Rizal Commercial Banking Corporation vs. Hi-Tri Development Corporation

The funds covered by an undelivered manager's check remain part of the account of the procurer and are not subject to escheat, because the mere issuance of a manager's check does not ipso facto transfer funds to the payee's account when the instrument is not delivered, and the depositor's continued assertion of ownership over the dormant account precludes its inclusion in escheat proceedings.

Respondents Hi-Tri Development Corporation and Luz R. Bakunawa were the registered owners of six parcels of land sequestered by the Presidential Commission on Good Government. In 1990, Teresita Millan, through her representative Jerry Montemayor, offered to buy the lots for ₱6,724,085.71 and made a downpayment of ₱1,019,514.29. When Millan failed to clear the obstacles to the sale, the Spouses Bakunawa rescinded the sale and offered to return the downpayment, but Millan refused to accept it. The escheat proceedings were instituted by the Republic pursuant to Act No. 3936, as amended by Presidential Decree No. 679, against unclaimed balances held by various banks.

Respondents Hi-Tri Development Corporation and Luz R. Bakunawa, together with her deceased husband Manuel, were the registered owners of six parcels of land covered by TCT Nos. 324985 and 324986 of the Quezon City Register of Deeds and TCT Nos. 103724, 98827, 98828, and 98829 of the Marikina Register of Deeds, which had been sequestered by the Presidential Commission on Good Government. Sometime in 1990, Teresita Millan, through her representative Jerry Montemayor, offered to buy the lots for ₱6,724,085.71, with the promise that she would clear whatever preliminary obstacles there were to effect the completion of the sale. The Spouses Bakunawa gave Millan the Owner's Copies of the TCTs, and Millan made a downpayment of ₱1,019,514.29. When Millan failed to clear the obstacles, the Spouses Bakunawa rescinded the sale and offered to return the downpayment, but Millan refused to accept it.

Consequently, the Spouses Bakunawa, through their company Hi-Tri, took out on October 28, 1991, a Manager's Check from RCBC-Ermita in the amount of ₱1,019,514.29, payable to Millan's company Rosmil Realty and Development Corporation, c/o Teresita Millan. They used the check as a basis for a complaint against Millan and Montemayor filed with the Regional Trial Court of Quezon City, Branch 99, docketed as Civil Case No. Q-91-10719, praying that Millan be ordered to return the TCTs and to receive the amount of ₱1,019,514.29. Upon advice of counsel, the Spouses Bakunawa retained custody of RCBC Manager's Check No. ER 034469 and refrained from canceling or negotiating it. Throughout the proceedings, Millan was informed that the Manager's Check was available for her withdrawal, she being the payee.

On January 31, 2003, during the pendency of Civil Case No. Q-91-10719 and without the knowledge of respondents, RCBC reported the ₱1,019,514.29 credit existing in favor of Rosmil to the Bureau of Treasury as among its unclaimed balances as of that date. A copy of the Sworn Statement executed by Florentino N. Mendoza, Manager and Head of RCBC's Asset Management, Disbursement & Sundry Department, was allegedly posted within the premises of RCBC-Ermita. On December 14, 2006, the Republic, through the Office of the Solicitor General, filed the escheat action with the RTC, docketed as Civil Case No. 06-244.

On April 30, 2008, the Spouses Bakunawa settled amicably their dispute with Rosmil and Millan, agreeing to pay ₱3,000,000.00, inclusive of the ₱1,019,514.29. During negotiations and prior to the settlement, Manuel Bakunawa, through Hi-Tri, inquired from RCBC-Ermita about the availability of the ₱1,019,514.29 under the Manager's Check, but was informed that the amount was already subject of the escheat proceedings. On April 17, 2008, Manuel Bakunawa, through Hi-Tri, wrote to RCBC demanding confirmation that the amount continued to form part of the Corporation's RCBC bank account, since pay-out was never ordered. In a letter dated May 19, 2008, RCBC replied that the funds covered by the Manager's Check did not form part of the Bank's own account, that by operation of law the funds became a deposit susceptible for inclusion in the escheat case, and that the Bank's obligation to make good the check prescribed as early as October 2001.

The RTC rendered its Decision on May 19, 2008, declaring the deposits, credits, and unclaimed balances subject of Civil Case No. 06-244 escheated to the Republic, including the ₱1,019,514.29 held by RCBC. Respondents claimed they were not able to participate in the trial because they were not informed of the ongoing escheat proceedings. They filed an Omnibus Motion dated June 11, 2008, seeking partial reconsideration and intervention, which the RTC denied on November 3, 2008. The CA reversed the RTC on November 26, 2009, ruling that RCBC failed to prove it had communicated with the purchaser of the Manager's Check or the payee before filing its Sworn Statement, that the bank's failure to notify respondents deprived them of due process, and that the RTC Clerk of Court's failure to issue individual notices rendered the judgments void for want of jurisdiction.

• Notice Requirement: Petitioner argued that the CA erred in ruling that notice by personal service upon respondents was a jurisdictional requirement in escheat proceedings, contending that respondents were not the owners of the unclaimed balances and were thus not entitled to notice from the RTC Clerk of Court.
• Ownership of Funds: Petitioner contended that the funds represented by the Manager's Check were deemed transferred to the credit of the payee or holder upon its issuance, making Rosmil the proper party entitled to notices, not respondents.
• Lack of Address: Petitioner argued that it was not liable for failing to send a separate notice to the payee because it did not have the address of Rosmil and was not under any obligation to record the address of the payee of a Manager's Check.
• Prescription: Petitioner asserted that, granting arguendo that the Bank was duty-bound to make good the check, the Bank's obligation to do so prescribed as early as October 2001.

• Legal Interest: Respondents alleged that they have a legal interest in the fund allocated for the payment of the Manager's Check, reasoning that since the funds were part of the Compromise Agreement between respondents and Rosmil in a separate civil case, the approval and eventual execution of the agreement effectively reverted the fund to the credit of respondents.
• Ownership Evidence: Respondents posited that their ownership of the funds was evidenced by their continued custody of the Manager's Check.
• Lack of Notice: Respondents claimed they were not able to participate in the trial because they were not informed of the ongoing escheat proceedings, and that the deposit was subject of an ongoing dispute between them and Rosmil since 1991.

• Jurisdictional Notice: Whether the Decision and Order of the RTC were void for failure to send separate notices to respondents by personal service.
• Bank's Obligation to Notify: Whether petitioner had the obligation to notify respondents immediately before it filed its Sworn Statement with the Treasurer.
• Escheat of Allocated Funds: Whether or not the allocated funds may be escheated in favor of the Republic.

• Jurisdictional Notice: No. Escheat proceedings are actions in rem, and jurisdiction is secured by the power of the court over the res; publication is considered a general and constructive notice to all persons interested, and personal service upon depositors or claimants is not a jurisdictional requirement.
• Bank's Obligation to Notify: Yes. Under Section 2 of Act No. 3936, as amended, immediately before filing the sworn statement, the bank shall communicate with the person in whose favor the unclaimed balance stands at his last known place of residence or post office address; the purpose of this initial notice is for a bank to determine whether an inactive account has indeed been unclaimed, abandoned, forgotten, or left without an owner.
• Escheat of Allocated Funds: No. The funds covered by the undelivered Manager's Check remained part of Hi-Tri's account, and since respondents retained custody of the instrument and never abandoned their claim over the fund, the allocated deposit should be excluded from the escheat proceedings.

• Jurisdictional Notice: The Court held that the CA committed reversible error when it ruled that the issuance of individual notices upon respondents was a jurisdictional requirement. Escheat proceedings are actions in rem, whereby an action is brought against the thing itself instead of the person. Thus, an action may be instituted and carried to judgment without personal service upon the depositors or other claimants. Jurisdiction is secured by the power of the court over the res. Consequently, a judgment of escheat is conclusive upon persons notified by advertisement, as publication is considered a general and constructive notice to all persons interested. Under Section 3 of Act No. 3936, as amended, service of process upon banks is made by delivery of a copy of the complaint and summons to the president, cashier, or managing officer of the defendant bank, while service upon depositors or other claimants is made by publication of a copy of the summons in a newspaper of general circulation.

• Bank's Obligation to Notify: The Court emphasized that escheat is not a proceeding to penalize depositors for failing to deposit to or withdraw from their accounts; it is a proceeding whereby the state compels the surrender to it of unclaimed deposit balances when there is substantial ground for a belief that they have been abandoned, forgotten, or without an owner. Section 2 of Act No. 3936, as amended, requires that immediately before filing the sworn statement, the bank shall communicate with the person in whose favor the unclaimed balance stands at his last known place of residence or post office address. The purpose of this initial notice is for a bank to determine whether an inactive account has indeed been unclaimed, abandoned, forgotten, or left without an owner. If the depositor simply does not wish to touch the funds in the meantime but still asserts ownership and dominion over the dormant account, then the bank is no longer obligated to include the account in its sworn statement. Should the bank fail to comply with the legally outlined procedure to the prejudice of the depositor, the bank may not raise the defense provided under Section 5 of Act No. 3936, as amended.

• Escheat of Allocated Funds: The Court applied Section 16 of the Negotiable Instruments Law, which provides that every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. The mere issuance of a manager's check does not ipso facto work as an automatic transfer of funds to the account of the payee. In case the procurer of the manager's or cashier's check retains custody of the instrument, does not tender it to the intended payee, or fails to make an effective delivery, the instrument remains undelivered. Here, when Rosmil did not accept the Manager's Check offered by respondents, the latter retained custody of the instrument instead of cancelling it. Since there was no delivery, presentment of the check to the bank for payment did not occur, and an order to debit the account of respondents was never made. As a result, the assigned fund is deemed to remain part of the account of Hi-Tri, which procured the Manager's Check. The doctrine that the deposit represented by a manager's check automatically passes to the payee is inapplicable because the instrument — although accepted in advance — remains undelivered. The Court found it unnecessary to remand the case for hearing, as it was undisputed that respondents were the procurers of the Manager's Check, that there was no effective delivery of the check, and that respondents retained ownership of the funds. The Court also noted that the OSG did not appeal the CA judgments, which it took as an indication of disinterest in pursuing the escheat proceedings in favor of the Republic.

• Escheat proceedings as actions in rem — Escheat proceedings are actions in rem, whereby an action is brought against the thing itself instead of the person. Jurisdiction is secured by the power of the court over the res, and a judgment of escheat is conclusive upon persons notified by advertisement, as publication is considered a general and constructive notice to all persons interested. Personal service upon depositors or other claimants is not a jurisdictional requirement.

• Undelivered negotiable instruments — Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Where the procurer of a manager's check retains custody of the instrument, does not tender it to the intended payee, or fails to make an effective delivery, the instrument remains undelivered, and the funds represented by the check remain part of the procurer's account.

• Manager's checks — A manager's or cashier's check is a bill of exchange drawn by the bank's manager or cashier, in the name of the bank, against the bank itself. Since the bank issues the check in its name, with itself as the drawee, the check is deemed accepted in advance, and ordinarily becomes the primary obligation of the issuing bank. However, the mere issuance of a manager's check does not ipso facto work as an automatic transfer of funds to the account of the payee when the instrument remains undelivered.

• Purpose of escheat — Escheat is not a proceeding to penalize depositors for failing to deposit to or withdraw from their accounts; it is a proceeding whereby the state compels the surrender to it of unclaimed deposit balances when there is substantial ground for a belief that they have been abandoned, forgotten, or without an owner. If the depositor asserts ownership and dominion over the dormant account, the bank is no longer obligated to include the account in its sworn statement.

• "Escheat proceedings are actions in rem, whereby an action is brought against the thing itself instead of the person. Thus, an action may be instituted and carried to judgment without personal service upon the depositors or other claimants. Jurisdiction is secured by the power of the court over the res. Consequently, a judgment of escheat is conclusive upon persons notified by advertisement, as publication is considered a general and constructive notice to all persons interested." — This passage corrects the CA's ruling and establishes that personal service is not a jurisdictional requirement in escheat proceedings, which are in rem actions.

• "The mere issuance of a manager's check does not ipso facto work as an automatic transfer of funds to the account of the payee. In case the procurer of the manager's or cashier's check retains custody of the instrument, does not tender it to the intended payee, or fails to make an effective delivery, we find the following provision on undelivered instruments under the Negotiable Instruments Law applicable." — This passage states the controlling rule on undelivered manager's checks and is the ratio decidendi for excluding the funds from escheat.

• "It is not the intent of the law to force depositors into unnecessary litigation and defense of their rights, as the state is only interested in escheating balances that have been abandoned and left without an owner." — This passage articulates the policy underlying escheat proceedings and explains why the bank's obligation to communicate with depositors before filing its sworn statement is essential.

• Republic vs. Court of First Instance, 247-A Phil. 85 (1988) — Cited as authority for the proposition that escheat proceedings are actions in rem.
• Ramos vs. Ramos, G.R. No. 144294, 11 March 2003, 399 SCRA 43 — Cited for the definition of an action in rem.
• Grey vs. De la Cruz, 17 Phil. 49 (1910) — Cited for the rule that an action in rem may be instituted and carried to judgment without personal service upon the depositors or other claimants, and that jurisdiction is secured by the power of the court over the res.
• Republic vs. Court of Appeals, 426 Phil. 177 (2002) — Cited for the definition and purpose of escheat proceedings, including the principle that escheat reverts property to the state "to forestall an open invitation to self-service by the first comers."
• International Corporate Bank vs. Gueco, 404 Phil. 353 (2001) — Cited for the doctrine that a manager's or cashier's check is deemed accepted in advance and becomes the primary obligation of the issuing bank.
• Bank of the Philippine Islands vs. Roxas, G.R. No. 157833, 15 October 2007, 536 SCRA 168 — Cited for the definition of manager's or cashier's checks as bills of exchange drawn by the bank's manager or cashier against the bank itself.
• Moran vs. Court of Appeals, G.R. No. 105836, 7 March 1994, 230 SCRA 799 — Cited for the definition of an ordinary check as a bill of exchange drawn by a depositor on a bank.
• Security Savings Bank vs. State of California, 263 U.S. 282 (1923) — Cited for the purpose of the initial notice to depositors in escheat proceedings and the state's inquiry into the status, custody, and ownership of unclaimed balances.

• Section 2, Act No. 3936, as amended by P.D. 679 — Requires 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 have not made further deposits or withdrawals during the preceding ten years, and mandates that immediately before filing the sworn statement, the bank shall communicate with the person in whose favor the unclaimed balance stands at his last known place of residence or post office address.
• Section 3, Act No. 3936, as amended by P.D. 679 — Provides the rule on service of processes in escheat proceedings: service upon banks is made by delivery of a copy of the complaint and summons to the president, cashier, or managing officer, while service upon depositors or other claimants is made by publication of a copy of the summons in a newspaper of general circulation, and requires the clerk of court to issue a notice directed to all persons claiming any interest in the unclaimed balances.
• Section 5, Act No. 3936, as amended by P.D. 679 — Provides that a bank that complies with the provisions of the law shall not thereafter be liable to any person for the escheated unclaimed balances, but a bank that fails to comply with the legally outlined procedure to the prejudice of the depositor may not raise this defense.
• Section 16, Act No. 2031 (Negotiable Instruments Law) — Provides that every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto, and that delivery may be shown to have been conditional or for a special purpose only.
• Section 185, Act No. 2031 (Negotiable Instruments Law) — Defines a bill of exchange as an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed determinable future time a sum certain in money to order or to bearer.
• Section 189, Act No. 2031 (Negotiable Instruments Law) — Provides that the issuance of a check does not of itself operate as an assignment of any part of the funds in the bank to the credit of the drawer.

• Senior Associate Justice Antonio T. Carpio (Chairperson)
• Associate Justice Arturo D. Brion
• Associate Justice Jose Portugal Perez
• Associate Justice Bienvenido L. Reyes