PCIB v. CAG.R. No. 121413January 29, 2001Secs. 55 and 56: Holder in Good Faith

FACTS: This case involves defendant Ford who drew and issued a citibank check in the amount of 4,746,114.41 in favor of the Commission of Internal Revenue as payment of their percentage or manufacturer’s sales taxes for the third quarter of 1977. The checks were then deposited to IBAA (now PCI Bank) and were subsequently cleared at the Central Bank. Upon presentment with Citibank, the proceeds of the check were paid to IBAA as collecting bank. However, the proceeds of the check were never paid to CIR. The plaintiff was prompted by the CIR to make a second payment of its manufacturer’s sales taxes for 1977. Ford together with the check and the Revenue Tax Receipt was deposited with defendant IBAA and later accepted the check and sent to the Central Clearing House. After presentment of the check for payment to Citibank, the latter paid for the face value and was debited to defendant’s account with Citibank. Plaintiff then discovered that the amount was not paid to CIR which prompted Ford to notify the latter that in case it will be re-assessed by the BIR for payment of the taxes covered by the said checks, plaintiff shall hold the defendants liable for reimbursement for the value of the check. Both IBAA and Citibank denied liability and refused to pay—even after BIR notified the parties. IBAA was then merged with PCIBank. Upon investigation of the NBI, Godofredo Rivera, the General Ledger Accountant of Ford recalled the check since there was an error with the computation. With Rivera’s instruction, PCIBank replaced the check with two of its own Manager’s check. Subsequently, alleged members of a syndicate later deposited the two MCs with Pacific Banking Corporation. Ford then filed a third-part complaint before the trial court imploding Pacific Banking Corporation and Godofredo Rivera. The RTC favored Ford and asked Citibank and PCIBank liable. Upon appeal, CA modified the judgment making IBAA solely liable. Hence, this petition

The same syndicate apparently embezzled the proceeds of the check to settle Ford’s percentage taxes for 1978-1979. The RTC rendered Citibank liable to reimburse Ford at total of 12,163,298.10 PHP.

ISSUE: Whether or not petitioner Ford the right to recover from the collecting bank (PCIBank) the drawee bank the value of the checks intended as payment to the Commission of Internal Revenue or is he already prescribed.

HELD: Yes, Ford can recover from PCIBank along with Citibank. The checks were drawn against the drawee bank but the title of the person negotiating the same was allegedly defective because the instrument was obtained by fraud and unlawful means, and the proceeds of the checks were not remitted to the payee.  It was established that instead paying the Commissioner, the checks were diverted and encashed for the eventual distribution among members of the syndicate. Pursuant to this, it is vital to show that  the  negotiation  is  made  by  the perpetrator in breach of faith amounting to fraud.  The person negotiating the checks must have gone beyond the authority given by his

principal.  If the principal could prove that there was no negligence in the performance of  his  duties,  he  may  set  up  the  personal  defense  to  escape  liability  and recover from other parties who, through their own negligence, allowed the commission of the crime. It  should  be  resolved  if  Ford  is  guilty  of  the  imputed  contributory negligence that would defeat its claim for reimbursement, bearing in mind that its employees were among the members of the syndicate.  It appears although  the  employees  of  Ford  initiated  the  transactions  attributable  to the  organized  syndicate,  their  actions  were  not  the  proximate  cause  of encashing  the  checks  payable  to  CIR.    The  degree  of  Ford’s  negligence couldn’t  be  characterized  as  the proximate  cause  of  the  injury  to  parties.    The  mere  fact  that  the  forgery  was  committed  by  a  drawer-payor’s 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, doesn’t entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer.