B.

Nature of Business

Bank

3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits. (2a)

3.2. Banks shall be classified into:

(a) Universal banks;

(b) Commercial banks;

(c) Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock savings and loan associations,
and (iii) Private development banks, as defined in the Republic Act No. 7906 (hereafter the "Thrift Banks
Act");

(d) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural Banks Act");

(e) Cooperative banks, as defined in Republic Act No 6938 (hereafter the "Cooperative Code");

(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al Amanah
Islamic Investment Bank of the Philippines"; and

(g) Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng
Pilipinas. (6-Aa)

Quasi-Banks

"Sec. 95. Definition of Deposit Substitutes. - The term ‘deposit substitutes’ is defined as an alternative
form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrower’s own account, for the purpose of relending or
purchasing of receivables and other obligations. These instruments may include, but need not be limited
to, bankers acceptances, promissory notes, participations, certificates of assignment and similar
instruments with recourse, and repurchase agreements. The phrase obtaining funds from the public’
shall mean borrowing from twenty (20) or more lenders at any one time, and, for this purpose, Tenders’
shall refer to individuals and corporate entities that are not acting as financial intermediaries, subject to
the safeguards and regulations issued by the Monetary Board. The Monetary Board shall determine
what specific instruments shall be considered as deposit substitutes for the purposes of Section 94 of
this Act: Provided, however, That deposit substitutes of commercial, industrial and other nonfinancial
companies for the limited purpose of financing their own needs or the needs of their agents or dealers
shall not be covered by the provisions of Section 94 of this Act."

One Unit Rule

Section 20. Bank Branches. - Universal or commercial banks may open branches or other offices within
or outside the Philippines upon prior approval of the Bangko Sentral. Branching by all other banks shall
be governed by pertinent laws.

A bank may, subject to prior approval of the Monetary Board, use any or all of its branches as outlets for
the presentation and/or sale of the financial products of its allied undertaking or of its investment house
units. A bank authorized to establish branches or other offices shall be responsible for all business
conducted in such branches and offices to the same extent and in the same manner as though such
business had all been conducted in the head office. A bank and its branches and offices shall be treated
as one unit. (6-B; 27)

PHILIPPINE DEPOSIT INSURANCE CORPORATION vs. CITIBANK, N.A. and BANK OF AMERICA, S.T. &
N.A.,

Facts: PDIC is a government instrumentality created by RA No. 3591 as amended by RA 9302 while
respondent Citibank is a banking corporation and Bank of America is a national banking association. In
1977 and 1979, in an examination conducted by the PDIC, it discovered that both respondents received
funds from their respective head offices and their foreign branches. These funds were covered by
Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity dates and
lodged in their books under the accounts “Their Account-Head Office/Branches-Foreign Currency” and
“Due to Head Office/Branches” respectively. PDIC assessed both banks deficiency of sum. Respondents
filed a petition for declaratory relief before the RTC in which the latter favored reasoning out that the
money placements subject of the petitions were not assessable for insurance purposes under the PDIC
Charter because said placements were deposits made outside of the Philippines and that there was no
depositor-depository relationship between the respondents and their head office or other branches. As
a result, such deposits were not included as third-party deposits that must be insured. Rather, they were
considered inter-branch deposits which were excluded from the assessment base. Aggrieved, PDIC
appealed to the CA which affirmed the ruling of the RTC.

Issue: Whether or not the funds placed in the Philippine branch by the head office and foreign
branchesof Citibank and BA are insurable deposits under the PDIC Charter and, as such, are subject to
assessment for insurance premiums. (NO)

Held: In the case of Citibank and BA, it is apparent that they both did not incorporate a separate
domestic corporation to represent its business interests in the Philippines. Their Philippine branches
are, as the name implies, merely branches, without a separate legal personality from their parent
company, Citibank and BA. Thus, being one and the same entity, the funds placed by the respondents
in their respective branches in the Philippines should not be treated as deposits made by third parties
subject to deposit insurance under the PDIC Charter In addition, Philippine banking laws also support
the conclusion that the head office of a foreign bank and its branches are considered as one legal entity.
Section 75 of R.A. No. 8791 (The General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act
Liberalizing the Entry of Foreign Banks)both require the head office of a foreign bank to guarantee the
prompt payment of all the liabilities of its Philippine branch. Finally, the Court agrees with the CA ruling
that there is nothing in the definition of a “bank” and a “banking institution” in Section 3(b) of the PDIC
Charter which explicitly states that the head office of a foreign bank and its other branches are separate
and distinct from their Philippine branches. Based on the foregoing, it is clear that the head office of a
bank and its branches are considered as one under the eyes of the law. While branches are treated as
separate business units for commercial and financial reporting purposes, in the end, the head office
remains responsible and answerable for the liabilities of its branches which are under its supervision
and control. As such, it is unreasonable for PDIC to require the respondents, Citibank and BA, to insure
the money placements made by their home office and other branches. Deposit insurance is superfluous
and entirely unnecessary when, as in this case, the institution holding the funds and the one which
made the placements are one and the same legal entity.

C. Declaration of policy

Section 2. Declaration Of Policy. - The State recognizes the vital role of banks providing an environment
conducive to the sustained development of the national economy and the fiduciary nature of banking
that requires high standards of integrity and performance. In furtherance thereof, the State shall
promote and maintain a stable and efficient banking and financial system that is globally competitive,
dynamic and responsive to the demands of a developing economy.

D. Requirements to operate

Section 8. Organization. - The Monetary Board may authorize the organization of a bank or quasi-bank
subject to the following conditions:

8.1 That the entity is a stock corporation (7);

8.2 That its funds are obtained from the public, which shall mean twenty (20) or more persons (2-Da);
and

8.3 That the minimum capital requirements prescribed by the Monetary Board for each category of
banks are satisfied. (n)

No new commercial bank shall be established within three (3) years from the effectivity of this Act. In
the exercise of the authority granted herein, the Monetary Board shall take into consideration their
capability in terms of their financial resources and technical expertise and integrity. The bank licensing
process shall incorporate an assessment of the bank's ownership structure, directors and senior
management, its operating plan and internal controls as well as its projected financial condition and
capital base.

Section 9. Issuance of Stocks. - The Monetary Board may prescribe rules and regulations on the types of
stock a bank may issue, including the terms thereof and rights appurtenant thereto to determine
compliance with laws and regulations governing capital and equity structure of banks; Provided, That
banks shall issue par value stocks only.
Section 14. Certificate of Authority to Register. - The Securities and Exchange Commission shall no
register the articles of incorporation of any bank, or any amendment thereto, unless accompanied by a
certificate of authority issued by the Monetary Board, under it seal. Such certificate shall not be issued
unless the Monetary Board is satisfied from the evidence submitted to it:

14.1 That all requirements of existing laws and regulations to engage in the business for which the
applicant is proposed to be incorporated have been complied with;

14.2 That the public interest and economic conditions, both general and local, justify the authorization;
and

14.3 That the amount of capital, the financing, organization, direction and administration, as well as the
integrity and responsibility of the organizers and administrators reasonably assure the safety of deposits
and the public interest. (9)

The Securities and Exchange Commission shall not register the by-laws of any bank, or any amendment
thereto, unless accompanied by a certificate of authority from the Bangko Sentral.

Treasury Shares

Section 10. Treasury Stocks. - No bank shall purchase or acquire shares of its own capital stock or accept
its own shares as a security for a loan, except when authorized by the Monetary Board: Provided, That in
every case the stock so purchased or acquired shall, within six (6) months from the time of its purchase
or acquisition, be sold or disposed of at a public or private sale.

Degree of Care of Bank in view of fiduciary nature of banking

The State recognizes the vital role of banks providing an environment conducive to the sustained
development of the national economy and the fiduciary nature of banking that requires high standards
of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and
efficient banking and financial system that is globally competitive, dynamic and responsive to the
demands of a developing economy.

ALANO vs. PLANTERS DEVT BANK

Facts: Petitioner Armando V. Alano and his brother, the late Agapito V. Alano Jr., inherited from their
father a parcel of land located at Gov. Forbes St., Sampaloc, Manila. The petitioner executed a SPA
authorizing his brother to sell their property in Manila. The brothers then bought a residential house
located at No. 60 Encarnacion St., BF Homes, Quezon City from the proceeds of the sale of their
property. The title of the property was not immediately transferred because a fire gutted the Quezon
City Hall Building. Agapito V. Alano died leaving behind his wife, Lydia J. Alano and four legitimate
children. Consequently, the title to the said property was reconstituted as TCT No. 18990 and registered
solely in the names of Lydia and her four children. This prompted the petitioner to execute an Affidavit
of Adverse Claim. Meanwhile, Lydia filed with the Register of Deeds an Affidavit of Cancellation of
Adverse Claim. Thereafter, by virtue of a Deed of Absolute Sale allegedly executed by her children in her
favor, TCT No. 18990 were cancelled and a new one was issued solely in her name. Later on, Slumber
world, Inc., represented by its President, Melecio A. Javier, and Treasurer, Lydia, obtained from Maunlad
Savings and Loan Association, Inc. a loan of P2.3 million, secured by a Real Estate Mortgage over the
subject property. The petitioner filed a Complaint against Lydia, Melecio A. Javier, Maunlad Savings and
Loan Association, Inc. and the Register of Deeds of Quezon City before the RTC. Petitioner sought the
cancellation of the new TCT, the issuance of a new title in his name for his one-half share of the
property, and the nullification of real estate mortgage insofar as his one-half share is concerned. Lydia
and Melecio A. Javier, however, failed to file their respective Answers. Thus, the RTC declared them in
default. The RTC declared the petitioner the owner of the one-half of the subject property because of
the implied trust between him and the heirs of his brother. At the same time, RTC sustained the validity
of the estate mortgage because of the Torrens title. On appeal, the court found that Maunland Savings
and Loan Association, Inc. to be a mortgagee in good faith for it took the necessary precautions to
ascertain the status of the property sought to be mortgaged.

Issues: Whether the Real Estate Mortgage executed by Respondent valid and binding with respect to
petitioner’s co-owner’s share in the subject property. Whether Respondent Maunlad Savings and Loan
Association, Inc. was a mortgagee in good faith.
Held: The general rule that a mortgagee need not look beyond the title does not apply to banks and
other financial institutions as greater care and due diligence is required of them. Imbued with public
interest, they "are expected to be more cautious than ordinary individuals." Failure to do so makes them
mortgagees in bad faith. In this case, Maunlad Savings and Loan Association, Inc. failed to exercise due
diligence in inspecting and ascertaining the status of the mortgaged property. During the ocular
inspection, the credit investigator failed to ascertain the actual occupants of the property and to
discover the petitioner’s apartment at the back portion of the property. Consequently, the real estate
mortgage executed in its favor is valid only insofar as the share of the mortgagor Lydia in the subject
property. We need not belabor that under Article 493 of the Civil Code; a co-owner can alienate only his
pro indiviso share in the co-owned property, and not the share of his co-owners.

CHINA BANKING vs. LAGON

Facts:

Jao asked for a credit accommodation from petitioner bank to be secured by a parcel of land in the
name of Maria Lago, as authorized by a SPA. Jao obtained more various loans on the same line, all of
which were secured by mortgage over the lots of Maria Lago again allegedly through a SPA. The loans
matured but were unpaid and petitioner bank moved for the extra-judicial foreclosure of the said
properties but were prevented by a TRO of the court. During the pendency of the case, Jao and Maria
Lagon died. The court then rendered a decision in favor of petitioner bank finding that the signatures in
the SPA were authentic. CA reversed the decision and declared the SPA and mortagages null and void.

Issue:

Whether or not petitioner bank exercised due diligence in extending the loan to Jao.

Ruling: NO.

Moreover, petitioner could not be considered a mortgagee in good faith. It had knowledge that
respondent was in the United States at the time the SPAs were allegedly executed, yet, it did not
question their due execution. Though petitioner is not expected to conduct an exhaustive investigation
on the history of the mortgagor’s title, it cannot be excused from the duty of exercising the due
diligence required of a banking institution. Banks are expected to exercise more care and prudence than
private individuals in their dealings, even those that involve registered lands, for their business is
affected with public interest.

Citibank v. Sps. Cabamongan (G.R. No. 146918)

Facts:

Respondent spouses opened a joint foreign currency time deposit in trust for their sons at petitioner’s
Makati branch. Prior to maturity, a person claiming to be Carmelita Cabamongan pre-terminated the
said account upon presenting identification cards. Though not being able to surrender the Original
Certificate of Deposit, the money was released to her despite the release and waiver documents not
being notarized. Respondent spouses learned of the incident and informed petitioner bank that
Carmelita could not have pre-terminated the account since she was in the US at that time. The spouses
made a formal demand of payment of the deposit and consequently, filed a complaint when petitioner
refused to pay. Petitioner bank insists that it was not negligent of its duties since the deposit was
released upon proper identification and verification. RTC ruled in favor of the spouses. CA affirmed.

Issue:

Whether or not petitioner bank was negligent in its duties as to be liable for damages

Ruling: YES.

The Court has repeatedly emphasized that, since the banking business is impressed with public interest,
of paramount importance thereto is the trust and confidence of the public in general. Consequently, the
highest degree of diligence is expected, and high standards of integrity and performance are even
required, of it. By the nature of its functions, a bank is “under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their relationship.”
In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for
pretermination of deposits are forgeries. Citibank, with its signature verification procedure, failed to
detect the forgery. Its negligence consisted in the omission of that degree of diligence required of banks.
The Court has held that a bank is “bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge
the amount so paid to the account of the depositor whose name was forged.” Such principle equally
applies here.

The Court agrees with the observation of the CA that Citibank, thru Account Officer San Pedro, openly
courted disaster when despite noticing discrepancies in the signature and photograph of the person
claiming to be Carmelita and the failure to surrender the original certificate of time deposit, the
pretermination of the account was allowed. Even the waiver document was not notarized, a procedure
meant to protect the bank. For not observing the degree of diligence required of banking institutions,
whose business is impressed with public interest, Citibank is liable for damages.

BPI Family Savings v. First Metro Investment (G.R. No. 132390)

Facts:

Respondent FMIC an investment house, through its EVP Ong, opened a current account amounting
P100M with petitioner’s San Francisco Del Monte branch upon the request of his friend which is a close
acquaintance of said bank’s branch manager with the latter’s aim of increasing the deposit level in his
branch. Petitioner through its SFDM branch manager guaranteed the payment of deposit by the FMIC
with interest on the condition that the interest is to be paid in advance. An agreement was reached
between the parties and subsequently petitioner paid FMIC upon clearance of the latter’s check deposit.
However, on the basis of an Authority to Debit signed by the EVP and Senior Manager of FMIC,
petitioner transferred P80M from FMCI’s current account to the savings account of one Tevesteco, a
stevedoring company. FMIC denied having authorized the transfer of its funds claiming that the
signatures were falsified. In order to recover immediately its deposit, FMCI issued a check payable to
itself and drawn on its deposit but was dishonored upon upon presentation for payment. Thus, FMIC
filed a complaint with the RTC which then ruled in their favor. CA affirmed.

Issue:

Whether petitioner was remiss in its fiduciary duty.

Ruling: YES.

Petitioner maintains that respondent should have first inquired whether the deposit of P100 Million and
the fixing of the interest rate were pursuant to its (petitioner’s) internal procedures. Petitioner’s stance
is a futile attempt to evade an obligation clearly established by the intent of the parties. What transpires
in the corporate board room is entirely an internal matter. Hence, petitioner may not impute negligence
on the part of respondent’s representative in failing to find out the scope of authority of petitioner’s
Branch Manager. Indeed, the public has the right to rely on the trustworthiness of bank managers and
their acts. Obviously, confidence in the banking system, which necessarily includes reliance on bank
managers, is vital in the economic life of our society.

Thus, we uphold the finding of both lower courts that petitioner failed to exercise that degree of
diligence required by the nature of its obligations to its depositors. A bank is under obligation to treat
the accounts of its depositors with meticulous care, whether such account consists only of a few
hundred pesos or of million of pesos. Here, petitioner cannot claim it exercised such a degree of care
required of it and must, therefore, bear the consequence.

Go v. Metrobank G.R. No. 168842 (2010)

Doctrine: A check is a bill of exchange drawn on a bank payable on demand. There are different kinds of
checks. In this case, crossed checks are the subject of the controversy. A crossed check is one where two
parallel lines are drawn across its face or across the corner thereof. It may be crossed generally or
specially.

A check is crossed specially when the name of a particular banker or a company is written between the
parallel lines drawn. It is crossed generally when only the words “and company” are written or nothing is
written at all between the parallel lines, as in this case. It may be issued so that presentment can be
made only by a bank.
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a
check has the following effects:

(a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only
once — to one who has an account with a bank; and (c) the act of crossing the check serves as warning
to the holder that the check has been issued for a definite purpose so that he must inquire if he has
received the check pursuant to that purpose, otherwise, he is not a holder in due course.

The Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper
left hand corner means that it could only be deposited and not converted into cash. The effect of
crossing a check, thus, relates to the mode of payment, meaning that the drawer had intended the
check for deposit only by the rightful person, i.e., the payee named therein. The crossing of a check is a
warning that the check should be deposited only in the account of the payee. Thus, it is the duty of the
collecting bank to ascertain that the check be deposited to the payee’s account only.

Facts:

Petitioner filed a case for a sum of money with damages against herein respondent Metrobank
and Chua. Petitioner alleged that he was doing business under the name "Hope Pharmacy" which sells
medicine and other pharmaceutical products in the City of Cebu. Petitioner had in his employ Chua as
his pharmacist and trustee or caretaker of the business.

Petitioner claimed that there were unauthorized deposits and encashments made by Chua. She
averred that there were thirty-two (32) checks with Hope Pharmacy as payee, that were not endorsed
by him but were deposited under the personal account of Chua with respondent bank. Petitioner
claimed that the said checks were crossed checks payable to Hope Pharmacy only; and that without the
participation and connivance of respondent bank, the checks could not have been accepted for deposit
to any other account, except petitioner’s account. RTC exonerated Chua, it however declared
respondent bank liable for being negligent in allowing the deposit of crossed checks without the proper
indorsement. CA absolved Metrobank.

Issue:

W/N CA erred in not holding Metrobank liable for allowing the deposit of crossed checks which
were issued in favor of and payable to petitioner and without being indorsed by the petitioner.

Held: NO.

There is no dispute that the subject were crossed checks with petitioner as the named payee. It
is the submission of petitioner that respondent bank should be held accountable for the entire amount
of the checks because it accepted the checks for deposit under Chua’s account despite the fact that the
checks were crossed and that the payee named therein was not Chua. Respondent bank should not be
held liable for the entire amount of the checks considering that, as found by the RTC and affirmed by the
CA, the checks were actually given to Chua as payments by petitioner for loans obtained from the
parents of Chua. Furthermore, petitioner’s non-inclusion of Chua and Tabañag in the petition before this
Court is, in effect, an admission by the petitioner that Chua, in representation of her parents, had
rightful claim to the proceeds of the checks, as payments by petitioner for money he borrowed from the
parents of Chua. Therefore, petitioner suffered no pecuniary loss in the deposit of the checks to the
account of Chua. However, respondent bank was negligent in permitting the deposit and encashment of
the crossed checks without the proper indorsement. An indorsement is necessary for the proper
negotiation of checks specially if the payee named therein or holder thereof is not the one depositing or
encashing it. Knowing fully well that the subject checks were crossed, that the payee was not the holder
and that the checks contained no indorsement, respondent bank should have taken reasonable steps in
order to determine the validity of the representations made by Chua. Respondent bank was amiss in its
duty as an agent of the payee. Prudence dictates that respondent bank should not have merely relied on
the assurances given by Chua.

Negligence was committed by respondent bank in accepting for deposit the crossed checks
without indorsement and in not verifying the authenticity of the negotiation of the checks. The law
imposes a duty of extraordinary diligence on the collecting bank to scrutinize checks deposited with it,
for the purpose of determining their genuineness and regularity.
 PCIB v. CA

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 manufacturer’s 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 manager’s check. Alleged members of a syndicate deposited the two manager’s 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 payee’s 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:

(2) The general rule is that if the master is injured by the negligence of a third person and by the
concuring 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, asuming, 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.
SN-04867 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 well-settled 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.