Far East Bank and Trust Company vs. Querimit

A bank that pays a certificate of deposit payable to bearer must require its production and surrender after proper indorsement; otherwise, it pays at its peril and remains liable to the true holder. The debtor has the burden of proving payment with legal certainty. Because banking is imbued with public interest, the degree of diligence required is more than that of a good father of a family—it demands meticulous care of depositors’ accounts. Laches, being an equitable doctrine, will not be applied to defeat the rights of a depositor when to do so would result in manifest injustice.

Estrella O. Querimit, a former internal auditor of the Philippine Savings Bank, opened a dollar savings account with petitioner Far East Bank and Trust Company at its Harrison Plaza branch on November 24, 1986. She was issued four certificates of deposit, each for US$15,000, totaling US$60,000. The certificates were payable to bearer, matured in 60 days, and bore the notation “accrued,” signifying that interest would accumulate annually and the deposit would be rolled over even without surrender of the instruments if they were not indorsed or withdrawn. The branch manager assured Querimit of this feature. She intended to keep the funds deposited until her retirement. In 1989, she accompanied her ailing husband Dominador Querimit to the United States, using separate savings for the trip and his medical care. Dominador died in January 1993, and when Estrella returned and sought to withdraw her deposit, petitioner informed her that the money had already been withdrawn by her late husband. Her demands for payment were refused, prompting the suit.

• The Deposit and Certificates: On November 24, 1986, respondent Estrella Querimit opened a dollar savings account with petitioner FEBTC’s Harrison Plaza branch and was issued four Certificates of Deposit (Nos. 79028–79031), each for US$15,000, totaling US$60,000. The certificates matured in 60 days, bore 4.5% interest per annum, and were marked “payable to bearer.” They also contained the word “accrued,” indicating that if not presented for encashment or pre-termination, the deposit would be rolled over and interest would accumulate annually.

• Assurance of Automatic Renewal: The branch manager assured respondent that even without surrendering the certificates, the deposit would be renewed and earn interest upon maturity if the certificates were not indorsed and withdrawn. Respondent kept the funds deposited intending to use them after retirement.

• Husband’s Withdrawal and Bank Accommodation: While respondent was in the United States attending to her husband Dominador, a senior manager of FEBTC, the bank allowed Dominador to withdraw the entire amount represented by the four certificates without demanding surrender or indorsement of the instruments. Petitioner characterized this as an “accommodation” to Dominador. Even long after the withdrawal and before Dominador’s retirement, the bank never required him to deliver the certificates.

• Demand and Refusal: In January 1993, after her husband’s death, respondent returned to the Philippines and sought to withdraw her deposit. Petitioner refused, claiming the money had been paid to Dominador. Respondent sent letters of demand through counsel in July and August 1996, but payment was withheld, prompting her to file suit.

• Bank’s Evidence of Payment: To prove payment, petitioner presented certified copies of: (1) four dollar demand drafts for US$15,110.96 each allegedly issued to Dominador; (2) a letter from the branch cashier to Citibank requesting debit of US$60,443.84; (3) a Citicorp Remittance Service daily summary; (4) a debit ticket showing the debit of US$60,443.84 from FEBTC’s branch; and (5) an interbranch transaction credit ticket. The trial court and the Court of Appeals found this evidence insufficient because the certificates themselves remained unindorsed and undelivered in respondent’s possession, and no proof was presented that the proceeds were actually turned over to Dominador in a valid discharge of the bank’s obligation.

• Payment Made: Petitioner contended that the aggregate value of the four certificates, both principal and interest at maturity, was already paid to Dominador Querimit, respondent’s late husband, as demonstrated by the issuance of four dollar demand drafts, the debit/credit entries, and the branch cashier’s letter to Citibank.

• Absence of Liability: Petitioner maintained that because payment had been effected, it was not liable to respondent for the value of the certificates, accrued interest, or any award of moral and exemplary damages.

• Laches: Petitioner argued that respondent was guilty of laches, having attempted to withdraw the deposit only on July 29, 1996—more than nine years and eight months after the certificates were issued on November 24, 1986.

• Attorney’s Fees: Petitioner asserted that respondent was not entitled to attorney’s fees.

• Payment Not Proven: Respondent maintained that the certificates of deposit were never indorsed, delivered, or surrendered to the bank; they remained in her possession. She argued that no valid payment had been made to her or to any person authorized to receive it, and thus the obligation was not extinguished.

• Breach of Extraordinary Diligence: Respondent contended that the bank, by allowing her husband to withdraw the deposit without production and surrender of the bearer certificates, violated its fiduciary duty and failed to exercise the extraordinary diligence required of banks.

• Laches Inapplicable: Respondent argued that the deposit was intended for retirement and that she relied on the bank’s assurance of automatic accrual of interest; she did not sleep on her rights and only learned of the unauthorized withdrawal after her husband’s death. Under these circumstances, laches should not bar recovery.

• Proof of Payment: Whether petitioner sufficiently proved that the certificates of deposit had been paid to respondent or her husband so as to discharge its obligation.

• Laches: Whether respondent’s claim is barred by laches due to the lapse of over nine years before she demanded payment.

• Damages and Attorney’s Fees: Whether the trial court’s awards of moral damages, exemplary damages, and attorney’s fees were proper, and whether the amount of attorney’s fees was reasonable.

• Proof of Payment: Payment was not proved. The burden of demonstrating payment with legal certainty rested on the debtor-bank. A certificate of deposit payable to bearer must be paid only upon its production and surrender after proper indorsement; a bank that pays without requiring such production and indorsement acts at its peril. Petitioner’s documentary evidence did not establish indorsement or delivery by respondent, and the certificates remained in her possession. The accommodation extended to Dominador, without ever demanding the instruments even after his retirement, fell short of the extraordinary diligence demanded of banks. The fiduciary nature of banking requires more than the diligence of a good father of a family; depositors’ accounts must be treated with the highest degree of care. Petitioner therefore remained liable for the principal and accrued interest.

• Laches: The defense of laches was rejected. Laches is an equitable doctrine that cannot be invoked to defeat justice or perpetrate fraud and injustice. Respondent deposited the funds with the understanding, confirmed by the face of the instruments, that interest would accrue annually without any action on her part, precisely to preserve the money for her retirement. She relied on the bank’s assurance and was not shown to have abandoned her right. To bar her claim would be manifestly unjust given the bank’s own negligence.

• Damages and Attorney’s Fees: Moral damages were warranted by the mental anguish and humiliation respondent suffered as a result of the bank’s wrongful refusal to pay. Exemplary damages were properly imposed by the trial court as an example for the public good. Attorney’s fees were justly awarded because the bank’s act or omission compelled respondent to litigate. However, the award of ₱100,000 in attorney’s fees was excessive and was reduced to ₱20,000.

• Payment of Bearer Certificates of Deposit: A bank acts at its peril when it pays a deposit evidenced by a certificate of deposit without its production and surrender after proper indorsement. The bank is protected in making payment only to the holder of a certificate indorsed by the payee, absent notice of invalidity of the indorsement or want of title. The debtor bears the burden of proving payment with legal certainty. Here, because the certificates were never indorsed or surrendered and remained with respondent, the bank’s obligation was not discharged.

• Extraordinary Diligence of Banks: The business of banks is impressed with public interest; the degree of diligence required of a bank is higher than that of a good father of a family or an ordinary business firm. The fiduciary nature of the bank-depositor relationship demands that accounts be treated with the highest degree of care, whether the amount is small or large. Negligence in the performance of this obligation is actionable. Petitioner violated this standard by waiving the surrender requirement as an “accommodation” to the depositor’s husband, contrary to its own policies.

• Laches as an Equitable Weapon: Laches is the failure or neglect, for an unreasonable length of time, to do that which could or should have been done earlier, warranting a presumption of abandonment. Its application lies within the sound discretion of the court and is controlled by equitable considerations. It cannot be used to defeat justice or to perpetrate fraud and injustice. Courts are not strictly bound by the statute of limitations or the doctrine of laches when to do so would result in manifest wrong. The delay in this case, under the attendant circumstances, did not bar recovery.

• “A bank acts at its peril when it pays deposits evidenced by a certificate of deposit, without its production and surrender after proper indorsement.” — This passage encapsulates the ratio decidendi on the bank’s liability for unauthorized payment.

• “Because the business of banks is impressed with public interest, the degree of diligence required of banks is more than that of a good father of the family or of an ordinary business firm. The fiduciary nature of their relationship with their depositors requires them to treat the accounts of their clients with the highest degree of care.” — The Court’s formulation of the extraordinary diligence standard binding banks.

• “Laches … cannot be used to defeat justice or perpetrate fraud and injustice. Courts will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to do so, manifest wrong or injustice would result.” — The equitable limitation on the defense of laches.

• Clark v. Young and Cohn-Goodman Co. v. People’s Saving Bank of Grand Haven — American authorities applied as persuasive doctrine on the rule that a bank pays at its peril when it pays a certificate of deposit without requiring its production and surrender after proper indorsement.

• Sevillana v. I.T. (International) Corp. and Villar v. NLRC — Philippine cases followed for the rule that one who pleads payment has the burden of proving it; the debtor must show with legal certainty that the obligation has been discharged.

• Canlas v. Court of Appeals, Ibaan Rural Bank v. Court of Appeals, and Philippine Bank of Commerce v. Court of Appeals — Cited to support the standard of extraordinary diligence required of banks and their fiduciary duty to depositors.

• Felizardo v. Fernandez, Gabionza v. Court of Appeals, and Rosales v. Court of Appeals — Used to define laches and to affirm that laches cannot be employed to defeat justice.

• Civil Code, Article 1173 — Applied to underscore that responsibility arising from negligence in the performance of every kind of obligation is demandable, and that the bank failed to exercise the diligence required by the nature of its business.

• Civil Code, Articles 2217 and 2219 — Grounded the award of moral damages for mental anguish and humiliation resulting from the bank’s wrongful refusal to pay.

• Civil Code, Article 2229 — Basis for exemplary damages, imposed by way of example or correction for the public good.

• Civil Code, Article 2208 — Justified the award of attorney’s fees, as the bank’s act or omission compelled respondent to incur expenses to protect her interest.

Justices Josue N. Bellosillo (Chairman), Leonardo A. Quisumbing, Arturo B. Buena, and Sabino R. De Leon, Jr., concurred.