BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. TARCILA FERNANDEZ, RESPONDENT.

Bank of the Philippine Islands versus Fernandez

The Case

This is a petition for review on certiorari brought by the Bank of the Philippine Islands against Tarcila Fernandez, a co-depositor in four joint and/or time deposit accounts. Tarcila sued the bank for damages after it released the entire proceeds of those accounts to her estranged husband, Manuel Fernandez, without requiring him to surrender the certificates of deposit. The case matters because it fixes the duty of a bank under an and/or deposit: the bank pays at its peril unless the certificate is produced and surrendered, and it cannot hide behind the conjugal character of the funds or behind an indemnity agreement it procured to shield itself.

Procedural History

Tarcila filed a complaint for damages before the Regional Trial Court of Makati City, Branch 59. The trial court ruled in her favor, holding that the and/or accounts created an active solidarity, so that under Article 1214 of the Civil Code payment should have been made to her as the first to demand. It awarded her proportionate shares of the deposits, exemplary damages, and attorney's fees, and dismissed the bank's third-party complaint against Dalmiro Sian. The bank appealed to the Court of Appeals, which affirmed the trial court in a decision issued in July 2005 and denied reconsideration in June 2006. The bank then came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

In 1991, Tarcila, her husband Manuel, and their children Monique and Marco opened four and/or deposit accounts with the bank's Shaw Boulevard branch: two peso time certificates, a foreign currency certificate, and a savings deposit. Each certificate carried a condition that endorsement and presentation of the certificate of deposit is necessary for the renewal or termination of the deposit.

On September 24, 1991, Tarcila went to the branch to pre-terminate the accounts, bringing the certificates and the passbook. The bank refused and insisted on contacting Manuel. Shortly after she left, Manuel arrived and asked for the same pre-termination, claiming he had lost the very certificates Tarcila had just presented. The bank accepted this at face value and had him sign its pro-forma affidavit of loss. Two days later, Manuel returned with his lawyer, Sian, and two alleged agents of the National Bureau of Investigation. On the strength of the affidavit of loss and an indemnity agreement, the bank released the proceeds, funneled them into a newly opened account in Sian's name, had Sian sign blank withdrawal slips, and let Manuel withdraw everything before the account was closed the same day. No co-depositor was ever contacted.

Tarcila never received her share, demanded it from the bank, and when the demands went unheeded, sued for damages. During pre-trial, the parties admitted the conjugal nature of the funds.

Issues

• Whether or not the bank breached its obligations under the certificates of deposit when it released the proceeds to Manuel without the presentation and surrender of the certificates.
• Whether or not the bank acted in bad faith, entitling Tarcila to damages.
• Whether or not the bank may invoke the indemnity agreement against Sian.

Applicable Provisions

Article 1214 of the Civil Code, relied upon by the trial court, provides:

Article 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him.

This rule explains why the bank should have paid Tarcila, who made the first demand, rather than Manuel.

Article 19 of the Civil Code, cited by the Court in reminding the bank of its fiduciary duty, provides that every person, in the exercise of his rights, must give everyone his due and observe honesty and good faith. The Court used it to condemn the bank's manifest partiality against Tarcila.

Ruling

On the first issue, the Court held that a certificate of deposit is a written acknowledgment by a bank of the receipt of money, which it promises to pay to the depositor or his order, creating a debtor-creditor relation. The certificates expressly required endorsement and presentation for termination. The bank therefore had to do two things: verify the identity of the account holder, and demand surrender of the certificates. This requirement protects co-depositors and shields the bank only when it pays in good faith to a holder who possesses the certificates. Here the bank terminated the accounts without surrender, knowing the certificates were in Tarcila's possession, and accepted a false affidavit of loss. The Court quoted its earlier ruling that a bank acts at its peril when it pays deposits evidenced by a certificate of deposit without its production and surrender after proper indorsement, and that the debtor bears the burden of showing with legal certainty that the obligation has been discharged by payment.

On the second issue, the Court affirmed the finding of bad faith, which imports a dishonest purpose and conscious wrongdoing, a breach of a known duty through some motive, interest, or ill will. The branch manager herself testified that she did not consider Tarcila a primary depositor because the money came from Manuel, and admitted she gave due course to the affidavit of loss although she knew the certificates were not lost. The bank connived with Manuel to divest the co-depositors and to conceal the scheme by making the funds appear withdrawn from another account.

On the third issue, the Court agreed that the records showed no intimidation vitiating Sian's consent, since intimidation must be the moving cause of the consent, the threatened act must be unjust or unlawful, and the threat must be real and serious. Reluctant consent is still consent. Nevertheless, the bank cannot invoke the indemnity agreement, because it and Sian were in pari delicto, equally at fault in the deceptive scheme. One who seeks equity must come to court with clean hands.

Doctrine

A bank pays at its peril when it pays a deposit evidenced by a certificate of deposit without its production and surrender after proper indorsement. Under an and/or account, any co-depositor may transact, but termination requires presentation of the certificate, and where one co-depositor has made a demand, payment must be made to that demanding creditor under Article 1214. A bank that releases funds on a false affidavit of loss, knowing the certificates are in another's possession, is guilty of bad faith and liable for damages. Finally, a party that participates in a wrongful scheme cannot recover from a co-participant on an indemnity agreement, because they are in pari delicto.

Disposition

The Supreme Court denied the petition for lack of merit and affirmed the Court of Appeals, holding the bank liable to Tarcila for her shares in the deposits and for damages.

Remember This

Memorize the line: a bank acts at its peril when it pays a certificate of deposit without its production and surrender after proper indorsement. Examiners use this case on the diligence required of banks, on and/or deposits and Article 1214, and on the in pari delicto bar against invoking an indemnity agreement.