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RepublicofthePhilippines
SUPREMECOURT
Manila
SECONDDIVISION
G.R.No.121413January29,2001
PHILIPPINECOMMERCIALINTERNATIONALBANK(formerlyINSULARBANKOFASIAANDAMERICA),
petitioner,
vs.
COURTOFAPPEALSandFORDPHILIPPINES,INC.andCITIBANK,N.A.,respondents.
G.R.No.121479January29,2001
FORDPHILIPPINES,INC.,petitionerplaintiff,
vs.
COURTOFAPPEALSandCITIBANK,N.A.andPHILIPPINECOMMERCIALINTERNATIONALBANK,
respondents.
G.R.No.128604January29,2001
FORDPHILIPPINES,INC.,petitioner,
vs.
CITIBANK,N.A.,PHILIPPINECOMMERCIALINTERNATIONALBANKandCOURTOFAPPEALS,respondents.
QUISUMBING,J.:
Theseconsolidatedpetitionsinvolveseveralfraudulentlynegotiatedchecks.
The original actions aquo were instituted by Ford Philippines to recover from the drawee bank, CITIBANK, N.A.
(Citibank)andcollectingbank,PhilippineCommercialInternationalBank(PCIBank)[formerlyInsularBankofAsia
andAmerica],thevalueofseveralcheckspayabletotheCommissionerofInternalRevenue,whichwereembezzled
allegedlybyanorganizedsyndicate.
1wphi1.nt

G.R.Nos.121413and121479aretwinpetitionsforreviewoftheMarch27,1995Decision1oftheCourtofAppeals
inCAG.R.CVNo.25017,entitled"FordPhilippines,Inc.vs.Citibank,N.A.andInsularBankofAsiaandAmerica
(nowPhilipppineCommercialInternationalBank),andtheAugust8,1995Resolution,2orderingthecollectingbank,
PhilippineCommercialInternationalBank,topaytheamountofCitibankCheckNo.SN04867.
InG.R.No.128604,petitionerFordPhilippinesassailstheOctober15,1996Decision3oftheCourtofAppealsand
itsMarch5,1997Resolution4inCAG.R.No.28430entitled"FordPhilippines,Inc.vs.Citibank,N.A.andPhilippine
CommercialInternationalBank,"affirmingintotothejudgmentofthetrialcourtholdingthedefendantdraweebank,
Citibank, N.A., solely liable to pay the amount of P12,163,298.10 as damages for the misapplied proceeds of the
plaintiff'sCitibanlCheckNumbersSN10597and16508.
I.G.R.Nos.121413and121479
ThestipulatedfactssubmittedbythepartiesasacceptedbytheCourtofAppealsareasfollows:
"OnOctober19,1977,theplaintiffForddrewandissueditsCitibankCheckNo.SN04867intheamountof
P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of plaintiffs percentage or
manufacturer'ssalestaxesforthethirdquarterof1977.
TheaforesaidcheckwasdepositedwiththedegendantIBAA(nowPCIBank)andwassubsequentlycleared
attheCentralBank.UponpresentmentwiththedefendantCitibank,theproceedsofthecheckwaspaidto
IBAAascollectingordepositorybank.

TheproceedsofthesameCitibankcheckoftheplaintiffwasneverpaidtoorreceivedbythepayeethereof,
theCommissionerofInternalRevenue.
Asaconsequence,upondemandoftheBureauand/orCommissionerofInternalRevenue,theplaintiffwas
compelled to make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers'
sales taxes for the third quarter of 1977 and that said second payment of plaintiff in the amount of
P4,746,114.41wasdulyreceivedbytheBureauofInternalRevenue.
It is further admitted by defendantCitibank that during the time of the transactions in question, plaintiff had
beenmaintainingacheckingaccountwithdefendantCitibankthatCitibankCheckNo.SN04867whichwas
drawnandissuedbytheplaintiffinfavoroftheCommissionerofInternalRevenuewasacrossedcheckin
that,onitsfaceweretwoparallellinesandwritteninbetweensaidlineswasthephrase"Payee'sAccount
Only"andthatdefendantCitibankpaidthefullfacevalueofthecheckintheamountofP4,746,114.41tothe
defendantIBAA.
Ithasbeendulyestablishedthatforthepaymentofplaintiff'spercentagetaxforthelastquarterof1977,the
BureauofInternalRevenueissuedRevenueTaxReceiptNo.18747002,datedOctober20,1977,designating
thereininMuntinlupa,MetroManila,astheauthorizedagentbankofMetrobanl,Alabangbranchtoreceive
thetaxpaymentoftheplaintiff.
OnDecember19,1977,plaintiff'sCitibankCheckNo.SN04867,togetherwiththeRevenueTaxReceiptNo.
18747002,wasdepositedwithdefendantIBAA,throughitsErmitaBranch.Thelatteracceptedthecheckand
sentittotheCentralClearingHouseforclearingonthesamdday,withtheindorsementattheback"allprior
indorsementsand/orlackofindorsementsguaranteed."Thereafter,defendantIBAApresentedthecheckfor
paymenttodefendantCitibankonsamedate,December19,1977,andthelatterpaidthefacevalueofthe
checkintheamountofP4,746,114.41.Consequently,theamountofP4,746,114.41wasdebitedinplaintiff's
accountwiththedefendantCitibankandthecheckwasreturnedtotheplaintiff.
Uponverification,plaintiffdiscoveredthatitsCitibankCheckNo.SN04867intheamountofP4,746,114.41
wasnotpaidtotheCommissionerofInternalRevenue.Hence,inseparatelettersdatedOctober26,1979,
addressedtothedefendants,theplaintiffnotifiedthelatterthatincaseitwillbereassessedbytheBIRfor
the payment of the taxes covered by the said checks, then plaintiff shall hold the defendants liable for
reimbursementofthefacevalueofthesame.Bothdefendantsdeniedliabilityandrefusedtopay.
InaletterdatedFebruary28,1980bytheActingCommissionerofInternalRevenueaddressedtotheplaintiff
supposedtobeExhibit"D",thelatterwasofficiallyinformed,amongothers,thatitscheckintheamountof
P4,746,114.41wasnotpaidtothegovernmentoritsauthorizedagentandinsteadencashedbyunauthorized
persons,hence,plaintiffhastopaythesaidamountwithinfifteendaysfromreceiptoftheletter.Uponadvice
oftheplaintiff'slawyers,plaintiffonMarch11,1982,paidtotheBureauofInternalRevenue,theamountof
P4,746,114.41,representingpaymentofplaintiff'spercentagetaxforthethirdquarterof1977.
Asaconsequenceofdefendant'srefusaltoreimburseplaintiffofthepaymentithadmadeforthesecondtime
totheBIRofitspercentagetaxes,plaintifffiledonJanuary20,1983itsoriginalcomplaintbeforethisCourt.
OnDecember24,1985,defendantIBAAwasmergedwiththePhilippineCommercialInternationalBank(PCI
Bank)withthelatterasthesurvivingentity.
Defendant Citibank maintains that the payment it made of plaintiff's Citibank Check No. SN04867 in the
amount of P4,746,114.41 "was in due course" it merely relied on the clearing stamp of the
depository/collecting bank, the defendant IBAA that "all prior indorsements and/or lack of indorsements
guaranteed" and the proximate cause of plaintiff's injury is the gross negligence of defendant IBAA in
indorsingtheplaintiff'sCitibankcheckinquestion.
ItisadmittedthatonDecember19,1977whentheproceedsofplaintiff'sCitibankCheckNo.SN048867was
paid to defendant IBAA as collecting bank, plaintiff was maintaining a checking account with defendant
Citibank."5
Although it was not among the stipulated facts, an investigation by the National Bureau of Investigation (NBI)
revealedthatCitibankCheckNo.SN04867wasrecalledbyGodofredoRivera,theGeneralLedgerAccountantof
Ford.Hepurportedlyneededtoholdbackthecheckbecausetherewasanerrorinthecomputationofthetaxdueto
the Bureau of Internal Revenue (BIR). With Rivera's instruction, PCIBank replaced the check with two of its own
Manager's Checks (MCs). Alleged members of a syndicate later deposited the two MCs with the Pacific Banking
Corporation.
Ford,withleaveofcourt,filedathirdpartycomplaintbeforethetrialcourtimpleadingPacificBankingCorporation
(PBC)andGodofredoRivera,asthirdpartydefendants.ButthecourtdismissedthecomplaintagainstPBCforlack

ofcauseofaction.ThecourselikewisedismissedthethirdpartycomplaintagainstGodofredoRiverabecausehe
couldnotbeservedwithsummonsastheNBIdeclaredhimasa"fugitivefromjustice".
OnJune15,1989,thetrialcourtrendereditsdecision,asfollows:
"Premisesconsidered,judgmentisherebyrenderedasfollows:
"1.OrderingthedefendantsCitibankandIBAA(nowPCIBank),jointlyandseverally,topaytheplaintiff
the amount of P4,746,114.41 representing the face value of plaintiff's Citibank Check No. SN04867,
withinterestthereonatthelegalratestartingJanuary20,1983,thedatewhentheoriginalcomplaint
wasfileduntiltheamountisfullypaid,pluscosts
"2. On defendant Citibank's crossclaim: ordering the crossdefendant IBAA (now PCI Bank) to
reimburse defendant Citibank for whatever amount the latter has paid or may pay to the plaintiff in
accordancewithnextprecedingparagraph
"3.Thecounterclaimsassertedbythedefendantsagainsttheplaintiff,aswellasthatassertedbythe
crossdefendantagainstthecrossclaimantaredismissed,forlackofmeritsand
"4.Withcostsagainstthedefendants.
SOORDERED."6
Notsatisfiedwiththesaiddecision,bothdefendants,CitibankandPCIBank,elevatedtheirrespectivepetitionsfor
reviewoncertioraritotheCourtsofAppeals.OnMarch27,1995,theappellatecourtissueditsjudgmentasfollows:
"WHEREFORE,inviewoftheforegoing,thecourtAFFIRMStheappealeddecisionwithmodifications.
Thecourtherebyrenderesjudgment:
1.DismissingthecomplaintinCivilCaseNo.49287insofarasdefendantCitibankN.A.isconcerned
2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of P4,746,114.41
representingthefacevalueofplaintiff'sCitibankCheckNo.SN04867,withinterestthereonatthelegal
ratestartingJanuary20,1983,thedatewhentheoriginalcomplaintwasfileduntiltheamountisfully
paid
3. Dismissing the counterclaims asserted by the defendants against the plaintiff as well as that
assertedbythecrossdefendantagainstthecrossclaimant,forlackofmerits.
CostsagainstthedefendantIBAA(nowPCIBank).
ITISSOORDERED."7
PCI Bank moved to reconsider the abovequoted decision of the Court of Appeals, while Ford filed a "Motion for
PartialReconsideration."Bothmotionsweredeniedforlackofmerit.
Separately,PCIBankandFordfiledbeforethisCourt,petitionsforreviewbycertiorariunderRule45.
InG.R.No.121413,PCIBankseeksthereversalofthedecisionandresolutionoftheTwelfthDivisionoftheCourtof
AppealscontendingthatitmerelyactedontheinstructionofFordandsuchcasueofactionhadalreadyprescribed.
PCIBanksetsforththefollowingissuesforconsideration:
I.Didtherespondentcourterrwhen,afterfindingthatthepetitioneractedonthecheckdrawnbyrespondent
Fordonthesaidrespondent'sinstructions,itneverthelessfoundthepetitionerliabletothesaidrespondent
forthefullamountofthesaidcheck.
II.Didtherespondentcourterrwhenitdidnotfindprescriptioninfavorofthepetitioner.8
In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the same decision and
resolutionoftheCourtofAppeals,andprayingforthereinstatementintotoofthedecisionofthetrialcourtwhich
foundbothPCIBankandCitibankjointlyandseverallyliablefortheloss.
InG.R.No.121479,appellantFordpresentsthefollowingpropositionsforconsideration:
I.RespondentCitibankisliabletopetitionerFordconsideringthat:

1.As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer of the subject check
and a depositor of respondent Citibank, an absolute and contractual duty to pay the proceeds of the
subjectcheckonlytothepayeethereof,theCommissionerofInternalRevenue.
2.Respondent Citibank failed to observe its duty as banker with respect to the subject check, which
wascrossedandpayableto"Payee'sAccountOnly."
3. Respondent Citibank raises an issue for the first time on appeal thus the same should not be
consideredbytheHonorableCourt.
4.Ascorrectlyheldbythetrialcourt,thereisnoevidenceofgrossnegligenceonthepartofpetitioner
Ford.9
II.PCIBankisliabletopetitionerFordconsideringthat:
1.There were no instructions from petitioner Ford to deliver the proceeds of the subject check to a
person other than the payee named therein, the Commissioner of the Bureau of Internal Revenue
thus,PCIBank'sonlyobligationistodelivertheproceedstotheCommissioneroftheBureauofInternal
Revenue.10
2.PCIBank which affixed its indorsement on the subject check ("All prior indorsement and/or lack of
indorsementguaranteed"),isliableascollectingbank.11
3.PCIBankisbarredfromraisingissuesoffactintheinstantproceedings.12
4.PetitionerFord'scauseofactionhadnotprescribed.13
II.G.R.No.128604
Thesamesysndicateapparentlyembezzledtheproceedsofchecksintended,thistime,tosettleFord'spercentage
taxesappertainingtothesecondquarterof1978andthefirstquarterof1979.
ThefactsasnarratedbytheCourtofAppealsareasfollows:
Ford drew Citibank Check No. SN10597 on July 19, 1978 in the amount of P5,851,706.37 representing the
percentage tax due for the second quarter of 1978 payable to the Commissioner of Internal Revenue. A BIR
RevenueTaxReceiptNo.28645385wasissuedforthesaidpurpose.
OnApril20,1979,ForddrewanotherCitibankCheckNo.SN16508intheamountofP6,311,591.73,representing
thepaymentofpercentagetaxforthefirstquarterof1979andpayabletotheCommissionerofInternalRevenue.
AgainaBIRRevenueTaxReceiptNo.A1697160wasissuedforthesaidpurpose.
Bothcheckswere"crossedchecks"andcontaintwodiagonallinesonitsuppercornerbetween,whichwerewritten
thewords"payabletothepayee'saccountonly."
The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980, the BIR, Region 4B,
demandedforthesaidtaxpaymentsthecorrespondingperiodsabovementioned.
AsfarastheBIRisconcernced,thesaidtwoBIRRevenueTaxReceiptswereconsidered"fakeandspurious".This
anomalywasconfirmedbytheNBIupontheinitiativeoftheBIR.ThefindingsforcedFordtopaytheBIRanew,
whileanactionwasfiledagainstCitibankandPCIBankfortherecoveryoftheamountofCitibankCheckNumbers
SN10597and16508.
TheRegionalTrialCourtofMakati,Branch57,whichtriedthecase,madeitsfindingsonthemodusoperandiofthe
syndicate,asfollows:
"AcertainMr.GodofredoRiverawasemployedbytheplaintiffFORDasitsGeneralLedgerAccountant.As
such,hepreparedtheplaintiff'scheckmarkedEx.'A'[CitibankCheckNo.Sn10597]forpaymenttotheBIR.
Instead, however, fo delivering the same of the payee, he passed on the check to a coconspirator named
Remberto Castro who was a promanager of the San Andres Branch of PCIB.* In connivance with one
Winston Dulay, Castro himself subsequently opened a Checking Account in the name of a fictitious person
denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as Assistant
Manager.
After an initial deposit of P100.00 to validate the account, Castro deposited a worthless Bank of America
Check in exactly the same amount as the first FORD check (Exh. "A", P5,851,706.37) while this worthless
check was coursed through PCIB's main office enroute to the Central Bank for clearing, replaced this

worthlesscheckwithFORD'sExhibit'A'andaccordinglytamperedtheaccompanyingdocumentstocoverthe
replacement.Asaresult,Exhibit'A'wasclearedbydefendantCITIBANK,andthefictitiousdepositaccountof
'ReynaldoReyes'wascreditedatthePCIBMeralcoBranchwiththetotalamountoftheFORDcheckExhibit
'A'.ThesamemethodwasagainutilizedbythesyndicateinprofitingfromExh.'B'[CitibankCheckNo.SN
16508]whichwassubsequentlypilferedbyAlexisMarindo,Rivera'sAssistantatFORD.
From this 'Reynaldo Reyes' account, Castro drew various checks distributing the sahres of the other
participatingconspiratorsnamely(1)CRISANTOBERNABE,themastermindwhoformulatedthemethodfor
theembezzlement(2)RODOLFOR.DELEONacustomsbrokerwhonegotiatedtheinitialcontactbetween
Bernabe, FORD's Godofredo Rivera and PCIB's Remberto Castro (3) JUAN VASTILLO who assisted de
Leon in the initial arrangements (4) GODOFREDO RIVERA, FORD's accountant who passed on the first
check(Exhibit"A")toCastro(5)REMERTOCASTRO,PCIB'spromanageratSanAndreswhoperformed
theswitchingofchecksintheclearingprocessandopenedthefictitiousReynaldoReyesaccountatthePCIB
MeralcoBranch(6)WINSTONDULAY,PCIB'sAssistantManageratitsMeralcoBranch,whoassistedCastro
inswitchingthechecksintheclearingprocessandfacilitatedtheopeningofthefictitiousReynaldoReyes'
bankaccount(7)ALEXISMARINDO,Rivera'sAssistantatFORD,whogavethesecondcheck(Exh."B")to
Castro (8) ELEUTERIO JIMENEZ, BIR Collection Agent who provided the fake and spurious revenue tax
receiptstomakeitappearthattheBIRhadreceivedFORD'staxpayments.
Several other persons and entities were utilized by the syndicate as conduits in the disbursements of the
proceeds of the two checks, but like the aforementioned participants in the conspiracy, have not been
impleaded in the present case. The manner by which the said funds were distributed among them are
traceable from the record of checks drawn against the original "Reynaldo Reyes" account and indubitably
identifythepartieswhoillegallybenefitedtherefromandreadilyindicateinwhatamountstheydidso."14
OnDecember9,1988,RegionalTrialCourtofMakati,Branch57,helddraweebank,Citibank,liableforthevalueof
thetwocheckswhileadsolvingPCIBankfromanyliability,disposingasfollows:
"WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to reimburse plaintiff FORD
the total amount of P12,163,298.10 prayed for in its complaint, with 6% interest thereon from date of first
writtendemanduntilfull payment,plusP300,000.00attorney'sfeesandexpenseslitigation,andto paythe
defendant,PCIB(onitscounterclaimtocrossclaim)thesumofP300,000.00asattorney'sfeesandcostsof
litigation,andpaythecosts.
SOORDERED."15
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the decision of the trial court.
Hence,thispetition.
PetitionerFordpraysthatjudgmentberenderedsettingasidetheportionoftheCourtofAppealsdecisionandits
resolutiondatedMarch5,1997,withrespecttothedismissalofthecomplaintagainstPCIBankandholdingCitibank
solely responsible for the proceeds of Citibank Check Numbers SN10597 and 16508 for P5,851,706.73 and
P6,311,591.73respectively.
FordaversthattheCourtofAppealserredindismissingthecomplaintagainstdefendantPCIBankconsideringthat:
I.DefendantPCIBankwasclearlynegligentwhenitfailedtoexercisethediligencerequiredtobeexercised
byitasabankinginsitution.
II.DefendantPCIBankclearlyfailedtoobservethediligencerequiredintheselectionandsupervisionofits
officersandemployees.
III.DefendantPCIBankwas,duetoitsnegligence,clearlyliableforthelossordamageresultingtotheplaintiff
FordasaconsequenceofthesubstitutionofthecheckconsistentwithSection5ofCentralBankCircularNo.
580seriesof1977.
IV.AssumingarguedothatdefedantPCIBankdidnotaccept,endorseornegotiateinduecoursethesubject
checks,itisliable,underArticle2154oftheCivilCode,toreturnthemoneywhichitadmitshavingreceived,
andwhichwascreditedtoititsCentralbankaccount.16
Themainissuepresentedforourconsiderationbythesepetitionscouldbesimplifiedasfollows:HaspetitionerFord
the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank) the value of the checks
intendedaspaymenttotheCommissionerofInternalRevenue?OrhasFord'scauseofactionalreadyprescribed?
Notethatinthesecases,thechecksweredrawnagainstthedraweebank,butthetitleofthepersonnegotiatingthe
samewasallegedlydefectivebecausetheinstrumentwasobtainedbyfraudandunlawfulmeans,andtheproceeds
ofthecheckswerenotremittedtothepayee.ItwasestablishedthatinsteadofpayingthecheckstotheCIR,forthe

settlement of the approprite quarterly percentage taxes of Ford, the checks were diverted and encashed for the
eventualdistributionamongthemmbersofthesyndicate.Astotheunlawfulnegotiationofthechecktheapplicable
lawisSection55oftheNegotiableInstrumentsLaw(NIL),whichprovides:
"WhentitledefectiveThetitleofapersonwhonegotiatesaninstrumentisdefectivewithinthemeaningof
thisActwhenheobtainedtheinstrument,oranysignaturethereto,byfraud,duress,orforeandfear,orother
unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith or under such
circumstancesasamounttoafraud."
Pursuant to this provision, it is vital to show that the negotiation is made by the perpetator in breach of faith
amountingtofraud.Thepersonnegotiatingthechecksmusthavegonebeyondtheauthoritygivenbyhisprincipal.
If the principal could prove that there was no negligence in the performance of his duties, he may set up the
personaldefensetoescapeliabilityandrecoverfromotherpartieswho.Thoughtheirownnegligence,alowedthe
commissionofthecrime.
Inthiscase,wenotethatthedirectperpetratorsoftheoffense,namelytheembezzlersbelongingtoasyndicate,are
now fugitives from justice. They have, even if temporarily, escaped liability for the embezzlement of millions of
pesos.Wearethusleftonlywiththetaskofdeterminingwhoofthepresentpartiesbeforeusmustbeartheburden
oflossofthesemillions.Itallboilsdownto thequestionofliabilitybasedonthe degreeofnegligenceamongthe
partiesconcerned.
Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed contributory negligence" that
would defeat its claim for reimbursement, bearing ing mind that its employees, Godofredo Rivera and Alexis
Marindo,wereamongthemembersofthesyndicate.
CitibankpointsoutthatFordalloweditsveryownemployee,GodofredoRivera,tonegotiatethecheckstohisco
conspirators, instead of delivering them to the designated authorized collecting bank (MetrobankAlabang) of the
payee, CIR. Citibank bewails the fact that Ford was remiss in the supervision and control of its own employees,
inasmuchasitonlydiscoveredthesyndicate'sactivitiesthroughtheinformationgivenbythepayeeofthechecks
afteranunreasonableperiodoftime.
PCIBankalsoblamesFordofnegligencewhenitallegedlyauthorizedGodofredoRiveratodiverttheproceedsof
Citibank Check No. SN04867, instead of using it to pay the BIR. As to the subsequent runaround of unds of
CitibankCheckNos.SN10597and16508,PCIBankclaimsthattheproximatecauseofthedamgetoFordliesinits
ownofficersandemployeeswhocarriedoutthefradulentschemesandthetransactions.Thesecircumstanceswere
notcheckedbyotherofficersofthecompanyincludingitscomptrollerorinternalauditor.PCIBankcontendsthatthe
inactionofForddespitetheenormityoftheamountinvolvedwasasheernegligenceandstatedthat,asbetween
two innocent persons, one of whom must suffer the consequences of a breach of trust, the one who made it
possible,byhisactofnegligence,mustbeartheloss.
For its part, Ford denies any negligence in the performance of its duties. It avers that there was no evidence
presentedbeforethetrialcourtshowinglackofdiligenceonthepartofFord.And,citingthecaseofGempesawvs.
CourtofAppeals,17Fordarguesthateveniftherewasafindingthereinthatthedrawerwasnegligent,thedrawee
bankwasstillorderedtopaydamages.
Furthermore, Ford contends the Godofredo rivera was not authorized to make any representation in its behalf,
specifically,todiverttheproceedsofthechecks.ItaddsthatCitibankraisedtheissueofimputednegligenceagainst
Fordforthefirsttimeonappeal.Thus,itshouldnotbeconsideredbythisCourt.
On this point, jurisprudence regarding the imputed negligence of employer in a masterservant relationship is
instructive.Sinceamastermaybeheldforhisservant'swrongfulact,thelawimputestothemastertheactofthe
servant,andifthatactisnegligentorwrongfulandproximatelyresultsininjurytoathirdperson,thenegligenceor
wrongfulconductisthenegligenceorwrongfulconductofthemaster,forwhichheisliable.18Thegeneralruleis
thatifthemasterisinjuredbythenegligenceofathirdpersonandbytheconcuringcontributorynegligenceofhis
ownservantoragent,thelatter'snegligenceisimputedtohissuperiorandwilldefeatthesuperior'sactionagainst
the third person, asuming, of course that the contributory negligence was the proximate cause of the injury of
whichcomplaintismade.19
Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford's General Ledger
Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of the loss or damage. AS defined,
proximatecauseisthatwhich,inthenaturalandcontinuoussequence,unbrokenbyanyefficient,interveningcause
producestheinjuryandwithouttheresultwouldnothaveoccurred.20
ItappearsthatalthoughtheemployeesofFordinitiatedthetransactionsattributabletoanorganizedsyndicate,in
our view, their actions were not the proximate cause of encashing the checks payable to the CIR. The degree of
Ford'snegligence,ifany,couldnotbecharacterizedastheproximatecauseoftheinjurytotheparties.

TheBoardofDirectorsofFord,wenote,didnotconfirmtherequestofGodofredoRiveratorecallCitibankCheck
No. SN04867. Rivera's instruction to replace the said check with PCIBank's Manager's Check was not in
theordinarycourseofbusinesswhichcouldhavepromptedPCIBanktovalidatethesame.
As to the preparation of Citibank Checks Nos. SN10597 and 16508, it was established that these checks were
made payable to the CIR. Both were crossed checks. These checks were apparently turned around by Ford's
emploees,whowereactingontheirownpersonalcapacity.
Giventhesecircumstances,themerefactthattheforgerywascommittedbyadrawerpayor'sconfidentialemployee
or agent, who by virtue of his position had unusual facilities for perpertrating the fraud and imposing the forged
paper upon the bank, does notentitle the bank toshift the loss to the drawerpayor, in the absence of some
circumstanceraisingestoppelagainstthedrawer.21Thisrulelikewiseappliestothechecksfraudulentlynegotiated
ordivertedbytheconfidentialemployeeswhoholdthemintheirpossession.
WithrespecttothenegligenceofPCIBankinthepaymentofthethreechecksinvolved,separately,thetrialcourts
foundvariationsbetweenthenegotiationofCitibankCheckNo.SN04867andthemisapplicationoftotalproceeds
ofChecksSN10597and16508.Therefore,wehavetoscrutinize,separately,PCIBank'sshareofnegligencewhen
thesyndicateachieveditsultimateagendaofstealingtheproceedsofthesechecks.
G.R.Nos.121413and121479
Citibank Check No. SN04867 was deposited at PCIBank through its Ermita Branch. It was coursed through the
ordinary banking transaction, sent to Central Clearing with the indorsement at the back "all prior indorsements
and/orlackofindorsementsguaranteed,"andwaspresentedtoCitibankforpayment.ThereafterPCIBank,instead
ofremittingtheproceedstotheCIR,preparedtwoofitsManager'schecksandenabledthesyndicatetoencashthe
same.
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIBank
employeestoverifywhetherhisletterrequestingforthereplacementoftheCitibankCheckNo.SN04867wasduly
authorized,showedlackofcareandprudencerequiredinthecircumstances.
Furthermore,itwasadmittedthatPCIBankisauthorizedtocollectthepaymentoftaxpayersinbehalfoftheBIR.As
anagentofBIR,PCIBankisdutyboundtoconsultitsprincipalregardingtheunwarrantedinstructionsgivenbythe
payororitsagent.Asaptlystatedbythetrialcourt,towit:
"xxx. Since the questioned crossed check was deposited with IBAA [now PCIBank], which claimed to be a
depository/collectingbankofBIR,ithastheresponsibilitytomakesurethatthecheckinquestionisdeposited
inPayee'saccountonly.
xxxxxxxxx
As agent of the BIR (the payee of the check), defendant IBAA should receive instructions only from its
principalBIRandnotfromanyotherpersonespeciallysowhenthatpersonisnotknowntothedefendant.It
is very imprudent on the part of the defendant IBAA to just rely on the alleged telephone call of the one
GodofredoRiveraandinhissignatureconsideringthattheplaintiffisnotaclientofthedefendantIBAA."
Itisawellsettledrulethattherelationshipbetweenthepayeeorholderofcommercialpaperandthebanktowhich
it is sent for collection is, in the absence of an argreement to the contrary, that of principal and agent.22 A bank
whichreceivessuchpaperforcollectionistheagentofthepayeeorholder.23
Evenconsideringarguendo,thatthediversionoftheamountofacheckpayabletothecollectingbankinbehalfof
the designated payee may be allowed, still such diversion must be properly authorized by the payor. Otherwise
stated,thediversioncanbejustifiedonlybyproofofauthorityfromthedrawer,orthatthedrawerhasclothedhis
agentwithapparentauthoritytoreceivetheproceedsofsuchcheck.
CitibankfurtherarguesthatPCIBank'sclearingstampappearingatthebackofthequestionedchecksstatingthat
ALLPRIORINDORSEMENTSAND/ORLACKOFINDORSEMENTSGURANTEEDshouldrenderPCIBankliable
becauseitmadeitpassthroughtheclearinghouseandthereforeCitibankhadnootheroptionbuttopayit.Thus,
Citibank had no other option but to pay it. Thus, Citibank assets that the proximate cause of Ford's injury is the
grossnegligenceofPCIBank.SincethequestionedcrossedcheckwasdepositedwithPCIBank,whichclaimedto
be a depository/collecting bank of the BIR, it had the responsibility to make sure that the check in questions is
depositedinPayee'saccountonly.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the check should be
depositedonlyintheaccountoftheCIR.Thus,itisthedutyofthecollectingbankPCIBanktoascertainthatthe
check be deposited in payee's account only. Therefore, it is the collecting bank (PCIBank) which is bound to

scruninize the check and to know its depositors before it could make the clearing indorsement "all prior
indorsementsand/orlackofindorsementguaranteed".
InBancodeOroSavingsandMortgageBankvs.EquitableBankingCorporation,24weruled:
"Anentpetitioner'sliabilityonsaidinstruments,thiscourtisinfullaccordwiththerulingofthePCHC'sBoard
ofDirectorsthat:
'In presenting the checks for clearing and for payment, the defendant made an express guarantee on the
validity of "all prior endorsements." Thus, stamped at the back of the checks are the defedant's clear
warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without
suchwarranty,plaintiffwouldnothavepaidonthechecks.'
Noamountoflegaljargoncanreversetheclearmeaningofdefendant'swarranty.Asthewarrantyhasproven
to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its
representation."25
Lastly, banking business requires that the one who first cashes and negotiates the check must take some
percautions to learn whether or not it is genuine. And if the one cashing the check through indifference or othe
circumstance assists the forger in committing the fraud, he should not be permitted to retain the proceeds of the
checkfromthedraweewhosesolefaultwasthatitdidnotdiscovertheforgeryorthedefectinthetitleoftheperson
negotiating the instrument before paying the check. For this reason, a bank which cashes a check drawn upon
anotherbank,withoutrequiringproofastotheidentityofpersonspresentingit,ormakinginquirieswithregardto
them,cannotholdtheproceedsagainstthedraweewhentheproceedsofthecheckswereafterwardsdivertedto
the hands of a third party. In such cases the drawee bank has a right to believe that the cashing bank (or the
collecting bank) had, by the usual proper investigation, satisfied itself of the authenticity of the negotiation of the
checks.Thus,onewhoencashedacheckwhichhadbeenforgedordivertedandinturnreceivedpaymentthereon
fromthedrawee,isguiltyofnegligencewhichproximatelycontributedtothesuccessofthefraudpracticedonthe
draweebank.Thelattermayrecoverfromtheholderthemoneypaidonthecheck.26
Having established that the collecting bank's negligence is the proximate cause of the loss, we conclude that
PCIBankisliableintheamountcorrespondingtotheproceedsofCitibankCheckNo.SN04867.
G.R.No.128604
ThetrialcourtandtheCourtofAppealsfoundthatPCIBankhadnoofficialactintheordinarycourseofbusiness
thatwouldattributetoitthecaseoftheembezzlementofCitibankCheckNumbersSN10597and16508,because
PCIBankdidnotactuallyreceivenorholdthetwoFordchecksatall.Thetrialcourtheld,thus:
"Neither is there any proof that defendant PCIBank contributed any official or conscious participation in the
process of the embezzlement. This Court is convinced that the switching operation (involving the checks
while in transit for "clearing") were the clandestine or hidden actuations performed by the members of the
syndicateintheirownpersonl,covertandprivatecapacityanddonewithouttheknowledgeofthedefendant
PCIBank"27
In this case, there was no evidence presented confirming the conscious particiapation of PCIBank in the
embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and
declarationsofitsofficersoragentswithinthecourseandscopeoftheiremployment.28Abankwillbeheldliablefor
the negligence of its officers or agents when acting within the course and scope of their employment. It may be
liableforthetortuousactsofitsofficersevenasregardsthatspeciesoftortofwhichmaliceisanessentialelement.
In this case, we find a situation where the PCIBank appears also to be the victim of the scheme hatched by a
syndicateinwhichitsownmanagementemployeeshadparticiapted.
The promanager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check Numbers SN
10597and16508.Hepassedthecheckstoacoconspirator,anAssistantManagerofPCIBank'sMeralcoBranch,
who helped Castro open a Checking account of a fictitious person named "Reynaldo Reyes." Castro deposited a
worthless Bank of America Check in exactly the same amount of Ford checks. The syndicate tampered with the
checksandsucceededinreplacingtheworthlesschecksandtheeventualencashmentofCitibankCheckNos.SN
10597 and 16508. The PCIBank Ptromanager, Castro, and his coconspirator Assistant Manager apparently
performedtheiractivitiesusingfacilitiesintheirofficialcapacityorauthoritybutfortheirpersonalandprivategainor
benefit.
Abankholdingoutitsofficersandagentsasworthyofconfidencewillnotbepermittedtoprofitbythefraudsthese
officersoragentswereenabledtoperpetrateintheapparentcourseoftheiremploymentnorwilltbepermittedto
shirkitsresponsibilityforsuchfrauds,eventhough nobenefitmayaccruetothebanktherefrom.Forthegeneral
ruleisthatabankisliableforthefraudulentactsorrepresentationsofanofficeroragentactingwithinthecourse

andapparentscopeofhisemploymentorauthority.29Andifanofficeroremployeeofabank,inhisofficialcapacity,
receivesmoneytosatisfyanevidenceofindebetednesslodgedwithhisbankforcollection,thebankisliableforhis
misappropriationofsuchsum.30
Moreover,ascorrectlypointedoutbyFord,Section531ofCentralBankCircularNo.580,Seriesof1977provides
thatanytheftaffectingitemsintransitforclearing,shallbefortheaccountofsendingbank,whichinthiscaseis
PCIBank.
Butinthiscase,responsibilityfornegligencedoesnotlieonPCIBank'sshouldersalone.
TheevidenceonrecordshowsthatCitibankasdraweebankwaslikewisenegligentintheperformanceofitsduties.
Citibank failed to establish that its payment of Ford's checjs were made in due course and legally in order. In its
defense,Citibankclaimsthegenuinenessanddueexecutionofsaidchecks,consideringthatCitibank(1)hasno
knowledgeofanyinformityintheissuanceofthechecksinquestion(2)coupledbythefactthatsaidcheckswere
sufficiently funded and (3) the endorsement of the Payee or lack thereof was guaranteed by PCI Bank (formerly
IBAA),thus,ithastheobligationtohonorandpaythesame.
Foritspart,FordcontendsthatCitibankasthedraweebankowestoFordanabsoluteandcontractualdutytopay
the proceeds of the subject check only to the payee thereof, the CIR. Citing Section 6232 of the Negotiable
InstrumentsLaw,Fordarguesthatbyacceptingtheinstrument,theacceptrowhichisCitibankengagesthatitwill
payaccordingtothetenorofitsacceptance,andthatitwillpayonlytothepayee,(theCIR),consideringthefact
thatherethecheckwascrossedwithannotation"PayeesAccountOnly."
As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by Ford on Citibank
ChecksNumbersSN10597and16508,becauseofthecontractualrelationshipexistingbetweenthetwo.Citibank,
asthedraweebankbreacheditscontractualobligationwithFordandsuchdegreeofculpabilitycontributedtothe
damagecausedtothelatter.Onthisscore,weagreewiththerespondentcourt'sruling.
CitibankshouldhavescrutinizedCitibankCheckNumbersSN10597and16508beforepayingtheamountofthe
proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the
backofCitibankCheckNos.SN10597and16508donotbearanyinitials.Citibankfailedtonoticeandverifythe
absence of the clearing stamps. Had this been duly examined, the switching of the worthless checks to Citibank
CheckNos.10597and16508wouldhavebeendiscoveredintime.Forthisreason,Citibankhadindeedfailedto
performwhatwasincumbentuponit,whichistoensurethattheamountofthechecksshouldbepaidonlytoits
designatedpayee.Thefactthatthedraweebankdidnotdiscovertheirregularityseasonably,inourview,consitutes
negligence in carrying out the bank's duty to its depositors. The point is that as a business affected with public
interestandbecauseofthenatureofitsfunctions,thebankisunderobligationtotreattheaccountsofitsdepositors
withmeticulouscare,alwayshavinginmindthefiduciarynatureoftheirrelationship.33
Thus,invokingthedoctrineofcomparativenegligence,weareoftheviewthatbothPCIBankandCitibankfailedin
theirrespectiveobligationsandbothwerenegligentintheselectionandsupervisionoftheiremployeesresultingin
theencashmentofCitibankCheckNos.SN10597AND16508.Thus,weareconstrainedtoholdthemequallyliable
forthelossoftheproceedsofsaidchecksissuedbyFordinfavoroftheCIR.
Timeandagain,wehavestressedthatbankingbusinessissoimpressedwithpublicinterestwherethetrustand
confidenceofthepublicingeneralisofparamountumportancesuchthattheappropriatestandardofdiligencemust
beveryhigh,ifnotthehighest,degreeofdiligence.34Abank'sliabilityasobligorisnotmerelyvicariousbutprimary,
wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no
moment.35
Banks handle daily transactions involving millions of pesos.36 By the very nature of their work the degree of
responsibility,careandtrustworthinessexpectedoftheiremployeesandofficialsisfargreaterthanthoseofordinary
clerks and employees.37 Banks are expected to exercise the highest degree of diligence in the selection and
supervisionoftheiremployees.38
Ontheissueofprescription,PCIBankclaimsthattheactionofFordhadprescribedbecauseofitsinabilitytoseek
judicialreliefseasonably,consideringthattheallegednegligentacttookplacepriortoDecember19,1977butthe
reliefwassoughtonlyin1983,orsevenyearsthereafter.
Thestatuteoflimitationsbeginstorunwhenthebankgivesthedepositornoticeofthepayment,whichisordinarily
when the check is returned to the alleged drawer as a voucher with a statement of his account,39 and an action
uponacheckisordinarilygovernedbythestatutoryperiodapplicabletoinstrumentsinwriting.40
Ourlawsonthematterprovidethattheactionuponawrittencontractmustbebroughtwithintenyearfromthetime
therightofactionaccrues.41hence,thereckoningtimefortheprescriptiveperiodbeginswhentheinstrumentwas

issued and the corresponding check was returned by the bank to its depositor (normally a month thereafter).
Applyingthesamerule,thecauseofactionfortherecoveryoftheproceedsofCitibankCheckNo.SN04867would
normally be a month after December 19, 1977, when Citibank paid the face value of the check in the amount of
P4,746,114.41.SincetheoriginalcomplaintforthecauseofactionwasfiledonJanuary20,1984,barelysixyears
hadlapsed.Thus,weconcludethatFord'scauseofactiontorecovertheamountofCitibankCheckNo.SN04867
wasseasonablyfiledwithintheperiodprovidedbylaw.
Finally,wealsofindthetFordisnotcompletelyblamelessinitsfailuretodetectthefraud.Failureonthepartofthe
depositor to examine its passbook, statements of account, and cancelled checks and to give notice within a
reasonabletime(orasrequiredbystatute)ofanydiscrepancywhichitmayintheexerciseofduecareanddiligence
findtherein,servestomitigatethebanks'liabilitybyreducingtheawardofinterestfromtwelvepercent(12%)tosix
percent(6%)perannum.AsprovidedinArticle1172oftheCivilCodeofthePhilippines,respondibilityarisingfrom
negligenceintheperformanceofeverykindofobligationisalsodemandable,butsuchliabilitymayberegulatedby
thecourts,accordingtothecircumstances.Inquasidelicts,thecontributorynegligenceoftheplaintiffshallreduce
thedamagesthathemayrecover.42
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CAG.R. CV No. 25017 are
AFFIRMED.PCIBank, know formerly as Insular Bank of Asia and America, id declared solely responsible for the
lossoftheproceedsofCitibankCheckNoSN04867intheamountP4,746,114.41,whichshallbepaidtogetherwith
sixpercent(6%)interestthereontoFordPhilippinesInc.fromthedatewhentheoriginalcomplaintwasfileduntil
saidamountisfullypaid.
However, the Decision and Resolution of the Court of Appeals in CAG.R. No. 28430 are MODIFIED as follows:
PCIBankandCitibankareadjudgedliableforandmustsharetheloss,(concerningtheproceedsofCitibankCheck
NumbersSN10597and16508totallingP12,163,298.10)onafiftyfiftyratio,andeachbankisORDERED to pay
Ford Philippines Inc. P6,081,649.05, with six percent (6%) interest thereon, from the date the complaint was filed
untilfullpaymentofsaidamount.
1wphi1.nt

CostsagainstPhilippineCommercialInternationalBankandCitibankN.A.
SOORDERED.
Bellosillo,Mendoza,Buena,DeLeon,Jr.,JJ,concur.

Footnotes
1PennedbyJusticeB.A.AdefuindelaCruzandconcurredinbyJusticesJesusM.ElbiniasandLourdesK.
TayaoJaguros,rollo,G.R.No.121413,pp.2742.
2Rollo,G.R.No.121413,pp.4445
3 Penned by Justice Jose C. de la Rama and concurred in by Justices Emeterio C. Cui and Eduardo G.
Montenegro,rollo,G.R.No.128604,pp.4560
4Rollo,G.R.No.128604,pp.4243
5Supra,seenote1,pp.3234(Allcitationsomitted).
6Rollo,G.R.No.121413,pp.131132.
7Id.at4142
8Id.at18
9Rollo,G.R.No.121479,pp.162163
10Id.at181.
11Id.at186.
12Id.at188
13Id.at192
14Supra,seenote3,pp.4749

15Id.at46
16Id.at2425
17218SCRA682(1993)
18AmJur2d,Volume58,Negligence,Section458
19AmJur2d,Volume58,NegligenceSection464.
20Vda.DeBataclan,etal.vs.Medina,102Phil.181,186(1957)
21AmJur2d,Volume10,BanksSection604(1963Edition)
22Id.atSection697.
23Ibid.
24157SCRA188(1988)
25Id.at194.
26Supranote20atSection611
27Rollo,G.R.No.128604,pp.5657.
28Supranote20atSection110
29Id,atSec.111
30Id.atSec.113
31Sec.5LossofClearingItems.Anylossordamagearisingfromtheft,pilferage,orothercausesaffecting
itemsintransitshallbefortheaccountofthesendingbank/branch,institutionorentityconcerned.
32Sec.62,NegotiableInstrumentysLaw.
33SimexInternational(Manila)Inc.vs.CourtofApeals,183SCRA360,367(1990)
34Supra,seenote17,atp.697.
35Ibid.
36BPIvs.CourtofAppeals,216SCRA51,71(1992)
37Ibid.
38Ibid.
39Supranote20atSection605
40Ibid.
41CIVILCODE,Art.1144
42CIVILCODE,Art2214.
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