G.R. No. 104612 May 10, 1994
BANK OF THE PHILIPPINE ISLANDS (successor-in-interest of COMMERCIAL AND TRUST CO.), petitioner, vs. HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents.

FACTS

Private respondents Eastern Plywood Corporation (Eastern) and Benigno D. Lim held a joint account with Commercial Bank and Trust Co. (CBTC), petitioner BPI’s predecessor. In March 1975, a joint checking account (“and” account) was opened by Mariano Velasco with funds withdrawn from Eastern and/or Lim’s account. Upon Velasco’s death in 1977, the account balance was P662,522.87. Half was provisionally released to Eastern’s account via an Indemnity Undertaking by Lim. On August 18, 1978, Eastern obtained a P73,000 demand loan from CBTC, evidenced by a promissory note and a Disclosure Statement marked “UNSECURED” but with a typewritten reference to a “Hold-Out” on Current Account No. 2310-001-42 (the joint Velasco-Lim account with a balance of P331,261.44). A “Holdout Agreement” was also executed, stating the holdout was security for the loan, to be applied only after Eastern and Lim’s interests in the account were established with finality via judicial action or settlement. It also stated CBTC’s right to demand payment at any time was not impaired. The Velasco estate claimed the entire account balance in intestate proceedings. In 1980, CBTC merged with BPI. In 1986, the intestate court authorized Velasco’s heirs to withdraw the deposit. In 1987, BPI sued Eastern and Lim for payment of the P73,000 note. The defendants counterclaimed for the return of the account balance. The trial court dismissed the complaint, ruling BPI had a duty to set off the loan against the deposit, and denied the counterclaim due to the intestate court’s order. The Court of Appeals affirmed the dismissal but granted the counterclaim for P331,261.44, ordering BPI to pay it.

ISSUE

1. Whether BPI can demand payment of the P73,000 loan despite the Holdout Agreement.
2. Whether BPI is liable to private respondents for the account balance after its withdrawal by Velasco’s heirs.

RULING

1. Yes. The Holdout Agreement conferred a power, not a duty, on CBTC/BPI to apply the deposit to the loan. Paragraph 05 expressly preserved CBTC’s right to demand payment and sue on the note. The promissory note was an unconditional promise to pay. BPI’s suit to enforce it was proper; the trial court erred in dismissing it. The Court of Appeals’ affirmation of the dismissal is reversed.
2. Yes. The money in the joint Velasco-Lim account originated from Eastern and/or Lim’s own account. As the depositor-creditor, Eastern had the right to demand payment from the bank. Payment by BPI to Velasco’s heirs, even in good faith, did not extinguish its obligation to the true depositor, Eastern, who was not a party to the intestate case. BPI, as the debtor-bank, bore the risk of its payment to the wrong party. The award on the counterclaim is sustained.
The Supreme Court PARTIALLY GRANTED the petition. It MODIFIED the Court of Appeals’ decision: (1) Private respondents are ordered to pay BPI the P73,000 note with 14% interest per annum from August 18, 1978, and 12% per annum on accrued interest from the complaint’s filing. (2) The award of P331,261.44 to private respondents shall bear 12% interest per annum from the counterclaim’s filing.