In Far East Bank and Trust Company v. Querimit, the Supreme Court ruled that banks must exercise a high degree of diligence in handling deposits, particularly those evidenced by certificates payable to the bearer. This decision underscores the bank’s responsibility to verify payment to the rightful holder and to demand the surrender of certificates of deposit before releasing funds, even when dealing with bank employees or their relatives. This protects depositors and maintains confidence in the banking system.

The Case of the Missing Dollars: Can a Bank Pay Without the Certificate?

Estrella Querimit, a former bank auditor, deposited $60,000 in Far East Bank and Trust Company (FEBTC) through four certificates of deposit payable to the bearer. These certificates were set to mature in 60 days, accruing interest, and were expected to be rolled over upon maturity. Years later, upon attempting to withdraw her deposit, Estrella discovered that her late husband had already withdrawn the funds, allegedly with FEBTC’s ‘accommodation,’ without surrendering the certificates. FEBTC claimed to have paid Dominador Querimit, Estrella’s husband, a senior manager at another bank, without requiring the surrender of the certificates. The bank argued it had provided an ‘accommodation’ due to Dominador’s position. However, Estrella maintained that she never authorized her husband to withdraw the funds and still possessed the original certificates.

The central legal question was whether FEBTC could be held liable for the funds despite its claim of payment to Estrella’s husband. The trial court and the Court of Appeals both ruled in favor of Estrella, prompting FEBTC to appeal to the Supreme Court. The Supreme Court, in its decision, emphasized the fiduciary duty of banks to their depositors. The court reiterated that banks must exercise a higher degree of diligence than ordinary businesses due to the public trust placed in them.

The Court relied on the principle that payment must be made to someone authorized to receive it. Moreover, the debtor, in this case FEBTC, bears the burden of proving that the obligation has been discharged through proper payment. Building on this principle, the Court noted that the certificates of deposit were payable to the bearer.

“Petitioner should not have paid respondent’s husband or any third party without requiring the surrender of the certificates of deposit.”

The court found that FEBTC’s failure to demand the surrender of the certificates before releasing the funds constituted a breach of its duty of care. According to the court, the bank acted at its own peril when it paid deposits evidenced by a certificate of deposit, without its production and surrender after proper indorsement. The Supreme Court also addressed FEBTC’s defense of laches, which argued that Estrella’s delay in claiming the funds prejudiced the bank. The Court dismissed this argument. Citing jurisprudence, there is no absolute rule as to what constitutes laches or staleness of demand, and each case is to be determined according to its particular circumstances.

The Court determined it would be unjust to allow the doctrine of laches to defeat Estrella’s right to recover her savings, especially since she relied on the bank’s assurance that interest would accrue even after the maturity date. Ultimately, the Supreme Court affirmed the lower court’s decision, holding FEBTC liable for the value of the certificates of deposit, including accrued interest. In addition, the Court upheld the awards for moral and exemplary damages, finding that FEBTC’s wrongful refusal to pay caused Estrella mental anguish and justified the imposition of exemplary damages for public good. The award for attorney’s fees was reduced but deemed appropriate given the circumstances.

The Court further emphasized that FEBTC’s actions were in violation of its policies and procedures and not in line with the standard of care expected of banks. 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.

FAQs

What was the key issue in this case?	The central issue was whether Far East Bank and Trust Company (FEBTC) was liable for funds from certificates of deposit it claimed were already paid to the depositor’s husband, despite the certificates not being surrendered.
What is a certificate of deposit?	A certificate of deposit is a written acknowledgment by a bank of the receipt of a sum of money on deposit, which the bank promises to pay to the depositor or bearer.
What does “payable to bearer” mean in this context?	“Payable to bearer” means the funds are payable to the person in possession of the certificate of deposit. The certificate can be redeemed by whomever holds the certificate of deposit.
What is the standard of care expected of banks?	Banks must exercise a high degree of diligence, more than that of an ordinary business, due to the public trust placed in them. This means acting with meticulous care.
What is the principle of laches?	Laches is the failure or neglect to assert a right within a reasonable time, which can warrant a presumption that the party has abandoned it. However, it cannot be used to defeat justice or perpetrate fraud.
Why was the bank not allowed to invoke the principle of laches in this case?	The Court found that applying laches would be unjust, as the depositor had relied on the bank’s assurance that interest would accrue even after the maturity date of the certificates of deposit.
What kind of damages was the depositor entitled to in this case?	The depositor was entitled to moral and exemplary damages, in addition to the value of the certificates of deposit and accrued interest. These damages were for mental anguish and as a corrective measure for the public good.
What is the bank’s primary obligation when paying out a certificate of deposit?	The bank’s primary obligation is to ensure payment is made to the authorized holder of the certificate and to require the surrender of the certificate upon payment.

The Supreme Court’s decision in Far East Bank and Trust Company v. Querimit serves as a stern reminder of the high standard of care expected of banking institutions, particularly in handling deposit accounts. Banks must prioritize the security and integrity of their depositors’ funds, ensuring that payments are made only to authorized individuals and that proper documentation is maintained. This diligence is crucial for preserving public trust and confidence in the banking system.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Far East Bank and Trust Company v. Querimit, G.R. No. 148582, January 16, 2002