TORTS – 4. PCIB v.

CA|1

446 Same; Same; Same; Words and Phrases; Proximate cause is that which, in
the natural and continuous sequence, unbroken by any efficient, intervening
SUPREME COURT REPORTS ANNOTATED cause, produces the injury, and without which the result would
Philippine Commercial and International Bank vs. Court of Appeals ________________
G.R. No. 121413. January 29, 2001.*

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR * SECOND DIVISION.

BANK OF ASIA AND AMERICA), petitioner, vs. COURT OF APPEALS
and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents. 447

G.R. No. 121479. January 29, 2001.*

FORD PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS and VOL. 350, JANUARY 29, 2001
CITIBANK, N.A. and PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, respondents. 447

G.R. No. 128604. January 29, 2001.* Philippine Commercial and International Bank vs. Court of Appeals

FORD PHILIPPINES, INC., petitioner, vs. CITIBANK, N.A., PHILIPPINE not have occurred.—Accordingly, we need to determine whether or not the
COMMERCIAL INTERNATIONAL BANK and THE COURT OF APPEALS, action of Godofredo Rivera, Ford’s General Ledger Accountant, and/or Alexis
respondents. Marindo, his assistant, was the proximate cause of the loss or damage. As
defined, proximate cause is that which, in the natural and continuous
Negligence; Torts; Quasi-Delicts; The general rule is that if the master is sequence, unbroken by any efficient, intervening cause produces the injury,
injured by the negligence of a third person and by the concurring contributory and without which the result would not have occurred.
negligence of his own servant or agent, the latter’s negligence is imputed to
his superior and will defeat the superior’s action against the third person, Banks and Banking; Negotiable Instruments; Checks; The mere fact that the
assuming, of course that the contributory negligence was the proximate cause forgery was committed by a drawer-payor’s confidential employee or agent,
of the injury of which complaint is made.—On this point, jurisprudence who by virtue of his position had unusual facilities for perpetrating the fraud
regarding the imputed negligence of employer in a master-servant relationship and imposing the forged paper upon the bank, does not entitle the bank to shift
is instructive. Since a master may be held for his servant’s wrongful act, the the loss to the drawer-payor, in the absence of some circumstances raising
law imputes to the master the act of the servant, and if that act is negligent or estoppel against the drawer.—It appears that although the employees of Ford
wrongful and proximately results in injury to a third person, the negligence or initiated the transactions attributable to an organized syndicate, in our view,
wrongful conduct is the negligence or wrongful conduct of the master, for which their actions were not the proximate cause of encashing the checks payable
he is liable. The general rule is that if the master is injured by the negligence to the CIR. The degree of Ford’s negligence, if any, could not be characterized
of a third person and by the concurring contributory negligence of his own as the proximate cause of the injury to the parties. The Board of Directors of
servant or agent, the latter’s negligence is imputed to his superior and will Ford, we note, did not confirm the request of Godofredo Rivera to recall
defeat the superior’s action against the third person, assuming, of course that Citibank Check No. SN-04867. Rivera’s instruction to replace the said check
the contributory negligence was the proximate cause of the injury of which with PCIBank’s Manager’s Check was not in the ordinary course of business
complaint is made. which could have prompted PCIBank to validate the same. As to the
preparation of Citibank Checks Nos. SN-10597 and 16508, it was established
that these checks were made payable to the CIR. Both were crossed checks.
 TORTS – 4. PCIB v. CA|2

These checks were apparently turned around by Ford’s employees, who were which it is sent for collection is, in the absence of an agreement to the contrary,
acting on their own personal capacity. Given these circumstances, the mere that of principal and agent.—It is a well-settled rule that the relationship
fact that the forgery was committed by a drawer-payor’s confidential employee between the payee or holder of commercial paper and the bank to which it is
or agent, who by virtue of his position had unusual facilities for perpetrating sent for collection is, in the absence of an agreement to the contrary, that of
the fraud and imposing the forged paper upon the bank, does not entitle the principal and agent. A bank which receives such paper for collection is the
bank to shift the loss to the drawer-payor, in the absence of some agent of the payee or holder.
circumstance raising estoppel against the drawer. This rule likewise applies to
the checks fraudulently negotiated or diverted by the confidential employees Same; Same; Same; Even considering arguendo, that the diversion of the
who hold them in their possession. amount of a check payable to the collecting bank in behalf of the designated
payee may be allowed, still such diversion must be properly authorized by the
Same; Checks; Collecting Banks; Taxation; A bank authorized to collect the payor.—Even considering arguendo, that the diversion of the amount of a
payment of taxpayers in behalf of the Bureau of Internal Revenue is duty check payable to the collecting bank in behalf of the designated payee may be
bound to consult its principal regarding the unwarranted instructions given by allowed, still such diversion must be properly authorized by the payor.
the pay or of its agent.—Citibank Check No. SN-04867 was deposited at Otherwise stated, the diversion can be justified only by proof of authority from
PCIBank through its Ermita Branch. It was coursed through the ordinary the drawer, or that the drawer has clothed his agent with apparent authority to
banking transaction, sent to Central Clearing with the indorsement at the back receive the proceeds of such check.
“all prior indorsements and/or lack of indorsements guaranteed,” and was
presented to Citibank for payment. Thereafter PCIBank, instead of remitting Same; Same; Same; Crossed Checks; Words and Phrases; The crossing of
the proceeds to the CIR, prepared two of its the check with the phrase “Payee’s Account Only,” is a warning that the check
should be deposited only in the account of the payee; It is the collecting bank
448 which is bound to scrutinize the check and to know its depositors before it
could make the clearing indorsement “all prior indorsements and lor lack
ofindorsement guaranteed.”—Indeed, the crossing of the check with the
448 phrase “Payee’s Account Only,” is a warning that the check should be
deposited only in the account of the CIR. Thus, it is the duty of the collecting
SUPREME COURT REPORTS ANNOTATED bank PCIBank to ascertain that the check be deposited in payee’s account
only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize
Philippine Commercial and International Bank vs. Court of Appeals
the check and to know its depositors before it could make the clearing
Manager's checks and enabled the syndicate to encash the same. On record, indorsement “all prior indorsements and/or lack of indorsement guaranteed.”
PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks.
449
The neglect of PCIBank employees to verify whether his letter requesting for
the replacement of the Citibank Check No. SN-04867 was duly authorized,
showed lack of care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the payment VOL. 350, JANUARY 29, 2001
of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty bound 449
to consult its principal regarding the unwarranted instructions given by the
payor or its agent. Philippine Commercial International Bank vs. Court of Appeals

Same; Same; Same; Negotiable Instruments; It is a well-settled rule that the Same; Same; Same; A bank which cashes a check drawn upon another bank,
relationship between the payee or holder of commercial paper and the bank to without requiring proof as to the identity of persons presenting it, or making
 TORTS – 4. PCIB v. CA|3

inquiries with regard to them, cannot hold the proceeds against the drawee
when the proceeds of the checks were afterwards diverted to the hands of a
third party.—Banking business requires that the one who first cashes and 450
negotiates the check must take some precautions to learn whether or not it is SUPREME COURT REPORTS ANNOTATED
genuine. And if the one cashing the check through indifference or other
circumstance assists the forger in committing the fraud, he should not be Philippine Commercial International Bank vs. Court of Appeals
permitted to retain the proceeds of the check from the drawee whose sole fault
ing out its officers and agents as worthy of confidence will not be permit- ted
was that it did not discover the forgery or the defect in the title of the person
to profit by the frauds these officers or agents were enabled to perpetrate in
negotiating the instrument before paying the check. For this reason, a bank
the apparent course of their employment; nor will it be permitted to shirk its
which cashes a check drawn upon another bank, without requiring proof as to
responsibility for such frauds, even though no benefit may accrue to the bank
the identity of persons presenting it, or making inquiries with regard to them,
therefrom. For the general rule is that a bank is liable for the fraudulent acts or
cannot hold the proceeds against the drawee when the proceeds of the checks
representations of an officer or agent acting within the course and apparent
were afterwards diverted to the hands of a third party. In such cases the
scope of his employment or authority. And if an officer or employee of a bank,
drawee bank has a right to believe that the cashing bank (or the collecting
in his official capacity, receives money to satisfy an evidence of indebtedness
bank) had, by the usual proper investigation, satisfied itself of the authenticity
lodged with his bank for collection, the bank is liable for his misappropriation
of the negotiation of the checks. Thus, one who encashed a check which had
of such sum.
been forged or diverted and in turn received payment thereon from the drawee,
is guilty of negligence which proximately contributed to the success of the fraud Same; Same; Same; Negligence; As a business affected with public interest
practiced on the drawee bank. The latter may recover from the holder the and because of the nature of its functions, a bank is under obligation to treat
money paid on the check. the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.—Citibank should have scrutinized
Same; Same; Torts; As a general rule, a banking corporation is liable for the
Citibank Check Numbers SN-10597 and 16508 before paying the amount of
wrongful or tortuous acts and declarations of its officers or agents within the
the proceeds thereof to the collecting bank of the BIR. One thing is clear from
course and scope of their employment—it may be liable for the tortuous acts
the record: the clearing stamps at the back of Citibank Check Nos. SN-10597
of its officers even as regards that species of tort of which malice is an essential
and 16508 do not bear any initials. Citibank failed to notice and verify the
element.—In this case, there was no evidence presented confirming the
absence of the clearing stamps. Had this been duly examined, the switching
conscious participation of PCIBank in the embezzlement. As a general rule,
of the worthless checks to Citibank Check Nos. 10597 and 16508 would have
however, a banking corporation is liable for the wrongful or tortuous acts and
been discovered in time. For this reason, Citibank had indeed failed to perform
declarations of its officers or agents within the course and scope of their
what was incumbent upon it, which is to ensure that the amount of the checks
employment. A bank will be held liable for the negligence of its officers or
should be paid only to its designated payee. The fact that the drawee bank did
agents when acting within the course and scope of their employment. It may
not discover the irregularity seasonably, in our view, constitutes negligence in
be liable for the tortuous acts of its officers even as regards that species of tort
carrying out the bank’s duty to its depositors. The point is that as a business
of which malice is an essential element. In this case, we find a situation where
affected with public interest and because of the nature of its functions, the bank
the PCIBank appears also to be the victim of the scheme hatched by a
is under obligation to treat the accounts of its depositors with meticulous care,
syndicate in which its own management employees had participated.
always having in mind the fiduciary nature of their relationship.
Same; Same; Same; The general rule is that a bank is liable for the fraudulent
Same; Same; Same; Same; Doctrine of Comparative Negligence; Where both
acts or representations of an officer or agent acting within the course and
the collecting and drawee banks failed in their respective obligations and both
apparent scope of his employment or authority.—A bank hold-
were negligent in the selection and supervision of their employees, both are
450 equally liable for the loss of the proceeds of checks fraudulently encashed.—
 TORTS – 4. PCIB v. CA|4

Thus, invoking the doctrine of comparative negligence, we are of the view that ordinarily when the check is returned to the alleged drawer as a voucher with
both PCIBank and Citibank failed in their respective obligations and both were a statement of his account, and an action upon a check is ordinarily governed
negligent in the selection and supervision of their employees resulting in the by the statutory period applicable to instruments in writing. Our laws on the
encashment of Citibank Check Nos. SN-10597 and 16508. Thus, we are matter provide that the action upon a written contract must be brought within
constrained to hold them equally liable for the loss of the proceeds of said ten years from the time the right of action accrues. Hence, the reckoning time
checks issued by Ford in favor of the CIR. for the prescriptive period begins when the instrument was issued and the
corresponding check was returned by the bank to its depositor (normally a
451 month thereafter). Applying the same rule, the cause of action for the recovery
of the proceeds of Citibank Check No. SN-04867 would normally be a month
after December 19, 1977, when Citibank paid the face value of the check in
VOL. 350, JANUARY 29, 2001 the amount of P4,746,114.41. Since the original complaint for the cause of
action was filed on January 20, 1983, barely six years had lapsed. Thus, we
451
conclude that Ford’s cause of action to recover the amount of Citibank Check
Philippine Commercial International Bank vs. Court of Appeals No. SN-04867 was seasonably filed within the period provided by law.

Same; Same; Same; Same; The banking business is so impressed with public 452
interest where the trust and confidence of the public in general is of paramount
importance such that the appropriate standard of diligence must be very high,
if not the highest, degree of diligence.—Time and again, we have stressed that 452
banking business is so impressed with public interest where the trust and
confidence of the public in general is of paramount importance such that the SUPREME COURT REPORTS ANNOTATED
appropriate standard of diligence must be very high, if not the highest, degree Philippine Commercial International Bank vs. Court of Appeals
of diligence. A bank’s liability as obligor is not merely vicarious but primary,
wherein the defense of exercise of due diligence in the selection and Same; Same; Same; Negligence; Failure on the part of the depositor to
supervision of its employees is of no moment. examine its passbook, statements of account, and cancelled checks and to
give notice within a reasonable time (or as required by statute) of any
Same; Same; Same; Same; Banks are expected to exercise the highest discrepancy which it may in the exercise of due care and diligence find therein,
degree of diligence in the selection and supervision of their employees.— serves to mitigate the banks’ liability by reducing the award of interest from
Banks handle daily transactions involving millions of pesos. By the very nature twelve percent (12%) to six percent (6%) per annum.—We also find that Ford
of their work the degree of responsibility, care and trustworthiness expected of is not completely blameless in its failure to detect the fraud. Failure on the part
their employees and officials is far greater than those of ordinary clerks and of the depositor to examine its passbook, statements of account, and
employees. Banks are expected to exercise the highest degree of diligence in cancelled checks and to give notice within a reasonable time (or as required
the selection and supervision of their employees. by statute) of any discrepancy which it may in the exercise of due care and
Same; Same; Same; Prescription; The statute of limitations begins to run when diligence find therein, serves to mitigate the banks’ liability by reducing the
the bank gives the depositor notice of the payment, and an action upon a check award of interest from twelve percent (12%) to six percent (6%) per annum.
is ordinarily governed by the statutory period applicable to instruments in As provided in Article 1172 of the Civil Code of the Philippines, responsibility
writing; An action upon a written contract must be brought within ten years arising from negligence in the performance of every kind of obligation is also
from the time the right of action accrues.—The statute of limitations begins to demandable, but such liability may be regulated by the courts, according to
run when the bank gives the depositor notice of the payment, which is the circumstances. In quasi-delicts, the contributory negligence of the plaintiff
shall reduce the damages that he may recover.
 TORTS – 4. PCIB v. CA|5

PETITIONS for review on certiorari of a decision of the Court of Appeals. G.R. No. 28430 entitled “Ford Philippines, Inc. vs. Citibank, N.A. and Philippine
Commercial International Bank,” affirming in toto the judgment of the trial court
holding the defendant drawee bank, Citibank, N.A., solely liable to pay the
The facts are stated in the opinion of the Court. amount of P12,163,298.10 as damages for the misapplied proceeds of the
plaintiff’s Citibank Check Numbers SN-10597 and 16508.
Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles for Ford
Philippines, Inc. I. G.R. Nos. 121413 and 121479

Agabin, Verzola, Hermoso, Layaoen and De Castro for private respondent The stipulated facts submitted by the parties as accepted by the Court of
PCIB. Appeals are as follows:

Angara, Abello, Concepcion, Regala and Cruz for respondent Citibank. “On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check
No. SN-04867 in the amount of P4,746,114.41, in favor of the Commissioner
QUISUMBING, J.: of Internal Revenue as payment of plaintiff’s percentage or manufacturer’s
sales taxes for the third quarter of 1977.

The aforesaid check was deposited with the defendant IBAA (now PCIBank)
These consolidated petitions involve several fraudulently negotiated checks.
and was subsequently cleared at the Central Bank. Upon presentment with
The original actions a quo were instituted by Ford Philippines to recover from the defendant Citibank, the proceeds of the check was paid to IBAA as
the drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine collecting or depository bank.
Commercial International Bank (PCI-Bank) [formerly Insular Bank of Asia and
__________________
America], the value of several checks payable to the Commissioner of Internal
Revenue, which were embezzled allegedly by an organized syndicate.

453 1 Penned by Justice B. A. Adefuin-dela Cruz and concurred in by Justices

Jesus M. Elbinias and Lourdes K. Tayao-Jaguros, rollo, G.R. No. 121413, pp.
27-42.
VOL. 350, JANUARY 29, 2001
2 Rollo, G.R. No. 121413, pp. 44-45.
453
3 Penned by Justice Jose C. de la Rama and concurred in by Justices
Philippine Commercial International Bank vs. Court of Appeals Emeterio C. Cui and Eduardo G. Montenegro, rollo, G.R. No. 128604, pp. 45-
60.
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27,
1995 Decision1 of the Court of Appeals in CA-G.R. CV No. 25017, entitled 4 Rollo, G.R. No. 128604, pp. 42-43.
“Ford Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and America
454
(now Philippine Commercial International Bank), and the August 8, 1995
Resolution,2 ordering the collecting bank, Philippine Commercial International
Bank, to pay the amount of Citibank Check No. SN-04867.
454
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996
Decision3 of the Court of Appeals and its March 5, 1997 Resolution4 in CA- SUPREME COURT REPORTS ANNOTATED
 TORTS – 4. PCIB v. CA|6

Philippine Commercial International Bank vs. Court of Appeals the BIR for the payment of the taxes covered by the said checks, then plaintiff
shall hold the defendants liable for reim-
The proceeds of the same Citibank check of the plaintiff was never paid to or
received by the payee thereof, the Commissioner of Internal Revenue. 455

As a consequence, upon demand of the Bureau and/or Commissioner of

Internal Revenue, the plaintiff was compelled to make a second payment to
the Bureau of Internal Revenue of its percentage/manufacturers’ sales taxes VOL. 350, JANUARY 29, 2001
for the third quarter of 1977 and that said second payment of plaintiff in the 455
amount of P4,746,114.41 was duly received by the Bureau of Internal
Revenue. Philippine Commercial International Bank vs. Court of Appeals

It is further admitted by defendant Citibank that during the time of the bursement of the face value of the same. Both defendants denied liability and
transactions in question, plaintiff had been maintaining a checking account refused to pay.
with defendant Citibank; that Citibank Check No. SN-04867 which was drawn
In a letter dated February 28, 1980 by the Acting Commissioner of Internal
and issued by the plaintiff in favor of the Commissioner of Internal Revenue
Revenue addressed to the plaintiff—supposed to be Exhibit “D,” the latter was
was a crossed check in that, on its face were two parallel lines and written in
officially informed, among others, that its check in the amount of
between said lines was the phrase “Payee’s Account Only”; and that defendant
P4,746,114.41 was not paid to the government or its authorized agent and
Citibank paid the full face value of the check in the amount of P4,746,114.41
instead encashed by unauthorized persons, hence, plaintiff has to pay the said
to the defendant IBAA.
amount within fifteen days from receipt of the letter. Upon advice of the
It has been duly established that for the payment of plaintiff’s percentage tax plaintiff’s lawyers, plaintiff on March 11, 1982, paid to the Bureau of Internal
for the last quarter of 1977, the Bureau of Internal Revenue issued Revenue Revenue, the amount of P4,746,114.41, representing payment of plaintiff’s
Tax Receipt No. 18747002, dated October 20, 1977, designating therein in percentage tax for the third quarter of 1977.
Muntinlupa, Metro Manila, as the authorized agent bank of Metrobank,
As a consequence of defendant’s refusal to reimburse plaintiff of the payment
Alabang Branch to receive the tax payment of the plaintiff.
it had made for the second time to the BIR of its percentage taxes, plaintiff filed
On December 19, 1977, plaintiff’s Citibank Check No. SN-04867, together with on January 20, 1983 its original complaint before this Court.
the Revenue Tax Receipt No. 18747002, was deposited with defendant IBAA,
On December 24, 1985, defendant IBAA was merged with the Philippine
through its Ermita Branch. The latter accepted the check and sent it to the
Commercial International Bank (PCIBank) with the latter as the surviving
Central Clearing House for clearing on the same day, with the indorsement at
entity.
the back “all prior indorsements and/or lack of indorsements guaranteed.”
Thereafter, defendant IBAA presented the check for payment to defendant Defendant Citibank maintains that; the payment it made of plaintiffs Citibank
Citibank on same date, December 19, 1977, and the latter paid the face value Check No. SN-04867 in the amount of P4,746,114.41 “was in due course”; it
of the check in the amount of P4,746,114.41. Consequently, the amount of merely relied on the clearing stamp of the depository/collecting bank, the
P4,746,114.41 was debited in plaintiff’s account with the defendant Citibank defendant IBAA that “all prior indorsements and/or lack of indorsements
and the check was returned to the plaintiff. guaranteed”; and the proximate cause of plaintiff’s injury is the gross
negligence of defendant IBAA in indorsing the plaintiff’s Citibank check in
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in
question.
the amount of P4,746,114.41 was not paid to the Commissioner of Internal
Revenue. Hence, in separate letters dated October 26, 1979, addressed to the
defendants, the plaintiff notified the latter that in case it will be re-assessed by
 TORTS – 4. PCIB v. CA|7

It is admitted that on December 19, 1977 when the proceeds of plaintiff’s the legal rate starting January 20, 1983, the date when the original complaint
Citibank Check No. SN-04867 was paid to defendant IBAA as collecting bank, was filed until the amount is fully paid, plus costs;
plaintiff was maintaining a checking account with defendant Citibank.”5
2. On defendant Citibank’s cross-claim: ordering the cross-defendant IBAA
Although it was not among the stipulated facts, an investigation by the National (now PCI BANK) to reimburse defendant Citibank for whatever amount the
Bureau of Investigation (NBI) revealed that Citibank Check No. SN-04867 was latter has paid or may pay to the plaintiff in accordance with the next preceding
recalled by Godofredo Rivera, the General Ledger Accountant of Ford. He paragraph;
purportedly needed to hold back the check because there was an error in the
computation of the tax due to the Bureau of Internal Revenue (BIR). With 3. The counterclaims asserted by the defendants against the plaintiff, as well
Rivera’s instruction, PCIBank replaced the check with two of its own Man- as that asserted by the cross-defendant against the cross-claimant are
dismissed, for lack of merits; and
__________________
4. With costs against the defendants.

SO ORDERED.”6
5 Supra, see note 1, pp. 32-34 (All citations omitted).
Not satisfied with the said decision, both defendants, Citibank and PCIBank,
456 elevated their respective petitions for review on certiorari to the Court of
Appeals. On March 27, 1995, the appellate court issued its judgment as
follows:
456 “WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed
SUPREME COURT REPORTS ANNOTATED decision with modifications.

Philippine Commercial International Bank vs. Court of Appeals The court hereby renders judgment:

ager’s Checks (MCs). Alleged members of a syndicate later deposited the two _________________
MCs with the Pacific Banking Corporation.

Ford, with leave of court, filed a third-party complaint before the trial court 6 Rollo, G.R. No. 121413, pp. 131-132.
impleading Pacific Banking Corporation (PBC) and Godofredo Rivera, as third
party defendants. But the court dismissed the complaint against PBC for lack 457
of cause of action. The court likewise dismissed the third-party complaint
against Godofredo Rivera because he could not be served with summons as
the NBI declared him as a “fugitive from justice.” VOL. 350, JANUARY 29, 2001
On June 15, 1989, the trial court rendered its decision, as follows: 457
“Premises considered, judgment is hereby rendered as follows: Philippine Commercial International Bank vs. Court of Appeals
1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and 1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant
severally, to pay the plaintiff the amount of P4,746,114.41 representing the Citibank N.A. is concerned;
face value of plaintiff’s Citibank Check No. SN-04867, with interest thereon at
 TORTS – 4. PCIB v. CA|8

2.Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount 8 Id. at 18.
of P4,746,114.41 representing the face value of plaintiff’s Citibank Check No.
SN-04867, with interest thereon at the legal rate starting January 20, 1983, the 458
date when the original complaint was filed until the amount is fully paid;

3. Dismissing the counterclaims asserted by the defendants against the 458

plaintiff as well as that asserted by the cross-defendant against the cross-
claimant, for lack of merits. SUPREME COURT REPORTS ANNOTATED

Costs against the defendant IBAA (now PCI Bank). Philippine Commercial International Bank vs. Court of Appeals

IT IS SO ORDERED.”7 of the trial court which found both PCIBank and Citibank jointly and severally
liable for the loss.
PCIBank moved to reconsider the above-quoted decision of the Court of
Appeals, while Ford filed a “Motion for Partial Reconsideration.” Both motions In G.R. No. 121479, appellant Ford presents the following propositions for
were denied for lack of merit. consideration:

Separately, PCIBank and Ford filed before this Court, petitions for review by I. Respondent Citibank is liable to petitioner Ford considering that:
certiorari under Rule 45.
1. As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer
In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the subject check and a depositor of respondent Citibank, an absolute and
of the Twelfth Division of the Court of Appeals contending that it merely acted contractual duty to pay the proceeds of the subject check only to the payee
on the instruction of Ford and such cause of action had already prescribed. thereof, the Commissioner of Internal Revenue.

PCIBank sets forth the following issues for consideration: 2. Respondent Citibank failed to observe its duty as banker with respect to the
subject check, which was crossed and payable to “Payee’s Account Only.”
I. Did the respondent court err when, after finding that the petitioner acted on
the check drawn by respondent Ford on the said respondent’s instructions, it 3. Respondent Citibank raises an issue for the first time on appeal; thus the
nevertheless found the petitioner liable to the said respondent for the full same should not be considered by the Honorable Court.
amount of the said check.
4. As correctly held by the trial court, there is no evidence of gross negligence
II. Did the respondent court err when it did not find prescription in favor of the on the part of petitioner Ford.9
petitioner.8
II. PCIBank is liable to petitioner Ford considering that:
In a counter move, Ford filed its petition docketed as G.R. No. 121479,
1. There were no instructions from petitioner Ford to deliver the proceeds of
questioning the same decision and resolution of the Court of Appeals, and
the subject check to a person other than the payee named therein, the
praying for the reinstatement in toto of the decision
Commissioner of the Bureau of Internal Revenue; thus, PCIBank’s only
_________________ obligation is to deliver the proceeds to the Commissioner of the Bureau of
Internal Revenue.10

2. PCIBank which affixed its indorsement on the subject check (“All prior
7 1d. at 41-42. indorsement and/or lack of indorsement guaranteed”), is liable as collecting
bank.11
 TORTS – 4. PCIB v. CA|9

3. PCIBank is barred from raising issues of fact in the instant proceedings.12 Both checks were “crossed checks” and contain two diagonal lines on its upper
left corner between which were written the words “payable to the payee’s
4. Petitioner Ford’s cause of action had not prescribed.13 account only.”
___________________ The checks never reached the payee, CIR. Thus, in a letter dated February
28, 1980, the BIR, Region 4-B, demanded for the said tax payments the
corresponding periods above-mentioned.
9 Rollo, G.R. No. 121479, pp. 162-163.
As far as the BIR is concerned, the said two BIR Revenue Tax Receipts were
10 Id. at 181. considered “fake and spurious.” This anomaly was confirmed by the NBI upon
the initiative of the BIR. The findings forced Ford to pay the BIR anew, while
11 Id. at 186.
an action was filed against Citibank and PCIBank for the recovery of the
12 Id at 188. amount of Citibank Check Numbers SN-10597 and 16508.

13 Id. at 192. The Regional Trial Court of Makati, Branch 57, which tried the case, made its
findings on the modus operandi of the syndicate, as follows:
459
“A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its
General Ledger Accountant. As such, he prepared the plaintiffs check marked
Exh. ‘A’ [Citibank Check No. SN-10597] for payment to the BIR. Instead,
VOL. 350, JANUARY 29, 2001
however, of delivering the same to the payee, he passed
459
460
Philippine Commercial International Bank vs. Court of Appeals

II. G.R. No. 128604

460
The same syndicate apparently embezzled the proceeds of checks intended,
SUPREME COURT REPORTS ANNOTATED
this time, to settle Ford’s percentage taxes appertaining to the second quarter
of 1978 and the first quarter of 1979. Philippine Commercial International Bank vs. Court of Appeals
The facts as narrated by the Court of Appeals are as follows: on the check to a co-conspirator named Remberto Castro who was a
promanager of the San Andres Branch of PCIB.** In connivance with one
Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of
Winston Dulay, Castro himself subsequently opened a Checking Account in
P5,851,706.37 representing the percentage tax due for the second quarter of
the name of a fictitious person denominated as ‘Reynaldo Reyes’ in the
1978 payable to the Commissioner of Internal Revenue. A BIR Revenue Tax
Meralco Branch of PCIBank where Dulay works as Assistant Manager.
Receipt No. 28645385 was issued for the said purpose.
After an initial deposit of P100.00 to validate the account, Castro deposited a
On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the
worthless Bank of America Check in exactly the same amount as the first
amount of P6,311,591.73, representing the payment of percentage tax for the
FORD check (Exh. “A,” P5,851,706.37) while this worthless check was
first quarter of 1979 arid payable to the Commissioner of Internal Revenue.
coursed through PCIB’s main office enroute to the Central Bank for clearing,
Again a BIR Revenue Tax Receipt No. A-1697160 was issued for the said
replaced this worthless check with FORD’s Exhibit ‘A’ and accordingly
purpose.
 T O R T S – 4 . P C I B v . C A | 10

tampered the accompanying documents to cover the replacement. As a result, Philippine Commercial International Bank vs. Court of Appeals
Exhibit ‘A’ was cleared by defendant CITIBANK, and the fictitious deposit
account of ‘Reynaldo Reyes’ was credited at the PCIB Meralco Branch with pleaded in the present case. The manner by which the said funds were
the total amount of the FORD check Exhibit ‘A.’ The same method was again distributed among them are traceable from the record of checks drawn against
utilized by the syndicate in profiting from Exh. ‘B’ [Citibank Check No. SN- the original “Reynaldo Reyes” account and indubitably identify the parties who
16508] which was subsequently pilfered by Alexis Marindo, Rivera’s Assistant illegally benefited therefrom and readily indicate in what amounts they did
at FORD. so.”14

From this ‘Reynaldo Reyes’ account, Castro drew various checks distributing On December 9, 1988, Regional Trial Court of Makati, Branch 57, held
the shares of the other participating conspirators namely (1) CRISANTO drawee-bank, Citibank, liable for the value of the two checks while absolving
BERNABE, the mastermind who formulated the method for the embezzlement; PCIBank from any liability, disposing as follows:
(2) RODOLFO R. DE LEON a customs broker who negotiated the initial “WHEREFORE, judgment is hereby rendered sentencing defendant
contact between Bernabe, FORD’s Godofredo Rivera and PCIB’s Remberto CITIBANK to reimburse plaintiff FORD the total amount of P12,163,298.10
Castro; (3) JUAN CASTILLO who assisted de Leon in the initial arrangements; prayed for in its complaint, with 6% interest thereon from date of first written
(4) GODOFREDO RIVERA, FORD’s accountant who passed on the first check demand until full payment, plus P300,000.00 attorney’s fees and expenses of
(Exhibit “A”) to Castro; (5) REMBERTO CASTRO, PCIB’s pro-manager at San litigation, and to pay the defendant, PCIB (on its counterclaim to crossclaim)
Andres who performed the switching of checks in the clearing process and the sum of P300,000.00 as attorney’s fees and costs of litigation, and pay the
opened the fictitious Reynaldo Reyes account at the PCIB Meralco Branch; costs.
(6) WINSTON DULAY, PCIB’s Assistant Manager at its Meralco Branch, who
assisted Castro in switching the checks in the clearing process and facilitated SO ORDERED.”15
the opening of the fictitious Reynaldo Reyes’ bank account; (7) ALEXIS
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in
MARINDO, Rivera’s Assistant at FORD, who gave the second check (Exh.
toto, the decision of the trial court. Hence, this petition.
“B”) to Castro; (8) ELEUTERIO JIMENEZ, BIR Collection Agent who provided
the fake and spurious revenue tax receipts to make it appear that the BIR had Petitioner Ford prays that judgment be rendered setting aside the portion of
received FORD’s tax payments. the Court of Appeals decision and its resolution dated March 5, 1997, with
respect to the dismissal of the complaint against PCIBank and holding Citibank
Several other persons and entities were utilized by the syndicate as conduits
solely responsible for the proceeds of Citibank Check Numbers SN-10597 and
in the disbursements of the proceeds of the two checks, but like the
16508 fot P5,851,706.73 and P6,311,591.73 respectively.
aforementioned participants in the conspiracy, have not been im-
Ford avers that the Court of Appeals erred in dismissing the complaint against
___________________
defendant PCIBank considering that:

I. Defendant PCIBank was clearly negligent when it failed to exercise the

** Initials stand for Philippine Commercial International Bank, or PCIBank. diligence required to be exercised by it as a banking institution.

461 II. Defendant PCIBank clearly failed to observe the diligence re- quired in the
selection and supervision of its officers and employees.

_________________
VOL. 350, JANUARY 29, 2001

461
 T O R T S – 4 . P C I B v . C A | 11

14 Supra, see note 3, pp. 47-49. means, or for an illegal consideration, or when he negotiates it in breach of
faith or under such circumstances as amount to a fraud.”
15 Id. at 46.
Pursuant to this provision, it is vital to show that the negotiation is made by the
462 perpetrator in breach of faith amounting to fraud. The person negotiating the
checks must have gone beyond

462 __________________

SUPREME COURT REPORTS ANNOTATED

Philippine Commercial International Bank vs. Court of Appeals 16 Id. at 24-25.

III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or 463
damage resulting to the plaintiff Ford as a consequence of the substitution of
the check consistent with Section 5 of Central Bank Circular No. 580 series of
1977. VOL. 350, JANUARY 29, 2001

IV. Assuming arguendo that defendant PCIBank did not accept, endorse or 463
negotiate in due course the subject checks, it is liable, under Article 2154 of
the Civil Code, to return the money which it admits having received, and which Philippine Commercial International Bank vs. Court of Appeals
was credited to it in its Central Bank account.16 the authority given by his principal. If the principal could prove that there was
The main issue presented for our consideration by these petitions could be no negligence in the performance of his duties, he may set up the personal
simplified as follows: Has petitioner Ford the right to recover from the collecting defense to escape liability and recover from other parties who, through their
bank (PCIBank) and the drawee bank (Citibank) the value of the checks own negligence, allowed the commission of the crime.
intended as payment to the Commissioner of Internal Revenue? Or has Ford’s In this case, we note that the direct perpetrators of the offense, namely the
cause of action already prescribed? embezzlers belonging to a syndicate, are now fugitives from justice. They
Note that in these cases, the checks were drawn against the drawee bank, but have, even if temporarily, escaped liability for the embezzlement of millions of
the title of the person negotiating the same was allegedly defective because pesos. We are thus left only with the task of determining who of the present
the instrument was obtained by fraud and unlawful means, and the proceeds parties before us must bear the burden of loss of these millions. It all boils
of the checks were not remitted to the payee. It was established that instead down to the question of liability based on the degree of negligence among the
of paying the checks to the CIR, for the settlement of the appropriate quarterly parties concerned.
percentage taxes of Ford, the checks were diverted and encashed for the Foremost, we must resolve whether the injured party, Ford, is guilty of the
eventual distribution among the members of the syndicate. As to the unlawful “imputed contributory negligence” that would defeat its claim for
negotiation of the check the applicable law is Section 55 of the Negotiable reimbursement, bearing in mind that its employees, Godofredo Rivera and
Instruments Law (NIL), which provides: Alexis Marindo, were among the members of the syndicate.
“When title defective—The title of a person who negotiates an instrument is Citibank points out that Ford allowed its very own employee, Godofredo
defective within the meaning of this Act when he obtained the instrument, or Rivera, to negotiate the checks to his co-conspirators, instead of delivering
any signature thereto, by fraud, duress, or force and fear, or other unlawful them to the designated authorized collecting bank (Metrobank-Alabang) of the
 T O R T S – 4 . P C I B v . C A | 12

payee, CIR. Citibank bewails the fact that Ford was remiss in the supervision servant’s wrongful act, the law imputes to the master the act of the servant,
and control of its own employees, inasmuch as it only discovered the and if that act is negligent or wrongful and proximately results in injury to a
syndicate’s activities through the information given by the payee of the checks third person, the negligence or wrongful conduct is the negligence or wrongful
after an unreasonable period of time. conduct of the master, for which he is liable.18 The general rule is that if the
master is injured by the negligence of a third person and by the concurring
PCIBank also blames Ford of negligence when it allegedly authorized contributory negligence of his own servant or agent, the latter’s negligence is
Godofredo Rivera to divert the proceeds of Citibank Check No. SN-04867, imputed to his superior and will defeat the superior’s action against the third
instead of using it to pay the BIR. As to the subsequent run-around of funds of person, assuming, of course that the contributory negligence was the
Citibank Check Nos. SN-10597 and 16508, PCIBank claims that the proximate proximate cause of the injury of which complaint is made.19
cause of the damage to Ford lies in its own officers and employees who carried
out the fraudulent schemes and the transactions. These circumstances were Accordingly, we need to determine whether or not the action of Godofredo
not checked by other officers of the company, including its comptroller or Rivera, Ford’s General Ledger Accountant, and/or Alexis Marindo, his
internal auditor. PCIBank contends that the inaction of Ford despite the assistant, was the proximate cause of the loss or damage. As defined,
enormity of the amount involved was a sheer negligence and stated that, as proximate cause is that which, in the natural and continuous sequence,
between two innocent persons, one of whom must suffer the consequences of unbroken by any efficient, intervening cause produces the injury, and without
a breach of trust, the which the result would not have occurred.20

464 ___________________

464 17 218 SCRA 682 (1993).

SUPREME COURT REPORTS ANNOTATED 18 Am Jur 2d, Volume 58, Negligence, Section 458.

Philippine Commercial International Bank vs. Court of Appeals 19 Am Jur 2d, Volume 58, Negligence, Section 464.

one who made it possible, by his act of negligence, must bear the loss. 20 Vda. de Bataclan, et al vs. Medina, 102 Phil. 181,186 (1957).

For its part, Ford denies any negligence in the performance of its duties. It 465
avers that there was no evidence presented before the trial court showing lack
of diligence on the part of Ford. And, citing the case of Gempesaw vs. Court
of Appeals,17 Ford argues that even if there was a finding therein that the VOL. 350, JANUARY 29, 2001
drawer was negligent, the drawee bank was still ordered to pay damages.
465
Furthermore, Ford contends that Godofredo Rivera was not authorized to
make any representation in its behalf, specifically, to divert the proceeds of the Philippine Commercial International Bank vs. Court of Appeals
checks. It adds that Citibank raised the issue of imputed negligence against
It appears that although the employees of Ford initiated the transactions
Ford for the first time on appeal. Thus, it should not be considered by this
attributable to an organized syndicate, in our view, their actions were not the
Court.
proximate cause of encashing the checks payable to the CIR. The degree of
On this point, jurisprudence regarding the imputed negligence of employer in Ford’s negligence, if any, could not be characterized as the proximate cause
a master-servant relationship is instructive. Since a master may be held for his of the injury to the parties.
 T O R T S – 4 . P C I B v . C A | 13

The Board of Directors of Ford, we note, did not confirm the request of Philippine Commercial International Bank vs. Court of Appeals
Godofredo Rivera to recall Citibank Check No. SN-04867. Rivera’s instruction
to replace the said check with PCIBank’s Manager’s Check was not in the banking transaction, sent to Central Clearing with the indorsement at the back
ordinary course of business which could have prompted PCIBank to validate “all prior indorsements and/or lack of indorsements guaranteed,” and was
the same. presented to Citibank for payment. Thereafter PCIBank, instead of remitting
the proceeds to the CIR, prepared two of its Manager’s checks and enabled
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was the syndicate to encash the same.
established that these checks were made payable to the CIR. Both were
crossed checks. These checks were apparently turned around by Ford’s On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the
employees, who were acting on their own personal capacity. checks. The neglect of PCIBank employees to verify whether his letter
requesting for the replacement of the Citibank Check No. SN-04867 was duly
Given these circumstances, the mere fact that the forgery was committed by authorized, showed lack of care and prudence required in the circumstances.
a drawer-payor’s confidential employee or agent, who by virtue of his position
had unusual facilities for perpetrating the fraud and imposing the forged paper Furthermore, it was admitted that PCIBank is authorized to collect the payment
Upon the bank, does not entitle the bank to shift the loss to the drawer-payor, of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty bound
in the absence of some circumstance raising estoppel against the drawer.21 to consult its principal regarding the unwarranted instructions given by the
This rule likewise applies to the checks fraudulently negotiated or diverted by payor or its agent. As aptly stated by the trial court, to wit:
the confidential employees who hold them in their possession. “x x x. Since the questioned crossed check was deposited with IBAA [now
With respect to the negligence of PCIBank in the payment of the three checks PCIBank], which claimed to be a depository/collecting bank of the BIR, it has
involved, separately, the trial courts found variations between the negotiation the responsibility to make sure that the check in question is deposited in
of Citibank Check No. SN-04867 and the misapplication of total proceeds of Payee’s account only.
Checks SN-10597 and 16508. Therefore, we have to scrutinize, separately, xxx xxx xxx
PCIBank’s share of negligence when the syndicate achieved its ultimate
agenda of stealing the proceeds of these checks. As agent of the BIR (the payee of the check), defendant IBAA should receive
instructions only from its principal BIR and not from any other person especially
G.R. Nos. 121413 and 121479 so when that person is not known to the defendant. It is very imprudent on the
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita part of the defendant IBAA to just rely on the alleged telephone call of one
Branch. It was coursed through the ordinary Godofredo Rivera and in his signature to the authenticity of such signature
considering that the plaintiff is not a client of the defendant IBAA.”
___________________
It is a well-settled rule that the relationship between the payee or holder of
commercial paper and the bank to which it is sent for collection is, in the
absence of an agreement to the contrary, that of principal and agent.22 A bank
21 Am Jur 2d, Volume 10, Banks, Section 604 (1963 Edition). which receives such paper for collection is the agent of the payee or holder.23
466 __________________

466 22 Id. at Section 697.

SUPREME COURT REPORTS ANNOTATED
 T O R T S – 4 . P C I B v . C A | 14

23 Ibid. ‘In presenting the checks for clearing and for payment, the defendant made an
express guarantee on the validity of “all prior endorsements.” Thus, stamped
467 at the back of the checks are the defendant’s clear warranty: ALL PRIOR
ENDORSEMENTS AND/OR LACK OF EN-

VOL. 350, JANUARY 29, 2001 _________________

467

Philippine Commercial International Bank vs. Court of Appeals 24 157 SCRA 188 (1988).

Even considering arguendo, that the diversion of the amount of a check 468
payable to the collecting bank in behalf of the designated payee may be
allowed, still such diversion must be properly authorized by the payor.
Otherwise stated, the diversion can be justified only by proof of authority from 468
the drawer, or that the drawer has clothed his agent with apparent authority to
receive the proceeds of such check. SUPREME COURT REPORTS ANNOTATED

Citibank further argues that PCI Bank’s clearing stamp appearing at the back Philippine Commercial International Bank vs. Court of Appeals
of the questioned checks stating that ALL PRIOR INDORSEMENTS AND/OR DORSEMENTS GUARANTEED. Without such warranty, plaintiff would not
LACK OF INDORSEMENTS GUARANTEED should render PCIBank liable have paid on the checks.’
because it made it pass through the clearing house and therefore Citibank had
no other option but to pay it. Thus, Citibank asserts that the proximate cause No amount of legal jargon can reverse the clear meaning of defendant’s
of Ford’s injury is the gross negligence of PCIBank. Since the questioned warranty. As the warranty has proven to be false and inaccurate, the defendant
crossed check was deposited with PCIBank, which claimed to be a is liable for any damage arising out of the falsity of its representation.”25
depository/collecting bank of the BIR, it had the responsibility to make sure
Lastly, banking business requires that the one who first cashes and negotiates
that the check in question is deposited in Payee’s account only.
the check must take some precautions to learn whether or not it is genuine.
Indeed, the crossing of the check with the phrase “Payee’s Account Only,” is And if the one cashing the check through indifference or other circumstance
a warning that the check should be deposited only in the account of the CIR. assists the forger in committing the fraud, he should not be permitted to retain
Thus, it is the duty of the collecting bank PCIBank to ascertain that the check the proceeds of the check from the drawee whose sole fault was that it did not
be deposited in payee’s account only. Therefore, it is the collecting bank discover the forgery or the defect in the title of the person negotiating the
(PCIBank) which is bound to scrutinize the check and to know its depositors instrument before paying the check. For this reason, a bank which cashes a
before it could make the clearing indorsement “all prior indorsements and/or check drawn upon another bank, without requiring proof as to the identity of
lack of indorsement guaranteed.” persons presenting it, or making inquiries with regard to them, cannot hold the
proceeds against the drawee when the proceeds of the checks were
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking afterwards diverted to the hands of a third party. In such cases the drawee
Corporation,24 we ruled: bank has a right to believe that the cashing bank (or the collecting bank) had,
“Anent petitioner’s liability on said instruments, this court is in full accord with by the usual proper investigation, satisfied itself of the authenticity of the
the ruling of the PCHC’s Board of Directors that: negotiation of the checks. Thus, one who encashed a check which had been
forged or diverted and in turn received payment thereon from the drawee, is
 T O R T S – 4 . P C I B v . C A | 15

guilty of negligence which proximately contributed to the success of the fraud of its officers or agents within the course and scope of their employment.28 A
practiced on the drawee bank. The latter may recover from the holder the bank will be held liable for the negligence of its officers or agents when acting
money paid on the check.26 within the course and scope of their employment. It may be liable for the
tortuous acts of its officers even as regards that species of tort of which malice
Having established that the collecting bank’s negligence is the proximate is an essential element. In this case, we find a situation where the PCIBank
cause of the loss, we conclude that PCIBank is liable in the amount appears also to be the victim of the scheme hatched by a syndicate in which
corresponding to the proceeds of Citibank Check No SN-04867. its own management employees had participated.
__________________ The pro-manager of San Andres Branch of PCIBank, Remberto Castro,
received Citibank Check Numbers SN-10597 and 16508. He passed the
checks to a co-conspirator, an Assistant Manager of PCIBank’s Meralco
25 Id. at 194. Branch, who helped Castro open a Checking account of a fictitious person
named “Reynaldo Reyes.” Castro deposited a worthless Bank of America
26 Supra note 20 at Section 611.
Check in exactly the same amount of Ford checks. The syndicate tampered
469 with the checks

__________________

VOL. 350, JANUARY 29, 2001

469 27 Rollo, G.R. No. 128604, pp. 56-57.

Philippine Commercial International Bank vs. Court of Appeals 28 Supra note 20 at Section 110.

G.R. No. 128604 470

The trial court and the Court of Appeals found that PCIBank had no official act
in the ordinary course of business that would attribute to it the case of the
470
embezzlement of Citibank Check Numbers SN-10597 and 16508, because
PCIBank did not actually receive nor hold the two Ford checks at all. The trial SUPREME COURT REPORTS ANNOTATED
court held, thus:
Philippine Commercial International Bank vs. Court of Appeals
“Neither is there any proof that defendant PCIBank contributed any official or
conscious participation in the process of the embezzlement. This Court is and succeeded in replacing the worthless checks and the eventual
convinced that the switching operation (involving the checks while in transit for encashment of Citibank Check Nos, SN-10597 and 16508. The PCIBank Pro-
“clearing”) were the clandestine or hidden actuations performed by the manager, Castro, and his co-conspirator Assistant Manager apparently
members of the syndicate in their own personal, covert and private capacity performed their activities using facilities in their official capacity or authority but
and done without the knowledge of the defendant PCIBank. . . .”27 for their personal and private gain or benefit.

In this case, there was no evidence presented confirming the conscious A bank holding out its officers and agents as worthy of confidence will not be
participation of PCIBank in the embezzlement. As a general rule, however, a permitted to profit by the frauds these officers or agents were enabled to
banking corporation is liable for the wrongful or tortuous acts and declarations perpetrate in the apparent course of their employment; nor will it be permitted
to shirk its responsibility for such frauds, even though no benefit may accrue
 T O R T S – 4 . P C I B v . C A | 16

to the bank therefrom. For the general rule is that a bank is liable for the thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has the
fraudulent acts or representations of an officer or agent acting within the obligation to honor and pay the same.
course and apparent scope of his employment or authority.29 And if an officer
or employee of a bank, in his official capacity, receives money to satisfy an For its part, Ford contends that Citibank as the drawee bank owes to Ford an
evidence of indebtedness lodged with his bank for collection, the bank is liable absolute and contractual duty to pay the proceeds of the subject check only to
for his misappropriation of such sum.30 the payee thereof, the CIR. Citing Section 6232 of the Negotiable Instruments
Law, Ford argues that by accepting the instrument, the acceptor which is
Moreover, as correctly pointed out by Ford, Section 531 of Central Bank Citibank engages that it will pay according to the tenor of its acceptance, and
Circular No. 580, Series of 1977 provides that any theft affecting items in that it will pay only to the payee, (the CIR), considering the fact that here the
transit for clearing, shall be for the account of sending bank, which in this case check was crossed with annotation “Payees Account Only.”
is PCIBank.
As ruled by the Court of Appeals, Citibank must likewise answer for the
But in this case, responsibility for negligence does not lie on PCIBank’s damages incurred by Ford on Citibank Checks Numbers SN-10597 and
shoulders alone. 16508, because of the contractual relationship existing between the two.
Citibank, as the drawee bank breached its contractual obligation with Ford and
The evidence on record shows that Citibank as drawee bank was likewise such degree of culpability contributed to the damage caused to the latter. On
negligent in the performance of its duties. Citibank failed to establish that its this score, we agree with the respondent court’s ruling.
payment of Ford’s checks were made in due course and legally in order. In its
defense, Citibank claims the genuineness and due execution of said checks, Citibank should have scrutinized Citibank Check Numbers SN-10597 and
considering that Citibank (1) has no knowledge of any infirmity in the issuance 16508 before paying the amount of the proceeds thereof to the collecting bank
of the checks in question (2) coupled by the fact that said checks were of the BIR. One thing is clear from the record: the clearing stamps at the back
sufficiently funded and (3) the endorsement of the Payee or lack of Citibank Check Nos. SN-10597 and 16508 do not bear any initials. Citibank
failed to notice and verify the absence of the clearing stamps. Had this been
___________________ duly examined, the switching of the worthless checks to Citibank Check Nos.
SN-10597 and 16508 would have been discovered in time. For this reason,
Citibank had indeed failed to perform what was incumbent upon it, which is to
29 Id. at Sec. 111. ensure that the amount of the checks should be paid only to its designated
payee. The fact that the drawee bank did not discover the irregularity
30 Id. Sec. 113.
seasonably, in our view, constitutes negligence in carrying out the bank’s duty
31 Sec. 5. Loss of Clearing Items.—Any loss or damage arising from theft, to its depositors. The point is that as a business affected with public interest
pilferage, or other causes affecting items in transit shall be for the account of and because of the nature of its functions, the bank is under obligation to treat
the sending bank/branch, institution or entity concerned. the accounts of its depositors with me-

471 ___________________

VOL. 350, JANUARY 29, 2001 32 Sec. 62, Negotiable Instruments Law.

471 472

Philippine Commercial and International Bank vs. Court of Appeals

 T O R T S – 4 . P C I B v . C A | 17

472 35 Ibid.

SUPREME COURT REPORTS ANNOTATED 36 BPI vs. Court of Appeals, 216 SCRA 51, 71 (1992).

Philippine Commercial International Bank vs. Court of Appeals 37 Ibid.

ticulous care, always having in mind the fiduciary nature of their relationship.33 38 Ibid.

Thus, invoking the doctrine of comparative negligence, we are of the view that 473
both PCIBank and Citibank failed in their respective obligations and both were
negligent in the selection and supervision of their employees resulting in the
encashment of Citibank Check Nos. SN-10597 and 16508. Thus, we are VOL. 350, JANUARY 29, 2001
constrained to hold them equally liable for the loss of the proceeds of said
checks issued by Ford in favor of the CIR. 473

Time and again, we have stressed that banking business is so impressed with Philippine Commercial International Bank vs. Court of Appeals
public interest where the trust and confidence of the public in general is of
is returned to the alleged drawer as a voucher with a statement of his
paramount importance such that the appropriate standard of diligence must be
account,39 and an action upon a check is ordinarily governed by the statutory
very high, if not the highest, degree of diligence.34 A bank’s liability as obligor
period applicable to instruments in writing.40
is not merely vicarious but primary, wherein the defense of exercise of due
diligence in the selection and supervision of its employees is of no moment.35 Our laws on the matter provide that the action upon a written contract must be
brought within ten years from the time the right of action accrues.41 Hence,
Banks handle daily transactions involving millions of pesos.36 By the very
the reckoning time for the prescriptive period begins when the instrument was
nature of their work the degree of responsibility, care and tnistworthiness
issued and the corresponding check was returned by the bank to its depositor
expected of their employees and officials is far greater than those of ordinary
(normally a month thereafter). Applying the same rule, the cause of action for
clerks and employees.37 Banks are expected to exercise the highest degree
the recovery of the proceeds of Citibank Check No. SN-04867 would normally
of diligence in the selection and supervision of their employees.38
be a month after December 19, 1977, when Citibank paid the face value of the
On the issue of prescription, PCIBank claims that the action of Ford had check in the amount of P4,746,114.41. Since the original complaint for the
prescribed because of its inability to seek judicial relief seasonably, cause of action was filed on January 20, 1983, barely six years had lapsed.
considering that the alleged negligent act took place prior to December 19, Thus, we conclude that Ford’s cause of action to recover the amount of
1977 but the relief was sought only in 1983, or seven years thereafter. Citibank Check No. SN-04867 was seasonably filed within the period provided
by law.
The statute of limitations begins to run when the bank gives the depositor
notice of the payment, which is ordinarily when the check Finally, we also find that Ford is not completely blameless in its failure to detect
the fraud. Failure on the part of the depositor to examine its passbook,
______________________ statements of account, and cancelled checks and to give notice within a
reasonable time (or as required by statute) of any discrepancy which it may in
the exercise of due care and diligence find therein, serves to mitigate the
33 Simex International (Manila), Inc. vs. Court of Appeals, 183 SCRA 360, 367 banks’ liability by reducing the award of interest from twelve percent (12%) to
(1990). six percent (6%) per annum. As provided in Article 1172 of the Civil Code of
the Philippines, responsibility arising from negligence in the performance of
34 Supra, see note 17, at p. 697.
 T O R T S – 4 . P C I B v . C A | 18

every kind of obligation is also demandable, but such liability may be regulated SO ORDERED.
by the courts, according to the circumstances. In, quasi-delicts, the.
contributory negligence of the plaintiff shall reduce the damages that he may Bellosillo (Chairman), Mendoza, Buena and De Leon, Jr., JJ., concur.
recover.42 Judgment in CA-G.R. CV No. 25017 affirmed, while in CA-G.R. No. 28430
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals modified.
in CA-G.R. CV No. 25017, are AFFIRMED. PCIBank, known formerly as Notes.—Issuing a crossed check imposes no legal obligation on the drawee
Insular Bank of Asia and America, is declared solely responsible for the loss not to honor such a check. (Gempesaw vs. Court of Appeals, 218 SCRA 682
of the proceeds of Citibank [19931)
___________________ There is no contractual relation created between a drawee bank and the payee
as a result of the payment by the former of the amount of the check. (Security
Bank and Trust Company vs. Court of Appeals, 291 SCRA 33 [1998])
39 Supra note 20 at Section 605.
——o0o——
40 Ibid.

41 CIVIL CODE, Art. 1144.

Philippine Commercial and International Bank vs. Court of Appeals, 350
42 CIVIL CODE, Art. 2214. SCRA 446, G.R. No. 121413, G.R. No. 121479, G.R. No. 128604, G.R. Nos.
121413 January 29, 2001
474

474

SUPREME COURT REPORTS ANNOTATED

Philippine Commercial International Bank vs. Court of Appeals

Check No. SN-04867 in the amount of P4,746,114.41, which shall be paid

together with six percent (6%) interest thereon to Ford Philippines, Inc. from
the date when the original complaint was filed until said amount is fully paid.

However, the Decision and Resolution of the Court of Appeals in CA-G.R. No.
28430 are MODIFIED as follows: PCIBank and Citibank are adjudged liable
for and must share the loss, (concerning the proceeds of Citibank Check
Numbers SN-10597 and 16508 totalling P12,163,298.10) on a fifty-fifty ratio,
and each bank is ORDERED to pay Ford Philippines, Inc. P6,081,649.05, with
six percent (6%) interest thereon, from the date the complaint was filed until
full payment of said amount.

Costs against Philippine Commercial International Bank and Citibank, N.A.