Republic of the Philippines vs. Philippine National Bank, et al.

Under Act No. 3936, "unclaimed balances" subject to escheat include credits or deposits that create a creditor-debtor relationship with the bank; demand drafts are excluded absent presentment and acceptance, while telegraphic transfer payment orders and cashier's or manager's checks are included because they represent a credit in the payee's favor or the bank's primary obligation.

The Republic of the Philippines sued several banks, including the First National City Bank of New York, under Act No. 3936, which governs the escheat of unclaimed balances held by banks in favor of persons unheard from for ten years or more and requires banks to report such credits or deposits to the Treasurer of the Philippines. The dispute concerned whether particular banking instruments—demand drafts, cashier's or manager's checks, and telegraphic transfer payment orders—fell within the statutory terms "credits" or "deposits."

On September 25, 1957, the Republic of the Philippines filed before the Court of First Instance of Manila a complaint for escheat of certain unclaimed bank deposit balances under Act No. 3936 against several banks, among them the First National City Bank of New York. The Republic alleged that, pursuant to Section 2 of the Act, the defendant banks had forwarded to the Treasurer of the Philippines a statement under oath of their respective managing officials of all credits and deposits held by them in favor of persons known to be dead or who had not made further deposits or withdrawals for ten years or more. It prayed that these credits and deposits be escheated to the Republic by ordering the defendant banks to deposit them to its credit with the Treasurer of the Philippines.

In its answer, the First National City Bank of New York admitted that various savings deposits, pre-war inactive accounts, and sundry accounts contained in its report submitted to the Treasurer of the Philippines pursuant to Act No. 3936, totaling more than P100,000.00 and remaining dormant for ten years or more, were subject to escheat. It claimed, however, that it had inadvertently included in the report certain items amounting to P18,589.89 which, properly speaking, were not credits or deposits within the contemplation of Act No. 3936, and prayed that those items be excluded from the Republic's claim.

After hearing, the trial court rendered judgment holding that cashier's or manager's checks and demand drafts came within the purview of Act No. 3936, but that telegraphic transfer payment orders were of a different category; consequently, the complaint was dismissed with regard to the latter. On the bank's motion for reconsideration, the trial court changed its view and held that even demand drafts did not come within the purview of the Act, and amended its decision accordingly. The Republic appealed.

• Demand Drafts: The Republic argued that demand drafts should be treated like cashier's or manager's checks and thus come within Act No. 3936; the Court noted this was contrary to its holding that a demand draft is very different from a cashier's or manager's check.
• Telegraphic Transfer Payment Orders: The Solicitor General argued that telegraphic transfer payment orders should be escheated because the drawer bank had already been paid their value; the amounts represented by the orders appeared in the defendant bank's books in the names of the respective payees; if the payees demanded payment, the defendant bank would have to pay them; and it would be absurd to say that the drawer banks remained the owners of the orders.
• Cashier's or Manager's Checks: The Republic cited definitions confirming that a cashier's check is a bill of exchange drawn by a bank on itself and accepted in advance by issuance, is the substantial equivalent of a certified check, and passes the deposit to the credit of the checkholder.

• Exclusion of Non-Credit Items: The First National City Bank of New York claimed that certain items amounting to P18,589.89 included in its report were not credits or deposits within the contemplation of Act No. 3936 and should not be included in the Republic's claim.
• Demand Drafts: The bank moved for reconsideration of the trial court's decision and successfully argued that demand drafts do not come within the purview of Act No. 3936.

• Demand Drafts: Whether demand drafts are "credits" or "deposits" subject to escheat under Act No. 3936.
• Telegraphic Transfer Payment Orders: Whether telegraphic transfer payment orders are "credits" or "deposits" subject to escheat under Act No. 3936.
• Cashier's or Manager's Checks: Whether cashier's or manager's checks come within the purview of Act No. 3936.

• Demand Drafts: No. A demand draft is a bill of exchange payable on demand; under the Negotiable Instruments Law it does not operate as an assignment of funds, and the drawee bank is not liable until acceptance. Because the drafts were not presented for acceptance or payment, the bank never became a debtor of the payee and the drafts are not escheatable credits.
• Telegraphic Transfer Payment Orders: Yes. The drawer bank had already paid the value of the telegraphic transfer payment orders, and the amounts appeared in the defendant bank's books in the names of the payees; if the payees demanded payment, the bank would have to pay them. They are therefore credits subject to escheat.
• Cashier's or Manager's Checks: Yes. A cashier's check is not an ordinary draft but the primary obligation of the issuing bank and its written promise to pay upon demand; it should come within the purview of Act No. 3936.

• Demand Drafts: The term "unclaimed balances" under Section 1 of Act No. 3936 includes credits or deposits of money, bullion, security, or other evidence of indebtedness with banks in favor of any person unheard from for ten years or more. The term "credit" presupposes a creditor-debtor relationship, and "deposit" creates such a relationship between depositor and bank. A demand draft is a bill of exchange payable on demand. Under Section 127 of Act No. 2031, a bill of exchange does not of itself operate as an assignment of funds in the hands of the drawee, and the drawee is not liable unless and until he accepts it. Sections 71 and 186 require presentment for acceptance or payment within a reasonable time and provide that failure to make presentment discharges the drawer from liability or to the extent of the loss caused by delay. Since the demand drafts were not presented for acceptance or payment, the appellee bank never had a chance to accept or reject them, never became a debtor of the payee, and the drafts cannot be considered credits subject to escheat.
• Telegraphic Transfer Payment Orders: The transaction for the establishment of a telegraphic or cable transfer is a purchase and sale transaction; the purchaser completes the transaction upon payment, although the remitting bank's contract is executory until the credit is established. The drawer bank had already paid the value of the telegraphic transfer payment orders, otherwise it would not have transmitted them to the defendant bank. The amounts represented by the orders appeared in the defendant bank's books in the names of the respective payees. If the payees chose to demand payment when the transfers were received by the defendant bank, the bank would have to pay them. It would be absurd to say that the drawer banks remained the owners of the orders. Hence, the telegraphic transfer payment orders should be escheated in favor of the Republic.
• Cashier's or Manager's Checks: A cashier's check is not an ordinary draft. An ordinary draft is a bill of exchange payable on demand and an order upon a third party purporting to draw upon a deposit of funds. A cashier's check is of a very different character: it is the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. It is in effect a bill of exchange drawn by a bank on itself and accepted in advance by the act of issuance. When issued on request of a depositor, it is the substantial equivalent of a certified check, and the deposit represented by the check passes to the credit of the checkholder. A cashier's check is therefore not of the same category as a demand draft and should come within the purview of Act No. 3936.

• Escheat of unclaimed balances under Act No. 3936 — "Unclaimed balances" include credits or deposits of money, bullion, security, or other evidence of indebtedness of any kind, and interest thereon, with banks, in favor of any person unheard from for ten years or more. Such balances are deposited with the Insular Treasure to the credit of the Government. The Court applied this definition to determine whether demand drafts, cashier's or manager's checks, and telegraphic transfer payment orders were subject to escheat.
• Credit and deposit as creditor-debtor relationship — A "credit" is a sum credited on the books of a company to a person who appears entitled to it; it presupposes a creditor-debtor relationship. A "deposit" in a bank creates a creditor-debtor relationship between depositor and bank. The Court used this relationship as the test for whether an instrument falls within the escheat statute.
• Demand draft as bill of exchange — A demand draft is a bill of exchange payable on demand. Under the Negotiable Instruments Law, a bill of exchange does not operate as an assignment of funds in the drawee's hands, and the drawee is not liable until acceptance. Presentment for acceptance or payment is required within a reasonable time, and failure to present discharges the drawer from liability or to the extent of loss caused by delay. Because the demand drafts were not presented, the bank never became a debtor of the payee, and the drafts were not escheatable.
• Cashier's or manager's check as primary obligation — A cashier's check is not an ordinary draft; it is the primary obligation of the issuing bank and its written promise to pay upon demand. It is a bill of exchange drawn by a bank on itself and accepted in advance by issuance. When issued at a depositor's request, it is substantially equivalent to a certified check, and the deposit passes to the credit of the checkholder. Such checks should come within Act No. 3936.
• Telegraphic transfer payment order as purchase and sale — An agreement to remit through a telegraphic or cable transfer creates a contractual obligation characterized as a purchase and sale transaction. The purchaser completes the transaction upon payment, while the remitting bank's contract is executory until the credit is established. Because the drawer bank had already paid the value and the amount stood in the payee's name on the defendant bank's books, the telegraphic transfer payment order was an escheatable credit.

• "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 years or more. Such unclaimed balances, together with the increase and proceeds thereof, shall be deposited with the Insular Treasure to the credit of the Government of the Philippine Islands to be as the Philippine Legislature may direct. — This is Section 1 of Act No. 3936, the statutory definition that fixes the scope of escheat and the categories the Court had to apply to the banking instruments in dispute.
• "Since it is admitted that the demand drafts herein involved have not been presented either for acceptance or for payment, the inevitable consequence is that the appellee bank never had any chance of accepting or rejecting them. Verily, appellee bank never became a debtor of the payee concerned and as such the aforesaid drafts cannot be considered as credits subject to escheat within the meaning of the law." — This passage states the ratio for excluding demand drafts: absent presentment and acceptance, no creditor-debtor relationship arises between the drawee bank and the payee.
• "A cashier's check is of a very different character. It is the primary obligation of the bank which issues it ... and constitutes its written promise to pay upon demand" — This defines the cashier's check as a bank's primary obligation, distinguishing it from an ordinary demand draft and explaining why it falls within the escheat law.
• "This is so because the drawer bank was already paid the value of the telegraphic transfer payment order. In the particular cases under consideration it appears in the books of the defendant bank that the amounts represented by the telegraphic payment orders appear in the names of the respective payees. If the latter choose to demand payment of their telegraphic transfers at the time the same was (were) received by the defendant bank, there could be no question that this bank would have to pay them." — This passage supplies the ratio for including telegraphic transfer payment orders: the drawer bank had already paid their value, and the defendant bank held the amounts as credits in the payees' names.

• In re Ford, 14 F.2d 848, 849 — Cited for the definition of "credit" as a sum credited on the books of a company to a person who appears entitled to it, implying a creditor-debtor relationship.
• Gullas vs. National Bank, 62 Phil. 915; Gopoco Grocery, et al. vs. Pacific Coast Biscuit Co., et al., 65 Phil. 443 — Cited for the rule that a bank deposit creates a creditor-debtor relationship between depositor and bank.
• Arnd vs. Aylesworth, 145 Iowa 185; Ward vs. City Trust Company, 102 N.Y.S. 50; Bank of Republic vs. Republic State Bank, 42 S.W. 2d 27 — Cited for the characterization of a demand draft as a bill of exchange payable on demand.
• In Re Bank of the United States, 277 N.Y.S. 96, 100 — Cited for the distinction between an ordinary draft and a cashier's check, the latter being the primary obligation of the issuing bank.
• Lummus Cotton Gin Co. vs. Walker, 70 So. 754, 756, 195 Ala. 552 — Cited for the rule that a cashier's check issued at a depositor's request is substantially equivalent to a certified check and the deposit passes to the credit of the checkholder.
• Walker vs. Sellers, 77 So. 715, 201 Ala. 189 — Cited for the rule that a cashier's check is a bill of exchange drawn by a bank on itself, accepted in advance by issuance, and has the same legal effects as a certificate of deposit or certified check.
• Nissenbaum vs. State, 38 Ga. App. 253, S.E. 776; Steinmetz vs. Schultz, 59 S.D. 603, 241 N.W. 734 — Cited for the propositions that a cashier's check is the primary obligation of the issuing bank and constitutes its written promise to pay upon demand.

• Section 1, Act No. 3936 — Defines "unclaimed balances" to include credits or deposits of money, bullion, security, or other evidence of indebtedness of any kind, and interest thereon with banks, in favor of any person unheard from for ten years or more; such balances are to be deposited with the Insular Treasure to the credit of the Government. Applied to determine whether the instruments in question were subject to escheat.
• Section 2, Act No. 3936 — Referred to in the complaint as requiring defendant banks to forward to the Treasurer of the Philippines a sworn statement of all credits and deposits held in favor of persons known to be dead or who had not made further deposits or withdrawals for ten years or more. It supplied the reporting mechanism that led to the disputed inclusion of the bank's items.
• Section 127, Act No. 2031 (Negotiable Instruments Law) — Provides that a bill of exchange does not of itself operate as an assignment of funds in the drawee's hands and that the drawee is not liable on the bill unless and until he accepts it. Applied to demand drafts to hold that the drawee bank never became a debtor of the payee.
• Section 71, Act No. 2031 (Negotiable Instruments Law) — Requires drafts or bills of exchange to be presented for acceptance or payment within a reasonable time after issuance or last negotiation. Applied to the demand drafts, which were not presented.
• Section 186, Act No. 2031 (Negotiable Instruments Law) — Provides that failure to make presentment discharges the drawer from liability or to the extent of the loss caused by delay. Applied to reinforce that the demand drafts did not create an escheatable credit.
• Article 1980, Civil Code — Cited for the rule that the relationship created between a depositor and a bank is that of creditor and debtor. Applied to define "deposits" under Act No. 3936.

Reyes, J.B.L.; Barrera; Paredes; Dizon; and De Leon concurred. Bengzon, C.J.; Padilla; Labrador; and Concepcion took no part.