#6

Philippine Commercial International Bank vs Court of Appeals

(2001)

FACTS: There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford
and Citibank), G.R. No. 121479 (Ford vs CA and Citibank and PCIB), and G.R. No. 128604
(Ford vs Citibank and PCIB and CA).
G.R. No. 121413/G.R. No. 121479
In October 1977, Ford Philippines drew a Citibank check in the amount of P4,746,114.41 in
favor of the Commissioner of the Internal Revenue (CIR). The check represents Fords tax
payment for the third quarter of 1977. On the face of the check was written Payees
account only which means that the check cannot be encashed and can only be deposited
with the CIRs savings account (which is with Metrobank). The said check was however
presented to PCIB and PCIB accepted the same. PCIB then indorsed the check for clearing
to Citibank. Citibank cleared the check and paid PCIB P4,746,114.41. CIR later informed
Ford that it never received the tax payment.
An investigation ensued and it was discovered that Fords accountant Godofredo Rivera,
when the check was deposited with PCIB, recalled the check since there was allegedly an
error in the computation of the tax to be paid. PCIB, as instructed by Rivera, replaced the
check with two of its managers checks.
It was further discovered that Rivera was actually a member of a syndicate and the
managers checks were subsequently deposited with the Pacific Banking Corporation by
other members of the syndicate. Thereafter, Rivera and the other members became
fugitives of justice.
G.R. No. 128604
In July 1978 and in April 1979, Ford drew two checks in the amounts of P5,851,706.37 and
P6,311,591.73 respectively. Both checks are again for tax payments. Both checks are for
Payees account only or for the CIRs bank savings account only with Metrobank. Again,
these checks never reached the CIR.
In an investigation, it was found that these checks were embezzled by the same syndicate
to which Rivera was a member. It was established that an employee of PCIB, also a
member of the syndicate, created a PCIB account under a fictitious name upon which the
two checks, through high end manipulation, were deposited. PCIB unwittingly endorsed the

checks to Citibank which the latter cleared. Upon clearing, the amount was withdrawn from
the fictitious account by syndicate members.
ISSUE: What are the liabilities of each party?
HELD: G.R. No. 121413/G.R. No. 121479
PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has
been negligent in verifying the authority of Rivera to negotiate the check. It failed to
ascertain whether or not Rivera can validly recall the check and have them be replaced with
PCIBs managers checks as in fact, Ford has no knowledge and did not authorize such. A
bank (in this case PCIB) which cashes a check drawn upon another bank (in this case
Citibank), 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. Hence, PCIB
is liable for the amount of the embezzled check.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.
As a general rule, a bank is liable for the negligent or tortuous act of its employees within
the course and apparent scope of their employment or authority. Hence, PCIB is liable for
the fraudulent act of its employee who set up the savings account under a fictitious name.
Citibank is likewise liable because it was negligent in the performance of its obligations with
respect to its agreement with Ford. The checks which were drawn against Fords account
with Citibank clearly states that they are payable to the CIR only yet Citibank delivered said
payments to PCIB. Citibank however argues that the checks were indorsed by PCIB to
Citibank and that the latter has nothing to do but to pay it. The Supreme Court cited Section
62 of the Negotiable Instruments Law which mandates the Citibank, as an acceptor of the
checks, to engage in paying the checks according to the tenor of the acceptance which is to
deliver the payment to the payees account only.
But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are not
the only negligent parties. Ford is also negligent for failing to examine its passbook in a
timely manner which could have avoided further loss. But this negligence is not the
proximate cause of the loss but is merely contributory. Nevertheless, this mitigates the
liability of PCIB and Citibank hence the rate of interest, with which PCIB and Citibank is to
pay Ford, is lowered from 12% to 6% per annum.