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Associated Bank vs.

Case digest
“Melissa’s RTW”
Facts: On account of her business of ready-to-wear garments under the firm name “Melissa’s 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
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