Facts:
On September 25, 1985, Edvin F. Reyes opened a joint "AND/OR" Savings Account No. 3185-0172-56 at the Bank of the Philippine Islands (BPI) with his wife, Sonia S. Reyes. Additionally, he held another joint "AND/OR" Savings Account No. 3185-0128-82 with his grandmother, Emeteria M. Fernandez, which was opened on February 11, 1986. Reyes regularly deposited U.S. Treasury Warrants, which were payable to Fernandez, into this account as her monthly pension.
Fernandez passed away on December 28, 1989, without the U.S. Treasury Department being informed. Despite her death, a U.S. Treasury Warrant No. 21667302 dated January 1, 1990, in the amount of U.S. $377.00 (approximately P10,556.00), was sent to her. On January 4, 1990, Reyes deposited this check into the account he held with Fernandez. The check was conditionally cleared by the U.S. Veterans Administration Office in Manila and subsequently sent to the United States for further processing.
On March 8, 1990, Reyes closed the account with his grandmother and transferred the funds, totaling P13,112.91, to his joint account with his wife. However, on January 16, 1991, the U.S. Treasury Warrant was dishonored upon discovery of Fernandez's death prior to its issuance, prompting the U.S. Department of Treasury to request a refund from BPI.
On February 19, 1991, BPI contacted Reyes regarding the dishonored check. Reyes verbally authorized the bank to debit his joint account for the amount of the returned check. Subsequently, BPI debited P10,556.00 from Reyes's account. On February 21, 1991, Reyes, accompanied by his lawyer, visited BPI and demanded restitution of the debited amount, claiming that the debit caused him financial inconvenience. He then filed a suit for damages against BPI.
The trial court dismissed Reyes's complaint for lack of cause of action, leading him to appeal to the Court of Appeals, which reversed the trial court's decision and ordered BPI to credit Reyes's account with the debited amount plus interest.
Legal Issues:
- Did Reyes verbally authorize BPI to debit his joint account for the amount of the returned U.S. Treasury Warrant?
- Was BPI entitled to apply the funds in Reyes's account to offset the obligation arising from the dishonored check under the principle of legal compensation?
Arguments:
Petitioners (BPI and Grace Romero):
- BPI argued that Reyes had given express verbal authorization to debit his account for the amount of the dishonored check. They presented testimonies from bank employees supporting this claim.
- They contended that legal compensation was applicable, as both parties were creditors and debtors to each other, fulfilling the requirements set forth in the Civil Code.
Respondent (Edvin F. Reyes):
- Reyes denied giving any verbal authorization for the debit and claimed that the bank's action was unauthorized.
- He argued that the bank's claim for legal compensation was invalid, as the funds in the joint account belonged to him and his wife, and thus the bank could not debit the account without both parties' consent.
Court's Decision and Legal Reasoning:
The Supreme Court found merit in the petition filed by BPI. It ruled that Reyes had indeed given verbal authorization for the bank to debit his account, supported by credible testimonies from bank employees. The Court noted that Reyes's denial lacked corroboration and was undermined by his previous conduct, which included concealing his grandmother's death and misrepresenting her status in bank transactions.
Furthermore, the Court held that the elements of legal compensation were present in this case. Both BPI and Reyes were creditors and debtors to each other, and the debts were liquidated, due, and demandable. The Court emphasized that legal compensation operates by law and does not require the consent of the parties involved.
The Court concluded that the presence of Reyes's wife in the joint account did not negate the mutuality of the parties, as she did not assert any claim regarding the debited amount. The Court reinstated the trial court's decision, dismissing Reyes's claims and affirming BPI's right to debit the account.
Significant Legal Principles Established:
- Verbal Authorization: A verbal authorization can be sufficient for a bank to act on a depositor's instructions, provided there is credible evidence supporting the authorization.
- Legal Compensation: The principle of legal compensation applies when two parties are both creditors and debtors to each other, allowing for the automatic offset of debts without the need for mutual consent.
- Credibility of Testimony: The credibility of witnesses and the consistency of their testimonies play a crucial role in determining the outcome of disputes regarding verbal agreements.