Philippine Commercial International Bank vs

Court of Appeals (2001)

March 9, 2012
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350 SCRA 446 Mercantile Law Negotiable Instruments Law Rights of the Holder What
Constitutes a Holder in Due Course Negligence of the Collecting Bank and the Drawee Bank
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.