Negotiable Instruments Case Digest: Philippine  December 9, 1988: RTC Citibank (drawee

Commercial International Bank v CA (2001) bank) liable for the value of the 2 checks while
G.R. No. 121413,121479,128604         January absolving PCIBank (collecting bank) from any
29, 2001 liability
Lessons Applicable: Liabilities of the Parties ISSUE: W/N Ford can hold both PCIB and
(Negotiable Instruments Law) Citibank liable
FACTS: HELD: YES.  CA AFFIRMED. PCIBank, know
 These consolidated petitions involve formerly as Insular Bank of Asia and America, id
several fraudulently negotiated checks declared solely responsible for the loss of the
 October 19, 1977: Ford drew and issued proceeds of Citibank Check in the amount
its Citibank Check of P4,746,114.41, in favor of P4,746,114.41.  However, MODIFIED as follows:
the Commissioner of Internal Revenue (CIR) as PCIBank and Citibank are adjudged liable for and
payment of percentage or manufacturer's sales must share the loss, concerning the proceeds of
taxes for the third quarter of 1977 Citibank Check Numbers SN 10597 and 16508 on
o check was deposited with the IBAA a 50-50 ratio to pay Ford
(now PCIBank) and was subsequently cleared at  GR: if the master is injured by the
the Central Bank negligence of a third person and by the concuring
contributory negligence of his own servant or
 Ford, with leave of court, filed a third-
agent, the latter's negligence is imputed to his
party complaint before the trial court impleading
superior and will defeat the superior's action
Pacific Banking Corporation (PBC) and Godofredo
against the third person, asuming, of course that
Rivera, as third party defendants
the contributory negligence was the proximate
o dismissed the complaint against cause of the injury of which complaint is made.
PBC for lack of cause of action
 although the employees of Ford initiated
o dismissed the third-party complaint the transactions attributable to an organized
against Godofredo Rivera because he could not syndicate, in our view, their actions were not the
be served with summons as a "fugitive from proximate cause of encashing the checks payable
justice" to the CIR
 trial court: Citibank and IBAA (now PCI o degree of Ford's negligence, if any,
Bank), jointly and severally, to pay the Ford  could not be characterized as the proximate
 April 20, 1979, Ford drew another Citibank cause of the injury to the parties
Check of P6,311,591.73, representing the  Rivera's instruction to replace the check
payment of percentage tax for the first quarter of with PCIBank's Manager's Check was not in the
1979 payable to the CIR  ordinary course of business which could have
 Both checks were "crossed checks" and prompted PCIBank to validate the same.
contain two diagonal lines on its upper corner o checks were made payable to the
between, which were written the words "payable CIR
to the payee's account only."
o Both were crossed checks
 The checks never reached the payee, CIR
 These checks were
 As far as the BIR is concernced, the said apparently turned around by Ford's emploees,
two BIR Revenue Tax Receipts were considered who were acting on their own personal capacity.
"fake and spurious". 
 Given these circumstances, the mere fact
o forced Ford to pay the BIR anew, that the forgery was committed by a drawer-
while an action was filed against Citibank and payor's confidential employee or agent, who by
PCIBank for recovery virtue of his position had unusual facilities for
 RTC: Mr. Godofredo Rivera was employed perpertrating the fraud and imposing the forged
by FORD as its General Ledger Accountant. He paper upon the bank, does not entitle the bank to
prepared the check for payment to the BIR. shift the loss to the drawer-payor, in the absence
Instead, of delivering to the payee, he gave it to of some circumstance raising estoppel against
Remberto Castro, a co-conspirator who was a the drawer.
pro-manager of PCIB.  Castro opened a Checking o This rule likewise applies to the
Account in the name of a fictitious person checks fraudulently negotiated or diverted by the
"Reynaldo Reyes" with connivance of Dulay, confidential employees who hold them in their
assistant manager of PCIB possession.
 After an initial deposit of P100 to validate  Furthermore, it was admitted that
the account, Castro deposited a worthless Bank PCIBank is authorized to collect the payment of
of America Check in exactly the same amount as taxpayers in behalf of the BIR. 
the first FORD check while this worthless check
o As an agent of BIR, PCIBank is
was coursed through PCIB's main office enroute
to the Central Bank for clearing, replaced this duty bound to consult its principal regarding the
worthless check with Ford's and accordingly unwarranted instructions given by the payor or
tampered the accompanying documents to cover its agent
the replacement. As a result, Ford's check was o Otherwise stated, the diversion can
cleared by CITIBANK, and the fictitious deposit be justified only by proof of authority from the
account of 'Reynaldo Reyes' was credited at the drawer, or that the drawer has clothed his agent
PCIB  with apparent authority to receive the proceeds
of such check.

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o it is the duty of the collecting bank  Failure on the part of the FORD depositor
PCIBank to ascertain that the check be deposited to examine its passbook, statements of account,
in payee's account only. Therefore, it is the and cancelled checks and to give notice within a
collecting bank (PCIBank) which is bound to reasonable time (or as required by statute) of
scruninize the check and to know its depositors any discrepancy which it may in the exercise of
before it could make the clearing indorsement "all due care and diligence find therein, serves to
prior indorsements and/or lack of indorsement mitigate the banks' liability by reducing the
guaranteed". award of interest from twelve percent (12%) to
 PCIBank did not actually receive nor hold six percent (6%) per annum.
the 2 Ford checks at all. Neither is there any o Article 1172 of the Civil Code of the
proof that defendant PCIBank contributed any Philippines, respondibility arising from negligence
official or conscious participation in the process of in the performance of every kind of obligation is
the embezzlement.  also demandable, but such liability may be
o the switching operation (involving regulated by the courts, according to the
the checks while in transit for "clearing") were circumstances. In quasi-delicts, the contributory
the clandestine or hidden actuations performed negligence of the plaintiff shall reduce the
by the members of the syndicate in their own damages that he may recover.
personl, covert and private capacity and done
without the knowledge of the defendant
PCIBank…
 clearing stamps at the back of Citibank
Check do not bear any initials
o Citibank failed to notice and verify
the absence of the clearing stamps
o 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 fact that the drawee bank did not
discover the irregularity seasonably, in our view,
consitutes negligence in carrying out the bank's
duty to its depositors. 
 invoking the doctrine of comparative
negligence, 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 
o hold them equally liable for the loss
of the proceeds of the checks issued by Ford in
favor of the CIR
 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.
o Our laws on the matter provide
that the action upon a written contract must be
brought within ten year 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 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, 1984, 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.

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