G.R. No. L-12554. February 28, 1961. C.N. HODES, plaintiff-appellant, vs. MATIAS C. REY, ET AL., defendants. PHILIPPINE NATIONAL BANK, defendant-appellee.
FACTS

On September 21, 1938, Matias C. Rey obtained a loan of P3,000 from C.N. Hodges. Three days later, Rey sent a letter to the Philippine National Bank (PNB) authorizing it to pay this debt to Hodges from any crop loan PNB might grant him for the 1939-1940 agricultural year. PNB’s acting manager sent a letter to Hodges confirming this “arrangement.” Subsequently, on January 18, 1939, PNB granted Rey an agricultural line of P39,000, but it was subject to conditions, including the retention of P10,000 for milling expenses and the charging of any unpaid balance from his 1938-1939 line against this new line. Rey’s unpaid balance from the prior year exceeded P55,000.
Despite this substantial prior obligation, PNB’s acting manager, on March 2, 1939, authorized a payment of P2,000 to Hodges on Rey’s debt, leaving a P1,000 balance. After failed collection attempts from both Rey and PNB, Hodges filed an action in 1952 to recover the balance. The municipal court dismissed the complaint against PNB but held Rey liable. Hodges appealed the dismissal to the Court of First Instance, which affirmed the dismissal, leading to this appeal.

ISSUE

Whether the Philippine National Bank assumed the obligation to pay the remaining balance of Rey’s debt to Hodges, thereby making it liable for the unpaid amount.

RULING

No, the Philippine National Bank did not assume the obligation and is not liable. The Supreme Court affirmed the lower court’s decision. The legal logic is grounded in the nature of the agreements and the absence of a binding assumption of debt by PNB. Rey’s letter to PNB was merely an authorization to pay from a future loan, and PNB’s responsive letter was only a confirmation of this arrangement, not an assumption of primary, suretyship, or guaranty obligations. The subsequent grant of the agricultural line was explicitly conditional, with the bank retaining the right to apply funds to Rey’s prior indebtedness to it. Since Rey’s prior debt to PNB exceeded P55,000, there were, in reality, no net available funds from the new line that could be legitimately applied to pay Hodges. The payment of P2,000 made by PNB’s manager was therefore a mistake not in accordance with the loan agreement, for which the manager was reprimanded. This erroneous payment, made to Hodges’s benefit, cannot legally bind PNB to pay the remainder. The obligation remained solely with Rey, who did not appeal his personal liability. Thus, no cause of action lies against PNB.