Case Summary (G.R. No. 225538)
Facts
Tan, doing business as Yon Mitori, maintained a current account with Union Bank. On November 12, 2007 he deposited a BPI check for P420,000 drawn on Angli Lumber’s account. Union Bank’s system erroneously credited the amount to Tan’s account before the check was actually cleared; Tan then withdrew P480,000 (reflecting the credited funds plus other balances). Later the check was returned dishonored for “Account Closed.” Union Bank notified Tan and demanded reimbursement; Tan refused. Union Bank debited the remaining balance of P34,700.60 and filed a Complaint for Sum of Money to recover the outstanding P385,299.40 plus damages.
Procedural history
The Regional Trial Court (Pasig City, Branch 166) rendered judgment for Union Bank on February 24, 2014, ordering Tan to pay P385,299.40 with 12% legal interest, attorney’s fees of P100,000, and costs. The Court of Appeals affirmed the judgment with modification on February 3, 2016: it deleted attorney’s fees and costs, and reduced interest to 6% per annum. A motion for reconsideration was denied on July 5, 2016. A petition for review by Yon Mitori (substantively Tan) to the Supreme Court was filed and ultimately resolved.
Issue presented
Whether the Court of Appeals erred in affirming the RTC’s order directing Tan to return the proceeds of the dishonored check with legal interest, taking into account Union Bank’s alleged technical error/gross negligence and relevant principles (solutio indebiti, unjust enrichment, liability of a collecting bank, and Article 1909).
Procedural/standing determination by the Supreme Court
Yon Mitori, as a single proprietorship, lacks separate juridical personality; the real party in interest is Tan. The petition filed in Yon Mitori’s name was a formal defect; the Court allowed substitution of Tan as petitioner in the interest of justice under Rule 10, Sec. 4, consistent with prior jurisprudence (Juasing Hardware).
Collecting bank status and obligations
The Court treated Union Bank as the collecting bank for the BPI check. A collecting bank’s obligation to credit a depositor’s account arises only after the drawee bank has paid the check or the check has been cleared. Because the check was ultimately dishonored, Union Bank had no obligation to have paid the proceeds to Tan; the premature crediting was a technical/system error and not a valid payment obligation.
Application of unjust enrichment (Article 22)
The Court found the requisites of unjust enrichment satisfied: (1) Tan was unjustly benefited by retaining and using funds to which he was not entitled; and (2) that benefit was at Union Bank’s expense. The Court emphasized Tan’s knowledge that Angli Lumber’s BPI account had been closed — supported by prior return advices for five earlier checks — and concluded Tan withdrew and used the proceeds despite such knowledge, conduct indicative of bad faith. Under Article 22 and relevant authorities, Tan thus must return the amount he received by reason of the erroneous credit.
Solutio indebiti, mistake, and PNB v. Cheah
The Court addressed Tan’s invocation of solutio indebiti and reliance on PNB v. Cheah, which precludes recovery where the mistake is one of gross negligence by the payor bank. The Supreme Court distinguished PNB v. Cheah on the facts: in PNB v. Cheah, PNB failed to observe a 15‑banking‑day clearing rule, and the bank’s conduct amounted to gross negligence; moreover, the accommodated depositor in that case did not retain benefit (funds were given to a third party). Here, the record did not establish that Union Bank’s conduct rose to the level of gross negligence comparable to PNB v. Cheah. The error was a technical/system error and Union Bank promptly notified Tan of the dishonor. Moreover, Tan actually withdrew and used the funds, and had prior notice of repeated dishonors from the same drawer. Therefore PNB v. Cheah was inapplicable and did not bar recovery.
Article 1909 (collecting agent) and Metrobank v. CA
Tan argued that as collecting agent Union Bank should be held solely liable under Article 1909 (quasi‑contractual duty of agents) and cited Metrobank v. CA. The Court found this reliance misplaced. Metrobank v. CA involved a bank’s representations that led a principal depositor to allow withdrawals and the bank’s negligence caused the principal’s loss; in the present case, Tan did not suffer loss—he gained from the erroneous credit. The Court stressed that Tan had no right to the proceeds and, having withdrawn them, was unjustly enriched. Any remedy Tan may have against the drawer (Angli Lumber) is separate; Article 1909 does not shield him from restitut
...continue readingCase Syllabus (G.R. No. 225538)
The Case (Nature, Court, and Relief Sought)
- Petition for Review on Certiorari under Rule 45 of the Rules of Court (G.R. No. 225538) assailing:
- Court of Appeals (CA), Eleventh Division Decision dated February 3, 2016 and Resolution dated July 5, 2016 in CA‑G.R. CV No. 102802;
- Those CA rulings affirmed, with modification, the Regional Trial Court (RTC) of Pasig City, Branch 166 Decision dated February 24, 2014 and Order dated May 19, 2014 in Civil Case No. 71670.
- Relief sought: reversal of CA decision and resolution directing return of funds and other monetary awards, and dismissal of Union Bank’s recovery claims.
- Supreme Court disposition: Petition denied for lack of merit; CA Decision and Resolution affirmed. Petitioner (substituted owner Rodriguez Ong Tan) ordered to pay respondent Union Bank the amount awarded with legal interest at 6% per annum from extrajudicial demand on November 20, 2007 until full payment.
Parties and Representation
- Petitioner named in pleadings: Yon Mitori International Industries (a single proprietorship).
- Real party in interest and owner/operator: Rodriguez Ong Tan (Tan).
- Respondent: Union Bank of the Philippines (Union Bank).
- Jurisdictional posture: case reached the Supreme Court by petition for review under Rule 45 after CA and RTC rulings.
Factual Background (Deposits, Withdrawals, and Dishonor)
- Tan, doing business as Yon Mitori, maintained Current Account No. 027‑03‑000181‑8 with Union Bank, Commonwealth, Quezon City branch.
- On November 12, 2007 Tan deposited a BPI check (Check No. 0180724) drawn on Angli Lumber & Hardware, Inc.’s BPI account in the amount of P420,000.00 for collection.
- Union Bank’s account records were updated to reflect the deposit, increasing Tan’s balance from P93,700.60 to P513,700.60 (including an additional separate encashment credit of P1,000.00).
- On the morning of November 14, 2007 Tan withdrew P480,000.00 from his Union Bank account.
- Later on November 14, 2007 the BPI check was returned dishonored with the reason “Account Closed.”
- Union Bank discovered that the BPI check had been mistakenly credited due to a technical/system error that had allowed the credit prior to actual clearing or return.
- Union Bank’s branch manager promptly called Tan and later sent a demand letter dated November 20, 2007 requesting reimbursement of P420,000.00, explaining that the funds were inadvertently allowed prior to the check’s actual return.
- Tan refused to return the funds, maintaining the check was given for value in the ordinary course of business.
- Bank records showed that Tan had previously deposited five BPI checks from Angli Lumber drawn on the same BPI account and that all five were previously dishonored for “Account Closed,” a fact Tan admitted in cross‑examination.
- After applying the remaining available balance of P34,700.60 to set off part of the debt, Union Bank instituted suit for recovery of P385,299.40 plus consequential damages.
Procedural History in the RTC
- Union Bank filed Complaint for Sum of Money before RTC, alleging the deposit was inadvertently credited due to a technical error.
- Tan’s defenses included: he received the check for value in the ordinary course of business; Union Bank made funds available by posting the credit; Union Bank wrongfully debited P34,700.60 from his account.
- RTC Decision dated February 24, 2014:
- Ordered Yon Mitori and Tan to pay Union Bank P385,299.40 (the remaining balance after set‑off), 12% per annum legal interest from time of judicial demand on June 13, 2008 until paid, P100,000.00 as attorney’s fees, and costs of suit P14,954.20.
- RTC found requisites for solutio indebiti under Article 2154 present because Union Bank mistakenly released funds to Tan without obligation to do so.
- RTC applied Article 1980 (bank deposits governed by provisions concerning simple loan) and legal compensation/set‑off principles to justify debiting Tan’s remaining balance against the erroneous payment.
- RTC awarded attorney’s fees and costs because Union Bank was compelled to litigate due to Tan’s refusal to return funds.
- Tan’s motion for reconsideration denied by RTC Order dated May 19, 2014; RTC reiterated that even if Union Bank was negligent, Tan remained liable to return mistakenly released funds.
Court of Appeals Ruling and Rationale
- Tan appealed via Rule 41 naming Yon Mitori as co‑appellant.
- CA Decision (February 3, 2016) — dispositive modification:
- Affirmed RTC Decision but deleted award of attorney’s fees and cost of suit in favor of Union Bank.
- Reduced legal interest from 12% to 6% per annum (citing Nacar v. Gallery Frames).
- CA reasoning:
- Dishonor of the BPI check for “Account Closed” was undisputed; allowing Tan to keep proceeds would cause unjust enrichment at Union Bank’s expense.
- Upheld application of legal compensation/set‑off.
- Deleted attorney’s fees and costs because the proximate cause of the erroneous crediting was a technical error by Union Bank; no showing Tan acted in bad faith when refusing reimbursement (thus litigation alone insufficient to justify attorney’s fees).
- Reduced interest rate to 6% in line with Supreme Court precedent.
Issues Presented to the Supreme Court
- Sole issue: Whether the Court of Appeals erred in affirming the RTC decision ordering Tan to return the value of the dishonored BPI check with legal interest.
- Ancillary procedural question: Proper party to the petition given Yon Mitori’s status as a single proprietorship and whether substitution of proprietor (Tan) is appropriate.
Supreme Court’s Procedural Determinations (Parties and Substitution)
- Single proprietorship status:
- Yon Mitori is a single proprietorship owned and operated by Tan and has no juridical personality separate from its owner under the Civil Code and Rules (Article 44 cited).
- Under Rule 3 and Rule 10 Section 4 of the Rules of Court, suits must be prosecuted in the name of the real party in interest; filing in the name of a single proprietorship is a formal, not substantial defect.
- Substitution allowed:
- Supreme Court permitted substitution of Tan as petitioner in the interest of justice, citing Juasing Hardware