REPUBLIC v.

PNB
G.R. No. L-16106 | December 30, 1961

Plaintiff-Appellant: Republic of the Philippines

Defendants: Philippine National Bank, et al.
Defendant-Appellee: The First National City Bank of New York

Ponente: Bautista Angelo, J.

FACTS:
On September 25, 1957, the Republic of the Philippines filed a complained for escheat of certain unclaimed bank
deposit balances under the provisions of Act No. 3936 against several banks including the First National City Bank of
New York (FNCB-NY).

The complaint prayed that said credits and deposits held by the banks in favor of persons known to be dead or who
have made not made further deposits or withdrawals during the period of 10 years or more be escheated to the
Republic by ordering the banks to deposit them to its credit with the Treasurer of the Philippines pursuant to Act No.
3936.

Section 1, Act No. 3936 provides:

SECTION 1. “Unclaimed balances” within the meaning of this Act shall include credits or deposits of money, bullion, security or
other evidence of indebtedness of any kind and interest thereon with banks, as hereinafter defined, in favor of any person
unheard from for a period of ten (10) years or more. Such unclaimed balances, together with the increase and proceeds
thereof, shall be deposited with the Insular Treasurer to the credit of the Government of the Philippines Islands to be
used as the Philippine Legislature may direct.

Hence, “unclaimed balances” that are subject to escheat under Act No. 3936 include credits and deposits of
money or other evidence of indebtedness of any kind, with banks in favor of any person unheard from for a period
of 10 years or more.

“Credit” is a sum credited on the books of a company to a person who appears to be entitled to it. It presupposes a
creditor-debtor relationship. It likewise implies ability to make a promised payment, by reason of property or
estates. It is the correlative debt/indebtedness and that which is due to any person as distinguished from that which
he owes.

“Deposits” in banks likewise create a creditor-debtor relationship between the depositor and the bank.

The FNCB-NY admits in its report submitted to the Treasurer of the Philippines that various savings deposits, pre-
war inactive accounts & sundry more than P100,000.00 which remained dormant for 10 years or more are subject to
escheat. However, the FNCB-NY stated that P18,589.89, were properly speaking, not credits or deposits within the
contemplation of Act No. 3936. Hence, FNCB-NY claims that these cashier’s/manager’s checks, demand drafts &
telegraphic transfer payment orders should not be included in the claim for escheat.

PROCEDURAL HISTORY:
COURT OF FIRST INSTANCE. Initially held that the cashier’s/manager’s checks and demand drafts come within
purview of Act No. 3936, but the telegraphic transfer payment orders are of different category. However, after a
motion for reconsideration, the trial court changed its view and even said that demand drafts, together with the
telegraphic transfer payment orders do not come within the purview of the said Act.

SUPREME COURT. Modified the decision of the lower court. Telegraphic transfer payment orders should be
escheated in favor of the Republic.

ISSUES:
1. Whether or not demand drafts come within the purview of the term “credits” or “deposits” under Act No. 3936
and therefore subject to escheat? (NO)
2. Whether or not telegraphic payment orders some within the purview of the term “credits or deposits” under Act
No. 3936 and therefore subject to escheat? (YES)

HELD:
1. NO, demand drafts do not come within the purview of the term “credits” or “deposits” under Act No. 3936 and
therefore not subject to escheat.
 A demand draft is a bill of exchange payable on demand; an open letter of request from, and an order by one
person to another to pay a sum of money therein mentioned to a third person, on demand or at a future time
therein specified. In fact, “draft” is the most common term for all bills of exchange and the words “draft” and “bill
of exchange” are used indiscriminately.

A bill of exchange, on the other hand, according to Section 127 of the NIL does not operate as an
assignment of funds in the hands of the drawee who is not liable on the instrument until he accepts it.
Hence, in order for the drawee to be liable on the draft and then become obligated to the payee, the drawee
must first accept the same.

Section 71 of the NIL requires that with regard to drafts/bills of exchange, there is a need that they be
presented, either for acceptance or for payment within a reasonable time after their issuance or after their last
negotiation as the case may be. Failure to make such presentment will discharge the drawer from liability or to
the extent of the loss caused by the delay (Section 186).

In the case at bar, since the demand drafts involved have not been presented either for acceptance or for
payment, FNCB-NY never had any chance of accepting/rejecting them. FNCB-NY never became a debtor of the
payee concerned & thus, the drafts cannot be considered as “credits” subject to escheat within the meaning of
the law.

DEMAND DRAFT vs. CASHIER’S CHECK or MANAGER’s CHECK. A cashier’s/manager’s check is not an
ordinary draft as it is a bill of exchange payable on demand. It is a primary obligation of the bank which issues
it & constitutes its written promise to pay upon demand. It is a check of the bank’s cashier on his/another bank
which in effect a bill of exchange drawn by a bank on itself & accepted in advance by the act of its issuance.
Thus, the difference is that a cashier’s/manager’s check comes within the purview of Act No. 3936 while
a demand draft is not covered by the said Act.

2. YES, telegraphic payment orders come within the purview of the term “credits” or “deposits” under Act No. 3936
and therefore subject to escheat.

The agreement to remit in this transaction for the establishment of a telegraphic/cable transfer creates a
contractual obligation and has been termed as a “purchase and sale transaction”.

The purchaser of a telegraphic transfer upon making payment completes the transaction insofar as he is
concerned, although the remitting bank is only concerned that the contract is executory until the credit is
established.

In the case at bar, the Court agreed with the Solicitor General that telegraphic payment orders came within the
purview of Act No. 3936 as the drawer bank was already paid the value of the said order. In the books of FNCB-
NY appears the amounts represented by the telegraphic payment orders in the names of the respective payees.

Thus, if these payees chose to demand payment of those telegraphic transfers at the time they were received by
FNCB-NY, there could be no question that the latter would have to pay them.

The question is, if the payees decide to have their money remain for some time in the hands of the FNCB-NY,
can the latter maintain that the ownership of said telegraphic payment orders are now with the drawer banks,
PNB et al?

NO, it is absurd to say that PNB et al., the drawer banks, are still the owners of the said telegraphic payment
orders as they were already paid the value of such, otherwise PNB et al. would not have transmitted the same to
FNCB-NY.

DISPOSITION:
WHEREFORE, the decision of the trial court is hereby MODIFIED in the sense that the items specifically referred to
and listed under paragraph 3 of FNCB-NY’s answer representing telegraphic transfer payment orders should be
ESCHEATED in favor of the Republic of the Philippines.

NOTES:
CASHIER’S/ TELEGRAPHIC
DEMAND
MANAGER’S PAYMENT
DRAFTS
CHECK ORDERS
Not included within the purview “Credits” within the purview of
of Act No. 3936 as they are not Act No. 3936
“credits” because of the need
to present them first for
acceptance or for payment
Not being a “credit”, not Being a “credit”, subject to
subject to escheat escheat
Not being a “credit”, their
Being a “credit”, their import is
import cannot be considered
considered as a sum credit on
as a sum credit on the books
the books of the bank to a person
of the bank to a person who
who appears to be entitled to it.
appears to be entitled to it
No creditor-debtor relationship Creditor-debtor relationship
between drawee & payee between drawer & payee