G.R. No. 89802 May 7, 1992
ASSOCIATED BANK and CONRADO CRUZ, petitioners, vs. HON. COURT OF APPEALS, and MERLE V. REYES, doing business under the name and style “Melissa’s RTW,” respondents.

FACTS

Private respondent Merle V. Reyes, doing business as “Melissa’s RTW,” had customers including Robinson’s, Payless, Rempson, and Corona Bazaar. These companies issued six crossed checks payable to “Melissa’s RTW” in payment of their accounts. The checks were crossed, indicating they were “for payee’s account only.” Upon attempting to collect what she believed were unpaid accounts, Reyes discovered the checks had already been deposited with petitioner Associated Bank and paid to one Rafael Sayson, a “trusted depositor” of the bank, without her authorization. Reyes sued the bank and its branch manager, Conrado Cruz, in the Regional Trial Court for recovery of the total value of the checks plus damages. The trial court ruled in her favor. The petitioners appealed to the Court of Appeals, arguing Reyes had no cause of action against them and should have proceeded against the companies that issued the checks. The Court of Appeals affirmed the trial court’s decision.

ISSUE

Whether or not the private respondent has a cause of action against the petitioners for their encashment and payment to another person of certain crossed checks issued in her favor.

RULING

Yes, the private respondent has a cause of action. The Supreme Court denied the petition and affirmed the Court of Appeals’ decision. The Court held that the crossing of the checks with the words “for payee’s account only” meant they were intended for deposit only to the account of the named payee, Melissa’s RTW. By accepting the checks for deposit to the account of Rafael Sayson, who was not the payee and was unauthorized, and by stamping a guarantee on the checks for “all prior endorsements and/or lack of endorsements,” the bank treated them as negotiable instruments and assumed the warranty of an endorser. The bank was negligent in permitting the encashment without verifying Sayson’s authority, thereby breaching a duty owed to the rightful payee. The bank’s act amounted to conversion of the checks. The Court further held that the payee could recover directly from the collecting bank responsible for the unauthorized encashment to simplify proceedings, regardless of whether the checks were actually delivered to her. The three elements of a cause of action were present: a right in favor of the plaintiff (Reyes’ ownership of the proceeds), an obligation on the defendant bank not to violate that right (by ensuring proper payment), and an act by the bank violative of that right (the unauthorized encashment).