DEFENSES AND EQUITIES a.
Crossing a check is done by writing two parallel lines diagonally on the top left
ASSOCIATED BANK V. CA (208 SCRA 465)
Crane, J.
Reyes was engaged in the ready-to-wear garments business under the name Melissa's RTW
and held transactions with different department stores. She was about to collect payments
from the department stores when she was informed that the payments had already been made,
through crossed checks issued in her business name and the same were deposited with the
bank. The bank consequently allowed its transfer to Sayson who later encashed the checks. This
prompted Reyes to sue the bank and its manager for the return of the money. The trial and
appellate court ruled in her favor which the SC sustained.
DOCTRINE
Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally
on the top left portion of the checks. The crossing is special where the name of a bank or a
business institution is written between the two parallel lines, which means that the drawee should
pay only with the intervention of the company. The crossing is general where the words written in
between are "and Co." and "for payee's account only" as in the case at bar. This means that the
drawee bank should merely accept the check for deposit.
The effects of crossing a check are:
1. The check may not be encashed but only deposited in the bank;
2. The check may be negotiated only once the one who has an account with the bank
3. The act of crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received pursuant to the
same purpose
FACTS
1. Merle V. Reyes (respondent, together with the Court of Appeals) is engaged in the business
of ready-to-wear garments under the name "Melissa's RTW and deals with a number of
companies as her clients, some of which are Robinson's Department Store, Payless
Department Store, and the like.
2. Said client companies issued their payment through crossed checks payable to Melissa's
RTW.
3. When Ms. Reyes went to her client companies to claim what she thought were still unpaid
accounts, she was informed that the said companies have already issued crosschecks.
4. Said checks were apparently deposited with Associated Bank ("AB") and subsequently paid
to one Rafael Sayson, which according to AB was one of their "trusted depositors."
5. Sayson had not been authorized by Ms. Reyes to deposit and encash the said checks.
6. Hence, Reyes sued AB in the RTC of Quezon City, which ruled in favor of Reyes.
7. Subsequently, petitioners appealed to the CA which still upheld the RTC decision,
ratiocinating that (in response to the
a. Cause of action of the petitioner arose from the irregular acts of AB in violating
common banking practices.
b. Three elements of a cause of action are present
c. Such cause of action is proven by the fact that there is no dispute that the checks
were for Melissa's RTW, AB still allowed Sayson to deposit and benefit from the
same.
8. Hence, AB files an appeal with the Supreme Court.
ISSUE with HOLDING
1. Whether or not the CA erred when it decided against Associated Bank (i.e. said bank was
liable to respondent Reyes). YES.
portion of the checks and either:
i. the name of a bank or a business institution is written between the two
parallel lines, which means that the drawee should pay only with the
intervention of that company (special crossing); or
ii. the words written between the two parallel lines are "and Co." or "for
payee's account only," (general crossing).
iii. The case falls under the second kind.
b. This means that the drawee bank should not encash the check but merely accept
it for deposit.
i. the effects of crossing a check relates to the mode of tis presentment for
payment, hence, who the holder or authorized person is depends on the
instruction stated on the face of the check.
ii. The checks in the case at bar were crossed "for payee's account only."
This means that the drawer intended the same for deposit only by the
person indicated in the check (i.e. Melissa's RTW)
c. When the Bank paid the checks so endorsed notwithstanding that title had not
passed to the endorser, it did so at its peril and became liable to the payee for
the value of the checks. This liability attached whether or not the Bank was
aware of the unauthorized endorsement.
d. Petitioners also argue that it was Eddie Reyes, the husband of the respondent,
who endorsed the checks.
i. Court: Assuming that Eddie Reyes did endorse the crossed checks, the
Bank would still be liable to the private respondent because he was not
authorized to make the endorsements. And even if the endorsements
were forged, as alleged, the Bank would still be liable to the private
respondent for not verifying the endorser's authority.
ii. There is no substantial difference between an actual forging of a
name to a check as an endorsement by a person not authorized to
make the signature and the affixing of a name to a check as an
endorsement by a person not authorized to endorse it.
e. Petitioners argue that the cause of action in the said case may only be invoked by
the issuers of the check and not by the payee, hence they cannot be liable to
respondent Reyes.
i. Court states: The Bank stamped thereon its guarantee that "all prior
endorsements and/or lack of endorsements (were) guaranteed." By
such deliberate and positive act, the Bank had treated the said checks
as negotiable instruments and, accordingly, assumed the warranty of
the endorser.
ii. The possession of a check on a forged or unauthorized indorsement is
wrongful, and when the money is collected on the check, the bank can
be held 'for moneys had and received.'" The proceeds are held for the
rightful owner of the payment and may be recovered by him. The
position of the bank taking the check on the forged or unauthorized
indorsement is the same as if it had taken the check and collected
without indorsement at all. The act of the bank amounts to conversion
of the check.
f. In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corp., the
Court said that the law imposes a duty of diligence on the collecting bank to
scrutinize checks deposited with it, for the purpose of determining their
genuineness and regularity. The collecting bank, being primarily engaged in
banking, holds itself out to the public as the expert on this field, and the law
thus holds it to a high standard of conduct.
Note: Check Section 72 of the Negotiable Instruments Law
DIGESTER:
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