Spouses Serfino vs. Far East Bank and Trust Company, Inc.

A bank is not liable to a third party who claims rights over a bank deposit standing in the name of another, absent a valid assignment of credit or a court order, because the bank's contractual relationship is with its depositor, not with the adverse claimant. A compromise judgment that merely designates a fund from which a judgment debt shall be paid does not constitute an assignment of credit that transfers ownership of the fund to the creditor.

The spouses Serfino were judgment creditors of the spouses Cortez by virtue of a compromise judgment in a collection case. The compromise judgment provided that Magdalena Cortez would pay the judgment debt out of her retirement benefits from the Government Service Insurance System. The spouses Serfino later discovered that Magdalena's retirement benefits had been deposited into the savings account of her daughter-in-law, Grace Cortez, with FEBTC, and they sought to recover the deposit from the bank.

The spouses Serfino obtained a compromise judgment against the spouses Cortez in Civil Case No. 95-9880, a collection action. Under the compromise agreement approved by the RTC, the spouses Cortez acknowledged their indebtedness to the spouses Serfino in the amount of ₱108,245.71, and Magdalena Cortez bound herself to pay the judgment debt out of her retirement benefits from the GSIS. Payment was to be made one week after Magdalena received her retirement benefits, and in case of default, the debt could be executed against any of the spouses Cortez's executable properties. The debt was later reduced to ₱155,000.00, with the promise of full payment not later than April 23, 1996.

No payment was made as promised. Godfrey Serfino discovered that Magdalena had deposited her retirement benefits into the savings account of her daughter-in-law, Grace Cortez, with FEBTC. As of April 23, 1996, Grace's savings account amounted to ₱245,830.37, the entire deposit coming from Magdalena's retirement benefits. Two deposits were made: a check deposit of ₱55,830.37 on April 12, 1996, from a check issued to Magdalena and indorsed by her in favor of Grace, and a cash deposit of ₱190,000.00 on April 19, 1996.

On April 23, 1996, the spouses Serfino's counsel sent two letters to FEBTC informing the bank that the deposit in Grace's name was owned by the spouses Serfino by virtue of an assignment made in their favor by the spouses Cortez, and requesting FEBTC to prevent the delivery of the deposit until its actual ownership was resolved in court. On April 25, 1996, the spouses Serfino instituted Civil Case No. 95-9344 against the spouses Cortez, Grace and her husband Dante, and FEBTC, for recovery of money on deposit and payment of damages, with a prayer for preliminary attachment. On April 26, 1996, Grace withdrew ₱150,000.00 from her savings account, and on the same day, the spouses Serfino sent another letter to FEBTC informing it of the pending action, attaching a copy of the complaint.

During the pendency of the case, the spouses Cortez manifested that they were turning over the balance of the deposit, amounting to ₱54,534.00, to the spouses Serfino as partial payment of their obligation under the compromise judgment. The RTC issued an order dated July 30, 1997, authorizing FEBTC to turn over the balance to the spouses Serfino. The RTC later ruled that FEBTC was not a party to the compromise judgment and was not chargeable with notice of the parties' agreement, as there was no valid court order or process requiring it to withhold payment of the deposit.

• Duty to Withhold Payment: The spouses Serfino argued that upon receipt of a notice of adverse claim in proper form, it becomes the duty of the bank to withhold payment of the deposit until there is a reasonable opportunity to institute legal proceedings to contest ownership, and to give prompt notice of the adverse claim to the depositor; the bank may be held liable to the adverse claimant if it disregards the notice and pays the depositor.
• Reasonable Notice Standard: The spouses Serfino maintained that when a bank has reasonable notice of a bona fide claim that money deposited with it is the property of another than the depositor, it should withhold payment until there is reasonable opportunity to institute legal proceedings to contest ownership.
• Binding Effect of Compromise Judgment: The spouses Serfino argued that FEBTC should be deemed bound by the compromise judgment, since Article 1625 of the Civil Code states that an assignment of credit binds third persons if it appears in a public instrument.
• Application of Deposit Provisions by Analogy: The spouses Serfino alleged that the provisions on voluntary deposits should apply by analogy, particularly Article 1988 of the Civil Code, which provides that the depositary is not obliged to return the thing to the depositor if notified of a third person's opposition to the return or removal of the thing deposited.
• Entitlement to Damages: The spouses Serfino claimed that by allowing Grace to withdraw the deposit due them under the compromise judgment, FEBTC committed an actionable wrong entitling them to actual and moral damages.

• Contract of Loan with Depositor: FEBTC insisted that it was not bound by the compromise judgment, but only by its contract of loan with its depositor, Grace Cortez.
• Ownership of the Deposit: FEBTC argued that as a loan, the bank deposit is owned by the bank, and hence the spouses Serfino's claim of ownership over it was erroneous.

• Assignment of Credit: Whether the compromise judgment constituted a valid assignment of credit that transferred ownership of Magdalena Cortez's retirement benefits to the spouses Serfino.
• Bank's Duty to Adverse Claimant: Whether FEBTC had a legal duty to withhold payment of the deposit upon notice of the spouses Serfino's adverse claim, such that its failure to do so entitled them to actual and moral damages.

• Assignment of Credit: No. The compromise judgment did not convey an intent to equate the assignment of Magdalena's retirement benefits as the equivalent of payment of the debt; it merely identified the fund from which payment would be sourced. There was no valid assignment of credit, and the spouses Serfino cannot validly claim ownership of the retirement benefits deposited with FEBTC.
• Bank's Duty to Adverse Claimant: No. In the absence of a law or rule binding on the Court, the bank's contractual relations are with its depositor, not with a third party. The Court refused to adopt the American common law rule imposing a duty on banks to freeze deposits upon notice of an adverse claim, as this is a matter of policy better addressed by the other branches of government. Without a positive duty of the bank to an adverse claimant, there could be no breach entitling the latter to moral damages.

• Assignment of Credit: The Court defined an assignment of credit as an agreement by which the owner of a credit, known as the assignor, by a legal cause such as sale, dation in payment, exchange, or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. As a dation in payment, the assignment of credit operates as a mode of extinguishing the obligation; the delivery and transmission of ownership of a thing by the debtor to the creditor is accepted as the equivalent of the performance of the obligation. The terms of the compromise judgment, however, did not convey an intent to equate the assignment of Magdalena's retirement benefits as the equivalent of the payment of the debt. The compromise judgment merely identified the fund from which payment for the judgment debt would be sourced. Only when Magdalena received and turned over to the spouses Serfino the portion of her retirement benefits corresponding to the debt would the debt be deemed paid. The Court distinguished Aquitey vs. Tibong, where the obligation was extinguished because the deeds of assignment were executed "to make good" the balance of the obligation and the parties agreed to relieve the debtor of her obligation. In the present case, the judgment debt was not extinguished by the mere designation of Magdalena's retirement benefits as the fund from which payment shall be sourced. The compromise judgment also did not give the spouses Serfino the power to enforce Magdalena's credit against the GSIS; in fact, they were prohibited from enforcing their claim until after the lapse of one week from Magdalena's receipt of her retirement benefits. Since no valid assignment of credit took place, the spouses Serfino cannot validly claim ownership of the retirement benefits, and without ownership rights, they suffered no pecuniary loss that has to be compensated by actual damages.
• Bank's Duty to Adverse Claimant: The Court addressed the spouses Serfino's invocation of American common law imposing a duty upon a bank receiving a notice of adverse claim to freeze the account for a reasonable length of time. The Court acknowledged that no such duty is imposed by law in this jurisdiction. To adopt the foreign rule would go beyond the power of the Court to promulgate rules governing pleading, practice, and procedure in all courts. The rule reflects a matter of policy better addressed by the other branches of government, particularly the Bangko Sentral ng Pilipinas, which supervises the operations and activities of banks and has the power to issue rules of conduct or the establishment of standards of operation. The Court noted that many American states have since adopted adverse claim statutes that do not impose a duty on banks to freeze the deposit upon a mere notice of adverse claim; they first require either a court order or an indemnity bond. In the absence of a law or rule binding on the Court, it upheld the existing policy that recognizes the fiduciary nature of banking and rejected the adoption of a judicially-imposed rule giving third parties with unverified claims against the deposit of another a better right over the deposit. As current laws provide, the bank's contractual relations are with its depositor, not with the third party. In the absence of any positive duty of the bank to an adverse claimant, there could be no breach that entitles the latter to moral damages.

• Assignment of Credit — An agreement by which the owner of a credit, known as the assignor, by a legal cause such as sale, dation in payment, exchange, or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. As a dation in payment, the assignment of credit operates as a mode of extinguishing the obligation. The Court applied this doctrine to find that the compromise judgment merely identified the fund from which payment would be sourced and did not constitute an assignment of credit that would transfer ownership to the spouses Serfino.
• Abuse of Rights — Under Article 21 in conjunction with Article 19 of the Civil Code, the elements of abuse of rights are: (a) there is a legal right or duty; (b) exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another. The Court applied this doctrine to determine that the spouses Serfino's claim for moral damages failed because there was no legal duty on the part of the bank to protect the interest of a third person claiming a deposit in the name of another.
• Fiduciary Nature of Banking — A bank is under obligation to treat the accounts of its depositors with meticulous care and always to have in mind the fiduciary nature of its relationship with them. The Court applied this doctrine to uphold the existing policy that the bank's contractual relations are with its depositor, not with a third party claiming rights over the deposit.

• "An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor." — This passage defines the doctrine of assignment of credit and serves as the basis for the Court's finding that no valid assignment took place in this case.
• "The terms of the compromise judgment, however, did not convey an intent to equate the assignment of Magdalena's retirement benefits (the credit) as the equivalent of the payment of the debt due the spouses Serfino (the obligation). There was actually no assignment of credit; if at all, the compromise judgment merely identified the fund from which payment for the judgment debt would be sourced." — This passage states the ratio decidendi for the Court's ruling that the spouses Serfino had no ownership rights over the deposit.
• "In the absence of a law or a rule binding on the Court, it has no option but to uphold the existing policy that recognizes the fiduciary nature of banking. It likewise rejects the adoption of a judicially-imposed rule giving third parties with unverified claims against the deposit of another a better right over the deposit." — This passage articulates the Court's refusal to adopt the American common law rule on adverse claims and its rationale for upholding the bank's contractual relationship with its depositor.

• Aquitey vs. Tibong, G.R. No. 166704, December 20, 2006, 511 SCRA 414 — Cited as the controlling precedent distinguishing a true assignment of credit that extinguishes the obligation from a mere designation of a fund for payment. The Court noted that in Aquitey, the deeds of assignment were executed "to make good" the balance of the obligation, whereas in the present case, the compromise judgment merely identified the fund from which payment would be sourced.
• Prudential Bank vs. Lim, G.R. No. 136371, November 11, 2005, 511 SCRA 100 — Cited for the principle that a bank is under obligation to treat the accounts of its depositors with meticulous care and always to have in mind the fiduciary nature of its relationship with them, supporting the Court's conclusion that the bank's duty runs to its depositor, not to third-party adverse claimants.

• Article 1625, Civil Code — Provides that an assignment of credit, right, or action shall produce no effect as against third persons unless it appears in a public instrument. The spouses Serfino invoked this provision to argue that FEBTC should be deemed bound by the compromise judgment, but the Court found that no valid assignment of credit existed.
• Article 1988, Civil Code — Provides that the thing deposited must be returned to the depositor upon demand, but this shall not apply when the depositary has been notified of the opposition of a third person to the return or removal of the thing deposited. The spouses Serfino invoked this provision by analogy, but the Court did not apply it, as the bank's relationship with its depositor is governed by the provisions on loan, not deposit.
• Article 2199, Civil Code — Provides that one is entitled to adequate compensation only for such pecuniary loss suffered as he has duly proven. The Court applied this provision to deny actual damages because the spouses Serfino had no ownership rights over the deposit and thus suffered no pecuniary loss.
• Article 21, Civil Code — Provides that any person who willfully causes loss or injury to another in a manner contrary to morals, good customs, or public policy shall compensate the latter for the damage. The Court applied this provision in conjunction with Article 19 to analyze the spouses Serfino's claim for moral damages, but found no legal duty on the part of the bank to the adverse claimant.
• Article VIII, Section 5(5), Constitution — Grants the Supreme Court the power to promulgate rules concerning pleading, practice, and procedure. The Court cited this provision to explain that adopting the American common law rule on adverse claims would go beyond its power, as the rule reflects a matter of policy better addressed by the other branches of government.
• Section 4.1, Republic Act No. 8791 (The General Banking Law of 2000) — Grants the Bangko Sentral ng Pilipinas the power to issue rules of conduct or the establishment of standards of operation for uniform application to all institutions or functions covered. The Court cited this provision to identify the proper agency to address the policy of imposing duties on banks with respect to adverse claims.

Carpio, J. (Chairperson), Del Castillo, J., Perez, J., and Perlas-Bernabe, J. concurred in the decision.