Case Summary (G.R. No. L-11139)
Facts of Checks SN-10597 & SN-16508
Ford issued two additional crossed Citibank checks—SN-10597 (₱5,851,706.37) and SN-16508 (₱6,311,591.73)—payable to CIR for subsequent quarterly taxes. Both were diverted by the same syndicate through a fictitious account in PCIBank’s name (“Reynaldo Reyes”), replacing worthless Bank of America checks during the clearing process. CIR deemed the revenue receipts spurious and demanded payment; Ford paid anew and sued both banks for recovery.
Procedural History (G.R. 121413 & 121479)
• Trial court (1989): Held Citibank and PCIBank jointly and severally liable for ₱4,746,114.41 plus interest; awarded Citibank reimbursement from PCIBank on cross-claim.
• Court of Appeals (1995): Dismissed Citibank; held only PCIBank liable for the check’s face value with interest; denied motions for reconsideration.
• Supreme Court petitions: PCIBank (G.R. 121413) challenged liability and prescription; Ford (G.R. 121479) sought reinstatement of joint liability against both banks.
Procedural History (G.R. 128604)
• Trial court (1988): Held drawee Citibank liable to reimburse Ford ₱12,163,298.10 with interest and attorney’s fees; awarded PCIBank attorney’s fees on cross-claim.
• Court of Appeals (1996/1997): Affirmed in toto; dismissed Ford’s claim against PCIBank.
• Supreme Court petition: Ford sought reversal of PCIBank dismissal and joint liability.
Issues Presented
- Whether PCIBank, as collecting bank, is liable for the proceeds of fraudulently negotiated checks.
- Whether Citibank, as drawee bank, breached its duty by paying the checks without detecting defects in endorsement or title.
- Whether Ford’s own negligence—or that of its employees—should bar or diminish its recovery.
- Whether Ford’s cause of action prescribed before filing suit.
Legal Principles on Defective Negotiation and Bank Liability
- NIL Sec. 55: Title to an instrument is defective if obtained by fraud, duress, or unlawful means.
- Collecting bank is agent of the payee and must remit proceeds according to payee’s instructions.
- Indorsement “all prior indorsements guaranteed” creates a warranty to subsequent parties.
- Banks must exercise the highest degree of diligence in selection and supervision of employees.
- Quasi-delict (Civil Code Arts. 1172, 2214): Contributory negligence reduces recoverable damages.
- Prescription (Art. 1144): Written contract actions must be filed within ten years from accrual.
Analysis – Contributory and Imputed Negligence
Ford’s employees (Rivera, Marindo) were principal actors in the syndicate. However, their unauthorized diversion of funds was not ratified by Ford’s board and did not constitute the proximate cause of the checks being encashed. Absent estoppel or express authority, the bank cannot shift losses to Ford based solely on its servant’s fraud.
Analysis – Collecting Bank Liability (SN-04867)
PCIBank failed to verify the authority behind Rivera’s instruction to replace the crossed check with manager’s checks. As agent of CIR, PCIBank had a duty to:
- Deposit only into the payee’s account;
- Consult CIR upon receiving improper instructions;
- Honor its “all prior indorsements guaranteed” warranty.
By allowing the syndicate to encash diverted manager’s checks, PCIBank’s negligence was the proximate cause of Ford’s loss.
Analysis – Joint Liability for SN-10597 & SN-16508
Although PCIBank’s managers acted covertly, they used their official positions to open a fictitious account and facilitate the switching scheme. A bank is liable for torts of its agents committed within apparent scope of employment. Citibank also failed to exercise due diligence as drawee:
- It relied solely on PCIBank’s indorsement warranties without verifying clearing stamp ...continue reading
Case Syllabus (G.R. No. L-11139)
Consolidated Petitions
- G.R. No. 121413: Philippine Commercial International Bank (PCIBank) challenges CA Decision in CA-G.R. CV No. 25017 ordering PCIBank to pay Citibank Check No. SN-04867.
- G.R. No. 121479: Ford Philippines, Inc. seeks reinstatement of RTC Decision holding PCIBank and Citibank jointly and severally liable for Check No. SN-04867.
- G.R. No. 128604: Ford Philippines, Inc. contests CA Decision in CA-G.R. No. 28430 affirming sole liability of Citibank for Checks Nos. SN-10597 and SN-16508.
Stipulated Facts (SN-04867)
- On October 19, 1977 Ford issued Citibank Check No. SN-04867 for ₱4,746,114.41 to pay 3rd Q 1977 percentage tax to the CIR.
- The check was deposited with IBAA (now PCIBank), cleared through Central Bank, paid by Citibank to IBAA, but never remitted to the CIR.
- Upon BIR demand, Ford paid the same amount again on March 11, 1982; filed complaint January 20, 1983.
- IBAA merged into PCIBank on December 24, 1985.
- Citibank contended payment was “in due course,” relying on IBAA’s clearing guarantee; PCIBank argued it acted on Ford’s instructions.
Trial Court Decision (SN-04867)
- June 15, 1989 RTC rendered judgment: Citibank and IBAA jointly and severally liable to Ford for ₱4,746,114.41 plus legal interest from January 20, 1983; Citibank entitled to reimbursement from IBAA; counterclaims dismissed; costs against defendants.
Court of Appeals Ruling & Resolution (SN-04867)
- March 27, 1995 CA AFFIRMED with modification: dismissed complaint as to Citibank; held PCIBank liable for ₱4,746,114.41 with legal interest from January 20, 1983; counterclaims dismissed; costs against PCIBank.
- August 8, 1995 resolution denied motions for reconsideration.
Points on Review (G.R. 121413 & 121479)
- PCIBank’s issues: liability despite acting on principal’s instructions; prescription.
- Ford’s issues: Citibank’s drawee‐bank duty; PCIBank’s collecting‐bank duty; new factual issues; absence of Ford’s gross negligence; prescription.