The Supreme Court ruled that a bank is liable for the actions of its branch manager when the manager acts within the scope of apparent authority, even if those actions are later deemed unauthorized internally. This decision underscores the importance of public trust in banking institutions and their representatives, preventing banks from disclaiming responsibility when their agents make commitments, reinforcing the need for banks to honor transactions made in good faith.

When a Bank Manager’s Promise Meets Corporate Responsibility

First Metro Investment Corporation (FMIC) deposited P100 million with BPI Family Savings Bank (BPI FB), induced by Branch Manager Jaime Sebastian’s offer of a 17% per annum interest, paid in advance. Later, BPI FB transferred P80 million of FMIC’s deposit to a third party, Tevesteco, without FMIC’s authorization. FMIC then attempted to withdraw its remaining funds, but BPI FB dishonored the check due to ‘insufficient funds,’ leading FMIC to sue BPI FB. The central legal question revolves around whether BPI FB is bound by its branch manager’s promise of high-interest rates and is liable for the unauthorized transfer of funds.

The Supreme Court found that BPI FB was indeed liable to FMIC. The Court emphasized that the agreement between FMIC and BPI FB, facilitated by Sebastian, was for a time deposit, not a demand deposit. This was evidenced by written communications indicating a non-withdrawal condition for one year in exchange for the 17% interest paid upfront. The Court noted that the subsequent attempt by FMIC to withdraw funds did not alter the original agreement’s nature, as it was a direct response to BPI FB’s unauthorized transfer.

Further, the Supreme Court addressed the issue of interest rates. While Central Bank regulations may restrict interest on demand deposits, the agreed-upon arrangement indicated that this was treated as a high-yield time deposit. Moreover, the Court noted that interest rate ceilings on deposits have been lifted, affording the flexibility to offer competitive rates based on market conditions.

Regarding the Branch Manager’s authority, the Supreme Court invoked the principle of apparent authority. The court held that if a corporation allows an officer to act within the scope of apparent authority, it is estopped from denying such authority against those who dealt in good faith. The Court has consistently held that banks must be responsible for the representations made by their agents, especially when those representations fall within the ordinary course of business.

“A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom.” –Prudential Bank vs. Court of Appeals

The court rejected BPI FB’s argument that FMIC should have verified the internal procedures regarding deposit agreements. Corporate transactions should not be unduly hindered by requiring third parties to disbelieve the actions of responsible officers. The public is entitled to rely on the trustworthiness of bank managers and the integrity of their actions. Moreover, BPI FB’s initial payment of the agreed-upon interest effectively ratified the transaction, preventing them from later disclaiming the agreement.

Finally, the Court affirmed the award of interest on the principal amount owed, along with legal interest on the unpaid interest itself from the date of judicial demand. It reiterated that when an obligation to pay a sum of money is breached, the stipulated interest should apply, and any unpaid interest should accrue additional legal interest upon judicial demand.

FAQs

What was the key issue in this case?	The key issue was whether BPI Family Savings Bank was liable for the actions of its branch manager who offered a high-interest rate to FMIC, and whether the bank could deny responsibility for an unauthorized transfer of FMIC’s funds.
What is a time deposit versus a demand deposit?	A time deposit is a deposit that cannot be legally withdrawn for a specified period, while a demand deposit is payable in legal tender upon demand by the depositor’s check.
What is the principle of apparent authority?	Apparent authority holds a corporation responsible for the actions of its agents who are perceived by third parties as having the power to act on behalf of the corporation, even if they lack formal authorization.
Why was BPI FB held liable for its branch manager’s actions?	BPI FB was held liable because its branch manager acted within the scope of apparent authority, leading FMIC to reasonably believe that the high-interest agreement was authorized by the bank.
Did the Court consider the initial deposit as a demand deposit?	No, the Court considered the initial deposit as a time deposit based on the agreed-upon terms of non-withdrawal for one year in exchange for the high-interest payment.
What was the effect of BPI FB paying the interest upfront?	Paying the interest upfront acted as a ratification of the agreement by BPI FB, preventing it from later denying the branch manager’s authority.
What did the Court say about the public’s reliance on bank managers?	The Court emphasized that the public has the right to rely on the trustworthiness of bank managers and their actions, which is vital to maintaining confidence in the banking system.
Was FMIC required to verify the branch manager’s internal authority?	No, the Court stated that FMIC was not required to verify the internal scope of the branch manager’s authority, as corporate transactions should not be hindered by such a requirement.

In conclusion, this case affirms that banks must honor the commitments made by their representatives, particularly when those commitments are made within the scope of apparent authority and relied upon in good faith by customers. The ruling serves as a reminder of the banking sector’s crucial role in maintaining public trust through ethical and transparent practices.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: BPI Family Savings Bank vs. First Metro Investment Corporation, G.R. No. 132390, May 21, 2004