Allied Banking Corporation vs. Bank of the Philippine Islands

A collecting bank’s acceptance of a post-dated check for deposit constitutes contributory negligence, and even when the drawee bank’s subsequent failure to return the check within the clearing reglementary period is the proximate cause of the loss under the doctrine of last clear chance, the loss must be apportioned between the two banks according to their respective degrees of negligence, the drawee bearing the larger share due to its greater opportunity to prevent the injury.

On October 10, 2002, a check for ₱1,000,000.00 payable to “Mateo Mgt. Group International” and post-dated “Oct. 9, 2003” was presented for deposit at petitioner Allied Banking Corporation’s Kawit Branch. The check was drawn against an account maintained with respondent Bank of the Philippine Islands’ Bel-Air Branch. Petitioner sent the check for clearing through the Philippine Clearing House Corporation, and respondent cleared it. Petitioner credited the payee’s account, and thereafter the account was closed and all funds withdrawn. When the drawer discovered the debit a month later and complained, respondent credited the amount back to his account. The banks then engaged in a “ping-pong” exchange of a photocopy of the check, each refusing to absorb the loss. The Philippine Clearing House Corporation initially implemented a 50-50 split through debit adjustment tickets. Petitioner subsequently sought full reimbursement from respondent through arbitration.

• The Check: On October 10, 2002, a check for ₱1,000,000.00 payable to “Mateo Mgt. Group International” (MMGI) was presented for deposit at petitioner Allied Banking Corporation’s Kawit Branch. The check was drawn against the account of Marciano Silva, Jr. maintained with respondent Bank of the Philippine Islands’ Bel-Air Branch and was clearly post-dated “Oct. 9, 2003” — one year into the future.

• Clearing and Payment: Petitioner sent the check for clearing to respondent through the Philippine Clearing House Corporation (PCHC). Respondent cleared the check without detecting the post-date. Petitioner then credited the amount of ₱1,000,000.00 to MMGI’s account. On October 22, 2002, MMGI’s account was closed and all funds withdrawn.

• Discovery and Re-crediting: In November 2002, Silva discovered the debit from his account and complained to respondent, which re-credited the ₱1,000,000.00 to him. On March 21, 2003, respondent returned a photocopy of the check to petitioner with the notation “Postdated.” Petitioner refused acceptance and returned the photocopy. A “ping-pong” exchange of the charge slip ensued.

• PCHC Intervention: On May 6, 2003, respondent requested PCHC to take custody of the check. PCHC directed delivery of the original check and informed the parties that under Clearing House Operating Memo No. 279, the amount of the check would be split 50/50 pending resolution, through Debit Adjustment Tickets. PCHC encouraged submission of the controversy to its Arbitration Mechanism.

• Arbitration Findings: Before the PCHC Arbitration Committee, petitioner admitted that it did not notice the post-date when it accepted the check for deposit. Respondent admitted that its standard verification procedure — calling the drawer for confirmation on large-amount checks — was not followed; after an unsuccessful initial call, no follow-up calls were made or other actions taken, yet the check was cleared. Both banks were thus found negligent.

• Application of Last Clear Chance: Petitioner argued that the Court of Appeals should have sustained the finding of the PCHC Arbitration Committee and the RTC that the doctrine of last clear chance properly imposed sole liability on respondent. It maintained that despite its own antecedent negligence in accepting the post-dated check, respondent had the last clear opportunity to avert the loss by simply observing its verification procedure and by returning the check within the 24-hour reglementary period under Section 20.1 of the Clearing House Rules and Regulations (CHRR) 2000.

• Proximate Cause: Petitioner contended that respondent’s negligent clearing of the check was the direct and proximate cause of the loss, and that respondent’s failure to make follow-up calls or to take any other action after the initial failed contact with the drawer, coupled with its failure to return the check on time, made it solely accountable. Reliance was placed on Philippine Bank of Commerce v. Court of Appeals, where the bank having the last clear chance was held liable.

• Gross Negligence of Petitioner: Respondent countered that petitioner’s acceptance of a check post-dated by one year constituted gross negligence and was the real and sole proximate cause of the loss. It stressed that such acceptance was a direct violation of basic banking regulations prohibiting encashment of post-dated checks.

• Applicability of Section 20.3 and Comparative Fault: Respondent argued that the PCHC and the RTC erroneously confined the return of a post-dated check to Section 20.1 of the CHRR 2000, ignoring that Section 20.3 likewise governed and preserved the drawee bank’s right to recover under general principles of law when defects are discovered after the reglementary period. Even assuming it had the last clear chance, respondent argued that petitioner had the longest and clearest opportunity to discover the defect at the point of presentment, and that justice required the loss to be shared.

• Last Clear Chance: Whether the doctrine of last clear chance applies in this case to hold respondent solely liable for the entire loss.

• Apportionment of Loss: Whether the 60-40 apportionment of loss ordered by the Court of Appeals was justified.

• Last Clear Chance: The doctrine of last clear chance was applicable. The evidence established that the proximate cause of the encashment was respondent’s negligence in clearing a facially post-dated check without following its own verification procedure. Had respondent exercised ordinary care, it would have noticed the glaring defect — the date “Oct. 9, 2003” — and returned the check within the 24-hour reglementary period, preventing petitioner from crediting the payee’s account. Respondent therefore had the last fair chance to avoid the loss but failed to do so. The antecedent negligence of petitioner in accepting the check did not bar recovery, but it constituted contributory negligence that mitigated damages.

• Apportionment of Loss: The 60-40 apportionment was justified. Petitioner’s acceptance of a check post-dated by one year fell short of the extraordinary diligence required of banks and was a clear violation of established banking rules. Because both banks were negligent — petitioner in accepting the irregular check and respondent in clearing it and failing to return it on time — the loss properly fell on both. Consistent with Philippine Bank of Commerce v. Court of Appeals, Bank of the Philippine Islands v. Court of Appeals (G.R. No. 102383), Bank of America NT & SA v. Philippine Racing Club, and Philippine National Bank v. F.F. Cruz and Co., Inc., where the bank whose negligence was the proximate cause bore the larger share, the allocation of 60% to respondent and 40% to petitioner was in accord with Article 2179 of the Civil Code and the demands of substantial justice. The collecting bank’s failure to scrutinize the check properly amounted to contributory negligence, and its damages were accordingly mitigated.

• Doctrine of Last Clear Chance — The doctrine provides that a plaintiff whose own negligence is antecedent is not precluded from recovering damages caused by the supervening negligence of the defendant, where the defendant, by the exercise of reasonable care, had the last fair chance to prevent the impending harm. It assumes negligence on both sides and requires that the defendant’s failure to exercise ordinary care was the proximate cause of the loss or injury. In this case, the drawee bank had the final opportunity to avert the injury by detecting the post-date and returning the check within the reglementary period; its failure to do so made the doctrine applicable.

• Contributory Negligence and Mitigation of Damages under Article 2179 — Article 2179 of the Civil Code provides that when both parties are negligent, the plaintiff may still recover damages if the defendant’s negligence was the immediate and proximate cause of the injury, but the courts shall mitigate the damages awarded. The effect of a plaintiff’s contributory negligence is not to bar recovery absolutely but to reduce the amount of damages recoverable in proportion to the plaintiff’s own fault. Here, the collecting bank’s contributory negligence in accepting a post-dated check warranted a 40% share in the loss, leaving the drawee bank liable for 60%.

• Standard of Diligence Required of Banks — The diligence required of banks is more than that of a good father of a family; it is the highest degree of diligence, given the nature of the banking business imbued with public interest. This heightened standard applies equally to collecting banks and drawee banks in the handling and clearing of checks. A collecting bank’s failure to reject a clearly post-dated check constitutes a breach of that extraordinary duty.

• “A collecting bank is guilty of contributory negligence when it accepted for deposit a post-dated check notwithstanding that said check had been cleared by the drawee bank which failed to return the check within the 24-hour reglementary period.” — Opening statement, encapsulating the pivotal ratio that both banks share liability.

• “The doctrine of last clear chance, stated broadly, is that the negligence of the plaintiff does not preclude a recovery for the negligence of the defendant where it appears that the defendant, by exercising reasonable care and prudence, might have avoided injurious consequences to the plaintiff notwithstanding the plaintiff’s negligence.” — Definition of the doctrine and its operational premise.

• “the diligence required of banks is more than that of a Roman paterfamilias or a good father of a family. The highest degree of diligence is expected,” considering the nature of the banking business that is imbued with public interest. — Reinforces the exacting standard applied to both banks and why petitioner’s failure to notice the post-date could not be excused.

• “x x x. When the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant's lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.” — Article 2179 of the New Civil Code, quoted to ground the power of the court to apportion damages.

• Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667 (1997) — Applied the doctrine of last clear chance to a bank that had the final opportunity to avert fraud by observing its validation procedure. The same case established the 60-40 allocation of damages when the plaintiff depositor was also guilty of contributory negligence. Followed and dispositive ratio adopted.

• Bank of the Philippine Islands v. Court of Appeals, G.R. No. 102383, Nov. 26, 1992, 216 SCRA 51 — Held that where both banks were negligent, comparative negligence warranted a 60-40 apportionment even though one bank’s negligence was the proximate cause. Applied as controlling precedent.

• The Consolidated Bank & Trust Corporation v. Court of Appeals, 457 Phil. 688 (2003) — Cited for the definition of the doctrine of last clear chance as it operates when the defendant had the last fair chance. Referred to in doctrinal discussion.

• Bank of America NT & SA v. Philippine Racing Club, G.R. No. 150228, July 30, 2009, 594 SCRA 301 — Reiterated the 60-40 apportionment under Article 2179 in a bank fraud case where the drawee had the last clear chance but the depositor was contributorily negligent. Followed.

• Philippine National Bank v. F.F. Cruz and Co., Inc., G.R. No. 173259, July 25, 2011, 654 SCRA 333 — Applied the same 60-40 split when the bank’s negligence was the proximate cause of loss and the client was contributory negligent. Affirmed consistency of the rule.

• Philippine National Bank v. Cheah Chee Chong, G.R. Nos. 170865 & 170892, April 25, 2012, 671 SCRA 49 — Cited for the definition of contributory negligence and for the standard of highest diligence required of banks.

• Article 2179, New Civil Code — Establishes that when the plaintiff’s negligence was only contributory and the defendant’s negligence was the immediate and proximate cause, the plaintiff may recover damages but the court shall mitigate them. Applied to reduce Allied Bank’s recoverable damages by its proportionate share of fault (40%).

• Sections 20.1, 20.2, and 20.3, Clearing House Rules and Regulations (CHRR) 2000 — Section 20.1(e) mandates return of a post-dated check not later than the next regular clearing, with mandatory acceptance by the sending bank. Section 20.2 provides that failure to return within the reglementary period deprives the drawee bank of the right to return the item through PCHC. Section 20.3 preserves the drawee bank’s right to recover under general legal principles when defects are discovered after the period. These provisions delineated the duties of respondent and the consequences of its delay.

• Section 21.1, CHRR 2000 — Allows special return of items with material alteration or forged endorsement by direct presentation beyond the reglementary period, but was held inapplicable to post-dated checks.

Chief Justice Maria Lourdes P. A. Sereno, Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Lucas P. Bersamin, and Associate Justice Bienvenido L. Reyes concurred.