328

COMMERCIAL BANK & TRUST CO. v. BPI

232 SCRA 302
DAVIDE, JR.
DOCTRINE OF THE LAW: Payment made by the debtor to the wrong party does not
extinguish the obligation as to the creditor who is without fault or negligence.

FACTS:
Petition for review of a decision of the Court of Appeals. Private respondents Eastern
Plywood Corporation and Benigno Lim as officer of the corporation, had an “AND/OR”
joint account with Commercial Bank and Trust Co (CBTC), the predecessor-in-interest
of petitioner Bank of the Philippine Islands. Lim withdraw funds from such account and
used it to open a joint checking account (an “AND” account) with Mariano Velasco.
When Velasco died in 1977, said joint checking account had P662,522.87. By virtue of
an Indemnity Undertaking executed by Lim and as President and General Manager of
Eastern withdrew one half of this amount and deposited it to one of the accounts of
Eastern with CBTC. Eastern obtained a loan of P73,000.00 from CBTC which was not
secured. However, Eastern and CBTC executed a Holdout Agreement referring to the
joint checking account of Velasco and Lim. Meanwhile, a judicial settlement of the
estate of Velasco ordered the withdrawal of the balance of the account of Velasco and
Lim. Asserting that the Holdout Agreement provides for the security of the loan obtained
by Eastern and that it is the duty of CBTC to debit the account of respondents to set off
the amount of P73,000 covered by the promissory note, BPI filed the instant petition for
recovery. Private respondents Eastern and Lim, however, assert that the amount
deposited in the joint account of Velasco and Lim came from Eastern and therefore
rightfully belong to Eastern and/or Lim. Since the Holdout Agreement covers the loan of
P73,000, then petitioner can only hold that amount against the joint checking account
and must return the rest.

ISSUE: Whether BPI can demand the payment of the loan despite the existence of the
Holdout Agreement
RULING: Yes, Petition partly granted. The Holdout Agreement conferred on CBTC the
power, not the duty, to set off the loan from the account subject of the Agreement.
When BPI demanded payment of the loan from Eastern, it exercised its right to collect
payment based on the promissory note, and disregarded its option under the Holdout
Agreement. Therefore, its demand was in the correct order. Therefore, BPI was obliged
to return the amount of the said account only to the creditor. When it allowed the
withdrawal of the balance of the account by the heirs of Velasco, it made the payment to
the wrong party. The law provides that payment made by the debtor to the wrong party
does not extinguish its obligation to the creditor who is without fault or negligence.
Therefore, BPI was still liable to the true creditor, Eastern.