Bank of the Philippine Islands vs. Intermediate Appellate Court

Factual Background

On October 27, 1975, Commercial Bank and Trust Company (COMTRUST), by its assistant branch manager Virgilio V. Garcia, completed an application for a dollar draft and issued a US$1,000.00 check drawn on Chase Manhattan Bank, New York, charging Dollar Savings Account No. 25‑4109 of private respondent Rizaldy T. Zshornack. On December 8, 1975, Garcia acknowledged receipt of US$3,000.00 from Zshornack “for safekeeping” by a written instrument. When Zshornack later discovered the US$1,000.00 withdrawal and sought return of the US$3,000.00, he was told that the peso equivalents had been deposited to his peso current account and that part of the dollars had been paid out to a third person.

Procedural History

Private respondent filed a complaint in the CFI of Rizal‑Caloocan City asserting four causes of action. The trial court ruled for Zshornack on all but the third cause. On appeal the Intermediate Appellate Court modified the CFI judgment by absolving the bank of liability on the fourth cause but affirming liability on the first and second causes and awarding litigation expenses and attorney’s fees of P8,000.00. BPI sought review in the Supreme Court, praying to be totally absolved of liability.

Issues Presented

The Court confined review to (1) whether the bank was liable for the unauthorized withdrawal of US$1,000.00 from Dollar Savings Account No. 25‑4109; (2) whether Zshornack could recover the US$3,000.00 allegedly held for safekeeping; and (3) whether the award of P8,000.00 for litigation expenses and attorney’s fees was proper.

Petitioner’s Contentions

BPI contested liability on the first cause by asserting that the peso equivalent of the US$1,000.00 had been paid to Atty. Ernesto Zshornack, Jr., and thus the withdrawal had been properly effected. The bank alternatively alleged an agreement authorizing conversion of dollars to pesos to fund the Zshornacks’ peso current account. As to the second cause, the bank contended that the December 8, 1975 instrument evidenced a contract of depositum, which banks do not enter into, and that Garcia exceeded his authority so that any obligation was personal to him. The bank also asserted that the US$3,000.00 had been sold and credited to the current account at prevailing rates.

Court’s Analysis on the First Cause of Action

The Court found the explanations offered by BPI inconsistent and unproved. The record did not show a nexus between the cashier’s check encashment by Ernesto and the dollar draft payable to Dizon that was charged to Zshornack’s dollar account. Payment to Ernesto did not discharge an obligation to Rizaldy. Nor did evidence establish that the withdrawal was made to fund the Zshornacks’ peso current account; deposit slips did not demonstrate crediting of the peso equivalent to Current Account No. 210‑465‑29. The Court therefore sustained the finding that the bank effected an unauthorized withdrawal of US$1,000.00 and must restore that sum to the dollar savings account to earn interest at the bank’s dollar savings rate under Central Bank Circular No. 343.

Court’s Analysis on the Second Cause of Action

The Court examined the December 8, 1975 written acknowledgment and the parties’ conduct and concluded that the parties intended a contract of deposit for safekeeping within the meaning of Art. 1962, New Civil Code. Because the subject matter was foreign exchange and the parties were resident in the Philippines, the transaction was governed by Central Bank Circular No. 20 as amended and by Central Bank Circular No. 281. Those circulars required receipts of foreign exchange by residents to be sold to authorized agents of the Central Bank within one business day. The Court held that the contractual intent to safekeep dollars without immediate sale to the Central Bank contravened the mandatory provisions of the circulars and thus rendered the contract void under Art. 5, New Civil Code. Because the nullity derived from illegality of object and the act could constitute a criminal offense, recovery between parties was barred by Art. 1411, New Civil Code when the parties are in pari delicto; the proper recourse lay only in state prosecution. Consequently, Zshornack could not recover under the second cause of action.

Procedural Rule on Denial of Execution and Authority

The Court emphasized that the second cause rested on an actionable document which was attached to the complaint. Under Rule 8, Section 8, Rules of Court, the bank was required to specifically deny under oath the due execution of the document, or to contest Garcia’s authority to bind the corporation, if it intended to so defend. BPI filed no sworn ave