Associated Bank vs.

CA
Case digest
Melissas RTW
Facts: On account of her business of ready-to-wear garments under the firm name Melissas RTW,
private respondent collected from its customers, most of them department stores, payment for the
their accounts. However, she was informed that crossed checks in her name were already issued. Upon
further inquiry, she found out that the said checks had been deposited with petitioner Associated Bank
and subsequently paid by it to one Rafael Sayson, who had not been authorized by private respondent
to deposit and encash the said checks. Thereafter, private respondent filed a case in the Regional Trial
Court for recovery of the checks plus claim for damages. The RTC found for private respondent, ordering
Associated bank to pay. Then, Associated Bank filed an appeal with the CA, reiterating their argument
that private respondent had no cause of action against them and instead, they should have proceeded
against the companies that issued the checks.
Issue: whether or not private respondent Melissa Reyes can recover from petitioner Associated Bank for
the forged indorsement of checks
Held: Yes. The Court held that 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.
Likewise, the bank was negligent in its duty when it permitted the encashment of the checks by Sayson,
who was not authorized to do so, because the checks were crossed and payable only to the account of
private respondent Melissa Reyes.
Thus, since private respondent has a right of action against the drawer companies, which in turn could
go against their respective drawee banks, which in turn could sue the petitioner as collecting bank. In a
similar situation, it was held that to simplify proceedings, the payee of the illegally encashed checks
should be allowed to recover directly from the bank responsible for such encashment regardless of
whether or not the checks were actually delivered to the payee.

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 position of a 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.