ConsolldaLed 8ank and 1rusL CorporaLlon vs CA

uaLe SepLember 11 2003

eLlLloner ConsolldaLed 8ank and 1rusL CorporaLlon
8espondenLs CA and LC ulaz and Company CAs

onenLe Carplo

lacLs LC ulaz opened a savlngs accounL wlLh Solldbank LaLer LC ulaz Lhrough lLs cashler Mercedes Macaraya fllled up a savlngs
(cash) deposlL sllp for 990 and a savlngs (checks) deposlL sllp for 30 Macaraya lnsLrucLed Lhe messenger of LC ulaz lsmael
Calapre Lo deposlL Lhe money wlLh Solldbank Macaraya also gave Calapre Lhe Solldbank passbook Calapre wenL Lo Solldbank 1he
Leller acknowledged recelpL of Lhe deposlL by reLurnlng Lo Calapre Lhe dupllcaLe coples of Lhe deposlL sllps Slnce Lhe LransacLlon
Look Llme and Calapre had Lo make anoLher deposlL for LC ulaz wlLh Allled 8ank he lefL Lhe passbook wlLh Solldbank When
Calapre reLurned Lo Solldbank Lo reLrleve Lhe passbook 1he Leller lnformed hlm LhaL somebody goL Lhe passbook" Calapre wenL
back Lo LC ulaz and reporLed Lhe lncldenL Lo Macaraya
Macaraya prepared a deposlL sllp ln dupllcaLe coples wlLh a check of 200000 Macaraya LogeLher wlLh Calapre wenL Lo
Solldbank and presenLed Lo Lhe Leller Lhe deposlL sllp and check When Macaraya asked for Lhe passbook Lhe Leller Lold Macaraya
LhaL someone goL Lhe passbook buL she could noL remember Lo whom she gave Lhe passbook When Macaraya asked her lf Calapre
goL Lhe passbook she answered LhaL someone shorLer Lhan Calapre goL Lhe passbook
LC ulaz Lhrough lLs CLC Luls C ulaz called up Solldbank Lo sLop any LransacLlon uslng Lhe same passbook unLll LC ulaz
could open a new accounL ulaz formally wroLe Solldbank Lo make Lhe same requesL lL was also on Lhe same day LhaL LC ulaz
learned of Lhe unauLhorlzed wlLhdrawal of 300000 from lLs savlngs accounL 1he wlLhdrawal sllp for Lhe 300000 bore Lhe
slgnaLures of Lhe auLhorlzed slgnaLorles of LC ulaz namely ulaz and 8usLlco L Murlllo 1he slgnaLorles however denled slgnlng Lhe
wlLhdrawal sllp A cerLaln noel 1amayo recelved Lhe 300000
LC ulaz charged lLs messenger Lmerano llagan and one 8oscon verdazola wlLh LsLafa Lhrough lalslflcaLlon of Commerclal
uocumenL 1he 81C of Manlla dlsmlssed Lhe crlmlnal case
LC ulaz Lhrough lLs counsel demanded from Solldbank Lhe reLurn of lLs money Solldbank refused LC ulaz flled a
complalnL for recovery of a sum of money agalnsL Solldbank wlLh Lhe 81C of Manlla 1he Lrlal courL rendered [udgmenL absolvlng
Solldbank and dlsmlsslng Lhe complalnL 1he courL applled Lhe rules on savlngs accounL wrlLLen on Lhe passbook (possesslon ralses
Lhe presumpLlon of ownershlp) 1he Lrlal courL polnLed ouL LhaL Lhe burden of proof now shlfLed Lo LC ulaz Lo prove LhaL Lhe
slgnaLures on Lhe wlLhdrawal sllp were forged AnoLher provlslon of Lhe rules on savlngs accounL sLaLes LhaL Lhe deposlLor musL
keep Lhe passbook under lock and key" When anoLher person presenLs Lhe passbook for wlLhdrawal prlor Lo Solldbank's recelpL of
Lhe noLlce of loss of Lhe passbook LhaL person ls consldered as Lhe owner of Lhe passbook 1he Lrlal courL ruled LhaL Lhe passbook
presenLed durlng Lhe quesLloned LransacLlon was now ouL of Lhe lock and key and presumpLlvely ready for a buslness LransacLlon"
1he CA reversed and ruled LhaL Solldbank's negllgence was Lhe proxlmaLe cause of Lhe unauLhorlzed wlLhdrawal of
300000 from Lhe savlngs accounL of LC ulaz 1he appellaLe courL reached Lhls concluslon afLer applylng Lhe provlslon of Lhe Clvll
Code on quasldellcL 1he A polnLed ouL LhaL Lhe Leller of Solldbank who recelved Lhe wlLhdrawal sllp for 300000 allowed Lhe
wlLhdrawal wlLhouL maklng Lhe necessary lnqulry 1he CA ruled LhaL whlle LC ulaz was also negllgenL ln enLrusLlng lLs deposlLs Lo
lLs messenger and lLs messenger ln leavlng Lhe passbook wlLh Lhe Leller Solldbank could noL escape llablllLy because of Lhe docLrlne
of lasL clear chance" Solldbank could have averLed Lhe ln[ury suffered by LC ulaz had lL called up LC ulaz Lo verlfy Lhe wlLhdrawal
1he CA also ruled LhaL Lhe degree of dlllgence requlred from Solldbank ls more Lhan LhaL of a good faLher of a famlly

lssue WhaL ls Lhe naLure of Lhe relaLlonshlp beLween peLlLloner and prlvaLe respondenL

8aLlo 1he conLracL beLween Lhe bank and lLs deposlLor ls governed by Lhe provlslons of Lhe Clvll Code on slmple loan (ArLlcle 1980
CC) 1here ls a debLorcredlLor relaLlonshlp beLween Lhe bank and lLs deposlLor 1he bank ls Lhe debLor and Lhe deposlLor ls Lhe
credlLor 1he deposlLor lends Lhe bank money and Lhe bank agrees Lo pay Lhe deposlLor on demand 1he savlngs deposlL agreemenL
beLween Lhe bank and Lhe deposlLor ls Lhe conLracL LhaL deLermlnes Lhe rlghLs and obllgaLlons of Lhe parLles
1he law lmposes on banks hlgh sLandards ln vlew of Lhe flduclary naLure of banklng SecLlon 2 8A 8791 declares LhaL Lhe
SLaLe recognlzes Lhe flduclary naLure of banklng LhaL requlres hlgh sLandards of lnLegrlLy and performance" 1hls new provlslon ln
Lhe general banklng law lnLroduced ln 2000 ls a sLaLuLory afflrmaLlon of SC declslons sLarLlng wlLh Lhe 1990 case of Slmex v CA
holdlng LhaL Lhe bank ls under obllgaLlon Lo LreaL Lhe accounLs of lLs deposlLors wlLh meLlculous care always havlng ln mlnd Lhe
flduclary naLure of Lhelr relaLlonshlp"
1hls flduclary relaLlonshlp means LhaL Lhe bank's obllgaLlon Lo observe hlgh sLandards of lnLegrlLy and performance" ls
deemed wrlLLen lnLo every deposlL agreemenL beLween a bank and lLs deposlLor 1he flduclary naLure of banklng requlres banks Lo
assume a degree of dlllgence hlgher Lhan LhaL of a good faLher of a famlly ArLlcle 1172 CC sLaLes LhaL Lhe degree of dlllgence
requlred of an obllgor ls LhaL prescrlbed by law or conLracL and absenL such sLlpulaLlon Lhen Lhe dlllgence of a good faLher of a
famlly Sec 2 of 8A 8791 prescrlbes Lhe sLaLuLory dlllgence requlred from banks LhaL banks musL observe hlgh sLandards of
lnLegrlLy and performance" ln servlclng Lhelr deposlLors AlLhough 8A 8791 Look effecL almosL nlne years afLer Lhe unauLhorlzed
wlLhdrawal of Lhe 300000 from LC ulaz's savlngs accounL [urlsprudence aL Lhe Llme of Lhe wlLhdrawal already lmposed on banks
Lhe same hlgh sLandard of dlllgence requlred under 8A no 8791
Powever Lhe flduclary naLure of a bankdeposlLor relaLlonshlp does noL converL Lhe conLracL beLween Lhe bank and lLs
deposlLors from a slmple loan Lo a LrusL agreemenL wheLher express or lmplled lallure by Lhe bank Lo pay Lhe deposlLor ls fallure
Lo pay a slmple loan and noL a breach of LrusL 1he law slmply lmposes on Lhe bank a hlgher sLandard of lnLegrlLy and performance
ln complylng wlLh lLs obllgaLlons under Lhe conLracL of slmple loan beyond Lhose requlred of nonbank debLors under a slmllar
conLracL of slmple loan
1he flduclary naLure of banklng does noL converL a slmple loan lnLo a LrusL agreemenL because banks do noL accepL deposlLs
Lo enrlch deposlLors buL Lo earn money for Lhemselves 1he law allows banks Lo offer Lhe lowesL posslble lnLeresL raLe Lo deposlLors
whlle charglng Lhe hlghesL posslble lnLeresL raLe on Lhelr own borrowers 1he lnLeresL spread or dlfferenLlal belongs Lo Lhe bank and
noL Lo Lhe deposlLors who are noL cesLul que LrusL of banks lf deposlLors are cesLul que LrusL of banks Lhen Lhe lnLeresL spread or
lncome belongs Lo Lhe deposlLors a slLuaLlon LhaL Congress cerLalnly dld noL lnLend ln enacLlng SecLlon 2 of 8A 8791

lssue WCn Lhe bank ls llable for breach of conLracL

Peld ?es

8aLlo ArL 1172 CC provldes LhaL responslblllLy arlslng from negllgence ln Lhe performance of every klnd of obllgaLlon ls
demandable" lor breach of Lhe savlngs deposlL agreemenL due Lo negllgence or culpa conLracLual Lhe bank ls llable Lo lLs
deposlLor
Calapre lefL Lhe passbook wlLh Solldbank because Lhe LransacLlon Look Llme" and he had Lo go Lo Allled 8ank 1he
passbook was sLlll ln Lhe hands of Lhe employees of Solldbank for Lhe processlng of Lhe deposlL when Calapre lefL Solldbank
Solldbank's rules on savlngs accounL requlre LhaL Lhe deposlL book should be carefully guarded by Lhe deposlLor and kepL under
lock and key lf posslble" When Lhe passbook ls ln Lhe possesslon of Solldbank's Lellers durlng wlLhdrawals Lhe law lmposes on
Solldbank and lLs Lellers an even hlgher degree of dlllgence ln safeguardlng Lhe passbook
Llkewlse Solldbank's Lellers musL exerclse a hlgh degree of dlllgence ln lnsurlng LhaL Lhey reLurn Lhe passbook only Lo Lhe
deposlLor or hls auLhorlzed represenLaLlve 1he Lellers know or should know LhaL Lhe rules on savlngs accounL provlde LhaL any
person ln possesslon of Lhe passbook ls presumpLlvely lLs owner lf Lhe Lellers glve Lhe passbook Lo Lhe wrong person Lhey would be
cloLhlng LhaL person presumpLlve ownershlp of Lhe passbook faclllLaLlng unauLhorlzed wlLhdrawals by LhaL person lor falllng Lo
reLurn Lhe passbook Lo Calapre Lhe auLhorlzed represenLaLlve of LC ulaz Solldbank and 1eller no 6 presumpLlvely falled Lo
observe such hlgh degree of dlllgence ln safeguardlng Lhe passbook and ln lnsurlng lLs reLurn Lo Lhe parLy auLhorlzed Lo recelve Lhe
same
ln culpa conLracLual once Lhe plalnLlff proves a breach of conLracL Lhere ls a presumpLlon LhaL Lhe defendanL was aL faulL
or negllgenL 1he burden ls on Lhe defendanL Lo prove LhaL he was noL aL faulL or negllgenL ln conLrasL ln culpa aqulllana Lhe
plalnLlff has Lhe burden of provlng LhaL Lhe defendanL was negllgenL ln Lhe presenL case LC ulaz has esLabllshed LhaL Solldbank
breached lLs conLracLual obllgaLlon Lo reLurn Lhe passbook only Lo Lhe auLhorlzed represenLaLlve of LC ulaz 1here ls Lhus a
presumpLlon LhaL Solldbank was aL faulL and lLs Leller was negllgenL ln noL reLurnlng Lhe passbook Lo Calapre 1he burden was on
Solldbank Lo prove LhaL Lhere was no negllgence on lLs parL or lLs employees
Solldbank falled Lo dlscharge lLs burden Solldbank dld noL presenL Lo Lhe Lrlal courL 1eller no 6 Lhe Leller wlLh whom
Calapre lefL Lhe passbook and who was supposed Lo reLurn Lhe passbook Lo hlm 1he record does noL lndlcaLe LhaL 1eller no 6
verlfled Lhe ldenLlLy of Lhe person who reLrleved Lhe passbook Solldbank also falled Lo adduce ln evldence lLs sLandard procedure ln
verlfylng Lhe ldenLlLy of Lhe person reLrlevlng Lhe passbook lf Lhere ls such a procedure and LhaL 1eller no 6 lmplemenLed Lhls
procedure ln Lhe presenL case
Solldbank ls bound by Lhe negllgence of lLs employees under Lhe prlnclple of respondeaL superlor or command
responslblllLy 1he defense of exerclslng Lhe requlred dlllgence ln Lhe selecLlon and supervlslon of employees ls noL a compleLe
defense ln culpa conLracLual unllke ln culpa aqulllana
1he bank musL noL only exerclse hlgh sLandards of lnLegrlLy and performance" lL musL also lnsure LhaL lLs employees do
llkewlse because Lhls ls Lhe only way Lo lnsure LhaL Lhe bank wlll comply wlLh lLs flduclary duLy Solldbank falled Lo presenL Lhe Leller
who had Lhe duLy Lo reLurn Lo Calapre Lhe passbook and Lhus falled Lo prove LhaL Lhls Leller exerclsed Lhe hlgh sLandards of
lnLegrlLy and performance" requlred of Solldbank's employees

lssue WCn Lhe bank's negllgence was Lhe proxlmaLe cause of prlvaLe respondenL's loss

Peld ?es

8aLlo roxlmaLe cause ls LhaL cause whlch ln naLural and conLlnuous sequence unbroken by any efflclenL lnLervenlng cause
produces Lhe ln[ury and wlLhouL whlch Lhe resulL would noL have occurred
LC ulaz was noL aL faulL LhaL Lhe passbook landed ln Lhe hands of Lhe lmposLor Solldbank was ln possesslon of Lhe
passbook whlle lL was processlng Lhe deposlL AfLer compleLlon of Lhe LransacLlon Solldbank had Lhe conLracLual obllgaLlon Lo
reLurn Lhe passbook only Lo Calapre Lhe auLhorlzed represenLaLlve of LC ulaz Solldbank falled Lo fulflll lLs conLracLual obllgaLlon
because lL gave Lhe passbook Lo anoLher person
Solldbank's fallure Lo reLurn Lhe passbook Lo Calapre made posslble Lhe wlLhdrawal of Lhe 300000 by Lhe lmposLor who
Look possesslon of Lhe passbook under Solldbank's rules on savlngs accounL mere possesslon of Lhe passbook ralses Lhe
presumpLlon of ownershlp lL was Lhe negllgenL acL of Solldbank's 1eller no 6 LhaL gave Lhe lmposLor presumpLlve ownershlp of Lhe
passbook Pad Lhe passbook noL fallen lnLo Lhe hands of Lhe lmposLor Lhe loss of 300000 would noL have happened 1hus Lhe
proxlmaLe cause of Lhe unauLhorlzed wlLhdrawal was Solldbank's negllgence ln noL reLurnlng Lhe passbook Lo Calapre
We do noL subscrlbe Lo Lhe CA's Lheory LhaL Lhe proxlmaLe cause of Lhe unauLhorlzed wlLhdrawal was Lhe Leller's fallure Lo
call up LC ulaz Lo verlfy Lhe wlLhdrawal Solldbank dld noL have Lhe duLy Lo call up LC ulaz Lo conflrm Lhe wlLhdrawal 1here ls no
arrangemenL beLween Solldbank and LC ulaz Lo Lhls effecL Lven Lhe agreemenL beLween Solldbank and LC ulaz perLalnlng Lo
measures LhaL Lhe parLles musL observe whenever wlLhdrawals of large amounLs are made does noL dlrecL Solldbank Lo call up LC
ulaz 1here ls no law mandaLlng banks Lo call up Lhelr cllenLs whenever Lhelr represenLaLlves wlLhdraw slgnlflcanL amounLs from
Lhelr accounLs LC ulaz Lherefore had Lhe burden Lo prove LhaL lL ls Lhe usual pracLlce of Solldbank Lo call up lLs cllenLs Lo verlfy a
wlLhdrawal of a large amounL of money LC ulaz falled Lo do so
Solldbank conLlnues Lo folsL Lhe defense LhaL llagan made Lhe wlLhdrawal Solldbank clalms LhaL slnce llagan was also a
messenger of LC ulaz he was famlllar wlLh lLs Leller so LhaL Lhere was no more need for Lhe Leller Lo verlfy Lhe wlLhdrawal LC
ulaz refuLes Solldbank's conLenLlon by polnLlng ouL LhaL Lhe person who wlLhdrew Lhe 300000 was a cerLaln noel 1amayo 8oLh
Lhe Lrlal and appellaLe courLs sLaLed LhaL Lhls noel 1amayo presenLed Lhe passbook wlLh Lhe wlLhdrawal sllp
We uphold Lhe flndlng LhaL a cerLaln noel 1amayo wlLhdrew Lhe 300000 1he CourL ls noL a Lrler of facLs 1he Lellers who
processed Lhe deposlL of Lhe 90000 check and Lhe wlLhdrawal of Lhe 300000 were noL presenLed durlng Lrlal Lo subsLanLlaLe
Solldbank's clalm LhaL llagan deposlLed Lhe check and made Lhe quesLloned wlLhdrawal Moreover Lhe enLry quoLed by Solldbank
does noL caLegorlcally sLaLe LhaL llagan presenLed Lhe wlLhdrawal sllp and Lhe passbook

lssue WCn Lhe docLrlne of lasL clear chance applles ln Lhls case

Peld no

8aLlo 1he docLrlne of lasL clear chance sLaLes LhaL where boLh parLles are negllgenL buL Lhe negllgenL acL of one ls appreclably laLer
Lhan LhaL of Lhe oLher or where lL ls lmposslble Lo deLermlne whose faulL or negllgence caused Lhe loss Lhe one who had Lhe lasL
clear opporLunlLy Lo avold Lhe loss buL falled Lo do so ls chargeable wlLh Lhe loss SLaLed dlfferenLly Lhe anLecedenL negllgence of
Lhe plalnLlff does noL preclude hlm from recoverlng damages caused by Lhe supervenlng negllgence of Lhe defendanL who had Lhe
lasL falr chance Lo prevenL Lhe lmpendlng harm by Lhe exerclse of due dlllgence
We do noL apply Lhe docLrlne of lasL clear chance Lo Lhe presenL case Solldbank ls llable for breach of conLracL due Lo
negllgence ln Lhe performance of lLs conLracLual obllgaLlon Lo LC ulaz 1hls ls a case of culpa conLracLual where nelLher Lhe
conLrlbuLory negllgence of Lhe plalnLlff nor hls lasL clear chance Lo avold Lhe loss would exoneraLe Lhe defendanL from llablllLy Such
conLrlbuLory negllgence or lasL clear chance by Lhe plalnLlff merely serves Lo reduce Lhe recovery of damages by Lhe plalnLlff buL
does noL exculpaLe Lhe defendanL from hls breach of conLracL

lssue WCn LC ulaz' conLrlbuLory negllgence warranLs mlLlgaLed damages

Peld ?es

8aLlo under ArLlcle 1172 llablllLy (for culpa conLracLual) may be regulaLed by Lhe courLs accordlng Lo Lhe clrcumsLances" 1hls
means LhaL lf Lhe defendanL exerclsed Lhe proper dlllgence ln Lhe selecLlon and supervlslon of lLs employee or lf Lhe plalnLlff was
gullLy of conLrlbuLory negllgence Lhen Lhe courLs may reduce Lhe award of damages ln Lhls case LC ulaz was gullLy of conLrlbuLory
negllgence ln allowlng a wlLhdrawal sllp slgned by lLs auLhorlzed slgnaLorles Lo fall lnLo Lhe hands of an lmposLor 1hus Lhe llablllLy
of Solldbank should be reduced
ln hlllpplne 8ank of Commerce v CA where Lhe CourL held Lhe deposlLor gullLy of conLrlbuLory negllgence we allocaLed
Lhe damages beLween Lhe deposlLor and Lhe bank on a 4060 raLlo Applylng Lhe same rullng Lo Lhls case we hold LhaL LC ulaz
musL shoulder 40 of Lhe acLual damages awarded by Lhe appellaLe courL Solldbank musL pay Lhe oLher 60 of Lhe acLual damages