BANK OF THE PHILIPPINE ISLANDS VS.

COURT OF
APPEALS
232 SCRA302
G.R. NO. 104612
MAY 10, 1994

FACTS:
Private respondents Eastern Plywood Corporation and
Benigno Lim as officer of the corporation, had an
AND/OR joint account with Commercial Bank and
Trust Co (CBTC), the predecessor-in-interest of
petitioner Bank of the Philippine Islands. Lim withdraw
funds from such account and used it to open a joint
checking account (an AND account) with Mariano
Velasco. When Velasco died in 1977, said joint
checking account had P662,522.87. By virtue of an
Indemnity Undertaking executed by Lim and as
President and General Manager of Eastern withdrew
one half of this amount and deposited it to one of the
accounts of Eastern with CBTC.
Eastern obtained a loan of P73,000.00 from CBTC
which was not secured. However, Eastern and CBTC
executed a Holdout Agreement providing that the loan
was secured by the Holdout of the C/A No. 2310-00142 referring to the joint checking account of Velasco
and Lim.
Meanwhile, a judicial settlement of the estate of
Velasco ordered the withdrawal of the balance of the
account of Velasco and Lim.

Asserting that the Holdout Agreement provides for the

security of the loan obtained by Eastern and that it is
the duty of CBTC to debit the account of respondents
to set off the amount of P73,000 covered by the
promissory note, BPI filed the instant petition for
recovery.
Private respondents Eastern and Lim,
however, assert that the amount deposited in the joint
account of Velasco and Lim came from Eastern and
therefore rightfully belong to Eastern and/or Lim.
Since the Holdout Agreement covers the loan of
P73,000, then petitioner can only hold that amount
against the joint checking account and must return the
rest.
ISSUE:
Whether BPI can demand the payment of the loan
despite the existence of the Holdout Agreement and
whether BPI is still liable to the private respondents on
the account subject of the withdrawal by the heirs of
Velasco.
RULING:
Yes, for both issues. Regarding the first, the Holdout
Agreement conferred on CBTC the power, not the duty,
to set off the loan from the account subject of the
Agreement. When BPI demanded payment of the loan
from Eastern, it exercised its right to collect payment
based on the promissory note, and disregarded its
option under the Holdout Agreement. Therefore, its
demand was in the correct order.
Regarding the second issue, BPI was the debtor and
Eastern was the creditor with respect to the joint
checking account. Therefore, BPI was obliged to return

the amount of the said account only to the creditor.

When it allowed the withdrawal of the balance of the
account by the heirs of Velasco, it made the payment
to the wrong party. The law provides that payment
made by the debtor to the wrong party does not

extinguish its obligation to the creditor who is without

fault or negligence. Therefore, BPI was still liable to
the true creditor, Eastern.