G.R. No.

176697               September 10, 2014

CESAR V. AREZA and LOLITA B. AREZA, Petitioners, 

vs.
EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO, Respondnets.

FACTS:

Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits with respondent
Express Savings Bank’s Biñan branch: 1) Savings Account No. 004-01-000185-5 and 2) Special
Savings Account No. 004-02-000092-3.

They were engaged in the business of "buy and sell" of brand new and second-hand motor
vehicles. On 2 May 2000, a buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans
Affairs Office (PVAO) checks payable to different payees and drawn against the Philippine
Veterans Bank (drawee), each valued at Two Hundred Thousand Pesos (₱200,000.00) for a total
of One Million Eight Hundred Thousand Pesos (₱1,800,000.00).

On 3 May 2000, petitioners deposited the said checks in their savings account with the Bank.

The Bank, inturn, deposited the checks with its depositary bank, Equitable-PCI Bank, in
Biñan,Laguna.

Equitable-PCI Bank presented the checks to the drawee, the Philippine Veterans Bank, which
honored the checks.

Thus, the entire amount of ₱1,800,000.00 was credited to petitioners’ savings account. Based on
this information, petitioners released the two cars to the buyer.

Sometime in July 2000, the subjectchecks were returned by PVAO to the drawee on the ground
that the amount on the face of the checks was altered from the original amount of ₱4,000.00 to
₱200,000.00.

The drawee returned the checks to Equitable-PCI Bank by way of Special Clearing Receipts. In
August 2000, the Bank was informed by Equitable-PCI Bank that the drawee dishonored the
checks onthe ground of material alterations.

Equitable-PCI Bank initially filed a protest with the Philippine Clearing House. In February
2001, the latter ruled in favor of the drawee Philippine Veterans Bank. Equitable-PCI Bank, in
turn, debited the deposit account of the Bank in the amount of ₱1,800,000.00.

The Bank insisted that they informed petitioners of said development in August 2000 by
furnishing them copies of the documents given by its depositary bank.7 On the other hand,
petitioners maintained that the Bank never informed them of these developments.

On 9 March 2001, petitioners issued a check in the amount of ₱500,000.00. Said check was
dishonored by the Bank for the reason "Deposit Under Hold." According topetitioners, the Bank
unilaterally and unlawfully put their account with the Bank on hold. On 22 March 2001,
petitioners’ counsel sent a demand letter asking the Bank to honor their check. The Bank refused
to heed their request and instead, closed the Special Savings Account of the petitioners with a
balance of ₱1,179,659.69 and transferred said amount to their savings account. The Bank then
withdrew the amount of ₱1,800,000.00representing the returned checks from petitioners’ savings
account.

On 6 May 2000, the Bank informed petitioners that the subject checks had
been honored. Thus, the amountof ₱1,800,000.00 was accordingly credited to
petitioners’ accounts, prompting them to release the purchased cars to the buyer.
 Unknown to petitioners, the Bank deposited the checks in its depositary
bank, Equitable-PCI Bank. Three months had passed when the Bank was
informed by its depositary bank that the drawee had dishonored the checks on the
ground of material alterations.

The return of the checks created a chain of debiting of accounts, the last
loss eventually falling upon the savings account of petitioners with respondent
bank.

Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and
unilateral withdrawal from their savings account, petitioners filed a Complaint for Sum of
Money with Damages against the Bank and Potenciano with the RTC of Calamba.

On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in favor of
petitioners stating that the depositary cannot make use of the thing deposited without the
express permission of the depositor. The trial court also held that respondents should
have observed the 24-hour clearing house rule that checks should be returned within 24-
hours after discovery of the forgery but in no event beyond the period fixed by law for
filing a legal action. In this case, petitioners deposited the checks in May 2000, and
respondents notified them of the problems on the check three months later or in August
2000.

On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon granted
the motion for reconsideration, set aside the Pozas Decision, and dismissed the
complaint. On the merits, the trial court considered the relationship of the Bank and
petitioners with respect to their savings account deposits as a contract of loan with the
bank as the debtor and petitioners as creditors. As such, Article 1977 of the Civil Code
prohibiting the depository from making use of the thing deposited without the express
permission of the depositor is not applicable. Instead, the trial court applied Article 1980
which provides that fixed, savings and current deposits ofmoney in banks and similar
institutions shall be governed by the provisions governing simple loan. The trial court
then opined thatthe Bank had all the right to set-off against petitioners’ savings deposits
the value of their nine checks that were returned.

On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted
the award of damages.

ISSUE:

The core issues in this case revolve on whether the appellee bank had the right to debit the
amount of ₱1,800,000.00 from the appellants’ accounts and whether the bank’s act of debiting
was done "without the plaintiffs’ knowledge."

HELD:

The central issue is whether the Bank had the right to debit ₱1,800,000.00 from petitioners’
accounts.

The fact that material alteration caused the eventual dishonor of the checks issued by PVAO is
undisputed. In this case, before the alteration was discovered, the checks were already cleared by
the drawee bank, the Philippine Veterans Bank. Three months had lapsed before the drawee
dishonored the checks and returned them to Equitable-PCI Bank, the respondents’ depositary
bank. And itwas not until 10 months later when petitioners’ accounts were debited. A question
thus arises: What are the liabilities of the drawee, the intermediary banks, and the petitioners for
the altered checks?

LIABILITY OF THE DRAWEE (ACCEPTOR)

Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides that the acceptor, by
accepting the instrument, engages that he will pay it according to the tenor of his acceptance. The
acceptor is a drawee who accepts the bill. In Philippine National Bank v. Court of Appeals,14 the
payment of the amount of a check implies not only acceptance but also compliance with the
drawee’s obligation.

In case the negotiable instrument isaltered before acceptance, is the drawee liable for the original
or the altered tenor of acceptance? There are two divergent intepretations proffered by legal
analysts.15 

The first view is supported by the leading case of National City Bank ofChicago
v. Bank of the Republic - drawee by accepting admitted the existence of the payee and
his capacity to endorse.17 Still, in Wells Fargo Bank & Union Trust Co. v. Bank of Italy,
stating that the obligation of the acceptor should be limited to the tenorof the instrument
as drawn by the maker, as was the rule at common law,but that it should be enforceable
in favor of a holder in due course against the acceptor according to its tenor at the time of
its acceptance or certification.

The second view is that the acceptor/drawee despite the tenor of his acceptance is
liable only to the extent of the bill prior to alteration. This view appears to be in
consonance with Section 124 of the Negotiable Instruments Law which statesthat a
material alteration avoids an instrument except as against an assenting party and
subsequent indorsers, but a holder in due course may enforce payment according to its
original tenor. Thus, when the drawee bank pays a materially altered check, it violates the
terms of the check, as well as its duty tocharge its client’s account only for bona fide
disbursements he had made. If the drawee did not pay according to the original tenor of
the instrument, as directed by the drawer, then it has no right to claim reimbursement
from the drawer, much less, the right to deduct the erroneous payment it made from the
drawer’s account which it was expected to treat with utmost fidelity.21 The drawee,
however, still has recourse to recover its loss. It may pass the liability back to the
collecting bank which is what the drawee bank exactly did in this case. It debited the
account of Equitable-PCI Bank for the altered amount of the checks.

LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK

A depositary bank is the first bank to take an item even though it is also the payor bank, unless
the item is presented for immediate payment over the counter.22 It is also the bank to which a
check is transferred for deposit in an account at such bank, evenif the check is physically
received and indorsed first by another bank.23 A collecting bank is defined as any bank handling
an item for collection except the bank on which the check is drawn.24

When petitioners deposited the check with the Bank, they were designating the latter as the
collecting bank.

The Bank and Equitable-PCI Bank are both depositary and collecting banks.

A depositary/collecting bank where a check is deposited, and which endorses the check upon
presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable
Instruments Law, an endorser warrants "that the instrument is genuine and in all respects what it
purports to be; that he has good title to it; that all prior parties had capacity to contract; and that
the instrument is at the time of his endorsement valid and subsisting” and thus generally suffers
the loss. If any of the warranties made by the depositary/collecting bank turns out to be false,
then the drawee bank may recover from it up to the amount of the check.

As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the
materially altered checks. Since Equitable-PCI Bank is not a party to this case and the Bank
allowed its account with EquitablePCI Bank to be debited, it has the option toseek recourse
against the latter in another forum.

24-HOUR CLEARING RULE

We do not subscribe to the position taken by petitioners that the drawee bank was at fault
because it did not follow the 24-hour clearing period which provides that when a drawee bank
fails to return a forged or altered check to the collecting bank within the 24-hour clearing period,
the collecting bank is absolved from liability.

But the so-called "24-hour" rule has been modified.

As the rule now stands, the 24-hour rule is still in force, that is, any check which should be
refused by the drawee bank in accordance with long standing and accepted banking practices
shall be returned through the PCHC/local clearing office, as the case may be, not later than the
next regular clearing (24-hour). The modification, however, is that items which have been the
subject of material alteration or bearing forged endorsement may be returned even beyond 24
hours so long that the same is returned within the prescriptive period fixed by law. The
consensus among lawyers is that the prescriptiveperiod is ten (10)years because a check or the
endorsement thereon is a written contract. Moreover, the item need not be returned through the
clearing house but by direct presentation to the presenting bank.29

In short, the 24-hour clearing ruledoes not apply to altered checks.

LIABILITY OF PETITIONERS

The Bank cannot debit the savings account of petitioners. A depositary/collecting bank may
resist or defend against a claim for breach of warranty if the drawer, the payee, or either the
drawee bank or depositary bank was negligent and such negligence substantially contributed
tothe loss from alteration. In the instant case, no negligence can be attributed to petitioners. We
lend credence to their claim that at the time of the sales transaction, the Bank’s branch manager
was present and even offered the Bank’s services for the processing and eventual crediting of the
checks. True to the branch manager’s words, the checks were cleared three days later when
deposited by petitioners and the entire amount ofthe checks was credited to their savings
account.

ON LEGAL COMPENSATION

The Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners’ savings
account. Under Art. 1278 of the New Civil Code, compensation shall take place when two
persons, in their own right, are creditors and debtors of each other. And the requisites for legal
compensation are:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
It is well-settled that the relationship of the depositors and the Bank or similar institution is that
of creditor-debtor. Article 1980 of the New Civil Code provides that fixed, savings and current
deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loans. The bank is the debtorand the depositor is the creditor. The depositor
lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties.33

But as previously discussed, petitioners are not liable for the deposit of the altered checks. The
Bank, asthe depositary and collecting bank ultimately bears the loss. Thus, there being no
indebtedness to the Bank on the part of petitioners, legal compensation cannot take place.
DAMAGES

To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of
the check prior to alteration.1âwphi1 Since Philippine Veterans Bank paid the altered amount of
the check, it may pass the liability back as it did, to Equitable-PCI Bank,the collecting bank. The
collecting banks, Equitable-PCI Bank and the Bank, are ultimately liable for the amount of the
materially altered check. It cannot further pass the liability back to the petitioners absent any
showing in the negligence on the part of the petitioners which substantially contributed to the
loss from alteration.

JOSE PORTUGAL PEREZ

G.R. No. 156132             February 6, 2007

CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS’ FINANCE
CORPORATION, doing business under the name and style of FNCB Finance, Petitioners, 
vs.
MODESTA R. SABENIANO, Respondent.

The facts of the case, as determined by this Court in its Decision, may be summarized as follows.

Respondent was a client of petitioners. She had several deposits and market placements with
petitioners, among which were her savings account with the local branch of petitioner Citibank
(Citibank-Manila3 ); money market placements with petitioner FNCB Finance; and dollar
accounts with the Geneva branch of petitioner Citibank (Citibank-Geneva). At the same time,
respondent had outstanding loans with petitioner Citibank, incurred at Citibank-Manila, the
principal amounts aggregating to ₱1,920,000.00, all of which had become due and demandable
by May 1979. Despite repeated demands by petitioner Citibank, respondent failed to pay her
outstanding loans. Thus, petitioner Citibank used respondent’s deposits and money market
placements to off-set and liquidate her outstanding obligations.

Respondent, however, denied having any outstanding loans with petitioner Citibank. She
likewise denied that she was duly informed of the off-setting or compensation thereof made by
petitioner Citibank using her deposits and money market placements with petitioners.

ISSUE:

WON off-setting/compensation valid

HELD:

As to the off-setting or compensation of respondent’s outstanding loan balance with her dollar
deposits in Citibank-Geneva

Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance
of respondent’s dollar accounts with Citibank-Geneva and to apply them to her outstanding
loans. It cannot effect legal compensation under Article 1278 of the Civil Code since, petitioner
Citibank itself admitted that Citibank-Geneva is a distinct and separate entity. As for the dollar
accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for the
outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The
parties in these transactions were evidently not the principal creditor of each other.

Petitioners maintain that respondent’s Declaration of Pledge, by virtue of which she supposedly
assigned her dollar accounts with Citibank-Geneva as security for her loans with petitioner
Citibank, is authentic and, thus, valid and binding upon respondent. Alternatively, petitioners
aver that even without said Declaration of Pledge, the off-setting or compensation made by
petitioner Citibank using respondent’s dollar accounts with Citibank-Geneva to liquidate the
balance of her outstanding loans with Citibank-Manila was expressly authorized by respondent
herself in the promissory notes (PNs) she signed for her loans, as well as sanctioned by Articles
1278 to 1290 of the Civil Code. This alternative argument is anchored on the premise that all
branches of petitioner Citibank in the Philippines and abroad are part of a single worldwide
corporate entity and share the same juridical personality. In connection therewith, petitioners
deny that they ever admitted that Citibank-Manila and Citibank-Geneva are distinct and separate
entities.

Petitioners call the attention of this Court to the following provision found in all of the
PNs7 executed by respondent for her loans –

At or after the maturity of this note, or when same becomes due under any of the provisions
hereof, any money, stocks, bonds, or other property of any kind whatsoever, on deposit or
otherwise, to the credit of the undersigned on the books of CITIBANK, N.A. in transit or in their
possession, may without notice be applied at the discretion of the said bank to the full or partial
payment of this note.

It is the petitioners’ contention that the term "Citibank, N.A." used therein should be deemed to
refer to all branches of petitioner Citibank in the Philippines and abroad; thus, giving petitioner
Citibank the authority to apply as payment for the PNs even respondent’s dollar accounts with
Citibank-Geneva. Still proceeding from the premise that all branches of petitioner Citibank
should be considered as a single entity, then it should not matter that the respondent obtained the
loans from Citibank-Manila and her deposits were with Citibank-Geneva. Respondent should be
considered the debtor (for the loans) and creditor (for her deposits) of the same entity, petitioner
Citibank. Since petitioner Citibank and respondent were principal creditors of each other, in
compliance with the requirements under Article 1279 of the Civil Code,8 then the former could
have very well used off-setting or compensation to extinguish the parties’ obligations to one
another. And even without the PNs, off-setting or compensation was still authorized because
according to Article 1286 of the Civil Code, "Compensation takes place by operation of law,
even though the debts may be payable at different places, but there shall be an indemnity for
expenses of exchange or transportation to the place of payment."

It is true that the afore-quoted Section 20 of the General Banking Law of 2000 expressly states
that the bank and its branches shall be treated as one unit. It should be pointed out, however, that
the said provision applies to a universal9 or commercial bank,10 duly established and organized as
a Philippine corporation in accordance with Section 8 of the same statute,11 and authorized to
establish branches within or outside the Philippines.

The General Banking Law of 2000, however, does not make the same categorical statement as
regards to foreign banks and their branches in the Philippines. What Section 74 of the said law
provides is that in case of a foreign bank with several branches in the country, all such branches
shall be treated as one unit. As to the relations between the local branches of a foreign bank and
its head office, Section 75 of the General Banking Law of 2000 and Section 5 of the Foreign
Banks Liberalization Law provide for a "Home Office Guarantee," in which the head office of
the foreign bank shall guarantee prompt payment of all liabilities of its Philippine branches.
While the Home Office Guarantee is in accord with the principle that these local branches,
together with its head office, constitute but one legal entity, it does not necessarily support the
view that said principle is true and applicable in all circumstances.

The Home Office Guarantee is included in Philippine statutes clearly for the protection of the
interests of the depositors and other creditors of the local branches of a foreign bank.12 Since the
head office of the bank is located in another country or state, such a guarantee is necessary so as
to bring the head office within Philippine jurisdiction, and to hold the same answerable for the
liabilities of its Philippine branches. Hence, the principle of the singular identity of that the local
branches and the head office of a foreign bank are more often invoked by the clients in order to
establish the accountability of the head office for the liabilities of its local branches. It is under
such attendant circumstances in which the American authorities and jurisprudence presented by
petitioners in their Motion for Partial Reconsideration were rendered.

SO ORDERED.

TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA

SANTOS, petitioners, 
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL
FELIZARDO N. LOTA and CLEMENT DAVID, respondents.

"From March 20, 1979 to March, 1981, David invested with the Nation Savings and Loan
Association, (hereinafter called NSLA) the sum of P1,145,546.20 on nine deposits, P13,531.94
on savings account deposits (jointly with his sister, Denise Kuhne), US$10,000.00 on time
deposit, US$15,000.00 under a receipt and guarantee of payment and US$50,000.00 under a
receipt dated June 8, 1980 (au jointly with Denise Kuhne), that David was induced into making
the aforestated investments by Robert Marshall an Australian national who was allegedly a close
associate of petitioner Guingona Jr., then NSLA President, petitioner Martin, then NSLA
Executive Vice-President of NSLA and petitioner Santos, then NSLA General Manager; that on
March 21, 1981 N LA was placed under receivership by the Central Bank, so that David filed
claims therewith for his investments and those of his sister; that on July 22, 1981 David received
a report from the Central Bank that only P305,821.92 of those investments were entered in the
records of NSLA; that, therefore, the respondents in I.S. No. 81-31938 misappropriated the
balance of the investments, at the same time violating Central Bank Circular No. 364 and related
Central Bank regulations on foreign exchange transactions; that after demands, petitioner
Guingona Jr. paid only P200,000.00, thereby reducing the amounts misappropriated to
P959,078.14 and US$75,000.00."

Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B')

"That Martin became President of NSLA in March 1978 (after the resignation of
Guingona, Jr.) and served as such until October 30, 1980, while Santos was General
Manager up to November 1980; that because NSLA was urgently in need of funds and at
David's insistence, his investments were treated as special- accounts with interest above
the legal rate, an recorded in separate confidential documents only a portion of which
were to be reported because he did not want the Australian government to tax his total
earnings (nor) to know his total investments; that all transactions with David were
recorded except the sum of US$15,000.00 which was a personal loan of Santos; that
David's check for US$50,000.00 was cleared through Guingona, Jr.'s dollar account
because NSLA did not have one, that a draft of US$30,000.00 was placed in the name of
one Paz Roces because of a pending transaction with her; that the Philippine Deposit
Insurance Corporation had already reimbursed David within the legal limits; that majority
of the stockholders of NSLA had filed Special Proceedings No. 82-1695 in the Court of
First Instance to contest its (NSLA's) closure; that after NSLA was placed under
receivership, Martin executed a promissory note in David's favor and caused the transfer
 to him of a nine and on behalf (9 1/2) carat diamond ring with a net value of
P510,000.00; and, that the liabilities of NSLA to David were civil in nature."

As correctly pointed out by the Solicitor General, the sole issue for resolution is whether public
respondents acted without jurisdiction when they investigated the charges (estafa and violation of
CB Circular No. 364 and related regulations regarding foreign exchange transactions) subject
matter of I.S. No. 81-31938.

There is merit in the contention of the petitioners that their liability is civil in nature and
therefore, public respondents have no jurisdiction over the charge of estafa.

HELD:

It must be pointed out that when private respondent David invested his money on nine. and
savings deposits with the aforesaid bank, the contract that was perfected was a contract of simple
loan or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides
that:têñ.£îhqwâ£

Article 1980. Fixed, savings, and current deposits of-money in banks and similar
institutions shall be governed by the provisions concerning simple loan.

In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We said:têñ.
£îhqwâ£

It should be noted that fixed, savings, and current deposits of money in banks and
similar institutions are hat true deposits. are considered simple loans and, as such,
are not preferred credits (Art. 1980 Civil Code; In re Liquidation of Mercantile
Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil 414;
Pacific Coast Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375; Fletcher
American National Bank vs. Ang Chong UM 66 PWL 385; Pacific Commercial
Co. vs. American Apothecaries Co., 65 PhiL 429; Gopoco Grocery vs. Pacific
Coast Biscuit CO.,65 Phil. 443)."

This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96
SCRA 102 [1980]) that:têñ.£îhqwâ£

Bank deposits are in the nature of irregular deposits. They are really 'loans
because they earn interest. All kinds of bank deposits, whether fixed, savings, or
current are to be treated as loans and are to be covered by the law on loans (Art.
1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and
saving deposits, are loans to a bank because it can use the same. The petitioner
here in making time deposits that earn interests will respondent Overseas Bank of
Manila was in reality a creditor of the respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of petitioner. Failure of the respondent
Bank to honor the time deposit is failure to pay its obligation as a debtor and not
a breach of trust arising from a depositary's failure to return the subject matter of
the deposit(Emphasis supplied).

Hence, the relationship between the private respondent and the Nation Savings and Loan
Association is that of creditor and debtor; consequently, the ownership of the amount deposited
was transmitted to the Bank upon the perfection of the contract and it can make use of the
amount deposited for its banking operations, such as to pay interests on deposits and to pay
withdrawals. While the Bank has the obligation to return the amount deposited, it has, however,
no obligation to return or deliver the same money that was deposited. And, the failure of the
Bank to return the amount deposited will not constitute estafa through misappropriation
punishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to
civil liability over which the public respondents have no- jurisdiction.
WE have already laid down the rule that:têñ.£îhqwâ£

In order that a person can be convicted under the above-quoted provision, it must
be proven that he has the obligation to deliver or return the some money, goods
or personal property that he received Petitioners had no such obligation to return
the same money, i.e., the bills or coins, which they received from private
respondents. This is so because as clearly as stated in criminal complaints, the
related civil complaints and the supporting sworn statements, the sums of money
that petitioners received were loans.

The nature of simple loan is defined in Articles 1933 and 1953 of the Civil
Code.têñ.£îhqwâ£

"Art. 1933. — By the contract of loan, one of the parties delivers

to another, either something not consumable so that the latter may
use the same for a certain time- and return it, in which case the
contract is called a commodatum; or money or other consumable
thing, upon the condition that the same amount of the same kind
and quality shall he paid in which case the contract is simply
called a loan or mutuum.

"Commodatum is essentially gratuitous.

"Simple loan may be gratuitous or with a stipulation to pay

interest.

"In commodatum the bailor retains the ownership of the thing

loaned while in simple loan, ownership passes to the borrower.

"Art. 1953. — A person who receives a loan of money or any other

fungible thing acquires the ownership thereof, and is bound to pay
to the creditor an equal amount of the same kind and quality."

It can be readily noted from the above-quoted provisions that in simple loan
(mutuum), as contrasted to commodatum the borrower acquires ownership of the
money, goods or personal property borrowed Being the owner, the borrower can
dispose of the thing borrowed (Article 248, Civil Code) and his act will not be
considered misappropriation thereof' (Yam vs. Malik, 94 SCRA 30, 34 [1979];
Emphasis supplied).

But even granting that the failure of the bank to pay the time and savings deposits of private
respondent David would constitute a violation of paragraph 1(b) of Article 315 of the Revised
Penal Code, nevertheless any incipient criminal liability was deemed avoided, because when the
aforesaid bank was placed under receivership by the Central Bank, petitioners Guingona and
Martin assumed the obligation of the bank to private respondent David, thereby resulting in the
novation of the original contractual obligation arising from deposit into a contract of loan and
converting the original trust relation between the bank and private respondent David into an
ordinary debtor-creditor relation between the petitioners and private respondent. Consequently,
the failure of the bank or petitioners Guingona and Martin to pay the deposits of private
respondent would not constitute a breach of trust but would merely be a failure to pay the
obligation as a debtor.

[G.R. NO. 141835 : February 4, 2009]

CENTRAL BANK OF THE PHILIPPINES, Petitioner, v. CITYTRUST BANKING

CORPORATION, Respondent.
 DECISION

CARPIO MORALES, J.:

Pursuant to Republic Act No. 625, the old Central Bank Law, respondent Citytrust Banking
Corporation (Citytrust), formerly Feati Bank, maintained a demand deposit account with
petitioner Central Bank of the Philippines, now Bangko Sentral ng Pilipinas.

As required, Citytrust furnished petitioner with the names and corresponding signatures of five
of its officers authorized to sign checks and serve as drawers and indorsers for its account. And it
provided petitioner with the list and corresponding signatures of its roving tellers authorized to
withdraw, sign receipts and perform other transactions on its behalf. Petitioner later issued
security identification cards to the roving tellers one of whom was "Rounceval Flores" (Flores).

On July 15, 1977, Flores presented for payment to petitioner's Senior Teller Iluminada dela Cruz
(Iluminada) two Citytrust checks of even date, payable to Citytrust, one in the amount
of P850,000 and the other in the amount of P900,000, both of which were signed and indorsed by
Citytrust's authorized signatory-drawers.

After the checks were certified by petitioner's Accounting Department, Iluminada verified them,
prepared the cash transfer slip on which she affixed her signature, stamped the checks with the
notation "Received Payment" and asked Flores to, as he did, sign on the space above such
notation. Instead of signing his name, however, Flores signed as "Rosauro C. Cayabyab" - a fact
Iluminada failed to notice.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Iluminada thereupon sent the cash transfer slip and checks to petitioner's Cash Department where
an officer verified and compared the drawers' signatures on the checks against their specimen
signatures provided by Citytrust, and finding the same in order, approved the cash transfer slip
and paid the corresponding amounts to Flores. Petitioner then debited the amount of the checks
totaling P1,750,000 from Citytrust's demand deposit account.

More than a year and nine months later, Citytrust, by letter dated April 23, 1979, alleging that the
checks were already cancelled because they were stolen, demanded petitioner to restore the
amounts covered thereby to its demand deposit account. Petitioner did not heed the demand,
however.

Citytrust later filed a complaint for estafa, with reservation on the filing of a separate civil action,
against Flores. Flores was convicted.

Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint for
recovery of sum of money with damages against petitioner which it alleged erred in encashing
the checks and in charging the proceeds thereof to its account, despite the lack of authority of
"Rosauro C. Cayabyab."

By Decision1 of November 13, 1991, Branch 32 of the RTC of Manila found both Citytrust and
petitioner negligent and accordingly held them equally liable for the loss. CA affirmed.

ISSUE:

Hence, the present appeal, petitioner maintaining that Flores having been an authorized roving
teller, Citytrust is bound by his acts. Also maintaining that it was not negligent in releasing the
proceeds of the checks to Flores, the failure of its teller to properly verify his signature
notwithstanding, petitioner contends that verification could be dispensed with, Flores having
been known to be an authorized roving teller of Citytrust who had had numerous transactions
with it (petitioner) on its (Citytrust's) behalf for five years prior to the questioned transaction.
Attributing negligence solely to Citytrust, petitioner harps on Citytrust's allowing Flores to steal
the checks and failing to timely cancel them; allowing Flores to wear the issued identification
card issued by it (petitioner); failing to report Flores' absence from work on the day of the
incident; and failing to explain the circumstances surrounding the supposed theft and
cancellation of the checks.

Drawing attention to Citytrust's considerable delay in demanding the restoration of the proceeds
of the checks, petitioners argue that, assuming arguendo that its teller was negligent, Citytrust's
negligence, which preceded that committed by the teller, was the proximate cause of the loss or
fraud.

HELD:

Petition is denied.

Petitioner's teller Iluminada did not verify Flores' signature on the flimsy excuse that Flores had
had previous transactions with it for a number of years. That circumstance did not excuse the
teller from focusing attention to or at least glancing at Flores as he was signing, and to satisfy
herself that the signature he had just affixed matched that of his specimen signature. Had she
done that, she would have readily been put on notice that Flores was affixing, not his but a
fictitious signature.

Given that petitioner is the government body mandated to supervise and regulate banking and
other financial institutions, this Court's ruling in Consolidated Bank and Trust Corporation v.
Court of Appeals5 illumines:

The contract between the bank and its depositor is governed by the provisions of the Civil Code
on simple loan. Article 1980 of the Civil Code expressly provides that "x x x savings x x x
deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan." There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank
money and the bank agrees to pay the depositor on demand. The savings deposit agreement
between the bank and the depositor is the contract that determines the rights and obligations of
the parties.

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of
Republic Act No. 8791 ("RA 8791"), which took effect on 13 June 2000, declares that the State
recognizes the "fiduciary nature of banking that requires high standards of integrity and
performance."

Citytrust's failure to timely examine its account, cancel the checks and notify petitioner of their
alleged loss/theft should mitigate petitioner's liability, in accordance with Article 2179 of the
Civil Code which provides that if the plaintiff's negligence was only contributory, the immediate
and proximate cause of the injury being the defendant's lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the damages to be awarded. For had Citytrust
timely discovered the loss/theft and/or subsequent encashment, their proceeds or part thereof
could have been recovered.

In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the loss
between petitioner and Citytrust on a 60-40 ratio.

ALLIED BANKING CORPORATION, Petitioner, v. LIM SIO WAN, METROPOLITAN

BANK AND TRUST CO., and PRODUCERS BANK, Respondents.

DECISION

VELASCO, JR., J.:
To ingratiate themselves to their valued depositors, some banks at times bend over backwards
that they unwittingly expose themselves to great risks.

The Facts

On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking
Corporation (Allied) at its Quintin Paredes Branch in Manila a money market placement of PhP
1,152,597.35 for a term of 31 days to mature on December 15, 1983,3 as evidenced by
Provisional Receipt No. 1356 dated November 14, 1983.4

On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of
Allied, and instructed the latter to pre-terminate Lim Sio Wan's money market placement, to
issue a manager's check representing the proceeds of the placement, and to give the check to one
Deborah Dee Santos who would pick up the check.5 Lim Sio Wan described the appearance of
Santos so that So could easily identify her.6

Later, Santos arrived at the bank and signed the application form for a manager's check to be
issued.7The bank issued Manager's Check No. 035669 for PhP 1,158,648.49, representing the
proceeds of Lim Sio Wan's money market placement in the name of Lim Sio Wan, as
payee.8 The check was cross-checked "For Payee's Account Only" and given to Santos.9

Thereafter, the manager's check was deposited in the account of Filipinas Cement Corporation
(FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank),10 with the forged signature
of Lim Sio Wan as indorser.11

Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million
with respondent Producers Bank. Santos was the money market trader assigned to handle FCC's
account.12Such deposit is evidenced by Official Receipt No. 31756813 and a Letter dated
September 21, 1983 of Santos addressed to Angie Lazo of FCC, acknowledging receipt of the
placement.14 The placement matured on October 25, 1983 and was rolled-over until December 5,
1983 as evidenced by a Letter dated October 25, 1983.15 When the placement matured, FCC
demanded the payment of the proceeds of the placement.16 On December 5, 1983, the same date
that So received the phone call instructing her to pre-terminate Lim Sio Wan's placement, the
manager's check in the name of Lim Sio Wan was deposited in the account of FCC, purportedly
representing the proceeds of FCC's money market placement with Producers Bank.17 In other
words, the Allied check was deposited with Metrobank in the account of FCC as Producers
Bank's payment of its obligation to FCC.

To clear the check and in compliance with the requirements of the Philippine Clearing House
Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on the check, which
reads: "All prior endorsements and/or lack of endorsement guaranteed."18

The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied
funded the check even without checking the authenticity of Lim Sio Wan's purported
indorsement. Thus, the amount on the face of the check was credited to the account of FCC.19

On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to
mature on January 9, 1984.20

On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio
Wan went to Allied to withdraw it.21 She was then informed that the placement had been pre-
terminated upon her instructions. She denied giving any instructions and receiving the proceeds
thereof. She desisted from further complaints when she was assured by the bank's manager that
her money would be recovered.22

When Lim Sio Wan's second placement matured on January 9, 1984, So called Lim Sio Wan to
ask for the latter's instructions on the second placement. Lim Sio Wan instructed So to roll-over
the placement for another 30 days.23 On January 24, 1984, Lim Sio Wan, realizing that the
promise that her money would be recovered would not materialize, sent a demand letter to Allied
asking for the payment of the first placement.24 Allied refused to pay Lim Sio Wan, claiming that
the latter had authorized the pre-termination of the placement and its subsequent release to
Santos.25

Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13, 198426 docketed
as Civil Case No. 6757 against Allied to recover the proceeds of her first money market
placement. Sometime in February 1984, she withdrew her second placement from Allied.

Allied filed a third party complaint27 against Metrobank and Santos. In turn, Metrobank filed a
fourth party complaint28 against FCC. FCC for its part filed a fifth party complaint29 against
Producers Bank.

On May 15, 1984, or more than six (6) months after funding the check, Allied informed
Metrobank that the signature on the check was forged.31 Thus, Metrobank withheld the amount
represented by the check from FCC. Later on, Metrobank agreed to release the amount to FCC
after the latter executed an Undertaking, promising to indemnify Metrobank in case it was made
to reimburse the amount.32

Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-defendant,
along with Allied.33 

The Issues

Allied raises the following issues for our consideration:

The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied] to
pre-terminate the initial placement and to deliver the check to Deborah Santos.

The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the
reimbursement of amount adjudged demandable.

The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of amount
adjudged demandable in clear disregard to the ultimate liability of Metrobank as guarantor of all
endorsement on the check, it being the collecting bank.38

The petition is partly meritorious.

The Liability of the Parties

As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and
familiar is the doctrine that the relationship between a bank and a client is one of debtor-creditor.

Articles 1953 and 1980 of the Civil Code provide:

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality.

Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning simple loan.

Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or
mutuum.42More succinctly, in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano,
this Court ruled that a money market placement is a simple loan or mutuum.43 Further, we
defined a money market in Cebu International Finance Corporation v. Court of Appeals, as
follows:

[A] money market is a market dealing in standardized short-term credit instruments (involving

large amounts) where lenders and borrowers do not deal directly with each other but through a
middle man or dealer in open market. In a money market transaction, the investor is a lender who
loans his money to a borrower through a middleman or dealer.

In the case at bar, the money market transaction between the petitioner and the private
respondent is in the nature of a loan.44

Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment
upon her request, or upon maturity of the placement, or until the bank is released from its
obligation as debtor. Until any such event, the obligation of Allied to Lim Sio Wan remains
unextinguished.

Art. 1231 of the Civil Code enumerates the instances when obligations are considered
extinguished, thus:

Art. 1231. Obligations are extinguished:

(1) By payment or performance;

(2) By the loss of the thing due;

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a

resolutory condition, and prescription, are governed elsewhere in this Code. (Emphasis
supplied.)

From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize the
release of her money market placement to Santos and the bank had been negligent in so doing,
there is no question that the obligation of Allied to pay Lim Sio Wan had not been extinguished.
Art. 1240 of the Code states that "payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person authorized to receive
it." As commented by Arturo Tolentino:

Payment made by the debtor to a wrong party does not extinguish the obligation as to the
creditor, if there is no fault or negligence which can be imputed to the latter. Even when the
debtor acted in utmost good faith and by mistake as to the person of his creditor, or through error
induced by the fraud of a third person, the payment to one who is not in fact his creditor, or
authorized to receive such payment, is void, except as provided in Article 1241. Such payment
does not prejudice the creditor, and accrual of interest is not suspended by it.45 (Emphasis
supplied.)

Since there was no effective payment of Lim Sio Wan's money market placement, the bank still
has an obligation to pay her at six percent (6%) interest from March 16, 1984 until the payment
thereof.
 FAR EAST BANK AND TRUST COMPANY, Petitioner, vs. ESTRELLA O.
QUERIMIT, respondent.

The facts are as follows:

Respondent Estrella O. Querimit worked as internal auditor of the Philippine Savings Bank
(PSB) for 19 years, from 1963 to 1992.3 On November 24, 1986, she opened a dollar savings
account in petitioners Harrison Plaza branch,4 for which she was issued four (4) Certificates of
Deposit (Nos. 79028, 79029, 79030, and 79031), each certificate representing the amount of
$15,000.00, or a total amount of $60,000.00. The certificates were to mature in 60 days,
on January 23, 1987, and were payable to bearer at 4.5% interest per annum. The certificates
bore the word accrued, which meant that if they were not presented for encashment or pre-
terminated prior to maturity, the money deposited with accrued interest would be rolled over by
the bank and annual interest would accumulate automatically.5 The petitioner banks manager
assured respondent that her deposit would be renewed and earn interest upon maturity even
without the surrender of the certificates if these were not indorsed and withdrawn.6 Respondent
kept her dollars in the bank so that they would earn interest and so that she could use the fund
after she retired.7cräläwvirtualibräry

In 1989, respondent accompanied her husband Dominador Querimit to the United States for
medical treatment. She used her savings in the Bank of the Philippine Islands (BPI) to pay for the
trip and for her husbands medical expenses.8 In January 1993, her husband died and Estrella
returned to the Philippines. She went to petitioner FEBTC to withdraw her deposit but, to her
dismay, she was told that her husband had withdrawn the money in deposit.9 Through counsel,
respondent sent a demand letter to petitioner FEBTC. In another letter, respondent reiterated her
request for updating and payment of the certificates of deposit, including interest earned.10 As
petitioner FEBTC refused respondents demands, the latter filed a complaint, joining in the action
Edgardo F. Blanco, Branch Manager of FEBTC Harrison Plaza Branch, and Octavio Espiritu,
FEBTC President.11cräläwvirtualibräry

Petitioner FEBTC alleged that it had given respondents late husband Dominador an
accommodation to allow him to withdraw Estrellas deposit.12 Petitioner presented certified true
copies of documents showing that payment had been made.

On May 6, 2000, the trial court rendered judgment for respondent. CA affirmed.

Hence this appeal.

ISSUE:

WON liable

HELD:

After reviewing the records, we find the petition to be without merit.

First. Petitioner bank failed to prove that it had already paid Estrella Querimit, the bearer and
lawful holder of the subject certificates of deposit. The finding of the trial court on this point, as
affirmed by the Court of Appeals, is that petitioner did not pay either respondent Estrella or her
husband the amounts evidenced by the subject certificates of deposit. This Court is not a trier of
facts and generally does not weigh anew the evidence already passed upon by the Court of
Appeals.23 The finding of respondent court which shows that the subject certificates of deposit
are still in the possession of Estrella Querimit and have not been indorsed or delivered to
petitioner FEBTC is substantiated by the record and should therefore stand.24cräläwvirtualibräry

A certificate of deposit is defined as a written acknowledgment by a bank or banker of the

receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor,
to the order of the depositor, or to some other person or his order, whereby the relation of debtor
and creditor between the bank and the depositor is created. The principles governing other types
of bank deposits are applicable to certificates of deposit,25 as are the rules governing promissory
notes when they contain an unconditional promise to pay a sum certain of money
absolutely.26 The principle that payment, in order to discharge a debt, must be made to someone
authorized to receive it is applicable to the payment of certificates of deposit. Thus, a bank will
be protected in making payment to the holder of a certificate indorsed by the payee, unless it has
notice of the invalidity of the indorsement or the holders want of title.27 A bank acts at its peril
when it pays deposits evidenced by a certificate of deposit, without its production and surrender
after proper indorsement.28As a rule, one who pleads payment has the burden of proving it. Even
where the plaintiff must allege non-payment, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove payment. The debtor has the
burden of showing with legal certainty that the obligation has been discharged by
payment.29cräläwvirtualibräry

In this case, the certificates of deposit were clearly marked payable to bearer, which means, to
[t]he person in possession of an instrument, document of title or security payable to bearer or
indorsed in blank.30Petitioner should not have paid respondents husband or any third party
without requiring the surrender of the certificates of deposit.

Petitioner claims that it did not demand the surrender of the subject certificates of deposit since
respondents husband, Dominador Querimit, was one of the banks senior managers. But even
long after respondents husband had allegedly been paid respondents deposit and before his
retirement from service, the FEBTC never required him to deliver the certificates of deposit in
question.31 Moreover, the accommodation given to respondents husband was made in violation
of the banks policies and procedures.32cräläwvirtualibräry

Petitioner FEBTC thus failed to exercise that degree of diligence required by the nature of its
business.33 Because the business of banks is impressed with public interest, the degree of
diligence required of banks is more than that of a good father of the family or of an ordinary
business firm. The fiduciary nature of their relationship with their depositors requires them to
treat the accounts of their clients with the highest degree of care.34 A bank is under obligation to
treat the accounts of its depositors with meticulous care whether such accounts consist only of a
few hundred pesos or of millions of pesos. Responsibility arising from negligence in the
performance of every kind of obligation is demandable.35 Petitioner failed to prove payment of
the subject certificates of deposit issued to the respondent and, therefore, remains liable for the
value of the dollar deposits indicated thereon with accrued interest.

G.R. No. 173134, September 02, 2015

BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. TARCILA

FERNANDEZ, Respondent.; DALMIRO SIAN, THIRD PARTY, Respondent.

The Factual Antecedents

The present case arose from respondent Tarcila "Baby" Fernandez's (Tarcila) claim to her
proportionate share in the proceeds of four joint AND/OR accounts that the petitioner BPI
released to her estranged husband Manuel G. Fernandez (Manuel) without the presentation of the
requisite certificates of deposit. The facts leading to this dispute are outlined below.

In 1991, Tarcila together with her husband, Manuel and their children Monique Fernandez and
Marco Fernandez, opened several AND/OR deposit accounts with the petitioner BPI, Shaw
Blvd. Branch:chanRoblesvirtualLawlibrary

The deposits were subject to the following conditions:

"x x x
 2. Pre-termination of deposits prior to maturity shall be subject to discretion of [BPI]
and if pre-termination is allowed, it is subject to an interest penalty to be
determined on the date of pre-termination;ChanRoblesVirtualawlibrary

3. Endorsement and presentation of the Certificate of Deposit is necessary for

the renewal or termination of the deposit"

On September 24, 1991, Tarcila went to the BPI Shaw Blvd. Branch to pre-terminate these joint
AND/OR accounts. She brought with her the certificates of time deposit and the passbook, and
presented them to the bank. BPI, however, refused the requested pre-termination despite Tarcila's
presentation of the covering certificates. Instead, BPI, through its branch manager, Mrs. Elma
San Pedro Capistrano (Capistrano), insisted on contacting Manuel, alleging in this regard
that this is an integral part of its standard operating procedure.6

Shortly after Tarcila left the branch, Manuel arrived and likewise requested the pre-termination
of the joint AND/OR accounts.7 Manuel claimed that he had lost the same certificates of deposit
that Tarcila had earlier brought with her.8 BPI, through Capistrano, this time acceded to the pre-
termination requests, blindly believed Manuel's claim,9 and requested him to accomplish BPI's
pro-forma affidavit of loss.10

Two days after, Manuel returned to BPI, Shaw Blvd. Branch to pre-terminate the joint AND/OR
accounts. He was accompanied by Atty. Hector Rodriguez, the respondent Dalmiro Sian (Sian),
and two (2) alleged National Bureau of Investigation (NBI) agents.

In place of the actual certificates of deposit, Manuel submitted BPI's pro-forma affidavit of loss
that he previously accomplished and an Indemnity Agreement that he and Sian executed on the
same day. The Indemnity Agreement discharged BPI from any liability in connection with the
pre-termination.11Notably, none of the co-depositors were contacted in carrying out these
transactions.

On the same day, the proceeds released to Manuel were funneled to Sian's newly opened account
with BPI. Immediately thereafter, Capistrano requested Sian to sign blank withdrawal
slips, which Manuel used to withdraw the funds from Sian's newly opened account. 12Sian's
account, after its use, was closed on the same day.13

A few days after these transactions, Tarcila filed a petition for "Declaration of Nullity of
Marriage, etc." against Manuel, with the Regional Trial Court (RTC) of Pasig, docketed as JRDC
No. 2098.14 Based on the records, this civil case has been archived.15

Tarcila never received her proportionate share of the pre-terminated deposits,16 prompting her to
demand from BPI the amounts due her as a co-depositor in the joint AND/OR accounts. When
her demands remained unheeded, Tarcila initiated a complaint for damages with the Regional
Trial Court (RTQ of Makati City, Branch 59, docketed as Civil Case No. 95-671.

In her complaint, Tarcila alleged that BPI's payments to Manuel of the pre-terminated deposits
were invalid with respect to her share.17She argued that BPI was in bad faith for allowing the pre-
termination of the time deposits based on Manuel's affidavit of loss when the bank had actual
knowledge that the certificates of deposit were in her possession.18

RTC ruled in favor of her. CA affirmed.

THE COURT'S RULING

BPI breached its obligation under the certificates of deposit.

A certificate of deposit is defined as a written acknowledgment by a bank or banker of the

receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor,
to the order of the depositor, or to some other person or his order, whereby the relation of
debtor and creditor between the bank and the depositor is created.35 In particular,
the certificates of deposit contain provisions on the amount of interest, period of maturity, and
manner of termination. Specifically, they stressed that endorsement and presentation of the
certificate of deposit is indispensable to their termination. In other words, the accounts may
only be terminated upon endorsement and presentation of the certificates of
deposit. Without the requisite presentation of the certificates of deposit, BPI may not terminate
them.

BPI thus may only terminate the certificates of deposit after it has diligently completed two
steps. First, it must ensure the identity of the account holder. Second, BPI must demand the
surrender of the certificates of deposit.

This is the essence of the contract entered into by the parties which serves as an accountability
measure to other co-depositors. By requiring the presentation of the certificates prior to
termination, the other depositors may rely on the fact that their investments in the interest-
yielding accounts may not be indiscriminately withdrawn by any of their co-depositors.
This protective mechanism likewise benefits the bank, which shields it from liability upon
showing that it released the funds in good faith to an account holder who possesses the
certificates. Without the presentation of the certificates of deposit, BPI may not validly
terminate the certificates of deposit.

With these considerations in mind, we find that BPI substantially breached its obligations to the
prejudice of Tarcila. BPI allowed the termination of the accounts without demanding the
surrender of the certificates of deposits, in the ordinary course of business. Worse, BPI even
had actual knowledge that the certificates of deposit were in Tarcila's possession and yet it
chose to release the proceeds to Manuel on the basis of a falsified affidavit of loss, in gross
violation of the terms of the deposit agreements.

As we have stressed in the case of FEBTC v. Querimit:36

"x x x A bank acts at its peril when it pays deposits evidenced by a certificate of deposit,
without its production and surrender after proper indorsement. As a rule, one who pleads
payment has the burden of proving it. Even where the plaintiff must allege non-payment, the
general rule is that the burden rests on the defendant to prove payment, rather than on the
plaintiff to prove payment. The debtor has the burden of showing with legal certainty that
the obligation has been discharged by payment, x x x Petitioner should not have paid
respondent's husband or any third party without requiring the surrender of the certificates
of deposit."37

G.R. No. 179096               February 06, 2013

JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph Goyanko,

Sr., Petitioner, 
vs.
UNITED COCONUT PLANTERS BANK, MANGO AVENUE BRANCH, Respondent.

The Factual Antecedents

In 1995, the late Joseph Goyanko, Sr. (Goyanko) invested Two Million Pesos (P2,000,000.00)
with Philippine Asia Lending Investors, Inc. family, represented by the petitioner, and his
illegitimate family presented conflicting claims to PALII for the release of the investment.
Pending the investigation of the conflicting claims, PALII deposited the proceeds of the
investment with UCPB on October 29, 19965 under the name "Phil Asia: ITF (In Trust For) The
Heirs of Joseph Goyanko, Sr." (ACCOUNT). On September 27, 1997, the deposit under the
ACCOUNT was P1,509,318.76.

On December 11, 1997, UCPB allowed PALII to withdraw One Million Five Hundred Thousand
Pesos (P1,500,000.00) from the Account, leaving a balance of only P9,318.76. When UCPB
refused the demand to restore the amount withdrawn plus legal interest from December 11, 1997,
the petitioner filed a complaint before the RTC. In its answer to the complaint, UCPB admitted,
among others, the opening of the ACCOUNT under the name "ITF (In Trust For) The Heirs of
Joseph Goyanko, Sr.," (ITF HEIRS)  and the withdrawal on December 11, 1997.

The Petition

The petitioner argues in his petition that: first, an express trust was created, as clearly shown by
PALII’s March 28, 1996 and November 15, 1996 letters.9 Citing jurisprudence, the petitioner
emphasizes that from the established definition of a trust,10 PALII is clearly the trustor as it
created the trust; UCPB is the trustee as it is the party in whom confidence is reposed as regards
the property for the benefit of another; and the HEIRS are the beneficiaries as they are the
persons for whose benefit the trust is created.11 Also, quoting Development Bank of the
Philippines v. Commission on Audit,12 the petitioner argues that the naming of the cestui que
trust  is not necessary as it suffices that they are adequately certain or identifiable.13

Second, UCPB was negligent and in bad faith in allowing the withdrawal and in failing to inquire
into the nature of the ACCOUNT.14 The petitioner maintains that the surrounding facts, the
testimony of UCPB’s witness, and UCPB’s own records showed that: (1) UCPB was aware of
the trust relation between PALII and the HEIRS; and (2) PALII held the ACCOUNT in a trust
capacity. Finally, the CA erred in affirming the RTC’s dismissal of his case for lack of cause of
action. The petitioner insists that since an express trust clearly exists, UCPB, the trustee, should
not have allowed the withdrawal.

The Court’s Ruling

The issue before us is whether UCPB should be held liable for the amount withdrawn because a
trust agreement existed between PALII and UCPB, in favor of the HEIRS, when PALII opened
the ACCOUNT with UCPB.

We rule in the negative.

No express trust exists; UCPB exercised the required diligence in handling the ACCOUNT;
petitioner has no cause of action against UCPB

A trust, either express or implied,26 is the fiduciary relationship "x x x between one person
having an equitable ownership of property and another person owning the legal title to such
property, the equitable ownership of the former entitling him to the performance of certain duties
and the exercise of certain powers by the latter."27 Express or direct trusts are created by the
direct and positive acts of the trustor or of the parties.28 No written words are required to create
an express trust. This is clear from Article 1444 of the Civil Code,29 but, the creation of an
express trust must be firmly shown; it cannot be assumed from loose and vague declarations or
circumstances capable of other interpretations.30

In Rizal Surety & Insurance Co. v. CA,31 we laid down the requirements before an express trust
will be recognized:

Basically, these elements include a competent trustor and trustee, an ascertainable trust res,

and sufficiently certain beneficiaries. xxx each of the above elements is required to be
established, and, if any one of them is missing, it is fatal to the trusts (sic). Furthermore,
there must be a present and complete disposition of the trust property, notwithstanding
that the enjoyment in the beneficiary will take place in the future. It is essential, too, that the
purpose be an active one to prevent trust from being executed into a legal estate or interest, and
one that is not in contravention of some prohibition of statute or rule of public policy. There
must also be some power of administration other than a mere duty to perform a contract
although the contract is for a thirdparty beneficiary. A declaration of terms is essential,
and these must be stated with reasonable certainty in order that the trustee may
administer, and that the court, if called upon so to do, may enforce, the trust. [emphasis ours]

Under these standards, we hold that no express trust was created. First, while an ascertainable
trust res  and sufficiently certain beneficiaries may exist, a competent trustor and trustee do
not. Second, UCPB, as trustee of the ACCOUNT, was never under any equitable duty to deal
with or given any power of administration over it. On the contrary, it was PALII that undertook
the duty to hold the title to the ACCOUNT for the benefit of the HEIRS. Third, PALII, as the
trustor, did not have the right to the beneficial enjoyment of the ACCOUNT. Finally, the terms
by which UCPB is to administer the ACCOUNT was not shown with reasonable certainty. While
we agree with the petitioner that a trust’s beneficiaries need not be particularly identified for a
trust to exist, the intention to create an express trust must first be firmly established, along
with the other elements laid above; absent these, no express trust exists.

Contrary to the petitioner’s position, UCPB did not become a trustee by the mere opening of the
ACCOUNT.1âwphi1 While this may seem to be the case, by reason of the fiduciary nature of the
bank’s relationship with its depositors,37 this fiduciary relationship does not "convert the contract
between the bank and its depositors from a simple loan to a trust agreement, whether express or
implied."38 It simply means that the bank is obliged to observe "high standards of integrity and
performance" in complying with its obligations under the contract of simple loan.39 Per Article
1980 of the Civil Code,40 a creditor-debtor relationship exists between the bank and its
depositor.41 The savings deposit agreement is between the bank and the depositor;42 by receiving
the deposit, the bank impliedly agrees to pay upon demand and only upon the depositor’s order.43

FIRST DIVISION

G.R. No. 205705, August 05, 2015

DOMINADOR M. APIQUE, Petitioner, v. EVANGELINE APIQUE

FAHNENSTICH, Respondent.

The Facts

Dominador and Evangeline are siblings who used to live with their parents at Babak, Island
Garden City of Samal, Davao, until Evangeline left for Germany to work sometime in 1979.5 On
August 2, 1995, Evangeline executed General6 and Special Powers of Attorney7 constituting
Dominador as her attorney-in-fact to purchase real property for her, and to manage or supervise
her business affairs in the Philippines.8

As Evangeline was always in Germany, she opened a joint savings account on January 18, 1999
with Dominador at the Claveria Branch of the Philippine Commercial International Bank (PCI
Bank) in Davao City, which later became Equitable PCI Bank (EPCIB), and now Banco de Oro,
under Savings Account No. 1189-02819-5 (subject account).9

On February 11, 2002, Dominador withdrew the amount of P980,000.00 from the subject
account and, thereafter, deposited the money to his own savings account with the same bank,
under Savings Account No. 1189-00781-3. It was only on February 23, 2003 that Evangeline
learned of such withdrawal from the manager of EPCIB. Evangeline then had the passbook
updated, which reflected the said withdrawal. She likewise discovered that Dominador had
deposited the amount withdrawn to his own account with the same bank and that he had
withdrawn various amounts from the said account.10
Evangeline demanded the return of the amount withdrawn from the joint account, but to no avail.
Hence, she filed a complaint11 for sum of money, damages, and attorney's fees, with prayer for
preliminary mandatory and prohibitory injunction and temporary restraining order (TRO) against
Dominador before the RTC, docketed as Civil Case No. 29,122-02, impleading EPCIB as a party
defendant.

In her complaint,12 Evangeline claimed to be the sole owner of the money deposited in the
subject account, and that Dominador has no authority to withdraw the same. On the other hand,
she alleged that EPCIB violated its banking rules when it allowed the withdrawal without the
presentation of the passbook. She also prayed for a TRO to enjoin EPCIB from allowing any
withdrawal from the subject account, which was granted by the Executive Judge on May 7,
2002.13

In his answer,14 Dominador asserted, among others, that he was authorized to withdraw funds
from the subject account to answer for the expenses of Evangeline's projects, considering: (a)
that it was a joint account, and (b) the general and special powers of attorney executed by
Evangeline in his favor. By way of counterclaim, he sought payment of moral and exemplary
damages, attorney's fees, litigation expenses, and costs of suit. EPCIB, for its part, denied having
violated its own banking rules and regulations, contending that the account in question was an
"OR" account such that any of the account holders may transact without the signature of the
other. It also pointed out that "no passbook" transactions were allowed if the following could be
verified, namely: (a) technicalities of documents, (b) identity of payee, (c) authenticity of
signature/s, and (d) sufficiency of funds.15 In the course of the proceedings, Evangeline and
EPCIB filed a joint motion to drop the latter as party defendant, which the RTC granted in an
Order16 dated April 5, 2004.17

During the trial, Dominador claimed that the money withdrawn from the subject account
belonged to him, explaining that he had contributed an initial deposit of P100,000.0018 and that
Evangeline's common-law husband, Holgar Schwarzfeller (Holgar), had also deposited a total
amount of P900,000.0019 pursuant to the latter's verbal promise to compensate him for his
services as administrator/manager of the couple's business and properties in the amount of
P1,000,000.00,20 which his sister, Marietta Apique (Marietta), corroborated.21

The RTC Ruling

In a Decision22 dated January 25, 2006, the RTC ruled in favor of Dominador and dismissed the
complaint. It held that Dominador may validly withdraw money from the subject account even
without Evangeline's consent, considering that: (a) it was a joint "OR" account, and (b) the
reason for the withdrawal, i.e., as compensation for his services as administrator of the business
affairs of Evangeline. As such, it declared the February 11, 2002 withdrawal in the amount of
P980,000.00 to be a valid transaction. However, it dismissed Dominador's counterclaims for
failure to show that Evangeline acted with bad faith in filing the complaint.

Aggrieved, Evangeline filed an appeal before the CA.23

The CA Ruling

In a Decision24 dated July 31, 2012, the CA reversed and set aside the RTC's ruling and, instead,
ordered Dominador to return to Evangeline the amount of P980,000.00, plus interest at six
percent (6%) p.a. reckoned from the filing of the complaint up to the finality of the decision and,
thereafter, an additional twelve percent (12%) p.a. interest on the total amount demanded until its
full satisfaction.

The CA found that Evangeline was able to establish her case by preponderance of evidence.25 In
so ruling, it held that since the subject account is a joint "OR" account, and as such, Dominador
is not required to present any authorization from his co-depositor every time he transacts with the
bank, nonetheless, the nature of the said account did not give him unbridled license to withdraw
any amount any time he wants, noting that his authority to withdraw was still subject to
Evangeline's prior approval considering the purpose for which the account was opened.26 It
rejected Dominador's claim that the money in the subject account, or at least half of it, belonged
to Holgar, and that the amount withdrawn was part of the compensation promised by the latter,
for being bare, self-serving, and unsubstantiated allegations.27

Dominador moved for reconsideration28 but the same was denied in a Resolution29 dated January
17, 2013; hence, this petition.chanrobleslaw

The Issue Before the Court

The essential issue for the Court's resolution is whether or not Evangeline is entitled to the return
of the amount of P980,000.00 Dominador withdrew from their joint savings account with
EPCIB, plus legal interest thereon.chanrobleslaw

The Court's Ruling

The petition is partly meritorious.

At the outset, the Court notes that the arguments raised herein necessarily require a reevaluation
of the parties' submissions and the CA's factual findings, which is generally proscribed in a
petition for review on certiorari because: (a) a Rule 45 petition resolves only questions of law,
not questions of fact; and (b) factual findings of the CA are generally conclusive on the parties
and are, therefore, not reviewable by this Court. By way of exception, however, the Court
resolves factual issues when the findings of the RTC differ from those of the CA,30 as in this
case.

A joint account is one that is held jointly by two or more natural persons, or by two or more
juridical persons or entities.31 Under such setup, the depositors are joint owners or co-owners of
the said account,32 and their share in the deposits shall be presumed equal, unless the contrary is
proved, pursuant to Article 485 of the Civil Code, which provides:chanRoblesvirtualLawlibrary
Art. 485. The share of the co-owners, in the benefits as well as in the charges, shall be
proportional to their respective interests. Any stipulation in a contract to the contrary shall be
void.

The portions belonging to the co-owners in the co-ownership shall be presumed equal,
unless the contrary is proved. (Emphasis supplied)ChanRoblesVirtualawlibrary
The common banking practice is that regardless of who puts the money into the account, each of
the named account holder has an undivided right to the entire balance,33 and any of them may
deposit and/or withdraw, partially or wholly, the funds without the need or consent of the
other,34 during their lifetime.35 Nevertheless, as between the account holders, their right against
each other may depend on what they have agreed upon, and the purpose for which the account
was opened and how it will be operated.36

In this case, there is no dispute that the account opened by Evangeline and Dominador under
Savings Account No. 1189-02819-5 with EPCIB was a joint "OR" account. It is also admitted
that: (a) the account was opened for a specific purpose, i.e., to facilitate the transfer of needed
funds for Evangeline's business projects;37 and (b) Dominador may withdraw funds therefrom
"if"38 there is a need to meet Evangeline's financial obligations arising from said
projects.39 Hence, while Dominador is a co-owner of the subject account as far as the bank is
concerned — and may, thus, validly deposit and/or withdraw funds without the consent of his
co-depositor, Evangeline — as between him and Evangeline, his authority to withdraw, as well
as the amount to be withdrawn, is circumscribed by the purpose for which the subject
account was opened.

Under the foregoing circumstances, Dominador's right to obtain funds from the subject account
was, thus, conditioned on the necessity of funds for Evangeline's projects. Admittedly, at the
time he withdrew the amount of P980,000.00 from the subject account, there was no project
being undertaken for Evangeline.40 Moreover, his claim that the said amount belonged to him, as
part of the compensation promised by Holgar for his services as administrator of the business
affairs of Evangeline, was correctly rejected by the CA,41 considering the dearth of competent
evidence showing that Holgar: (a) undertook to pay Dominador the amount of P1,000,000.00 for
his services as administrator of Evangeline's various projects; and (b) remitted such amount to
the subject account for the benefit of Dominador. Having failed to justify his right over the
amount withdrawn, Dominador is liable for its return, as correctly adjudged by the CA.

In civil cases, the party having the burden of proof must establish his case by a preponderance of
evidence, or evidence which is more convincing to the court as worthy of belief than that which
is offered in opposition thereto. Thus, the party who asserts the affirmative of an issue has the
onus to prove his assertion in order to obtain a favorable judgment. For the plaintiff, the burden
to prove its positive assertions never parts. For the defendant, an affirmative defense is one
which is not a denial of an essential ingredient in the plaintiffs cause of action, but one which, if
established, will be a Rood defense, i.e. an avoidance of the claim.42 Dominador miserably
failed in this respect.

Corollarily, the Court cannot subscribe to Dominador's claim for payment of compensation as
administrator of the business affairs of Evangeline based on the principle of quantum
meruit,43 which was not raised as an affirmative defense or counterclaim in his answer to the
complaint. Settled is the rule that defenses which are not raised in the answer are deemed
waived,44 and counterclaims not set up in the answer shall be barred.45

Nonetheless, the Court deems it proper to modify the amount to be returned to Evangeline,
considering: (a) the unrefuted claim that Dominador contributed the amount of P100,000.00 to
the joint account at the time it was opened; and (b) the absence of controverting proof showing
that the same had been withdrawn prior to February 11, 2002, when the contested withdrawal
was made. Consequently, Dominador is entitled to the said amount which should be, therefore,
deducted from amount to be returned.

Finally, the Court finds a need to partially modify the interest accruing from the finality of the
Decision, which should be imposed at the lower rate of 6% p.a., and not 12% p.a. as imposed by
the CA, in line with the amendment introduced by the Bangko Sentral ng Pilipinas Monetary
Board in BSP-MB Circular No. 799,46 series of 2013, and the ruling in Nacar v. Gallery
Frames.47

WHEREFORE, the petition is DENIED. The Decision dated July 31, 2012 and the Resolution
dated January 17, 2013 of the Court of Appeals, Cagayan de Oro City in CA-G.R. CV No.
00740-MIN are hereby AFFIRMED with MODIFICATION directing petitioner Dominador
M. Apique to return to respondent Evangeline Apique Fahnenstich the amount of P880,000.00,
plus legal interest at six percent (6%) per annum, reckoned from the filing of the complaint on
May 7, 2002, until full payment.

SO ORDERED.chanroblesvirtuallawlibrary

G.R. No. 230404, January 31, 2018

IN THE MATTER OF THE INTESTATE ESTATE OF REYNALDO GUZMAN

RODRIGUEZ; ANITA ONG TAN, Petitioner, v. ROLANDO C. RODRIGUEZ,
RACQUEL R. GEGAJO*, ROSALINDA R. LANDON, REYNALDO C. RODRIGUEZ,
JR., ESTER R. FULGENCIO, RAFAEL C. RODRIGUEZ AND REYNEST C.
RODRIGUEZ, Respondents.

DECISION
 TIJAM, J.:

Before Us is a Petition for Review on Certiorari,1 assailing the Decision2 dated June 13, 2016
and Resolution3 dated March 3, 2017 of the Court of Appeals (CA) in CA-G.R. CV No. 105665
filed by petitioner Anita Ong Tan (Anita).

The Facts of the Case

Respondents Rolando Rodriguez, Racquel Gegajo, Rosalinda Landon, Reynaldo Rodriguez, Jr.,
Ester Fulgencio, Rafael Rodriguez and Reynest Rodriguez are children of Reynaldo Rodriguez
(Reynaldo) and Ester Rodriguez (Ester), who died on August 27, 2008 and September 11, 2004
respectively.4

Reynaldo and Ester left several properties to their surviving children. On February 13, 2009,
respondents executed an Extrajudicial Settlement of the Estate of the late Reynaldo and Ester.5

On the other hand, Anita is a co-depositor in a Joint Account under the name Anita Ong Tan and
Reynaldo with account number 003149-0718-56 in the Bank of the Philippine Islands (BPI).
When Reynaldo passed away, said joint account continued to be in active status.6

On August 31, 2009, BPI sent a letter to Anita and informed her that her joint account with
Reynaldo would become dormant if no transaction will be made. As such, Anita decided to
withdraw her funds. BPI, however, required her to submit additional requirements, one of which
is the extrajudicial settlement of the heirs of Reynaldo.7 To comply with the same, Anita
approached respondents and asked them to sign a waiver of rights to the said joint account.
Respondents refused to sign the waiver as they believed that the funds in the said joint account
belonged to their father.8

Respondents then submitted documents to BPI for the release of half of the funds deposited in
said joint account.9

BPI withheld the release of the funds because of the conflicting claims between Anita and
respondents.10

In 2011, Anita filed before the trial court a petition for the: (a) settlement of the Intestate Estate
of the late Reynaldo; and (b) issuance of letters of administration to any competent neutral
willing person, other than any of the heirs of Reynaldo.

Anita alleged that the funds used to open the BPI joint account were her exclusive funds, which
came from her East West Bank (East West) account. To prove her claim, she presented as
evidence a Debit Memo from East West Bank, which was used for the issuance of a Manager's
Check in the amount of One Million Twenty-One Thousand Eight Hundred Sixty Eight and
30/100 Pesos (P 1,021,868.30), which exact amount was deposited to the BPI joint
account.11 Anita presented the testimony of Mineleo Serrano, Branch Manager of East West in
Tomas Morato, to corroborate her testimony that the subject amount came from her East West
account.12

Respondents filed a Motion to Dismiss, arguing that the funds deposited in the BPI joint account
belonged exclusively to Reynaldo.

In 2014, Rolando Rodriguez was appointed and took his oath as an administrator of the subject
estate.

In an Order13 dated March 13, 2015, the Regional Trial Court (RTC) ruled in favor of Anita. The
RTC held that Anita sufficiently adduced evidence to rebut the presumption that the funds
deposited under the BPI joint account of Anita and Reynaldo were owned by them in common.
The fallo reads:
WHEREFORE, petitioner's claim against the estate of deceased Reynaldo G. Rodriguez is
hereby GRANTED. Accordingly, Rolando Rodriguez, in his capacity as the appointed
Administrator of the intestate estate of Reynaldo G. Rodriguez, is hereby directed to withdraw,
together with the petitioner, the funds under Joint Account No. 003149-0718-56 deposited with
the Bank of the Philippine Islands, Kamuning Branch, Quezon City and the entire proceeds
thereof be given to petitioner.

SO ORDERED.14

Respondents filed a motion for reconsideration, but it was denied in an Order dated May 25,
2015.

Undaunted, respondents filed an appeal before the CA.

In a Decision15 dated June 13, 2016, the CA reversed the ruling of the RTC. In giving credence to
respondents' contention, the CA maintained that the presumption of co-ownership as regards the
nature of joint accounts was not sufficiently overturned, as Anita failed to prove that she is
indeed the sole owner of the funds therein. The CA disposed thus:

WHEREFORE, the instant appeal is hereby PARTIALLY GRANTED. The

assailed Order dated March 13, 2015 and Order dated May 25, 2015 of the Region[al] Trial
Court [,] Branch 74, Ma1abon City is hereby MODIFIED.

The bank deposit under the Joint Account number 003149-0718-56 is to be divided in equal
shares between Petitioner-appellee on one hand and the Respondents-appellants on the other on a
50-50 proposition.

SO ORDERED.16

Anita filed a motion for reconsideration, which was denied in a Resolution17 dated March 3,
2017, thus:

WHEREFORE, petitioner-appellee's Motion for Reconsideration is hereby DENIED for lack of

merit.

SO ORDERED.18

The Issue

In sum, the sole issue in this case is whether or not the CA erred in declaring Anita and Reynaldo
as co-owners of the subject bank deposits despite the evidence submitted by Anita to prove
otherwise.

The Ruling of the Court

A joint account is one that is held jointly by two or more natural persons, or by two or more
juridical persons or entities. Under such setup, the depositors are joint owners or co-owners of
the said account, and their share in the deposits shall be presumed equal, unless the contrary is
proved.19 The nature of joint accounts is governed by the rule on co-ownership embodied in
Article 485 of the Civil Code, to wit:

Art. 485. The share of the co-owners, in the benefits as well as in the charges, shall be
proportional to their respective interests. Any stipulation in a contract to the contrary shall be
void.

The portions belonging to the co-owners in the co-ownership shall be presumed equal, unless the
contrary is proved.
While the rule is that the shares of the owners of the joint account holders are equal, the same
may be overturned by evidence to the contrary. Hence, the mere fact that an account is joint is
not conclusive of the fact that the owners thereof have equal claims over the funds in question.

In line with this, it is also indispensable to consider whether or not there exists a survivorship
agreement between the co-depositors. In said agreement, the co-depositors agree that upon the
death of either of them, the share pertaining to the deceased shall accrue to the surviving co-
depositor or he can withdraw the entire deposit.20

It must be noted that there exists no survivorship agreement between Anita and Reynaldo.
Hence, it is but rightful to determine their respective shares based on evidence presented during
trial.

On this note, the Court agrees with the findings of the lower court that Anita sufficiently proved
that she owns the funds in the BPI joint account exclusively.

It can be gleaned from the records that the money in the BPI joint account amounts to One
Million Twenty-One Thousand Eight Hundred Sixty-Eight Pesos and Thirty Centavos
(P1,021,868.30), and it is undisputed that said amount came from Anita's personal account with
East West. In East West, Anita opened a Trust Placement in August 2007 with the amount of
Two Million Fourteen Thousand Twenty-Four Pesos and Twenty-Five Centavos
(P2,014,024.25). Based on East West's records, as testified to by its Branch Manager, two
withdrawals were subsequently made: first, in the amount of One Million Twenty-One Thousand
Eight Hundred Sixty-Eight Pesos and 30 Centavos (P1,021,868.30); and second, in the amount
of One Million Three Thousand One Hundred Eleven Pesos and Eleven Centavos
(P1,003,111.11). In all such withdrawals, manager's checks were issued.

The exact amount which was first withdrawn from the East West account, i.e., One Million
Twenty-One Thousand Eight Hundred Sixty-Eight Pesos and Thirty Centavos (P1,021,868.30),
was the exact amount used to open the BPI joint account. Notable is the fact that these
transactions occurred within the same day on November 14, 2007.21 It is also significant to
consider that no further transaction in said joint account was made after the same was opened
until the death of Reynaldo.

With all these, it is apparent that Anita owned the funds exclusively as she sufficiently
overturned the presumption under the law. It bears stressing that despite the evidence shown by
Anita, respondents failed to refute her evidence, other than their bare allegations that Anita and
Reynaldo had an amorous relationship and that Anita had no source of income to sustain the
funds in a bank.22

The Court also takes note of the fact that respondents admitted that they knew the existence of
the joint account, yet they still failed to include the same in the list of included properties in the
inventory when they executed an extrajudicial settlement. Their failure to include said joint
account in the list of the items owned by Reynaldo for the purposes of determining his estate
obviously refutes their claim that Reynaldo was the sole owner of the funds in said joint account.

Taken together, the Court finds the ruling of the trial court that Anita is the sole owner of the
funds in question proper.

Lastly, noteworthy is the fact that even if the probing arms of an intestate court is limited, it is
equally important to consider the call of the exercise of its power of adjudication especially so
when the case calls for the same, to wit:

While it may be true that the Regional Trial Court, acting in a restricted capacity and exercising
limited jurisdiction as a probate court, is competent to issue orders involving inclusion or
exclusion of certain properties in the inventory of the estate of the decedent, and to adjudge,
albeit, provisionally the question of title over properties, it is no less true that such authority
conferred upon by law and reinforced by jurisprudence, should be exercised judiciously,
with due regard and caution to the peculiar circumstances of each individual case.23

The facts obtaining in this case call for the determination of the ownership of the funds contained
in the BPI joint account; for the intestate estate of Reynaldo has already been extrajudicially
settled by his heirs. The trial court, in this case, exercised sound judiciousness when it ruled out
the inclusion of the BPI joint account in the estate of the decedent.

Equally important is the rule that the determination of whether or not a particular matter should
be resolved by the Court of First Instance in the exercise of its general jurisdiction or of its
limited jurisdiction as a special court (probate, land registration, etc.) is in reality not a
jurisdictional question. It is in essence a procedural question involving a mode of practice "which
may be waived."24

Such waiver introduces the exception to the general rule that while the probate court exercises
limited jurisdiction, it may settle questions relating to ownership when the claimant and all other
parties having legal interest in the property consent, expressly or impliedly, to the submission of
the question to the probate court for adjudgment.25

Such waiver was evident from the fact that the respondents sought for affirmative relief before
the court a quo as they claimed ownership over the funds in the joint account of their father to
the exclusion of his co-depositor.

In this case, the Court notes that the parties submitted to the jurisdiction of the intestate court in
settling the issue of the ownership of the joint account. While respondents filed a Motion to
Dismiss, which hypothetically admitted all the allegations in Anita's petition, the same likewise
sought affirmative relief from the intestate court. Said affirmative relief is embodied in
respondents' claim of ownership over the funds in said joint account to the exclusion of Anita,
when in fact said funds in the joint account was neither mentioned nor included in the inventory
of the intestate estate of the late Reynaldo. Therefore, respondents impliedly agreed to submit the
issue of ownership before the trial court, acting as an intestate court, when they raised an
affirmative relief before it. To reiterate, the exercise of the trial court of its limited jurisdiction is
not jurisdictional, but procedural; hence, waivable.

WHEREFORE, premises considered, the Petition is GRANTED. The Decision dated June 13,
2016 and Resolution dated March 3, 2017 of the Court of Appeals in CA-G.R. CV No. 105665
are REVERSED and SET ASIDE. Accordingly, the Order dated March 13, 2015 of the
Regional Trial Court of Malabon City, Branch 74 is REINSTATED.

SO ORDERED.

G.R. No. 82027 March 29, 1990

ROMARICO G. VITUG, petitioner, 
vs.
THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-
CORONA, respondents.

Rufino B. Javier Law Office for petitioner.

Quisumbing, Torres & Evangelista for private respondent.

SARMIENTO, J.:
This case is a chapter in an earlier suit decided by this Court 1 involving the probate of the two
wills of the late Dolores Luchangco Vitug, who died in New York, U. S.A., on November 10,
1980, naming private respondent Rowena Faustino-Corona executrix. In our said decision, we
upheld the appointment of Nenita Alonte as co-special administrator of Mrs. Vitug's estate with
her (Mrs. Vitug's) widower, petitioner Romarico G. Vitug, pending probate.

On January 13, 1985, Romarico G. Vitug filed a motion asking for authority from the probate
court to sell certain shares of stock and real properties belonging to the estate to cover allegedly
his advances to the estate in the sum of P667,731.66, plus interests, which he claimed were
personal funds. As found by the Court of Appeals, 2 the alleged advances consisted of
P58,147.40 spent for the payment of estate tax, P518,834.27 as deficiency estate tax, and
P90,749.99 as "increment thereto." 3 According to Mr. Vitug, he withdrew the sums of
P518,834.27 and P90,749.99 from savings account No. 35342-038 of the Bank of America,
Makati, Metro Manila.

On April 12, 1985, Rowena Corona opposed the motion to sell on the ground that the same funds
withdrawn from savings account No. 35342-038 were conjugal partnership properties and part of
the estate, and hence, there was allegedly no ground for reimbursement. She also sought his
ouster for failure to include the sums in question for inventory and for "concealment of funds
belonging to the estate." 4

Vitug insists that the said funds are his exclusive property having acquired the same through a
survivorship agreement executed with his late wife and the bank on June 19, 1970. The
agreement provides:

We hereby agree with each other and with the BANK OF AMERICAN
NATIONAL TRUST AND SAVINGS ASSOCIATION (hereinafter referred to as
the BANK), that all money now or hereafter deposited by us or any or either of us
with the BANK in our joint savings current account shall be the property of all or
both of us and shall be payable to and collectible or withdrawable by either or any
of us during our lifetime, and after the death of either or any of us shall belong to
and be the sole property of the survivor or survivors, and shall be payable to and
collectible or withdrawable by such survivor or survivors.

We further agree with each other and the BANK that the receipt or check of
either, any or all of us during our lifetime, or the receipt or check of the survivor
or survivors, for any payment or withdrawal made for our above-mentioned
account shall be valid and sufficient release and discharge of the BANK for such
payment or withdrawal. 5

The trial courts 6 upheld the validity of this agreement and granted "the motion to sell some of
the estate of Dolores L. Vitug, the proceeds of which shall be used to pay the personal funds of
Romarico Vitug in the total sum of P667,731.66 ... ." 7

On the other hand, the Court of Appeals, in the petition for certiorari filed by the herein private
respondent, held that the above-quoted survivorship agreement constitutes a conveyance mortis
causa which "did not comply with the formalities of a valid will as prescribed by Article 805 of
the Civil Code," 8 and secondly, assuming that it is a mere donation inter vivos, it is a prohibited
donation under the provisions of Article 133 of the Civil Code. 9

The dispositive portion of the decision of the Court of Appeals states:

WHEREFORE, the order of respondent Judge dated November 26, 1985 (Annex
II, petition) is hereby set aside insofar as it granted private respondent's motion to
sell certain properties of the estate of Dolores L. Vitug for reimbursement of his
alleged advances to the estate, but the same order is sustained in all other respects.
In addition, respondent Judge is directed to include provisionally the deposits in
 Savings Account No. 35342-038 with the Bank of America, Makati, in the
inventory of actual properties possessed by the spouses at the time of the
decedent's death. With costs against private respondent. 10

In his petition, Vitug, the surviving spouse, assails the appellate court's ruling on the strength of
our decisions in Rivera v. People's Bank and Trust Co. 11 and Macam v. Gatmaitan 12 in which
we sustained the validity of "survivorship agreements" and considering them as aleatory
contracts. 13

The petition is meritorious.

The conveyance in question is not, first of all, one of mortis causa, which should be embodied in
a will. A will has been defined as "a personal, solemn, revocable and free act by which a
capacitated person disposes of his property and rights and declares or complies with duties to
take effect after his death." 14 In other words, the bequest or device must pertain to the
testator. 15 In this case, the monies subject of savings account No. 35342-038 were in the nature
of conjugal funds In the case relied on, Rivera v. People's Bank and Trust Co.,  16 we rejected
claims that a survivorship agreement purports to deliver one party's separate properties in favor
of the other, but simply, their joint holdings:

xxx xxx xxx

... Such conclusion is evidently predicated on the assumption that Stephenson was
the exclusive owner of the funds-deposited in the bank, which assumption was in
turn based on the facts (1) that the account was originally opened in the name of
Stephenson alone and (2) that Ana Rivera "served only as housemaid of the
deceased." But it not infrequently happens that a person deposits money in the
bank in the name of another; and in the instant case it also appears that Ana
Rivera served her master for about nineteen years without actually receiving her
salary from him. The fact that subsequently Stephenson transferred the account to
the name of himself and/or Ana Rivera and executed with the latter the
survivorship agreement in question although there was no relation of kinship
between them but only that of master and servant, nullifies the assumption that
Stephenson was the exclusive owner of the bank account. In the absence, then, of
clear proof to the contrary, we must give full faith and credit to the certificate of
deposit which recites in effect that the funds in question belonged to Edgar
Stephenson and Ana Rivera; that they were joint (and several) owners thereof;
and that either of them could withdraw any part or the whole of said account
during the lifetime of both, and the balance, if any, upon the death of either,
belonged to the survivor. 17

xxx xxx xxx

In Macam v. Gatmaitan, 18 it was held:

xxx xxx xxx

This Court is of the opinion that Exhibit C is an aleatory contract whereby,

according to article 1790 of the Civil Code, one of the parties or both reciprocally
bind themselves to give or do something as an equivalent for that which the other
party is to give or do in case of the occurrence of an event which is uncertain or
will happen at an indeterminate time. As already stated, Leonarda was the owner
of the house and Juana of the Buick automobile and most of the furniture. By
virtue of Exhibit C, Juana would become the owner of the house in case Leonarda
died first, and Leonarda would become the owner of the automobile and the
furniture if Juana were to die first. In this manner Leonarda and Juana reciprocally
assigned their respective property to one another conditioned upon who might die
 first, the time of death determining the event upon which the acquisition of such
right by the one or the other depended. This contract, as any other contract, is
binding upon the parties thereto. Inasmuch as Leonarda had died before Juana, the
latter thereupon acquired the ownership of the house, in the same manner as
Leonarda would have acquired the ownership of the automobile and of the
furniture if Juana had died first. 19

xxx xxx xxx

There is no showing that the funds exclusively belonged to one party, and hence it must be
presumed to be conjugal, having been acquired during the existence of the marita. relations. 20

Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it was
to take effect after the death of one party. Secondly, it is not a donation between the spouses
because it involved no conveyance of a spouse's own properties to the other.

It is also our opinion that the agreement involves no modification petition of the conjugal
partnership, as held by the Court of Appeals, 21 by "mere stipulation" 22 and that it is no
"cloak" 23 to circumvent the law on conjugal property relations. Certainly, the spouses are not
prohibited by law to invest conjugal property, say, by way of a joint and several bank account,
more commonly denominated in banking parlance as an "and/or" account. In the case at bar,
when the spouses Vitug opened savings account No. 35342-038, they merely put what rightfully
belonged to them in a money-making venture. They did not dispose of it in favor of the other,
which would have arguably been sanctionable as a prohibited donation. And since the funds
were conjugal, it can not be said that one spouse could have pressured the other in placing his or
her deposits in the money pool.

The validity of the contract seems debatable by reason of its "survivor-take-all" feature, but in
reality, that contract imposed a mere obligation with a term, the term being death. Such
agreements are permitted by the Civil Code. 24

Under Article 2010 of the Code:

ART. 2010. By an aleatory contract, one of the parties or both reciprocally bind
themselves to give or to do something in consideration of what the other shall
give or do upon the happening of an event which is uncertain, or which is to occur
at an indeterminate time.

Under the aforequoted provision, the fulfillment of an aleatory contract depends on either the
happening of an event which is (1) "uncertain," (2) "which is to occur at an indeterminate time."
A survivorship agreement, the sale of a sweepstake ticket, a transaction stipulating on the value
of currency, and insurance have been held to fall under the first category, while a contract for life
annuity or pension under Article 2021, et sequentia, has been categorized under the second. 25 In
either case, the element of risk is present. In the case at bar, the risk was the death of one party
and survivorship of the other.

However, as we have warned:

xxx xxx xxx

But although the survivorship agreement is per se not contrary to law its operation
or effect may be violative of the law. For instance, if it be shown in a given case
that such agreement is a mere cloak to hide an inofficious donation, to transfer
property in fraud of creditors, or to defeat the legitime of a forced heir, it may be
assailed and annulled upon such grounds. No such vice has been imputed and
established against the agreement involved in this case. 26
 xxx xxx xxx

There is no demonstration here that the survivorship agreement had been executed for such
unlawful purposes, or, as held by the respondent court, in order to frustrate our laws on wills,
donations, and conjugal partnership.

The conclusion is accordingly unavoidable that Mrs. Vitug having predeceased her husband, the
latter has acquired upon her death a vested right over the amounts under savings account No.
35342-038 of the Bank of America. Insofar as the respondent court ordered their inclusion in the
inventory of assets left by Mrs. Vitug, we hold that the court was in error. Being the separate
property of petitioner, it forms no more part of the estate of the deceased.

WHEREFORE, the decision of the respondent appellate court, dated June 29, 1987, and its
resolution, dated February 9, 1988, are SET ASIDE.

No costs.

G.R. No. 227005

BDO UNIBANK, INC., Petitioner 

vs.
ENGR. SELWYN LAO, doing business under the name and style "SELWYN F. LAO
CONSTRUCTION" AND "WING AN CONSTRUCTION AND DEVELOPMENT
CORPORATION" and INTERNATIONAL EXCHANGE BANK (now UNION BANK OF
THE PHILIPPINES),, Respondents

DECISION

MENDOZA, J.:

This is a petition for review on certiorari seeking to reverse and set aside the October 14, 2015
Decision1 and the September 5, 2016 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV
No. 100351, which affirmed, with modification, the July 9, 2012 Decision3 of the Regional Trial
Court, Branch 55, Manila (RTC) in Civil Case No. 99-93068, a case for collection of sum of
money.

The Antecedents

On March 9, 1999, respondent Engineer Selwyn S. Lao (Lao) filed before the RTC a complaint
for collection of sum of money against Equitable Banking Corporation, now petitioner Banco de
Oro Unibank (BDO), Everlink Pacific Ventures, Inc. (Ever/ink), and Wu Hsieh a.k.a.George
Wu (Wu).

In his complaint, Lao alleged that he was doing business under the name and style of "Selwyn
Lao Construction"; that he was a majority stockholder of Wing An Construction and
Development Corporation (WingAn); that he entered into a transaction with Ever link, through
its authorizedrepresentative Wu, under which, Everlink would supply him with "HCG sanitary
wares"; and that for the down payment, he issued two (2) Equitable crossed checks payable to
Everlink: Check No. 0127-2422494 and Check No. 0127-242250,5 in the amounts of ₱273,300.00
and ₱336,500.00, respectively.

Lao further averred that when the checks were encashed, he contacted Everlink for the
immediate delivery of the sanitary wares, but the latter failed to perform its obligation. Later,
Lao learned that the checks were deposited in two different bank accounts at respondent
International Exchange Bank, now respondent Union Bank of the Philippines (UnionBank).  He
was later informed that the two bank accounts belonged to Wuand a company named New Wave
Plastic (New Wave), represented by a certain Willy Antiporda (Antiporda). Consequently, Lao
was prompted to file a complaint against Everlink and Wu for their failure to comply with their
obligation and against BDO for allowing the encashment of the two (2) checks. He later
withdrew his complaint against Everlink as the corporation had ceased existing.

In its answer, BDO asserted that it had no obligation to ascertain the owner of the account/s to
which the checks were deposited because the instruction to deposit the said checks to the payee's
account only was directed to the payee and the collecting bank, which in this case was Union
Bank; that as the drawee bank, its obligations consist in examining the genuineness of the
signatures appearing on the checks, and paying the same if there were sufficient funds in the
account under which the checks were drawn; and that the subject checks were properly
negotiated and paid in accordance with the instruction of Lao in crossing them as they were
deposited to the account of the payee Ever link with Union Bank, which then presented them for
payment with BDO.

On August 24, 2001, Lao filed an Amended Complaint, wherein he impleaded Union Bank as
additional defendant for allowing the deposit of the crossed checks in two bank accounts other
than the payee's, in violation of its obligation to deposit the same only to the payee's account.

In its answer, Union Bank argued that Check No. 0127-242249 was deposited in the account of
Everlink; that Check No. 0127-242250 was validly negotiated by Everlink to New Wave; that
Check No. 0127-242250 was presented for payment to BDO, and the proceeds thereof were
credited to New Wave's account; that it was under no obligation to deposit the checks only in the
account of Everlink because there was nothing on the checks which would indicate such
restriction; and that a crossed check continues to be negotiable, the only limitation being that it
should be presented for payment by a bank.

During trial, BDO presented as its witnesses Elizabeth P. Tinimbang (Tinimbang) and Atty.

Carlos Buenaventura(Atty. Buenaventura).

Tinimbang testified that Everlink was the payee of the two (2) crossed checks issued by their
client, Wing An; that the checks were deposited with Union Bank, which presented them to BDO
for payment. She further narrated that after the checks were cleared and that the drawer's
signatures on the checks were determined to be genuine, that there was sufficient fund to cover
the amounts of the checks, and that there was no order to stop payment, the checks were paid by
BDO. Tinimbang continued that sometime in July 1998, BDO received a letter from Wing An
stating that the amounts of the checks were not credited to Everlink's account. This prompted
BDO to write a letter to Union Bank demanding the latter to refund the amounts of the checks. In
a letter-reply, Union Bank claimed that the checks were deposited in the account of Everlink.

Atty. Buenaventura claimed that BDO gave credence to Union Bank's representation that the
checks were indeed credited to the account of Everlink. He stated that BDO's only obligations
under the circumstances were to ascertain the genuineness of the checks, to determine if the
account was sufficiently funded and to credit the proceeds to the collecting bank. On cross-
examination, Atty. Buenaventura clarified that Union Bank endorsed the crossed checks as could
be seen on the dorsal portion of the subject checks. According to him, such endorsement meant
that the lack of prior endorsement was guaranteed by Union Bank.

For its part, Union Bank presented as its witness Jojina Lourdes C. Vega (Vega), its Branch
Business Manager. Vega testified that the transaction history of Everlink's account with Union
Bank and the notation at the back of the check indicating Everlink's Account No.
(005030000925) revealed that the proceeds of Check No. 0127-242249 were duly credited to
Everlink's account on September 22, 1997. As regards Check No. 0127-242250, Vega clarified
that the proceeds of the same were credited to New Wave's account. She explained that New
Wave was a valued client of Union Bank. As a form of accommodation extended to valued
clients, Union Bank would request the signing of a second endorsement agreement because the
payee was not the same as the account holder. In this case, Antiporda executed a Deed of
Undertaking (Second Endorsed Checks) wherein he assumed the responsibilities for the
correctness, genuineness, and validity of the subject checks.

The RTC Ruling

In its Decision, dated July 9, 2012, the RTC absolved BDO from any liability, but ordered Union
Bank to pay Lao the amount of ₱336,500.00, representing the value of Check No. 0127-242250;
₱50,000.00 as moral damages; ₱l00,000.00 as exemplary damages; and ₱50,000.00 as attorney's
fees.

The RTC observed that there was nothing irregular with the transaction of Check No. 0127-
242249 because the same was deposited in Everlink's account with Union Bank. It, however,
found that Check No. 0127-242250 was irregularly deposited and encashed because it was not
issued for the account of Everlink, the payee, but for the account of New Wave. The trial court
noted further that Check No. 0127-242250 was not even endorsed by Everlink to New Wave.
Thus, it opined that Union Bank was negligent in allowing the deposit and encashment of the
said check without proper endorsement. The R TC wrote that considering that the subject check
was a crossed check, Union Bank failed to take reasonable steps in order to determine the
validity of the representations made by Antiporda. In the end, it adjudged that BDO could not be
held liable because of Union Bank's warranty when it stamped on the check that "all prior
endorsement and/or lack of endorsement guaranteed." The dispositive portion of the decision
reads:

WHEREFORE, premises considered, judgment is herebyrendered in FAVOR of the plaintiff

Engr. Selwyn F. Lao and AGAINST the defendant International Exchange Bank (now Union
Bank) ordering the latter to pay the former the following:

1. The amount of Three Hundred Thirty Six Thousand Five Hundred Pesos
(₱336,500.oo) representing the Equitable Bank Check No. 0127-242250;

2. The amount of Fifty Thousand Pesos (₱50,ooo.oo) representing moral

damages;

3. The amount of One Hundred Thousand Pesos (₱100,ooo.oo) representing

exemplary damages; and,

4. The amount of Fifty Thousand Pesos (₱50,ooo.oo) as attorney's fees.

The Complaints against defendants Equitable Banking Corporation (now Banco de Oro) and Wu
Shu Chien a.k.a. George Wu are hereby ordered DISMISSED.

Costs against the defendant International and Exchange Bank (now Union Bank).

SO ORDERED. 6

Aggrieved, Union Bank elevated an appeal to the CA. 7

The CA Ruling

In its assailed Decision, dated October 14, 2015, the CA affirmed, with modification, the ruling
of the R TC. It ordered BDO to pay Lao the amount of ₱336,500.00, with legal interest from the
time of filing of the complaint until its full satisfaction. The appellate court further directed
Union Bank to reimburse BDO the aforementioned amount. It concurred with the RTC that
Union Bank was liable because of its negligence and its guarantee on the validity of all prior
endorsements or lack of it.
With regard to BDO's liability, the CA explained that it violated its duty to charge to the drawer's
account only those authorized by the latter when it paid the value of Check No. 0127-242250.
Thus, it held that BDO was liable for the amount charged to the drawer's account. The
fallo reads:

FOR THESE REASONS, the appeal is PARTLY GRANTED. The July 9, 2012 Decision of the
Regional Trial Court of Manila, Branch 55 is AFFIRMED with MODIFICATIONS that
Equitable Bank is ordered to pay Selwyn Lao the amount corresponding to Check No. 0127-
242250, i.e., ₱336,500.oo, with legal interest from the time of filing of the complaint until the
amount is fully paid. International Exchange Bank (now Union Bank of the Philippines) is
ordered to reimburse Equitable Bank the abovementioned amount. The award of damages and
attorney's fees is DELETED. The rest of the Decision stands.

SO ORDERED.8

On November 5, 2012, BDO filed its Motion for Partial Reconsideration. It argued that neither
Lao nor Union Bank appealed the dismissal of the complaint against it, thus, the RTC decision
had already attained finality as far as it was concerned. It also prayed that Lao should be allowed
to recover directly from Union Bank.

In its assailed Resolution, dated September 6, 2016, the CA denied BDO's Motion for Partial
Reconsideration. It ratiocinated that in Bank ofAmerica, NT & SA v. Associated Citizens
Bank,  9 (Bank of America) thedrawee bank was adjudged liable for the amount charged to the
drawer's account, while the collecting bank was ordered to reimburse the drawee bank whatever
amount the latter was made to pay.

Hence, this petition anchored on the following:

GROUNDS

I.

ISSUES NOT RAISED BY THE PARTIES ON APPEAL CANNOT BE REVIEWED NOR

RULED UPON BY THE APPELLATE COURT.

II.

A COLLECTING BANK ASSUMES RESPONSIBILITY FOR A CROSSED CHECK AS A

GENERAL ENDORSER IN ACCORDANCE WITH SECTION 66 OF THE NEGOTIABLE
INSTRUMENTS LAW.

III.

THE PARTY WHICH DID NOT EXERCISE THE REQUIRED DILIGENCE IS THE CAUSE
OF THE LOSS AND BEARS THE DAMAGES. 10

BDO argued that the CA's order for it to pay Lao was erroneous as the RTC had already
adjudged with finality that it was not liable. It posited that the appellate court could not resolve
issues not raised on appeal by both parties thereto. BDO pointed out that it was not a party in the
appeal before the CA. It further stressed that neither Lao nor Union Bank assailed the R TC
decision with respect to the dismissal of the complaint against it during the appeal before the CA,
and even on motion for reconsideration before the R TC. Thus, for failure to appeal therefrom,
the R TC decision had already attained finality as to BDO.

BDO further averred that Union Bank, as the collecting bank and last endorser, must suffer the
loss because it had the duty to ascertain the genuineness of all prior endorsement. It asserted that
as the drawee bank, it could not be held liable because it merely relied on Union Bank's express
guarantee. It added that the proximate cause of the loss suffered by Lao was the negligence of
Union Bank when it allowed the deposit of the crossed check intended for Everlink to New
Wave's account.

In his Comment, 11 dated January 26,2017, Lao asserted that the CA did not commit any error
when it resolved the issue on the liability of BDO even if it was not raised on appeal. He was of
the view that the said issue was inextricably intertwined with the principal issue. Lao stated that
the CA correctly adjudged BDO liable, without prejudice to its right to seek reimbursement from
Union Bank, as it was the correct sequence in the enforcement of payment in cases where the
collecting bank allowed a crossed check to be deposited in the account of a person other than the
payee.

Union Bank did not file any comment on BDO's petition.

The Court's Ruling

The petition is meritorious.

Ordinarily, this Court would have concurred with the CA as regards the applicability of Bank of
America. There is, however, a peculiar circumstance which would prevent the application
of Bank of America in the present case.

Sequence of Recovery in cases of unauthorized payment of checks

The Court agrees with the appellate court that in cases of unauthorized payment of checks to a
person other than the payee named therein, the drawee bank may be held liable to the drawer.
The drawee bank, in turn, may seek reimbursement from the collecting bank for the amount of
the check. This rule on the sequence of recovery in case of unauthorized check transactions had
already been deeply embedded in jurisprudence. 12

The liability of the drawee bank is based on its contract with the drawer and its duty to charge to
the latter's accounts only those payables authorized by him. A drawee bank is under strict
liability to pay the check only to the payee or to the payee's order. When the drawee bank pays a
person other than the payee named in the check, it does not comply with the terms of the check
and violates its duty to charge the drawer's account only for properly payable items. 13

On the other hand, the liability of the collecting bank is anchored on its guarantees as the last
endorser of the check. Under Section 66 of the Negotiable Instruments Law, an endorser
warrants "that the instrument is genuine and in all respects what it purports to be; that he has
good title to it; that all prior parties had capacity to contract; and that the instrument is at the time
of his endorsement valid and subsisting."

It has been repeatedly held that in check transactions, the collecting bank generally suffers the
loss because it has the duty to ascertain the genuineness of all prior endorsements considering
that the act of presenting the check for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the genuineness of the endorsements. If
any of the warranties made by the collecting bank turns out to be false, then the drawee bank
may recover from it up to the amount of the check. 14

In the present case, BDO paid the value of Check No. 0127-242250 to Union Bank, which, in
turn, credited the amount to New Wave's account. The payment by BDO was in violation of
Lao's instruction because the same was not issued in favor of Everlink, the payee named in the
check. It must be pointed out that the subject check was not even endorsed by Everlink to New
Wave. Clearly, BDO violated its duty to charge to Lao's account only those payables authorized
by him.
Nevertheless, even with such clear violation by BDO of its duty, the loss would have ultimately
pertained to Union Bank. By stamping at the back of the subject check the phrase "all prior
endorsements and/or lack of it guaranteed," Union Bank had, for all intents and purposes treated
the check as a negotiable instrument and, accordingly, assumed the warranty of an endorser.
Without such warranty, BDO would not have paid the proceeds of the check. Thus, Union Bank
cannot now deny liability after the aforesaid warranty turned out to be false. 15

Union Bank was clearly negligent when it allowed the check to be presented by, and deposited in
the account of New Wave, despite knowledge that it was not the payee named therein. Further, it
could not have escaped its attention that the subject checks were crossed checks.

A crossed check is one where two parallel lines are drawn across its face or across the comer
thereof. A check may be crossed generally or specially. A check is crossed especially when the
name of a particular banker or company is written between the parallel lines drawn. It is crossed
generally when only the words "and company" are written at all between the parallel lines. 16

Jurisprudence dictates that the effects of crossing a check are: (1) that the check may not be
encashed but only deposited in the bank; (2) that the check may be negotiated only once - to one
who has an account with a bank; and (3) that the act of crossing the check serves as a warning to
the holder that the check has been issued for a definite purpose so that he must inquire if he has
received the check pursuant to that purpose. 17 The effects of crossing a check, thus, relate to the
mode of payment, meaning that the drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein. 18

It is undisputed that Check No. 0127-242250 had been crossed generally as nothing was written
between the parallel lines appearing on the face of the instrument. This indicated that Lao, the
drawer, had intended the same for deposit only to the account of Everlink, the payee named
therein. Despite this clear intention, however, Union Bank negligently allowed the deposit of the
proceeds of the said check in the account of New Wave.

Generally, BDO must be ordered to pay Lao the value of the subject check; whereas, Union
Bank would be ordered to reimburse BDO the amount of the check. The aforesaid sequence of
recovery, however, is not applicable in the present case due to the presence of certain factual
peculiarities.

Simplification of the proceedings for Recovery

Although the rule on the sequence of recovery has been deeply engrained in jurisprudence, there
may be exceptional circumstances which would justify its simplification.1âwphi1 Stated
differently, the aggrieved party may be allowed to recover directly from the person which caused
the loss when circumstances warrant. In Associated Bank v. Court of Appeals
(AssociatedBank),  19 the person who suffered the loss as a result of the unauthorizedencashment
of crossed checks was allowed to recover the loss directly from the negligent bank despite the
latter's contention of lack of privity of contract. The Court said:

There being no evidence that the crossed checks were actually received by the private
respondent, she would have a right of action against the drawer companies, which in turn could
go against their respective drawee banks, which in turn could sue the herein petitioner as
collecting bank. In a similar situation, it was held that, to simplify proceedings, the payee of the
illegally encashed checks should be allowed to recover directly from the bank responsible for
such encashment regardless of whether or not the checks were actually delivered to the payee.
We approve such direct action in the case at bar.20

A peculiar circumstance in Associated Bank is the fact that the drawer companies, which should
have been directly liable to the aggrieved payee, were not impleaded as parties in the suit. In this
regard, it is a fundamental principle in this jurisdiction that a person cannot be prejudiced by a
ruling rendered in an action or proceeding in which he has not been made a party. This principle
conforms to the constitutional guarantee of due process of law.21 To the mind of the Court, this
principle was a foremost underlying consideration for allowing the direct recovery by the payee
from the negligent collecting bank.

Finality of the RTC decisionwith respecttoBDOjustifiesthe simplification of the proceedings for

recovery.

BDO argues that the appellate court erred in ordering it to pay the amount of the subject check to
Lao because it was no longer a party in the case, not being impleaded in the appeal, and that the
issue as regards its had liability already been settled with finality by the R TC.

The Court agrees.

It has been held that it is not the caption of the pleading, but the allegations therein that are
controlling. The non-inclusion of a party in the title of the pleading is not fatal to the case,
provided there is a statement in the body indicating that such non-included person is a party to
the case.22

BDO was not impleaded as a party in Union Bank's appeal before the CA. This is evident from
the title of the case before the CA, and the respective briefs of Union Bank and Lao, which
mentioned only Lao and Union Bank as parties thereto. Moreover, in their respective briefs
before the appellate court, neither Lao23 nor Union Bank24 made any statement or raised any issue
on BDO's liability and its inclusion as a party in the appeal.

Consequently, because of Lao and Union Bank's failure to appeal the July 9, 2012 Decision of
the RTC with respect to BDO's lack of liability, said decision became final as to the latter.

The finality of the July 9, 2012 RTC Decision as to BDO, which absolved it from any liability,
necessarily means that it could not be prejudiced or adversely affected by the decision rendered
in the appeal. It is elementary in this jurisdiction that a person cannot be bound by a decision
wherein it was not a party.25 A contrary finding would violate BDO's constitutional right to due·
process. Needless to state, the appellate court erred in ordering BDO to pay the amount of the
subject check because the latter was not made a party in the appeal, and the issue as to its
liability or lack thereof, was not raised on appeal.

From the foregoing, the Court is of the considered view that the pronouncements made
in Associated Bank as regards the simplification of the recovery proceedings are applicable in the
present case. The factual milieu of this case are substantially similar with that of Associated
Bank, i.e., a crossed check was presented and deposited, without authority, in the account of a
person other than the payee named therein; the collecting bank endorsed the crossed check and
warrant the validity of all prior endorsements and/or lack of it; the warranty turned out to be
false; and, a party to the check transaction, which would otherwise be held liable to the party
aggrieved, was not made a party in the proceedings in court.

To summarize, Lao, the drawer of the subject check, has a right of action against BDO for its
failure to comply with its duty as the drawee bank. BDO, in turn, would have a right of action
against Union Bank because of the falsity of its warranties as the collecting bank. Considering,
however, that BDO was not made a party in the appeal, it could no longer be held liable to Lao.
Thus, following Associated Bank, the proceedings for recovery must be simplified and Lao
should be allowed to recover directly from Union Bank.

WHEREFORE, the petition is GRANTED. The October 14, 2015 Decision and the September 5,
2016 Resolution of the Court of Appeals in CA-G.R. CV No. 100351 are hereby REVERSED
and SET ASIDE insofar as it ordered petitioner BDO Unibank, Inc. to pay Selwyn Lao the
amount of Check No. 0127-242250. The rest of the decision is AFFIRMED.
The amount shall earn interest at the rate of twelve percent (12%) perannum from August 24,
2001, the date of judicial demand, to June 30, 2013.From July 1, 2013, the rate shall be six
percent (6%) per annum until full satisfaction.

SO ORDERED.