51 SUPREME COURT the exercise of a little more care.

Thus, Article 1377 of the Civil

8 REPORTS Code, provides:  Art. 1377. The interpretation of obscure words or
“

stipulations in a contract shall not favor the party who caused the
ANNOTATED obscurity.”
Equitable Banking
Corporation vs. Intermediate Same; Same; Same; It was NELL’s own acts, which put it into
the power of Casals & Casville Enterprises to perpetuate the fraud
Appellate Court against it and, consequently, it must bear the loss.—NELL had
No. L-74451. May 25, 1988. *
received three (3) postdated checks all dated 16 November, 1976
EQUITABLE BANKING CORPORATION, petitioner, from Casville to secure the subject check and had accepted the
vs. THE HONORABLE INTERMEDIATE APPELLATE deposit with it of two (2) titles of real properties as collateral for said
COURT and THE EDWARD J. NELL CO., respondents. postdated checks. Thus, NELL was erroneously confident that its
interests were sufficiently protected. Never had it suspected that
Commercial Law; Negotiable Instruments Law; Checks; The those postdated checks would
subject check was, initially, not non-negotiable; Reason.—Contrary _______________
to the finding of respondent Appellate Court, the subject check was,
initially, not non-negotiable. Neither was it a crossed check. The *
 SECOND DIVISION.
rubber-stamping transversally on the face of the subject check of the
519
words “Nonnegotiable for Payee’s Account Only” between two (2)
parallel lines, and “Non-negotiable, Teller No. 4, August 17, 1986," VOL. 161, 519
separately boxed, was made only by the Bank teller in accordance MAY 25, 1988
with customary bank practice, and not by NELL as the drawer of the
check, and simply meant that thereafter the same check could no Equitable Banking
longer be negotiated. Corporation vs. Intermediate
Appellate Court
Same; Same; Same; The subject check was equivocal and
be dishonored, nor that the subject check would be utilized by
patentlyambiguous; Reasons; The ambiguity should be construed
Casals for a purpose other than for opening the letter of credit. In the
against the party who caused the ambiguity.—The subject check was
last analysis, it was NELL’s own acts, which put it into the power of
equivocal and patently ambiguous. By making the check read:  Pay “

Casals and Casville Enterprises to perpetuate the fraud against it and,

to the EQUITABLE BANKING CORPORATION Order of A/C OF
consequently, it must bear the loss (Blondeau, et al., vs. Nano, et al.,
CASVILLE ENTERPRISES, INC.  the payee ceased to be indicated
"

61 Phil. 625 [1935]; Sta. Maria vs. Hongkong and Shanghai Banking
with reasonable certainty in contravention of Section 8 of the
Corporation, 89 Phil. 780 [1951]; Republic of the Philippines vs.
Negotiable Instruments Law. As worded, it could be accepted as
Equitable Banking Corporation, L-15895, January 30, 1974, 10
deposit to the account of the party named after the symbols “A/C," or
SCRA 8). “x x x As between two innocent persons, one of whom
payable to the Bank as trustee, or as an agent, for Casville
must suffer the consequence of a breach of trust, the one who made it
Enterprises, Inc., with the latter being the ultimate beneficiary. That
possible by his act of confidence must bear the loss.”
ambiguity is to be taken contra proferentem that is, construed against
NELL who caused the ambiguity and could have also avoided it by

1|Page
PETITION for certiorari to review the judgment of the Equitable Banking
Intermediate Appellate Court. Corporation vs. Intermediate
The facts are stated in the opinion of the Court, Appellate Court
     William R. Veto for petitioner. dant Casals represented himself as the majority stockholder,
     Pelaez,  Adriano & Gregorio for respondents. president and general manager of Casville Enterprises, Inc., a firm
engaged in the large scale production, procurement and processing of
MELENCIO-HERRERA, J.: logs and lumber products, which had a plywood plant in Sta. Ana,
Metro Manila.
In this Petition for Review on Certiorari petitioner, Equitable “After defendant Casals talked with plaintiff’s sales engineer, he
Banking Corporation, prays that the adverse judgment against was referred to plaintiffs executive vice-president, Apolonio Javier,
it rendered by respondent Appellate Court,  dated 4 October
1
for negotiation in connection with the manner of payment. When
1985, and its majority Resolution, dated 28 April 1986, Javier asked for cash payment for the skidders, defendant Casals
denying petitioner’s Motion for Reconsideration,  be annulled2 informed him that his corporation, defendant Casville Enterprises,
and set aside. Inc., had a credit line with defendant Equitable Banking Corporation.
The facts pertinent to this Petition, as summarized by the Apparently, impressed with this assertion, Javier agreed to have the
skidders paid by way of a domestic letter of credit which defendant
Trial Court and adopted by reference by Respondent Appellate
Casals promised to open in plaintiffs favor, in lieu of cash payment.
Court, emanated from the case entitled “Edward J. Nell Co. vs. Accordingly, on December 22, 1975, defendant Casville, through its
Liberato V. Casals, Casville Enterprises, Inc., and Equitable president, defendant Casals, ordered from plaintiff two units of
Banking Corporation” of the Court of First Instance of Rizal garrett skidders x x x.
(Civil Case No. 25112), and read: “The purchase order for the garrett skidders bearing No. 0051 and
“From the evidence submitted by the parties, the Court finds that dated December 22, 1975 (Exhibit ‘A') contained the following terms
sometime in 1975 defendant Liberato Casals went to plaintiff and conditions:
Edward J. Nell Company and told its senior sales engineer, Amado Two (2) units GARRETT Skidders Model 30A complete as basically
Claustro that he was interested in buying one of the plaintiffs garrett described in the bulletin
skidders. Plaintiff was a dealer of machineries, equipment and PRICE: F.O.B. dock
     Manila P485,000.00/unit
supplies. Defen-
For two (2) units P970,000.00
_______________
SHIPMENT: We will inform you the date and name of the vessel
 Penned by Justice Crisolito Pascual and concurred in by Justices Jose C.
1

Campos, Jr., Serafin E. Camilon, and Desiderio P. Jurado.

as soon as arranged.
2
 With Justice Desiderio P. Jurado, dissenting. TERMS: By irrevocable domestic letter of credit to be issued in
favor of THE EDWARD J. NELL GO. or ORDER payable in thirty
520 six (36) months and will be opened within ninety (90) days after date
52 SUPREME COURT of shipment. First installment will be due one hundred eighty (180)
0 REPORTS days after date of shipment. Interest—14% per annum’ (Exhibit ‘A')
ANNOTATED xxx      xxx

2|Page
 “x x x in a letter dated April 21, 1976, defendants Casals and for the trust receipts to be issued by the bank, covering the above-
Casville requested from plaintiff the delivery of one (1) unit of the mentioned equipment.
skidders, complete with tools and cables, to Cagayan de Oro, on or “Although the marginal deposit was supposed to be produced by
before Saturday, April 24, 1976, on board a Lorenzo shipping vessel, defendant Casville Enterprises, plaintiff agreed to advance the
with the information that an irrevocable Domestic Letter of Credit necessary amount in order to facilitate the transaction. Accordingly,
would be opened in plaintiff’s favor on or before June 30, 1976 on August 5, 1976, plaintiff issued a check in the amount of
under the terms and conditions agreed upon (Exhibit ‘B') P400,000.00 (Exhibit ‘2') drawn against the First National City Bank
“On May 3, 1976, in compliance with defendant Casville’s re- and made payable to the order of Equitable Banking Corporation and
with the following notation or memorandum:
521 ‘a/c of Casville Enterprises Inc. for Marginal deposit and payment of
VOL. 161, MAY 25, 521 balance on Estrada Property to be used as security for trust receipt for
1988 opening L/C of Garrett Skidders in favor of the Edward J. Nell Co.’ Said
check together with the cash disbursement voucher (Exhibit ‘2-A')
Equitable Banking containing the explanation:
Corporation vs. Intermediate ‘Payment for marginal deposit and other expenses re open-ing of L/C
Appellate Court for account of Casville Ent.’
quest, plaintiff shipped to Cagayan de Oro City a Garrett skidder.
A covering letter (Exhibit ‘3') was also sent and when the three
Plaintiff paid the shipping cost in the amount of P1 0,640.00 because
documents were presented to Severino Santos, executive vice
of the verbal assurance of defendant Casville that it would be
president of defendant bank, Santos did not accept them because the
covered by the letter of credit soon to be opened.
terms and conditions required by the bank for the opening of the
xxx      xxx      xxx
letter of credit had not yet been agreed on.
“On July 15, 1976, defendant Casals handed to plaintiff a check
“On August 9, 1976, defendant Casville wrote the bank applying
in the amount of P300,000.00 postdated August 4, 1976, which was
followed by another check of same date. Plaintiff considered these 522
checks either as partial payment for the skidder that was already 52 SUPREME COURT
delivered to Cagayan de Oro or as reimbursement for the marginal 2 REPORTS
deposit that plaintiff was supposed to pay.
“In a letter dated August 3, 1976 (Exhibit ‘C'), defendants Casals
ANNOTATED
and Casville informed the plaintiff that their application for a letter Equitable Banking
of credit for the payment of the Garrett skidders had been approved Corporation vs. Intermediate
by the Equitable Banking Corporation. However, the defendants said Appellate Court
that they would need the sum of P300,000.00 to stand as collateral or for two letters of credit to cover its purchase from plaintiff of two
marginal deposit in favor of Equitable Banking Corporation and an Garrett skidders, under the following terms and conditions:
additional amount of P100,000.00, also in favor of Equitable ‘a) On sight Letter of Credit for P485,000.00; b) One 36 months Letter of
Banking Corporation, to clear the title of the Estrada property Credit for P606,000.00; c) P300,000.00 CASH marginal deposit; d) Real
belonging to defendant Casals which had been approved as security Estate Collateral to secure the Trust Receipts; e) We shall chattel mortgage
the equipments purchased even after payment of the first L/C as additional

3|Page
security for the balance of the second L/C and f) Other conditions you deem VOL. 161, MAY 25, 523
necessary to protect the interest of the bank.’
1988
“In a letter dated August 11, 1976 (Exhibit ‘D-1'), defendant bank Equitable Banking
replied stating that it was ready to open the letters of credit upon Corporation vs. Intermediate
defendant’s compliance of the following terms and conditions:
‘c) 30% cash margin deposit; d) Acceptable Real Estate Collateral to secure
Appellate Court
the Trust Receipts; e) Chattel Mortgage on the equipment; and f) Other with by defendant Casville.
terms and conditions that our bank may impose.’ “On August 16, 1976, plaintiff issued a check for P427,300.00,
payable to the ‘order of EQUITABLE BANKING CORPORATION
“Defendant Casville sent a copy of the foregoing letter to the A/C CASVILLE ENTERPRISES, INC.' and drawn against the first
plaintiff enclosing three postdated checks. In said letter, plaintiff was National City Bank (Exhibit ‘E-1'). The check did not contain the
informed of the requirements imposed by the defendant bank notation found in the previous check issued by the plaintiff (Exhibit
pointing out that the ‘cash marginal required under paragraph (c) is ‘20 but the substance of said notation was reproduced in a covering
30% of P1,091,000.00 or P327,300.00 plus another P100,000.00 to letter dated August 16, 1976 that went with the check (Exhibit ‘E').
clean up the Estrada property or a total of P427,300.00' and that the Both the check and the covering letter were sent to defendant bank
check covering said amount should be made payable to the Order of through defendant Casals. Plaintiff entrusted the delivery of the
EQUITABLE BANKING CORPORATION for the account of check and the latter to defendant Casals because it believed that no
Casville Enterprises Inc.’ Defendant Casville also stated that the one, including defendant Casals, could encash the same as it was
three (3) enclosed postdated checks were intended as replacement of made payable to the defendant bank alone, Besides, defendant Casals
the checks that were previously issued to plaintiff to secure the sum was known to the bank as the one following up the application for
of P427,300.00 that plaintiff would advance to defendant bank for the letters of credit.
the account of defendant Casville, All the new checks were postdated “Upon receiving the check for P427,300.00 entrusted to him by
November 19, 1976 and drawn in the sum of P145,500.00 (Exhibit plaintiff defendant Casals immediately deposited it with the
‘F'), P181,800.00 (Exhibit ‘G') and P100,000.00 (Exhibit ‘H'). defendant bank and the bank teller accepted the same for deposit in
“On the same occasion, defendant Casals delivered to plaintiff defendant Casville’s checking account. After depositing said check,
TCT No. 11891 of the Register of Deeds of Quezon City and TCT defendant Casville, acting through defendant Casals, then withdrew
No. 50851 of the Register of Deeds of Rizal covering two pieces of all the amount deposited.
real estate properties. “Meanwhile, upon their presentation for encashment, plaintiff
“Subsequently, Cesar Umali, plaintiff’s credit and collection discovered that the three checks (Exhibits ‘F',  G' and ‘H') in the total
‘

manager, accompanied by a representative of defendant Casville, amount of P427,300.00, that were issued by defendant Casville as
went to see Severino Santos to find out the status of the credit line collateral were all dishonored for having been drawn against a closed
being sought by defendant Casville. Santos assured Umali that the account.
letters of credit would be opened as soon as the requirements “As defendant Casville failed to pay its obligation to defendant
imposed by defendant bank in its letter dated August 11, 1976 had bank, the latter foreclosed the mortgage executed by defendant
been complied Casville on the Estrada property which was sold in a public auction
523
sale to a third party.

4|Page
 “Plaintiff allowed some time before following up the application “Defendants Casals and Casville Enterprises and Equitable
for the letters of credit knowing that it took time to process the same. Banking Corporation are ordered to pay plaintiff, jointly and
However, when the three checks issued to it by defendant Casville severally, the sum of P427,300.00, representing the amount of
were dishonored, plaintiff became apprehensive and sent Umali on plaintiff’s check which defendant bank erroneously credited to the
November 29, 1976, to inquire about the status of the application for account of defendant Casville and which defendants Casal and
the letters of credit. When plaintiff was informed that no letters of Casville misappropriated, with 12% interest thereon from April 5,
credit were opened by the defendant bank in its favor and then 1977, until the said sum is fully paid.
discovered that defendant Casville had in the meanwhile withdrawn “Defendant Equitable Banking Corporation is ordered to pay
the entire amount of P427,300.00, without paying its obligation to plaintiff attorney’s fees in the sum of P25,000.00
the bank plaintiff filed the instant action. “Proportionate cost against all the defendants.
“While the instant case was being tried, defendants Casals and “SO ORDERED."
Casville assigned the garrett skidder to plaintiff which credited in
favor of defendants the amount of P450,000.00, as partial satisfaction The crucial issue to resolve is whether or not petitioner
Equitable Banking Corporation (briefly, the Bank) is liable to
524 private respondent Edward J. Nell Co. (NELL, for short) for
52 SUPREME COURT the value of the second check issued by NELL, Exhibit “E-1,"
4 REPORTS which was made payable
ANNOTATED “to the order of EQUITABLE BANKING CORPORATION A/C OF
Equitable Banking CASVILLE ENTERPRISES INC."
Corporation vs. Intermediate and which the Bank teller credited to the account of Casville.
Appellate Court The Trial Court found that the amount of the second check
of plaintiffs claim against them. had been erroneously credited to the Casville account; held the
“Defendants Casals and Casville hardly disputed their liability to Bank liable for the mistake of its employees; and ordered the
plaintiff. Not only did they show lack of interest in disputing Bank to pay NELL the value of the check in the sum of
plaintiffs claim by not appearing in most of the hearings, but they
P427,300.00, with legal interest. Explained the Trial Court:
also assigned to plaintiff the garrett skidder which is an action of
525
clear recognition of their liability.
“What is left for the Court to determine, therefore, is only the VOL. 161, MAY 25, 525
liability of defendant bank to plaintiff. 1988
“xxx      xxx” Equitable Banking
Corporation vs. Intermediate
Resolving that issue, the Trial Court rendered judgment,
affirmed by Respondent Court in toto, the pertinent portion of Appellate Court
which reads: “The Court finds that the check in question was payable only to
“xxx      xxx the defendant bank and to no one else. Although the words
‘A/C OF CASVILLE ENTERPRISES INC.' appear on the face

5|Page
of the check after or under the name of defendant bank, the check was precisely to meet the bank’s prior
payee was still the latter. The addition of said words did not in requirement of payment before issuing the letter of
any way make Casville Enterprises, Inc. the Payee of the credit previously applied for by Casville
instrument for the words merely indicated for whose account or Enterprises in favor of the appellee;
in connection with what account the check was issued by the
plaintiff. xxx      xxx
“Indeed, the bank teller who received it was fully aware that We disagree.
the check was not negotiable since he stamped thereon the
words ‘NON-NEGOTIABLE For Payee’s Account Only’ and 1. 1)The subject check was equivocal and
‘NON-NEGOTIABLE TELLER NO. 4, August 17, 1976 patently ambiguous. By making the check
EQUITABLE BANKING CORPORATION.' read:
“But said teller should have exercised more prudence in the
handling of said check because it was not made out in. the “Pay to the EQUITABLE BANKING CORPORATION Order of
usual manner. The addition of the words ‘A/C OF CASVILLE A/C OF CASVILLE ENTERPRISES, INC."
ENTERPRISES INC.' should have placed the teller on guard
526
and he should have clarified the matter with his superiors.
52 SUPREME COURT
Instead of doing so, however, the teller decided to rely on his
own judgment and at the risk of making a wrong decision, 6 REPORTS
credited the entire amount in the name of defendant Casville ANNOTATED
although the latter was not the payee named in the check. Such Equitable Banking
mistake was crucial and was, without doubt, the proximate Corporation vs. Intermediate
cause of plaintiffs defraudation. Appellate Court
“x x x      x x x the payee ceased to be indicated with reasonable certainty in
Respondent Appellate Court upheld the above conclusions contravention of Section 8 of the Negotiable Instruments Law.  As 3

stating in addition: 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
1. “1)The appellee made the subject check payable to as an agent, for Casville Enterprises, Inc., with the latter being the
appellant’s order, for the account of Casville ultimate beneficiary. That ambiguity is to be taken contra
Enterprises, Inc. In the light of the other facts, the proferentem that is, construed against NELL who caused the
directive was for the appellant bank to apply the ambiguity and could have also avoided it by the exercise of a little
value of the check as payment for the letter of more care. Thus, Article 1377 of the Civil Code, provides:
credit which Casville Enterprises, Inc. had “Art. 1377. The interpretation of obscure words or stipulations in a
previously applied for in favor of the appellee contract shall not favor the party who caused the obscurity.”
(Exhibit D-1, p. 5). The issuance of the subject

6|Page
 1. 2)Contrary to the finding of respondent  Section 8. xxx Where the instrument is payable to order, the payee must be
3

named or otherwise indicated therein with reasonable certainty.

Appellate Court, the subject check was,
initially, not non-negotiable. Neither was it a 527
crossed check. The rubber-stamping VOL. 161, MAY 25, 527
transversally on the face of the subject check 1988
of the words “Non-negotiable for Payee’s Equitable Banking
Account Only” between two (2) parallel Corporation vs. Intermediate
lines, and “Nonnegotiable, Teller No. 4,
Appellate Court
August 17, 1986," separately boxed, was made
and the memorandum:
only by the Bank teller in accordance with
“a/c of Casville Enterprises Inc. for Marginal deposit and payment of
customary bank practice, and not by NELL as balance on Estrada Property to be used as security for trust receipt
the drawer of the check, and simply meant that for opening L/C of Garrett Skidders in favor of the Edward J. Nell
thereafter the same check could no longer be Co.”
negotiated.
2. 3)NELL’s own acts and omissions in Evidencing the real nature of the transaction was merely a
connection with the drawing, issuance and separate covering letter, dated 16 August 1976, which Casals,
delivery of the 16 August 1976 check, Exhibit sinisterly enough, suppressed from the Bank officials and
“E-1," and its implicit trust in Casals, were the teller.
proximate cause of its own defraudation: (a)
The original check of 5 August 1976, Exhibit 1. (b)NELL entrusted the subject check and its
“2," was payable to the order solely of covering letter, Exhibit “E," to Casals who,
“Equitable Banking Corporation.” NELL obviously, had his own antagonistic interests to
changed the payee in the subject check, Exhibit promote. Thus it was that Casals did not
“E-1," however, to “Equitable Banking purposely present the subject check to the
Corporation, A/C of Casville Enterprises Inc.," Executive VicePresident of the Bank, who was
upon Casals request. NELL also eliminated aware of the negotiations regarding the Letter
both the cash disbursement voucher of Credit, and who had rejected the previous
accompanying the check which read: check, Exhibit “2," including its three
documents because the terms and conditions
“Payment for marginal deposit and other expenses re opening of L/C required by the Bank for the opening of the
for account of Casville Ent.” Letter of Credit had not yet been agreed on.
2. (c)NELL was extremely accommodating to
_______________
Casals. Thus, to facilitate the sales transaction,
NELL even advanced the marginal deposit for

7|Page
 the garrett skidder. It is, indeed, abnormal for “x x x As between two innocent persons, one of whom must suffer
the seller of goods, the price of which is to be the consequence of a breach of trust, the one who made it possible by
covered by a letter of credit, to advance the his act of confidence must bear the loss.”
marginal deposit for the same. WHEREFORE, the Petition is granted and the Decision of
3. (d)NELL had received three (3) postdated respondent Appellate Court, dated 4 October 1985, and its
checks all dated 16 November, 1976 from majority Resolution, dated 28 April 1986, denying petitioner’s
Casville to secure the subject check and had Motion for Reconsideration, are hereby SET ASIDE. The
accepted the deposit with it of two (2) titles of Deci-sion of the then Court of First Instance of Rizal, Branch
real properties as collateral for said postdated XI, is modified in that petitioner Equitable Banking
checks. Thus, NELL was erroneously Corporation is absolved from any and all liabilities to the
confident that its interests were sufficiently private respondent, Edward J. Nell Company, and the
protected. Never had it suspected that those Amended Complaint against petitioner bank is hereby Ordered
postdated checks would be dishonored, nor that dismissed. No costs.
the subject check would be utilized by Casals SO ORDERED.
for a purpose other than for opening the letter      Yap (C.J.), Paras and Sarmiento, JJ., concur.
of credit.      Padilla, J., took no part in the deliberations.
In the last analysis, it was NELL’s own acts, which put it into Petition granted. Decision set aside.
the power of Casals and Casville Enterprises to perpetuate the Note.—For a check to be dishonored upon presentment, on
fraud against it and, consequently, it must bear the loss the one hand, and to be stale for not being presented at all in
(Blondeau, et al., vs. Nano, et al., 61 Phil. 625 [1935]; Sta. time, on the other, are incompatible developments that
Maria vs. Hongkong and Shanghai Banking Corporation, 89 naturally have variant legal consequences. (Crystal vs. Court of
Phil. 780 [1951]: Republic of the Philippines vs. Equitable Appeals, p. 71 SCRA 443.)
Banking Corporation, L-15895, January 30, 1964, 10 SCRA 8).
528 ——o0o——
52 SUPREME COURT
8 REPORTS © Copyright 2021 Central Book Supply, Inc. All rights
reserved.
ANNOTATED
Century Textile Mills, Inc. vs.
National Labor
Relations Commission

8|Page