PHILIPPINE COMMERCIAL AND

INTERNATIONAL BANK
VS.
COURT OF APPEALS,
350 SCRA 446,
G.R. NO. 121413,
G.R. NO. 121479,
G.R. NO. 128604,
January 29, 2001
FACTS OF THE
CASE
 DOCKET NUMBERS

GR No. 121413 January 29, 2001

PCIB vs. CA & Ford Phils. Inc. &
Citibank
GR No. 121479 January 29, 2001
Ford Phils. Inc. vs. CA & Citibank &
PCIB
GR No. 128604 January 29, 2001
Ford Phils. Inc vs. Citibank, PCIB, & CA
 TRANSACTIONS INVOLVED IN THE CASE

These consolidated petitions involve several

fraudulently negotiated checks.
The original actions a quo were instituted by Ford
Philippines to recover from CITIBANK (drawee
bank) and PCIB (collecting bank) the value of
several checks payable to the Commissioner of
Internal Revenue (CIR) which were embezzled
allegedly by an organized syndicate.
 G.R. NO. 121413 AND G.R. NO. 121479,

These are twin petition for review of CA's decision

and resolution ordering the collecting bank PCIB to
pay the amount of Citibank Check No. SN-04867.
 G.R. NO. 128604

Assailing CA's decision affirming trial courts decision

holding the drawee bank Citibank solely liable to pay
the amount of P12,163,298.10 as damages for the
misapplied proceeds of Ford Phils. Inc. Citibank
Check Nos. SN-10597 and SN-16508.
 G.R. NO. 121413 AND G.R. NO. 121479,

Check Date: October 19, 1977

Deposit Date: December 12, 1977
Drawer: Ford
Drawee: Citibank
Collecting Bank: PCIB (Ermita Branch)
Check No: SN-04867 (crossed check)
Amount: P4,746,114.41
Payee: CIR
Purpose: as payment of Ford's percentage or manufacturer's sales
taxes for Q3 of 1977 covered by TRN: 18747002 dated October 20,
1977
 G.R. NO. 121413 AND G.R. NO. 121479,

the proceeds was never paid to CIR upon Ford's

verification;
that upon CIR's demand, Ford was compelled to make
the 2nd payment and was duly received by CIR;
Ford in its letter October 26, 1979 to the defendants
that in case of CIR's reassessment Ford will hold
Citibank and PCIB liable for the reimbursement of the
face value which both of them denied the liability and
refuse to pay.
 G.R. NO. 121413 AND G.R. NO. 121479,

CIR in its letter dated February 28, 1980 informed Ford

re the non-payment and that the said check was
encashed by unauthorized persons thus the need to
pay the said amount w/in 15 days from receipt of letter.
With the defendants' refusal to the requested
reimbursement, Ford filed on January 20, 1983 this
original complaint.
 REGIONAL
TRIAL COURT
DEFENDANTS' CONTENTION although not part of the

Citibank

maintains that Citibank

stipulated facts, NBI revealed
that the said check was recalled
Check No. SN-04867 payment of by Godofredo Rivera, Ford's
proceeds was in due course relying General Ledger Accountant
on the clearing stamp of the purportedly because of an error
depository/collecting bank PCIB in the computation of the tax
and that the proximate cause of
due to the CIR.
Ford's injury is the gross
with the said instruction, PCIB
negligence of PCIB in indorsing
replaced the check with 2 of its
the check in question.
own Manager's Check which
the alleged syndicate members
later on deposited to Pacific
Banking Corporation.
 G.R. NO. 121413 AND G.R. NO. 121479,

Ford filed a third-party complaint impleading PBC and

Rivera but were dismissed for lack of cause of action
and unserviceable summons (NBI declaration of
Rivera as fugitive from justice status) respectively.
 REGIONAL TRIAL COURT'S
DECISION

Ordered Citibank & PCIB jointly and
June 15, 1989 severally liable to pay Ford P4,746,114.41

w/ interest at legal rate starting June 20,

1983 until fully paid plus cost.
On Citibank's cross-claim, ordered PCIB
to reimburse Citibank for the amount
paid in accordance to liability mentioned
above.
COURT OF
APPEALS
 COURT OF APPEALS'
DECISION

March 27, 1995 Affirmed the appealed

decision with modifications:
Dismissed the complaint
as against Citibank.
Ordered PCIB to pay the
plaintiff for the
P4,746,114.41.
 GR NO. 121413 GR NO 121479

PCIB seeks the reversal Ford questioned the CA's

of the decision decision and prayed for
contending that it reinstatement of trial
merely acted on the courts decision that found
Citibank and PCIB jointly
instruction of Ford and
an dseverally liable for the
such cause of action had
loss.
already prescribed.
 G.R. NO. 128604

The same syndicate apparently embezzled the

proceeds of checks intended, this time, to settle
Ford's percentage taxes for Q2 of 1978 and Q1 of
1979.
 G.R. NO. 128604
Check Date: July 19, 1978

Check Date: April 20, 1979
Deposit Date: Deposit Date:
Drawer: Ford Drawer: Ford
Drawee: Citibank Drawee: Citibank
Collecting Bank: Collecting Bank:
Check No: SN-10597 (crossed Check No: SN-16508 (crossed
check) check)
Amount: P5,851,706.37 Amount: P6,311,591.73
Payee: CIR Payee: CIR
Purpose: as payment of Ford's Purpose: as payment of Ford's
percentage tax for Q2 of 1978 percentage tax for Q1 of 1979
covered by TRN: 28645385 covered by TRN: A-1697160
 G.R. NO. 128604

the proceeds never reached CIR

CIR in its letter dated February 28, 1980 demanded for
the said tax payments the corresponding periods
mentioned.
As far as CIR is concerned, the said two BIR Revenue
Tax Receipts were considered "fake and spurious"
which was confirmed by BIR upon BIRs initiative.
This forced Ford to pay CIR anew while the action filed
against Citibank and PCIB for the recovery of the
amount of the two checks.
 REGIONAL
TRIAL COURT
 G.R. NO. 128604

Rivera prepared check no. SN-10597 for CIR payment;

instead of delivering the same to the payee he passed
the same to Castro her co-conspirator who was a
promanager of PCIB's San Andres branch ;
in connivance with Winston Dulay, Castro
subsequently opened a checking account in the name
of a fictitious person denominated as Reynaldo Reyes
in PCIB's Meralco Branch where Dulay worked as
Assistant Manager;
 G.R. NO. 128604

after the P100 initial deposit for account validation, Castro

deposited a worthless Bank of America Check in exactly the
same amount of check no. SN-10597;
while the worthless check was coursed thru PCIB's main office
enroute to Central Bank for clearing, replaced this worthless
check with Ford's check and accordingly tampered the
accompanying documents to cover replacement.
thus check no. SN-10597 was cleared by Citibank and credited
to Reynaldo Reyes.
the same method was utilized by the syndicate for the check no.
SN-16508 which was subsequently pilfered by Alexis Marindo,
Rivera's assistant at Ford.
 G.R. NO. 128604

from the Reynaldo Reyes account, Castro drew various checks distributing the
shares of other conspirators;
Crisanto Bernabe - mastermind who crafted the embesslement design;
Rodolfo de Leon - customs's broker who negotiated the contact between
Bernabe, Rivera, and Castro;
Juan Castillo - assisted de Leon in the initial arrangements;
Godofredo Rivera - Ford's accountant who passed on the first check to
Castro;
Remberto Castro - PCIB promanager who facilitated the switching of
checks in the clearing process and opened the fictitious checking account;
Winston Dulay - assisted Castro in the clearing process and switching;
Alexi Marindo - Rivera's assistant who gave the 2nd check;
Eleuterio Jimenez - BIR collection agent who provided the fake revenue
tax receipt
 REGIONAL TRIAL COURT'S
DECISION

Sentenced Citibank to reimburse plaintiff
December 9, 1988 the total amount of P12,163,298.1 with 6%

interest from the date of first written

demand until full payment plus
attorney's fees and litigation expenses
and to pay the defendant PCIB for
attorney's fees and litigation expenses.
COURT OF
APPEALS
 COURT OF APPEALS'
DECISION

March 5, 1997 Affirmed RTC's decision.

PETITIONER'S ARGUMENT
PCIB was clearly negligent for
that if PCIB did not accept,
failure to exercise the deligence
endorse or negotiate in due
required for the banking
course the checks, it is liable
institutions;
under Art. 2154 for the return of
that PCIB failed to observe the
money received.
required deligence in the
selection and supervision of its
officers and employees.
that thru its own negligence that
allowed the substitution
ISSUE:
WHETHER FORD HAS THE
RIGHT OF RECOVERY FROM
THE DRAWEE BANK
(CITIBANK) AND
COLLECTING BANK (PCIB).
RULING:
YES, FORD CAN RECOVER FROM
CITIBANK AND PCIB. THE MERE
FACT THAT THE FORGERY WAS
COMMITTED BY THE DRAWER'S
CONFIDENTIAL EMPLOYEE DOES
NOT ENTITLE THE BANK TO
SHIFT THE LOSS TO FORD.
 RATIO
THE MERE FACT THAT THE FORGERY WAS COMMITTED BY 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 UPON THE BANK, DOES NOT ENTITLE THE BANK TO SHIFT THE LOSS TO THE
DRAWER-PAYOR, IN THE ABSENCE OF SOME CIRCUMSTANCES RAISING ESTOPPEL
AGAINST THE DRAWER.

It appears that although the employees of Ford initiated the

transactions attributable to an organized syndicate, in our view, their
actions were not the proximate cause of encashing the checks
payable to the CIR.
The degree of Ford’s negligence, if any, could not be characterized
as the proximate cause of the injury to the parties.
 RATIO
The Board of Directors of Ford, we note, did not confirm the request of
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 ordinary course of business 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.
These checks were apparently turned around by Ford’s employees, who
were acting on their own personal capacity.
This rule likewise applies to the checks fraudulently negotiated or diverted
by the confidential employees who hold them in their possession.
 RATIO
A BANK AUTHORIZED TO COLLECT THE PAYMENT OF TAXPAYERS IN BEHALF OF THE
BUREAU OF INTERNAL REVENUE IS DUTY BOUND TO CONSULT ITS PRINCIPAL
REGARDING THE UNWARRANTED INSTRUCTIONS GIVEN BY THE PAY OR OF ITS
AGENT.

Citibank Check No. SN-04867 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/or lack of
indorsements guaranteed,” and was presented to Citibank for payment.
Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared two of
its Manager's checks and enabled the syndicate to encash the same. On record,
PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks.
 RATIO
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 of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is
duty bound to consult its principal regarding the unwarranted instructions
given by the payor or its agent.
 RATIO
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.

A bank which receives such paper for collection is the agent of the payee
or holder. Philippine Commercial and International Bank vs. Court of
Appeals, 350 SCRA 446, G.R. No. 121413, G.R. No. 121479, G.R. No.
128604, G.R. Nos. 121413 January 29, 2001
 RATIO
EVEN CONSIDERING ARGUENDO, THAT THE DIVERSION OF THE 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 PAYOR.

the diversion can be justified only by proof of authority from the

drawer, or that the drawer has clothed his agent with apparent
authority to receive the proceeds of such check.
 RATIO
THE CROSSING OF 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 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.”
it is the duty of the collecting 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 the check and to know its
depositors before it could make the clearing indorsement “all prior
indorsements and/or lack of indorsement guaranteed.”
 RATIO
A BANK WHICH CASHES A CHECK DRAWN UPON ANOTHER BANK, WITHOUT
REQUIRING PROOF AS TO THE IDENTITY OF PERSONS PRESENTING IT, OR MAKING
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 negotiates the
check must take some precautions to learn whether or not it is genuine.
And if the one cashing the check through indifference or other circumstance
assists the forger in committing the fraud, he should not be permitted to retain
the proceeds of the check from the drawee whose sole fault was that it did not
discover the forgery or the defect in the title of the person negotiating the
instrument before paying the check.
 RATIO
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, one who encashed a check which had 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 practiced on the drawee
bank.
The latter may recover from the holder the money paid on the check.
 RATIO
AS A GENERAL RULE, A BANKING CORPORATION IS LIABLE FOR THE WRONGFUL OR
TORTUOUS ACTS AND DECLARATIONS OF ITS OFFICERS OR AGENTS 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 IS AN ESSENTIAL ELEMENT.
In this case, there was no evidence presented confirming the conscious
participation of PCIBank in the embezzlement. As a general rule, however, a
banking corporation is liable for the wrongful or tortuous acts and declarations of its
officers or agents within the course and scope of their employment. A bank will be
held liable for the negligence of its officers or agents when acting 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 is an essential element. In this
 RATIO
case, we find a situation where the PCIBank appears also to be the victim of the
scheme hatched by a syndicate in which its own management employees had
participated.
 RATIO
THE GENERAL RULE IS THAT A BANK IS LIABLE FOR THE FRAUDULENT ACTS OR
REPRESENTATIONS OF AN OFFICER OR AGENT ACTING WITHIN THE COURSE AND
APPARENT SCOPE OF HIS EMPLOYMENT OR AUTHORITY.
A bank holding out its officers and agents as worthy of confidence will not be
permit- ted to profit by the frauds these officers or agents were enabled to
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 to
the bank therefrom. For the general rule is that a bank is liable for the fraudulent
acts or representations of an officer or agent acting within the course and
apparent scope of his employment or authority. And if an officer or employee of
a bank, in his official capacity, receives money to satisfy an evidence of
indebtedness lodged with his bank for collection, the bank is liable for his
misappropriation of such sum.
 RATIO
AS A BUSINESS AFFECTED WITH PUBLIC INTEREST AND BECAUSE OF THE NATURE OF
ITS FUNCTIONS, A BANK IS UNDER OBLIGATION TO TREAT THE ACCOUNTS OF ITS
DEPOSITORS WITH METICULOUS CARE, ALWAYS HAVING IN MIND THE FIDUCIARY
NATURE OF THEIR RELATIONSHIP.
Citibank should have scrutinized Citibank Check Numbers SN-10597 and
16508 before paying the amount of the proceeds thereof to the collecting bank
of the BIR. One thing is clear from the record: the clearing stamps at the back 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.
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 ensure
that the amount of the checks should be paid only to its designated payee. The
 RATIO
fact that the drawee bank did not discover the irregularity seasonably, in our
view, constitutes negligence in carrying out the bank’s duty to its depositors.
The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of
their relationship.
 RATIO
DOCTRINE OF COMPARATIVE NEGLIGENCE; WHERE BOTH THE COLLECTING AND
DRAWEE BANKS FAILED IN THEIR RESPECTIVE OBLIGATIONS AND BOTH WERE
NEGLIGENT IN THE SELECTION AND SUPERVISION OF THEIR EMPLOYEES, BOTH ARE
EQUALLY LIABLE FOR THE LOSS OF THE PROCEEDS OF CHECKS FRAUDULENTLY
ENCASHED.
Thus, invoking the doctrine of comparative negligence, we are of the view that 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 constrained to hold them
equally liable for the loss of the proceeds of said checks issued by Ford in favor of
the CIR.
 RATIO
THE 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 APPROPRIATE STANDARD OF DILIGENCE MUST BE
VERY HIGH, IF NOT THE HIGHEST, DEGREE OF DILIGENCE.

Time and again, we have stressed that 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 appropriate standard of diligence must be very high, if not
the highest, degree 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
supervision of its employees is of no moment.
 RATIO
BANKS ARE EXPECTED TO EXERCISE THE HIGHEST DEGREE OF DILIGENCE IN THE
SELECTION AND SUPERVISION OF THEIR EMPLOYEES.

Banks handle daily transactions involving millions of pesos. By the very nature of
their work the degree of responsibility, care and trustworthiness expected of
their employees and officials is far greater than those of ordinary clerks and
employees. Banks are expected to exercise the highest degree of diligence in
the selection and supervision of their employees.
 RATIO
THE STATUTE OF LIMITATIONS BEGINS TO RUN WHEN THE BANK GIVES THE
DEPOSITOR NOTICE OF THE PAYMENT, AND AN ACTION UPON A CHECK IS
ORDINARILY GOVERNED BY THE STATUTORY PERIOD APPLICABLE TO INSTRUMENTS
IN WRITING; AN ACTION UPON A WRITTEN CONTRACT MUST BE BROUGHT WITHIN
TEN YEARS FROM THE TIME THE RIGHT OF ACTION ACCRUES.

The statute of limitations begins to run when the bank gives the depositor
notice of the payment, which is ordinarily when the check is returned to the
alleged drawer as a voucher with a statement of his account, and an action upon
a check is ordinarily governed by the statutory period applicable to instruments
in writing. 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. Hence, the reckoning time for the prescriptive period begins when the
instrument was issued and the corresponding check was returned by the bank
 RATIO
to its depositor (normally a 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 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 conclude that Ford’s cause of action to recover the
amount of Citibank Check No. SN-04867 was seasonably filed within the period
provided by law.
 RATIO
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 BANKS’ LIABILITY BY REDUCING THE AWARD OF INTEREST FROM
TWELVE PERCENT (12%) TO SIX PERCENT (6%) PER ANNUM.

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 banks’ liability by reducing
the award of interest from twelve percent (12%) to six percent (6%) per annum.
As provided in Article 1172 of the Civil Code of the Philippines, responsibility
 RATIO
arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts, according to the
circumstances. In quasi-delicts, the contributory negligence of the plaintiff shall
reduce the damages that he may recover.
DISPOSITIVE PORTION
WHEREFORE, the assailed Decision and Resolution of the Court
of Appeals in CA-G.R. CV No. 25017, are AFFIRMED. PCIBank,
known formerly as Insular Bank of Asia and America, is declared
solely responsible for the loss of the proceeds of Citibank 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.
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