Title
Bank of the Philippine Islands vs. Court of Appeals
Case
G.R. No. 136202
Decision Date
Jan 25, 2007
BPI debited Salazar’s account for unendorsed checks, claiming reimbursement for Templonuevo. SC ruled BPI had set-off rights but was negligent, awarding Salazar damages for improper handling.

Case Summary (G.R. No. 136202)

Petitioner

Bank of the Philippine Islands, which credited unendorsed checks to Salazar’s account and later debited that account to reimburse Templonuevo.

Respondents

Annabelle A. Salazar, who sued BPI for wrongful debit of her account; Julio R. Templonuevo, who intervened asserting right to the checks' proceeds.

Key Dates

• Checks dated January–August 1990, payable to JRT Construction and Trading
• Deposit and credit by BPI: three occasions in 1990
• Templonuevo’s demand for reimbursement: August 31, 1991
• RTC decision: ordered BPI to pay Salazar P267,707.70 plus damages
• Court of Appeals decision: April 3, 1998, affirmed RTC
• Supreme Court decision: January 25, 2007

Applicable Law

• 1987 Philippine Constitution
• Negotiable Instruments Law (Act No. 2031), especially Section 49 on transfer without endorsement
• Civil Code Articles 1278–1290 (legal compensation) and 1980 (bank deposits as simple loan)
• Rule 131, Sections 3(r) and (s) of the Rules of Court (presumptions regarding negotiable instruments)
• Rule 45, Rules of Court (certiorari review)

Statement of Facts

  1. Three checks totaling ₱267,692.50, payable to JRT Construction and Trading, were delivered to Salazar without endorsement.
  2. Salazar deposited them into her personal savings account with BPI, which credited her account on three separate occasions in 1990.
  3. One year later, Templonuevo protested the deposits and demanded payment from BPI.
  4. Finding no endorsement by Templonuevo, BPI determined the credit entries were erroneous and froze Salazar’s other account (Account No. 0201-0588-48).
  5. Without notifying Salazar, BPI later debited that account for ₱267,707.70 (including bank charges) and issued a cashier’s check to Templonuevo.

Issue

Whether a collecting bank may, over its depositor’s objection, debit the depositor’s account to correct previous payments on unendorsed order instruments credited in error.

Petitioner’s Arguments

• Section 49 of the Negotiable Instruments Law does not apply because Salazar was neither payee nor indorsee; no presumption of lawful transfer.
• Civil Code provisions on legal compensation and set-off authorized BPI to correct the erroneous credit entry.
• A.A. Salazar Construction and Engineering Services and Salazar had no separate legal personality, so debiting either account was proper.
• Third-party complaint against Templonuevo should not have been dismissed; he must return funds if the debit was improper.
• Award of damages lacked factual basis.

Lower Courts’ Decisions

• RTC awarded Salazar ₱267,707.70 with 12% interest, actual, moral, exemplary damages, attorney’s fees, and costs; dismissed BPI’s counterclaims.
• Court of Appeals affirmed, finding an implied agreement among Salazar, Templonuevo, and BPI allowing deposit of the checks into Salazar’s account.

Standards on Factual Findings

Under Rule 45, only questions of law are generally reviewable; factual findings of the CA are final unless based on speculation, misapprehension of facts, or grave abuse of discretion.

Analysis on Transfer of Unendorsed Checks

• Section 49 NIL treats a transfer without endorsement as an equitable assignment but presumes no title or holder-in-due-course status unless payee or indorsee.
• Mere possession of an order instrument by a non-endorsing transferee does not entitle payment absent proof of a lawful transaction.
• The one-year delay by Templonuevo in asserting his right is not so unreasonable as to estop him, especially since the checks were crossed, warning holders to inquire into purpose.

Presumption Under Negotiable Instruments Law

• Rule 131(s) presumes consideration only when an instrument is “given or indorsed” for value; physical delivery of an unendorsed order instrument does not satisfy negotiation requirements.
• Salazar, not being payee or indorsee, could not claim the benefits of that presumption and failed to prove a valid transfer from Templonuevo.

Bank’s Right of Set-Off

• Under Article 1980 CC, deposits in banks are governed by simple loan provisions, creating debtor-creditor relationships.
• Article 1278 CC allows legal compensation (set-off) when each party is principal debtor and creditor in liquidated, demandable monetary debts.
• BPI had the right to debit Salazar’s deposits to retract undue payments made to Templ





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