G.R. No. 66826 - Bank of the Philippine Islands vs. Intermediate Appellate Court

Case Summary (G.R. No. 66826)

Procedural History

Zshornack filed suit in the Court of First Instance of Rizal–Caloocan City on June 28, 1976 alleging four causes of action. The trial court ruled for Zshornack on all causes except the third. The Intermediate Appellate Court modified the judgment by absolving COMTRUST from liability on the fourth cause of action but otherwise affirming relief. BPI sought further review, asking to be wholly absolved; the Supreme Court reviewed only the issues raised by the bank’s appeal.

Relevant Dates and Transactions

October 27, 1975: A dollar draft application and an issued check for US$1,000 (payable to Leovigilda D. Dizon) were charged to Dollar Savings Account No. 25-4109 (Zshornack).
December 8, 1975: A handwritten acknowledgment signed by Garcia stating receipt of US$3,000 for safekeeping.
May 10, 1976: Zshornack demanded return of the US$3,000.

Applicable Law

Article 1962, New Civil Code (definition of deposit).
Article 5 and Article 1411, New Civil Code (effects of illegality and pari delicto).
Central Bank Circular No. 20 (December 9, 1949) as then in force and its partial modification by Central Bank Circular No. 281 (November 26, 1969, Section 6).
Procedural rule (Rule 8, Section 8) requiring specific sworn denial to question execution of an attached document or an agent’s authority to bind a corporation; supporting precedents cited in the decision.

Facts Material to the First Cause of Action

Zshornack maintained a dollar savings account and a peso current account with COMTRUST. On October 27, 1975, an application and an issued draft/check for US$1,000 were recorded as charged to Zshornack’s dollar savings account. When Zshornack discovered the withdrawal, the bank asserted two inconsistent defenses: (1) that the peso equivalent had been paid to Ernesto Zshornack, Jr. upon his encashment of a cashier’s check; and (2) that there was an agreement authorizing conversion/withdrawal to fund the peso current account. The record contained no proof that the peso current account was credited with the peso equivalent of the US$1,000, nor any link between the cashier’s check payment to Ernesto and the dollar withdrawal.

Holding on the First Cause of Action (Unauthorized Withdrawal)

The Court upheld liability for the unauthorized withdrawal of US$1,000 from Zshornack’s dollar savings account. The bank’s explanations were inconsistent and unsupported by the record. Payment to Ernesto could not constitute payment to Rizaldy, and there was no evidence that the withdrawal was made to fund the current account. The appellate and trial courts’ rulings on this cause were sustained.

Facts Material to the Second Cause of Action (US$3,000 for Safekeeping)

Zshornack presented a written receipt signed by Garcia acknowledging receipt of US$3,000 for safekeeping. COMTRUST did not file a sworn denial of the document’s execution or Garcia’s authority, and in its trial position it asserted that the dollars had been converted to pesos and credited to Zshornack’s current account, with deposit slips purportedly prepared by Garcia reflecting such credits. The bank later argued that the transaction was not a depositum (Article 1962) and that Garcia exceeded his authority, rendering the obligation personal to him.

Procedural and Evidentiary Ruling on the Second Cause

Because the second cause of action was based on an actionable document attached to the complaint, the bank was required, if it intended to contest the document’s execution or the agent’s authority, to do so by a specific sworn denial under Rule 8, Section 8. The bank failed to make such a sworn denial; consequently it was deemed to have admitted Garcia’s authority and the bank’s capacity to enter into the contract embodied by the receipt. The Court invoked authorities explaining the policy behind this rule—reliance on outward appearances of corporate authority and the need to apprise plaintiffs promptly if authority is contested.

Legal Characterization of the US$3,000 Transaction

The document and parties’ conduct demonstrated a contract whose principal purpose was safekeeping of foreign currency; this fits the definition of deposit under Article 1962 (depositum). Because the object of the contract was foreign exchange and the parties were Philippine residents, the transaction was governed by Central Bank Circular No. 20 and Section 6 of Circular No. 281, which required receipts of foreign exchange by residents to be sold to the

Case Syllabus (G.R. No. 66826)

Parties and Substitution

Original parties: Rizaldy T. Zshornack (private respondent) and the Commercial Bank and Trust Company of the Philippines (COMTRUST).
In 1980, the Bank of the Philippine Islands (BPI) absorbed COMTRUST via corporate merger and was substituted as party to the case.
Petitioner in the Supreme Court proceedings is BPI; respondents are the Intermediate Appellate Court and Rizaldy T. Zshornack.

Procedural Posture

Rizaldy Zshornack filed a complaint on June 28, 1976 in the Court of First Instance (CFI) of Rizal-Caloocan City alleging four causes of action.
The CFI ruled in Zshornack’s favor on all causes except the third.
The Intermediate Appellate Court (Court of Appeals) modified the CFI decision by absolving the bank from liability on the fourth cause of action; the appealed portions as modified were set out in the opinion.
BPI petitioned the Supreme Court seeking total absolution from liability to Zshornack.
Private respondent Zshornack did not appeal the Court of Appeals decision; consequently, the Supreme Court’s review was limited to: (1) the bank’s liability on the first cause of action; (2) the bank’s liability on the second cause of action; and (3) the bank’s liability for damages.

Material Facts — Accounts and Transactions

On the material dates, Rizaldy Zshornack and his wife maintained with COMTRUST, Quezon City Branch: a dollar savings account (No. 25-4109) and a peso current account (No. 210-465-29).
October 27, 1975: An application for a dollar draft was executed by Virgilio V. Garcia, Assistant Branch Manager, payable to Leovigilda D. Dizon for US$1,000.00; Garcia indicated the amount to be charged to Dollar Savings Acct. No. 25-4109 and related commission/tax charges (P17.46) to be charged to Current Acct. No. 210-465-29. No purchaser’s name for the dollar draft was indicated in the application.
Same date: COMTRUST, under Garcia’s signature, issued a check payable to Leovigilda D. Dizon for US$1,000 drawn on Chase Manhattan Bank, New York, indicating charge to Dollar Savings Acct. No. 25-4109.
Upon discovery of the US$1,000 withdrawal, Zshornack demanded explanation; COMTRUST claimed the peso equivalent had been given to Atty. Ernesto Zshornack, Jr. (Rizaldy’s brother) when Ernesto encashed a Manilabank cashier’s check for P8,450.00.
December 8, 1975: Zshornack delivered US$3,000.00 in cash to COMTRUST through Garcia for safekeeping; COMTRUST produced a written acknowledgement signed by Garcia stating receipt of US$3,000.00 for safekeeping.
When Zshornack demanded return of the US$3,000 on May 10, 1976, COMTRUST explained US$2,000 had been sold on December 29, 1975 and peso proceeds (P14,920.00) deposited to Zshornack’s current account via a deposit slip by Garcia; the remaining US$1,000 was sold on February 3, 1976 and peso proceeds (P8,350.00) were likewise deposited to his current account by a deposit slip by Garcia.

Issues Presented

Whether the bank is liable for the unauthorized withdrawal of US$1,000.00 from Zshornack’s dollar savings account on October 27, 1975 (first cause of action).
Whether Zshornack may recover US$3,000.00 entrusted to COMTRUST for safekeeping on December 8, 1975, given the bank’s assertion that the dollars were sold and credited to his peso current account (second cause of action).
Whether the bank is liable for litigation expenses and attorney’s fees awarded by the courts below and, if so, whether the amount awarded (P8,000.00) is reasonable.

Rulings of the Courts Below (Pertinent Portions)

Court of Appeals (as modified in the recited judgment) ordered:
- COMTRUST to restore US$1,000.00 to Zshornack’s dollar savings account as of October 27, 1975 with interest at the rate fixed by the bank for dollar deposits under Central Bank Circular 343.
- COMTRUST to return US$3,000.00 immediately upon finality of the decision without interest, reasoning those funds were held in custody and not actually deposited to the dollar account because cash greenbacks cannot by law be deposited to a dollar account; the bank’s obligation was to return them on demand.
- COMTRUST to pay P8,000.00 as damages (litigation expenses and attorney’s fees) for failure to restore US$1,000.00 and to return US$3,000.00.
- Costs against COMTRUST.
The Court of Appeals thus rendered relief on components of the first and second causes, as reflected in its order, but the Supreme Court’s review narrowed issues as earlier stated.

First Cause of Action — Court’s Findings and Reasoning (Unauthorized Withdrawal)

The Supreme Court found no reason to disturb the rulings of the CFI and the Court of Appeals on the first cause of action.
The bank was held liable for the unauthorized withdrawal of US$1,000.00 from Zshornack’s dollar savings account.
The Court summarized petitioner’s (bank’s) defenses and rejected them:
- Defense 1: The peso value of the withdrawn amount was given to Ernesto Zshornack, Jr. when Ernesto encashed a Manilabank cashier’s check for P8,450.00.
  - Court’s response: The bank did not demonstrate how the cashier’s check transaction related to the dollar draft transaction; the two transactions appear independent. Payment to Ernesto cannot be considered payment to Rizaldy because Ernesto is a distinct legal personality.
- Defense 2: Alleged agreement authorizing conversion/withdrawal to fund the peso current account.
  - Court’s response: Even assuming such an agreement existed, evidence did not show the withdrawal was made pursuant to it; records instead showed the amount financed a dollar draft payable to Leovigilda D. Dizon. There was no proof Current Account No. 210-465-29 was ever credited with the peso equivalent of the US$1,000.00 withdrawn on October 27, 1975.
Conclusion: Petitioner must be held liable for the unauthorized withdrawal; bank’s inconsistent and unproven explanations were unavailing.

Second Cause of Action — Factual Basis and Contractual Instrument

The complaint alleged that on December 8, 1975 Zshornack entrusted US$3,000.00 to COMTRUST through Garcia for safekeeping and attach