The business of banking

The Supreme Court reminded banks of their duty to exercise the highest degree of diligence in handling their clients’ funds and in selecting and supervising employees, owing to the fiduciary nature of the banking business.

Recently, the High Tribunal reminded banks of this duty again when it ordered BDO Unibank to absorb the loss caused by its failure to observe this duty in the case of BDO Unibank vs. Barcellano, promulgated in February but released only recently.

In this case, Barcellano deposited a Land Bank regional check amounting to P151,200 to her savings account at BDO’s Lucena City branch. A BDO teller erroneously validated the check as local instead of regional, which caused it to be cleared within three banking days instead of the standard seven applicable to regional checks. As a result, Barcellano was able to withdraw P76,000 from her BDO account.

The following day, the check was returned to BDO due to a stop payment order. The teller then learned of her mistake. The branch manager reached out to Barcellano and asked her to return the money she withdrew which she never did.

BDO lodged a complaint for estafa against Barcellano but the Regional Trial Court of Lucena City acquitted her, stating that the prosecution failed to establish fraud, deceit or abuse of confidence on Barcellano’s part. Furthermore, BDO did not place the withdrawn amount in her trust, nor was she an administrator of the funds. Thus, Barcellano had no obligation to return the amount and the premature withdrawal was caused by BDO’s gross negligence.

BDO appealed the case to the Court of Appeals, claiming that the erroneous crediting of the check to Barcellano’s account was effectively a payment by mistake resulting in a constructive trust.

But the CA affirmed the lower court’s ruling, saying that BDO’s act of validating the check as a local one was the proximate cause of its loss and held that the principle of solution indebiti or payment by mistake was inapplicable since the undue payment to Barcellano was not caused by a mistake but by BDO’s gross negligence.

It was then that BDO asked the Supreme Court to set aside the CA’s decision claiming that there was no evidence to support the finding of gross negligence on its part, that Barcellano’s refusal to return the amount constituted unjust enrichment, and that there was a constructive trust warranting the return of the amount to the bank.

However, the SC affirmed the CA’s ruling saying that there was no unjust enrichment and that there exists no constructive trust to compel the return of the amount to BDO.

It also emphasized that BDO’s business and industry are imbued with public interest, that in handling their transactions, banks are required to exercise extraordinary diligence.

The SC explained that a bank’s disregard of its own banking policy amounts to gross negligence, “or that characterized by the want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and unintentionally, with a conscious indifference to consequences insofar as other persons may be affected.”

Here, the High Court noted that BDO committed multiple errors: crediting the amount of the check deposited by Barcellano without clearing it with the drawee bank, the bank teller improperly clearing the check as a local check and BDO failing to detect the erroneous clearing until it received a stop payment order.

Taken altogether, the SC said these acts clearly constitute gross negligence on BDO’s part. Its failure to observe basic safeguards against the risk of invalid checks led to the loss of money. Furthermore, BDO failed to demonstrate that Barcellano knowingly received a benefit to which she was not entitled when she withdrew the funds, as she believed in good faith that she was entitled to the amount. Therefore, the principle of solution indebiti or payment by mistake does not apply in this case.

It noted that paying the drawer (the one who issued the check) an amount from the check before clearing it with the drawee bank (Landbank) is contrary to normal or ordinary banking practice and that before the check is cleared for deposit, the collecting bank (BDO in this case) can only assume at its own risk that the check will be cleared and paid out.

It likewise emphasized that the proximate cause of BDO’s loss was its own negligence and therefore there was no duty on the part of Barcellano to return the amount erroneously credited to her BDO account which she was able to withdraw.

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