BPI Family Bank vs.

Franco (Civil Case, fraud)

November 23, 2007, Nachura J.

BPI FAMILY BANK, petitioner

AMADO FRANCO and COURT OF APPEALS, respondents.

Facts
• August 15, 1989 - Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco)
opened a savings and current account with BPI-FB, San Francisco Del
Monte branch
• August 25, 1989 - First Metro Investment Corporation (FMIC) also opened
a time deposit account with the same branch with a deposit of P100
million, to mature after one year.
• August 31, 1989 - Franco opened three accounts (current, 500k; savings,
500k; and time deposit, 1m maturing after 1 year) with BPI-FB.
• The P2M used to open these 3 accounts is traceable to a check issued by
Tevesteco in consideration of Franco's introduction of Eladio Teves to
Jaime Sebastian. The funding for the check was part of the
P80,000,000.00 debited by BPI-FB from FMIC's time deposit account and
credited to Tevesteco's current account pursuant to an Authority to Debit
purportedly signed by FMIC's officers.
o Teves was looking for a bank to facilitate Tevesteco's business
transactions.
o Jaime Sebastian was then BPI-FB SFDM's Branch Manager.
• The signatures of FMIC's officers on the Authority to Debit were forged.
• Tevesteco had already effected several withdrawals from its current
account amounting to P37,455,410.54, including the P2,000,000.00 paid to
Franco.
• September 8, 1989 - BPI-FB debited Franco's savings and current
accounts for the amounts remaining therein. However, Franco's time
deposit account could not be debited due to the capacity limitations of
BPI-FB's computer.
• Two checks drawn by Franco against his BPI-FB current account were
dishonored upon presentment for payment, and stamped with a notation
"account under garnishment." This was by virtue of an Order of
Attachment issued by the Makati RTC filed by BPI-FB against Franco to
recover the P37,455,410.54 representing Tevesteco's total withdrawals
from its account.
• The dishonored checks were issued by Franco and presented for payment
at BPI-FB prior to Franco's receipt of notice that his accounts were under
garnishment.
 o At the time the Notice of Garnishment was served on BPI-FB,
Franco had yet to be impleaded in the Makati case.
• May 15, 1990 - Franco was impleaded in the Makati case. Franco then
filed a Motion to Discharge Attachment which the Makati RTC granted.
• The Order Lifting the Order of Attachment was served on BPI-FB with
Franco demanding the release to him of the funds in his savings and
current accounts.
• BPI-FB could not comply with the demand as the funds had already been
debited because of FMIC's forgery claim.
o BPI-FB's computer indicated that the current account record was
"not on file."
• As to Franco's savings account, Franco agreed to an arrangement, as a
favor to Sebastian -> P400k from Franco’s savings account was
temporarily transferred to Domingo Quiaoit's savings account -> to be
returned upon issuance of a certificate of deposit which Quiaoit needed in
connection with his visa application at the Taiwan Embassy. Sebastian
retained custody of Quiaoit's savings account passbook to ensure that no
withdrawal would be effected therefrom, and to preserve Franco's
deposits.
• May 17, 1990 - Franco pre-terminated his time deposit account. BPI-FB
deducted P63k from the balance representing advance interest paid
• FMIC filed a complaint against BPI-FB for the recovery of the 80M
debited from its account.
• BPI Family Savings Bank, Inc. v. FMIC – SC held that BPI-FB failed to
exercise the degree of diligence required by the nature of its obligation to
treat the accounts of its depositors with meticulous care. BPI-FB was
ordered to pay P65,332,321.99 plus interest.
• In another related case, Buenaventura, et al., 19 recipients of a P500k
check proceeding from the P80M mistakenly credited to Tevesteco also
filed suit. Buenaventura et al. were also prevented from effecting
withdrawals from their current accounts. SC ruled that BPI-FB had no
right to freeze their accounts, BPI-FB is liable +damages.
• BPI-FB filed separate civil and criminal cases against those believed to be
the perpetrators of the multi-million peso scam.
o Criminal case – Franco et. al., except for Manuel Bienvenida who
was still at large, were acquitted of the crime of Estafa
o Civil case remains under litigation and the respective rights and
liabilities of the parties have yet to be adjudicated.
• In light of BPI-FB's refusal to unfreeze Franco’s accounts and release his
deposits therein, Franco filed a case on June 4, 1990 with the Manila RTC
wherein he prayed for the following:
 o (1) the interest on the remaining balance of his current account
which was eventually released to him on October 31, 1991;
o (2) the balance on his savings account, plus interest thereon;
o (3) the advance interest paid to him which had been deducted when
he pre-terminated his time deposit account; and
o (4) the payment of actual, moral and exemplary damages, as well as
attorney's fees.
• BPI’s defense: it was correct in freezing the accounts of Franco and
refusing to release his deposits. It had a better right to the amounts which
consisted of part of the money allegedly fraudulently withdrawn from it by
Tevesteco. The claimed consideration of 2M for the introduction
facilitated by Franco between George Daantos and Eladio Teves, on the
one hand, and Jaime Sebastian, on the other, spoke volumes of Franco's
participation in the fraudulent transaction.

MANILA RTC – Granted Franco’s petition. BPI-FB to pay:

• P76,500 - legal rate of interest on the P450k from May 18, 1990 to
October 31, 1991;
• P498,973.23 - balance on Franco's savings account as of May 18, 1990,
together with the interest;
• P30,000.00 by way of attorney's fees; and
• P10,000.00 as nominal damages.

CA – both parties appealed (Franco as to the denial of the moral and exemplary
damages, and the diminutive award of attorney’s fees; BPI-FB as to the denial
of its counterclaim). CA affirmed RTC with the following modifications:
• BPI-FB to pay P63,189 - interest deducted from Franco’s time deposit.
• P200,000.00 as moral damages and P100,000.00 as exemplary damages
• Deleting the award of nominal damages
• Increasing the award of attorney's fees to P75,000.00.

SC – BPI-FB appealed.

Issue/s
1. Whether the grant of attorney’s fees is proper. YES.

Ruling
• Franco is entitled to reasonable attorney's fees for having been compelled
to go to court in order to assert his right. 75k AF affirmed.
 • Attorney's fees may be awarded when a party is compelled to litigate or
incur expenses to protect his interest, or when the court deems it just and
equitable.
• BPI-FB refused to unfreeze the deposits of Franco despite the Makati
RTC's Order Lifting the Order of Attachment and Quiaoit's unwavering
assertion that the P400,000.00 was part of Franco's savings account. This
constrained Franco to incur expenses and litigate for almost two (2)
decades in order to protect his interests and recover his deposits.
• It is just and equitable to grant Franco P75,000.00 as attorney's fees.
• The award is reasonable in view of the complexity of the issues and the
time it has taken for this case to be resolved.

Dispositive
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals
Decision dated November 29, 1995 is AFFIRMED with the MODIFICATION that
the award of unearned interest on the time deposit and of moral and exemplary
damages is DELETED.

Other issues
As to who has a better right to the deposits in Franco's accounts. FRANCO!
• BPI-FB’s defense: the legal consequence of FMIC's forgery claim is that
the money transferred by BPI-FB to Tevesteco is its own, and
considering that it was able to recover possession of the same when the
money was redeposited by Franco, it had the right to set up its ownership
thereon and freeze Franco's accounts.
o Article 559. The possession of movable property acquired in good
faith is equivalent to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived thereof, may recover it
from the person in possession of the same.
• BPI-FB's argument is unsound. Article 559 pertains to a determinate
thing. The deposit in Franco's accounts consists of money which is
generic and fungible.
• BPI-FB simply claims ownership of the amount which it had mistakenly
debited from FMIC's account and credited to Tevesteco's, and
subsequently traced to Franco's account. It staked its claim on the money
itself which passed from one account to another, commencing with the
forged Authority to Debit.
• Money bears no earmarks of peculiar ownership. Its primary function is to
pass from hand to hand as a medium of exchange, without other evidence
of its title.
• Article 559 is inapplicable
 • The deposit of money in banks is governed by the Civil Code provisions
on simple loan or mutuum. BPI-FB ultimately acquired ownership of
Franco's deposits, but such ownership is coupled with a corresponding
obligation to pay him an equal amount on demand. Although BPI-FB owns
the deposits in Franco's accounts, it cannot prevent him from demanding
payment of BPI-FB's obligation by drawing checks against his current
account, or asking for the release of the funds in his savings account.
• BPI-FB does not have a unilateral right to freeze the accounts of Franco
based on its mere suspicion that the funds therein were proceeds of the
multi-million peso scam Franco was allegedly involved in. To grant BPI-
FB the right to take whatever action it pleases would open the floodgates
of public distrust in the banking industry.
• BPI-FB is duty-bound to know the signatures of its customers. Having
failed to detect the forgery and in the process inadvertently facilitate the
FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to
Franco and the other payees of checks issued by Tevesteco, or prevent
withdrawals from their respective accounts without the appropriate court
writ or a favorable final judgment.

As to BPI’s liability for interest on Franco's current account,

• BPI-FB: its non-compliance with the Makati RTC's Order Lifting the Order
of Attachment and the legal consequences thereof, is a matter that ought
to be taken up in that court.
• The Manila RTC's order to pay interests on Franco's current account
arose from BPI-FB's unjustified refusal to comply with its obligation to
pay Franco.
• From the time BPI-FB refused Franco's demand for the release of the
deposits in his current account, specifically, from May 17, 1990, interest
at the rate of 12% began to accrue thereon.

As to the dishonor of Franco’s checks:

• BPI-FB: As the party that applied for the writ of attachment before the
Makati RTC, it need not be served with the Notice of Garnishment before
it could place Franco's accounts under garnishment.
• The strict requirement on service of court papers upon the parties
affected is designed to comply with due process. Franco was entitled to
notice, if the requirements of due process are to be observed.

As to the moral and exemplary damages:

• BPI-FB acted out of self-protection and not out of malevolence or ill will.
BPI-FB was not in the corrupt state of mind contemplated in Article 2201
 and should not be held liable for all damages now being imputed to it for
its breach of obligation.
• Bad faith - not simply bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it partakes
of the nature of fraud. It is a breach of a known duty through some motive
of interest or ill will.
• There was no denial whatsoever by BPI-FB of the existence of the
accounts. The computer-generated document which indicated that the
current account was "not on file" resulted from the prior debit by BPI-FB
of the deposits. The remedy of freezing the account, or the garnishment,
or even the outright refusal to honor any transaction thereon was resorted
to solely for the purpose of holding on to the funds as a security for its
intended court action and with no other goal but to ensure the integrity of
the accounts.
• In the absence of fraud or bad faith, moral damages cannot be awarded.
The adverse result of an action does not per se make the action wrongful,
or the party liable for it. Error alone is not a ground for granting such
damages.
• Requisites for moral damages:
o (1) there must be an injury clearly sustained by the claimant,
whether physical, mental or psychological;
o (2) there must be a culpable act or omission factually established;
o (3) the wrongful act or omission of the defendant is the proximate
cause of the injury sustained by the claimant; and
o (4) the award for damages is predicated on any of the cases stated
in Article 2219 of the Civil Code.
• Franco could not identify any particular circumstance in Article 2219 upon
which to base his claim for moral damages.
• Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral
damages under Article 2220 of the Civil Code for breach of contract. 51
• Exemplary damages are also denied. Franco should show that he is
entitled to moral, temperate, or compensatory damages before the court
may even consider the question of whether exemplary damages should be
awarded.
o As there is no basis for the award of moral damages, neither can
exemplary damages be granted.