Case Summary (G.R. No. L-16106)
Procedural history and rulings below
The trial court initially held that cashier’s/manager’s checks and demand drafts fell within Act No. 3936 but excluded telegraphic transfer payment orders. After the bank’s motion for reconsideration, the trial court changed its view and held that demand drafts likewise did not fall within the Act’s purview; it thus excluded both demand drafts and telegraphic transfers from escheat while treating cashier’s/manager’s checks as within the Act. The Republic appealed to the Supreme Court.
Statutory definition and legal concept of “unclaimed balances,” credits and deposits
Act No. 3936 defines “unclaimed balances” to include “credits or deposits of moneys ... or other evidence of indebtedness of any kind, and interest thereon with banks ... in favor of any person unheard from for a period of ten years or more.” The Court accepted the trial court’s characterization of “credit” as a sum credited on the books to a person appearing entitled to it, presupposing a creditor–debtor relationship; “deposit” similarly gives rise to a creditor–debtor relationship between depositor and bank. The central question is whether demand drafts, cashier’s/manager’s checks, and telegraphic transfer orders constitute such credits or deposits for purposes of escheat.
Legal issue concerning demand drafts and applicable negotiable instruments principles
The Court examined the nature of a demand draft as a bill of exchange payable on demand. Under the Negotiable Instruments Law (Act No. 2031), specifically Section 127, a bill of exchange by itself does not operate as an assignment of funds in the hands of the drawee, and the drawee is not liable on the bill unless and until he accepts it. The law also contemplates presentment for acceptance or payment within a reasonable time (Section 71), and the drawer’s liability can be affected by failure to present (Section 186). Because the demand drafts at issue had not been presented for acceptance or payment, the drawee bank never had the opportunity to accept and did not become debtor to the payee; consequently, the drafts did not create the creditor–debtor relationship necessary to constitute a “credit” or “deposit” subject to escheat under Act No. 3936.
Distinction and treatment of cashier’s and manager’s checks
The Court differentiated cashier’s and manager’s checks from demand drafts. A cashier’s check is treated as an obligation of the issuing bank on itself—effectively an acceptance in advance by the bank of its own bill of exchange—and constitutes the bank’s written promise to pay on demand. Because issuance produces a primary, immediate obligation of the bank and the deposit represented by the cashier’s check passes to the checkholder (making the holder effectively a depositor to that amount), such instruments fall within the category of credits or deposits contemplated by Act No. 3936 and are therefore subject to escheat.
Nature and treatment of telegraphic transfer payment orders
Telegraphic transfer payment orders were analyzed as creating a contractual obligation akin to a purchase and sale of a transfer: the remitting bank is paid the value of the transfer, and the obligation to establish the credit is executory as to the remitting bank but the remitting bank has already received payment. The Court noted that in the bank’s books the amounts represented by telegraphic payment orders appeared in the names of the respective payees; if payees had demanded payment upon receipt, the defendant bank would have been obliged to pay. Once the
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Citation and Decision
- Reported at 113 Phil. 828, G.R. No. L-16106.
- Date of decision: December 30, 1961.
- Opinion written by Justice Bautista Angelo.
- Judgment concluded with the direction "No costs."
- Justices Reyes, J.B.L., Barrera, Paredes, Dizon, and De Leon concurred.
Parties and Posture
- Plaintiff and appellant: The Republic of the Philippines.
- Defendants: Philippine National Bank, et al.
- Defendant and appellee specifically involved in the appeal: The First National City Bank of New York.
- The Republic sued for escheat of certain unclaimed bank deposit balances under Act No. 3936.
- The First National City Bank of New York answered admitting many dormant deposits were subject to escheat but contended that certain items included in its report were not, properly speaking, "credits or deposits" under Act No. 3936.
Facts
- On September 25, 1957, the Republic filed a complaint for escheat before the Court of First Instance of Manila pursuant to Act No. 3936.
- Defendant banks had forwarded statements under oath, pursuant to Section 2 of Act No. 3936, of credits and deposits held in favor of persons known to be dead or who had not transacted for ten years or more.
- The First National City Bank of New York's report to the Treasurer included various savings deposits, pre-war inactive accounts, sundry accounts and also certain items the bank asserted were not credits or deposits within the meaning of Act No. 3936.
- The items specifically in dispute included: demand drafts, cashier's or manager's checks, and telegraphic transfer (telegraphic payment) orders.
- At first the trial court held cashier's/manager's checks and demand drafts were within the purview of Act No. 3936 but telegraphic transfer payment orders were not; consequently the complaint was dismissed with respect to the telegraphic transfers.
- After a motion for reconsideration by the defendant, the trial court amended its decision and held that demand drafts likewise did not come within the purview of Act No. 3936.
Statute Quoted and Its Text (Act No. 3936, Section 1)
- Section 1 as quoted in the opinion:
- "'Unclaimed balances' within the meaning of this Act shall include credits or deposits of moneys, bullion, security or other evidence of indebtedness of any kind, and interest thereon with banks, as hereinafter defined, in favor of any person unheard from for a period of ten years or more. Such unclaimed balances, together with the increase and proceeds thereof, shall be deposited with the Insular Treasurer, to the credit of the Government of the Philippine Islands to be used as the Philippine Legislature may direct."
- The opinion interprets "unclaimed balances" to include credits or deposits of money or other evidence of indebtedness with banks in favor of any person unheard from for ten years or more.
Legal Character of "Credit" and "Deposit"
- The term "credit" in its usual meaning is described as a sum credited on a company's books to a person who appears entitled to it; it presupposes a creditor-debtor relationship and implies the ability to make a promised payment.
- Supporting authorities and cases are cited in the opinion to elaborate the concept of "credit" (e.g., In Re Ford; Mountain Motor Car Co. vs. Solof; Eric vs. Walsh; Libby vs. Hopkins; Prudential Insurance Co. vs. Nelson; Barnes vs. Treat).
- The term "deposit" in banks similarly creates a creditor-debtor relationship between depositor and bank (citing Article 1980, Civil Code; Gullas vs. National Bank; Gopoco Grocery, et al. vs. Pacific Coast Biscuit Co., et al.).
Issues Presented
- Do demand drafts come within the meaning of the terms "credits" or "deposits" employed in Act No. 3936?
- Do telegraphic transfer (telegraphic payment) orders come within the meaning of "credits" or "deposits" under Act No. 3936?
- Do cashier's or manager's checks constitute credits or deposits subject to escheat under Act No. 3936?
- Subsumed questions:
- Can a demand draft, cashier's check, or telegraphic transfer be considered a sum credited on the bank's books to a person who appears to be entitled to it?
- Do these instruments create a creditor-debtor relationship between the drawee (or issuing bank) and the payee sufficient to constitute a "credit" or "deposit" for purposes of escheat?
Legal Principles Applied (Negotiable Instruments and Banking)
- A demand draft is characterized as a bill of exchange payable on demand; the terms "draft" and "bill of exchange" are commonly used interchangeably.
- Unde