Last clear chance

In actions for recovery of damages, when both parties are negligent, the liabilities of the parties are determined pursuant to the doctrine of “last clear chance”. This doctrine is illustrated in this case between a bank (BA) and a horse racing club (PRCI).

PRCI maintained a checking account in BA with Ana its president, and Greg, the vice president for finance as authorized joint signatories. Usually when both Ana and Greg were scheduled to go abroad, they pre-signed several checks relating to said account with BA to insure continuity of PRCI’s operations by making cash/money available to settle obligations that might become due. These pre-signed checks were entrusted to the accountant with instructions that in case of need, he would prepare the corresponding vouchers and complete the entries in the pre-signed checks.

And so when Ana and Greg left the country for abroad on the second week of December 1988, they pre-signed several checks of the club and entrusted them to the accountant under the same instructions. Unfortunately however, due to lack of proper safeguards or internal control, two of the checks were lost or stolen, and on December 16, 1988, a certain John Doe presented the checks to BA with the indicated value of P110,000 each who later on appeared to be a clerk in the accounting department.

On the blank space of each check reserved for the PAYEE, the words “ONE HUNDRED TEN THOUSAND’ were typewritten. Above the same, the word “CASH” was also typewritten. On the blank reserved for “AMOUNT” the same figure of P110,000 was inscribed by a check writer. Despite these highly irregular entries on the face of the checks, BA still en-cashed them without as much as verifying and/or confirming their validity considering the amount involved and obvious infirmities.

When PRCI learned about the en-cashment of these checks despite the obvious irregularities, it sued BA for recovery of said amounts totaling P220,000 plus damages and attorney’s fees after its demands for reimbursement were left unheeded.

For its defense, BA insisted that it merely fulfilled its obligation under the law and contract when it en-cashed the checks because the signatures therein were genuine and such signatures signify the order for the payment of the checks. Its duty to inquire from PRCI before en-cashing the checks arise only when they bear material alteration of the date, the sum payable, the currency in which payment is to be made, the number or relations of the parties or any other change which alters the effect of the instrument. The infirmities on the checks in question do not constitute material alteration. Besides BA contended that PRCI’s practice of pre-signing blank checks and delivering them to its accountant and the latter’s gross negligence was the proximate cause of the loss. Was BA correct?

No. Banks are engaged in business impressed with public interest. They have the duty to treat their client’s accounts meticulously and with the highest degree of care considering the fiduciary nature of their relationship. The diligence required of banks therefore is more than that of a good father of a family.

In this case extraordinary diligence demands that BA should have ascertained from PRCI the authenticity of the subject checks or the accuracy of the entries therein. Although not in the strict sense “material alterations”, the misplacement of the typewritten entries for the payee and the amount on the same blank space and the repetition of the amount using a check writer were glaringly obvious irregularities that required BA to even make a simple phone call to PRCI to clarify them. Its contention that the sole blame should be shifted to PRCI for having pre-signed and deliver the subject checks to its accountant would have been correct if the subject checks were properly filled out by the thief and presented to it in good order. However, the undisputed facts plainly show that there were circumstances that should have alerted the bank to the likelihood that the checks were not properly delivered to the person who en-cashed them.

But PRCI’s officers’ practice of pre-signing blank checks is also a seriously negligent behavior and highly risky means of purportedly ensuring efficient operation of its businesses. It should have occurred to them that these checks could fall into wrong hands as they did in this case where the checks were stolen by a clerk from the accounting department.

But even if both parties are guilty of negligence, BA still emerge as the foremost party liable in this case because it had the last clear chance to avoid the loss. They could have called up PRCI for verification and confirmation before honoring the dubious checks. The one who had a last clear opportunity to avoid the impending harm but failed to do so is chargeable with the consequences thereof.

In the interest of fairness however, PRCI’s own negligence should mitigate BA’s liability. A party who is partly responsible for his own injury should not be entitled to recover damages in full but must bear the consequences of his own negligence which also contributed to the harm. Hence BA and PRCI should share liability at the rate of 60% to 40%. So BA should pay only 60% of P220,000 with legal interest (Bank of America NT & SA vs. Philippine Racing Club, G.R. 150228, July 30, 2009).

Note: Books containing compilation of my articles on Labor Law and Criminal Law (Vols. I and II) are now available. Call tel. 7249445.

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