Facts:

The case revolves around a dispute between the Bank of the Philippine Islands (BPI), which is the successor-in-interest of the Commercial Bank and Trust Company (CBTC), and the private respondents, Eastern Plywood Corporation (Eastern) and Benigno D. Lim (Lim). The events leading to the case began when Lim and Eastern opened a joint bank account with CBTC in March 1975, which had an opening balance of P120,000.00. Throughout the years, various transactions were made, culminating in an outstanding balance of P662,522.87 at the time of Mariano Velasco's death on April 7, 1977. An indemnity undertaking by Lim resulted in half of this amount being provisionally released to Eastern.

On August 18, 1978, Eastern secured a loan of P73,000.00 from CBTC, which was documented through a promissory note and supported by a Holdout Agreement allowing CBTC to offset the loan against the balance of the joint account. Following legal proceedings over Velasco's estate, the heirs were grant

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Facts:

Parties and Banking Relationships

• The petitioner is the Bank of the Philippine Islands (BPI), successor-in-interest of the Commercial Bank and Trust Company (CBTC).
• Private respondents are Eastern Plywood Corporation (“Eastern”) and Benigno D. Lim (“Lim”), an officer and stockholder of Eastern.
• Eastern and Lim maintained a joint bank account (“and/or” or “and” account) with CBTC/BPI, which later became the subject of the dispute.

Establishment and Operation of the Joint Account

• In March 1975, a joint checking account involving Velasco and Lim was opened using funds supplied from Eastern and/or Lim.
• Over time, various deposits and withdrawals occurred, with the money being placed in the money market.
• At the death of Mariano Velasco on April 7, 1977, the account’s outstanding balance had reached P662,522.87.

Post-Velasco Events and Preliminary Transfers

• On May 5, 1977, an Indemnity Undertaking executed by Lim transferred one-half of the balance to an account of Eastern, representing a provisional release of funds.
• This transfer set a precedent for later disputes regarding entitlement and proper application of the funds.

The Loan Transaction and Holdout Arrangement

• On August 18, 1978, Eastern obtained a loan of P73,000 from CBTC as “Additional Working Capital,” evidenced by a Disclosure Statement signed by both the bank manager and Eastern’s representative, Lim.
• Eastern issued a negotiable promissory note for P73,000 payable on demand, with interest at 14% per annum, signed by Lim in his individual capacity and in his capacity as President and General Manager of Eastern.
• The Disclosure Statement and a separate Holdout Agreement provided that the joint account (specifically, Current Account No. 2310-001-42) would serve as security for the loan, subject to a suspensive condition requiring a final judicial determination or settlement regarding the deposit’s ownership.
• The Holdout Agreement conferred a power on the bank: it granted CBTC (and later BPI) the option to apply the deposit to the loan; however, it did not impose a duty to do so.

Litigation and Contested Claims

• Velasco’s estate underwent settlement proceedings in Sp. Proc. No. 8959 in the RTC of Pasig, where Velasco’s heirs were authorized to withdraw the deposit from the joint account.
• On December 2, 1987, BPI initiated a collection suit (Civil Case No. 87-42967) against Lim and Eastern to enforce payment of the promissory note.
• In response, Lim and Eastern filed a counterclaim demanding the return of the disputed P331,261.44, representing the outstanding balance of their joint account after deducting the noted loan.
• The Regional Trial Court (RTC) dismissed BPI’s complaint on the basis that the Holdout Agreement required the offsetting of the loan against the account’s balance, while also dismissing the counterclaim because the deposit had been withdrawn pursuant to the probate order.
• The Court of Appeals affirmed the dismissal of the complaint in part and later modified its decision regarding the counterclaim, ordering BPI to pay the disputed amount back to the respondents.
• BPI subsequently filed the instant petition challenging the appellate decision, particularly the application of the suspensive condition of the Holdout Agreement.

The Merger and Application of the Note

• In 1980, CBTC merged with BPI, transferring the rights and obligations related to the promissory note and the Holdout Agreement.
• BPI, having acquired the note subject to the Holdout Agreement, questioned whether it could enforce the unconditional payment of P73,000 under the note and whether it was relieved of its duty on the disputed deposit resulting from the withdrawal by Velasco’s heirs.

Issue:

Enforceability of the Promissory Note

• Whether BPI (as successor to CBTC) could demand strict payment of the promissory note for P73,000 irrespective of the Holdout Agreement’s security arrangement.
• Whether the unconditional promise embodied in the note overrides any set-off provisions arising from the Holdout Agreement.

Effect of the Holdout Agreement and the Suspensive Condition

• Whether the suspensive condition stipulated in the Holdout Agreement—which required a final judicial determination or settlement on the ownership interests in the joint account—applied in this case.
• Whether the Agreement’s provisions compel BPI to apply or set off the disputed deposit against the promissory note.

Liability on the Disputed Deposit after Withdrawal

• Whether BPI remains liable to Eastern (the true creditor-depositor) for the P331,261.44 allegedly withdrawn by Velasco’s heirs.
• Whether the withdrawal of the entire account balance by the heirs, executed under court order, extinguishes BPI’s obligation toward the rightful depositor.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)