Title
BPI Family Bank vs. Franco
Case
G.R. No. 123498
Decision Date
Nov 23, 2007
BPI-FB froze Franco’s accounts over forged transactions; SC ruled freezing unlawful, awarded Franco deposits, interest, and attorney’s fees, but denied moral/exemplary damages.

Case Summary (G.R. No. 123498)

Bank’s reaction: debiting, freezing and garnishment

In response to FMIC’s forgery claim and to protect its claimed interests, BPI‑FB instructed debits against Franco’s current and savings accounts on September 8, 1989. The time deposit could not be debited because of computer limitations. Subsequently two checks issued by Franco (dated Sept 11 and 18, 1989) were dishonored when the bank treated the account as under garnishment. The bank relied on a writ of attachment issued in a Makati RTC case it had filed against Franco and others seeking recovery of the amounts allegedly diverted through the forged instruction. Notably, Franco only received the Notice of Garnishment on Sept 27, 1989 and was not impleaded in the Makati action until May 15, 1990.

Procedural posture and related litigation

Franco filed suit in the Manila RTC on June 4, 1990 seeking recovery of his savings balance (including the P400,000 temporarily transferred to Quiaoit’s account), interest on his current account, the advance interest deducted from his pre‑terminated time deposit, and damages (actual, moral, exemplary) and attorney’s fees. The Manila RTC granted recovery of specified sums, nominal damages and attorneys’ fees; the Court of Appeals affirmed with modification awarding unearned time deposit interest, moral and exemplary damages, and increased attorney’s fees. BPI‑FB petitioned to the Supreme Court raising multiple errors.

Core legal issue: who has the better right to the deposits

BPI‑FB argued that, because the bank’s transfer of FMIC funds to Tevesteco was mistaken (based on a forged Authority to Debit), the money ultimately traceable to Franco was effectively the bank’s own and it therefore had the right to set off or freeze those specific sums found in Franco’s accounts. BPI‑FB relied on Article 559 of the Civil Code (possession of movables acquired in good faith equivalent to title and right to recover lost movables). The Court rejected this theory because Article 559 pertains to specific, determinate movables; money in bank deposits is fungible, not identifiable as a uniquely earmarked chattel. The Court stressed that bank deposits are governed by the law of loan (mutuum): when a depositor leaves money with a bank the bank becomes owner of the fungible money but simultaneously becomes debtor obliged to pay an equal amount on demand. Ownership of the fungible funds by the bank does not permit unilateral deprivation of the depositor’s right to demand payment. Therefore BPI‑FB had no unilateral right to freeze Franco’s deposits based on its internal claim to ownership of equivalent money traced to the forged debit.

Bank‑depositor fiduciary duty and the standard of care

The Court reiterated the bank’s fiduciary duty to treat depositor accounts with meticulous care and fidelity. Because the bank failed to detect the forgery that produced the disputed transfer and because the bank itself effectuated the transfer from FMIC time deposit (even though FMIC had already been paid advance interest), the bank could not shift the loss to innocent payees or depositors without appropriate judicial process. The Court emphasized that permitting banks to freeze deposits on mere suspicion would undermine public confidence and the banking system.

Interest on Franco’s current account and the effect of non‑payment

The Court upheld the award of interest on Franco’s current account from the time the bank unjustifiably refused to release his deposited funds (from May 17, 1990). While the legal consequences of non‑compliance with the Makati RTC’s Order Lifting Attachment could be addressed in that court, the Manila RTC properly ruled on BPI‑FB’s contractual obligation under mutuum to pay Franco on demand. Because BPI‑FB declined to pay, interest at the contractual/legal rate was properly imposed for the period of wrongful non‑payment.

Recovery of the P400,000 temporarily in Quiaoit’s account

The Court accepted the factual findings that Quiaoit held on deposit funds that in truth belonged to Franco (Quiaoit testified he disclaimed ownership and recounted the arrangement). Rule 10 §5 permits issues tried with implied consent to be treated as if pleaded; BPI‑FB’s cross‑examination of Quiaoit amounted to implied consent. Accordingly, Franco’s action for recovery of his deposits properly encompassed the P400,000 that had been temporarily placed in Quiaoit’s account.

Dishonor of Franco’s checks and due process under Rule 13

BPI‑FB justified dishonoring Franco’s checks on the ground of a supplemental writ of attachment issued in the Makati case. The Court held that due process and the Rules of Court require service of writs and related papers on the party whose property is affected; Franco did not receive notice before the bank dishonored the checks. Moreover, enforcement of attachment requires that the owner be included in the main suit; Franco was not impleaded until May 15, 1990. Thus, at the time the checks were dishonored (Sept 20–21, 1989) there was no valid process effecting garnishment against Franco’s accounts, and the dishonor was premature and unjustified.

Claim of bad faith, unearned time‑deposit interest, and moral/exemplary damages

The CA had found BPI‑FB acted in bad faith and awarded unearned interest on the time deposit and moral and exemplary damages. The Supreme Court reversed that part of the CA’s ruling and reinstated the trial court’s more measured findings: the bank acted to protect its interests (self‑protection) rather than from fraud, malice or a dishonest purpose that would constitute bad faith under Article 2201 and related provisions. Bad faith, in the required legal sense, implies a dishonest purpose or moral obliquity; mere error, negligence, or a mistaken course taken to secure funds is insuffici

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