G.R. No. 136202 ; January 25, 2007
BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO, Respondents

FACTS

Annabelle Salazar filed a complaint against BPI for the recovery of P267,707.70 debited from her account. BPI had frozen and debited the amount after Julio Templonuevo claimed that three checks, payable to him or his business, were deposited into Salazar’s account without his endorsement. BPI, accepting Templonuevo’s claim as valid, paid him via cashier’s check. The debited account (No. 0201-0588-48) was different from the account where the checks were originally deposited (No. 0203-1187-67), which was already closed. Salazar argued the debit was unauthorized, while BPI defended its action as a correction of an improper deposit.
The Regional Trial Court ruled in favor of Salazar, ordering BPI to return the debited amount with interest and damages. The Court of Appeals affirmed, holding that Salazar was entitled to the check proceeds despite the lack of endorsement, as there was an alleged agreement between Salazar and Templonuevo that checks payable to Templonuevo’s business belonged to Salazar, with BPI’s acquiescence. BPI appealed to the Supreme Court.

ISSUE

Does a collecting bank have the authority to unilaterally debit a depositor’s account to recover amounts it paid on unendorsed order instruments previously deposited by the depositor into another account?

RULING

No. The Supreme Court reversed the CA’s order for BPI to return the debited amount, but affirmed the dismissal of BPI’s third-party complaint against Templonuevo. The legal logic is anchored on the Negotiable Instruments Law and banking principles. Checks payable to order require endorsement by the payee for negotiation. Salazar, not being the payee or an indorsee, was not a holder entitled to demand payment. BPI, as the collecting bank, credited the checks to Salazar’s account without the requisite endorsements, making it liable to the true owner, Templonuevo. When BPI paid Templonuevo upon his demand, it was correcting its prior error. The debit from Salazar’s other account was a legitimate act of reimbursement, as the bank had a right to recover funds it erroneously credited. The Court found no evidence of a prior agreement authorizing such deposits that BPI was privy to. However, BPI’s negligence in initially accepting the unendorsed checks did not negate its right to rectify the error. Consequently, BPI was not liable to return the debited sum to Salazar. The claim for damages against BPI was also denied, as the debit was a lawful exercise of its right to recover.