Equitable Bank vs IAC 1988

161 SCRA 518 Mercantile Law Negotiable Instruments Law Negotiable Instruments in
General Certainty of Payee
In 1975, Liberato Casals, majority stockholder of Casville Enterprises, went to buy two
garrett skidders (bulldozers) from Edward J. Nell Company amounting to P970,000.00. To pay
the bulldozers, Casals agreed to open a letter of credit with the Equitable Banking
Corporation. Pursuant to this, Nell Company shipped one of the bulldozers to Casville.
Meanwile, Casville advised Nell Company that in order for the letter of credit to be opened,
Casville needs to deposit P427,300.00 with Equitable Bank, and that since Casville is a little
short, it requested Nell Company to pay the deposit in the meantime.
Nell Company agreed and so it eventually sent a check in the amount of P427,300.00. The
check read:
Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC.
Nell Company sent the check to Casville so that it would be the latter who could send it to
Equitable Bank to cover the deposit in lieu of the letter of credit. Casals received the check,
he went to Equitable Bank, and the teller received the check. The teller, instead of applying
the amount as deposit in lieu of the letter of credit, credited the check to Casvilles account
with Equitable Bank. Casals later withdrew all the P427,300.00 and appropriated it to
himself.
ISSUE: Whether or not Equitable Bank is liable to cover for the loss.
HELD: No. The subject check was equivocal and patently ambiguous. Reading on the
wordings of the check, the payee thereon ceased to be indicated with reasonable certainty
in contravention of Section 8 of the Negotiable Instruments Law. 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 Casville Enterprises, Inc., with the latter being the
ultimate beneficiary. That ambiguity is to be taken contra proferentem that is, construed
against Nell Company who caused the ambiguity and could have also avoided it by the
exercise of a little more care. Thus, Article 1377 of the Civil Code, provides:
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity.

DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL.

G.R. No. 85419 March 9, 1993
--complete undelivered
FACTS:
Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging
to pay the petitioner Bank or order the amount of P1,820,000.00. Sima Wei subsequently
issued two crossed checks payable to petitioner Bank drawn against China Banking
Corporation in full settlement of the drawer's account evidenced by the promissory
note. These two checks however were not delivered to the petitioner-payee or to any of its
authorized representatives but instead came into the possession of respondent Lee Kian
Huat, who deposited the checks without the petitioner-payee's indorsement to the account
of respondent Plastic Corporation with Producers Bank. Inspite of the fact that the checks
were crossed and payable to petitioner Bank and bore no indorsement of the latter, the
Branch Manager of Producers Bank authorized the acceptance of the checks for deposit and
credited them to the account of said Plastic Corporation.
ISSUE:
Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks.
RULING:
No. A negotiable instrument must be delivered to the payee in order to evidence its
existence as a binding contract. Section 16 of the NIL provides that every contract on a
negotiable instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. Thus, the payee of a negotiable instrument acquires no
interest with respect thereto until its delivery to him. Without the initial delivery of the
instrument from the drawer to the payee, there can be no liability on the
instrument. Petitioner however has a right of action against Sima Wei for the balance due
on the promissory note.