Equitable Banking Corporation, Inc vs Special Steel Products
G.R. No. 175350 June 13, 2012
Facts: Augusto L. Pardo (Pardo) is SSPI’s President and majority stockholder. International Copra Export Corporation (Interco) is its regular customer. Jose Isidoro Uy, alias Jolly Uy (Uy), is an Interco employee, in charge of the purchasing department, and the son-in-law of its majority stockholder. Petitioner Equitable Banking Corporation (Equitable or bank) is a private domestic corporation engaged in banking and is the depository bank of Interco and of Uy. In 1991, SSPI sold welding electrodes to Interco, as evidenced by the following sales invoices: Sales Invoice No. 65042 dated February 14, 1991 for P 325,976.34 Sales Invoice No. 65842 dated April 11, 1991 for P 345,412.80 Sales Invoice No. 65843 dated April 11, 1991 for P 313,845.84 The due dates for these invoices were March 16, 1991 (for the first sales invoice) and May 11, 1991 (for the others). The invoices provided that Interco would pay interest at the rate of 36% per annum in case of delay. and July 29, 1991. In payment for the above welding electrodes, Interco issued three checks payable to the order of SSPI on July 10, 1991, July 16, 1991, Each check was crossed with the notation “account payee only” and was drawn against Equitable. The records do not identify the signatory for these three checks, or explain how Uy, Interco’s purchasing officer, came into possession of these checks. The records only disclose that Uy presented each crossed check to Equitable on the day of its issuance and claimed that he had good title thereto. He demanded the deposit of the checks in his personal accounts in Equitable, Account No. 188412 and Account No. 03474-0.
Issue: Whether or not the payment made by Equitable is proper.
Held: No. The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPI’s order, and contained the notation “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, the nature of 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 a different account. It is well to remember that “[t]he banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of business and commerce, banks have attained an [sic] ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, above all, trust and confidence. In this connection, it is important that banks should guard against injury attributable to negligence or bad faith on its part. As repeatedly emphasized, since the banking business is impressed with public interest, the trust and confidence of the public in it is of paramount importance. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are required of it.”
Equitable did not observe the required degree of diligence expected of a banking institution under the existing factual circumstances.
Equitable’s pretension that there is nothing under the circumstances that rendered Uy’s title to the checks questionable is outrageous. These are crossed checks, whose manner of discharge, in banking practice, is restrictive and specific. Uy’s name does not appear anywhere on the crossed checks. Equitable, not knowing the named payee on the check, had no way of verifying for itself the alleged genuineness of the indorsement to Uy. The checks bear nothing on their face that supports the belief that the drawer gave the checks to Uy. Uy’s relationship to Interco’s majority stockholder will not justify disregarding what is clearly ordered on the checks.