Escheat Proceedings: Banks Must Notify Depositors Before Dormant Funds Are Transferred to the State

The Supreme Court's 2012 decision in Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation (G.R. No. 192413) clarifies the obligations of banks in escheat proceedings — the process by which the state claims abandoned or unclaimed property. The ruling is significant for depositors and banks alike, as it defines when funds may be forfeited to the state and what steps banks must take before reporting dormant accounts.

The Case: A Manager's Check and a Disputed Deposit

In 1991, the spouses Bakunawa, through their company Hi-Tri Development Corporation, purchased a manager's check from RCBC for P1,019,514.29, payable to Rosmil Realty and Development Corporation. The check was part of a dispute between the parties over a failed land sale. When Rosmil refused to accept the down payment, the spouses retained custody of the check and never presented it for payment.

Thirteen years later, in January 2003, RCBC reported the amount to the Bureau of Treasury as an "unclaimed balance" — a dormant account subject to escheat. The bank posted a sworn statement within its premises but did not directly notify Hi-Tri or the spouses. In 2006, the Republic filed an escheat complaint, and the trial court ordered the funds forfeited to the state.

Hi-Tri and the spouses learned of the proceedings only when they tried to use the funds in 2008. They moved to intervene, but the trial court denied their motion, ruling that publication of notice was sufficient. The Court of Appeals reversed, and RCBC appealed to the Supreme Court.

The Issue: What Notice Is Required?

The central question was whether RCBC had a duty to notify the depositors before reporting the funds as unclaimed, and whether failure to do so invalidated the escheat.

The Supreme Court clarified two distinct notice requirements under Act No. 3936, as amended by Presidential Decree No. 679:

First, escheat proceedings are actions in rem — against the property itself, not against any person. Jurisdiction is secured over the res (the funds), not over individual claimants. Publication of summons in a newspaper of general circulation is sufficient notice to all interested persons. The Court rejected the Court of Appeals' ruling that personal service on each claimant was a jurisdictional requirement.

Second, and more importantly, the Court emphasized the separate duty of banks under Section 2 of Act No. 3936: immediately before filing a sworn statement of unclaimed balances with the Treasurer, 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."

This communication is not a mere formality. Its purpose is to determine whether the account has truly been abandoned or whether the depositor simply has not touched the funds but still asserts ownership. If the depositor confirms ownership, the bank must exclude the account from its sworn statement.

The Manager's Check: No Delivery, No Transfer

RCBC argued that the funds belonged to Rosmil, the payee, because a manager's check is deemed accepted in advance by the issuing bank. The Court disagreed.

Under the Negotiable Instruments Law (Act No. 2031), a manager's check is a bill of exchange drawn by the bank against itself. While it is accepted in advance, the mere issuance does not automatically transfer funds to the payee. The law provides that every contract on a negotiable instrument is incomplete and revocable until the instrument is delivered for the purpose of giving effect to it — a principle the Court applied to the undelivered check in this case.

Here, the check was never delivered to Rosmil. The payee refused it, and the spouses retained custody. No presentment for payment occurred, and no debit order was issued. The funds therefore remained part of Hi-Tri's account. Since Hi-Tri never abandoned its claim — it was pursuing the matter in a separate civil case — the funds should not have been escheated.

Practical Takeaways

• Banks must notify depositors before reporting dormant accounts. The sworn statement to the Treasurer must be preceded by direct communication with the account holder at their last known address. Failure to do so may deprive the bank of the legal protection against claims under Section 5 of Act No. 3936.
• Depositors should monitor their accounts. Even with publication requirements, the best protection against escheat is vigilance. Regularly checking statements and responding to bank communications can prevent funds from being reported as unclaimed.
• A manager's check does not automatically transfer ownership. If the check is never delivered to the payee, the funds remain with the procurer. The bank must treat the account accordingly.
• Escheat is not a penalty for inactivity. The state may claim funds only when they are truly abandoned or forgotten. If a depositor still asserts ownership, the funds should not be escheated.
• Publication alone may not suffice for banks. While courts acquire jurisdiction over the res through publication, banks have a separate statutory duty to communicate directly with depositors before reporting accounts as dormant.

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