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.