G.R. No. L-6913; November 21, 1913
THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee, vs. GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin de la Peña, defendant-appellant.

FACTS:
The plaintiff, the Roman Catholic Bishop of Jaro, is the trustee of a charitable bequest for the construction of a leper hospital. Father Agustin de la Peña was the plaintiff’s duly authorized representative to receive and manage the legacy. The defendant is the administrator of Father de la Peña’s estate. In 1898, Father de la Peña’s books showed he held P6,641 in trust funds for this purpose. That same year, he deposited P19,000 into his personal account at the Hongkong and Shanghai Bank in Iloilo. During the Philippine Revolution, he was arrested by U.S. military authorities as a political prisoner, and the funds in the bank were confiscated on the ground that they were collected for revolutionary purposes. The plaintiff sued to recover the P6,641 trust fund, claiming it was part of the confiscated deposit. The trial court ruled in favor of the plaintiff, ordering the defendant to pay the amount with interest.

ISSUE:
Whether Father Agustin de la Peña (and thus his estate) is liable for the loss of the trust funds that were confiscated by the U.S. military authorities after he commingled them with his personal funds in a bank deposit.

RULING:
NO. The Supreme Court reversed the trial court’s decision and absolved the defendant from liability.

The Court held that, under the Civil Code (which governed as the law on trusts was not directly applicable), an obligor is bound to preserve the thing with the diligence of a good father of a family (Article 1094), but is not liable for unforeseeable or inevitable events (Article 1105), unless otherwise stipulated by law or contract. The confiscation of the funds by military authorities during war was an unforeseeable and inevitable event (a caso fortuito). Depositing the trust money in a bank under his personal name did not transform Father de la Peña into a debtor who guarantees the funds at all hazards. The Court declined to rule that he was negligent merely for choosing to deposit the funds commingled with his own, as there was no law prohibiting such act or altering his responsibility because of it. Since the loss was due to a caso fortuito, he was not liable.

DISSENTING OPINION (Justice Trent):
Justice Trent argued that by commingling the trust funds with his personal money, Father de la Peña stripped the funds of their identity as trust property and became a mere debtor, liable for its loss regardless of the cause. He cited Anglo-American trust principles, under which a trustee who mixes trust funds with his own becomes absolutely liable as a debtor. He also suggested that the pattern of withdrawals and redeposits indicated possible misuse of the funds. In his view, the majority ruling would endanger the security of trust funds in the future.