Bearer Certificates: Banks Must Verify Payment and Prevent Loss

Far East Bank and Trust Company v. Estrella O. Querimit (G.R. No. 148582, January 16, 2002) is a reminder to banks that the duty of care they owe depositors does not end at the teller’s window. When a certificate of deposit is payable to bearer, a bank that pays the wrong person—without demanding surrender of the certificate—may still be liable to the lawful holder.

The Facts

Estrella Querimit, a bank internal auditor for 19 years, opened a dollar savings account with Far East Bank and Trust Company (FEBTC) in 1986. She received four certificates of deposit totaling $60,000, each payable to bearer and maturing in 60 days. The certificates bore the word “accrued,” meaning that if not presented for encashment, the deposit would be rolled over and earn interest automatically.

Querimit left the money untouched, intending to use it for retirement. In 1989, she accompanied her husband to the United States for medical treatment. When her husband died in 1993, she returned to the Philippines and went to FEBTC to withdraw her deposit. The bank told her the money had already been withdrawn—by her late husband.

FEBTC claimed it gave Querimit’s husband an “accommodation” to withdraw the deposit, presenting demand drafts and internal records as proof of payment. The trial court and the Court of Appeals ruled against the bank, and FEBTC appealed to the Supreme Court.

The Issue

The central question was whether FEBTC had validly paid the certificates of deposit, thereby discharging its obligation to Querimit as the bearer and lawful holder.

The Ruling

The Supreme Court denied FEBTC’s petition and affirmed the lower courts’ rulings, with a reduction in attorney’s fees.

Payment must be made to the right person. A certificate of deposit is a written acknowledgment by a bank of a sum received on deposit, which the bank promises to pay to the depositor or to a specified person. The rules on bank deposits and promissory notes apply. Critically, payment to discharge a debt must be made to someone authorized to receive it. A bank that pays a certificate of deposit without requiring its production and surrender after proper indorsement acts at its own peril.

The burden of proving payment rests on the bank. The debtor—here, the bank—must show with legal certainty that the obligation has been discharged. FEBTC failed to do so. The certificates remained in Querimit’s possession, unindorsed and undelivered. The bank had no right to pay her husband or any third party without the certificates’ surrender.

The “accommodation” was no excuse. FEBTC argued that it did not demand surrender because Querimit’s husband was a senior bank manager. The Court rejected this. The accommodation violated the bank’s own policies and procedures, and the bank never required delivery of the certificates even after the alleged payment.

Banks owe a higher degree of care. Because the banking business is impressed with public interest, banks must exercise more than the diligence of a good father of a family. The fiduciary nature of the bank-depositor relationship requires accounts to be treated with the highest degree of care, regardless of the amount involved.

Laches did not apply. Laches is the failure to assert a right within a reasonable time, warranting a presumption of abandonment. But there is no absolute rule on what constitutes laches; each case depends on its circumstances. The Court found it would be unjust to use laches to defeat Querimit’s right to recover her retirement savings. She deliberately left the deposit untouched, relying on the bank’s assurance that interest would accrue automatically.

Practical Takeaways

• Banks must demand surrender and indorsement before paying a bearer certificate of deposit. Paying anyone else—even a spouse of the depositor—without the certificate exposes the bank to liability.
• The burden of proving payment is on the bank. A bank cannot simply present internal records or drafts; it must show that payment was made to the person lawfully entitled to receive it.
• “Accommodations” for insiders are risky. Deviating from established procedures, even for senior officers or their relatives, can result in the bank being held fully liable.
• Banks owe depositors the highest degree of care. The fiduciary duty extends to verifying the identity and authority of anyone claiming a deposit, no matter how small or large the amount.
• Laches is an equitable defense, not a technical trap. Courts will not apply it to defeat justice or allow a bank to profit from its own negligence.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.