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Equitable Banking v.



G.R. No. 74451, 25 June 1988, Melencio-Herrera, J.

Digested by Zoe Velasco Law 108 NIL
Topic: Discharge-To whom made
(Note: This case is long.)
Check was issued by seller to advance the amount of a deposit that would facilitate the opening
of a letter of credit covering the purchase of buyer from seller. Apparently, seller was duped by
buyer to word the check in such a manner as to allow the latter to encash the check for its
account (instead of limiting it for the banks account in order to have the letter of credit opened).
Court said that the wording of the check in regard to the payee, ambiguous as it was, was
through the fault of the seller, and that the bank cannot be made to answer for the sellers loss
because of such ambiguous wording. Seller was negligent in dealing with the buyer, and it could
not blame the bank for the fraudulent transaction that it suffered from the buyer.
Casals, on behalf of Casville Enterprises, Inc. (CEI), approached private respondent
Edward J. Nell Co. (EJNC), to purchase Garrett skidders from the latter (A/N: Googled
skidders and found na heavy vehicle sha na mukhang bulldozer).
They agreed that said purchase would be settled by CEI via a domestic letter of credit
(DLC), which Casals promised to open in EJNCs favor. EJNC agreed to advance the
amount for a marginal deposit that would facilitate the opening of the DLC. This was
after it was informed by CEI that while the latters application for a DLC had been
approved by EBC, it needed the sum of P300,000.00 to stand as marginal deposit in favor
of EBC, and an additional amount of P100,000.00, also in favor of EBC, to clear the title
of the Estrada property belonging to Casals, which CEI gave as security to EBC for the
transaction. Accordingly, EJNC issued a check for P400,000.00 (FIRST CHECK) and
made payable to the order of EBC with the following notation or memorandum:
A/C of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada
Property to be used as security for trust receipt for opening L/C of Garrett Skidders in
favor of the Edward J. Nell Co. Said FIRST CHECK, together with the cash
disbursement voucher, also contained the following explanation: Payment for marginal
deposit and other expenses re opening of L/C for account of Casville Ent.. A covering
letter was also sent.
When the check, along with the above supporting documents, was presented to EBC, the
latter did not accept the same because it has yet to agree with CEI on the terms and
conditions for the DLC. Then, CEI wrote EBC again to apply for two DLCs to cover its
purchase from EJNC.
EBC replied to this, stating that it was ready to open the DLCs upon CEIs payment of
30% cash margin deposit and giving of securities, among other terms and conditions. CEI
sent EJNC a copy of the foregoing letter, enclosing therein three postdated checks. In said
letter, CEI informed EJNC of the required 30% marginal deposit, as well as the additional
P100, 000.00 to clean up the Estrada property to be given as security.

It also instructed EJNC that the check covering the said amounts should be made payable
in the following manner: "to the Order of EQUITABLE BANKING CORPORATION for
the account of Casville Enterprises Inc." CEI also stated that the three enclosed postdated
checks were intended as replacement of the checks that were previously issued by CEI to
EJNC. Also, Casals delivered to EJNC TCTs covering two pieces of real estate
properties as security. EJNC acceded to this and issued a check (SECOND CHECK) for
P427, 300.00, payable to the order of EQUITABLE BANKING CORPORATION A/C
Unlike the FIRST CHECK, this SECOND CHECK did NOT contain the notation or
memorandum of the FIRST CHECK, but the substance of the same was reproduced in a
covering letter that went with the check. Both the check and the covering letter were sent
to EBC through Casals, because EJNC believed that no one, including Casals, could
encash the same as it was made payable to the EBC alone. However, upon receiving the
check for P427, 300.00 entrusted to him by EJNC, Casals immediately deposited it with
EBC and the bank teller accepted the same for deposit in CEIs checking account.
After depositing said check, CEI, acting through defendant Casals, then withdrew all the
amount deposited. Meanwhile, the three checks that CEI gave to EJNC as collateral were
all dishonored for having been drawn against a closed account. Also, the real estate
covered by the TCTs given to EJNC were foreclosed and sold at public auction because
of CEIs failure to pay its obligation to EBC.
Subsequently, EJNC learned that no DLCs were opened by EBC in its favor, and that
CEI had withdrawn the entire amount of P427, 300.00, without paying its obligation to
EBC. Thus, EJNC instituted the present action, in which both the TC and IAC ruled in its
favor against Casals, CEI and EBC. Basically, the lower courts faulted EBC for
erroneously crediting the amount of the check issued by EJNC to the account of CEI,
when it shouldve been for the account of EBC, in order to facilitate the opening of the
DLC. They also found that the check was originally issued as non-negotiable, since the
EBC teller stamped therein the words NONNEGOTIABLE For Payee's Account Only
CORPORATION. Note that Casals and CEI did not dispute their liability. Thus, only
EBC liability to EJNC, if any, is at issue.


1. [MAIN]WON EBC is liable to EJNC for the value of the SECOND CHECK issued by the
latter and made payable in the manner that it did, which enabled the bank teller to credit the
proceeds of said check to the account of CEI NO. Wording of the check is ambiguous (as
to who the payee should be) and this ambiguity was caused by EJNC. Therefore, it
should bear its own loss because EBC is innocent.
2. WON the check was originally non-negotiable NO. It only became non-negotiable after
the bank teller stamped the words that made it so.

1. The SECOND CHECK was equivocal and patently ambiguous. By making it read in the
manner stated above, the payee ceased to be indicated with reasonable certainty, in
contravention of Sec. 8 of the NIL.
As worded, it could be accepted as deposit to the account of the party named after the
symbols A/C, or payable to the Bank as trustee, or as an agent, for CEI, with the latter
being the ultimate beneficiary. Pursuant to Art. 13771 of the CC, such ambiguity is to be
construed against EJNC, which caused the ambiguity and could have also avoided it by
the exercise of a little more care.

Further, EBC had nothing to do with how CEI and Casals defrauded EJNC to issue the
SECOND CHECK in the manner that it did, thereby allowing CEI and Casals to do their
sinister acts. In fact, EJNC itself was negligent:
Unlike the FIRST CHECK that it issued, in which the payee was named solely as EBC,
the SECOND CHECK became ambiguous with the inclusion of A/C of Casville
Enterprises Inc., next to EBCs name. EJNC should not have listened to Casals when the
latter told the former to word the check in such manner.
It eliminated both the cash disbursement voucher and memorandum accompanying the
FIRST CHECK, which made clear what the check was for (ie. not for CEIs account, but
for satisfaction of the marginal deposit to facilitate the opening of the DLC by EBC).
The only evidence of the real purpose of the SECOND CHECK was the separate
covering letter, which was easily suppressed from EBC officials and teller by Casals.
Again, EJNC was careless in allowing this to happen, and EBC had no fault in this.
EJNC even allowed Casals to handle the check and its covering letter, making it easy for
him to consummate his cruel intentions.
EJNC was extremely accommodating to Casals in the way it agreed to advance the
marginal deposit for the opening of the DLC to cover the purchase price of the skidders.
It is abnormal for the seller of goods, the price of which is to be covered by a DLC, to
advance the marginal deposit for the same.
Shungaers tong si EJNC nakampante kasi merong binigay na three postdated checks and
TCTs, eh sorry sha tumalbog naman yung checks tapos naforeclose yung mga property
covered ng TCTs.
Given the foregoing, EBC should not be made liable for EJNCs losses, the proximate
causes of which were EJNCs very own acts. As between two innocent persons, one of
whom must suffer the consequence of a breach of trust, the one who made it possible by
his act of confidence must bear the loss.

2. The subject check was initially negotiable. It was not a crossed check.
The rubber-stamping on the face of the subject check of the words
Non-negotiable for Payee's Account Onl between two (2) parallel
lines, and Non-negotiable, Teller- No. 4, August 17, 1976, separately

boxed, was made only by the bank teller in accordance with customary
bank practice, and not by ENJC as the drawer of the check. It simply
meant that, thereafter, the same check could no longer be negotiated.
Wherefore, the petition is