PCIB vs.

Court of Appeals
G.R. No. 121413 January 29, 2001
Quisumbing, J.:
FACTS: This case is composed of three consolidated petitions involving
several checks, payable to the Bureau of Internal Revenue, but was
embezzled allegedly by an organized syndicate.
I. G. R. Nos. 121413 and 121479
On October 19, 1977, plaintiff Ford issued a Citibank check
amounting to P4,746,114.41 in favor of the Commissioner of Internal
Revenue for the payment of manufacturers taxes. The check was
deposited with defendant IBAA (now PCIB), subsequently cleared the the
Central Bank, and paid by Citibank to IBAA. The proceeds never reached
BIR, so plaintiff was compelled to make a second payment. Defendant
refused to reimburse plaintiff, and so the latter filed a complaint. An
investigation revealed that the check was recalled by Godofredo Rivera,
the general ledger accountant of Ford, and was replaced by a managers
check. Alleged members of a syndicate deposited the two managers
checks with Pacific Banking Corporation. Ford filed a third party complaint
against Rivera and PBC. The case against PBC was dismissed. The case
against Rivera was likewise dismissed because summons could not be
served. The trial court held Citibank and PCIB jointly and severally liable to
Ford, but the Court of Appeals only held PCIB liable.
II. G. R. No. 128604
Ford drew two checks in favor of the Commissioner of Internal
Revenue, amounting to P5,851,706.37 and P6,311,591.73. Both are
crossed checks payable to payees account only. The checks never
reached BIR, so plaintiff was compelled to make second payments.
Plaintiff instituted an action for recovery against PCIB and Citibank.
On investigation of NBI, the modus operandi was discovered.
Gorofredo Rivera made the checks but instead of delivering them to BIR,
passed it to Castro, who was the manager of PCIB San Andres. Castro
opened a checking account in the name of a fictitious person Reynaldo
Reyes. Castro deposited a worthless Bank of America check with the
same amount as that issued by Ford. While being routed to the Central
Bank for clearing, the worthless check was replaced by the genuine one
from Ford.
The trial court absolved PCIB and held Citibank liable, which decision
was affirmed in toto by the Court of Appeals.
ISSUES:
(1) Whether there is contributory negligence on the part of Ford
(2) 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:
(1) The general rule is that if the master is injured by the negligence of a
third person and by the concurring contributory negligence of his own
servant or agent, the latter's negligence is imputed to his superior and will
defeat the superior's action against the third person, assuming, of course
that the contributory negligence was the proximate cause of the injury
of which complaint is made. As defined, proximate cause is that which, in
the natural and continuous sequence, unbroken by any efficient,
intervening cause produces the injury and without the result would not
have occurred. It appears that although the employees of Ford initiated
the transactions attributable to an organized syndicate, in our view, their
actions were not the proximate cause of encashing the checks payable to
the CIR. The degree of Ford's negligence, if any, could not be
characterized as the proximate cause of the injury to the 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
perpertrating the fraud and imposing the forged paper upon the bank,
does notentitle the bank toshift 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.
(2) We have to scrutinize, separately, PCIBank's share of negligence when
the syndicate achieved its ultimate agenda of stealing the proceeds of
these checks.
a. G. R. Nos. 121413 and 121479.
On record, PCIBank failed to verify the authority of Mr. Rivera to
negotiate the checks. The neglect of PCIBank employees to verify whether
his letter requesting for the replacement of the Citibank Check No. SN04867 was duly authorized, showed lack of care and prudence required in
the circumstances. Furthermore, it was admitted that PCIBank is
authorized to collect the payment of taxpayers in behalf of the BIR. As an
agent of BIR, PCIBank is duty bound to consult its principal regarding the
unwarranted instructions given by the payor or its agent. It is a wellsettled rule that the relationship between the payee or holder of
commercial paper and the bank to which it is sent for collection is, in the
absence of an argreement to the contrary, that of principal and agent. A
bank which receives such paper for collection is the agent of the payee or
holder.
Indeed, 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 PCIBank to ascertain
that the check be deposited in payee's account only. Therefore, it is the
collecting bank (PCIBank) 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".
Lastly, banking business requires that the one who first cashes and
negotiates the check must take some precautions to learn whether or not
it is genuine. And if the one cashing the check through indifference or

other circumstance assists the forger in committing the fraud, he should

not be permitted to retain the proceeds of the check from the drawee
whose sole fault was that it did not discover the forgery or the defect in
the title of the person negotiating the instrument before paying the check.
For this reason, a bank which cashes a check drawn upon another bank,
without requiring proof as to the identity of persons presenting it, or
making inquiries with regard to them, cannot hold the proceeds against
the drawee when the proceeds of the checks were afterwards diverted to
the hands of a third party. In such cases the drawee bank has a right to
believe that the cashing bank (or the collecting bank) had, by the usual
proper investigation, satisfied itself of the authenticity of the negotiation
of the checks. Thus, one who encashed a check which had been forged or
diverted and in turn received payment thereon from the drawee, is guilty
of negligence which proximately contributed to the success of the fraud
practiced on the drawee bank. The latter may recover from the holder the
money paid on the check.
b. G. R. No. 128604
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. But in this case, responsibility for negligence
does not lie on PCIBank's shoulders alone.
Citibank failed to notice and verify the absence of the clearing
stamps. 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 point is that as a
business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. Thus, invoking the doctrine of comparative
negligence, we are of the view that 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 of Citibank
Check Nos. SN 10597 AND 16508. Thus, we are constrained to hold them
equally liable for the loss of the proceeds of said checks issued by Ford in
favor of the CIR.
People vs. Maniego
GR L-30910, 27 February 1987First Division, Narvasa (J)
Facts:
Julia Maniego was an indorser of several checks drawn by her sister, Milagros Pamintuan,
which were dishonored after they had been exchange with cash belonging to the

Government, then in the official custody of Lt. Rizalino Ubay. Ubay, Pamintuan and
Maniego were indicted for the crime of malversation. Ubay and Maniego were arraigned,
while Pamintuan fled to the United States. Ubay was found guilty while Maniegowas
acquitted. Both, however, were ordered to pay in solidum the amount of P57,434.50 to
the government. Maniego appealed.
Issue:
Whether Maniego is liable even if she is a mere indorser.
Held:
Under the law, the holder or last indorsee of a negotiable instrument has the right to
enforce payment of the instrument for the full amount thereof against all parties liable
thereon. Among the parties liable thereon is an indorser of the instrument. Such an
indorser who indorses without qualification, inter alia, engaged that on due
presentment, the instrument shall be accepted or paid, or both, according to its
tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any subsequent indorser
who may be compelled to pay it. Maniego may also be deemed an
accommodation party in the light of the facts (i.e. without receiving value
for the same). As such, she isliable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrumentknew her to be only an
accommodation party, although she has the right, after paying the holder, to obtain
reimbursement from the party accommodated.

Palmares vs. CA
(288 SCRA 422)
Facts:
Private respondent M.B. Lending Corporation extended a loan to the spouses Osmea
and Merlyn Azarraga, together with petitioner Estrella Palmares, in the amount of
P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of
6% per annum to be computed every 30days from the date thereof. 1 On four occasions
after the execution of the promissory note and even after the loan matured, petitioner
and the Azarraga spouses were able to pay a total of P16,300.00, thereby leaving a
balance of P13,700.00. No payments were made after the last payment on September
26, 1991. 2Consequently, on the basis of petitioner's solidary liability under
the promissory note, respondent corporation filed a complaint 3 against petitioner
Palmares as the lone party-defendant, to the exclusion of the principal debtors, allegedly
by reason of the insolvency of the latter.
Issue: WON Palmares is liable
Held:
If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Chapter3, Title I of this Book shall be observed. In such case the contract is called a
suretyship. It is a cardinal rule in the interpretation of contracts that if the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulation shall control. 13 In the case at bar, petitioner expressly
bound herself to be jointly and severally or solidarily liable with the principal maker of the
note. The terms of the contract are clear, explicit and unequivocal that petitioner's
liability is that of a surety.
Philippine Export and Foreign Loan Guarantee Corporation v V.P. Eusebio
Construction Inc.
Facts:

1. The State Organization of Buildings (SOB), Ministry of Housing and Construction,

Baghdad, Iraq awarded the construction of the Institute of Physical Therapy-Medical
Rehabilitation Center in Iraq to Ayjal Trading and Contracting Company for a total
contract price of about $18M.
2. Spouses Santos, in behalf of 3-Plex International, Inc., a local contractor engaged in
construction business, entered into a joint venture agreement with Ayjal wherein the
former undertook the execution of the entire a project, while the latter would be entitled
to a commission of 4%.
3. 3-Plex not accredited by the Philippine Overseas Construction Board (POCB) assigned
and transferred all its rights and interests to VPECI.
4. The SOB required the contractors to submit a performance bond representing 5% of
the total contract price, an advance payment bond representing 10% of the advance
payment to be released upon signing of the contract. To comply with these requirements
3-Plex and VPECI applied for a guarantee with Philguarantee, a government financial
institution empowered to issue guarantees for qualified Filipino contractors.
5. But what SOB required was a guarantee from the Rafidain Bank of Baghdad so Rafidain
Bank issued a performance bond in favor of SOB on the condition that another foreign
bank (not Phil Guarantee) would issue the counter-guarantee. Hence, Al Ahli Bank of
Kuwait was chosen to provide the counter guarantee.
[Link], SOB and the joint venture of VPECI and Ayjal executed the service contract.
Under the contract, the joint venture would supply manpower and materials, SOB would
refund 25% of the project cost in Iraqi Dinar and 75% in US dollars at an exchange rate of
1 Dinar to $3.37.
[Link] project was not completed. Upon seeing the impossibility of meeting the deadline,
the joint venture worked for the renewal or extension (12x) of the performance bond up
to December 1986.
8. In October 1986, Al Ahli Bank sent a telex call demanding full payment of its
performance bond counter-guarantee. Upon receipt, VPECI requested Iraq Trade and
Economic Development Minister Fadhi Hussein to recall the telex for being in
contravention of its mutual agreement that the penalty will be held in abeyance until
completion of the project. It also wrote SOB protesting the telex since the Iraqi
government lacks foreign exchange to pay VPECI and the non-compliance with the 75%
billings in US dollars.
9. Philguarantee received another telex from Al Ahli stating that it already paid to
Rafidain Bank. The Central Bank authorized the remittance to Al Ahli Bank representing
the full payment of the performance counter-guarantee for VPECI's project in Iraq.
10. Philguarantee sent letters to respondents demanding the full payment of the surety
bond. Respondents failed to pay so petitioner filed a civil case for collection of sum of
money.
11. Trial Court ruling: Dismissed. Philguarantee had no valid cause of action against the
respondents. The joint venture incurred no delay in the execution of the project
considering that SOB's violations of the contract rendered impossible the performance of
its undertaking.
12. CA: Affirmed.
Issue:
What law should be applied in determining whether or not contractor (joint venture) has
defaulted?

Held:
The question of whether there is a breach of the agreement which includes default
pertains to the INTRINSIC validity of the contract.
No conflicts rule on essential validity of contracts is expressly provided for in our laws.
The rule followed by most legal systems is that the intrinsic validity of a contract must be
governed by lex contractus (proper law of the contract). This may be the law voluntarily
agreed upon by the parties (lex loci voluntatis) or the law intended by them either
expressly or implicitly (lex loci intentionis). The law selected may be implied from factors
such as substantial connection with the transaction, or the nationality or domicile of the
parties. Philippine courts adopt this: to allow the parties to select the law applicable to
their contract, SUBJECT to the limitation that it is not against the law, morals, public
policy of the forum and that the chosen law must bear a substantive relationship to the
transaction.
In the case, the service contract between SOB and VPECI contains no express choice of
law. The laws of Iraq bear substantial connection to the transaction and one of the parties
is the Iraqi government. The place of performance is also in Iraq. Hence, the issue of
whether VPECI defaulted may be determined by the laws of Iraq.
BUT! Since foreign law was not properly pleaded or proved, processual presumption will
apply.
According to Art 1169 of the Civil Code: In reciprocal obligations, neither party incurs in
delay if the other party does not comply or is not ready to comply in a proper manner
what is incumbent upon him.
As found by the lower courts: the delay or non-completion of the project was caused by
factors not imputable to the Joint Venture, it was rather due to the persistent violations of
SOB, particularly it's failure to pay 75% of the accomplished work in US dollars. Hence,
the joint venture does not incur in delay if the other party(SOB) fails to perform the
obligation incumbent upon him.
Evalengista vs Mercator
Facts: The spouses Evangelista filed a complaint for annulment of titles against the
respondents, claiming to be the registered owners of five (5) parcels of land contained in
the real estate mortgage executed by them and Embassy Farms Inc. in favor of Mercator
Financing Corporation (Mercator). The mortgage was in consideration of certain loans
and credit accommodations amounting to P844, 625.78.
The spouses alleged the following: (1) that they executed the said real estate mortgage
merely as officers of Embassy Farms; (2) that they did not receive the proceeds of the
loan evidenced by the promissory note, as all went to Embassy Farms; (3) that the real
estate mortgage is void due to absence of a principal obligation on which it rests; (4) that
since the real estate mortgage is void, the foreclosure proceedings, the subsequent sale
as well as the issuance of transfer certificates of title are likewise void. Petitioners further
alleged ambiguity in the wording of the promissory note, which should be resolved
against Mercator who provided the form thereof.
Mercator admitted that petitioners were the owners of the subject parcels of land. It,
however, contended that the spouses executed a Mortgage in favor of Mercator Finance
Corporation for and in consideration of certain loans, and/or other forms of credit
accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation)
amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE &
78/100 (P844,625.78) and to secure the payment of the same and those others that the
MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x. It contended that since

petitioners and Embassy Farms signed the promissory note as co-makers (the note being
worded as For value received, I/We jointly and severally promise to pay to the order of
Mercator), aside from the Continuing Suretyship Agreement subsequently executed to
guarantee the indebtedness, the petitioners are jointly and severally liable with Embassy
Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of
the mortgaged properties are thus valid. Respondents Salazar and Lamecs asserted that
they are innocent purchasers for value and in good faith.
Issue: May the spouses be held solidarily liable with Embassy Farms?
Held: YES. Courts can interpret a contract only if there is doubt in its letter. But, an
examination of the promissory note shows no such ambiguity. Besides, assuming
arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law
states, viz:
SECTION 17. Construction where instrument is ambiguous. Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of
construction apply: (g) Where an instrument containing the word I promise to pay is
signed by two or more persons, they are deemed to be jointly and severally liable
thereon.
Petitioners also insist that the promissory note does not convey their true intent in
executing the document. The defense is unavailing. Even if petitioners intended to sign
the note merely as officers of Embassy Farms, still this does not erase the fact that they
subsequently executed a continuing suretyship agreement. A surety is one who is
solidarily liable with the principal. Petitioners cannot claim that they did not personally
receive any consideration for the contract for well-entrenched is the rule that the
consideration necessary to support a surety obligation need not pass directly to the
surety, a consideration moving to the principal alone being sufficient. A surety is bound
by the same consideration that makes the contract effective between the principal
parties thereto. Having executed the suretyship agreement, there can be no dispute on
the personal liability of petitioners.

Rizal Commercial Banking Corporation, petitioner, vs. Hon. Jose P. Arro, Judge
of the Court of First Instance of Davao,and Residoro Chua, respondents.
Date:31 July 1982 Ponente:De Castro,J
Facts:
Private respondent Residoro Chua, with Enrique Go, Sr., executed a comprehensive
surety agreement to guaranty, above all, any existing or future indebtedness of Davao
Agricultural Industries Corporation (Daicor), and/or induce the bank at anytime or from
time to time to make loans or advances or to extend credit to said Daicor, provided that
the liability shall not exceed ay any time Php100,000.00.A promissory note for

Php100,000.00 (for additional capital to the charcoal buy and sell and the activated
carbon importation business) was issued in favor of petitioner RCBC payable a month
after execution. This was signed by Go in his personal capacity and in behalf of Daicor.
Respondent Chua did not sign in said promissory note. As the note was not paid despite
demands, RCBC filed a complaint for a sum of money against Daicor, Go and Chua. The
complaint against Chua was dismissed upon his motion, alleging that the complaint
states no cause of action against him as he was not a signatory to the note and hence he
cannot be held liable. This was s
o despite RCBCs
opposition, invoking the comprehensive surety agreement which it holds to cover not just
the note in question but also every other indebtedness that Daicor may incur from
petitioner bank. RCBC moved for reconsideration of the dismissal but to no avail. Hence,
this petition.
Issue:
WON respondent Chua may be held liable with Go and Daicor under the promissory note,
even if he was not a signatory to it, in light of the provisions of thecomprehensive surety
agreement wherein he bound himself with Go and Daicor, as solidary debtors, to pay
existing and future debts of said corporation.
Held:
Yes, he may be held liable. Order dismissing the complaint against respondent Chua
reversed and set aside. Case remanded to court of origin with instruction to set aside
motion to dismiss and to require defendant Chua to answer the complaint.
Ratio:
The comprehensive surety agreement executed by Chua and Go, as president and
general manager, respectively, of Daicor, was to cover existing as well as future
obligations which Daicor may incur with RCBC. This was only subject to the proviso that
their liability shall not exceed at any one time the aggregate principal amount of
Php100,000.00. (Par.1of said agreement).
The agreement was executed to induce petitioner Bank to grant any application for a
loan Daicor would request for. According to said agreement, the guaranty is continuing
and shall remain in full force or effect until the bank is notified of its termination. During
the time the loan under the promissory note was incurred, the agreement was still in full
force and effect and is thus covered by the latter agreement. Thus, even if Chua did not
sign the promissory note, he is still liable by virtue of the surety agreement. The only
condition necessary for him to be
liable under the agreement was that Daicor is or may become liable as maker, endorser,
acceptor or otherwise.
The comprehensive surety agreement signed by Go and Chua was as an
accessoryobligation dependent upon theprincipal obligation, i.e., the loan obtained by
Daicor as evidenced by the promissory note. The surety agreement unequivocally shows
that it was executed to guarantee future debts that may be incurred by Daicor with
petitioner, as allowed under NCC Art.2053.
A guaranty may also be given as security for future debts, the amount of which is not
yet known; there can be no claim
against the guarantor until the debt is liquidated. A conditional obligation may also be
secured.