Background

The case revolves around a sophisticated bank fraud scheme that exploited vulnerabilities in the check clearing process. Syndicate members opened accounts at BPI and Citibank, then deposited fraudulent checks. CBP employees Valentino and Estacio intercepted and altered clearing documents, preventing BPI from dishonoring the checks. Citibank, unaware of the fraud, allowed withdrawals after the clearing period. BPI discovered the ₱9 million loss and sought full reimbursement from CBP, which only partially complied. The legal battle that ensued focused on CBP's liability for its employees' actions and the nature of its clearing house operations.

Facts

• 1. BPI and Citibank are members of the Clearing House established and supervised by CBP.
• 2. On January 28, 1982, BPI Laoag City Branch discovered discrepancies in its inter-bank reconciliation statements amounting to ₱9 million.
• 3. An NBI investigation revealed that an organized criminal syndicate committed bank fraud through a "pilferage scheme" involving CBP employees Manuel Valentino (Bookkeeper) and Jesus Estacio (Janitor-Messenger).
• 4. The scheme involved opening accounts at BPI Laoag City Branch and Citibank Greenhills Branch, depositing checks drawn against BPI, and manipulating clearing documents at CBP.
• 5. CBP credited only ₱4.5 million to BPI's account, refusing to credit the remaining amount plus interest.

Arguments of the Petitioners

• 1. CBP's function of operating clearing house facilities is proprietary in character.
• 2. CBP can be sued without qualification under Section 4 of the Central Bank Act.
• 3. CBP's employees acted within the scope of their functions when committing the fraud.
• 4. CBP failed to exercise due diligence in supervising its employees.
• 5. CBP should apply Central Bank Circular No. 580, making Citibank liable as the sending bank.
• 6. Interest should be computed from June 15, 1982, the date of extrajudicial demand.

Arguments of the Respondents

• 1. Operating the clearing facility is a purely governmental function.
• 2. CBP's capacity to sue and be sued does not mean it's generally liable for torts in governmental functions.
• 3. Valentino and Estacio were not acting within the scope of their duties when committing fraud.
• 4. CBP exercised proper diligence in selecting and supervising its employees.
• 5. If liable, interest should only run from April 24, 2001, the date of the RTC decision.
• 6. Supports BPI's contention that CBP can be sued.
• 7. CBP's employees' fraudulent acts were the proximate cause of BPI's loss.
• 8. Citibank complied with all banking requirements in the clearing process.
• 9. Central Bank Circular No. 580 doesn't apply as the checks weren't lost "in transit."

Issues

• 1. Whether CBP may be sued on its governmental and/or proprietary functions.
• 2. Whether CBP is performing a proprietary function in operating clearing facilities for regional checks.
• 3. Whether CBP exercised due diligence in supervising the two employees involved in the bank fraud.
• 4. Whether Citibank, as the sending bank, should bear the damage caused to BPI as per Central Bank Circular No. 580.

Ruling

• 1. CBP is a corporate body performing governmental functions, including operating clearing house facilities.
• 2. CBP is not immune to suit due to express waiver in its charter, but this doesn't mean it concedes liability.
• 3. CBP is not liable for its employees' acts because: a. Valentino and Estacio were not "special agents" as defined in Article 2180 of the Civil Code. b. Even if CBP were performing proprietary functions, the employees acted beyond the scope of their duties.
• 4. Citibank is not liable as it acted within its authority by allowing withdrawals after the clearing period without notice of dishonor from BPI.

Doctrines

• 1. State Immunity from Suit: The state may not be sued without its consent, but this can be waived expressly or impliedly.
• 2. Government Corporation Suability: An incorporated government agency with a charter granting authority to sue and be sued has waived immunity from suit.
• 3. Special Agent Doctrine: The state is liable for torts of its employees only when they act as special agents, defined as those receiving a definite and fixed order foreign to their regular duties.
• 4. Scope of Employment: Employers are liable for damages caused by employees acting within the scope of their assigned tasks.

Precedents Cited

• 1. Fontanilla v. Maliaman (259 Phil. 302, 1989): Used to explain that the state may be held liable for quasi-delicts when performing proprietary acts.
• 2. Merritt v. Government of the Philippine Islands (34 Phil 311, 1916): Cited to define a "special agent" in the context of government liability.
• 3. Festejo v. Fernando (94 Phil. 504, 1954): Applied analogously to show that unauthorized acts of government employees are their personal liability, not the state's.

Statutory and Constitutional Provisions

• 1. Article XVI, Section 3 of the 1987 Constitution - Adoption of generally accepted principles of international law as part of the law of the land, including state immunity from suit.