ASSOCIATED BANK V.

CA

208 SCRA 465

FACTS:
Reyes was engaged in the RTW business 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.

HELD:
There is no doubt that the checks were crossed checks and for payee’s
account only. Reyes was able to show that she has never authorized Sayson to deposit
the checks nor to encash the same; that the bank had
allowed all checks to be deposited, cleared and paid to one Sayson in
violation of the instructions in the said crossed checks that the same were
for payee’s account only; and that Reyes maintained a savings account with the bank
which never cleared the said checks.

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 not encash the check but merely accept it for deposit.

The effects of crossing a check are as follows:

1. That the check may not be encashed but only deposited in the bank
2. That the check may be negotiated only once—to one who has an account with a bank
3. That 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 the check pursuant to the
purpose

The subject checks were accepted for deposit by the bank for the account of Sayson although
they were crossed checks and the payee wasn't Sayson
but Reyes. The bank stamped thereon its guarantee that all prior
endorsements and/or lack of endorsements guaranteed. By such deliberate and
positive act, the bank had for all legal intents and purposes treated the said checks as
negotiable instruments and accordingly assumed the warranty of the endorser.

When the bank paid the checks so indorsed notwithstanding that title has not passed to the
endorser, it did so at its peril and became liable to the payee for the value of the checks.
Associated Bank vs Court of
Appeals (1992)
Merle Reyes is a businesswoman who was issued 6 checks by her customers as payments
for her services. The 6 checks are crossed checks which on their faces are written:
“Payee’s account only”. The checks never reached the hands of Reyes. Instead, a certain
Rafael Sayson got hold of the checks and had them deposited, and subsequently
encashed, from his deposit account with Associated Bank.
Reyes demanded refund from Associated Bank as she averred that those checks are
crossed checks and should have only be deposited with Reyes’ account which is with
Prudential Bank. Associated Bank argued that the checks were indorsed to Sayson by
Reyes’s husband, Eddie Reyes.
ISSUE: Whether or not Associated Bank should refund the 6 checks.
HELD: Yes. The six checks in the case at bar had been crossed and issued “for payee’s
account only.” This could only signify that the drawers (Reyes’ clients) had intended the
same for deposit only by the person indicated, to wit, Merle Reyes.
The court also elucidated the effects of crossing a check namely:
1. that the check may not be encashed but only deposited in the bank;
2. that the check may be negotiated only once –– to one who has an account with a bank;
and
3. that 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 the check
pursuant to that purpose.
On the other hand, even if indeed Eddie Reyes indorsed the checks, Associated Bank is still
liable because in the first place, the husband is not authorized to make indrosements. And
even if the endorsements were forged, as alleged, Associated Bank would still be liable to
Reyes for not verifying the endorser’s authority. 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.