THIRD DIVISION 5. Ordering defendant COMTRUST to pay plaintiff in the amount of P8,000.

00 as
damages in the concept of litigation expenses and attorney's fees suffered by
G.R. No. L-66826 August 19, 1988 plaintiff as a result of the failure of the defendant bank to restore to his (plaintiffs)
account the amount of U.S. $1,000.00 and to return to him (plaintiff) the U.S.
BANK OF THE PHILIPPINE ISLANDS, petitioner, $3,000.00 cash left for safekeeping.
vs.
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents. Costs against defendant COMTRUST.

Pacis & Reyes Law Office for petitioner. SO ORDERED. [Rollo, pp. 47-48.]

Ernesto T. Zshornack, Jr. for private respondent. Undaunted, the bank comes to this Court praying that it be totally absolved from any liability to
Zshornack. The latter not having appealed the Court of Appeals decision, the issues facing this Court
are limited to the bank's liability with regard to the first and second causes of action and its liability
for damages.
CORTES, J.:
1. We first consider the first cause of action, On the dates material to this case, Rizaldy Zshornack and
his wife, Shirley Gorospe, maintained in COMTRUST, Quezon City Branch, a dollar savings account and
The original parties to this case were Rizaldy T. Zshornack and the Commercial Bank and Trust
a peso current account.
Company of the Philippines [hereafter referred to as "COMTRUST."] In 1980, the Bank of the
Philippine Islands (hereafter referred to as BPI absorbed COMTRUST through a corporate merger, and
was substituted as party to the case. On October 27, 1975, an application for a dollar draft was accomplished by Virgilio V. Garcia,
Assistant Branch Manager of COMTRUST Quezon City, payable to a certain Leovigilda D. Dizon in the
amount of $1,000.00. In the application, Garcia indicated that the amount was to be charged to
Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of First Instance of Rizal
Dollar Savings Acct. No. 25-4109, the savings account of the Zshornacks; the charges for commission,
— Caloocan City a complaint against COMTRUST alleging four causes of action. Except for the third
documentary stamp tax and others totalling P17.46 were to be charged to Current Acct. No. 210465-
cause of action, the CFI ruled in favor of Zshornack. The bank appealed to the Intermediate Appellate
29, again, the current account of the Zshornacks. There was no indication of the name of the
Court which modified the CFI decision absolving the bank from liability on the fourth cause of action.
purchaser of the dollar draft.
The pertinent portions of the judgment, as modified, read:

On the same date, October 27,1975, COMTRUST, under the signature of Virgilio V. Garcia, issued a
IN VIEW OF THE FOREGOING, the Court renders judgment as follows:
check payable to the order of Leovigilda D. Dizon in the sum of US $1,000 drawn on the Chase
Manhattan Bank, New York, with an indication that it was to be charged to Dollar Savings Acct. No.
1. Ordering the defendant COMTRUST to restore to the dollar savings account of
25-4109.
plaintiff (No. 25-4109) the amount of U.S $1,000.00 as of October 27, 1975 to earn
interest together with the remaining balance of the said account at the rate fixed by
When Zshornack noticed the withdrawal of US$1,000.00 from his account, he demanded an
the bank for dollar deposits under Central Bank Circular 343;
explanation from the bank. In answer, COMTRUST claimed that the peso value of the withdrawal was
given to Atty. Ernesto Zshornack, Jr., brother of Rizaldy, on October 27, 1975 when he (Ernesto)
2. Ordering defendant COMTRUST to return to the plaintiff the amount of U.S.
encashed with COMTRUST a cashier's check for P8,450.00 issued by the Manila Banking Corporation
$3,000.00 immediately upon the finality of this decision, without interest for the
payable to Ernesto.
reason that the said amount was merely held in custody for safekeeping, but was
not actually deposited with the defendant COMTRUST because being cash currency,
Upon consideration of the foregoing facts, this Court finds no reason to disturb the ruling of both the
it cannot by law be deposited with plaintiffs dollar account and defendant's only
trial court and the Appellate Court on the first cause of action. Petitioner must be held liable for the
obligation is to return the same to plaintiff upon demand;
unauthorized withdrawal of US$1,000.00 from private respondent's dollar account.
xxx xxx xxx
In its desperate attempt to justify its act of withdrawing from its depositor's savings account, the We acknowledged (sic) having received from you today the sum
bank has adopted inconsistent theories. First, it still maintains that the peso value of the amount of US DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for
withdrawn was given to Atty. Ernesto Zshornack, Jr. when the latter encashed the Manilabank safekeeping.
Cashier's Check. At the same time, the bank claims that the withdrawal was made pursuant to an Received by:
agreement where Zshornack allegedly authorized the bank to withdraw from his dollar savings (Sgd.) VIRGILIO V. GARCIA
account such amount which, when converted to pesos, would be needed to fund his peso current
account. If indeed the peso equivalent of the amount withdrawn from the dollar account was It was also alleged in the complaint that despite demands, the bank refused to return the money.
credited to the peso current account, why did the bank still have to pay Ernesto?
In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's peso current
At any rate, both explanations are unavailing. With regard to the first explanation, petitioner bank account at prevailing conversion rates.
has not shown how the transaction involving the cashier's check is related to the transaction
involving the dollar draft in favor of Dizon financed by the withdrawal from Rizaldy's dollar account. It must be emphasized that COMTRUST did not deny specifically under oath the authenticity and due
The two transactions appear entirely independent of each other. Moreover, Ernesto Zshornack, Jr., execution of the above instrument.
possesses a personality distinct and separate from Rizaldy Zshornack. Payment made to Ernesto
cannot be considered payment to Rizaldy.
During trial, it was established that on December 8, 1975 Zshornack indeed delivered to the bank US
$3,000 for safekeeping. When he requested the return of the money on May 10, 1976, COMTRUST
As to the second explanation, even if we assume that there was such an agreement, the evidence do explained that the sum was disposed of in this manner: US$2,000.00 was sold on December 29, 1975
not show that the withdrawal was made pursuant to it. Instead, the record reveals that the amount and the peso proceeds amounting to P14,920.00 were deposited to Zshornack's current account per
withdrawn was used to finance a dollar draft in favor of Leovigilda D. Dizon, and not to fund the deposit slip accomplished by Garcia; the remaining US$1,000.00 was sold on February 3, 1976 and
current account of the Zshornacks. There is no proof whatsoever that peso Current Account No. 210- the peso proceeds amounting to P8,350.00 were deposited to his current account per deposit slip
465-29 was ever credited with the peso equivalent of the US$1,000.00 withdrawn on October 27, also accomplished by Garcia.
1975 from Dollar Savings Account No. 25-4109.
Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current account at
2. As for the second cause of action, the complaint filed with the trial court alleged that on December prevailing conversion rates, BPI now posits another ground to defeat private respondent's claim. It
8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US $3,000.00 cash (popularly known as now argues that the contract embodied in the document is the contract of depositum (as defined in
greenbacks) for safekeeping, and that the agreement was embodied in a document, a copy of which Article 1962, New Civil Code), which banks do not enter into. The bank alleges that Garcia exceeded
was attached to and made part of the complaint. The document reads: his powers when he entered into the transaction. Hence, it is claimed, the bank cannot be liable
under the contract, and the obligation is purely personal to Garcia.
Makati Cable Address:
Philippines "COMTRUST" Before we go into the nature of the contract entered into, an important point which arises on the
COMMERCIAL BANK AND TRUST COMPANY pleadings, must be considered.
of the Philippines
Quezon City Branch
The second cause of action is based on a document purporting to be signed by COMTRUST, a copy of
which document was attached to the complaint. In short, the second cause of action was based on an
December 8, 1975 actionable document. It was therefore incumbent upon the bank to specifically deny under oath the
due execution of the document, as prescribed under Rule 8, Section 8, if it desired: (1) to question the
MR. RIZALDY T. ZSHORNACK authority of Garcia to bind the corporation; and (2) to deny its capacity to enter into such contract.
&/OR MRS SHIRLEY E. ZSHORNACK [See, E.B. Merchant v. International Banking Corporation, 6 Phil. 314 (1906).] No sworn answer
denying the due execution of the document in question, or questioning the authority of Garcia to
Sir/Madam: bind the bank, or denying the bank's capacity to enter into the contract, was ever filed. Hence, the
bank is deemed to have admitted not only Garcia's authority, but also the bank's power, to enter into
the contract in question.
In the past, this Court had occasion to explain the reason behind this procedural requirement. The above arrangement is that contract defined under Article 1962, New Civil Code, which reads:

The reason for the rule enunciated in the foregoing authorities will, we think, be Art. 1962. A deposit is constituted from the moment a person receives a thing
readily appreciated. In dealing with corporations the public at large is bound to rely belonging to another, with the obligation of safely keeping it and of returning the
to a large extent upon outward appearances. If a man is found acting for a same. If the safekeeping of the thing delivered is not the principal purpose of the
corporation with the external indicia of authority, any person, not having notice of contract, there is no deposit but some other contract.
want of authority, may usually rely upon those appearances; and if it be found that
the directors had permitted the agent to exercise that authority and thereby held Note that the object of the contract between Zshornack and COMTRUST was foreign exchange.
him out as a person competent to bind the corporation, or had acquiesced in a Hence, the transaction was covered by Central Bank Circular No. 20, Restrictions on Gold and Foreign
contract and retained the benefit supposed to have been conferred by it, the Exchange Transactions, promulgated on December 9, 1949, which was in force at the time the parties
corporation will be bound, notwithstanding the actual authority may never have entered into the transaction involved in this case. The circular provides:
been granted
xxx xxx xxx
... Whether a particular officer actually possesses the authority which he assumes to
exercise is frequently known to very few, and the proof of it usually is not readily 2. Transactions in the assets described below and all dealings in them of whatever
accessible to the stranger who deals with the corporation on the faith of the nature, including, where applicable their exportation and importation, shall NOT be
ostensible authority exercised by some of the corporate officers. It is therefore effected, except with respect to deposit accounts included in sub-paragraphs (b)
reasonable, in a case where an officer of a corporation has made a contract in its and (c) of this paragraph, when such deposit accounts are owned by and in the
name, that the corporation should be required, if it denies his authority, to state name of, banks.
such defense in its answer. By this means the plaintiff is apprised of the fact that
the agent's authority is contested; and he is given an opportunity to adduce
(a) Any and all assets, provided they are held through, in, or with
evidence showing either that the authority existed or that the contract was ratified
banks or banking institutions located in the Philippines,
and approved. [Ramirez v. Orientalist Co. and Fernandez, 38 Phil. 634, 645- 646
including money, checks, drafts, bullions bank drafts, deposit
(1918).]
accounts (demand, time and savings), all debts, indebtedness or
obligations, financial brokers and investment houses, notes,
Petitioner's argument must also be rejected for another reason. The practical effect of absolving a debentures, stocks, bonds, coupons, bank acceptances,
corporation from liability every time an officer enters into a contract which is beyond corporate mortgages, pledges, liens or other rights in the nature of
powers, even without the proper allegation or proof that the corporation has not authorized nor security, expressed in foreign currencies, or if payable abroad,
ratified the officer's act, is to cast corporations in so perfect a mold that transgressions and wrongs by irrespective of the currency in which they are expressed, and
such artificial beings become impossible [Bissell v. Michigan Southern and N.I.R. Cos 22 N.Y 258 belonging to any person, firm, partnership, association, branch
(1860).] "To say that a corporation has no right to do unauthorized acts is only to put forth a very office, agency, company or other unincorporated body or
plain truism but to say that such bodies have no power or capacity to err is to impute to them an corporation residing or located within the Philippines;
excellence which does not belong to any created existence with which we are acquainted. The
distinction between power and right is no more to be lost sight of in respect to artificial than in
(b) Any and all assets of the kinds included and/or described in
respect to natural persons." [Ibid.]
subparagraph (a) above, whether or not held through, in, or with
banks or banking institutions, and existent within the Philippines,
Having determined that Garcia's act of entering into the contract binds the corporation, we now which belong to any person, firm, partnership, association, branch
determine the correct nature of the contract, and its legal consequences, including its enforceability. office, agency, company or other unincorporated body or
corporation not residing or located within the Philippines;
The document which embodies the contract states that the US$3,000.00 was received by the bank for
safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for (c) Any and all assets existent within the Philippines including
the bank to safely keep the dollars and to return it to Zshornack at a later time, Thus, Zshornack money, checks, drafts, bullions, bank drafts, all debts,
demanded the return of the money on May 10, 1976, or over five months later. indebtedness or obligations, financial securities commonly dealt
 in by bankers, brokers and investment houses, notes, debentures, within one business day following the receipt of such foreign exchange.
stock, bonds, coupons, bank acceptances, mortgages, pledges, Any resident person, firm, company or corporation residing or located within the
liens or other rights in the nature of security expressed in foreign Philippines, who acquires foreign exchange shall not, unless authorized by the
currencies, or if payable abroad, irrespective of the currency in Central Bank, dispose of such foreign exchange in whole or in part, nor receive less
which they are expressed, and belonging to any person, firm, than its full value, nor delay taking ownership thereof except as such delay is
partnership, association, branch office, agency, company or other customary; Provided, That, within one business day upon taking ownership or
unincorporated body or corporation residing or located within the receiving payment of foreign exchange the aforementioned persons and entities
Philippines. shall sell such foreign exchange to the authorized agents of the Central Bank.

xxx xxx xxx As earlier stated, the document and the subsequent acts of the parties show that they intended the
bank to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his complaint
4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by those that he is a Philippine resident. The parties did not intended to sell the US dollars to the Central Bank
authorized to deal in foreign exchange. All receipts of foreign exchange by any within one business day from receipt. Otherwise, the contract of depositum would never have been
person, firm, partnership, association, branch office, agency, company or other entered into at all.
unincorporated body or corporation shall be sold to the authorized agents of the
Central Bank by the recipients within one business day following the receipt of such Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one
foreign exchange. Any person, firm, partnership, association, branch office, agency, business day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must be
company or other unincorporated body or corporation, residing or located within considered as one which falls under the general class of prohibited transactions. Hence, pursuant to
the Philippines, who acquires on and after the date of this Circular foreign exchange Article 5 of the Civil Code, it is void, having been executed against the provisions of a
shall not, unless licensed by the Central Bank, dispose of such foreign exchange in mandatory/prohibitory law. More importantly, it affords neither of the parties a cause of action
whole or in part, nor receive less than its full value, nor delay taking ownership against the other. "When the nullity proceeds from the illegality of the cause or object of the
thereof except as such delay is customary; Provided, further, That within one day contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have
upon taking ownership, or receiving payment, of foreign exchange the no cause of action against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on
aforementioned persons and entities shall sell such foreign exchange to designated behalf of the State to prosecute the parties for violating the law.
agents of the Central Bank.
We thus rule that Zshornack cannot recover under the second cause of action.
xxx xxx xxx
3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in the concept of litigation
8. Strict observance of the provisions of this Circular is enjoined; and any person, expenses and attorney's fees to be reasonable. The award is sustained.
firm or corporation, foreign or domestic, who being bound to the observance
thereof, or of such other rules, regulations or directives as may hereafter be issued WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is ordered to restore to the
in implementation of this Circular, shall fail or refuse to comply with, or abide by, or dollar savings account of private respondent the amount of US$1,000.00 as of October 27, 1975 to
shall violate the same, shall be subject to the penal sanctions provided in the Central earn interest at the rate fixed by the bank for dollar savings deposits. Petitioner is further ordered to
Bank Act. pay private respondent the amount of P8,000.00 as damages. The other causes of action of private
respondent are ordered dismissed.
xxx xxx xxx
SO ORDERED.
Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281, Regulations on
Foreign Exchange, promulgated on November 26, 1969 by limiting its coverage to Philippine residents Gutierrez, Jr. and Bidin, JJ., concur.
only. Section 6 provides:
Fernan, C.J., took no part Feliciano, J., concur in the result.
SEC. 6. All receipts of foreign exchange by any resident person, firm, company or
corporation shall be sold to authorized agents of the Central Bank by the recipients