Equitable Banking Corp. v. IAC (1988)

Facts: Defendant Casville Enterprises, Inc., through defendant Liberato Casals, bought from plaintiff Edward J. Nell Co. two units of garrett skidders. Casville and Nell agreed that the former will open a letter of credit in Equitable Banking Corp. in favor of the latter for the payment of the skidders. Nell agreed to advance the marginal deposit necessary for the opening of the letter of credit. For this purpose, Nell issued a check payable to the order of EQUITABLE BANKING CORPORATION A/C CASVILLE ENTERPRISES, INC. and drawn against First National City Bank. Nell entrusted the delivery of the check to Casals because it believed that no one, including Casals, could encash the same as it was payable to Equitable Banking Corp. alone. Casville in turn delivered three post-dated checks to Nell as collateral.

Casals immediately deposited the check issued by Nell with Equitable Banking Corp. and the bank teller accepted the same for deposit in Casvilles checking account. Casville then withdrew all the amount deposited.

When Nell tried to encash the three checks given by Casville as collateral, they were dishonored because they were drawn against a closed account. Nell inquired about the letter of credit and it discovered that no letter of credit was opened in its favor. Nell thus sued Casville, Casals, and Equitable for the recovery of the amount advanced to Casville.

Issue: Should Equitable be made libale for the loss suffered by Nell?

Ruling: No. The subject check was equivocal and patently ambiguous. By making the check read: Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC. the payee ceased to be indicated with reasonable certainty in contravention of Sec. 8 NIL. As worded, the check could be accepted as a deposit to the account of the party named after the symbols A/C, or payable to the Bank as trustee, or as an agent of Casville, with the latter being an ultimate beneficiary. That ambiguity is to be taken contra proferentem, that is construed against Nell who caused the ambiguity and could have also avoided it by exercise of a little more care.