89 BPI V CA

BPI, petitioner, vs. CA, ANNABELLE SALAZAR, and JULIO TEMPLONUEVO, respondents.
BPI v. CA
G.R. No. 136202
January 25, 2007
Azcuna, J.
FACTS:
Salazar JRT Construction and Trading / Templonuevo
BPI = Petitioner
 Salazar had in her possession 3 crossed checks with aggregate amount of P267, 692.50. These checks were payable to JRT
Construction and Trading, which was name of Templonuevo’s business.
 Despite lack of knowledge and endorsement of Templonuevo, Salazar was able to deposit the checks in her personal savings account
with BPI, and encash the same. The three checks were deposited in three diﬀerent occasions over the span of eight months.
 A year after the last encashment, Templonuevo protested the purportedly unauthorized encashments and demanded from BPI the
aggregate amount of the checks.
 BPI complied with Templonuevo’s demand. Since the money could no longer be debited from the account of Salazar where she
deposited the checks, they froze Salazar’s other account. Later on, BPI issued a cashier’s check in favor of Templonuevo for P267,
707.70, which was debited from Salazar’s account representing the aggregate amount and the bank charges for the cashier’s check.
 Salazar filed a complaint against BPI for collection of money P267, 707.70.
 RTC: ruled in favor of Salazar
 CA: affirmed TC ruling; held that Salazar was entitled to the 3 checks despite lack of endorsement by the payee Templonuevo;
concluded that Salazar and Templonuevo had previously agreed that the checks payable to JRT Construction and Trading actually
belonged to Salazar and would be deposited to her account, with Templonuevo acquiescing to this arrangement.
 BPI elevated case with SC thru petition for review under Rule 45.
ISSUE/S:
1 – WoN BPI has authority to unilaterally withdraw from Salazar’s account the amount it has previously paid upon certain unendorsed
order instrument. ---YES
2 – WoN BPI act judiciously in debiting Salazar’s account. ---NO
RULING:
1.
Salazar averred: There was arrangment between Salazar and Templonuevo that . . .
Templonuevo averred: There was NO arrangement
RTC/CA ruled: Sustained Salazar’s position that there was internal arrangement between them, ratiocinating:
If there was indeed no arrangement between Templonuevo and Salazar over the 3 checks, it baffles us why it was only more than a year
after the last check was deposited that Templonuevo demanded for the refund of the P267,692.50.
Court ruled (with BPI):
There was no Arrangement Between Salazar and Templonuevo
 In the present case, the records do not support the finding made by RTC and CA that a prior arrangement existed between Salazar and
Templonuevo regarding transfer of ownership of checks. This fact is crucial as Salazar’s entitlement to the instruments is based on
the assumption that she is a transferee within contemplation of Section 49 of the Negotiable Instruments Law.
On Assumptions and Presumptions

 Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable
instrument without indorsing it, thus: Effect of Transfer Without Indorsement -- Where the holder of an instrument payable to his
order transfers check without indorsing it, the transfer vests in the transferee such title as the transferor had, and transferee acquires
right to have indorsement of transferor. But for the purpose of determining whether the transferee is a holder in due course, the
negotiation takes effect as of the time when the indorsement is actually made.
 Transferees in this situation do not enjoy presumption of ownership in favor of holders since they are neither payees nor indorsees of
such instruments. The weight of authority is that mere possession of negotiable instrument does not in itself establish either the right
of possessor to receive payment, or right of one who has made payment to be discharged from liability. Thus, something more than
mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the
absence of any other facts from which the authority to receive payment may be inferred.
 The principple is that if instruments payable to named payees have not been indorsed in blank, only such payees or their indorsees
can be holders and entitled to receive payment in their own right.
 The presumption under Section 131 of ROC that a negotiable instrument will not inure to the benefit of Salazar because the term
"given" does not pertain merely to transfer of physical possession of instrument. The phrase "given or indorsed" in the context of a
negotiable instrument refers to the manner in which such instrument may be negotiated. Negotiable instruments are negotiated by
"transfer to one person or another in such a manner as to constitute the transferee the holder of that instrument.
 If payable to bearer, it is negotiated by delivery.
 If payable to order, it is negotiated by the indorsement completed by delivery."
o In this case, the checks were payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not
be a holder thereof.
 It is an exception to general rule for a payee of an order instrument to transfer the instrument without indorsement. It is fair to prior
holders to require possessors to prove without aid of initial presumption in their favor, that they came into possession thru legitimate
transaction with the prior holder.
 In this case, Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted.
Noteworthy also is fact that BPI stamped on back of checks: "All prior endorsements and/or lack of endorsements guaranteed" where
BPI assumed the liability of a general indorser, and so BPI’s liability to designated payee (Templonuevo) cannot be denied.
On BPI's Right to Compensate

 Consequently, BPI had right to debit Salazar’s account. It is of no moment that the account debited by BPI was different from original
account to which proceeds of check were credited because both belonged to Salazar.
 The right of set-off was explained in Associated Bank v. Tan: A bank generally has a right of set-off (compensation) over deposits for
payment of any withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account for value of a
dishonored check that has previously been credited has fbeen established by jurisprudence. Art 1980 of Civil Code provides "fixed,
savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan."
 Hence, relationship between banks and depositors is held to be that of creditor and debtor. Thus, legal compensation under Art 1278
may take place when all requisites mentioned in Art 1279 are present as follows:
a. That each one of obligors be bound principally, and that he be at same time a principal creditor of the other;
b. That both debts consist in sum of money, or if things due are consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
c. That the two debts be due;
d. That they be liquidated and demandable;
e. That over neither of them there be any retention/controversy, commencd by 3rd persons and communicated in due time to debtor.
o In this case, BPI had right of set-off of what it paid to Templonuevo against the deposit of Salazar. The issue of whether it acted
judiciously is an entirely different matter. Court ruled BPI did not act judiciously (see next)
2.
Salazar averred: BPI did not act judiciously in the compensation.
Court ruled (with Salazar):
 As businesses affected with public interest, banks are obligated to treat accounts of their depositors with care. In this case, BPI was
clearly remiss in its duty to Salazar as its depositor.
 Despite the lack of indorsement by Templonuevo, BPI permitted encashment of these checks 3x on three separate occasions. This
negates BPI’s claim that it merely made a mistake in crediting the checks, and instead bolsters conclusion that BPI recognized
Salazar’s claim of ownership and acted deliberately.
 The law imposes diligence on banks to scrutinize checks for the purpose of determining their genuineness and regularity. The taking
and collection of a check without the proper indorsement amount to a conversion of the check by the bank.
 More importantly, and upon the prompting of Templonuevo, and with full knowledge of dispute between Salazar and Templonuevo,
BPI STILL debited account held of Salazar WITHOUT even serving due notice upon Salazar. This is contrary to BPI’s assurances to
Salazar that account would remain untouched, pending resolution of controversy between Salazar and Templonuevo.
 Salazar’s checks were subsequently dishonored, thereby causing Salazar undue embarrassment, inflicting damage to her standing in
the business community. Salazar was not given opportunity to protect her interest when BPI unilaterally withdrew amount from her
account without informing her.
 For such reasons, Court affirms award of damages granted by CA against BPI. Depositor has right to recover moral damages even if
the bank’s negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety,
embarrassment and humiliation. The award of exemplary damages is justified, on the other hand, when the acts of the bank are
attended by malice, bad faith or gross negligence. The award of reasonable attorney’s fees is proper where exemplary damages are
awarded. It is proper where depositors are compelled to litigate to protect their interest
DISPOSITION:
WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998 and Resolution dated April 3, 1998 rendered by
the Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the
amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A.
Salazar, which portion is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.
No costs.
SO ORDERED.

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BPI, petitioner, vs. CA, ANNABELLE SALAZAR, and JULIO TEMPLONUEVO, respondents.

On Assumptions and Presumptions

On BPI's Right to Compensate

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