PHILIPPINE COMMERCIAL INTERNATIONAL BANK vs.

COURT OF APPEALS

G.R. No. 121413, January 29, 2001

FACTS:

Ford Philippines issued three Citibank checks payable to the Commission on

International Revenue for its quarterly tax percentage, amounting to P4,
746,114.41, P5, 851,706.37 and P6, 311,591.73. These checks, which were "crossed
checks" and contain two diagonal lines on its upper corner and with written words
"payable to the payee's account only, "were deposited with the Insular Bank of Asia and
America (now PCI Bank). The checks were cleared but the proceeds thereof never
reached the payee, CIR. It appeared that the funds were embezzled by an alleged
organized syndicate represented by PCI Bank, Ford and CIR employees. Ford
filed an action to recover an amount with the drawee bank, Citibank, and the collecting
bank, PCI Bank.

ISSUE:

Whether or not Ford has the right to recover from the collecting bank (PCI Bank) and the
drawee bank (Citibank) the value of the checks intended as payment to the Commissioner
of Internal Revenue.

RULING:

Yes. As to the unlawful negotiation of the check the applicable law is Section 55 of the
Negotiable Instruments Law (NIL). It appears that although the employees of Ford
initiated the transactions attributable to an organized syndicate, their actions were not
the proximate cause of encashing the checks payable to the CIR. The collecting bank's
(PCI Bank) negligence is the proximate cause of the loss. The crossing of the check with
the phrase "Payee's Account Only," is a warning that the check should be deposited only in
the account of the CIR. Thus, it is the duty of the collecting bank PCI Bank to ascertain
that the check be deposited in payee's account only. Therefore, it is the collecting bank
(PCI Bank) which is bound to scrutinize the check and to know its depositors before it
could make the clearing indorsement "all prior indorsements and/or lack of indorsement
guaranteed". And the bank is liable for the fraudulent acts or representations of its
officers who apparently performed their activities using facilities in their official capacity
or authority but for their personal and private gain or benefit. Citibank as drawee bank
was likewise negligent in the performance of its duties.

Citibank failed to establish that its payment of Ford's checks were made in due course and
legally in order. Section 62 of the Negotiable Instruments Law provides that by accepting
the instrument, the acceptor which is Citibank engages that it will pay according to the
tenor of its acceptance, and that it will pay only to the payee, (the CIR), considering the
fact that here the check was crossed with annotation "Payees Account Only." Thus,
invoking the doctrine of comparative negligence, both PCI Bank and Citibank failed in
their respective obligations and both were negligent in the selection and supervision of
their employees resulting in the encashment of the Citibank checks. Thus, they are
equally liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR.