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. 2310-001-
42” 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.