Ford drew and issued a crossed check in favor of the Commissioner of Internal Revenue (CIR) as payment of its percentage or manufacturer’s sales taxes. The check was deposited with Philippine Commercial International Bank (PCIBank) and was subsequently cleared. Upon presentment with Citibank, the proceeds were paid to PCIBank. In a letter by the Acting CIR, Ford was officially informed that its check was not paid to the government or its authorized agent but were encashed by unauthorized persons. An investigation revealed that Ford’s general ledger accountant had recalled the check purportedly because of an error in the computation of the tax due. With his instruction, PCIBank replaced the check with two of its own Manager’s Checks which were subsequently deposited with another bank.
Whether or not PCIBank is liable to reimburse Ford for the payment of the crossed check.
YES. 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. It 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.” Having 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 the forged check.