Bank of the Philippine Islands vs. Intermediate Appellate Court and Zshornack

A contract of deposit for foreign exchange that violates mandatory Central Bank regulations is void, leaving the parties in pari delicto with no cause of action against each other. Furthermore, a corporation is deemed to have admitted the authority of its officer to bind it and its capacity to enter into a contract if it fails to specifically deny under oath the due execution of an actionable document.

Rizaldy Zshornack maintained a dollar savings account and a peso current account with COMTRUST (later absorbed by BPI). He sued the bank for four causes of action, two of which reached the SC: an unauthorized withdrawal of US$1,000 from his dollar account, and the bank's refusal to return US$3,000 in cash he had entrusted to the bank for safekeeping.

• Original Filing: CFI of Rizal - Caloocan City
• Lower Court Decision: CFI ruled in favor of Zshornack on the 1st, 2nd, and 4th causes of action.
• Appeal: COMTRUST appealed to the Intermediate Appellate Court (IAC), which modified the CFI decision by absolving the bank on the 4th cause of action.
• SC Action: Bank filed a petition for review to the SC seeking total absolution from liability. Zshornack did not appeal the IAC decision, limiting the issues to the bank's liability.

• The Accounts: Rizaldy Zshornack and his wife maintained Dollar Savings Acct. No. 25-4109 and Peso Current Acct. No. 210465-29 at COMTRUST Quezon City Branch.
• The US$1,000 Withdrawal (1st Cause of Action): On October 27, 1975, Assistant Branch Manager Virgilio Garcia processed a US$1,000 dollar draft payable to a certain Leovigilda Dizon, charged to Zshornack's dollar account. Zshornack demanded an explanation for this unauthorized withdrawal. COMTRUST claimed the peso value was given to Zshornack's brother, Ernesto, when he encashed a separate cashier's check. Alternatively, the bank claimed Zshornack authorized withdrawals from his dollar account to fund his peso current account.
• The US$3,000 Safekeeping (2nd Cause of Action): On December 8, 1975, Zshornack delivered US$3,000 in cash (greenbacks) to Garcia for safekeeping, evidenced by a signed acknowledgment receipt. On May 10, 1976, Zshornack demanded the return of the money. COMTRUST explained they had sold the dollars and credited the peso proceeds to Zshornack's current account.
• The Pleading Defect: In its answer to the complaint, COMTRUST did not specifically deny under oath the authenticity and due execution of the safekeeping receipt.

• On the US$1,000: Claimed the withdrawal was authorized because the peso equivalent was given to Zshornack's brother, or it was made pursuant to an agreement to fund Zshornack's peso current account.
• On the US$3,000: Asserted the amount was properly credited to Zshornack's peso current account at prevailing rates. Alternatively, argued the contract was a depositum (Art. 1962, NCC) which banks do not enter into, and Garcia exceeded his powers, making the obligation purely personal to Garcia and not binding on the bank.

• On the US$1,000: The withdrawal was unauthorized; payment to a brother is not payment to the depositor.
• On the US$3,000: The bank received the money for safekeeping and must return it in dollars based on the actionable document (receipt) executed by the bank's officer.

• Procedural Issues: Whether the bank is deemed to have admitted the authority of its officer to bind the corporation and its capacity to enter into the safekeeping contract due to its failure to specifically deny under oath the actionable document.
• Substantive Issues:
  • Whether the bank is liable for the unauthorized withdrawal of US$1,000 from Zshornack's dollar account.
  • Whether Zshornack can recover the US$3,000 left for safekeeping despite the contract potentially violating Central Bank regulations.

• Procedural: The SC held that because the US$3,000 claim was based on an actionable document attached to the complaint, the bank was required under Rule 8, Section 8 to specifically deny under oath the due execution of the document, the officer's authority, or the bank's capacity. Failure to do so constituted an admission of Garcia's authority and the bank's capacity to enter the contract.
• Substantive:
  • On the US$1,000: The SC held the bank liable. The bank's justifications were inconsistent and unproven. Payment to Ernesto (a separate juridical personality) cannot be considered payment to Rizaldy. There was also no proof the withdrawn amount was credited to the peso current account.
  • On the US$3,000: The SC ruled Zshornack cannot recover. Despite the bank's procedural admission of the contract's existence, the contract itself is void for being illegal. The contract of depositum for foreign exchange violated Central Bank Circular No. 20 (as amended by CB Circular 281), which required residents to sell foreign exchange to authorized agents of the Central Bank within one business day. Safekeeping the dollars for over five months is a prohibited transaction. Under Art. 5 and Art. 1411 of the Civil Code, the contract is void, and since both parties are in pari delicto, neither has a cause of action against the other.

• In Pari Delicto — When a contract is void because its cause or object is illegal and constitutes a criminal offense, and both parties are equally at fault, they have no cause of action against each other. The courts will leave them where they are. Applied: Zshornack and the bank both engaged in an illegal foreign exchange transaction; thus, Zshornack cannot recover the US$3,000.
• Specific Denial Under Oath of Actionable Document — Under Rule 8, Section 8 of the Rules of Court, a party must specifically deny under oath the due execution of an actionable document attached to a pleading; otherwise, the due execution is deemed admitted. Applied: The bank's failure to deny the safekeeping receipt under oath admitted the officer's authority and the bank's capacity.
• Ostensible Authority of Corporate Officers — A corporation is bound by the acts of its officers if it permits them to exercise outward indicia of authority, even if actual authority was not granted. Applied: The bank held out Garcia as having authority, and the public relies on these appearances; failure to properly plead lack of authority binds the corporation.

• Article 1962, Civil Code — Defines depositum as receiving a thing with the obligation of safely keeping and returning it. Applied to characterize the US$3,000 transaction.
• Article 5, Civil Code — Acts executed against mandatory/prohibitory laws are void. Applied to declare the deposit contract void for violating CB Circular No. 20.
• Article 1411, Civil Code — Governs in pari delicto. Applied to deny recovery for both parties since the contract was illegal.
• Rule 8, Section 8, Rules of Court — Requires specific denial under oath of actionable documents. Applied to deem the bank to have admitted the contract and the officer's authority.
• Central Bank Circular No. 20 — Restrictions on foreign exchange transactions. Applied to show that safekeeping of dollars without selling them to the Central Bank within one business day is a prohibited transaction.
• Central Bank Circular No. 281 — Modified CB Circular 20, limiting the requirement to sell foreign exchange to Philippine residents. Applied to confirm Zshornack, as a resident, was bound by the rule.

• N/A (Fernan, C.J. took no part).