Title
Bank of the Philippine Islands vs. Central Bank of the Philippines
Case
G.R. No. 197593
Decision Date
Oct 12, 2020
BPI discovered a P9M fraud involving pilfered checks, tampered documents, and CBP employees. BPI sued CBP and Citibank, but the Supreme Court ruled CBP not liable for employees' fraud, affirming no negligence or proprietary function breach. Citibank acted in good faith.

Case Summary (G.R. No. 197593)

Petitioner

Bank of the Philippine Islands filed suit for recovery of funds wrongfully credited to a “suspense account” and sought restoration of P9 million plus interest.

Respondents

– Bangko Sentral ng Pilipinas (formerly Central Bank of the Philippines)
– Citibank, N.A.

Key Dates

– October 14, 1981: Fraudulent accounts opened with BPI Laoag and Citibank Greenhills.
– January 28, 1982: BPI Laoag discovers P9 million discrepancy.
– February 9, 1982: BPI lodges letter-complaint with CBP; NBI investigation agreed.
– January 21, 1988: BPI files complaint for sum of money.
– April 24, 2001: RTC Decision in favor of BPI.
– January 26, 2011: CA Decision reversing the RTC.
– July 8, 2011: CA Resolution denying reconsideration.
– October 12, 2020: Supreme Court grant of petition for review.
– December 12, 2022: Supreme Court Second Division Decision.

Applicable Law

– 1987 Philippine Constitution (Article XVI, Section 10: State may be sued only by its consent)
– Republic Act No. 265, as amended by PD 72 (Charter of the Central Bank; Section 107 mandates interbank clearing facilities)
– Civil Code of the Philippines, Articles 2176 and 2180 (quasi-delict and employer’s liability)
– Central Bank Circular No. 580, Series of 1977 (loss of clearing items borne by sending bank)

Antecedents

BPI and Citibank, both Clearing House members, maintained demand deposit accounts with CBP. BPI Laoag discovered a P9 million shortfall in interbank reconciliations and prompted an NBI probe, which revealed a criminal syndicate’s scheme: infiltration of CBP Clearing Division, pilferage of out-of-town checks, tampering of clearing manifests/statements, and withdrawal of funds via Citibank Greenhills from checks drawn on BPI Laoag. CBP credited only P4.5 million back to BPI under a “suspense account,” refusing the remaining P4.5 million plus interest.

Ruling of the Regional Trial Court

The Makati RTC held CBP liable under Articles 2176 and 2180 for the tortious acts of its employees Valentino and Estacio. It ordered:

  1. Credit of P4.5 million plus 6% p.a. from September 23, 1986 to full payment.
  2. Restoration of the full P9 million demand deposit by deleting “suspense account.”
  3. Payment of 10% attorney’s fees;
  4. Costs;
  5. Dismissal of Citibank third-party complaint for lack of merit.

Ruling of the Court of Appeals

The CA reversed and dismissed BPI’s complaint, concluding:
– Under Article 2180, the State (or CBP) is liable only for quasi-delicts committed by special agents. Valentino and Estacio were ordinary employees, not special agents, and acted outside their official scope.
– Even if CBP performed proprietary functions, it exercised “ordinary diligence” in employee selection and supervision (civil service exams, NBI/NISA clearances).
– The loss-in-transit provision of Circular No. 580 did not obligate CBP to charge Citibank for the pilfered checks.

Issues

  1. Whether CBP may be sued in relation to its governmental or proprietary functions.
  2. Whether CBP’s clearing operations are proprietary.
  3. Whether CBP exercised due diligence in supervising Valentino and Estacio.
  4. Whether Citibank, as sending bank, bears liability under Circular No. 580.

Arguments of BPI

– Clearing operations are proprietary: private Philippine Clearing House Corporation performed Metro Manila clearing; regional clearing could likewise be privatized.
– RA 265, Section 4 confers CBP authority to sue and be sued without limiting governmental functions.
– CBP employees acted within scope; mere pre-employment screenings do not satisfy supervisory diligence.
– CBP refused application of Circular No. 580 to recover P4.5 million from Citibank.
– Interest should run from extrajudicial demand (June 15, 1982) at legal rate (12% p.a. from judicial demand).

Arguments of Citibank

– CBP’s susceptibility to suit under RA 265 and its own third-party claim constitutes implied waiver of immunity.
– Clearing services are proprietary; CBP collected fees.
– Citibank complied with all procedures; checks were free of alterations and deemed honored after three-day clearing period without dishonor notice.
– Circular No. 580 applies only to losses in transit, not to tampering at the clearing center.
– CBP failed to prove that Citibank contributed to the fraud or that Citibank was negligent.

Arguments of CBP

– Clearing is a governmental function mandated by Section 107 of RA 265 as amended.
– Consent to suit in CBP’s Charter does not waive defenses to acts performed in a governmental capacity.
– Under Civil Code Article 2180 and Article 1280, the State is liable only for special agents’ torts. Valentino and Estacio were ordinary employees acting outside their duties.
– CBP exercised proper diligence: civil service exams, NBI/NISA clearances, standard supervision.
– BPI and Citibank employees also contributed through collusion; CBP’s liability, if any,

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