G.R. No.

175350               June 13, 2012

EQUITABLE BANKING CORPORATION, INC. Petitioner, 
vs.
SPECIAL STEEL PRODUCTS, and AUGUSTO L. PARDO, Respondents.

Ponente: Del Castillo, J.

Doctrine: A crossed check with the notation "account payee only" can only be deposited in the named payee’s
account. It is gross negligence for a bank to ignore this rule solely on the basis of a third party’s oral
representations of having a good title thereto.

SSPI – a private domestic corporation sellingsteel products.

Pardo – SSPI’s President and majority stockholder

Interco – regular customer

Uy – son-in-law of its majority stockholder

Equitable – depository bank of Interco and of Uy

Facts:
SSPI sold welding electrodes to Interco, as evidenced by sales invoices. It is due on March 16 1991 (for the
first sales invoice and May 11 1991 for others). It also provided that Interco would pay interest at the rate of 36%
per annum in case of delay. As payment for the products, Interco issued 3 checks payable to the order of SSPI.
Each check was crossed with the notation “account payee only” and was drawn against Equitable.

The records do not identify the signatory for the checks, or explain how Uy came in possession of these
checks. He claimed that he had good title thereto. He demanded the deposits in his personal accounts in Equitable.
The bank did so relying on Uy’s status as a valued client and as son-in-law of Interco’s majority stockholder.

SSPI reminded Interco of the unpaid welding electrodes, explaining that its immediate need for payment
as it was experiencing some financial crisis of its own. It replied that it has already issued 3 checks payable to SSPI
and drawn against Equitable, which was denied by SSPI. Later on it was discovered that it was Uy, not SSPI, who
received the proceeds of 3 checks. Interco finally paid the value of 3 checks to SSPI plus portion of accrued
interests. Interco refused to pay entire accrued interest on the ground that it was not responsible for the delay.
Hence, Pardo filed a complaint for damages against Uy and Equitable Bank’ alleging that the 3 crossed checks, all
payable to order of SSPI could be deposited and encashedby SSPI only.

Trial Court rendered decision in favor of Pardo which was affirmed by CA.

Issues:
What is the nature of crossed check?
Whether SSPI has a cause of action against Equitable for quasi-delict, whereby it can recover actual damages from
Equitable?

Held:
SSPI’s cause of action based on quasi-delict.

SSPI does not ask Equitable or Uy to deliever to it theproceeds of the checks as the rightful payee. The
courts below correctly ruled that SSPI has a cause of action forquasi-delict.
 The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPI’s order and
contained thenotation “account payee only.” This creates a reasonable expectation that the payee alone would
receive the proceeds of the checks and that diversion of the checks would be averted. This expectation arises from
the accepted banking practice that crossed checks are intended for 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 exercise more caution or
expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to
deposit the same in different account.

A crossed check with the notation “account payee only” can only be deposited in the named payee’s
account. It is gross negligence for a bank to ignore this rule solely on the basis of a third party’s oral
representations of having a good title there to.