 to the Spouses Ho in two tranches in July 1997, and in exchange, received two crossed checks dated for October 1997. Despite receiving interest payments for a few months, the principal amount remained unpaid. After numerous unsuccessful demands, Go-Bangayan filed a complaint in October 2001.

The trial court initially ruled in favor of Go-Bangayan, citing the presumption of consideration under Section 24 of the NIL and the fact that the checks were crossed, indicating a specific purpose. However, the Court of Appeals reversed this decision, pointing out inconsistencies in Go-Bangayan’s testimony about the loan’s details.

The Supreme Court, however, reinstated the trial court’s ruling. It emphasized the evidentiary weight of the crossed checks, stating:

“Section 24 of the Negotiable Instruments Law embodies the presumption that when negotiable instruments such as checks are delivered to their intended payees, such instruments have been issued for value.”

The Court also highlighted the significance of the checks being crossed:

“The fact that the subject checks are crossed checks in the name of petitioner, by itself, negates respondents’ theory of a rediscounting arrangement.”

Furthermore, the Supreme Court dismissed the Spouses Ho’s invocation of the Statute of Frauds, noting that the checks themselves served as the necessary written evidence of the debt.

Practical Implications and Key Lessons

This ruling has significant implications for lenders and borrowers alike. For lenders, it underscores the importance of retaining and presenting crossed checks as evidence of a debt, even in the absence of a formal written agreement. For borrowers, it serves as a reminder of the legal consequences of issuing checks, especially crossed ones, which can be used against them in court.

Key Lessons:

• Always document loans with crossed checks to provide clear evidence of the debt.
• Understand the legal implications of issuing crossed checks, as they are presumed to be issued for a specific purpose.
• Be cautious with verbal agreements, as the Statute of Frauds may not always apply when checks are involved.

Frequently Asked Questions

What is a crossed check?

A crossed check has two parallel lines drawn across it, indicating that it should only be deposited into a bank account and not cashed over the counter. This adds security and control over the check’s negotiation.

Can a crossed check be used to prove a debt?

Yes, according to the Supreme Court, a crossed check can serve as conclusive evidence of a debt, as it is presumed to have been issued for a valuable consideration.

What is the Statute of Frauds, and does it apply to loans evidenced by checks?

The Statute of Frauds requires certain contracts, including loans, to be in writing to be enforceable. However, the Supreme Court has ruled that checks themselves can serve as the required written evidence, making the Statute of Frauds inapplicable in such cases.

What should I do if I am unable to recover a loan?

If you are unable to recover a loan, consider legal action and present any checks or written agreements as evidence. Consulting with a legal professional can help you navigate the process effectively.

How can I protect myself when lending money?

Always document loans with crossed checks, keep records of all transactions, and consider having a written agreement to clarify terms and conditions.

ASG Law specializes in debt recovery and financial disputes. Contact us or email hello@asglawpartners.com to schedule a consultation.