Negotiable Instruments Digest: PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA) V. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA) V. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A.           

[G.R. No. 121413. January 29, 2001] (350 SCRA 446)

FACTS:

These consolidated petitions arose from the action filed by BIR against Citibank and PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508. Said checks, both crossed checks were alleged to have been negotiated fraudulently by an organized syndicate between and among two employees of Ford (General Ledger Accountant and his assistant), and PCIBank officers.

It was established that instead of paying the crossed checks, containing two diagonal lines on its upper left corner between which were written the words payable to the payees account only, to the CIR for the settlement of the appropriate quarterly percentage taxes of Ford, the checks were diverted and encashed for the eventual distribution among the members of the syndicate.  Citibank Check No. SN-10597 amounted to P5,851,706.37, while Citibank Check No. SN-16508 amounted to P6,311,591.73.

It was found that the pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check Numbers SN 10597 and 16508. He passed the checks to a co-conspirator, an Assistant Manager of PCIBanks Meralco Branch, who helped Castro open a Checking account of a fictitious person named Reynaldo Reyes. Castro deposited a worthless Bank of America Check in exactly the same amount of Ford checks. The syndicate tampered with the checks and succeeded in replacing the worthless checks and the eventual encashment of Citibank Check Nos. SN 10597 and 16508. The PCIBank Pro-manager, Castro, and his co-conspirator Assistant Manager apparently performed their activities using facilities in their official capacity or authority but for their personal and private gain or benefit.

The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary course of business that would attribute to it the case of the embezzlement of Citibank Check Numbers SN-10597 and 16508, because PCIBank did not actually receive nor hold the two Ford checks at all. Neither is there any proof that defendant PCIBank contributed any official or conscious participation in the process of the embezzlement. The Court is convinced that the switching operation (involving the checks while in transit for clearing) were the clandestine or hidden actuations performed by the members of the syndicate in their own personal, covert and private capacity and done without the knowledge of the defendant PCIBank.

The evidence on record shows that Citibank as drawee bank was likewise negligent in the performance of its duties. Citibank failed to establish that its payment of Fords checks were made in due course and legally in order. It likewise 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.

ISSUE:

Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank) the value of the checks intended as payment to the Commissioner of Internal Revenue? 

HELD:

YES. The mere fact that the forgery was committed by a drawer-payors confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does NOT entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer. This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession.

 In this case, there was no evidence presented confirming the conscious participation of PCIBank in the embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment. It may be liable for the tortuous acts of its officers even as regards that species of tort of which malice is an essential element. In this case, we find a situation where the PCIBank appears also to be the victim of the scheme hatched by a syndicate in which its own management employees had participated.

A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or representations of an officer or agent acting within the course and apparent scope of his employment or authority. And if an officer or employee of a bank, in his official capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for collection, the bank is liable for his misappropriation of such sum.

Citibank must likewise answer for the damages incurred by Ford on Citibank Checks Numbers SN 10597 and 16508, because of the contractual relationship existing between the two. Citibank, as the drawee bank breached its contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter. 

PCIBank and Citibank are thus liable for and must share the loss, (concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totaling P12,163,298.10) on a fifty-fifty ratio.