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Associated Bank vs.

CA GR 89802, 7 May 1992 First Division, Cruz (J) Facts: Melissas RTWs customers issued cross checks payable to Melissas RTW, which its proprietor Merle Reyes did not receive. It was learned that the checks had been deposited with the Associated Bank by one Rafael Sayson. Sayson was not authorized by Reyes to deposit and encashed said checks. Reyes filed an action for the recovery of the total value of the checks plus damages. Issue: Whether the bank was negligent for the loss. Held: Crossing a check means that the drawee bank should not encash the check but merely accept it for deposit, that the check may be negotiated only once by one who has an account in a bank, and that the check serves as warning that it was issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. The effect, thus, relate to the mode of its presentment for payment, in accordance with Section 72 of the Negotiable Instruments Law. The bank paid the checks notwithstanding that title had not passed to the indorser, as the checks had been crossed and issued for payees account only. It does did so in its own peril and became liable to the payee for the value of the checks. The failure of the bank to make an inquiry as to Saysons authority was a breach of its duty. The bank is negligent and is thus liable to Reyes.

Associated Bank vs. CA GR 107382, 31 January 1996 Second Division, Romero (J) Facts: The Province of Tarlac maintains a current account with the Philippine National Bank (PNB Tarlac Branch) where the provincial funds are deposited. Portions of the funds were allocated to the Concepcion Emergency Hospital. Checks were issued to it and were received by the hospitals administrative officer and cashier (Fausto Pangilinan). Pangilinan, through the help of Associated Bank but after forging the signature of the hospitals chief (Adena Canlas), was able to deposit the checks in his personal account. All the checks bore the stamp All prior endorsement guaranteed Associated Bank. Through post-audit, the province discovered that the hospital did not receive several allotted checks, and sought the restoration of the debited amounts from PNB. In turn, PNB demanded reimbursement from Associated Bank. Both banks resisted payment. Hence, the present action. Issue: Who shall bear the loss resulting from the forged checks. Held: PNB is not negligent as it is not required to return the check to the collecting bank within 24 hours as the banks involved are covered by Central Bank Circular 580 and not the rules of the Philippine Clearing House. Associated Bank, and not PNB, is the one duty-bound to warrant the instrument as genuine, valid and subsisting at the time of indorsement pursuant to Section 66 of the Negotiable Instruments Law. The stamp guaranteeing prior indorsement is not an empty rubric; the collecting bank is held accountable for checks deposited by its customers. However, due to the fact that the Province of Tarlac is equally negligent in permitting Pangilinan to collect the checks when he was no longer connected with the hospital, it shares the burden of loss from the checks bearing a forged indorsement. Therefore, the Province can only recover 50% of the amount from the drawee bank (PNB), and the collecting bank (Associated Bank) is liable to PNB for 50% of the same amount.