Philippine Commercial International Bank v CA, allegedly an error in the computation of the tax to be paid.
PCIB, as instructed by Rivera,
GR 121413, January 29, 2001
Doctrine:
A bank is liable for the negligent or tortuous act of its employees within the course and
apparent scope of their employment or authority. It a bank would be liable for the
fraudulent act of its employee who set up the savings account under a fictitious name.
Facts:
These are three cases consolidated: 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).
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 Ford’s
tax payment for the third quarter of 1977. On the face of the check was written
“Payee’s account only” which means that the check cannot be encashed and can
only be deposited with the CIR’s 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 Ford’s accountant Godofredo
Rivera, when the check was deposited with PCIB, recalled the check since there was
replaced the check with two of its manager’s checks.
It was further discovered that Rivera was actually a member of a syndicate and the
manager’s 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.
On 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 “Payee’s account only” or for the CIR’s 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 is the liability of PCIB, Citibank, and Ford if any.
Decision:
PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has liability of PCIB and Citibank hence the rate of interest, with which PCIB and Citibank is

been negligent in verifying the authority of Rivera to negotiate the check. It failed to to pay Ford, is lowered from 12% to 6% per annum.

ascertain whether or not Rivera can validly recall the check and have them be

replaced with PCIB’s manager’s checks as in fact, Ford has no knowledge and did not Bangko Sentral v. Hon, Valenzuela,

authorize such. A bank (in this case PCIB) which cashes a check drawn upon another
GR No. 184778, October 2, 2009.
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
“Close Now, Hear Later” Doctrine:
the drawee when the proceeds of the checks were afterwards diverted to the hands of
the closure of bank may be considered as an exercise of police power. The action of
a third party. Hence, PCIB is liable for the amount of the embezzled check.
MB on this matter is final and executory, but may be subject to judicial inquiry and can
Citibank is likewise liable because it was negligent in the performance of its obligations be set aside if found to be in excess of jurisdiction or w grave abuse of discretion
with respect to its agreement with Ford. The checks which were drawn against Ford’s amounting to lack or excess of jurisdiction.
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 Facts:
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 The Supervision and Examination Dept. (SED) of BSP conducted examinations of the

Citibank, as an acceptor of the checks, to engage in paying the checks according to books of respondent banks. Deficiencies were discovered during examinations. These

the tenor of the acceptance which is to deliver the payment to the “payee’s account banks were then required undertake the remedial measures stated in the List of

only”. Findings/Exceptions, including the infusion of additional capital.

But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are
The banks claimed they made the necessary capital infusion, but Petitioner Chuchi
not the only negligent parties. Ford is also negligent for failing to examine its passbook in
Fonacier (OIC of SED) sent separate letter to the BOD of each bank, informing them that
a timely manner which could have avoided further loss. But this negligence is not the
the banks failed to carry out the required remedial measures and requested that they
proximate cause of the loss but is merely contributory. Nevertheless, this mitigates the
be given time to obtain BSP approval to amend their Articles of Incorporation, to seek

new investors, and that the basis for the capital infusion be disclosed. Respondent banks have failed to show that they are entitled to copies of the ROEs. No

provision of law, nor a section in the procedures of the BSP shows that BSP is required to
They also noted that none of them had received the Report of Examination (ROE) which give them copies of the ROEs.
finalizes the audit findings. Thus, Respondent banks filed a complaint for nullification of

ROE against petitioners, w TRO and WPI (Writ of Preliminary Injunction) enjoining BSP from Sec. 28 of the New Central Bank Act, which governs the examinations of banking
submitting the ROE to the Monetary Board (MB) contending that the failure to furnish the institutions, provides that the ROE shall be submitted to the MB; the bank examined is not
bank w the ROE violated their right to due process.
mentioned as recipient of the ROE.

RTC, ruled in favour of the banks. It had been the practice of SED to provide ROEs to the
The contents of the ROEs are essentially the same as those of the List of
banks before submission to MB. As banks are subject of examinations, they are entitled
Findings/Exceptions provided to said banks, wc were furnished to the them, hence they
to copies of the ROEs. The denial by petitioners of the banks’ requests for copies of ROEs
cannot claim that their right to due process was violated. The ROEs would be
was held to be a denial of the banks’ right to due process.
superfluities.

Issue
The issuance by RTC of WPI is an unwarranted interference w the powers of MB. The

W/N Injunction issued by RTC violated Sec. 25 of New Central Bank Act and effectively actions of MB under Sec. 29 and 30 of New Central Bank Act “may not be restrained or

handcuffed the BSP from discharging its functions to the great and irreparable damage set aside by the court except on petition of certiorari on the ground that the action

of the country’s banking system [YES] taken was in excess of jurisdiction or w such grave abuse of discretion as to amount to

lack or excess of jurisdiction.”

W/N Respondent banks are entitled to be furnished copies of the respective ROEs

before the same is submitted to MB [NO] As to the 3rd requirement, the serious damage contemplated by RTC is the sanction of

closure of the banks. Under the law, the sanction of closure could be imposed upon a
Decision:
bank by BSP even w/o notice and hearing, to prevent unwarranted dissipation of bank’s foreclosure shall have the right to enter upon and take possession of such property

assets and valid exercise of police power to protect the stakeholders of the banks. immediately after the date of the confirmation of the auction sale and administer the

“Close Now, Hear Later” Doctrine: the closure of bank may be considered as an same in accordance with law. Any petition in court to enjoin or restrain the conduct of

exercise of police power. The action of MB on this matter is final and executory, but may foreclosure proceedings instituted pursuant to this provision shall be given due course

be subject to judicial inquiry and can be set aside if found to be in excess of jurisdiction only upon the filing by the petitioner of a bond in an amount fixed by the court

or w grave abuse of discretion amounting to lack or excess of jurisdiction. conditioned that he will pay all the damages which the bank may suffer by the

The issuance of WPI would violate this doctrine. enjoining or the restraint of the foreclosure proceeding.

Facts:

Spouses Rodolfo and Marcelina Guevarra v. The Commoner Lending Corp.,

On December 16, 1996, Sps. Guevarra obtained a 320,000.00 loan from TCLC, which

G.R. No. 204672. February 18, 2015.] was secured by a real estate mortgage over a 5,532- square meter parcel of land

situated in Guimbal, Iloilo, covered by Original Certificate of Title (OCT) No. F-31900

Doctrine: (subject property), emanating from a free patent granted to Sps. Guevarra on February

25, 1986.
SEC. 47. Foreclosure of Real Estate Mortgage.- In the event of foreclosure, whether

judicially or extra-judicially, of any [mortgage] on real estate which is security for any Sps. Guevarra, however, defaulted in the payment of their loan, prompting TCLC to

loan or other credit accommodation granted, the mortgagor or debtor whose real extra-judicially foreclose the mortgage on the subject property in accordance with Act

property [had] been sold for the full or partial payment of his obligation shall have the No. 3135, as amended. In the process, TCLC emerged as the highest bidder at the

right within one year after the sale of the real estate, to redeem the property by paying public auction sale held on June 15, 2000 for the bid amount of 150,000.00, and on

the amount due under the mortgage deed, with interest thereon at the rate specified in August 25, 2000, the certificate of sale was registered with the Registry of Deeds of Iloilo.

the mortgage, and all the costs and expenses incurred by the bank or institution from

the sale and custody of said property less the income derived therefrom. However, the Eventually, Sps. Guevarra failed to redeem the subject property within the one-year

purchaser at the auction sale concerned whether in a judicial or extrajudicial reglementary period, which led to the cancellation of OCT No. F-31900 and the
issuance of Transfer Certificate of Title No. T-1618 in the name of TCLC. Thereafter, TCLC
demanded that Sps. Guevarra vacate the property, but to no avail.
RTC recognized Sps. Guevarra's right to repurchase the subject property, pointing out
that they were able to file their petition within the five-year period provided under
Section 119 of Commonwealth Act No. 141, otherwise known as the Public Land Act
(Public Land Act).
CA affirm.
Issue:
W/N repurchase price for the subject property should be fixed by TCLC.
Decision:
Sec. 30 of Rule 39 of the RoC, the petitioners should reimburse the private respondent
the amount of the purchase price at the public auction plus interest at the rate of one
per centum per month up to November 17, 1983, together with the amounts of
assessments and taxes on the property that the private respondent might have paid
after purchase and interest on the last named amount at the same rate as that on the
purchase price.
The Court has, however, ruled that redemptions from lending or credit institutions, like
TCLC, are governed by Section 78 of the General Banking Act (now Section 47 of the
General Banking Law of 2000), which amended Section 6 of Act No. 3135 in relation to
the proper redemption price when the mortgagee is a bank, or a banking or credit
institution. The Court cannot subscribe to TCLC's contention that it is entitled to its total
claims under the promissory note and the mortgage contract in view of the settled rule
that an action to foreclose must be limited to the amount mentioned in the mortgage.
Hence, amounts not stated therein must be excluded, like the penalty charges of three
percent (3%) per month included in TCLC's claim. A penalty charge is likened to a
compensation for damages in case of breach of the obligation. Being penal in nature, it
must be specific and fixed by the contracting parties.
Moreover, the Court notes that the stipulated three percent (3%) monthly interest is
excessive and unconscionable. In a plethora of cases, the Court has affirmed that
stipulated interest rates of three percent (3%) per month and higher are excessive,
iniquitous, unconscionable, and exorbitant, hence, illegal and void for being contrary to
morals.