Equitable Bank vs Special Steel

G.R. No. 175350

June 13, 2012

EQUITABLE EQUITABLE BANKING CORPORATION, INC. Petitioner, vs. SPECIAL STEEL PRODUCTS, n! AUGUSTO L. PARDO, Respondents.

Ponen"e# Del Castillo,  J.

Do$"%&ne# A crossed check check with the notation "account "account payee only" can only be deposited deposited in the named payee’s account. It is ross nelience !or a bank to inore this rule solely on the basis o! a third party’s oral representations o! havin a ood title thereto.

PI # a private domestic domestic corporation sellinsteel sellinsteel products. products. Pardo # PI’s President President and ma$ority stockholder stockhold er Interco # reular customer %y # son&in&law o! its ma$ority stockholder '(uitable # depository bank bank o! Interco Interco and o! %y '$"(#

PI sold weldin electrodes to Interco, as evidenced by sales invoices. It is due on )arch *+ ** -!or the rst sales invoice and )ay ** ** !or others/. It also provided that Interco would pay pay interest at the rate rate o! 0+1 per annum in case o! delay delay.. As payment !or the products, Interco Interco issued 0 checks checks payable to the order order o! PI. 'ach check was crossed crossed with the notation 2account payee only3 and was drawn aainst '(uitable.  4he records records do not identi!y the sinatory !or the checks, or e5plain how %y came in possession o! these checks. 6e claimed that he had ood title thereto. 6e demanded the deposits in his personal accounts in '(uitable. 4he bank did so relyin on %y’s status as a valued client and as son&in&law o! Interco’s ma$ority stockholder. PI reminded Interco o! the unpaid weldin electrodes, e5plainin that its immediate need !or payment as it was e5periencin some nancial crisis o! its own. It replied that it has already issued 0 checks payable to PI and drawn aainst '(uitable, which was denied by PI. 7ater on it was discovered discovered that it was %y, not PI, who received received the proceeds proceeds o! 0 checks. Interco nally nally paid the value o! 0 checks to PI PI plus portion o! accrued interests. interests. Interco re!used to pay entire accrued interest on the round that it was not responsible !or the delay. 6ence, 6ence, Pardo Pardo led a complaint complaint !or damaes damaes aainst aainst %y and '(uitable '(uitable 8ank’ allein that the 0 crossed checks, all payable to order o! PI could be deposited and encashedby PI only.

 4rial Court rendered decision in !avor o! Pardo which was a9rmed by CA. I((ue(# :hat is the nature o! crossed check; :hether PI has a cause o! action aainst '(uitable !or (uasi&delict, whereby it can recover actual damaes !rom '(uitable; )e*!# PI’s cause o! action based on (uasi&delict.

PI does not ask '(uitable or %y to deliever to it theproceeds o! the checks as the riht!ul payee. 4he courts below correctly ruled that PI has a cause o! action !or(uasi& delict.  4he checks that Interco issued in !avor o! PI were all crossed, made payable to PI’s order and contained thenotation 2account payee only.3 4his creates a reasonable e5pectation that the payee alone would receive the proceeds o! the checks and that diversion o! the checks would be averted. 4his e5pectation arises !rom the accepted bankin practice that crossed checks are intended !or deposit in the named payee’s account only and no other. At the very least, crossed checks should place a bank on notice that it should e5ercise more caution or e5pend more than a cursory in(uiry, to ascertain whether the payee on the check has authori