G.R. No. L-24968 April 27, 1972SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,vs.DEVELOPMENT BANK OF THE PHILIPPINES,defendant-appellant.Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.MAKALINTAL,J.:pIn Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment.In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. Among the other terms spelled out in the resolution were the following:1. That the proceeds of the loan shall be utilized exclusively for the following purposes:For construction of factory building P250,000.00For payment of the balance of purchaseprice of machinery and equipment 240,900.00For working capital 9,100.00T O T A L P500,000.004. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the construction of the factory buildings progresses, to be certified to by an appraiser of this Corporation;"Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc.In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board of Governors, for certain reasons stated in the resolution, "to reexamine all the aspects of this approved loan ... with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board."On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan, and asked that the necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with the reexamination of the project to be financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective committees of engineers and technical men to meet with each other and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observation that the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in Resolution No. 145.On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17.It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn.In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned."On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally approved by you.".On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation," but with the following proviso:That in view of observations made of the shortage and high cost of imported raw materials, the Department of Agriculture and Natural Resources shall certify to the following:1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory."The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that the certification by the Department of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials." This point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local raw materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate aKenafmill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials, principalkenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100% locally grown raw materials notablykenafwhich is presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..."This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to require, in its Resolution No. 9083, a certification from the Department of Agriculture and Natural Resources as to the availability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry "kenafwill not be available in sufficient quantity this year or probably even next year;" (2) requesting "assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made as follows:a) For the payment of the receipt for jute millmachineries with the Prudential Bank &Trust Company P250,000.00(For immediate release)b) For the purchase of materials and equip-ment per attached list to enable the jutemill to operate 182,413.91c) For raw materials and labor 67,586.091) P25,000.00 to be released on the open-ing of the letter of credit for raw jutefor $25,000.00.2) P25,000.00 to be released upon arrivalof raw jute.3) P17,586.09 to be released as soon as themill is ready to operate.On January 25, 1955 RFC sent to Saura, Inc. the following reply:Dear Sirs:This is with reference to your letter of January 21, 1955, regarding the release of your loan under consideration of P500,000. As stated in our letter of December 22, 1954, the releases of the loan, if revived, are proposed to be made from time to time, subject to availability of funds towards the end that the sack factory shall be placed in actual operating status. We shall be able to act on your request for revised purpose and manner of releases upon re-appraisal of the securities offered for the loan.With respect to our requirement that the Department of Agriculture and Natural Resources certify that the raw materials needed are available in the immediate vicinity and that there is prospect of increased production thereof to provide adequately the requirements of the factory, we wish to reiterate that the basis of the original approval is to develop the manufacture of sacks on the basis of the locally available raw materials. Your statement that you will have to rely on the importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory, would not be in line with our principle in approving the loan.With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project.The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof.We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides:ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract.There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principallykenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely "that the proceeds of the loan shall be utilizedexclusivelyfor the following purposes: for construction of factory building P250,000.00; for payment of the balance of purchase price of machinery and equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature cf mutual desistance what Manresa terms "mutuo disenso"1 which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.2The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance and that on the initiative of the plaintiff-appellee itself.With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the respective briefs of the parties.WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-appellee.

G.R. No. L-26578 January 28, 1974LEGARDA HERMANOS and JOSE LEGARDA,petitioners,vs.FELIPE SALDAA and COURT OF APPEALS (FIFTH DIVISION)*respondents.Manuel Y. Macias for petitioners.Mario E. Ongkiko for private respondent.TEEHANKEE,J.:The Court, in affirming the decision under review of the Court of Appeals, which holds that the respondent buyer of two small residential lots on installment contracts on a ten-year basis who has faithfully paid for eight continuous years on the principal alone already more than the value of one lot, besides the larger stipulated interests on both lots, is entitled to the conveyance of one fully paid lot of his choice, rules that the judgment is fair and just and in accordance with law and equity.The action originated as a complaint for delivery of two parcels of land in Sampaloc, Manila and for execution of the corresponding deed of conveyance after payment of the balance still due on their purchase price. Private respondent as plaintiff had entered into two written contracts with petitioner Legarda Hermanos as defendant subdivision owner, whereby the latter agreed to sell to him Lots Nos. 7 and 8 of block No. 5N of the subdivision with an area of 150 square meters each, for the sum of P1,500.00 per lot, payable over the span of ten years divided into 120 equal monthly installments of P19.83 with 10% interest per annum, to commence on May 26, 1948, date of execution of the contracts. Subsequently, Legarda Hermanos partitioned the subdivision among the brothers and sisters, and the two lots were among those allotted to co-petitioner Jose Legarda who was then included as co-defendant in the action.It is undisputed that respondent faithfully paid for eight continuous years about 95 (of the stipulated 120) monthly installments totalling P3,582.06 up to the month of February, 1956, which as per petitioners' own statement of account, Exhibit "1", was applied to respondent's account (without distinguishing the two lots), as follows:To interests P1,889.78To principal 1,682.28Total P3,582.061It is equally undisputed that after February, 1956 up to the filing of respondent's complaint in the Manila court of first instance in 1961, respondent did not make further payments. The account thus shows that he owed petitioners the sum of P1,317.72 on account of the balance of the purchase price (principal) of the two lots (in the total sum of P3,000.00), although he had paidmorethan the stipulated purchase price of P1,500.00 for one lot.Almost five years later, on February 2, 1961 just before the filing of the action, respondent wrote petitioners stating that his desire to build a house on the lots was prevented by their failure to introduce improvements on the subdivision as "there is still no road to these lots," and requesting information of the amount owing to update his account as "I intend to continue paying the balance due on said lots."Petitioners replied in their letter of February 11, 1961 that as respondent had failed to complete total payment of the 120 installments by May, 1958 as stipulated in the contracts to sell, "pursuant to the provisions of both contracts all the amounts paid in accordance with the agreement together with the improvements on the premises have been considered as rents paid and as payment for damages suffered by your failure,"2and "Said cancellation being in order, is hereby confirmed."From the adverse decision of July 17, 1963 of the trial court sustaining petitioners' cancellation of the contracts and dismissing respondent's complaint, respondent appellate court on appeal rendered its judgment of July 27, 1966 reversing the lower court's judgment and ordering petitioners "to deliver to the plaintiff possession of one of the two lots, at the choice of defendants, and to execute the corresponding deed of conveyance to the plaintiff for the said lot,"3ruling as follows: During the hearing, plaintiff testified that he suspended payments because the lots were not actually delivered to him, or could not be, due to the fact that they were completely under water; and also because the defendants-owners failed to make improvements on the premises, such as roads, filling of the submerged areas, etc., despite repeated promises of their representative, the said Mr. Cenon. As regards the supposed cancellation of the contracts, plaintiff averred that no demand has been made upon him regarding the unpaid installments, and for this reason he could not be declared in default so as to entitle the defendants to cancel the said contracts.The issue, therefore, is: Under the above facts, may defendants be compelled, or not, to allow plaintiff to complete payment of the purchase price of the two lots in dispute and thereafter to execute the final deeds of conveyance thereof in his favor?xxx xxx xxxWhether or not plaintiffs explanation for his failure to pay the remaining installments is true, considering the circumstances obtaining in this case, we elect to apply the broad principles ofequity and justice. In the case at bar, we find that the plaintiff has paid thetotal sumof P3,582.06including interests, which is evenmorethan the value of thetwolots. And even if the sum applied to theprincipal alonewere to be considered, which was of the total ofP1,682.28, the same was alreadymorethan the value ofonelot, which isP1,500.00. The only balance due on both lots was P1,317.72, which was even less than the value of one lot. We willconsider as fully paidby the plaintiffat least oneof the two lots, at thechoiceof thedefendants. This is more in line with good conscience than a total denial to the plaintiff of a little token of what he has paid the defendant Legarda Hermanos.4Hence, the present petition for review, wherein petitioners insist on their right of cancellation under the "plainly valid written agreements which constitute the law between the parties" as against "the broad principles of equity and justice" applied by the appellate court. Respondent on the other hand while adhering to the validity of the doctrine of the Caridad Estates cases5which recognizes the right of a vendor of land under a contract to sell to cancel the contract upon default, with forfeiture of the installments paid as rentals, disputes its applicability herein contending that here petitioners-sellers were equally in default as the lots were "completely under water" and "there is neither evidence nor a finding that the petitioners in fact cancelled the contracts previous to receipt of respondent's letter."6The Court finds that the appellate court's judgment finding that of the total sum of P3,582.06 (including interests of P1,889.78) already paid by respondent (which wasmorethan the value of two lots), the sum applied by petitioners to theprincipal alonein the amount of P1,682.28 was already more than the value ofonelot ofP1,500.00and henceoneof the two lots as chosen by respondent would be considered asfully paid, is fair and just and in accordance with law and equity.As already stated, the monthly payments for eight years made by respondent were applied to his account without specifying or distinguishing between the two lots subject of the two agreements under petitioners' own statement of account, Exhibit "1".7Even considering respondent as having defaulted after February 1956, when he suspended payments after the 95th installment, he had as of the already paid by way ofprincipal(P1,682.28)morethan the full value ofonelot (P1,500.00). The judgment recognizing this fact and ordering the conveyance to him ofonelot of his choice while also recognizing petitioners' right to retain the interests of P1,889.78 paid by him for eight years onbothlots, besides thecancellationof the contract for one lot which thus reverts to petitioners, cannot be deemed to denysubstantial justiceto petitioners nor to defeat their rights under the letter and spirit of the contracts in question.The Court's doctrine in the analogous case ofJ.M. Tuason & Co. Inc. vs. Javier8is fully applicable to the present case, with the respondent at bar being grantedlesserbenefits, sincenorescission of contract was therein permitted. There, where the therein buyer-appellee identically situated as herein respondent buyer had likewise defaulted in completing the payments after having religiously paid the stipulated monthly installments for almost eight years and notwithstanding that the seller-appellant had duly notified the buyer of the rescission of the contract to sell, the Court upheld the lower court's judgmentdenyingjudicial confirmation of the rescission and instead granting the buyer an additionalgrace periodof sixty days from notice of judgment to pay all the installment paymentsin arrearstogether with the stipulated 10% interest per annum from the date of default,APARTfrom reasonable attorney's fees and costs, which payments, the Court observed, would have the plaintiff-seller "recover everything due thereto, pursuant to its contract with the defendant, including such damages as the former may have suffered in consequence of the latter's default."In affirming, the Court held that "Regardless, however, of the propriety of applying said Art. 1592 thereto, We find that plaintiff herein has not been deniedsubstantial justice, for, according to Art. 1234 of said Code: 'If the obligation has beensubstantially performedingood faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee,'" and "that in the interest ofjusticeandequity, the decision appealed from may be upheld upon the authority of Article 1234 of the Civil Code."9ACCORDINGLY, the appealed judgment of the appellate court is hereby affirmed. Without pronouncement as to costs.

G.R. No. 121413 January 29, 2001PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA),petitioner,vs.COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A.,respondents.

G.R. No. 121479 January 29, 2001FORD PHILIPPINES, INC.,petitioner-plaintiff,vs.COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL INTERNATIONAL BANK,respondents.

G.R. No. 128604 January 29, 2001FORD PHILIPPINES, INC.,petitioner,vs.CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT OF APPEALS,respondents.QUISUMBING,J.:These consolidated petitions involve several fraudulently negotiated checks.The original actionsa quowere instituted by Ford Philippines to recover from the drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial International Bank (PCIBank) [formerly Insular Bank of Asia and America], the value of several checks payable to the Commissioner of Internal Revenue, which were embezzled allegedly by an organized syndicate.1wphi1.ntG.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision1of the Court of Appeals in CA-G.R. CV No. 25017, entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now Philipppine Commercial International Bank), and the August 8, 1995 Resolution,2ordering the collecting bank, Philippine Commercial International Bank, to pay the amount of Citibank Check No. SN-04867.In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision3of the Court of Appeals and its March 5, 1997 Resolution4in CA-G.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial International Bank," affirmingin totothe judgment of the trial court holding the defendant drawee bank, Citibank, N.A., solely liable to pay the amount of P12,163,298.10 as damages for the misapplied proceeds of the plaintiff's Citibanl Check Numbers SN-10597 and 16508.I. G.R. Nos. 121413 and 121479The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows:"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of plaintiff;s percentage or manufacturer's sales taxes for the third quarter of 1977.The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA as collecting or depository bank.The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof, the Commissioner of Internal Revenue.As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers' sales taxes for the third quarter of 1977 and that said second payment of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of Internal Revenue.It is further admitted by defendant Citibank that during the time of the transactions in question, plaintiff had been maintaining a checking account with defendant Citibank; that Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in favor of the Commissioner of Internal Revenue was a crossed check in that, on its face were two parallel lines and written in between said lines was the phrase "Payee's Account Only"; and that defendant Citibank paid the full face value of the check in the amount of P4,746,114.41 to the defendant IBAA.It has been duly established that for the payment of plaintiff's percentage tax for the last quarter of 1977, the Bureau of Internal Revenue issued Revenue Tax Receipt No. 18747002, dated October 20, 1977, designating therein in Muntinlupa, Metro Manila, as the authorized agent bank of Metrobanl, Alabang branch to receive the tax payment of the plaintiff.On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the Revenue Tax Receipt No. 18747002, was deposited with defendant IBAA, through its Ermita Branch. The latter accepted the check and sent it to the Central Clearing House for clearing on the samd day, with the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed." Thereafter, defendant IBAA presented the check for payment to defendant Citibank on same date, December 19, 1977, and the latter paid the face value of the check in the amount of P4,746,114.41. Consequently, the amount of P4,746,114.41 was debited in plaintiff's account with the defendant Citibank and the check was returned to the plaintiff.Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of P4,746,114.41 was not paid to the Commissioner of Internal Revenue. Hence, in separate letters dated October 26, 1979, addressed to the defendants, the plaintiff notified the latter that in case it will be re-assessed by the BIR for the payment of the taxes covered by the said checks, then plaintiff shall hold the defendants liable for reimbursement of the face value of the same. Both defendants denied liability and refused to pay.In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue addressed to the plaintiff - supposed to be Exhibit "D", the latter was officially informed, among others, that its check in the amount of P4, 746,114.41 was not paid to the government or its authorized agent and instead encashed by unauthorized persons, hence, plaintiff has to pay the said amount within fifteen days from receipt of the letter. Upon advice of the plaintiff's lawyers, plaintiff on March 11, 1982, paid to the Bureau of Internal Revenue, the amount of P4,746,114.41, representing payment of plaintiff's percentage tax for the third quarter of 1977.As a consequence of defendant's refusal to reimburse plaintiff of the payment it had made for the second time to the BIR of its percentage taxes, plaintiff filed on January 20, 1983 its original complaint before this Court.On December 24, 1985, defendant IBAA was merged with the Philippine Commercial International Bank (PCI Bank) with the latter as the surviving entity.Defendant Citibank maintains that; the payment it made of plaintiff's Citibank Check No. SN-04867 in the amount of P4,746,114.41 "was in due course"; it merely relied on the clearing stamp of the depository/collecting bank, the defendant IBAA that "all prior indorsements and/or lack of indorsements guaranteed"; and the proximate cause of plaintiff's injury is the gross negligence of defendant IBAA in indorsing the plaintiff's Citibank check in question.It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank Check No. SN-048867 was paid to defendant IBAA as collecting bank, plaintiff was maintaining a checking account with defendant Citibank."5Although it was not among the stipulated facts, an investigation by the National Bureau of Investigation (NBI) revealed that Citibank Check No. SN-04867 was recalled by Godofredo Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold back the check because there was an error in the computation of the tax due to the Bureau of Internal Revenue (BIR). With Rivera's instruction, PCIBank replaced the check with two of its own Manager's Checks (MCs). Alleged members of a syndicate later deposited the two MCs with the Pacific Banking Corporation.Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific Banking Corporation (PBC) and Godofredo Rivera, as third party defendants. But the court dismissed the complaint against PBC for lack of cause of action. The course likewise dismissed the third-party complaint against Godofredo Rivera because he could not be served with summons as the NBI declared him as a "fugitive from justice".On June 15, 1989, the trial court rendered its decision, as follows:"Premises considered, judgment is hereby rendered as follows:"1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and severally, to pay the plaintiff the amount of P4,746,114.41 representing the face value of plaintiff's Citibank Check No. SN-04867, with interest thereon at the legal rate starting January 20, 1983, the date when the original complaint was filed until the amount is fully paid, plus costs;"2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA (now PCI Bank) to reimburse defendant Citibank for whatever amount the latter has paid or may pay to the plaintiff in accordance with next preceding paragraph;"3. The counterclaims asserted by the defendants against the plaintiff, as well as that asserted by the cross-defendant against the cross-claimant are dismissed, for lack of merits; and"4. With costs against the defendants.SO ORDERED."6Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated their respective petitions for review on certiorari to the Courts of Appeals. On March 27, 1995, the appellate court issued its judgment as follows:"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with modifications.The court hereby renderes judgment:1.Dismissingthe complaint in Civil Case No. 49287 insofar as defendant Citibank N.A. is concerned;2.Orderingthe defendant IBAA now PCI Bank to pay the plaintiff the amount of P4,746,114.41 representing the face value of plaintiff's Citibank Check No. SN-04867, with interest thereon at the legal rate starting January 20, 1983, the date when the original complaint was filed until the amount is fully paid;3. Dismissing the counterclaims asserted by the defendants against the plaintiff as well as that asserted by the cross-defendant against the cross-claimant, for lack of merits.Costs against the defendant IBAA (now PCI Bank).IT IS SO ORDERED."7PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals, while Ford filed a "Motion for Partial Reconsideration." Both motions were denied for lack of merit.Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari under Rule 45.In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the Twelfth Division of the Court of Appeals contending that it merely acted on the instruction of Ford and such casue of action had already prescribed.PCIBank sets forth the following issues for consideration:I. Did the respondent court err when, after finding that the petitioner acted on the check drawn by respondent Ford on the said respondent's instructions, it nevertheless found the petitioner liable to the said respondent for the full amount of the said check.II. Did the respondent court err when it did not find prescription in favor of the petitioner.8In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the same decision and resolution of the Court of Appeals, and praying for the reinstatementin totoof the decision of the trial court which found both PCIBank and Citibank jointly and severally liable for the loss.In G.R. No. 121479, appellant Ford presents the following propositions for consideration:I. Respondent Citibank is liable to petitioner Ford considering that:1. As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer of the subject check and a depositor of respondent Citibank, an absolute and contractual duty to pay the proceeds of the subject check only to the payee thereof, the Commissioner of Internal Revenue.2. Respondent Citibank failed to observe its duty as banker with respect to the subject check, which was crossed and payable to "Payee's Account Only."3. Respondent Citibank raises an issue for the first time on appeal; thus the same should not be considered by the Honorable Court.4. As correctly held by the trial court, there is no evidence of gross negligence on the part of petitioner Ford.9II. PCI Bank is liable to petitioner Ford considering that:1. There were no instructions from petitioner Ford to deliver the proceeds of the subject check to a person other than the payee named therein, the Commissioner of the Bureau of Internal Revenue; thus, PCIBank's only obligation is to deliver the proceeds to the Commissioner of the Bureau of Internal Revenue.102. PCIBank which affixed its indorsement on the subject check ("All prior indorsement and/or lack of indorsement guaranteed"), is liable as collecting bank.113. PCIBank is barred from raising issues of fact in the instant proceedings.124. Petitioner Ford's cause of action had not prescribed.13II. G.R. No. 128604The same sysndicate apparently embezzled the proceeds of checks intended, this time, to settle Ford's percentage taxes appertaining to the second quarter of 1978 and the first quarter of 1979.The facts as narrated by the Court of Appeals are as follows:Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of P5,851,706.37 representing the percentage tax due for the second quarter of 1978 payable to the Commissioner of Internal Revenue. A BIR Revenue Tax Receipt No. 28645385 was issued for the said purpose.On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the amount of P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979 and payable to the Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt No. A-1697160 was issued for the said purpose.Both checks were "crossed checks" and contain two diagonal lines on its upper corner between, which were written the words "payable to the payee's account only."The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980, the BIR, Region 4-B, demanded for the said tax payments the corresponding periods above-mentioned.As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered "fake and spurious". This anomaly was confirmed by the NBI upon the initiative of the BIR. The findings forced Ford to pay the BIR a new, while an action was filed against Citibank and PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508.The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on themodus operandiof the syndicate, as follows:"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger Accountant. As such, he prepared the plaintiff's check marked Ex. 'A' [Citibank Check No. Sn-10597] for payment to the BIR. Instead, however, fo delivering the same of the payee, he passed on the check to a co-conspirator named Remberto Castro who was a pro-manager of the San Andres Branch of PCIB.* In connivance with one Winston Dulay, Castro himself subsequently opened a Checking Account in the name of a fictitious person denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as Assistant Manager.After an initial deposit of P100.00 to validate the account, Castro deposited a worthless Bank of America Check in exactly the same amount as the first FORD check (Exh. "A", P5,851,706.37) while this worthless check was coursed through PCIB's main office enroute to the Central Bank for clearing, replaced this worthless check with FORD's Exhibit 'A' and accordingly tampered the accompanying documents to cover the replacement. As a result, Exhibit 'A' was cleared by defendant CITIBANK, and the fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch with the total amount of the FORD check Exhibit 'A'. The same method was again utilized by the syndicate in profiting from Exh. 'B' [Citibank Check No. SN-16508] which was subsequently pilfered by Alexis Marindo, Rivera's Assistant at FORD.From this 'Reynaldo Reyes' account, Castro drew various checks distributing the sahres of the other participating conspirators namely (1) CRISANTO BERNABE, the mastermind who formulated the method for the embezzlement; (2) RODOLFO R. DE LEON a customs broker who negotiated the initial contact between Bernabe, FORD's Godofredo Rivera and PCIB's Remberto Castro; (3) JUAN VASTILLO who assisted de Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORD's accountant who passed on the first check (Exhibit "A") to Castro; (5) REMERTO CASTRO, PCIB's pro-manager at San Andres who performed the switching of checks in the clearing process and opened the fictitious Reynaldo Reyes account at the PCIB Meralco Branch; (6) WINSTON DULAY, PCIB's Assistant Manager at its Meralco Branch, who assisted Castro in switching the checks in the clearing process and facilitated the opening of the fictitious Reynaldo Reyes' bank account; (7) ALEXIS MARINDO, Rivera's Assistant at FORD, who gave the second check (Exh. "B") to Castro; (8) ELEUTERIO JIMENEZ, BIR Collection Agent who provided the fake and spurious revenue tax receipts to make it appear that the BIR had received FORD's tax payments.Several other persons and entities were utilized by the syndicate as conduits in the disbursements of the proceeds of the two checks, but like the aforementioned participants in the conspiracy, have not been impleaded in the present case. The manner by which the said funds were distributed among them are traceable from the record of checks drawn against the original "Reynaldo Reyes" account and indubitably identify the parties who illegally benefited therefrom and readily indicate in what amounts they did so."14On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank, Citibank, liable for the value of the two checks while adsolving PCIBank from any liability, disposing as follows:"WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to reimburse plaintiff FORD the total amount of P12,163,298.10 prayed for in its complaint, with 6% interest thereon from date of first written demand until full payment, plus P300,000.00 attorney's fees and expenses litigation, and to pay the defendant, PCIB (on its counterclaim to crossclaim) the sum of P300,000.00 as attorney's fees and costs of litigation, and pay the costs.SO ORDERED."15Both Ford and Citibank appealed to the Court of Appeals which affirmed,in toto, the decision of the trial court. Hence, this petition.Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of Appeals decision and its resolution dated March 5, 1997, with respect to the dismissal of the complaint against PCIBank and holding Citibank solely responsible for the proceeds of Citibank Check Numbers SN-10597 and 16508 for P5,851,706.73 and P6,311,591.73 respectively.Ford avers that the Court of Appeals erred in dismissing the complaint against defendant PCIBank considering that:I. Defendant PCIBank was clearly negligent when it failed to exercise the diligence required to be exercised by it as a banking insitution.II. Defendant PCIBank clearly failed to observe the diligence required in the selection and supervision of its officers and employees.III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or damage resulting to the plaintiff Ford as a consequence of the substitution of the check consistent with Section 5 of Central Bank Circular No. 580 series of 1977.IV. Assumingarguedothat defedant PCIBank did not accept, endorse or negotiate in due course the subject checks, it is liable, under Article 2154 of the Civil Code, to return the money which it admits having received, and which was credited to it its Central bank account.16The main issue presented for our consideration by these petitions could be simplified as follows: 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? Or has Ford's cause of action already prescribed?Note that in these cases, 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 of paying the checks to the CIR, for the settlement of the approprite quarterly percentage taxes of Ford, the checks were diverted and encashed for the eventual distribution among the mmbers of the syndicate. As to the unlawful negotiation of the check the applicable law is Section 55 of the Negotiable Instruments Law (NIL), which provides:"When title defective -- The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or fore and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith or under such circumstances as amount to a fraud."Pursuant to this provision, it is vital to show that the negotiation is made by the perpetator 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. Though their own negligence, alowed the commission of the crime.In this case, we note that the direct perpetrators of the offense, namely the embezzlers belonging to a syndicate, are now fugitives from justice. They have, even if temporarily, escaped liability for the embezzlement of millions of pesos. We are thus left only with the task of determining who of the present parties before us must bear the burden of loss of these millions. It all boils down to thequestion of liability based on the degree of negligence among the parties concerned.Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed contributory negligence" that would defeat its claim for reimbursement, bearing ing mind that its employees, Godofredo Rivera and Alexis Marindo, were among the members of the syndicate.Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate the checks to his co-conspirators, instead of delivering them to the designated authorized collecting bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the fact that Ford was remiss in the supervision and control of its own employees, inasmuch as it only discovered the syndicate's activities through the information given by the payee of the checks after an unreasonable period of time.PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to divert the proceeds of Citibank Check No. SN-04867, instead of using it to pay the BIR. As to the subsequent run-around of unds of Citibank Check Nos. SN-10597 and 16508, PCIBank claims that the proximate cause of the damge to Ford lies in its own officers and employees who carried out the fradulent schemes and the transactions. These circumstances were not checked by other officers of the company including its comptroller or internal auditor. PCIBank contends that the inaction of Ford despite the enormity of the amount involved was a sheer negligence and stated that, as between two innocent persons, one of whom must suffer the consequences of a breach of trust, the one who made it possible, by his act of negligence, must bear the loss.For its part, Ford denies any negligence in the performance of its duties. It avers that there was no evidence presented before the trial court showing lack of diligence on the part of Ford. And, citing the case ofGempesaw vs. Court of Appeals,17Ford argues that even if there was a finding therein that the drawer was negligent, the drawee bank was still ordered to pay damages.Furthermore, Ford contends the Godofredo rivera was not authorized to make any representation in its behalf, specifically, to divert the proceeds of the checks. It adds that Citibank raised the issue of imputed negligence against Ford for the first time on appeal. Thus, it should not be considered by this Court.On this point, jurisprudence regarding the imputed negligence of employer in a master-servant relationship is instructive. Since a master may be held for his servant's wrongful act, the law imputes to the master the act of the servant, and if that act is negligent or wrongful and proximately results in injury to a third person, the negligence or wrongful conduct is the negligence or wrongful conduct of the master, for which he is liable.18The 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 theproximate causeof the injury of which complaint is made.19Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford's General Ledger Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of the loss or damage. 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.20It 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 Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to recall Citibank Check No. SN-04867. Rivera's instruction to replace the said check with PCIBank's Manager's Check was not in theordinary course of business which could have prompted PCIBank to validate the same.As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that these checks were made payable to the CIR. Both were crossed checks. These checks were apparently turned around by Ford's emploees, who were acting on their own personal capacity.Given these circumstances, 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.21This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession.With respect to the negligence of PCIBank in the payment of the three checks involved, separately, the trial courts found variations between the negotiation of Citibank Check No. SN-04867 and the misapplication of total proceeds of Checks SN-10597 and 16508. Therefore, we have to scrutinize, separately, PCIBank's share of negligence when the syndicate achieved its ultimate agenda of stealing the proceeds of these checks.G.R. Nos. 121413 and 121479Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It was coursed through the ordinary banking transaction, sent to Central Clearing with the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed," and was presented to Citibank for payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared two of its Manager's checks and enabled the syndicate to encash the same.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. As aptly stated by the trial court, to wit:"xxx. Since the questioned crossed check was deposited with IBAA [now PCIBank], which claimed to be a depository/collecting bank of BIR, it has the responsibility to make sure that the check in question is deposited in Payee's account only.xxxxxxxxxAs agent of the BIR (the payee of the check), defendant IBAA should receive instructions only from its principal BIR and not from any other person especially so when that person is not known to the defendant. It is very imprudent on the part of the defendant IBAA to just rely on the alleged telephone call of the one Godofredo Rivera and in his signature considering that the plaintiff is not a client of the defendant IBAA."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.22A bank which receives such paper for collection is the agent of the payee or holder.23Even consideringarguendo,that the diversion of the amount of a check payable to the collecting bank in behalf of the designated payee may be allowed, still such diversion must be properly authorized by the payor. Otherwise stated, the diversion can be justified only by proof of authority from the drawer, or that the drawer has clothed his agent with apparent authority to receive the proceeds of such check.Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS GURANTEED should render PCIBank liable because it made it pass through the clearing house and therefore Citibank had no other option but to pay it. Thus, Citibank had no other option but to pay it. Thus, Citibank assets that the proximate cause of Ford's injury is the gross negligence of PCIBank. Since the questione dcrossed check was deposited with PCIBank, which claimed to be a depository/collecting bank of the BIR, it had the responsibility to make sure that the check in questions is deposited in Payee's account only.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 scruninize the check and to know its depositors before it could make the clearing indorsement "all prior indorsements and/or lack of indorsement guaranteed".InBanco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation,24we ruled:"Anent petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC's Board of Directors that:'In presenting the checks for clearing and for payment, the defendant made an express guarantee on the validity of "all prior endorsements." Thus, stamped at the back of the checks are the defedant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the checks.'No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation."25Lastly, banking business requires that the one who first cashes and negotiates the check must take some percautions to learn whether or not it is genuine. And if the one cashing the check through indifference or othe 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.26Having established that the collecting bank's negligence is the proximate cause of the loss, we conclude that PCIBank is liable in the amount corresponding to the proceeds of Citibank Check No. SN-04867.G.R. No. 128604The 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. The trial court held, thus:"Neither is there any proof that defendant PCIBank contributed any official or conscious participation in the process of the embezzlement. This 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 personl, covert and private capacity and done without the knowledge of the defendant PCIBank"27In this case, there was no evidence presented confirming the conscious particiapation 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.28A 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 particiapted.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 PCIBank's 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 Ptro-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.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 t 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.29And if an officer or employee of a bank, in his official capacity, receives money to satisfy an evidence of indebetedness lodged with his bank for collection, the bank is liable for his misappropriation of such sum.30Moreover, as correctly pointed out by Ford, Section 531of Central Bank Circular No. 580, Series of 1977 provides that any theft affecting items in transit for clearing, shall be for the account of sending bank, which in this case is PCIBank.But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone.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 Ford's checjs were made in due course and legally in order. In its defense, Citibank claims the genuineness and due execution of said checks, considering that Citibank (1) has no knowledge of any informity in the issuance of the checks in question (2) coupled by the fact that said checks were sufficiently funded and (3) the endorsement of the Payee or lack thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to honor and pay the same.For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute and contractual duty to pay the proceeds of the subject check only to the payee thereof, the CIR. Citing Section 6232of the Negotiable Instruments Law, Ford argues that by accepting the instrument, the acceptro which is Citibank engages that it will pay according to the tenor of its acceptance, and that it will pay only to the payee, (the CIR), considering the fact that here the check was crossed with annotation "Payees Account Only."As ruled by the Court of Appeals, 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. On this score, we agree with the respondent court's ruling.Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time. 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 fact that the drawee bank did not discover the irregularity seasonably, in our view, consitutes negligence in carrying out the bank's duty to its depositors. 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.33Thus, 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.Time and again, we have stressed that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount umportance such that the appropriate standard of diligence must be very high, if not the highest, degree of diligence.34A bank's liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment.35Banks handle daily transactions involving millions of pesos.36By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees.37Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.38On the issue of prescription, PCIBank claims that the action of Ford had prescribed because of its inability to seek judicial relief seasonably, considering that the alleged negligent act took place prior to December 19, 1977 but the relief was sought only in 1983, or seven years thereafter.The statute of limitations begins to run when the bank gives the depositor notice of the payment, which is ordinarily when the check is returned to the alleged drawer as a voucher with a statement of his account,39and an action upon a check is ordinarily governed by the statutory period applicable to instruments in writing.40Our laws on the matter provide that the action upon a written contract must be brought within ten year from the time the right of action accrues.41hence, the reckoning time for the prescriptive period begins when the instrument was issued and the corresponding check was returned by the bank to its depositor (normally a month thereafter). Applying the same rule, the cause of action for the recovery of the proceeds of Citibank Check No. SN 04867 would normally be a month after December 19, 1977, when Citibank paid the face value of the check in the amount of P4,746,114.41. Since the original complaint for the cause of action was filed on January 20, 1984, barely six years had lapsed. Thus, we conclude that Ford's cause of action to recover the amount of Citibank Check No. SN 04867 was seasonably filed within the period provided by law.Finally, we also find thet Ford is not completely blameless in its failure to detect the fraud. Failure on the part of the depositor to examine its passbook, statements of account, and cancelled checks and to give notice within a reasonable time (or as required by statute) of any discrepancy which it may in the exercise of due care and diligence find therein, serves to mitigate the banks' liability by reducing the award of interest from twelve percent (12%) to six percent (6%) per annum. As provided in Article 1172 of the Civil Code of the Philippines, respondibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. In quasi-delicts, the contributory negligence of the plaintiff shall reduce the damages that he may recover.42WHEREFORE,the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 25017 areAFFIRMED.PCIBank, know formerly as Insular Bank of Asia and America, id declared solely responsible for the loss of the proceeds of Citibank Check No SN 04867 in the amount P4,746,114.41, which shall be paid together with six percent (6%) interest thereon to Ford Philippines Inc. from the date when the original complaint was filed until said amount is fully paid.However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430 areMODIFIEDas follows: PCIBank and Citibank are adjudged liable for and must share the loss, (concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling P12,163,298.10) on a fifty-fifty ratio, and each bank isORDEREDto pay Ford Philippines Inc. P6,081,649.05, with six percent (6%) interest thereon, from the date the complaint was filed until full payment of said amount.1wphi1.ntCosts against Philippine Commercial International Bank and Citibank N.A.SO ORDERED.

G.R. No. 125862 April 15, 2004FRANCISCO CULABA and DEMETRIA CULABA, doing business under the name and style "Culaba Store",petitioners,vs.COURT OF APPEALS and SAN MIGUEL CORPORATION,respondents.

D E C I S I O N

CALLEJO, SR.,J.:This is a petition for review under Rule 45 of the Revised Rules of Civil Procedure of the Decision1of the Court of Appeals in CA-G.R. CV No. 19836 affirming in toto the Decision2of the Regional Trial Court of Makati, Branch 138, in Civil Case No. 1033 for collection of sum of money, and the Resolution3denying the motion for reconsideration of the said decision.The Undisputed FactsThe spouses Francisco and Demetria Culaba were the owners and proprietors of the Culaba Store and were engaged in the sale and distribution of San Miguel Corporations (SMC) beer products. SMC sold beer products on credit to the Culaba spouses in the amount of P28,650.00, as evidenced by Temporary Credit Invoice No. 42943.4Thereafter, the Culaba spouses made a partial payment of P3,740.00, leaving an unpaid balance of P24,910.00. As they failed to pay despite repeated demands, SMC filed an action for collection of a sum of money against them before the RTC of Makati, Branch 138.The defendant-spouses denied any liability, claiming that they had already paid the plaintiff in full on four separate occasions. To substantiate this claim, the defendants presented four (4) Temporary Charge Sales (TCS) Liquidation Receipts, as follows:April 19, 1983Receipt No. 27331for P8,0005

April 22, 1983Receipt No. 27318for P9,0006

April 27, 1983Receipt No. 27339for P4,5007

April 30, 1983Receipt No. 27346for P3,4108

Defendant Francisco Culaba testified that he made the foregoing payments to an SMC supervisor who came in an SMC van. He was then showed a list of customers accountabilities which included his account. The defendant, in good faith, then paid to the said supervisor, and he was, in turn, issued genuine SMC liquidation receipts.For its part, SMC submitted a publishers affidavit9to prove that the entire booklet of TCSL Receipts bearing Nos. 27301-27350 were reported lost by it, and that it caused the publication of the notice of loss in the July 9, 1983 issue of the Daily Express, as follows:NOTICE OF LOSSOUR CUSTOMERS ARE HEREBY INFORMED THAT TEMPORARY CHARGE SALES LIQUIDATION RECEIPTS WITH SERIAL NOS. 27301-27350 HAVE BEEN LOST.ANY TRANSACTION, THEREFORE, ENTERED INTO WITH THE USE OF THE ABOVE RECEIPTS WILL NOT BE HONORED.SAN MIGUEL CORPORATIONBEER DIVISIONMakati Beer Region10The Trial Courts RulingAfter trial on the merits, the trial court rendered judgment in favor of SMC, and held the Culaba spouses liable on the balance of its obligation, thus:Wherefore, judgment is hereby rendered in favor of the plaintiff, as follows:1. Ordering defendants to pay the amount of P24,910.00 plus legal interest of 6% per annum from April 12, 1983 until the whole amount is fully paid;2. Ordering defendants to pay 20% of the amount due to plaintiff as and for attorneys fees plus costs.SO ORDERED.11According to the trial court, it was unusual that defendant Francisco Culaba forgot the name of the collector to whom he made the payments and that he did not require the said collector to print his name on the receipts. The court also noted that although they were part of a single booklet, the TCS Liquidation Receipts submitted by the defendants did not appear to have been issued in their natural sequence. Furthermore, they were part of the lost booklet receipts, which the public was duly warned of through the Notice of Loss the plaintiff caused to be published in a daily newspaper. This confirmed the plaintiffs claim that the receipts presented by the defendants were spurious ones.The Case on AppealOn appeal, the appellants interposed the following assignment of errors:ITHE TRIAL COURT ERRED IN FINDING THAT THE RECEIPTS PRESENTED BY DEFENDANTS EVIDENCING HIS PAYMENTS TO PLAINTIFF SAN MIGUEL CORPORATION, ARE SPURIOUS.IITHE TRIAL COURT ERRED IN CONCLUDING THAT PLAINTIFF-APPELLEE HAS SUFFICIENTLY PROVED ITS CAUSE OF ACTION AGAINST THE DEFENDANTS.IIITHE TRIAL COURT ERRED IN ORDERING DEFENDANTS TO PAY 20% OF THE AMOUNT DUE TO PLAINTIFF AS ATTORNEYS FEES.12The appellants asserted that while the trial courts observations were true, it was the usual business practice in previous transactions between them and SMC. The SMC previously honored receipts not bearing the salesmans name. According to appellant Francisco Culaba, he even lost some of the receipts, but did not encounter any problems.According to appellant Francisco, he could not be faulted for paying the SMC collector who came in a van and was in uniform, and that any regular customer would, without any apprehension, transact with such an SMC employee. Furthermore, the respective receipts issued to him at the time he paid on the four occasions mentioned had not yet then been declared lost. Thus, the subsequent publication in a daily newspaper declaring the booklets lost did not affect the validity and legality of the payments made. Accordingly, by its actuations, the SMC was estopped from questioning the legality of the payments and had no cause of action against the appellants.Anent the issue of attorneys fees, the order of the trial court for payment thereof is without basis. According to the appellant, the provision for attorneys fees is a contingent fee, already provided for in the SMCs contract with the law firm. To further order them to pay 20% of the amount due as attorneys fees is double payment, tantamount to undue enrichment and therefore improper.13The appellee, for its part, contended that the primary issue in the case at bar revolved around the basic and fundamental principles of agency.14It was incumbent upon the defendants-appellants to exercise ordinary prudence and reasonable diligence to verify and identify the extent of the alleged agents authority. It was their burden to establish the true identity of the assumed agent, and this could not be established by mere representation, rumor or general reputation. As they utterly failed in this regard, the appellants must suffer the consequences.The Court of Appeals affirmed the decision of the trial court, thus:In the face of the somewhat tenuous evidence presented by the appellants, we cannot fault the lower court for giving more weight to appellees testimonial and documentary evidence, all of which establish with some degree of preponderance the existence of the account sued upon.ALL CONSIDERED, we cannot find any justification to reject the factual findings of the lower court to which we must accord respect, for which reason, the judgment appealed from is hereby AFFIRMED in all respects.SO ORDERED.15Hence, the instant petition.The petitioners pose the following issues for the Courts resolution:I. WHETHER OR NOT THE RESPONDENT HAD PROVEN BY PREPONDERANT EVIDENCE THAT IT HAD PROPERLY AND TIMELY NOTIFIED PETITIONER OF LOST BOOKLET OF RECEIPTSII. WHETHER OR NOT RESPONDENT HAD PROVEN BY PREPONDERANT EVIDENCE THAT PETITIONER WAS REMISS IN THE PAYMENT OF HIS ACCOUNTS TO ITS AGENT.16According to the petitioners, receiving receipts from the private respondents agents instead of its salesmen was a usual occurrence, as they had been operating the store since 1979. Thus, on four occasions in April 1983, when an agent of the respondent came to the store wearing an SMC uniform and driving an SMC van, petitioner Francisco Culaba, without question, paid his accounts. He received the receipts without fear, as they were similar to what he used to receive before. Furthermore, the petitioners assert that, common experience will attest that unless the attention of the customers is called for, they would not take note of the serial number of the receipts.The petitioners contend that the private respondent advertised its warning to the public only after the damage was done, or on July 9, 1993. Its belated notice showed its glaring lack of interest or concern for its customers welfare, and, in sum, its negligence.Anent the second issue, petitioner Francisco Culaba avers that the agent to whom the accounts were paid had all the physical and material attributes or indications of a representative of the private respondent, leaving no doubt that he was duly authorized by the latter. Petitioner Francisco Culabas testimony that "he does not necessarily check the contents of the receipts issued to him except for the amount indicated if [the] same accurately reflects his actual payment" is a common attitude of customers. He could, thus, not be faulted for paying the private respondents agent on four occasions. Petitioner Francisco Culaba asserts that he made the payment in good faith, to an agent who issued SMC receipts which appeared to be genuine. Thus, according to the petitioners, they had duly paid their obligation in accordance with Articles 1240 and 1242 of the New Civil Code.The private respondent, for its part, avers that the burden of proving payment is with the debtor, in consonance with the express provision of Article 1233 of the New Civil Code. The petitioners miserably failed to prove the self-serving allegation that they already paid their liability to the private respondent. Furthermore, under normal circumstances, an obligor would not just pay a substantial amount to someone whom he saw for the first time, without even asking for the latters name.The Ruling of the CourtThe petition is dismissed.The petitioners question the findings of the Court of Appeals as to whether the payment of the petitioners obligation to the private respondent was properly made, thus, extinguishing the same. This is clearly a factual issue, and beyond the purview of the Court to delve into. This is in consonance with the well-settled rule that findings of fact of the trial court, especially when affirmed by the Court of Appeals, are accorded the highest degree of respect, and generally will not be disturbed on appeal. Such findings are binding and conclusive on the Court.17Furthermore, it is not the Courts function under Rule 45 of the Rules of Court, as amended, to review, examine and evaluate or weigh the probative value of the evidence presented.18To reiterate, the issue being raised by the petitioners does not involve a question of law, but a question of fact, not cognizable by this Court in a petition for review under Rule 45. The jurisdiction of the Court in such a case is limited to reviewing only errors of law, unless the factual findings being assailed are not supported by evidence on record or the impugned judgment is based on a misapprehension of facts.19A careful study of the records of the case reveal that the appellate court affirmed the trial courts factual findings as follows:First. Receipts Nos. 27331, 27318, 27339 and 27346 were included in the private respondents lost booklet, which loss was duly advertised in a newspaper of general circulation; thus, the private respondent could not have officially issued them to the petitioners to cover the alleged payments on the dates appearing thereon.Second. There was something amiss in the way the receipts were issued to the petitioners, as one receipt bearing a higher serial number was issued ahead of another receipt bearing a lower serial number, supposedly covering a later payment. The petitioners failed to explain the apparent mix-up in these receipts, and no attempt was made in this regard.Third. The fact that the salesmans name was invariably left blank in the four receipts and that the petitioners could not even remember the name of the supposed impostor who received the said payments strongly argue against the veracity of the petitioners claim.We find no cogent reason to reverse the said findings.The dismissal of the petition is inevitable even upon close perusal of the merits of the case.Payment is a mode of extinguishing an obligation.20Article 1240 of the Civil Code provides that payment shall be made to the person in whose favor the obligation has been constituted, or his successor-in-interest, or any person authorized to receive it.21In this case, the payments were purportedly made to a "supervisor" of the private respondent, who was clad in an SMC uniform and drove an SMC van. He appeared to be authorized to accept payments as he showed a list of customers accountabilities and even issued SMC liquidation receipts which looked genuine. Unfortunately for petitioner Francisco Culaba, he did not ascertain the identity and authority of the said supervisor, nor did he ask to be shown any identification to prove that the latter was, indeed, an SMC supervisor. The petitioners relied solely on the mans representation that he was collecting payments for SMC. Thus, the payments the petitioners claimed they made were not the payments that discharged their obligation to the private respondent.The basis of agency is representation.22A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.23In the instant case, the petitioners loss could have been avoided if they had simply exercised due diligence in ascertaining the identity of the person to whom they allegedly made the payments. The fact that they were parting with valuable consideration should have made them more circumspect in handling their business transactions. Persons dealing with an assumed agent are bound at their peril to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.24The petitioners in this case failed to discharge this burden, considering that the private respondent vehemently denied that the payments were accepted by it and were made to its authorized representative.Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something, which a prudent and reasonable man would not do.25In the case at bar, the most prudent thing the petitioners should have done was to ascertain the identity and authority of the person who collected their payments. Failing this, the petitioners cannot claim that they acted in good faith when they made such payments. Their claim therefor is negated by their negligence, and they are bound by its consequences. Being negligent in this regard, the petitioners cannot seek relief on the basis of a supposed agency.26WHEREFORE, the instant petition is hereby DENIED. The assailed Decision dated April 16, 1996, and the Resolution dated July 19, 1996 of the Court of Appeals are AFFIRMED. Costs against the petitioners.SO ORDERED.

G.R. No. 149420 October 8, 2003SONNY LO,petitioner,vs.KJS ECO-FORMWORK SYSTEM PHIL., INC.,respondent.D E C I S I O NYNARES-SANTIAGO,J.:Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style Sans Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80.1He paid a downpayment in the amount of P150,000.00. The balance was made payable in ten monthly installments.Respondent delivered the scaffoldings to petitioner.2Petitioner was able to pay the first two monthly installments.1a\^/phi1.netHis business, however, encountered financial difficulties and he was unable to settle his obligation to respondent despite oral and written demands made against him.3On October 11, 1990, petitioner and respondent executed a Deed of Assignment,4whereby petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero Realty Corporation. Pertinent portions of the Deed provide:WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located at Greenmeadow Avenue, Quezon City owned by Jomero Realty Corporation;WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR purchased on account scaffolding equipments from the ASSIGNEE payable to the latter;WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the purchase of the aforementioned scaffoldings now in the amount of Three Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14);NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency which represents part of the ASSIGNORs collectible from Jomero Realty Corp., said ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE all collectibles amounting to the said amount of P335, 462.14;And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full power and authority to demand, collect, receive, compound, compromise and give acquittance for the same or any part thereof, and in the name and stead of the said ASSIGNOR;And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors and assigns that said debt is justly owing and due to the ASSIGNOR for Jomero Realty Corporation and that said ASSIGNOR has not done and will not cause anything to be done to diminish or discharge said debt, or delay or to prevent the ASSIGNEE, its successors or assigns, from collecting the same;And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and expense,execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents. xxx5(Italics supplied)However, when respondent tried to collect the said credit from Jomero Realty Corporation, the latter refused to honor the Deed of Assignment because it claimed that petitioner was also indebted to it.6On November 26, 1990, respondent sent a letter7to petitioner demanding payment of his obligation, but petitioner refused to pay claiming that his obligation had been extinguished when they executed the Deed of Assignment.Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money against the petitioner before the Regional Trial Court of Makati,