Possession Is Key: Unpaid Trust Certificates and Bank Liability in the Philippines

The Supreme Court has ruled that a bank cannot escape liability on unpaid trust certificates simply because their maturity dates have passed. In Philippine Commercial International Bank (now BDO Unibank, Inc.) v. Franco (G.R. No. 180069, March 5, 2014), the Court affirmed that a client's possession of the original certificates is strong evidence that the bank's obligation remains unpaid. The ruling clarifies important rules on burden of proof, prescription, and what happens when banks unilaterally declare old investment instruments "null and void."

The Facts of the Case

Arturo Franco invested his lifetime savings in four Trust Indenture Certificates (TICs) issued by Philippine Commercial International Bank between 1986 and 1987. The certificates had fixed maturity dates ranging from January to August 1987, with principal amounts totaling over P1.9 million and interest rates between 7.75% and 9.25% per annum.

Franco testified that the bank represented his money would be "commingled, pooled and automatically rolled-over for better investment return." He was a loyal client from 1986 to 1997. When his son was diagnosed with leukemia in 1995, Franco tried to encash his certificates but was given a "run-around" by the bank for years. Finally, in June 2000, the bank's counsel wrote to him declaring the TICs "null and void" due to their conversion into common trust funds in 1992.

The Issue

The central questions were: (1) whether Franco was still entitled to payment despite the certificates having matured years earlier, and (2) whether his claim had already prescribed.

The Ruling: Possession of the Certificates Matters

The Supreme Court denied the bank's petition and affirmed the rulings of the trial court and the Court of Appeals. The Court applied settled rules on burden of proof in payment disputes:

One who pleads payment has the burden of proving it. Even when the plaintiff must allege non-payment, the general rule is that the defendant must prove payment occurred. The Court cited Agner v. BPI Family Savings Bank, Inc. and Halley v. Printwell, Inc. to support this principle.

The creditor's possession of the evidence of debt is proof that the debt has not been discharged. Citing Tai Tong Chuache & Co. v. Insurance Commission and Bank of the Philippine Islands v. Spouses Royeca, the Court held that when a creditor holds the original document of credit, non-payment is presumed.

In this case, Franco held the original TICs. This was prima facie evidence that the bank had not paid. The bank could have presented documentary evidence to dispute the claim but failed to do so. Worse, the bank's own witnesses reinforced Franco's allegations. One witness admitted that the bank's practice was to roll over unclaimed investments even without instruction from their owners, and that the conversion to common trust funds was "a change only in name" with the same features.

Why Prescription Did Not Bar the Claim

The Court rejected the bank's defense of prescription. The maturity dates of the TICs did not terminate the express trust relationship between the parties. Because the certificates were never replaced or cancelled, and because the bank's practice was to automatically roll over unclaimed investments, the trust relationship subsisted when Franco demanded withdrawal of his funds.

Practical Takeaways

• Hold on to original documents. Possession of an original certificate of debt or investment is powerful evidence that the obligation remains unpaid. Banks bear the burden of proving payment, not the client of proving non-payment.
• Maturity dates do not automatically extinguish obligations. If a bank's practice is to roll over unclaimed investments automatically, a client's failure to encash on the maturity date does not mean the money is lost.
• Banks cannot unilaterally void old instruments. Declaring trust certificates "null and void" due to conversion to other products does not erase the bank's underlying obligation, especially when the products have the same features.
• Prescription is not automatic. Claims may still be timely if the trust relationship continues and the bank has not shown that payment was made or the investment withdrawn.
• Verbal roll-over instructions can be credible. When corroborated by the bank's own witnesses describing standard practice, a client's testimony about verbal instructions may be sufficient.

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