G.R. No.

L-7593 March 27, 1913

THE UNITED STATES, plaintiff-appellee,

vs.
JOSE M. IGPUARA, defendant-appellant.

FACTS:
The defendant herein is charged with the crime of estafa, for having swindled Juana Montilla and Eugenio
Veraguth out of P2,498 Philippine currency, which he had taken on deposit from the former to be at the latter's
disposal. The document setting forth the obligation reads:

"We hold at the disposal of Eugenio Veraguth the sum of two thousand four hundred and ninety-eight pesos
P2,498), the balance from Juana Montilla's sugar. — Iloilo, June 26, 1911. — Jose Igpuara, for Ramirez & Co."
CFI’s ruling:
• sentenced the defendant to two years of presidio correccional,
• to pay Juana Montilla P2,498 Philippine currency,
• and in case of insolvency to subsidiary imprisonment at P2.50 per day, not to exceed one-third of the
principal penalty, and the costs.
The defendant appealed the CFI’s decision. He argued that Juana Montilla's agent voluntarily accepted the sum
of P2,498 in an instrument payable on demand, and as no attempt was made to cash it until August 23, 1911, he
could indorse and negotiate it like any other commercial instrument. There is no doubt that if Veraguth accepted
the receipt for P2,498 it was because at that time he agreed with the defendant to consider the operation of sale
on commission closed, leaving the collection of said sum until later, which sum remained as a loan payable upon
presentation of the receipt.

ISSUE:
WON the defendant is guilty of misappropriating the deposit under his custody.

HELD:

It is erroneous to assert that the certificate of deposit in question is negotiable like any other commercial instrument;
First, because every commercial instrument payable to order are negotiable. Hence, this instrument not being to
order but to bearer, it is not negotiable.
It is also erroneous to assert that the sum of money set forth in said certificate is, according to it, in the defendant's
possession as a loan. In a loan the lender transmits to the borrower the use of the thing lent, while in a deposit the
use of the thing is not transmitted, but merely possession for its custody or safe-keeping.
In order that the depositary may use or dispose of the things deposited, the depositor's consent is required, and
then:
"The rights and obligations of the depositary and of the depositor shall cease, and the rules and provisions
applicable to commercial loans, commission, or contract which took the place of the deposit shall be observed."
(Art. 309, Code of Commerce.)

The defendant has shown no authorization whatsoever or the consent of the depositary for using or disposing of
the P2,498, which the certificate acknowledges, or any contract entered into with the depositor to convert the
deposit into a loan, commission, or other contract.
That demand was not made for restitution of the sum deposited, which could have been claimed on the same or
the next day after the certificate was signed, does not operate against the depositor, or signify anything except the
intention not to press it. Failure to claim at once or delay for some time in demanding restitution of the thing
deposited, which was immediately due, does not imply such permission to use the thing deposited as would
convert the deposit into a loan.
Article 408 of the Code of Commerce of 1829, previous to the one now in force, provided:
"The depositary of an amount of money cannot use the amount, and if he makes use of it, he shall be responsible
for all damages that may accrue and shall respond to the depositor for the legal interest on the amount."
Whereupon the commentators say:
"In this case the deposit becomes in fact a loan, as a just punishment imposed upon him who abuses the sacred
nature of a deposit and as a means of preventing the desire of gain from leading him into speculations that may
be disastrous to the depositor, who is much better secured while the deposit exists that when he only has a
personal action for recovery.
In a decision of an appeal, the principle was laid down that: "Since he commits the crime of estafa under article
548 of the Penal Code of Spain who to another's detriment appropriates to himself or abstracts money or goods
received on commission for delivery, the court rightly applied this article to the appellant, who, to the manifest
detriment of the owner or owners of the securities, since he has not restored them, willfully and wrongfully disposed
of them by appropriating them to himself or at least diverting them from the purpose to which he was charged to
devote them."
It is unquestionable that in no sense did the P2,498 which he willfully and wrongfully disposed of to the detriment
of his principal, Juana Montilla, and of the depositor, Eugenio Veraguth, belong to the defendant.
Likewise erroneous is the construction apparently attempted to be given to two decisions of this Supreme Court
(U. S. vs. Dominguez, 2 Phil. Rep., 580, and U. S. vs.Morales and Morco, 15 Phil. Rep., 236) as implying that
what constitutes estafa is not the disposal of money deposited, but denial of having received same.

In this connection it was held that failure to return the thing deposited was not sufficient, but that it was necessary
to prove that the depositary had appropriated it to himself or diverted the deposit to his own or another's benefit.
He was accused of refusing to restore, and it was held that the code does not penalize refusal to restore but denial
of having received. So much for the crime of omission; now with reference to the crime of commission, it was not
held in that decision that appropriation or diversion of the thing deposited would not constitute the crime of estafa.
In the second of said decisions, the accused "kept none of the proceeds of the sales. Those, such as they were,
he turned over the owner;" and there being no proof of the appropriation, the agent could not be found guilty of
the crime of estafa.

Being in accord with law and the merits of the case, the judgment appealed from is affirmed, with costs.
G.R. No. L-66826 August 19, 1988

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents.

FACTS:
Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and a peso current account.
An application for a dollar draft was accomplished by Virgillo Garcia branch manager of COMTRUST payable to
a certain Leovigilda Dizon. In the application, Garcia indicated that the amount was to be charged to the dollar
savings account of the Zshornacks. There was no indication of the name of the purchaser of the dollar draft.
COMTRUST issued a check payable to the order of Dizon. When Zshornack noticed the withdrawal from his
account, he demanded an explanation from the bank. In its answer, Comtrust claimed that the peso value of the
withdrawal was given to Atty. Ernesto Zshornack, brother of Rizaldy. When he encashed with COMTRUST a
cashier’s check for P8,450 issued by the manila banking corporation payable to Ernesto.

ISSUE:
Whether the contract between petitioner and respondent bank is a deposit?

HELD:

The document which embodies the contract states that the US$3,000.00 was received by the bank for
safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for the bank to
safely keep the dollars and to return it to Zshornack at a later time. Thus, Zshornack demanded the return of the
money on May 10, 1976, or over five months later.

The above arrangement is that contract defined under Article 1962, New Civil Code, which reads:
Art. 1962. 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.
G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,

vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

FACTS:
CA Agro (through its President, Aguirre) and spouses Pugao entered into an agreement whereby the former
purchased two parcels of land for P350, 525 with a P75, 725 down payment while the balance was covered by
three (3) postdated checks. Among the terms embodied in a Memorandum of True and Actual Agreement of Sale
of Land were that titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and
that the owner’s copies of the certificates of titles thereto shall be deposited in a safety deposit box of any bank.
The same could be withdrawn only upon the joint signatures of a representative of the petitioner upon full payment
of the purchase price. They then rented Safety Deposit box of private respondent Security Bank and Trust
Company (SBTC). For this purpose, both signed a contract of lease which contains the following conditions:
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the
same.
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes
absolutely no liability in connection therewith.

After the execution of the contract, two (2) renter’s key were given to Aguirre, and Pugaos. A key guard remained
with the bank. The safety deposit box has two key holes and can be opened with the use of both keys. Petitioner
claims that the CTC were placed inside the said box.

Thereafter, a certain Mrs. Ramos offered to buy from the petitioner the two (2) lots at a price of P225 per sqm.
Mrs. Ramose demanded the execution of a deed of sale which necessarily entailed the production of the CTC.
Aguirre and Pugaos then proceeded to the bank to open the safety deposit box. However, when opened in the
presence of bank’s representative, the box yielded no certificates. Because of the delay in reconstitution of title,
Mrs. Ramos withdrew her earlier offer and as a consequence petitioner failed to realize the expected profit of
P280,500. Hence, the latter filed a complaint for damages.
RTC: Dismissed the complaint
CA: Affirmed

ISSUE:
Whether or not the contractual relation between a commercial bank and another party in the contract of rent of a
safety deposit box is one of bailor and bailee.

RULING:
Yes.

The contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of
lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not
given to the joint renters – the petitioner and Pugaos.
American Jurisprudence:
The prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with
respect to the contents of the box is that of a bail or bailee, the bailment being for hire and mutual benefit.
Our provisions on safety deposit boxes are governed by Section 72 (a) of the General Banking Act, and this
primary function is still found within the parameters of a contract of deposit like the receiving in custody of funds,
documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. Thus, depositary’s liability is
governed by our civil code rules on obligation and contracts, and thus the SBTC would be liable if, in performing
its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement.
G.R. No. 4015 August 24, 1908

ANGEL JAVELLANA, plaintiff-appellee,

vs.
JOSE LIM, ET AL., defendants-appellants.

FACTS:
Defendants executed a document in favor of plaintiff-appellee wherein it states that they have received, as a
deposit, without interest, money from plaintiff-appellee and agreed upon a date when they will return the money.
Upon the stipulated due date, defendants asked for an extension to pay and binding themselves to pay 15%
interest per annum on the amount of their indebtedness, to which the plaintiff-appellee acceded. The defendants
were not able to pay the full amount of their indebtedness notwithstanding the request made by plaintiff-appellee.
The lower court ruled in favor of plaintiff-appellee for the recovery of the amount due.

ISSUE:
Whether the agreement entered into by the parties is one of loan or of deposit?

HELD:

The document executed was a contract of loan. Where money, consisting of coins of legal tender, is deposited
with a person and the latter is authorized by the depositor to use and dispose of the same, the agreement is not a
contract of deposit, but a loan. A subsequent agreement between the parties as to interest on the amount said to
have been deposited, because the same could not be returned at the time fixed therefor, does not constitute a
renewal of an agreement of deposit, but it is the best evidence that the original contract entered into between
therein was for a loan under the guise of a deposit.
G.R. No. L-43191 November 13, 1935

PAULINO GULLAS, plaintiff-appellant,

vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.

Facts:
Petitioner Gullas maintains a current account with herein respondent PNB. He together with one Pedro Lopez
signed as endorsers of a Warrant issued by the US Veterans Bureau payable to the order of one Francisco Bacos.
PNB cashed the check but was subsequently dishonored by the Insular Treasurer. PNB then sent notices to
petitioner which could not be delivered to him at the time because he was in Manila. PNB in the letter informed
the petitioner the outstanding balance on his account was applied to the part payment of the dishonored check.
Upon petitioner’s return, he received the notice of dishonor and immediately paid the unpaid balance of the
warrant. As a consequence of these, petitioner was inconvenienced when his insurance was not paid due to lack
of funds and was publicized widely at his area to his mortification.

Issue:
Whether or not PNB has the right to apply petitioner’s deposit to his debt to the bank.

Ruling: NO.

As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to
it on the part of a depositor. The Civil Code contains provisions regarding compensation (set off) and deposit. The
portions of Philippine law provide that compensation shall take place when two persons are reciprocally creditor
and debtor of each other. In this connection, it has been held that the relation existing between a depositor and a
bank is that of creditor and debtor. [General Rule]

Starting, therefore, from the premise that the Philippine National Bank had with respect to the deposit of Gullas a
right of set off, we next consider if that remedy was enforced properly. The fact we believe is undeniable that prior
to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money
standing in his account to make good for the treasury warrant.

Gullas was merely an indorser and had issued in good faith. As to an indorser, the situation is different and notice
should actually have been given him in order that he might protect his interests. We accordingly are of the opinion
that the action of the bank was prejudicial to Gullas.
G.R. No. 156940 December 14, 2004

ASSOCIATED BANK (Now WESTMONT BANK), petitioner,

vs.
VICENTE HENRY TAN, respondent.

FACTS:
The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where
the provincial funds are deposited. Checks issued by the Province are signed by the Provincial Treasurer and
countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan. A portion of the funds of the
province is allocated to the Concepcion Emergency Hospital drawn to the order of "Concepcion Emergency
Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac." The checks
are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and
cashier.
January 1981:Upon post-audit by the Provincial Auditor, it was discovered that the hospital did not receive several
allotment checks

February 19, 1981: After the checks were examined, they learned that 30 checks of P203,300 were encashed
by Fausto Pangilinan, with the Associated Bank acting as collecting bank.
Fausto Pangilinan administrative officer and cashier of payee hospital until his retirement on February 28, 1978,
collected the questioned checks from the office of the Provincial Treasurer sought to encash the 1st check with
Associated Bank Jesus David, manager of Associated Bank refused and suggested that Pangilinan deposit the
check in his personal savings account with the same bank
Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank, PNB.

PNB did not return the questioned checks within twenty-four hours, but several days later
After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same
procedure for the other checks.
All the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed ASSOCIATED
BANK.

CA affrimed RTC: Associated to reimburse PNB and ordering PNB to pay Province of Tarlac

ISSUE:
W/N PNB and Associated Bank should be held liable

HELD: YES. PARTIALLY GRANTED.

The collecting bank, Associated Bank, shall be liable to PNB for 50% of P203,300

Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a signature is forged or made without authority of the
person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under
such signature unless the party against whom it is sought to enforce such right is precluded from setting up the
forgery or want of authority.
GRA forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain
title to the instrument through it.
A person whose signature to an instrument was forged was never a party and never consented to the contract
which allegedly gave rise to such instrument.
EX: where "a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of
authority."
Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or
negligence are estopped from setting up the defense of forgery, are precluded from using this defense.
Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on
the instrument

In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence,
when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery
against a holder in due course
In order instruments, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the
same instrument. When the holder's indorsement is forged all parties prior to the forgery may raise the real defense
of forgery against all parties subsequent thereto.
An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to
be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time
of his indorsement valid and subsisting
A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee
bank = indorser
So even if the indorsement on the check deposited by the banks's client is forged, the collecting bank is bound by
his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank.
The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the
order of the payee.
The drawer's instructions are reflected on the face and by the terms of the check.

Payment under a forged indorsement is not to the drawer's order. then is that the drawee bank may not debit the
drawer's account and is not entitled to indemnification from the drawer. 25 The risk of loss must perforce fall on
the drawee bank.
GR: drawee bank may not debit the drawer's account and is not entitled to indemnification from the drawer - risk
of loss must perforce fall on the drawee bank
EX:
if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially
contributed to the making of the forged signature, the drawer is precluded from asserting the forgery
If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then
such loss from the forgery can be apportioned between the negligent drawer and the negligent bank
In cases involving a forged check, where the drawer's signature is forged, the drawer can recover from the drawee
bank.

In cases involving checks with forged indorsements, the drawee bank canseek reimbursement or a return of the
amount it paid from the presentor bank or person

However, a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee
bank delays in informing the presentor of the forgery, thereby depriving said presentor of the right to recover from
the forger, the former is deemed negligent and can no longer recover from the presentor

Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be returned within twenty-
Sour (24) hours after discovery of the forgery but in no event beyond the period fixed or provided by law for filing
of a legal action by the returning bank. Section 23 of the PCHC Rules deleted the requirement that items bearing
a forged endorsement should be returned within twenty-four hours.
Since PNB did not return the questioned checks within twenty-four hours, but several days later, Associated Bank
alleges that PNB should be considered negligent and not entitled to reimbursement of the amount it paid on the
checks.

More importantly, by reason of the statutory warranty of a general indorser in section 66 of the Negotiable
Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to the
drawee bank guarantees all prior indorsements, including the forged indorsement

In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB)

The stamp guaranteeing prior indorsements is not an empty rubric which a bank must fulfill for the sake of
convenience

It is within the bank's discretion to receive a check for no banking institution would consciously or deliberately
accept a check bearing a forged indorsement. When a check is deposited with the collecting bank, it takes a risk
on its depositor.