G.R. No. 173207 ; February 14, 2008
PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK (now BANCO DE OROEPCI, INC.), petitioner, vs. DENNIS CUSTODIO, WILFREDO D. GLIANE, and ROLANDO FRANCISCO, respondents.

FACTS

Respondents Dennis Custodio and Wilfredo Gliane were engaged in a dollar remittance business. They utilized the services of petitioner PCIB, routing funds through the account of respondent Rolando Francisco at PCIB-Greenhills to avail of favorable exchange rates. Francisco had a Foreign Bills Purchase Line Agreement (FBPLA) with PCIB, which included an authorization for the bank to set off any funds in his accounts against any dishonored checks under the agreement. Francisco subsequently deposited four dollar checks totaling US$651,000, which were initially cleared but later dishonored by the drawee bank for insufficient funds, creating an obligation to PCIB.
On May 17, 1998, Gliane remitted US$42,300 to Francisco’s account. However, Custodio, having learned Francisco was charged higher rates, instructed Gliane to change the beneficiary. This amendment request was transmitted to PCIB-Greenhills. Before acting on the request, PCIB applied the US$42,300 remittance to partially offset Francisco’s outstanding obligation from the dishonored checks under the FBPLA. Custodio and Gliane then sued PCIB and Francisco for specific performance and damages to recover the remitted amount.

ISSUE

Whether PCIB was legally justified in setting off the US$42,300 remittance against Francisco’s loan obligation under the FBPLA, thereby making it liable to Custodio and Gliane for the amount.

RULING

The Supreme Court ruled in favor of Custodio and Gliane, holding PCIB liable. The legal logic centers on the nature of the remittance and PCIB’s contractual obligations. The US$42,300 was a remittance, not a deposit owned by Francisco. A remittance creates a principal-agent relationship where the bank (PCIB) is the agent of the remitter (Gliane/Custodio) for the specific purpose of delivering the funds to the designated beneficiary. The bank’s authority is limited to that instruction.
PCIB’s right of set-off under the FBPLA with Francisco could only apply to funds owned by Francisco. Since the remittance was not Francisco’s property but funds held by PCIB in trust for the remitters until delivery, the set-off was invalid. PCIB failed to perform its agency obligation when it diverted the funds. Its liability is direct and primary. The Court affirmed the award of actual damages (US$42,300) to Custodio and Gliane, but deleted the awards for exemplary damages and attorney’s fees due to the absence of bad faith. Francisco’s liability was correctly dismissed by the Court of Appeals, as he did not own the funds and thus could not unjustly enrich himself from the set-off.