Bank of the Philippine Islands v.

IAC
G.R. 66826 – August 19, 1988
J. Cortez

Topic: Depositum
Doctrine: Corporations may still be held liable for unauthorized transactions done by their officers. The
practical effect of absolving a corporation from liability every time an officer enters into a contract which
is beyond corporate powers, even without the proper allegation or proof that the corporation has not
authorized nor ratified the officer's act, is to cast corporations in so perfect a mold that transgressions and
wrongs by such artificial beings become impossible

Petitioner: Bank of the Philippine Islands

Respondents: Intermediate Appellate Court; Rizaldy T. Zshornack

Case Summary: Zshornack filed a case against BPI for recovery of $3,000 he entrusted to the latter
for safekeeping. BPI claimed that this was already credited to Zsornack’s account, and that the
transaction was a depositum. Added to this, being a depositum, a kind of transaction banks are not
authorized to enter into, it cannot be held liable as a corporation. The SC ruled that the transaction was
indeed a depositum, given that the document proving the transaction showed that there was an intent
that the money was entrusted to BPI for safekeeping. HOWEVER, the SC ruled that the parties were in
pari delicto for violating the prohibitions of CB Circular 20-1949. Thus, Zshornack cannot recover the
$3,000.

Facts: [Note: Ang pangit nung structure nung case, so I tried my best to make it better huhu. Thanks.]
 The original parties to this case were Rizaldy Zshornack and the Commercial Bank and Trust
Company of the Philippines [ComTrust]. In 1980, BPI absorbed ComTrust through a corporate
merger, and was substituted as party to the case. [BPI and ComTrust is referred to
interchangeably throughout the case]
 June 1976: Zshornack and his wife filed a case against ComTrust alleging four (4) causes of
action. [BUT the Court only discussed two]
 First Cause of Action: There was unauthorized withdrawal of $1,000 from their account.
Details:
o October 1975: An application for a dollar draft was accomplished by Virgilio Garcia,
Asst. Branch Manager of ComTrust QC, payable to a certain Leovigilda Diza in the
amount of $1,000, which was to be charged to the Zshornacks’ Dollar Savings account.
Other charges (P17.46) were to be charged to their Current Account.
o On the same day, ComTrust, under the signature of Garcia, issued a check payable to the
order of Dizon in the sum of $1000 drawn on the Chase Manhattan Bank, New York,
with an indication that it was to be charged to the Zsornacks’ Dollar Savings account.
o When Zshornack noticed the $1,000 withdrawal, he demanded explanation from the
bank. ComTrust claimed that the withdrawal was given to Atty. Ernesto Zshornack,
brother of Rizaldy, when Ernesto encashed a cashier’s check for P8,450 issued by the
Manila Banking Corporation payable to Ernesto.
 [RELATED TO TOPIC] Second Cause of Action: BPI refused to return despite demand the
$3,000 Zshornack entrusted to ComTrust, through Garcia, for safekeeping. Details:
o A document was signed by Garcia that read: “We acknowledged (sic) having received
from you today the sum of $3,000 for safekeeping.”
o In its answer, ComTrust averred that the $3,000 was already credited to Zshornack’s peso
current account at prevailing conversion rates [$2,000 (P14,920) was deposited on
Deecember 1975; $1,000 (P8,350) were deposited on February 1976)].
 o Added to this, BPI is saying that the transaction is a depositum1, which banks do not
enter into. Thus, Garcia exceeded his powers when he entered into the transaction.
Hence, the bank cannot be held liable under the contract, and the obligation is purely
personal to Garcia.

Issues + Held:
1. [1st Cause of Action] W/N there was unauthorized withdrawal of $1,000 [YES]
 BPI adopted inconsistent theories. First, there was no showing that the transaction involving
Ernesto’s cashier’s check is related to the transaction involving the dollar draft in favor of Dizon
financed by the withdrawal from Rizaldy’s dollar account. Moreover, Ernesto Zshornack, Jr.,
possesses a personality distinct and separate from Rizaldy Zshornack. Payment made to Ernesto
cannot be considered payment to Rizaldy.
 Second, BPI claims that the withdrawal was made pursuant to an agreement where Zshornack
allegedly authorized the bank to withdraw from his dollar savings account such amount which,
when converted to pesos, would be needed to fund his peso current account. If indeed the peso
equivalent of the amount withdrawn from the dollar account was credited to the peso current
account, why did the bank still have to pay Ernesto?
o Furthermore, there is no proof that the said “converted peso” was credited to Rizaldy’s
peso account.

2. [2nd Cause of Action] W/N the second transaction was a depositum [YES] BUT can
Zshornack recover the $3,000 [NO]
 First off, it should be noted that the cause of action is based on a document purporting to be
signed by ComTrust. Thus, it is based on an actionable document. It was therefore incumbent
upon the bank to specifically deny under oath the due execution of the document, as prescribed
in Rule 8, Sec. 8, if it desired (1) to question the authority of Garcia to bind the corporation; and
(2) to deny its capacity to enter into such contract [depositum].
o Since no sworn answer denying the due execution of the document was filed, the bank is
deemed to have admitted not only Garcia's authority, but also the bank's power, to enter
into the contract in question.
o Added to this, “the practical effect of absolving a corporation from liability every time
an officer enters into a contract which is beyond corporate powers is to cast
corporations in so perfect a mold that transgressions and wrongs by such artificial
beings become impossible” [Bissel v. Michigan Southern]
 [IMPT] Second, the document states that the $3,000 was received by the bank for safekeeping.
The subsequent acts of the parties also show that the bank was to safely keep the dollars and to
return it to Zshornack at a later time. Such transaction is one of depositum, as contemplated in
NCC1962.

1
NCC1962: A deposit is constituted from the moment a person receives a thing belonging to another, with the
obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal
purpose of the contract, there is no deposit but some other contract
  HOWEVER, the transaction was covered by CB Circular No. 20-1949 2 (Restrictions on Gold
and Foreign Exchange Transactions). See footnote for full provisions. Summary: Banks, being
the owners of the foreign money deposited to them, are required to sell such foreign exchange to
the Central Bank within one business day upon taking ownership or receiving payment.
Transactions made not in accordance with the Circular are deemed prohibited, and shall be
subject to the penal sanctions provided in the Central Bank Act.
 In the instant case, the document and the subsequent acts of the parties show that they intended
the bank to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his
complaint that he is a Philippine resident. The parties did not intend to sell the US dollars to
the Central Bank within one business day from receipt. Otherwise, the contract of depositum
would never have been entered into at all.
 Since the mere safekeeping of the dollars is a transaction which is not authorized by CB Circular
No. 20, it must be considered as one which falls under the general class of prohibited
transactions. Hence, when the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall
have no cause of action against each other. [NCC1411].
 Zshornack cannot recover under the second cause of action.

Ruling: WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is ordered to restore
to the dollar savings account of private respondent the amount of US$1,000.00 as of October 27, 1975 to
earn interest at the rate fixed by the bank for dollar savings deposits. Petitioner is further ordered to pay
private respondent the amount of P8,000.00 as damages (Attorney’s fees and litigation expenses). The
other causes of action of private respondent are ordered dismissed.
2
Section 2. Transactions in the assets described below and all dealings in them of whatever nature, including, where
applicable their exportation and importation, shall NOT be effected, except with respect to deposit accounts
included in sub- paragraphs (b) and (c) of this paragraph, when such deposit accounts are owned by and in the name
of banks.
(a) Any and all assets, provided they are held through, in, or with banks or banking institutions located in the
Philippines, including money, checks, drafts, bullions, bank drafts deposit accounts (demand, time and savings), all
debts, indebtedness or obligations, financial brokers and investment houses notes, debentures, stocks, bonds,
coupons, bank acceptances, mortgages, pledges, liens or other rights in the nature of security, expressed in foreign
currencies, or if payable abroad, irrespective of the currency in which they are expressed, and belonging to any
person, firm, partnership, association, branch office, agency, company or other unincorporated body or corporation
residing or located within the Philippines;
(b) Any and all assets of the kinds included and or described in subparagraph (a) above, whether or not held through,
in, or with banks or banking institutions, and existent within the Philippines, which belong to any person, film,
partnership, association, branch office, agency, company or other unincorporated body or corporation not residing or
located within the Philippines;
(c) Any and all assets existent within the Philippines including money, checks, drafts, bullions, bank drafts, all debts,
indebtedness or obligations, financial securities commonly dealt in by bankers, brokers and investment houses,
notes, debentures, stock, bonds, coupons, bank acceptances, mortgages, pledges, liens or other rights in the nature of
security expressed in foreign currencies, or if payable abroad, irrespective of the currency in which they are
expressed, and belonging to any person, firm, partnership, association, branch office, agency, company or other
unincorporated body or corporation residing or located within the Philippines.

Section 4. (a) [As amended by CB Circular No. 281-1969]: All receipts of foreign exchange by any resident
person, firm, company or corporation shall be sold to authorized agents of the Central Bank by the recipients within
one business day following the receipt of such foreign exchange. Any resident person, firm, company or corporation
residing or located within the Philippines, who acquires foreign exchange shall not, unless authorized by the
Central Bank, dispose of such foreign exchange in whole or in part, nor receive less than its full value, nor delay
taking ownership thereof except as such delay is customary; Provided, That, within one business day upon taking
ownership or receiving payment of foreign exchange the aforementioned persons and entities shall sell such foreign
exchange to the authorized agents of the Central Bank.