Cred Trans 4

CREDIT TRANSACTIONS (Atty.
Jazzie Sarona-Lozare) 1
1ST EXAM COVERAGE COMPILATION OF CASES
VOLUNTARY DEPOSIT
CALIBO v. CA
with the latter, offering the tractor as security. Mike even

asked Calibo to help him find a buyer for the tractor so he
could sooner pay his outstanding obligation.1wphi1.nt
Republic of the Philippines

SUPREME COURT
Manila
In January 1987 when a new tenant moved into the house

formerly leased to Mike, Calibo had the tractor moved to the
garage of his father's house, also in Tagbilaran City.
FIRST DIVISION
Apprehensive over Mike's unsettled account, Calibo visited

him in his Cebu City address in January, February and
March, 1987 and tried to collect payment. On all three
occasions, Calibo was unable to talk to Mike as the latter
was reportedly out of town. On his third trip to Cebu City,
Calibo left word with the occupants of the Abella residence
thereat that there was a prospective buyer for the tractor.
The following week, Mike saw Calibo in Tagbilaran City to
inquire about the possible tractor buyer. The sale, however,
did not push through as the buyer did not come back
anymore. When again confronted with his outstanding
obligation, Mike reassured Calibo that the tractor would
stand as a guarantee for its payment. That was the last time
Calibo saw or heard from Mike.
G.R. No. 120528
January 29, 2001
ATTY. DIONISIO CALIBO, JR., petitioner,

vs.
COURT OF APPEALS and DR. PABLO U. ABELLA,
respondents.
QUISUMBING, J.:
Before us is the petition for review on certiorari by petitioner
Dionisio Calibo, Jr., assailing the decision of the Court of
Appeals in CA-G.R. CV No. 39705, which affirmed the
decision of the Regional Trial Court of Cebu, Branch 11,
declaring private respondent as the lawful possessor of a
tractor subject of a replevin suit and ordering petitioner to
pay private respondent actual damages and attorney's fees.
The facts of the case, as summarized by respondent court,
are undisputed.
"on January 25, 1979, plaintiff-appellee [herein petitioner]
Pablo U. Abella purchased an MF 210 agricultural tractor
with Serial No. 00105 and Engine No. P126M00199 (Exhibit
A; Record, p.5) which he used in his farm in Dagohoy, Bohol.
Sometimes in October or November 1985, Pablo Abella's
son, Mike abella rented for residential purpose the house of
defendant-appellant Dionosio R. Calibo, Jr., in Tagbilaran
City.
In October 1986, Pablo Abella pulled out his aforementioned
tractor from his farm in Dagohoy, Bohol, and left it in the
safekeeping of his son, Mike Abella, in Tagbilaran City. Mike
kept the tractor in the garage of the house he was leasing
from Calibo.
Since he started renting Calibo's house, Mike had been
religiously paying the monthly rentals therefor, but beginning
November of 1986, he stopped doing so. The following
month, Calibo learned that Mike had never paid the charges
for electric and water consumption in the leased premises
which the latter was duty-bound to shoulder. Thus, Calibo
confronted Mike about his rental arrears and the unpaid
electric and water bills. During this confrontation, Mike
informed Calibo that he (Mike) would be staying in the
leased property only until the end of December 1986. Mike
also assured Calibo that he would be settling his account
After a long while, or on November 22, 1988, Mike's father,

Pablo Abella, came to Tagbilaran City to claim and take
possession of the tractor. Calibo, however, informed Pablo
that Mike left the tractor with him as security for the payment
of Mike's obligation to him. Pablo offered to write Mike a
check for P2,000.00 in payment of Mike's unpaid lease
rentals, in addition to issuing postdated checks to cover the
unpaid electric and water bills the correctness of which Pablo
said he still had to verify with Mike. Calibo told Pablo that he
would accept the P2,000.00-check only if the latter would
execute a promissory note in his favor to cover the amount
of the unpaid electric and water bills. Pablo was not
amenable to this proposal. The two of them having failed to
come to an agreement, Pablo left and went back to Cebu
City, unsuccessful in his attempt to take possession of the
tractor."1
On November 25, 1988, private respondent instituted an
action for replevin, claiming ownership of the tractor and
seeking to recover possession thereof from petitioner. As
adverted to above, the trial court ruled in favor of private
respondent; so did the Court of Appeals when petitioner
appealed.
The Court of Appeals sustained the ruling of the trial court
that Mike Abella could not have validly pledged the subject
tractor to petitioner since he was not the owner thereof, nor
was he authorized by its owner to pledge the tractor.
Respondent court also rejected petitioner's contention that, if
not a pledge, then a deposit was created. The Court of
Appeals said that under the Civil Code, the primary purpose
of a deposit is only safekeeping and not, as in this case,
securing payment of a debt.
The Court of Appeals reduced the amount of actual damages
payable to private respondent, deducting therefrom the cost
CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 2

of transporting the tractor from Tagbilaran, Bohol, to Cebu
City.
Hence, this petition.
Essentially, petitioner claims that the tractor in question was
validly pledged to him by private respondent's son Mike
Abella to answer for the latter's monetary obligations to
petitioner. In the alternative, petitioner asserts that the tractor
was left with him, in the concept of an innkeeper, on deposit
and that he may validly hold on thereto until Mike Abella
pays his obligations.
Petitioner maintains that even if Mike Abella were not the
owner of the tractor, a principal-agent relationship may be
implied between Mike Abella and private respondent. He
contends that the latter failed to repudiate the alleged
agency, knowing that his son is acting on his behalf without
authority when he pledged the tractor to petitioner. Petitioner
argues that, under Article 1911 of the Civil Code, private
respondent is bound by the pledge, even if it were beyond
the authority of his son to pledge the tractor, since he
allowed his son to act as though he had full powers.
On the other hand, private respondent asserts that
respondent court had correctly ruled on the matter.
In a contract of pledge, the creditor is given the right to retain
his debtor's movable property in his possession, or in that of
a third person to whom it has been delivered, until the debt is
paid. For the contract to be valid, it is necessary that: (1) the
pledge is constituted to secure the fulfillment of a principal
obligation; (2) the pledgor be the absolute owner of the thing
pledged; and (3) the person constituting the pledge has the
free disposal of his property, and in the absence thereof, that
he be legally authorized for the purpose.2
As found by the trial court and affirmed by respondent court,
the pledgor in this case, Mike Abella, was not the absolute
owner of the tractor that was allegedly pledged to petitioner.
The tractor was owned by his father, private respondent, who
left the equipment with him for safekeeping. Clearly, the
second requisite for a valid pledge, that the pledgor be the
absolute owner of the property, is absent in this case. Hence,
there is no valid pledge.
"He who is not the owner or proprietor of the property
pledged or mortgaged to guarantee the fulfillment of a
principal obligation, cannot legally constitute such a guaranty
as may validly bind the property in favor of his creditor, and
the pledgee or mortgagee in such a case acquires no right
whatsoever in the property pledged or mortgaged."3
There also does not appear to be any agency in this case.
We agree with the Court of Appeals that:
"As indicated in Article 1869, for an agency relationship to be
deemed as implied, the principal must know that another
person is acting on his behalf without authority. Here,
appellee categorically stated that the only purpose for his
leaving the subject tractor in the care and custody of Mike

Abella was for safekeeping, and definitely not for him to
pledge or alienate the same. If it were true that Mike pledged
appeellee's tractor to appellant, then Mike was acting not
only without appellee's authority but without the latter's
knowledge as well.
Article 1911, on the other hand, mandates that the principal
is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers. Again, in view of
appellee's lack of knowledge of Mike's pledging the tractor
without any authority from him, it stands to reason that the
former could not have allowed the latter to pledge the tractor
as if he had full powers to do so."4
There is likewise no valid deposit in this case. In a contract
of deposit, a person receives an object belonging to another
with the obligation of safely keeping it and of returning the
same.5 Petitioner himself states that he received the tractor
not to safely keep it but as a form of security for the payment
of Mike Abella's obligations. There is no deposit where the
principal purpose for receiving the object is not safekeeping.6
Consequently, petitioner had no right to refuse delivery of the
tractor to its lawful owner. On the other hand, private
respondent, as owner, had every right to seek to repossess
the tractor, including the institution of the instant action for
replevin.1wphi1.nt
We do not here pass upon the other assignment of errors
made by petitioner concerning alleged irregularities in the
raffle and disposition of the case at the trial court. A petition
for review on certiorari is not the proper vehicle for such
allegations.
WHEREFORE, the instant petition is DENIED for lack of
merit, and the decision of the Court of Appeals in CA-G.R.
CV No. 39705 is AFFIRMED. Costs against petitioner.
SO ORDERED.

CHAN v. MACEDA
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 142591
April 30, 2003
JOSEPH CHAN, WILSON CHAN and LILY CHAN,

petitioners,
vs.
BONIFACIO S. MACEDA, JR., * respondent.
SANDOVAL-GUTIERREZ, J.:
A judgment of default does not automatically imply admission
by the defendant of the facts and causes of action of the
plaintiff. The Rules of Court require the latter to adduce
evidence in support of his allegations as an indispensable
condition before final judgment could be given in his favor.1
The trial judge has to evaluate the allegations with the
highest degree of objectivity and certainty. He may sustain
an allegation for which the plaintiff has adduced sufficient
evidence, otherwise, he has to reject it. In the case at bar,
judicial review is imperative to avert the award of damages
that is unreasonable and without evidentiary support.
Assailed in this petition for review under Rule 45 of the 1997
Rules of Civil Procedure, as amended, is the Decision2 dated
June 17, 1999 of the Court of Appeals in CA-G.R. CV No.
57323, entitled "Bonifacio S. Maceda, Jr. versus Joseph
Chan, et al.," affirming in toto the Decision3 dated December
26, 1996 of the Regional Trial Court, Branch 160, Pasig City,
in Civil Case No. 53044.
The essential antecedents are as follows:
On July 28, 1976, Bonifacio S. Maceda, Jr., herein
respondent, obtained a P7.3 million loan from the
Development Bank of the Philippines for the construction of
his New Gran Hotel Project in Tacloban City.
Thereafter, on September 29, 1976, respondent entered into
a building construction contract with Moreman Builders Co.,
Inc., (Moreman). They agreed that the construction would be
finished not later than December 22, 1977.
Respondent purchased various construction materials and
equipment in Manila. Moreman, in turn, deposited them in
the warehouse of Wilson and Lily Chan, herein petitioners.
The deposit was free of charge.
Unfortunately, Moreman failed to finish the construction of

the hotel at the stipulated time. Hence, on February 1, 1978,
respondent filed with the then Court of First Instance (CFI,
now Regional Trial Court), Branch 39, Manila, an action for
rescission and damages against Moreman, docketed as Civil
Case No. 113498.
On November 28, 1978, the CFI rendered its Decision4
rescinding the contract between Moreman and respondent
and awarding to the latter P445,000.00 as actual, moral and
liquidated damages; P20,000.00 representing the increase in
the construction materials; and P35,000.00 as attorney's
fees. Moreman interposed an appeal to the Court of Appeals
but the same was dismissed on March 7, 1989 for being
dilatory. He elevated the case to this Court via a petition for
review on certiorari. In a Decision5 dated February 21, 1990,
we denied the petition. On April 23, 1990,6 an Entry of
Judgment was issued.
Meanwhile, during the pendency of the case, respondent
ordered petitioners to return to him the construction materials
and equipment which Moreman deposited in their
warehouse. Petitioners, however, told them that Moreman
withdrew those construction materials in 1977.
Hence, on December 11, 1985, respondent filed with the
Regional Trial Court, Branch 160, Pasig City, an action for
damages with an application for a writ of preliminary
attachment against petitioners,7 docketed as Civil Case No.
53044.
In the meantime, on October 30, 1986, respondent was
appointed Judge of the Regional Trial Court, Branch 12, San
Jose Antique.8
On August 25, 1989, or after almost four (4) years, the trial
court dismissed respondent's complaint for his failure to
prosecute and for lack of interest."9 On September 6, 1994,
or five years thereafter, respondent filed a motion for
reconsideration, but the same was denied in the Order dated
September 9, 1994 because of the failure of respondent and
his counsel to appear on the scheduled hearing.10
On October 14, 1994, respondent filed a second motion for
reconsideration. This time, the motion was granted and the
case was ordered reinstated on January 10, 1995, or ten
(10) years from the time the action was originally filed.11
Thereafter, summons, together with the copies of the
complaint and its annexes, were served on petitioners.
On March 2, 1995, counsel for petitioners filed a motion to
dismiss on several grounds.12 Respondent, on the other
hand, moved to declare petitioners in default on the ground
that their motion to dismiss was filed out of time and that it
did not contain any notice of hearing.13
On April 27, 1995, the trial court issued an order declaring
petitioners in default.14

Petitioners filed with the Court of Appeals a petition for
certiorari15 to annul the trial court's order of default, but the
same was dismissed in its Order16 dated August 31, 1995.
The case reached this Court, and in a Resolution dated
October 25, 1995,17 we affirmed the assailed order of the
Court of Appeals. On November 29, 1995, 18 the
corresponding Entry of Judgment was issued.
Thus, upon the return of the records to the RTC, Branch 160,
Pasig City, respondent was allowed to present his evidence
ex-parte.
Upon motion of respondent, which was granted by the trial
court in its Order dated April 29, 1996, 19 the depositions of
his witnesses, namely, Leonardo Conge, Alfredo Maceda
and Engr. Damiano Nadera were taken in the Metropolitan
Trial Court in Cities, Branch 2, Tacloban City.20 Deponent
Leonardo Conge, a labor contractor, testified that on
December 14 up to December 24, 1977, he was contracted
by petitioner Lily Chan to get bags of cement from the New
Gran Hotel construction site and to store the same into the
latter's warehouse in Tacloban City. Aside from those bags of
cement, deponent also hauled about 400 bundles of steel
bars from the same construction site, upon order of
petitioners. Corresponding delivery receipts were presented
and marked as Exhibits "A", "A-1", "A-2", "A-3" and "A-4".21
Deponent Alfredo Maceda testified that he was respondent's
Disbursement and Payroll Officer who supervised the
construction and kept inventory of the properties of the New
Gran Hotel. While conducting the inventory on November 23,
1977, he found that the approximate total value of the
materials stored in petitioners' warehouse was P214,310.00.
This amount was accordingly reflected in the certification
signed by Mario Ramos, store clerk and representative of
Moreman who was present during the inventory.22
Deponent Damiano Nadera testified on the current cost of
the architectural and structural requirements needed to
complete the construction of the New Gran Hotel.23
On December 26, 1996, the trial court rendered a decision in
favor of respondent, thus:
"WHEREFORE, foregoing considered, judgment is hereby
rendered ordering defendants to jointly and severally pay
plaintiff:
1) P1,930,000.00 as actual damages;
2) P2,549,000.00 as actual damages;
3) Moral damages of P150,000.00; exemplary damages of
P50,000.00 and attorney's fees of P50,000.00 and to pay the
costs.
"SO ORDERED."
The trial court ratiocinated as follows:

"The inventory of other materials, aside from the steel bars
and cement is found highly reliable based on first, the
affidavit of Arthur Edralin dated September 15, 1979,
personnel officer of Moreman Builders that he was assigned
with others to guard the warehouse; (Exhs. "M" & "O");
secondly, the inventory (Exh. "C") dated November 23, 1977
shows (sic) deposit of assorted materials; thirdly, that there
were items in the warehouse as of February 3, 1978 as
shown in the balance sheet of Moreman's stock clerk Jose
Cedilla.
"Plaintiff is entitled to payment of damages for the
overhauling of materials from the construction site by Lily
Chan without the knowledge and consent of its owner. Article
20 of the Civil Code provides:
'Art. 20. Every person who contrary to law, willfully or
negligently caused damage to another, shall indemnify the
latter for the same.'
"As to the materials stored inside the bodega of defendant
Wilson Chan, the inventory (Exh. "C") show (sic), that the
same were owned by the New Gran Hotel. Said materials
were stored by Moreman Builders Co., Inc. since it was
attested to by the warehouseman as without any lien or
encumbrances, the defendants are duty bound to release it.
Article 21 of the Civil Code provides:
'Art. 21. Any person who willfully caused loss or injury to
another in a manner that is contrary to morals, good customs
or public policy shall compensate the latter for the damage.'
"Plaintiff is entitled to payment of actual damages based on
the inventory as of November 23, 1977 amounting to
P1,930,080.00 (Exhs. "Q" & "Q-1"). The inventory was
signed by the agent Moreman Builders Corporation and
defendants.
"Plaintiff is likewise entitled to payment of 12,500 bags of
cement and 400 bundles of steel bars totaling P2,549,000.00
(Exhs. "S" & "S-1"; Exhs. "B" & "B-3").
"Defendants should pay plaintiff moral damages of
P150,000.00; exemplary damages of P50,000.00 and
attorney's fees of P50,000.00 and to pay the costs.
"The claim of defendant for payment of damages with
respect to the materials appearing in the balance sheets as
of February 3, 1978 in the amount of P3,286,690.00, not
having been established with enough preponderance of
evidence cannot be given weight."24

Petitioners then elevated the case to the Court of Appeals,
docketed as CA-G.R. CV No. 57323. On June 17, 1999, the
Appellate Court rendered the assailed Decision25 affirming in
toto the trial court's judgment, ratiocinating as follows:
it affirmed in toto the award of actual damages made by the

trial court in favor of respondent in this case.
"Moreover, although the prayer in the complaint did not

specify the amount of damages sought, the same was
satisfactorily proved during the trial. For damages to be
awarded, it is essential that the claimant satisfactorily prove
during the trial the existence of the factual basis thereof and
its causal connection with the adverse party's act (PAL, Inc.
vs. NLRC, 259 SCRA 459). In sustaining appellee's claim for
damages, the court a quo held as follows:
II
'The Court finds the contention of plaintiff that materials and

equipment of plaintiff were stored in the warehouse of
defendants and admitted by defendants in the certification
issued to Sheriff Borja. x x x
'Evidence further revealed that assorted materials owned by
the New Gran Hotel (Exh. "C") were deposited in the bodega
of defendant Wilson Chan with a total market value of
P1,930,000.00, current price.
'The inventory of other materials, aside from the steel bars
and cement, is highly reliable based on first, the affidavit of
Arthur Edralin dated September 15, 1979, personnel officer
of Moreman Builders; that he was assigned, with others to
guard the warehouse (Exhs. M & O); secondly, the inventory
(Exh. C) November 23, 1977 shows deposit of assorted
materials; thirdly, that there were items in the warehouse as
of February 3, 1978, as shown in the balance sheet of
Moreman's stock clerk, Jose Cedilla (pp. 6061, Rollo).'
"The Court affirms the above findings.
"Well settled is the rule that 'absent any proper reason to
depart from the rule, factual conclusions reached by the trial
court are not to be disturbed (People vs. Dupali, 230 SCRA
62).' Hence, in the absence of any showing that serious and
substantial errors were committed by the lower court in the
appraisal of the evidence, the trial judge's assessment of the
credibility of the witnesses is accorded great weight and
respect (People vs. Jain, 254 SCRA 686). And, there being
absolutely nothing on record to show that the court a quo
overlooked, disregarded, or misinterpreted facts of weight
and significance, its factual findings and conclusions must be
given great weight and should not be disturbed on appeal.
"WHEREFORE, being in accord with law and evidence, the
appealed decision is hereby AFFIRMED in toto."
Hence, this petition for review on certiorari anchored on the
following grounds:
"I
The Court of Appeals acted with grave abuse of discretion
and under a misapprehension of the law and the facts when
The awards of moral and exemplary damages of the trial

court to respondent in this case and affirmed in toto by the
Court of Appeals are unwarranted by the evidence presented
by respondent at the ex parte hearing of this case and
should, therefore, be eliminated or at least reduced.
III
The award of attorney's fees by the trial court to respondent
in this case and affirmed by the Court of Appeals should be
deleted because of the failure of the trial court to state the
legal and factual basis of such award."
Petitioners contend inter alia that the actual damages
claimed by respondent in the present case were already
awarded to him in Civil Case No. 11349826 and hence,
cannot be recovered by him again. Even assuming that
respondent is entitled to damages, he can not recover
P4,479,000.00 which is eleven (11) times more than the total
actual damages of P365,000.00 awarded to him in Civil
Case No. 113498.27
In his comment on the petition, respondent maintains that
petitioners, as depositaries under the law, have both the
fiduciary and extraordinary obligations not only to safely
keep the construction material deposited, but also to return
them with all their products, accessories and accessions,
pursuant to Articles 1972,28 1979,29 1983,30 and 198831 of the
Civil Code. Considering that petitioners' duty to return the
construction materials in question has already become
impossible, it is only proper that the prices of those
construction materials in 1996 should be the basis of the
award of actual damages. This is the only way to fulfill the
"duty to return" contemplated in the applicable laws.32
Respondent further claims that petitioners must bear the
increase in market prices from 1977 to 1996 because liability
for fraud includes "all damages which may be reasonably
attributed to the non-performance of the obligation." Lastly,
respondent insists that there can be no double recovery
because in Civil Case No. 113498, 33 the parties were
respondent himself and Moreman and the cause of action
was the rescission of their building contract. In the present
case, however, the parties are respondent and petitioners
and the cause of action between them is for recovery of
damages arising from petitioners' failure to return the
construction materials and equipment.
Obviously, petitioners' assigned errors call for a review of the
lower court's findings of fact.
Succinct is the rule that this Court is not a trier of facts and
does not normally undertake the re-examination of the
evidence submitted by the contending parties during the trial

of the case considering that findings of fact of the Court of
Appeals are generally binding and conclusive on this Court. 34
The jurisdiction of this Court in a petition for review on
certiorari is limited to reviewing only errors of law,35 not of
fact, unless it is shown, inter alia, that: (1) the conclusion is a
finding grounded on speculations, surmises or conjectures;
(2) the inference is manifestly mistaken, absurd and
impossible; (3) there is grave abuse of discretion; (4) the
judgment is based on misapprehension of facts; (5) the
findings of fact are conflicting; and (6) the Court of Appeals,
in making its findings went beyond the issues of the case
and the same is contrary to the admission of both parties.36
Petitioners submit that this case is an exception to the
general rule since both the trial court and the Court of
Appeals based their judgments on misapprehension of facts.
We agree.
At the outset, the case should have been dismissed outright
by the trial court because of patent procedural infirmities. It
bears stressing that the case was originally filed on
December 11, 1985. Four (4) years thereafter, or on August
25, 1989, the case was dismissed for respondent's failure to
prosecute. Five (5) years after, or on September 6, 1994,
respondent filed his motion for reconsideration. From here,
the trial court already erred in its ruling because it should
have dismissed the motion for reconsideration outright as it
was filed far beyond the fifteen-day reglementary period. 37
Worse, when respondent filed his second motion for
reconsideration on October 14, 1994, a prohibited pleading, 38
the trial court still granted the same and reinstated the case
on January 10, 1995. This is a glaring gross procedural error
committed by both the trial court and the Court of Appeals.
Even without such serious procedural flaw, the case should
also be dismissed for utter lack of merit.
It must be stressed that respondent's claim for damages is
based on petitioners' failure to return or to release to him the
construction materials and equipment deposited by
Moreman to their warehouse. Hence, the essential issues to
be resolved are: (1) Has respondent presented proof that the
construction materials and equipment were actually in
petitioners' warehouse when he asked that the same be
turned over to him? (2) If so, does respondent have the right
to demand the release of the said materials and equipment
or claim for damages?
Under Article 1311 of the Civil Code, contracts are binding
upon the parties (and their assigns and heirs) who execute
them. When there is no privity of contract, there is likewise
no obligation or liability to speak about and thus no cause of
action arises. Specifically, in an action against the depositary,
the burden is on the plaintiff to prove the bailment or deposit
and the performance of conditions precedent to the right of
action.39 A depositary is obliged to return the thing to the
depositor, or to his heirs or successors, or to the person who
may have been designated in the contract.40
In the present case, the record is bereft of any contract of

deposit, oral or written, between petitioners and respondent.
If at all, it was only between petitioners and Moreman. And
granting arguendo that there was indeed a contract of
deposit between petitioners and Moreman, it is still
incumbent upon respondent to prove its existence and that it
was executed in his favor. However, respondent miserably
failed to do so. The only pieces of evidence respondent
presented to prove the contract of deposit were the delivery
receipts.41 Significantly, they are unsigned and not duly
received or authenticated by either Moreman, petitioners or
respondent or any of their authorized representatives.
Hence, those delivery receipts have no probative value at all.
While our laws grant a person the remedial right to prosecute
or institute a civil action against another for the enforcement
or protection of a right, or the prevention or redress of a
wrong,42 every cause of action ex-contractu must be founded
upon a contract, oral or written, express or implied.
Moreover, respondent also failed to prove that there were
construction materials and equipment in petitioners'
warehouse at the time he made a demand for their return.
Considering that respondent failed to prove (1) the existence
of any contract of deposit between him and petitioners, nor
between the latter and Moreman in his favor, and (2) that
there were construction materials in petitioners' warehouse
at the time of respondent's demand to return the same, we
hold that petitioners have no corresponding obligation or
liability to respondent with respect to those construction
materials.
Anent the issue of damages, petitioners are still not liable
because, as expressly provided for in Article 2199 of the Civil
Code,43 actual or compensatory damages cannot be
presumed, but must be proved with reasonable degree of
certainty. A court cannot rely on speculations, conjectures, or
guesswork as to the fact and amount of damages, but must
depend upon competent proof that they have been suffered
by the injured party and on the best obtainable evidence of
the actual amount thereof. It must point out specific facts
which could afford a basis for measuring whatever
compensatory or actual damages are borne.44
Considering our findings that there was no contract of
deposit between petitioners and respondent or Moreman and
that actually there were no more construction materials or
equipment in petitioners' warehouse when respondent made
a demand for their return, we hold that he has no right
whatsoever to claim for damages.
As we stressed in the beginning, a judgment of default does
not automatically imply admission by the defendant of
plaintiff's causes of action. Here, the trial court merely
adopted respondent's allegations in his complaint and
evidence without evaluating them with the highest degree of
objectivity and certainty.

WHEREFORE, the petition is GRANTED. The challenged
Decision of the Court of Appeals dated June 17, 1999 is
REVERSED and SET ASIDE. Costs against respondent.
The counterclaim set up by the defendant are hereby

dismissed for lack of merit.
SO ORDERED.
SIA v. CA
No costs.

SUPREME COURT
Manila
SO ORDERED. 4
The antecedent facts of the present controversy are
summarized by the public respondent in its challenged
decision as follows:
THIRD DIVISION
G.R. No. 102970
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as

attorney's fees and legal expenses.
May 13, 1993
LUZAN SIA, petitioner,

vs.
COURT OF APPEALS and SECURITY BANK and TRUST
COMPANY, respondents.
The plaintiff rented on March 22, 1985 the Safety Deposit

Box No. 54 of the defendant bank at its Binondo Branch
located at the Fookien Times Building, Soler St., Binondo,
Manila wherein he placed his collection of stamps. The said
safety deposit box leased by the plaintiff was at the bottom or
at the lowest level of the safety deposit boxes of the
defendant bank at its aforesaid Binondo Branch.
Asuncion Law Offices for petitioner.

During the floods that took place in 1985 and 1986,
floodwater entered into the defendant bank's premises,
seeped into the safety deposit box leased by the plaintiff and
caused, according to the plaintiff, damage to his stamps
collection. The defendant bank rejected the plaintiff's claim
for compensation for his damaged stamps collection, so, the
plaintiff instituted an action for damages against the
defendant bank.
Cauton, Banares, Carpio & Associates for private

respondent.
DAVIDE, JR., J.:

The Decision of public respondent Court of Appeals in CAG.R. CV No. 26737, promulgated on 21 August 1991, 1
reversing and setting aside the Decision, dated 19 February
1990, 2 of Branch 47 of the Regional Trial Court (RTC) of
Manila in Civil Case No. 87-42601, entitled "LUZAN SIA vs.
SECURITY BANK and TRUST CO.," is challenged in this
petition for review on certiorari under Rule 45 of the Rules
Court.
Civil Case No. 87-42601 is an action for damages arising out
of the destruction or loss of the stamp collection of the
plaintiff (petitioner herein) contained in Safety Deposit Box
No. 54 which had been rented from the defendant pursuant
to a contract denominated as a Lease Agreement. 3
Judgment therein was rendered in favor of the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the defendant,
Security Bank & Trust Company, ordering the defendant
bank to pay the plaintiff the sum of
a) Twenty Thousand Pesos
Currency, as actual damages;
(P20,000.00),
Philippine
b) One Hundred Thousand Pesos (P100,000.00), Philippine

Currency, as moral damages; and
The defendant bank denied liability for the damaged stamps

collection of the plaintiff on the basis of the "Rules and
Regulations Governing the Lease of Safe Deposit Boxes"
(Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13, which
reads (sic):
"9. The liability of the Bank by reason of the lease, is limited
to the exercise of the diligence to prevent the opening of the
safe by any person other than the Renter, his authorized
agent or legal representative;
xxx xxx xxx
"13. The Bank is not a depository of the contents of the safe
and it has neither the possession nor the control of the
same. The Bank has no interest whatsoever in said contents,
except as herein provided, and it assumes absolutely no
liability in connection therewith."
The defendant bank also contended that its contract with the
plaintiff over safety deposit box No. 54 was one of lease and
not of deposit and, therefore, governed by the lease
agreement (Exhs. "A", "L") which should be the applicable
law; that the destruction of the plaintiff's stamps collection
was due to a calamity beyond obligation on its part to notify
the plaintiff about the floodwaters that inundated its premises
at Binondo branch which allegedly seeped into the safety
deposit box leased to the plaintiff.

The trial court then directed that an ocular inspection on (sic)
the contents of the safety deposit box be conducted, which
was done on December 8, 1988 by its clerk of court in the
presence of the parties and their counsels. A report thereon
was then submitted on December 12, 1988 (Records, p. 98A) and confirmed in open court by both parties thru counsel
during the hearing on the same date (Ibid., p. 102) stating:
In reversing the trial court's decision and absolving SBTC

from liability, the public respondent found and ruled that:
"That the Safety Box Deposit No. 54 was opened by both

plaintiff Luzan Sia and the Acting Branch Manager Jimmy B.
Ynion in the presence of the undersigned, plaintiff's and
defendant's counsel. Said Safety Box when opened contains
two albums of different sizes and thickness, length and width
and a tin box with printed word 'Tai Ping Shiang Roast Pork
in pieces with Chinese designs and character."
b) the contract entered into by the parties regarding Safe

Deposit Box No. 54 was not a contract of deposit wherein
the bank became a depositary of the subject stamp
collection; hence, as contended by SBTC, the provisions of
Book IV, Title XII of the Civil Code on deposits do not apply;
Condition of the above-stated Items

"Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8 inches
in width and 3/4 in thick. The leaves of the album are
attached to every page and cannot be lifted without
destroying it, hence the stamps contained therein are no
longer visible.
2. The second album measure 12 1/2 inches in length, 9 3/4
in width 1 inch thick. Some of its pages can still be lifted. The
stamps therein can still be distinguished but beyond
restoration. Others have lost its original form.
3. The tin box is rusty inside. It contains an album with
several pieces of papers stuck up to the cover of the box.
The condition of the album is the second abovementioned
album." 5
The SECURITY BANK AND TRUST COMPANY, hereinafter
referred to as SBTC, appealed the trial court's decision to the
public respondent Court of Appeals. The appeal was
docketed as CA-G.R. CV No. 26737.
In urging the public respondent to reverse the decision of the
trial court, SBTC contended that the latter erred in (a)
holding that the lease agreement is a contract of adhesion;
(b) finding that the defendant had failed to exercise the
required diligence expected of a bank in maintaining the
safety deposit box; (c) awarding to the plaintiff actual
damages in the amount of P20,000.00, moral damages in
the amount of P100,000.00 and attorney's fees and legal
expenses in the amount of P5,000.00; and (d) dismissing the
counterclaim.
On 21 August 1991, the respondent promulgated its decision
the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby
REVERSED and instead the appellee's complaint is hereby
DISMISSED. The appellant bank's counterclaim is likewise
DISMISSED. No costs. 6
a) the fine print in the "Lease Agreement " (Exhibits "A" and
"1" ) constitutes the terms and conditions of the contract of
lease which the appellee (now petitioner) had voluntarily and
knowingly executed with SBTC;
c) The following provisions of the questioned lease

agreement of the safety deposit box limiting SBTC's liability:
9. The liability of the bank by reason of the lease, is limited to
the exercise of the diligence to prevent the opening of the
Safe by any person other than the Renter, his authorized
agent or legal representative.
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe
same. The Bank has no interest whatsoever in said contents,
liability in connection therewith.
are valid since said stipulations are not contrary to law,
morals, good customs, public order or public policy; and
d) there is no concrete evidence to show that SBTC failed to
exercise the required diligence in maintaining the safety
deposit box; what was proven was that the floods of 1985
and 1986, which were beyond the control of SBTC, caused
the damage to the stamp collection; said floods were
fortuitous events which SBTC should not be held liable for
since it was not shown to have participated in the
aggravation of the damage to the stamp collection; on the
contrary, it offered its services to secure the assistance of an
expert in order to save most of the stamps, but the appellee
refused; appellee must then bear the lose under the principle
of "res perit domino."
Unsuccessful in his bid to have the above decision
reconsidered by the public respondent, 7 petitioner filed the
instant petition wherein he contends that:
I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION
ON THE PART OF THE RESPONDENT COURT WHEN IT
RULED THAT RESPONDENT SBTC DID NOT FAIL TO
EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING
THE SAFETY DEPOSIT BOX OF THE PETITIONER
CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST
(sic) PROVING THE CONTRARY.

II
xxx xxx xxx
THE RESPONDENT COURT SERIOUSLY ERRED IN

EXCULPATING PRIVATE RESPONDENT FROM ANY
LIABILITY WHATSOEVER BY REASON OF THE
PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE
AGREEMENT (EXHS. "A" AND "A-1").
13. The bank is not a depository of the contents of the Safe

same. The Bank has no interest whatsoever said contents,
liability in connection therewith. 12
III
are valid and binding upon the parties. In the challenged

decision, the public respondent further avers that even
without such a limitation of liability, SBTC should still be
absolved from any responsibility for the damage sustained
by the petitioner as it appears that such damage was
occasioned by a fortuitous event and that the respondent
bank was free from any participation in the aggravation of
the injury.
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT

UPHOLDING THE AWARDS OF THE TRIAL COURT FOR
ACTUAL
AND
MORAL
DAMAGES,
INCLUDING
ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR
OF THE PETITIONER. 8
We subsequently gave due course the petition and required
both parties to submit their respective memoranda, which
they complied with. 9
Petitioner insists that the trial court correctly ruled that SBTC
had failed "to exercise the required diligence expected of a
bank maintaining such safety deposit box . . . in the light of
the environmental circumstance of said safety deposit box
after the floods of 1985 and 1986." He argues that such a
conclusion is supported by the evidence on record, to wit:
SBTC was fully cognizant of the exact location of the safety
deposit box in question; it knew that the premises were
inundated by floodwaters in 1985 and 1986 and considering
that the bank is guarded twenty-four (24) hours a day , it is
safe to conclude that it was also aware of the inundation of
the premises where the safety deposit box was located;
despite such knowledge, however, it never bothered to
inform the petitioner of the flooding or take any appropriate
measures to insure the safety and good maintenance of the
safety deposit box in question.
SBTC does not squarely dispute these facts; rather, it relies
on the rule that findings of facts of the Court of Appeals,
when supported by substantial exidence, are not reviewable
on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions
such as when there exists a disparity between the factual
findings and conclusions of the Court of Appeals and the trial
court. 11 Such a disparity obtains in the present case.
As We see it, SBTC's theory, which was upheld by the public
respondent, is that the "Lease Agreement " covering Safe
Deposit Box No. 54 (Exhibit "A and "1") is just that a
contract of lease and not a contract of deposit, and that
paragraphs 9 and 13 thereof, which expressly limit the
bank's liability as follows:
9. The liability of the bank by reason of the lease, is limited to
the exercise of the diligence to prevent the opening of the
Safe by any person other than the Renter, his autliorized
agent or legal representative;
We cannot accept this theory and ratiocination.

Consequently, this Court finds the petition to be impressed
with merit.
In the recent case CA Agro-Industrial Development Corp. vs.
Court of Appeals, 13 this Court explicitly rejected the
contention that a contract for the use of a safety deposit box
is a contract of lease governed by Title VII, Book IV of the
Civil Code. Nor did We fully subscribe to the view that it is a
contract of deposit to be strictly governed by the Civil Code
provision on deposit; 14 it is, as We declared, a special kind
of deposit. The prevailing rule in American jurisprudence
that the relation between a bank renting out safe deposit
boxes and its customer with respect to the contents of the
box is that of a bailor and bailee, the bailment for hire and
mutual benefit 15 has been adopted in this jurisdiction,
thus:
In the context of our laws which authorize banking
institutions to rent out safety deposit boxes, it is clear that in
this jurisdiction, the prevailing rule in the United States has
been adopted. Section 72 of the General Banking Act [R.A.
337, as amended] pertinently provides:
"Sec. 72. In addition to the operations specifically authorized
elsewhere in this Act, banking institutions other than building
and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable
objects, and rent safety deposit boxes for the safequarding
of such effects.
xxx xxx xxx
The banks shall perform the services permitted under
subsections (a), (b) and (c) of this section as depositories or
as agents. . . ."(emphasis supplied)
Note that the primary function is still found within the
parameters of a contract of deposit, i.e., the receiving in
custody of funds, documents and other valuable objects for
safekeeping. The renting out of the safety deposit boxes is

not independent from, but related to or in conjunction with,
this principal function. A contract of deposit may be entered
into orally or in writing (Art. 1969, Civil Code] and, pursuant
to Article 1306 of the Civil Code, the parties thereto may
establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to
law, morals, good customs, public order or public policy. The
depositary's responsibility for the safekeeping of the objects
deposited in the case at bar is governed by Title I, Book IV of
the Civil Code. Accordingly, the depositary would be liable if,
in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the
agreement [Art. 1170, id.]. In the absence of any stipulation
prescribing the degree of diligence required, that of a good
father of a family is to be observed [Art. 1173, id.]. Hence,
any stipulation exempting the depositary from any liability
arising from the loss of the thing deposited on account of
fraud, negligence or delay would be void for being contrary
to law and public policy. In the instant case, petitioner
maintains that conditions 13 and l4 of the questioned
contract of lease of the safety deposit box, which read:
"13. The bank is a depositary of the contents of the safe and
it has neither the possession nor control of the same.
"14. The bank has no interest whatsoever in said contents,
except as herein expressly provided, and it assumes
absolutely no liability in connection therewith."
are void as they are contrary to law and public policy. We
find Ourselves in agreement with this proposition for indeed,
said provisions are inconsistent with the respondent Bank's
responsibility as a depositary under Section 72 (a) of the
General Banking Act. Both exempt the latter from any liability
except as contemplated in condition 8 thereof which limits its
duty to exercise reasonable diligence only with respect to
who shall be admitted to any rented safe, to wit:
"8. The Bank shall use due diligence that no unauthorized
person shall be admitted to any rented safe and beyond this,
the Bank will not be responsible for the contents of any safe
rented from it."
Furthermore condition 13 stands on a wrong premise and is
contrary to the actual practice of the Bank. It is not correct to
assert that the Bank has neither the possession nor control
of the contents of the box since in fact, the safety deposit
box itself is located in its premises and is under its absolute
control; moreover, the respondent Bank keeps the guard key
to the said box. As stated earlier, renters cannot open their
respective boxes unless the Bank cooperates by presenting
and using this guard key. Clearly then, to the extent above
stated, the foregoing conditions in the contract in question
are void and ineffective. It has been said:
"With respect to property deposited in a safe-deposit box by
a customer of a safe-deposit company, the parties, since the
relation is a contractual one, may by special contract define
their respective duties or provide for increasing or limiting the
liability of the deposit company, provided such contract is not
in violation of law or public policy. It must clearly appear that

there actually was such a special contract, however, in order
to vary the ordinary obligations implied by law from the
relationship of the parties; liability of the deposit company will
not be enlarged or restricted by words of doubtful meaning.
The company, in renting safe-deposit boxes, cannot exempt
itself from liability for loss of the contents by its own fraud or
negligence or that, of its agents or servants, and if a
provision of the contract may be construed as an attempt to
do so, it will be held ineffective for the purpose. Although it
has been held that the lessor of a safe-deposit box cannot
limit its liability for loss of the contents thereof through its
own negligence, the view has been taken that such a lessor
may limit its liability to some extent by agreement or
stipulation ."[10 AM JUR 2d., 466]. (citations omitted) 16
It must be noted that conditions No. 13 and No. 14 in the
Contract of Lease of Safety Deposit Box in CA AgroIndustrial Development Corp. are strikingly similar to
condition No. 13 in the instant case. On the other hand, both
condition No. 8 in CA Agro-Industrial Development Corp. and
condition No. 9 in the present case limit the scope of the
exercise of due diligence by the banks involved to merely
seeing to it that only the renter, his authorized agent or his
legal representative should open or have access to the
safety deposit box. In short, in all other situations, it would
seem that SBTC is not bound to exercise diligence of any
kind at all. Assayed in the light of Our aforementioned
pronouncements in CA Agro-lndustrial Development Corp., it
is not at all difficult to conclude that both conditions No. 9
and No. 13 of the "Lease Agreement" covering the safety
deposit box in question (Exhibits "A" and "1") must be
stricken down for being contrary to law and public policy as
they are meant to exempt SBTC from any liability for
damage, loss or destruction of the contents of the safety
deposit box which may arise from its own or its agents' fraud,
negligence or delay. Accordingly, SBTC cannot take refuge
under the said conditions.
Public respondent further postulates that SBTC cannot be
held responsible for the destruction or loss of the stamp
collection because the flooding was a fortuitous event and
there was no showing of SBTC's participation in the
aggravation of the loss or injury. It states:
Article 1174 of the Civil Code provides:
"Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.'
In its dissertation of the phrase "caso fortuito" the
Enciclopedia Jurisdicada Espaola 17 says: "In a legal sense
and, consequently, also in relation to contracts, a "caso
fortuito" prevents (sic) 18 the following essential
characteristics: (1) the cause of the unforeseen ands
unexpected occurrence, or of the failure of the debtor to
comply with his obligation, must be independent of the

human will; (2) it must be impossible to foresee the event
which constitutes the "caso fortuito," or if it can be foreseen,
it must be impossible to avoid; (3) the occurrence must be
such as to render it impossible for one debtor to fulfill his
obligation in a normal manner; and (4) the obligor must be
free from any participation in the aggravation of the injury
resulting to the creditor." (cited in Servando vs. Phil., Steam
Navigation Co., supra). 19
ASIDE and the Decision of 19 February 1990 of Branch 47

of the Regional Trial Court of Manila in Civil Case No. 8742601 is hereby REINSTATED in full, except as to the award
of moral damages which is hereby set aside.
Here, the unforeseen or unexpected inundating floods were

independent of the will of the appellant bank and the latter
was not shown to have participated in aggravating damage
(sic) to the stamps collection of the appellee. In fact, the
appellant bank offered its services to secure the assistance
of an expert to save most of the then good stamps but the
appelle refused and let (sic) these recoverable stamps inside
the safety deposit box until they were ruined. 20
CA AGRO-INDUSTRIAL v. CA
Both the law and authority cited are clear enough and
require no further elucidation. Unfortunately, however, the
public respondent failed to consider that in the instant case,
as correctly held by the trial court, SBTC was guilty of
negligence. The facts constituting negligence are
enumerated in the petition and have been summarized in
this ponencia. SBTC's negligence aggravated the injury or
damage to the stamp collection. SBTC was aware of the
floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where Safe Deposit Box No. 54 was
located. In view thereof, it should have lost no time in
notifying the petitioner in order that the box could have been
opened to retrieve the stamps, thus saving the same from
further deterioration and loss. In this respect, it failed to
exercise the reasonable care and prudence expected of a
good father of a family, thereby becoming a party to the
aggravation of the injury or loss. Accordingly, the
aforementioned fourth characteristic of a fortuitous event is
absent Article 1170 of the Civil Code, which reads:
Those who in the performance of their obligation are guilty of
fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages,
thus comes to the succor of the petitioner. The destruction or
loss of the stamp collection which was, in the language of
the trial court, the "product of 27 years of patience and
diligence" 21 caused the petitioner pecuniary loss; hence, he
must be compensated therefor.
We cannot, however, place Our imprimatur on the trial
court's award of moral damages. Since the relationship
between the petitioner and SBTC is based on a contract,
either of them may be held liable for moral damages for
breach thereof only if said party had acted fraudulently or in
bad faith. 22 There is here no proof of fraud or bad faith on
the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED. The
challenged Decision and Resolution of the public respondent
Court of Appeals of 21 August 1991 and 21 November 1991,
respectively, in CA-G.R. CV No. 26737, are hereby SET
Costs against the private respondent.

SO ORDERED.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 90027
March 3, 1993
CA AGRO-INDUSTRIAL DEVELOPMENT CORP.,

petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SECURITY
BANK AND TRUST COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.
DAVIDE, JR., J.:

Is the contractual relation between a commercial bank and
another party in a contract of rent of a safety deposit box
with respect to its contents placed by the latter one of bailor
and bailee or one of lessor and lessee?
This is the crux of the present controversy.
On 3 July 1979, petitioner (through its President, Sergio
Aguirre) and the spouses Ramon and Paula Pugao entered
into an agreement whereby the former purchased from the
latter two (2) parcels of land for a consideration of
P350,625.00. Of this amount, P75,725.00 was paid as
downpayment while the balance was covered by three (3)
postdated checks. Among the terms and conditions of the
agreement embodied in a Memorandum of True and Actual
Agreement of Sale of Land were that the titles to the lots
shall be transferred to the petitioner upon full payment of the
purchase price and that the owner's copies of the certificates
of titles thereto, Transfer Certificates of Title (TCT) Nos.
284655 and 292434, shall be deposited in a safety deposit
box of any bank. The same could be withdrawn only upon
the joint signatures of a representative of the petitioner and
the Pugaos upon full payment of the purchase price.
Petitioner, through Sergio Aguirre, and the Pugaos then
rented Safety Deposit Box No. 1448 of private respondent
Security Bank and Trust Company, a domestic banking

corporation hereinafter referred to as the respondent Bank.
For this purpose, both signed a contract of lease (Exhibit "2")
which contains, inter alia, the following conditions:
On defendant's counterclaim, judgment is hereby rendered

ordering plaintiff to pay defendant the amount of FIVE
THOUSAND (P5,000.00) PESOS as attorney's fees.
13. The bank is not a depositary of the contents of the safe

and it has neither the possession nor control of the same.
With costs against plaintiff. 6
14. The bank has no interest whatsoever in said contents,

except herein expressly provided, and it assumes absolutely
no liability in connection therewith. 1
After the execution of the contract, two (2) renter's keys were
given to the renters one to Aguirre (for the petitioner) and
the other to the Pugaos. A guard key remained in the
possession of the respondent Bank. The safety deposit box
has two (2) keyholes, one for the guard key and the other for
the renter's key, and can be opened only with the use of both
keys. Petitioner claims that the certificates of title were
placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy
from the petitioner the two (2) lots at a price of P225.00 per
square meter which, as petitioner alleged in its complaint,
translates to a profit of P100.00 per square meter or a total
of P280,500.00 for the entire property. Mrs. Ramos
demanded the execution of a deed of sale which necessarily
entailed the production of the certificates of title. In view
thereof, Aguirre, accompanied by the Pugaos, then
proceeded to the respondent Bank on 4 October 1979 to
open the safety deposit box and get the certificates of title.
However, when opened in the presence of the Bank's
representative, the box yielded no such certificates. Because
of the delay in the reconstitution of the title, Mrs. Ramos
withdrew her earlier offer to purchase the lots; as a
consequence thereof, the petitioner allegedly failed to realize
the expected profit of P280,500.00. Hence, the latter filed on
1 September 1980 a complaint 2 for damages against the
respondent Bank with the Court of First Instance (now
Regional Trial Court) of Pasig, Metro Manila which docketed
the same as Civil Case No. 38382.
In its Answer with Counterclaim, 3 respondent Bank alleged
that the petitioner has no cause of action because of
paragraphs 13 and 14 of the contract of lease (Exhibit "2");
corollarily, loss of any of the items or articles contained in the
box could not give rise to an action against it. It then
interposed a counterclaim for exemplary damages as well as
attorney's fees in the amount of P20,000.00. Petitioner
subsequently filed an answer to the counterclaim. 4
In due course, the trial court, now designated as Branch 161
of the Regional Trial Court (RTC) of Pasig, Metro Manila,
rendered a decision 5 adverse to the petitioner on 8
December 1986, the dispositive portion of which reads:
rendered dismissing plaintiff's complaint.
The unfavorable verdict is based on the trial court's

conclusion that under paragraphs 13 and 14 of the contract
of lease, the Bank has no liability for the loss of the
certificates of title. The court declared that the said
provisions are binding on the parties.
Its motion for reconsideration 7 having been denied, petitioner
appealed from the adverse decision to the respondent Court
of Appeals which docketed the appeal as CA-G.R. CV No.
15150. Petitioner urged the respondent Court to reverse the
challenged decision because the trial court erred in (a)
absolving the respondent Bank from liability from the loss,
(b) not declaring as null and void, for being contrary to law,
public order and public policy, the provisions in the contract
for lease of the safety deposit box absolving the Bank from
any liability for loss, (c) not concluding that in this jurisdiction,
as well as under American jurisprudence, the liability of the
Bank is settled and (d) awarding attorney's fees to the Bank
and denying the petitioner's prayer for nominal and
exemplary damages and attorney's fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent
Court affirmed the appealed decision principally on the
theory that the contract (Exhibit "2") executed by the
petitioner and respondent Bank is in the nature of a contract
of lease by virtue of which the petitioner and its co-renter
were given control over the safety deposit box and its
contents while the Bank retained no right to open the said
box because it had neither the possession nor control over it
and its contents. As such, the contract is governed by Article
1643 of the Civil Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds
himself to give to another the enjoyment or use of a thing for
a price certain, and for a period which may be definite or
indefinite. However, no lease for more than ninety-nine years
shall be valid.
It invoked Tolentino vs. Gonzales 11 which held that the
owner of the property loses his control over the property
leased during the period of the contract and Article 1975
of the Civil Code which provides:
Art. 1975. The depositary holding certificates, bonds,
securities or instruments which earn interest shall be bound
to collect the latter when it becomes due, and to take such
steps as may be necessary in order that the securities may
preserve their value and the rights corresponding to them
according to law.
The above provision shall not apply to contracts for the rent
of safety deposit boxes.

and then concluded that "[c]learly, the defendant-appellee is
not under any duty to maintain the contents of the box. The
stipulation absolving the defendant-appellee from liability is
in accordance with the nature of the contract of lease and
cannot be regarded as contrary to law, public order and
public policy." 12 The appellate court was quick to add,
however, that under the contract of lease of the safety
deposit box, respondent Bank is not completely free from
liability as it may still be made answerable in case
unauthorized persons enter into the vault area or when the
rented box is forced open. Thus, as expressly provided for in
stipulation number 8 of the contract in question:
8. The Bank shall use due diligence that no unauthorized
rented from it. 13
Its motion for reconsideration 14 having been denied in the
respondent Court's Resolution of 28 August 1989, 15
petitioner took this recourse under Rule 45 of the Rules of
Court and urges Us to review and set aside the respondent
Court's ruling. Petitioner avers that both the respondent
Court and the trial court (a) did not properly and legally apply
the correct law in this case, (b) acted with grave abuse of
discretion or in excess of jurisdiction amounting to lack
thereof and (c) set a precedent that is contrary to, or is a
departure from precedents adhered to and affirmed by
decisions of this Court and precepts in American
jurisprudence adopted in the Philippines. It reiterates the
arguments it had raised in its motion to reconsider the trial
court's decision, the brief submitted to the respondent Court
and the motion to reconsider the latter's decision. In a
nutshell,
petitioner
maintains
that
regardless
of
nomenclature, the contract for the rent of the safety deposit
box (Exhibit "2") is actually a contract of deposit governed by
Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent
Bank is liable for the loss of the certificates of title pursuant
to Article 1972 of the said Code which provides:
Art. 1972. The depositary is obliged to keep the thing safely
and to return it, when required, to the depositor, or to his
heirs and successors, or to the person who may have been
designated in the contract. His responsibility, with regard to
the safekeeping and the loss of the thing, shall be governed
by the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into
account in determining the degree of care that the depositary
must observe.
Petitioner then quotes a passage from American
Jurisprudence 17 which is supposed to expound on the
prevailing rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit
company leases a safe-deposit box or safe and the lessee
takes possession of the box or safe and places therein his
securities or other valuables, the relation of bailee and bail or
is created between the parties to the transaction as to such

securities or other valuables; the fact that the
safe-deposit company does not know, and that it is not
expected that it shall know, the character or description of
the property which is deposited in such safe-deposit box or
safe does not change that relation. That access to the
contents of the safe-deposit box can be had only by the use
of a key retained by the lessee ( whether it is the sole key or
one to be used in connection with one retained by the lessor)
does not operate to alter the foregoing rule. The argument
that there is not, in such a case, a delivery of exclusive
possession and control to the deposit company, and that
therefore the situation is entirely different from that of
ordinary bailment, has been generally rejected by the courts,
usually on the ground that as possession must be either in
the depositor or in the company, it should reasonably be
considered as in the latter rather than in the former, since the
company is, by the nature of the contract, given absolute
control of access to the property, and the depositor cannot
gain access thereto without the consent and active
participation of the company. . . . (citations omitted).
and a segment from Words and Phrases 18 which states that
a contract for the rental of a bank safety deposit box in
consideration of a fixed amount at stated periods is a
bailment for hire.
Petitioner further argues that conditions 13 and 14 of the
questioned contract are contrary to law and public policy and
should be declared null and void. In support thereof, it cites
Article 1306 of the Civil Code which provides that parties to a
contract may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order or
public policy.
After the respondent Bank filed its comment, this Court gave
due course to the petition and required the parties to
simultaneously submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for
the rent of the safety deposit box is not an ordinary contract
of lease as defined in Article 1643 of the Civil Code.
However, We do not fully subscribe to its view that the same
is a contract of deposit that is to be strictly governed by the
provisions in the Civil Code on deposit; 19 the contract in the
case at bar is a special kind of deposit. It cannot be
characterized as an ordinary contract of lease under Article
1643 because the full and absolute possession and control
of the safety deposit box was not given to the joint renters
the petitioner and the Pugaos. The guard key of the box
remained with the respondent Bank; without this key, neither
of the renters could open the box. On the other hand, the
respondent Bank could not likewise open the box without the
renter's key. In this case, the said key had a duplicate which
was made so that both renters could have access to the box.

Hence, the authorities cited by the respondent Court 20 on
this point do not apply. Neither could Article 1975, also relied
upon by the respondent Court, be invoked as an argument
against the deposit theory. Obviously, the first paragraph of
such provision cannot apply to a depositary of certificates,
bonds, securities or instruments which earn interest if such
documents are kept in a rented safety deposit box. It is clear
that the depositary cannot open the box without the renter
being present.
We observe, however, that the deposit theory itself does not
altogether find unanimous support even in American
jurisprudence. We agree with the petitioner that under the
latter, the prevailing rule is that the relation between a bank
renting out safe-deposit boxes and its customer with respect
to the contents of the box is that of a bail or and bailee, the
bailment being for hire and mutual benefit. 21 This is just the
prevailing view because:
There is, however, some support for the view that the
relationship in question might be more properly
characterized as that of landlord and tenant, or lessor and
lessee. It has also been suggested that it should be
characterized as that of licensor and licensee. The relation
between a bank, safe-deposit company, or storage company,
and the renter of a safe-deposit box therein, is often
described as contractual, express or implied, oral or written,
in whole or in part. But there is apparently no jurisdiction in
which any rule other than that applicable to bailments
governs questions of the liability and rights of the parties in
respect of loss of the contents of safe-deposit boxes. 22
(citations omitted)
In the context of our laws which authorize banking
institutions to rent out safety deposit boxes, it is clear that in
this jurisdiction, the prevailing rule in the United States has
been adopted. Section 72 of the General Banking Act 23
pertinently provides:
Sec. 72. In addition to the operations specifically authorized
elsewhere in this Act, banking institutions other than building
and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable
objects, and rent safety deposit boxes for the safeguarding
of such effects.
xxx xxx xxx
The banks shall perform the services permitted under
subsections (a), (b) and (c) of this section as depositories or
as agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the
parameters of a contract of deposit, i.e., the receiving in
custody of funds, documents and other valuable objects for
safekeeping. The renting out of the safety deposit boxes is
not independent from, but related to or in conjunction with,
this principal function. A contract of deposit may be entered
into orally or in writing 25 and, pursuant to Article 1306 of the
Civil Code, the parties thereto may establish such

stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy. The
depositary's responsibility for the safekeeping of the objects
deposited in the case at bar is governed by Title I, Book IV of
the Civil Code. Accordingly, the depositary would be liable if,
in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the
agreement. 26 In the absence of any stipulation prescribing
the degree of diligence required, that of a good father of a
family is to be observed. 27 Hence, any stipulation exempting
the depositary from any liability arising from the loss of the
thing deposited on account of fraud, negligence or delay
would be void for being contrary to law and public policy. In
the instant case, petitioner maintains that conditions 13 and
14 of the questioned contract of lease of the safety deposit
box, which read:
13. The bank is not a depositary of the contents of the safe
and it has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents,
except herein expressly provided, and it assumes absolutely
no liability in connection therewith. 28
are void as they are contrary to law and public policy. We
find Ourselves in agreement with this proposition for indeed,
said provisions are inconsistent with the respondent Bank's
responsibility as a depositary under Section 72(a) of the
General Banking Act. Both exempt the latter from any liability
except as contemplated in condition 8 thereof which limits its
duty to exercise reasonable diligence only with respect to
who shall be admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no unauthorized
rented from it. 29
Furthermore, condition 13 stands on a wrong premise and is
contrary to the actual practice of the Bank. It is not correct to
assert that the Bank has neither the possession nor control
of the contents of the box since in fact, the safety deposit
box itself is located in its premises and is under its absolute
control; moreover, the respondent Bank keeps the guard key
to the said box. As stated earlier, renters cannot open their
respective boxes unless the Bank cooperates by presenting
and using this guard key. Clearly then, to the extent above
stated, the foregoing conditions in the contract in question
are void and ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a
customer of a safe-deposit company, the parties, since the
relation is a contractual one, may by special contract define
their respective duties or provide for increasing or limiting the
liability of the deposit company, provided such contract is not
in violation of law or public policy. It must clearly appear that
there actually was such a special contract, however, in order
to vary the ordinary obligations implied by law from the

relationship of the parties; liability of the deposit company will
not be enlarged or restricted by words of doubtful meaning.
The
company,
in
renting
safe-deposit boxes, cannot exempt itself from liability for loss
of the contents by its own fraud or negligence or that of its
agents or servants, and if a provision of the contract may be
construed as an attempt to do so, it will be held ineffective for
the purpose. Although it has been held that the lessor of a
safe-deposit box cannot limit its liability for loss of the
contents thereof through its own negligence, the view has
been taken that such a lessor may limits its liability to some
extent by agreement or stipulation. 30 (citations omitted)
Thus, we reach the same conclusion which the Court of
Appeals arrived at, that is, that the petition should be
dismissed, but on grounds quite different from those relied
upon by the Court of Appeals. In the instant case, the
respondent Bank's exoneration cannot, contrary to the
holding of the Court of Appeals, be based on or proceed
from a characterization of the impugned contract as a
contract of lease, but rather on the fact that no competent
proof was presented to show that respondent Bank was
aware of the agreement between the petitioner and the
Pugaos to the effect that the certificates of title were
withdrawable from the safety deposit box only upon both
parties' joint signatures, and that no evidence was submitted
to reveal that the loss of the certificates of title was due to
the fraud or negligence of the respondent Bank. This in turn
flows from this Court's determination that the contract
involved was one of deposit. Since both the petitioner and
the Pugaos agreed that each should have one (1) renter's
key, it was obvious that either of them could ask the Bank for
access to the safety deposit box and, with the use of such
key and the Bank's own guard key, could open the said box,
without the other renter being present.
Since, however, the petitioner cannot be blamed for the filing
of the complaint and no bad faith on its part had been
established, the trial court erred in condemning the petitioner
to pay the respondent Bank attorney's fees. To this extent,
the Decision (dispositive portion) of public respondent Court
of Appeals must be modified.
WHEREFORE, the Petition for Review is partially GRANTED
by deleting the award for attorney's fees from the 4 July 1989
Decision of the respondent Court of Appeals in CA-G.R. CV
No. 15150. As modified, and subject to the pronouncement
We made above on the nature of the relationship between
the parties in a contract of lease of safety deposit boxes, the
dispositive portion of the said Decision is hereby AFFIRMED
and the instant Petition for Review is otherwise DENIED for
lack of merit.
No pronouncement as to costs.
SO ORDERED.
BARON v. DAVID
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-26948 and L-26949
October 8, 1927
SILVESTRA BARON, plaintiff-appellant,

vs.
PABLO DAVID, defendant-appellant.
And
GUILLERMO BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
Jose Gutierrez David for plaintiff-appellant in case of No.
26948.
Gregorio Perfecto for defendant-appellant in both cases.
Francisco, Lualhati & Lopez and Jose Gutierrez David for
plaintiff-appellant in case No. 26949.
STREET, J.:
These two actions were instituted in the Court of First
Instance of the Province of Pampanga by the respective
plaintiffs, Silvestra Baron and Guillermo Baron, for the
purpose of recovering from the defendant, Pablo David, the
value of palay alleged to have been sold by the plaintiffs to
the defendant in the year 1920. Owing to the fact that the
defendant is the same in both cases and that the two cases
depend in part upon the same facts, the cases were heard
together in the trial court and determined in a single opinion.
The same course will accordingly be followed here.
In the first case, i. e., that which Silvestra Baron is plaintiff,
the court gave judgment for her to recover of the defendant
the sum of P5,238.51, with costs. From this judgment both
the plaintiff and the defendant appealed.
In the second case, i. e., that in which Guillermo Baron, is
plaintiff, the court gave judgment for him to recover of the
defendant the sum of P5,734.60, with costs, from which
judgment both the plaintiff and the defendant also appealed.
In the same case the defendant interposed a counterclaim in

which he asked credit for the sum of P2,800 which he had
advanced to the plaintiff Guillermo Baron on various
occasions. This credit was admitted by the plaintiff and
allowed by the trial court. But the defendant also interposed
a cross-action against Guillermo Baron in which the
defendant claimed compensation for damages alleged to
have Ben suffered by him by reason of the alleged malicious
and false statements made by the plaintiff against the
defendant in suing out an attachment against the defendant's
property soon after the institution of the action. In the same
cross-action the defendant also sought compensation for
damages incident to the shutting down of the defendant's
rice mill for the period of one hundred seventy days during
which the above-mentioned attachment was in force. The
trial judge disallowed these claims for damages, and from
this feature of the decision the defendant appealed. We are
therefore confronted with five distinct appeals in this record.
Prior to January 17, 1921, the defendant Pablo David has
been engaged in running a rice mill in the municipality of
Magalang, in the Province of Pampanga, a mill which was
well patronized by the rice growers of the vicinity and almost
constantly running. On the date stated a fire occurred that
destroyed the mill and its contents, and it was some time
before the mill could be rebuilt and put in operation again.
Silvestra Baron, the plaintiff in the first of the actions before
us, is an aunt of the defendant; while Guillermo Baron, the
plaintiff in the other action; is his uncle. In the months of
March, April, and May, 1920, Silvestra Baron placed a
quantity of palay in the defendant's mill; and this, in
connection with some that she took over from Guillermo
Baron, amounted to 1,012 cavans and 24 kilos. During
approximately the same period Guillermo Baron placed other
1,865 cavans and 43 kilos of palay in the mill. No
compensation has ever been received by Silvestra Baron
upon account of the palay delivered by Guillermo Baron, he
has received from the defendant advancements amounting
to P2,800; but apart from this he has not been compensated.
Both the plaintiffs claim that the palay which was delivered
by them to the defendant was sold to the defendant; while
the defendant, on the other hand, claims that the palay was
deposited subject to future withdrawal by the depositors or
subject to some future sale which was never effected. He
therefore supposes himself to be relieved from all
responsibility by virtue of the fire of January 17, 1921,
already mentioned.
The plaintiff further say that their palay was delivered to the
defendant at his special request, coupled with a promise on
his part to pay for the same at the highest price per cavan at
which palay would sell during the year 1920; and they say
that in August of that year the defendant promised to pay
them severally the price of P8.40 per cavan, which was
about the top of the market for the season, provided they
would wait for payment until December. The trial judge found
that no such promise had been given; and the incredulity of
the court upon this point seems to us to be justified. A careful
examination of the proof, however, leads us to the
conclusion that the plaintiffs did, some time in the early part
of August, 1920, make demand upon the defendant for a
settlement, which he evaded or postponed leaving the exact

amount due to the plaintiffs undetermined.
It should be stated that the palay in question was place by
the plaintiffs in the defendant's mill with the understanding
that the defendant was at liberty to convert it into rice and
dispose of it at his pleasure. The mill was actively running
during the entire season, and as palay was daily coming in
from many customers and as rice was being constantly
shipped by the defendant to Manila, or other rice markets, it
was impossible to keep the plaintiffs' palay segregated. In
fact the defendant admits that the plaintiffs' palay was mixed
with that of others. In view of the nature of the defendant's
activities and the way in which the palay was handled in the
defendant's mill, it is quite certain that all of the plaintiffs'
palay, which was put in before June 1, 1920, been milled and
disposed of long prior to the fire of January 17, 1921.
Furthermore, the proof shows that when the fire occurred
there could not have been more than about 360 cavans of
palay in the mill, none of which by any reasonable probability
could have been any part of the palay delivered by the
plaintiffs. Considering the fact that the defendant had thus
milled and doubtless sold the plaintiffs' palay prior to the date
of the fire, it result that he is bound to account for its value,
and his liability was not extinguished by the occurence of the
fire. In the briefs before us it seems to have been assumed
by the opposing attorneys that in order for the plaintiffs to
recover, it is necessary that they should be able to establish
that the plaintiffs' palay was delivered in the character of a
sale, and that if, on the contrary, the defendant should prove
that the delivery was made in the character of deposit, the
defendant should be absolved. But the case does not
depend precisely upon this explicit alternative; for even
supposing that the palay may have been delivered in the
character of deposit, subject to future sale or withdrawal at
plaintiffs' election, nevertheless if it was understood that the
defendant might mill the palay and he has in fact
appropriated it to his own use, he is of course bound to
account for its value. Under article 1768 of the Civil Code,
when the depository has permission to make use of the thing
deposited, the contract loses the character of mere deposit
and becomes a loan or a commodatum; and of course by
appropriating the thing, the bailee becomes responsible for
its value. In this connection we wholly reject the defendant's
pretense that the palay delivered by the plaintiffs or any part
of it was actually consumed in the fire of January, 1921. Nor
is the liability of the defendant in any wise affected by the
circumstance that, by a custom prevailing among rice millers
in this country, persons placing palay with them without
special agreement as to price are at liberty to withdraw it
later, proper allowance being made for storage and
shrinkage, a thing that is sometimes done, though rarely.
In view of what has been said it becomes necessary to
discover the price which the defendant should be required to
pay for the plaintiffs' palay. Upon this point the trial judge
fixed upon P6.15 per cavan; and although we are not exactly
in agreement with him as to the propriety of the method by
which he arrived at this figure, we are nevertheless of the
opinion that, all things considered, the result is approximately
correct. It appears that the price of palay during the months

of April, May, and June, 1920, had been excessively high in
the Philippine Islands and even prior to that period the
Government of the Philippine Islands had been attempting to
hold the price in check by executive regulation. The highest
point was touched in this season was apparently about
P8.50 per cavan, but the market began to sag in May or
June and presently entered upon a precipitate decline. As we
have already stated, the plaintiffs made demand upon the
defendant for settlement in the early part of August; and, so
far as we are able to judge from the proof, the price of P6.15
per cavan, fixed by the trial court, is about the price at which
the defendant should be required to settle as of that date. It
was the date of the demand of the plaintiffs for settlement
that determined the price to be paid by the defendant, and
this is true whether the palay was delivered in the character
of sale with price undetermined or in the character of deposit
subject to use by the defendant. It results that the plaintiffs
are respectively entitle to recover the value of the palay
which they had placed with the defendant during the period
referred to, with interest from the date of the filing of their
several complaints.
As already stated, the trial court found that at the time of the
fire there were about 360 cavans of palay in the mill and that
this palay was destroyed. His Honor assumed that this was
part of the palay delivered by the plaintiffs, and he held that
the defendant should be credited with said amount. His
Honor therefore deducted from the claims of the plaintiffs
their respective proportionate shares of this amount of palay.
We are unable to see the propriety of this feature of the
decision. There were many customers of the defendant's rice
mill who had placed their palay with the defendant under the
same conditions as the plaintiffs, and nothing can be more
certain than that the palay which was burned did not belong
to the plaintiffs. That palay without a doubt had long been
sold and marketed. The assignments of error of each of the
plaintiffs-appellants in which this feature of the decision is
attacked are therefore well taken; and the appealed
judgments must be modified by eliminating the deductions
which the trial court allowed from the plaintiffs' claims.
The trial judge also allowed a deduction from the claim of the
plaintiff Guillermo Baron of 167 cavans of palay, as indicated
in Exhibit 12, 13, 14, and 16. This was also erroneous.
These exhibits relate to transactions that occurred nearly two
years after the transactions with which we are here
concerned, and they were offered in evidence merely to
show the character of subsequent transactions between the
parties, it appearing that at the time said exhibits came into
existence the defendant had reconstructed his mill and that
business relations with Guillermo Baron had been resumed.
The transactions shown by these exhibits (which relate to
palay withdrawn by the plaintiff from the defendant's mill)
were not made the subject of controversy in either the
complaint or the cross-complaint of the defendant in the
second case. They therefore should not have been taken
into account as a credit in favor of the defendant. Said credit
must therefore be likewise of course be without prejudice to
any proper adjustment of the rights of the parties with
respect to these subsequent transactions that they have
heretofore or may hereafter effect.
The preceding discussion disposes of all vital contentions

relative to the liability of the defendant upon the causes of
action stated in the complaints. We proceed therefore now to
consider the question of the liability of the plaintiff Guillermo
Baron upon the cross-complaint of Pablo David in case R. G.
No. 26949. In this cross-action the defendant seek, as the
stated in the third paragraph of this opinion, to recover
damages for the wrongful suing out of an attachment by the
plaintiff and the levy of the same upon the defendant's rice
mill. It appears that about two and one-half months after said
action was begun, the plaintiff, Guillermo Baron, asked for an
attachment to be issued against the property of the
defendant; and to procure the issuance of said writ the
plaintiff made affidavit to the effect that the defendant was
disposing, or attempting the plaintiff. Upon this affidavit an
attachment was issued as prayed, and on March 27, 1924, it
was levied upon the defendant's rice mill, and other property,
real and personal. 1awph!l.net
Upon attaching the property the sheriff closed the mill and
placed it in the care of a deputy. Operations were not
resumed until September 13, 1924, when the attachment
was dissolved by an order of the court and the defendant
was permitted to resume control. At the time the attachment
was levied there were, in the bodega, more than 20,000
cavans of palay belonging to persons who held receipts
therefor; and in order to get this grain away from the sheriff,
twenty-four of the depositors found it necessary to submit
third-party claims to the sheriff. When these claims were put
in the sheriff notified the plaintiff that a bond in the amount of
P50,000 must be given, otherwise the grain would be
released. The plaintiff, being unable or unwilling to give this
bond, the sheriff surrendered the palay to the claimants; but
the attachment on the rice mill was maintained until
September 13, as above stated, covering a period of one
hundred seventy days during which the mill was idle. The
ground upon which the attachment was based, as set forth in
the plaintiff's affidavit was that the defendant was disposing
or attempting to dispose of his property for the purpose of
defrauding the plaintiff. That this allegation was false is
clearly apparent, and not a word of proof has been submitted
in support of the assertion. On the contrary, the defendant
testified that at the time this attachment was secured he was
solvent and could have paid his indebtedness to the plaintiff
if judgment had been rendered against him in ordinary
course. His financial conditions was of course well known to
the plaintiff, who is his uncle. The defendant also states that
he had not conveyed away any of his property, nor had
intended to do so, for the purpose of defrauding the plaintiff.
We have before us therefore a case of a baseless
attachment, recklessly sued out upon a false affidavit and
levied upon the defendant's property to his great and
needless damage. That the act of the plaintiff in suing out the
writ was wholly unjustifiable is perhaps also indicated in the
circumstance that the attachment was finally dissolved upon
the motion of the plaintiff himself.
The defendant testified that his mill was accustomed to clean
from 400 to 450 cavans of palay per day, producing 225
cavans of rice of 57 kilos each. The price charged for
cleaning each cavan rice was 30 centavos. The defendant

also stated that the expense of running the mill per day was
from P18 to P25, and that the net profit per day on the mill
was more than P40. As the mill was not accustomed to run
on Sundays and holiday, we estimate that the defendant lost
the profit that would have been earned on not less than one
hundred forty work days. Figuring his profits at P40 per day,
which would appear to be a conservative estimate, the actual
net loss resulting from his failure to operate the mill during
the time stated could not have been less than P5,600. The
reasonableness of these figures is also indicated in the fact
that the twenty-four customers who intervened with thirdparty claims took out of the camarin 20,000 cavans of palay,
practically all of which, in the ordinary course of events,
would have been milled in this plant by the defendant. And of
course other grain would have found its way to this mill if it
had remained open during the one hundred forty days when
it was closed.
But this is not all. When the attachment was dissolved and
the mill again opened, the defendant found that his
customers had become scattered and could not be easily
gotten back. So slow, indeed, was his patronage in returning
that during the remainder of the year 1924 the defendant
was able to mill scarcely more than the grain belonging to
himself and his brothers; and even after the next season
opened many of his old customers did not return. Several of
these individuals, testifying as witnesses in this case, stated
that, owing to the unpleasant experience which they had in
getting back their grain from the sheriff to the mill of the
defendant, though they had previously had much confidence
in him.
As against the defendant's proof showing the facts above
stated the plaintiff submitted no evidence whatever. We are
therefore constrained to hold that the defendant was
damaged by the attachment to the extent of P5,600, in
profits lost by the closure of the mill, and to the extent of
P1,400 for injury to the good-will of his business, making a
total of P7,000. For this amount the defendant must recover
judgment on his cross-complaint.
The trial court, in dismissing the defendant's cross-complaint
for damages resulting from the wrongful suing out of the
attachment, suggested that the closure of the rice mill was a
mere act of the sheriff for which the plaintiff was not
responsible and that the defendant might have been
permitted by the sheriff to continue running the mill if he had
applied to the sheriff for permission to operate it. This
singular suggestion will not bear a moment's criticism. It was
of course the duty of the sheriff, in levying the attachment, to
take the attached property into his possession, and the
closure of the mill was a natural, and even necessary,
consequence of the attachment. For the damage thus
inflicted upon the defendant the plaintiff is undoubtedly
responsible.
One feature of the cross-complaint consist in the claim of the
defendant (cross-complaint) for the sum of P20,000 as
damages caused to the defendant by the false and alleged
malicious statements contained in the affidavit upon which
the attachment was procured. The additional sum of P5,000

is also claimed as exemplary damages. It is clear that with
respect to these damages the cross-action cannot be
maintained, for the reason that the affidavit in question was
used in course of a legal proceeding for the purpose of
obtaining a legal remedy, and it is therefore privileged. But
though the affidavit is not actionable as a libelous
publication, this fact in no obstacle to the maintenance of an
action to recover the damage resulting from the levy of the
attachment.
Before closing this opinion a word should be said upon the
point raised in the first assignment of error of Pablo David as
defendant in case R. G. No. 26949. In this connection it
appears that the deposition of Guillermo Baron was
presented in court as evidence and was admitted as an
exhibit, without being actually read to the court. It is
supposed in the assignment of error now under
consideration that the deposition is not available as evidence
to the plaintiff because it was not actually read out in court.
This connection is not well founded. It is true that in section
364 of the Code of Civil Procedure it is said that a
deposition, once taken, may be read by either party and will
then be deemed the evidence of the party reading it. The use
of the word "read" in this section finds its explanation of
course in the American practice of trying cases for the most
part before juries. When a case is thus tried the actual
reading of the deposition is necessary in order that the
jurymen may become acquainted with its contents. But in
courts of equity, and in all courts where judges have the
evidence before them for perusal at their pleasure, it is not
necessary that the deposition should be actually read when
presented as evidence.
From what has been said it result that judgment of the court
below must be modified with respect to the amounts
recoverable by the respective plaintiffs in the two actions R.
G. Nos. 26948 and 26949 and must be reversed in respect
to the disposition of the cross-complaint interposed by the
defendant in case R. G. No. 26949, with the following result:
In case R. G. No. 26948 the plaintiff Silvestra Baron will
recover of the Pablo David the sum of P6,227.24, with
interest from November 21, 1923, the date of the filing of her
complaint, and with costs. In case R. G. No. 26949 the
plaintiff Guillermo Baron will recover of the defendant Pablo
David the sum of P8,669.75, with interest from January 9,
1924. In the same case the defendant Pablo David, as
plaintiff in the cross-complaint, will recover of Guillermo
Baron the sum of P7,000, without costs. So ordered.

with the exception of either capital or interest, had thereby
been subjected to loss and damages.
JAVELLANA v. LIM
SUPREME COURT
Manila
EN BANC
G.R. No. 4015
August 24, 1908
ANGEL JAVELLANA, plaintiff-appellee,

vs.
JOSE LIM, ET AL., defendants-appellants.
R. Zaldarriaga for appellants.
B. Montinola for appellee.
TORRES, J.:
The attorney for the plaintiff, Angel Javellana, file a complaint
on the 30th of October, 1906, with the Court of First Instance
of Iloilo, praying that the defendants, Jose Lim and Ceferino
Domingo Lim, he sentenced to jointly and severally pay the
sum of P2,686.58, with interest thereon at the rate of 15 per
cent per annum from the 20th of January, 1898, until full
payment should be made, deducting from the amount of
interest due the sum of P1,102.16, and to pay the costs of
the proceedings.
Authority from the court having been previously obtained, the
complaint was amended on the 10th of January, 1907; it was
then alleged, on the 26th of May, 1897, the defendants
executed and subscribed a document in favor of the plaintiff
reading as follows:
We have received from Angel Javellana, as a deposit without
interest, the sum of two thousand six hundred and eighty-six
cents of pesos fuertes, which we will return to the said
gentleman, jointly and severally, on the 20th of January,
1898. Jaro, 26th of May, 1897. Signed Jose Lim.
Signed: Ceferino Domingo Lim.
That, when the obligation became due, the defendants
begged the plaintiff for an extension of time for the payment
thereof, building themselves to pay interest at the rate of 15
per cent on the amount of their indebtedness, to which the
plaintiff acceded; that on the 15th of May, 1902, the debtors
paid on account of interest due the sum of P1,000 pesos,
A demurrer to the original complaint was overruled, and on

the 4th of January, 1907, the defendants answered the
original complaint before its amendment, setting forth that
they acknowledged the facts stated in Nos. 1 and 2 of the
complaint; that they admitted the statements of the plaintiff
relative to the payment of 1,102.16 pesos made on the 15th
of November, 1902, not, however, as payment of interest on
the amount stated in the foregoing document, but on account
of the principal, and denied that there had been any
agreement as to an extension of the time for payment and
the payment of interest at the rate of 15 per cent per annum
as alleged in paragraph 3 of the complaint, and also denied
all the other statements contained therein.
As a counterclaim, the defendants alleged that they had paid
to the plaintiff sums which, together with the P1,102.16
acknowledged in the complaint, aggregated the total sum of
P5,602.16, and that, deducting therefrom the total sum of
P2,686.58 stated in the document transcribed in the
complaint, the plaintiff still owed the defendants P2,915.58;
therefore, they asked that judgment be entered absolving
them, and sentencing the plaintiff to pay them the sum of
P2,915.58 with the costs.
Evidence was adduced by both parties and, upon their
exhibits, together with an account book having been made of
record, the court below rendered judgment on the 15th of
January, 1907, in favor of the plaintiff for the recovery of the
sum of P5,714.44 and costs.
The defendants excepted to the above decision and moved
for a new trial. This motion was overruled and was also
excepted to by them; the bill of exceptions presented by the
appellants having been approved, the same was in due
course submitted to this court.
The document of indebtedness inserted in the complaint
states that the plaintiff left on deposit with the defendants a
given sum of money which they were jointly and severally
obliged to return on a certain date fixed in the document; but
that, nevertheless, when the document appearing as Exhibits
2, written in the Visayan dialect and followed by a translation
into Spanish was executed, it was acknowledged, at the date
thereof, the 15th of November, 1902, that the amount
deposited had not yet been returned to the creditor, whereby
he was subjected to losses and damages amounting to 830
pesos since the 20th of January, 1898, when the return was
again stipulated with the further agreement that the amount
deposited should bear interest at the rate of 15 per cent per
annum, from the aforesaid date of January 20, and that the
1,000 pesos paid to the depositor on the 15th of May, 1900,
according to the receipt issued by him to the debtors, would
be included, and that the said rate of interest would obtain
until the debtors on the 20th of May, 1897, it is called a
deposit consisted, and they could have accomplished the
return agreed upon by the delivery of a sum equal to the one
received by them. For this reason it must be understood that

the debtors were lawfully authorized to make use of the
amount deposited, which they have done, as subsequent
shown when asking for an extension of the time for the
return thereof, inasmuch as, acknowledging that they have
subjected the letter, their creditor, to losses and damages for
not complying with what had been stipulated, and being
conscious that they had used, for their own profit and gain,
the money that they received apparently as a deposit, they
engaged to pay interest to the creditor from the date named
until the time when the refund should be made. Such
conduct on the part of the debtors is unquestionable
evidence that the transaction entered into between the
interested parties was not a deposit, but a real contract of
loan.
Article 1767 of the Civil Code provides that
The depository can not make use of the thing deposited
without the express permission of the depositor.
Otherwise he shall be liable for losses and damages.
Article 1768 also provides that
When the depository has permission to make use of the
thing deposited, the contract loses the character of a deposit
and becomes a loan or bailment.
The permission shall not be presumed, and its existence
must be proven.
When on one of the latter days of January, 1898, Jose Lim
went to the office of the creditor asking for an extension of
one year, in view of the fact the money was scare, and
because neither himself nor the other defendant were able to
return the amount deposited, for which reason he agreed to
pay interest at the rate of 15 per cent per annum, it was
because, as a matter of fact, he did not have in his
possession the amount deposited, he having made use of
the same in his business and for his own profit; and the
creditor, by granting them the extension, evidently confirmed
the express permission previously given to use and dispose
of the amount stated as having bee deposited, which, in
accordance with the loan, to all intents and purposes
gratuitously, until the 20th of January, 1898, and from that
dated with interest at 15 per cent per annum until its full
payment, deducting from the total amount of interest the sum
of 1,000 pesos, in accordance with the provisions of article
1173 of the Civil Code.
Notwithstanding that it does not appear that Jose Lim signed
the document (Exhibit 2) executed in the presence of three
witnesses on the 15th of November, 1902, by Ceferino
Domingo Lim on behalf of himself and the former,
nevertheless, the said document has not been contested as
false, either by a criminal or by a civil proceeding, nor has
any doubt been cast upon the authenticity of the signatures
of the witnesses who attested the execution of the same;
and from the evidence in the case one is sufficiently
convinced that the said Jose Lim was perfectly aware of and
authorized his joint codebtor to liquidate the interest, to pay

the sum of 1,000 pesos, on account thereof, and to execute
the aforesaid document No. 2. A true ratification of the
original document of deposit was thus made, and not the
least proof is shown in the record that Jose Lim had ever
paid the whole or any part of the capital stated in the original
document, Exhibit 1.
If the amount, together with interest claimed in the complaint,
less 1,000 pesos appears as fully established, such is not
the case with the defendant's counterclaim for P5,602.16,
because the existence and certainty of said indebtedness
imputed to the plaintiff has not been proven, and the
defendants, who call themselves creditors for the said
amount have not proven in a satisfactory manner that the
plaintiff had received partial payments on account of the
same; the latter alleges with good reason, that they should
produce the receipts which he may have issued, and which
he did issue whenever they paid him any money on account.
The plaintiffs allegation that the two amounts of 400 and
1,200 pesos, referred to in documents marked "C" and "D"
offered in evidence by the defendants, had been received
from Ceferino Domingo Lim on account of other debts of his,
has not been contradicted, and the fact that in the original
complaint the sum of 1,102.16 pesos, was expressed in lieu
of 1,000 pesos, the only payment made on account of
interest on the amount deposited according to documents
No. 2 and letter "B" above referred to, was due to a mistake.
Moreover, for the reason above set forth it may, as a matter
of course, be inferred that there was no renewal of the
contract deposited converted into a loan, because, as has
already been stated, the defendants received said amount
by virtue of real loan contract under the name of a deposit,
since the so-called bailees were forthwith authorized to
dispose of the amount deposited. This they have done, as
has been clearly shown.
The original joint obligation contracted by the defendant
debtor still exists, and it has not been shown or proven in the
proceedings that the creditor had released Joe Lim from
complying with his obligation in order that he should not be
sued for or sentenced to pay the amount of capital and
interest together with his codebtor, Ceferino Domingo Lim,
because the record offers satisfactory evidence against the
pretension of Jose Lim, and it further appears that document
No. 2 was executed by the other debtor, Ceferino Domingo
Lim, for himself and on behalf of Jose Lim; and it has also
been proven that Jose Lim, being fully aware that his debt
had not yet been settled, took steps to secure an extension
of the time for payment, and consented to pay interest in
return for the concession requested from the creditor.
In view of the foregoing, and adopting the findings in the
judgment appealed from, it is our opinion that the same
should be and is hereby affirmed with the costs of this
instance against the appellant, provided that the interest
agreed upon shall be paid until the complete liquidation of
the debt. So ordered.

Velasco & Co. at the time the note was executed. The receipt
reads as follow (translation):
MANILA, P. I., April 5, 1918.
Received from the "Compania Agricola de Ultramar" the sum
of ten thousand Philippine pesos as a deposit at the interest
of six per cent annually, for the term of three months from
date.
COMPANIA AGRICOLA v. NEPOMUCENO
SUPREME COURT
Manila
EN BANC
G.R. No. L-32778
November 14, 1930
Involuntary insolvency of Mariano Velasco and Co., et al.

COMPAIA AGRICOLA DE ULTRAMAR, claimantappellee,
vs.
VICENTE NEPOMUCENO, assignee-appellant.
The appellant in his own behalf.
Eusebio Orense and Nicolas Belmonte for appellee.
In witness thereof, I sign the present.

MARIANO VELASCO & CO.
By (Sgd.) JOSE VELASCO
Manager.
P10,000.00.
In his testimony, Jose Velasco stated that his signature on
the receipt was authentic and that he received the said sum
of P10,000 from the appellee and deposited it with the bank
in the current account of Mariano Velasco & Co.
In our opinion the court below erred in finding that the claim
of the appellee should be considered a deposit and a
preferred claim. In the case of Gavieres vs. De Tavera (1
Phil., 17), very similar to the present case, this court held
that the transaction therein involved was a loan and not a
deposit. The facts of the case were that in 1859 Ignacia de
Gorricho delivered P3,000 to Felix Pardo de Tavera. The
agreement between them read as follows (translation):
OSTRAND, J.:
It appears from the record that on March 17, 1927, the
registered partnerships, Mariano Velasco & Co., Mariano
Velasco, Sons, & Co., and Mariano Velasco & Co., Inc.,
were, on petition of the creditors, declared insolvent by the
Court of First Instance of Manila.
On the 16th day of April, 1927, the Compania Agricola de
Ultramar filed a claim against one of the insolvents Mariano
Velasco & Co., claiming the sum of P10,000, with the agreed
interest thereon at the rate of 6 per cent per annum from
April 5, 1918, until its full payment was a deposit with said
Mariano Velasco & Co. and asked the court to declare it a
preferred claim.
The assignee of the insolvency answered the claim by
interposing a general denial. The claim was thereupon
referred by the court to a Commissioner to receive the
evidence, and on September 23, 1929, the court rendered a
decision declaring that the alleged deposit was a preferred
claim for the sum mentioned, with interest at 6 per cent per
annum from April 5, 1918, until paid. From this decision the
assignee appealed.
The evidence presented by the claimant Compania Agricola
de Ultramar consisted of a receipt in writing, and the
testimony of Jose Velasco who was manager of Mariano
Received of Seorita Ignacia de Gorricho the sum of 3,000

pesos, gold (3,000 pesos), as a deposit payable on two
months' notice in advance, with interest at 6 percent per
annum with a hypothecation of the goods now owned by me
or which may be owned hereafter, as security of the
payment.
In witness whereof I sign in Binondo, January 31, 1859.
FELIX PARDO DE TAVERA
After the death of both parties, Gavieres, as plaintiff and
successor in interest of the deceased Ignacia de Gorricho,
brought the action against Trinidad H. Pardo de Tavera, the
successor in interest of the deceased Felix Pardo de Tavera,
for the collection of the sum of P1,423.75, the remaining
portion of the 3,000 pesos. The plaintiff Gavieres alleged that
the money was delivered to Felix Pardo de Tavera as a
deposit, but the defendant insisted that the agreement above
quoted was not a contract of deposit but one of loan. This
court said:
Although in the document in question a deposit is spoken of,
nevertheless from an examination of the entire document it
clearly appears that the contract was a loan and that such
was the intention of the parties. It is unnecessary to recur to
the cannons of interpretation to arrive at this conclusion. The

obligation of the depository to pay interest at the rate of 6 per
cent to the depositor suffices to cause the obligation to be
considered as a loan and makes it likewise evident that it
was the intention of the parties that the depository should
have the right to make use of the amount deposited, since it
was stipulated that the amount could be collected after
notice of two months in advance. Such being the case, the
contract lost the character of a deposit and acquired that of a
loan. (Art. 1768, Civil Code.)
In the case of Javellana vs. Lim (11 Phil., 141) this court,
speaking through Justice Torres said:
Authority from the court having been previously obtained, the
complaint was amended on the 10th of January, 1907; it was
then alleged, that on the 26th of May, 1897, the defendants
executed and subscribed a document in favor of the plaintiff
reading as follows:
We have received from Angel Javellana, as a deposit without
interest, the sum of two thousand six hundred and eighty-six
pesos and fifty-eight cents of pesos fuertes, which we will
return to the said gentleman, jointly and severally on the 20th
of January, 1898. Jaro, 26th of May 1879. Signed:
JOSE LIM. Signed: CEFERINO DOMINGO LIM.
That, when the obligation became due, the defendants
begged the plaintiff for an extension of time for the payment
thereof binding themselves to pay interest at the rate of 15
per cent on the amount of their indebtedness, to which the
plaintiff acceded; that on the 15th of May, 1902, the debtors
paid on account of interest due the sum of 1,000 pesos, with
the exception of which they had not paid any other sum on
account of either capital or interest, notwithstanding the
requests made by the plaintiff, who had thereby been
subjected to loss and damages.
xxx
xxx
xxx
The document of indebtedness inserted in the complaint

states that the plaintiff left on deposit with the defendants a
given sum of money which they were jointly and severally
obliged to return on a certain date fixed in the document; but
that, nevertheless, when the document appearing as Exhibit
2, written in the Visayan dialect and followed by a translation
into Spanish was executed, it was acknowledged, at the date
thereof, the 15th of November, 1902 that the amount
deposited had not yet been returned to the creditor, whereby
he was subjected to losses and damages amounting to 830
pesos since the 20th of January, 1898, when the return was
again stipulated with the further agreement that the amount
deposited should bear interest at the rate of 15 per cent per
annum from the aforesaid date of January 20, and that the
1,000 pesos paid to the depositor on the 15th of May, 1900,
according to the receipt issued by him to the debtors, would
be included, and that the said rate of interest would obtain
until the debtors paid the creditor the said amount in full. In
this second document the contract between the parties,
which is a real loan of money with interest, appears perfectly
defined, notwithstanding the fact that in the original
document executed by the debtors on the 26th of May, 1897,

it is called a deposit; so that when they bound themselves
jointly and severally to refund the sum of 2,686.58 pesos to
the depositor, Javellana, they did not engage to return the
same coins received and of which the amount deposited
consisted, and they could have accomplished the return
agreed upon by the delivery of a sum equal to the one
received by them. For this reason it must be understood that
the debtors were lawfully authorized to make use of the
amount deposited, which they have done, as subsequently
shown when asking for an extension of the time for the
return thereof, inasmuch as, acknowledging that they have
subjected the lender, their creditor, to losses and damages
for not complying with what had been stipulated, and being
conscious that they had used, for their own profit and gain,
the money that they received apparently as a deposit, they
engaged to pay interest to the creditor from the date named
until the time when the refund should be made. Such
conduct on the part of the debtors is unquestionable
evidence that the transaction entered in to between the
interested parties was not a deposit, but a real contract of
loan.
Article 1767 of the Civil Code provides that
"The depository cannot make use of the thing deposited
without the express permission of the depositor."
"Otherwise he shall be liable for losses and damages."
Article 1768 also provides that
"When the depository has permission to make use of the
thing deposited, the contract loses the character of a deposit
and becomes a loan or bailment."
"The permission not be presumed, and its existence must be
proven."
xxx
xxx
xxx
Moreover, for the reasons above set forth it may, as a matter

of course, be inferred that there was no renewal of the
contract of deposit converted into a loan, because, as has
already been stated, the defendants received said amount
by virtue of a real loan contract under the name of a deposit,
since the so-called bailees were forthwith authorized to
dispose of the amount deposited. This they have done, as
has been clearly shown.lawphil.net
The two cases quoted are sufficient to show that the ten
thousand pesos delivered by the appellee to Mariano
Velasco & Co. cannot de regarded as a technical deposit.
But the appellee argues that it is at least an "irregular
deposit." This argument is, we think, sufficiently answered in
the case of Rogers vs. Smith, Bell & Co. (10 Phil., 319).
There this court said:

. . . Manresa, in his Commentaries on the Civil Code (vol. 11,
p. 664), states that there are three points of difference
between a loan and an irregular deposit. The first difference
which he points out consists in the fact that in an irregular
deposit the only benefit is that which accrues to the
depositor, while in a loan the essential cause for the
transaction is the necessity of the borrower. The contract in
question does not fulfill this requirement of an irregular
deposit. It is very apparent that it was not for the sole benefit
of Rogers. It, like any other loan of money, was for the
benefit of both parties. The benefit which Smith, Bell & Co.
received was the use of the money; the benefit which Rogers
received was the interest on his money. In the letter in which
Smith, Bell & Co. on the 30th of June, 1888, notified the
plaintiff of the reduction of the interest, they said: "We call
your attention to this matter in order that you may if you think
best employ your money in some other place."
Nor does the contract in question fulfill the third requisite
indicated by Manresa, which is, that in an irregular deposit,
the depositor can demand the return of the article at any
time, while a lender is bound by the provisions of the
contract and cannot seek restitution until the time for
payment, as provided in the contract, has arisen. It is
apparent from the terms of this documents that the plaintiff
could not demand his money at any time. He was bound to
give notice of his desire for its return and then to wait for six
months before he could insist upon payment.
In the present case the transaction in question was clearly
not for the sole benefit of the Compania Agricola de
Ultramar; it was evidently for the benefit of both parties.
Neither could the alleged depositor demand payment until
the expiration of the term of three months.
For the reasons stated, the appealed judgment is reversed,
and we hold that the transaction in question must be
regarded as a loan, without preference. Without costs. So
ordered.
ROGERS v. SMITH
SUPREME COURT
Manila
EN BANC
G.R. No. L-4347
March 9, 1908
JOSE ROGERS, plaintiff-appellant,

vs.
SMITH, BELL, & CO., defendants-appellees.
Chicote and Miranda for appellant.
Kinney and Lawrence for appellees.
WILLARD, J.:
The plaintiff brought this action in the Court of First Instance
of the city of Manila upon the following document:
No. 1418. $12,000.
The sum of pesos twelve thousand has been deposited with
us, received from Jose Rogers, which sum we will pay on the
last day of the six months after the presentation of this
document, to the order of Mr. Jose Rogers.
Manila, February 17, 1876.
SMITH, BELL & CO.
The said sum of twelve thousand pesos shall bear interest at
the rate of eight per centum (8%) per annum from this date,
February 17, 1876.
SMITH, BELL & CO.
When this document was delivered by the defendants to the
plaintiff the former delivered to the latter the following letter:
MANILA, 17 February, 1876.
JOSE ROGERS, Esq., Present.
DEAR SIR: We have this day signed a receipt (quedan No.
1418) in your favor for twelve thousand dollars, deposited in
our hands, at interest of 8% per annum, commencing from
to-day.
This interest will be paid to your order every three months,
either in Manila or in London, as you may wish.
If at any time you should desire to receive said deposit of
twelve thousand dollars in London it will be paid to you, or
your order, by Messrs. Smith, Wood and Co., of that place,
after two months' notice, and on presentation of said receipt
or quedan No. 1418.
We are, dear sir, yours, truly,
SMITH, BELL & CO.
The only question in the case is, whether upon these
documents the plaintiff is entitled to recover 12,000 pesos or
24,000 pesos. The court below held that he was entitled to
recover only 12,000 pesos, and the defendants having
deposited that amount in court, judgment was ordered in
their favor, from which judgment the plaintiff has appealed.
The facts in the case are disputed. When this document was
delivered 12,000 pesos in silver were worth more than
12,000 pesos in gold. the plaintiff delivered to the defendants
in consideration of the execution of the document 12,000 in

gold. Soon thereafter the plaintiff removed to Barcelona and
has since resided there. The defendants remitted the interest
to him every three months at the rate of 8 per cent per
annum until the 30th day of January, 1888, when they
notified him that thereafter the interest would be 6 per cent.
The plaintiff accepted this reduction and interest at that rate
was remitted to him by the defendants until the 10th of
February, 1904. This interest was remitted in silver; that is to
say, every three months the defendants took 180 pesos in
silver and with it bought exchange on Barcelona or other
European point converted into pesetas. The plaintiff received
this payments in silver without any protest whatever until the
10th day of February, 1904. He then, in his letter of that date,
called the attention of the defendants to the fact that by the
new American law in force in the Philippines the gold
standard had been introduced and that by reason thereof he
was entitled to receive his interest in gold, in view of the fact
that when he delivered the money to the defendants in 1876
he delivered it in gold coin. In another letter of the 15th of
December, 1904, he expressly refers to the act of Congress
of March 2, 1903, and to the subsequent proclamations of
the Governor-General relating to coinage. These are
practically all the fat in the case, and the claim of the plaintiff
is that, having paid to the defendants 12,000 pesos in gold
coin, he is now entitled to receive from them the value of
12,000 pesos in gold coin; that is to say, 24,000 pesos in
silver.
It is necessary to determine in the first place the nature of
the contract evidenced by the document of the 17th of
February, 1876.
The important, and to our minds decisive, question in the
case is, whether or not this document is evidence of an
ordinary loan which created between the plaintiff and the
defendants the simple relation of debtor and creditor. The
appellant in his brief repeatedly calls it a deposit, but we do
not understand that he claims that it is or ever was a deposit
in the technical sense of the term; that is, that he ownership
of the particular coin which was delivered by him to Smith,
Bell & Co. did not pass to Smith, Bell & Co. but remained in
him and that Smith, Bell & Co. was bound to return to him
the identical coin which they had received. It is apparent that
no such claim could be maintained in view of that part of the
instrument which provides for the payment of interest.
It is claimed, however, by the appellant, that while not a
deposit in the strict sense of the word, the document
evidences what is known as an "irregular deposit." The
parties agree that the case must be decided in this respect in
view of the legislation in force prior to the adoption of the
Civil Code, and the appellant says that the definition of an
irregular deposit is found in Law II, Title III of the Fifth
Partida. Manresa, in his Commentaries on the Civil Code
(vol. 11, p. 664), states that there are three points of
difference between a loan and an irregular deposit. The first
difference which he points out consists in the fact that in an
irregular deposit the only benefit is that which accrues to the
depositor, while in loan the essential cause for the
transaction is the necessity of the borrower. The contract in
question does not fulfill this requirement of an irregular
deposit. It is very apparent that is was not for the sole benefit
of Rogers. It, like any other loan of money, was for the
benefit of both parties. The benefit which Smith, Bell & Co.
received was the use of the money; the benefit which Rogers
received was the interest of his money. In the letter which
Smith, Bell & Co. on the 30th of June, 1888, notified the
plaintiff of the reduction of the interest, they said: "We call
your attention to this matter in order that you may if you think
best employ your money in some other place."
Nor does the contract in question fulfill the third requisite
indicated by Manresa, which is, in an irregular deposit, the
depositor can demand the return of the article at any time,
while a lender is bound by the provisions of the contract and
can not seek restitution until the time for payment, as
provided in the contract, has arisen. It is apparent from the
terms of this document that the plaintiff could not demand his
money at any time. He was bound to give notice of his desire
for its return and then to wait for six months before he could
insist upon payment.
The second difference which exists, according to Manresa,
between an irregular deposit and a loan lies in the fact that in
an irregular deposit the depositor has a preference over
other creditors in the distribution of the debtor's property.
That this preference may exist and the transaction be still a
loan, appears from the decision of the supreme court of
Spain of the 8th of April, 1881. The court there said:
Whereas, although the irregular deposit is considered as
mutual, with respect to the repayment between the depositor
and the depositary, notwithstanding this, the latter retains the
original status of personal creditor and is simply privileged, in
concurrence with other creditors against the former, and he
must be paid after the mortgage creditors and before the
creditors whose right appears only by written instruments, in
accordance with Law XII, Title XIV, fifth Partida.
It is apparent, therefore, that this document does not state
those requisites which are essential to an irregular deposit.
But even if it did, it seems that the appellant's contention
could not be sustained. He claims that in accordance with
said Law II, title III, Fifth Partida, the defendants are bound to
return to him the same kind of money which was received.
That law is in part as follows:
And the ownership of the thing given in deposit is not
transferred to the one who receives the same; but, should
the thing be one of those which can be counted, weighed, or
measured, if, when receiving it, the same were given by
count, weight, or measure, then the ownership would be
transferred to him. Yet he would be obliged to return the
same thing, or the same quantity, or another similar to the
one received, to him who gave it to him in deposit.
An examination, however, of Law II, Title I, of the Fifth
Partida, which relates to loans, will show that the obligation
of the borrower in such case is stated in almost exactly the
same words. That law is in part as follows:

A man may loan to another any of the things mentioned in
the last law which are susceptible of being counted,
weighed, or measured. And this is understood with regard to
things belonging to him who lends them, or which are loaned
by another by authority of his principal; provided, however,
that once the thing is in the possession of him who secures
the loan, he may dispose of it as though it were his own. But
he must return to the owner of the thing equal amount of the
same kind and quality, although the creditor should not
specify either of the conditions.
The supreme court of Spain in the judgment of the 27th of
October, 1868, speaking of the obligation of the borrower in
such case, says:
Whereas the principle in Laws I and II of Title I of the Fifth
Partida, according to which the borrower, acquires ownership
of the thing and is bound to return an equal amount of the
same kind and quality, have special application to cases
relating to loans of money or its equivalent; whereas the
thing loaned not being in such cases what properly
constitutes the material or the object of deposit, as happens
with other perishable things, but rather the value that the
coins or the paper money represents, the obligation of the
depository in this kind of contracts is to return the sum or
amount therein expressed, whatever may have been the
increase or depreciation suffered by the specific kind of coin
or paper, unless the contrary be stipulated.
It seems clear from these citations that the document in
question is evidence of an ordinary loan and created
between the plaintiff and defendants the relation of debtor
and creditor. The two judgments of the supreme court of
Spain cited by the appellant in his brief have no bearing
upon the question. In that of the 9th of July, 1889, it
appeared that the Bank of Havana returned to the plaintiff
the same kind of money which it had received from him. The
other judgment, of the 7th of February, 1891, simply held that
a servant who had left her money with her master and had
taken a written obligation from him to pay the same was not,
in the distribution of his property, entitled to preference over
other creditors on the ground that her debt was for personal
labor.
It having been determined that the contract between the
parties created the common relation of debtor and creditor,
the case is easily resolved. Section 3 of the act of Congress
of March 2, 1903, entitled "An act to establish a standard of
value and to provide for a coinage system in the Philippine
Islands," is as follows:
That the silver Philippine pesos authorized by this act shall
be legal tender in the Philippine Islands for all debts, public
and private, unless otherwise specifically provided by
contract: Provided, That debts contracted prior to the thirtyfirst day of December, nineteen hundred and three, may be
paid in the legal tender currency of said Islands existing at
the time of the making of said contracts, unless otherwise
expressly provided by contract.
That this case falls within the terms of this section is very
clear. The debt in question is a private debt, calling for the
payment of 12,000 pesos. This section authorizes the
payment of that debt in the Philippine pesos authorized by
the act. That the act applies as well to debts created prior to
its passage as to those created after, appears from the
proviso. The effect of that proviso is to give the debtor and
not the creditor the option as to the kind of money with which
the debt shall be paid.
The only possible way to avoid the application of this section
to the case at bar is by saying that Congress had no power
to pass the act and that sa to debts created prior to its
passage it is therefore null and void. That the act can not be
declared void on this ground is well settled by the decisions
of the Supreme Court of the United States. (Legal Tender
Cases, 12 Wall., 457; Dooley vs. Smith, 13 Wall., 604;
Railroad Company vs. Johnson, 15 Wall., 195;; Maryland vs.
Railroad Company, 22 Wall., 105 and Julliard vs. Greenman,
110 U. S., 421.) In the first four of those cases it was held
that debts created when the only legal-tender money was
gold and silver could be paid in paper money issued by the
Government and which had no intrinsic value.
The appellant in his brief discusses at length the meaning of
the word "dollars." We do not see how such a discussion is
material. The contract provides for the payment of "pesos,"
not "dollars." It is very evident that the contract was not
changed nor intended to be changed by the use of the word
"dollars" in the letter of February 17, 1876. That in English
houses especially the word "dollars" was, until very recently,
used to indicate pesos of local currency, whether Mexican,
Spanish, or Hongkong, is well known.
In conclusion it may be said that the plaintiff, in 1876,
delivered to the defendants the cheapest kind of money then
in use. If he had desired to be repaid in the same money
which he delivered, he should have so provided expressly in
the contract. He had a perfect right to do so, and if he had
done so he could now, by reason of the provisions of the
said act of Congress, demand payment in gold.
That the plaintiff's protest in 1904 was based entirely upon
his construction of this act of Congress admits of no doubt;
that he delivered that by the terms of the contract, without
the act of Congress, Smith, Bell & Co. had the right to pay
him in silver is beyond question. This belief is shown not only
by his letters of protest which expressly refer to the act of
Congress as the basis of his claim but also by his conduct
during more than twenty-five years in receiving interest in
silver without a sign of protest. That he would have received
the principal also in silver had the defendants tendered it to
him at any time prior to 1903 is also free from doubt. In
making his protest in 1904 he evidently believed that the act
of Congress required the payment of the 12,000 pesos in
gold and that he thereby has acquired additional rights. His
construction of the act is, as we have seen, wrong.
The judgment of the court below is affirmed, with the costs of
this instance against the appellant. So ordered.

BPI v. CA
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 104612
May 10, 1994
BANK OF THE PHILIPPINE ISLANDS (successor-ininterest of COMMERCIAL AND TRUST CO.), petitioner,
vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP.
and BENIGNO D. LIM, respondents.
Leonen, Ramirez & Associates for petitioner.
Constante A. Ancheta for private respondents.
Velasco died on 7 April 1977. At the time of his death, the

outstanding balance of the account stood at P662,522.87.
On 5 May 1977, by virtue of an Indemnity Undertaking
executed by Lim for himself and as President and General
Manager of Eastern, 2 one-half of this amount was
provisionally released and transferred to one of the bank
accounts of Eastern with CBTC. 3
Thereafter, on 18 August 1978, Eastern obtained a loan of
P73,000.00 from CBTC as "Additional Working Capital,"
evidenced by the "Disclosure Statement on Loan/Credit
Transaction" (Disclosure Statement) signed by CBTC
through its branch manager, Ceferino Jimenez, and Eastern,
through Lim, as its President and General Manager. 4 The
loan was payable on demand with interest at 14% per
annum.
For this loan, Eastern issued on the same day a negotiable
promissory note for P73,000.00 payable on demand to the
order of CBTC with interest at 14% per annum. 5 The note
was signed by Lim both in his own capacity and as President
and General Manager of Eastern. No reference to any
security for the loan appears on the note. In the Disclosure
Statement, the box with the printed word "UNSECURED"
was marked with "X" meaning unsecured, while the line
with the words "this loan is wholly/partly secured by" is
followed by the typewritten words "Hold-Out on a 1:1 on C/A
No. 2310-001-42," which refers to the joint account of
Velasco and Lim with a balance of P331,261.44.
DAVIDE, JR., J.:

The petitioner urges us to review and set aside the amended
Decision 1 of 6 March 1992 of respondent Court of Appeals in
CA- G.R. CV No. 25739 which modified the Decision of 15
November 1990 of Branch 19 of the Regional Trial Court
(RTC) of Manila in Civil Case No. 87-42967, entitled Bank of
the Philippine Islands (successor-in-interest of Commercial
Bank and Trust Company) versus Eastern Plywood
Corporation and Benigno D. Lim. The Court of Appeals had
affirmed the dismissal of the complaint but had granted the
defendants' counterclaim for P331,261.44 which represents
the outstanding balance of their account with the plaintiff.
As culled from the records and the pleadings of the parties,
the following facts were duly established:
Private respondents Eastern Plywood Corporation (Eastern)
and
Benigno D. Lim (Lim), an officer and stockholder of Eastern,
held at least one joint bank account ("and/or" account) with
the Commercial Bank and Trust Co. (CBTC), the
predecessor-in-interest of petitioner Bank of the Philippine
Islands (BPI). Sometime in March 1975, a joint checking
account ("and" account) with Lim in the amount of
P120,000.00 was opened by Mariano Velasco with funds
withdrawn from the account of Eastern and/or Lim. Various
amounts were later deposited or withdrawn from the joint
account of Velasco and Lim. The money therein was placed
in the money market.
In addition, Eastern and Lim, and CBTC signed another

document entitled "Holdout Agreement," also dated 18
August 1978, 6 wherein it was stated that "as security for the
Loan [Lim and Eastern] have offered [CBTC] and the latter
accepts a holdout on said [Current Account No. 2310-011-42
in the joint names of Lim and Velasco] to the full extent of
their alleged interests therein as these may appear as a
result of final and definitive judicial action or a settlement
between and among the contesting parties thereto." 7
Paragraph 02 of the Agreement provides as follows:
Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust
[CBTC], when and if their alleged interests in the Account
Balance shall have been established with finality, ample and
sufficient power as shall be necessary to retain said Account
Balance and enable Comtrust to apply the Account Balance
for the purpose of liquidating the Loan in respect of principal
and/or accrued interest.
And paragraph 05 thereof reads:
The acceptance of this holdout shall not impair the right of
Comtrust to declare the loan payable on demand at any
time, nor shall the existence hereof and the non-resolution of
the dispute between the contending parties in respect of
entitlement to the Account Balance, preclude Comtrust from
instituting an action for recovery against Eastply and/or Mr.
Lim in the event the Loan is declared due and payable and
Eastply and/or Mr. Lim shall default in payment of all
obligations and liabilities thereunder.

In the meantime, a case for the settlement of Velasco's
estate was filed with Branch 152 of the RTC of Pasig,
entitled "In re Intestate Estate of Mariano Velasco," and
docketed as Sp. Proc. No. 8959. In the said case, the whole
balance of P331,261.44 in the aforesaid joint account of
Velasco and Lim was being claimed as part of Velasco's
estate. On 9 September 1986, the intestate court granted the
urgent motion of the heirs of Velasco to withdraw the deposit
under the joint account of Lim and Velasco and authorized
the heirs to divide among themselves the amount withdrawn.
8
Sometime in 1980, CBTC was merged with BPI. 9 On 2

December 1987, BPI filed with the RTC of Manila a
complaint against Lim and Eastern demanding payment of
the promissory note for P73,000.00. The complaint was
docketed as Civil Case No. 87- 42967 and was raffled to
Branch 19 of the said court, then presided over by Judge
Wenceslao M. Polo. Defendants Lim and Eastern, in turn,
filed a counterclaim against BPI for the return of the balance
in the disputed account subject of the Holdout Agreement
and the interests thereon after deducting the amount due on
the promissory note.
After due proceedings, the trial court rendered its decision on
15 November 1990 dismissing the complaint because BPI
failed to make out its case. Furthermore, it ruled that "the
promissory note in question is subject to the 'hold-out'
agreement," 10 and that based on this agreement, "it was the
duty of plaintiff Bank [BPI] to debit the account of the
defendants under the promissory note to set off the loan
even though the same has no fixed maturity." 11 As to the
defendants' counterclaim, the trial court, recognizing the fact
that the entire amount in question had been withdrawn by
Velasco's heirs pursuant to the order of the intestate court in
Sp. Proc. No. 8959, denied it because the "said claim cannot
be awarded without disturbing the resolution" of the intestate
court. 12
Both parties appealed from the said decision to the Court of
Appeals. Their appeal was docketed as CA-G.R. CV No.
25739.
On 23 January 1991, the Court of Appeals rendered a
decision affirming the decision of the trial court. It, however,
failed to rule on the defendants' (private respondents') partial
appeal from the trial court's denial of their counterclaim.
Upon their motion for reconsideration, the Court of Appeals
promulgated on 6 March 1992 an Amended Decision 13
wherein it ruled that the settlement of Velasco's estate had
nothing to do with the claim of the defendants for the return
of the balance of their account with CBTC/BPI as they were
not privy to that case, and that the defendants, as depositors
of CBTC/BPI, are the latter's creditors; hence, CBTC/BPI
should have protected the defendants' interest in Sp. Proc.
No. 8959 when the said account was claimed by Velasco's
estate. It then ordered BPI "to pay defendants the amount of
P331,261.44 representing the outstanding balance in the
bank account of defendants." 14
On 22 April 1992, BPI filed the instant petition alleging

therein that the Holdout Agreement in question was subject
to a suspensive condition stated therein, viz., that the
"P331,261.44 shall become a security for respondent Lim's
promissory note only if respondents' Lim and Eastern
Plywood Corporation's interests to that amount are
established as a result of a final and definitive judicial action
or a settlement between and among the contesting parties
thereto." 15 Hence, BPI asserts, the Court of Appeals erred in
affirming the trial court's decision dismissing the complaint
on the ground that it was the duty of CBTC to debit the
account of the defendants to set off the amount of
P73,000.00 covered by the promissory note.
Private respondents Eastern and Lim dispute the
"suspensive condition" argument of the petitioner. They
interpret the findings of both the trial and appellate courts
that the money deposited in the joint account of Velasco and
Lim came from Eastern and Lim's own account as a finding
that the money deposited in the joint account of Lim and
Velasco "rightfully belong[ed] to Eastern Plywood
Corporation and/or Benigno Lim." And because the latter are
the rightful owners of the money in question, the suspensive
condition does not find any application in this case and the
bank had the duty to set off this deposit with the loan. They
add that the ruling of the lower court that they own the
disputed amount is the final and definitive judicial action
required by the Holdout Agreement; hence, the petitioner can
only hold the amount of P73,000.00 representing the security
required for the note and must return the rest. 16
The petitioner filed a Reply to the aforesaid Comment. The
private respondents filed a Rejoinder thereto.
We gave due course to the petition and required the parties
to submit simultaneously their memoranda.
The key issues in this case are whether BPI can demand
payment of the loan of P73,000.00 despite the existence of
the Holdout Agreement and whether BPI is still liable to the
private respondents on the account subject of the Holdout
Agreement after its withdrawal by the heirs of Velasco.
The collection suit of BPI is based on the promissory note for
P73,000.00. On its face, the note is an unconditional promise
to pay the said amount, and as stated by the respondent
Court of Appeals, "[t]here is no question that the promissory
note is a negotiable instrument." 17 It further correctly ruled
that BPI was not a holder in due course because the note
was not indorsed to BPI by the payee, CBTC. Only a
negotiation by indorsement could have operated as a valid
transfer to make BPI a holder in due course. It acquired the
note from CBTC by the contract of merger or sale between
the two banks. BPI, therefore, took the note subject to the
Holdout Agreement.
We disagree, however, with the Court of Appeals in its
interpretation of the Holdout Agreement. It is clear from
paragraph 02 thereof that CBTC, or BPI as its successor-ininterest, had every right to demand that Eastern and Lim

settle their liability under the promissory note. It cannot be
compelled to retain and apply the deposit in Lim and
Velasco's joint account to the payment of the note. What the
agreement conferred on CBTC was a power, not a duty.
Generally, a bank is under no duty or obligation to make the
application. 18 To apply the deposit to the payment of a loan
is a privilege, a right of set-off which the bank has the option
to exercise. 19
Also, paragraph 05 of the Holdout Agreement itself states
that notwithstanding the agreement, CBTC was not in any
way precluded from demanding payment from Eastern and
from instituting an action to recover payment of the loan.
What it provides is an alternative, not an exclusive, method
of enforcing its claim on the note. When it demanded
payment of the debt directly from Eastern and Lim, BPI had
opted not to exercise its right to apply part of the deposit
subject of the Holdout Agreement to the payment of the
promissory note for P73,000.00. Its suit for the enforcement
of the note was then in order and it was error for the trial
court to dismiss it on the theory that it was set off by an
equivalent portion in C/A No. 2310-001-42 which BPI should
have debited. The Court of Appeals also erred in affirming
such dismissal.
The "suspensive condition" theory of the petitioner is,
therefore, untenable.
account. BPI was not specifically ordered to release the

account to the said heirs; hence, it was under no judicial
compulsion to do so. The authorization given to the heirs of
Velasco cannot be construed as a final determination or
adjudication that the account belonged to Velasco. We have
ruled that when the ownership of a particular property is
disputed, the determination by a probate court of whether
that property is included in the estate of a deceased is
merely provisional in character and cannot be the subject of
execution. 24
Because the ownership of the deposit remained
undetermined, BPI, as the debtor with respect thereto, had
no right to pay to persons other than those in whose favor
the obligation was constituted or whose right or authority to
receive payment is indisputable. The payment of the money
deposited with BPI that will extinguish its obligation to the
creditor-depositor is payment to the person of the creditor or
to one authorized by him or by the law to receive it. 25
Payment made by the debtor to the wrong party does not
extinguish the obligation as to the creditor who is without
fault or negligence, even if the debtor acted in utmost good
faith and by mistake as to the person of the creditor, or
through error induced by fraud of a third person. 26 The
payment then by BPI to the heirs of Velasco, even if done in
good faith, did not extinguish its obligation to the true
depositor, Eastern.
The Court of Appeals correctly decided on the counterclaim.

The counterclaim of Eastern and Lim for the return of the
P331,261.44 20 was equivalent to a demand that they be
allowed to withdraw their deposit with the bank. Article 1980
of the Civil Code expressly provides that "[f]ixed, savings,
and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning
simple loan." In Serrano vs. Central Bank of the Philippines,
21
we held that bank deposits are in the nature of irregular
deposits; they are really loans because they earn interest.
The relationship then between a depositor and a bank is one
of creditor and debtor. The deposit under the questioned
account was an ordinary bank deposit; hence, it was payable
on demand of the depositor. 22
In the light of the above findings, the dismissal of the

petitioner's complaint is reversed and set aside. The award
on the counterclaim is sustained subject to a modification of
the interest.
The account was proved and established to belong to

Eastern even if it was deposited in the names of Lim and
Velasco. As the real creditor of the bank, Eastern has the
right to withdraw it or to demand payment thereof. BPI
cannot be relieved of its duty to pay Eastern simply because
it already allowed the heirs of Velasco to withdraw the whole
balance of the account. The petitioner should not have
allowed such withdrawal because it had admitted in the
Holdout Agreement the questioned ownership of the money
deposited in the account. As early as 12 May 1979, CBTC
was notified by the Corporate Secretary of Eastern that the
deposit in the joint account of Velasco and Lim was being
claimed by them and that one-half was being claimed by the
heirs of Velasco. 23
(b) 12% per annum on the interest which had accrued up to

the date of the filing of the complaint, computed from that
date until payment pursuant to Article 2212 of the Civil Code.
Moreover, the order of the court in Sp. Proc. No. 8959

merely authorized the heirs of Velasco to withdraw the
WHEREFORE, the instant petition is partly GRANTED. The

challenged amended decision in CA-G.R. CV No. 25735 is
hereby MODIFIED. As modified:
(1) Private respondents are ordered to pay the petitioner the
promissory note for P73,000.00 with interest at:
(a) 14% per annum on the principal, computed from
18 August 1978 until payment;
(2) The award of P331,264.44 in favor of the private

respondents shall bear interest at the rate of 12% per annum
computed from the filing of the counterclaim.
No pronouncement as to costs.
SO ORDERED.

METROBANK v. BA FINANCE
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 179952
December 4, 2009
METROPOLITAN BANK AND TRUST COMPANY (formerly

ASIANBANK CORPORATION), Petitioner,
vs.
BA FINANCE CORPORATION and MALAYAN
INSURANCE CO., INC., Respondents.
DECISION
CARPIO MORALES, J.:
Lamberto Bitanga (Bitanga) obtained from respondent BA
Finance Corporation (BA Finance) a P329,2801 loan to
secure which, he mortgaged his car to respondent BA
Finance.2 The mortgage contained the following stipulation:
The MORTGAGOR covenants and agrees that he/it will
cause the property(ies) hereinabove mortgaged to be
insured against loss or damage by accident, theft and fire for
a period of one year from date hereof with an insurance
company or companies acceptable to the MORTGAGEE in
an amount not less than the outstanding balance of
mortgage obligations and that he/it will make all loss, if any,
under such policy or policies, payable to the MORTGAGEE
or its assigns as its interest may appear x x x.3 (emphasis
and underscoring supplied)
Bitanga thus had the mortgaged car insured by respondent
Malayan Insurance Co., Inc. (Malayan Insurance)4 which
issued a policy stipulating that, inter alia,
Loss, if any shall be payable to BA FINANCE CORP. as its
interest may appear. It is hereby expressly understood that
this policy or any renewal thereof, shall not be cancelled
without prior notification and conformity by BA FINANCE
CORPORATION.5 (emphasis and underscoring supplied)
The car was stolen. On Bitangas claim, Malayan Insurance
issued a check payable to the order of "B.A. Finance
Corporation and Lamberto Bitanga" for P224,500, drawn
against China Banking Corporation (China Bank). The check
was crossed with the notation "For Deposit Payees Account
Only."6
Without the indorsement or authority of his co-payee BA

Finance, Bitanga deposited the check to his account with the
Asianbank Corporation (Asianbank), now merged with herein
petitioner Metropolitan Bank and Trust Company
(Metrobank). Bitanga subsequently withdrew the entire
proceeds of the check.
In the meantime, Bitangas loan became past due, but
despite demands, he failed to settle it.
BA Finance eventually learned of the loss of the car and of
Malayan Insurances issuance of a crossed check payable to
it and Bitanga, and of Bitangas depositing it in his account at
Asianbank and withdrawing the entire proceeds thereof.
BA Finance thereupon demanded the payment of the value
of the check from Asianbank7 but to no avail, prompting it to
file a complaint before the Regional Trial Court (RTC) of
Makati for sum of money and damages against Asianbank
and Bitanga,8 alleging that, inter alia, it is entitled to the entire
proceeds of the check.
In its Answer with Counterclaim,9 Asianbank alleged that BA
Finance "instituted [the] complaint in bad faith to coerce [it]
into paying the whole amount of the CHECK knowing fully
well that its rightful claim, if any, is against Malayan
[Insurance]."10
Asianbank thereafter filed a cross-claim against Bitanga,11
alleging that he fraudulently induced its personnel to release
to him the full amount of the check; and that on being later
informed that the entire amount of the check did not belong
to Bitanga, it took steps to get in touch with him but he had
changed residence without leaving any forwarding address.12
And Asianbank filed a third-party complaint against Malayan
Insurance,13 alleging that Malayan Insurance was grossly
negligent in issuing the check payable to both Bitanga and
BA Finance and delivering it to Bitanga without the consent
of BA Finance.14
Bitanga was declared in default in Asianbanks cross-claim.15
Branch 137 of the Makati RTC, finding that Malayan
Insurance was not privy to the contract between BA Finance
and Bitanga, and noting the claim of Malayan Insurance that
it is its policy to issue checks to both the insured and the
financing company, held that Malayan Insurance cannot be
faulted for negligence for issuing the check payable to both
BA Finance and Bitanga.
The trial court, holding that Asianbank was negligent in
allowing Bitanga to deposit the check to his account and to
withdraw the proceeds thereof, without his co-payee BA
Finance having either indorsed it or authorized him to
indorse it in its behalf,16 found Asianbank and Bitanga jointly
and severally liable to BA Finance following Section 41 of the
Negotiable Instruments Law and Associated Bank v. Court of
Appeals.17

is not a holder thereof under the Negotiable Instruments
Law.
Thus the trial court disposed:
rendered ordering defendants Asian Bank Corporation and
Lamberto Bitanga:
1) To pay plaintiff jointly and severally the sum of
P224,500.00 with interest thereon at the rate of 12% from
September 25, 1992 until fully paid;
2) To pay plaintiff the sum of P50,000.00 as exemplary
damages; P20,000.00 as actual damages; P30,000.00 as
attorneys fee; and
3) To pay the costs of suit.
Asianbanks and Bitangas [sic] counterclaims are dismissed.
The third party complaint of defendant/third party plaintiff
against third-party defendant Malayan Insurance, Co., Inc. is
hereby dismissed. Asianbank is ordered to pay Malayan
attorneys fee of P50,000.00 and a per appearance fee of
P500.00.
On the cross-claim of defendant Asianbank, codefendant Lamberto Bitanga is ordered to pay the
former the amounts the latter is ordered to pay the
plaintiff in Nos. 1, 2 and 3 above-mentioned.
SO ORDERED.18 (emphasis and underscoring supplied)
Before the Court of Appeals, Asianbank, in its Appellants
Brief, submitted the following issues for consideration:
3.01.1.1 Whether BA Finance has a cause of action against
Asianbank.
3.01.1.2 Assuming that BA Finance has a valid cause of
action, may it claim from Asianbank more than one-half of
the value of the check considering that it is a mere co-payee
or joint payee of the check?
3.01.1.3 Whether BA Finance is liable to Asianbank for
actual and exemplary damages for wrongfully bringing the
case to court.
3.01.1.4 Whether Malayan is liable to Asianbank for
reimbursement of any sum of money which this Honorable
Court may award to BA Finance in this case.19 (underscoring
supplied)
And it proffered the following arguments:
A. BA Finance has no cause of action against Asianbank as
it has no legal right and title to the check considering that the
check was not delivered to BA Finance. Hence, BA Finance
B. Asianbank, as collecting bank, is not liable to BA Finance

as there was no privity of contract between them.
C. Asianbank, as collecting bank, is not liable to BA Finance,
considering that, as the intermediary between the payee and
the drawee Chinabank, it merely acted on the instructions of
drawee Chinabank to pay the amount of the check to
Bitanga, hence, the consequent damage to BA Finance was
due to the negligence of Chinabank.
D. Malayans act of issuing and delivering the check solely to
Bitanga in violation of the "loss payee" clause in the Policy, is
the proximate cause of the alleged damage to BA Finance.
E. Assuming Asianbank is liable, BA Finance can claim only
his proportionate interest on the check as it is a joint payee
thereof.
F. Bitanga alone is liable for the amount to BA Finance on
the ground of unjust enrichment or solutio indebiti.
G. BA Finance is liable to pay Asianbank actual and
exemplary damages.20 (underscoring supplied)
The appellate court, "summarizing" the errors attributed to
the trial court by Asianbank to be "whetherBA Finance has
a cause of action against [it] even if the subject check had
not been delivered toBA Finance by the issuer itself," held
in the affirmative and accordingly affirmed the trial courts
decision but deleted the award of P20,000 as actual
damages.21
Hence, the present Petition for Review on Certiorari 22 filed by
Metrobank (hereafter petitioner) to which Asianbank was, as
earlier stated, merged, faulting the appellate court
I. x x x in applying the case of Associated Bank v. Court of
Appeals, in the absence of factual similarity and of the legal
relationships necessary for the application of the desirable
shortcut rule. x x x
II. x x x in not finding that x x x the general rule that the
payee has no cause of action against the collecting bank
absent delivery to him must be applied.
III. x x x in finding that all the elements of a cause of action
by BA Finance Corporation against Asianbank Corporation
are present.
IV. x x x in finding that Article 1208 of the Civil Code is not
applicable.
V. x x x in awarding of exemplary damages even in the
absence of moral, temperate, liquidated or compensatory
damages and a finding of fact that Asianbank acted in a

wanton, fraudulent, reckless, oppressive or malevolent
manner.
xxxx
VII. x x x in dismissing Asianbanks counterclaim and Third
Party complaint [against Malayan Insurance].23 (italics in the
original; underscoring supplied)
Petitioner proffers the following arguments against the
application of Associated Bank v. CA to the case:
x x x [T]he rule established in the Associated Bank case has
provided a speedier remedy for the payee to recover from
erring collecting banks despite the absence of delivery of the
negotiable instrument. However, the application of the rule
demands careful consideration of the factual settings and
issues raised in the case x x x.
One of the relevant circumstances raised in Associated Bank
is the existence of forgery or unauthorized indorsement. x x x
xxxx
In the case at bar, Bitanga is authorized to indorse the check
as the drawer names him as one of the payees. Moreover,
his signature is not a forgery nor has he or anyone forged
the signature of the representative of BA Finance
Corporation. No unauthorized indorsement appears on the
check.
xxxx
Absent the indispensable fact of forgery or unauthorized
indorsement, the desirable shortcut rule cannot be applied, 24
(underscoring supplied)
The petition fails.
A Yes, sir.
Q And what would be the particular policy of the bank
regarding this transaction?
A The bank policy and procedure regarding the joint
checks. Once it is deposited to a single account, we are
not accepting joint checks for single account, depositing
to a single account (sic).
Q What happened to the bank employee who allowed this
particular transaction to occur?
A Once the branch personnel, the bank personnel (sic)
accepted it, he is liable.
Q What do you mean by the branch personnel being held
liable?
A Because since (sic) the bank policy, we are not
supposed to accept joint checks to a [single] account,
so we mean that personnel would be held liable in the
sense that (sic) once it is withdrawn or encashed, it will
not be allowed.
Q In your experience, have you encountered any bank
employee who was subjected to disciplinary action by not
following bank policies?
A The one that happened in that case, since I really dont
know who that personnel is, he is no longer connected with
the bank.
Q What about in general, do you know of any
disciplinary action, Madam witness?
A Since theres a negligence on the part of the bank
personnel, it will be a ground for his separation [from]
the bank.26 (emphasis, italics and underscoring supplied)
Section 41 of the Negotiable Instruments Law provides:

Where an instrument is payable to the order of two or more
payees or indorsees who are not partners, all must indorse
unless the one indorsing has authority to indorse for the
others. (emphasis and underscoring supplied)
Bitanga alone endorsed the crossed check, and petitioner
allowed the deposit and release of the proceeds thereof,
despite the absence of authority of Bitangas co-payee BA
Finance to endorse it on its behalf.25
Denying any irregularity in accepting the check, petitioner
maintains that it followed normal banking procedure. The
testimony of Imelda Cruz, Asianbanks then accounting head,
shows otherwise, however, viz:
Q Now, could you be familiar with a particular policy of the
bank with respect to checks with joined (sic) payees?
Admittedly, petitioner dismissed the employee who allowed

the deposit of the check in Bitangas account.
Petitioners argument that since there was neither forgery,
nor unauthorized indorsement because Bitanga was a copayee in the subject check, the dictum in Associated Bank v.
CA does not apply in the present case fails. The payment of
an instrument over a missing indorsement is the equivalent
of payment on a forged indorsement27 or an unauthorized
indorsement in itself in the case of joint payees.28
Clearly, petitioner, through its employee, was negligent when
it allowed the deposit of the crossed check, despite the lone
endorsement of Bitanga, ostensibly ignoring the fact that the
check did not, it bears repeating, carry the indorsement of
BA Finance.29
As has been repeatedly emphasized, the banking business
is imbued with public interest such that the highest degree of

diligence and highest standards of integrity and performance
are expected of banks in order to maintain the trust and
confidence of the public in general in the banking sector.30
Undoubtedly, BA Finance has a cause of action against
petitioner.
Accordingly, one who credits the proceeds of a check to the

account of the indorsing payee is liable in conversion to the
non-indorsing payee for the entire amount of the check.35
Petitioner, at all events, argue that its liability to BA Finance

should only be one-half of the amount covered by the check
as there is no indication in the check that Bitanga and BA
Finance are solidary creditors to thus make them
presumptively joint creditors under Articles 1207 and 1208 of
the Civil Code which respectively provide:
It bears noting that in petitioners cross-claim against

Bitanga, the trial court ordered Bitanga to return to petitioner
the entire value of the check P224,500.00 with interest
as well as damages and cost of suit. Petitioner never
questioned this aspect of the trial courts disposition, yet it
now prays for the modification of its liability to BA Finance to
only one-half of said amount. To pander to petitioners
supplication would certainly amount to unjust enrichment at
BA Finances expense. Petitioners remedywhich is the
reimbursement for the full amount of the check from the
perpetrator of the irregularity lies with Bitanga.
Art. 1207. The concurrence of two or more creditors or of two

or more debtors in one and the same obligation does not
imply that each one of the former has a right to demand, or
that each one of the latter is bound to render, entire
compliance with the prestations. There is a solidary liability
only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity.
Articles 1207 and 1208 of the Civil Code cannot be applied

to the present case as these are completely irrelevant. The
drawer, Malayan Insurance in this case, issued the check to
answer for an underlying contractual obligation (payment of
insurance proceeds). The obligation is merely reflected in the
instrument and whether the payees would jointly share in the
proceeds or not is beside the point.
Art. 1208. If from the law, or the nature or wording of the

obligations to which the preceding article refers to the
contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there
are creditors or debtors, the debts or credits being
considered distinct from one another, subject to the Rules of
Court governing the multiplicity of suits.
Moreover, granting petitioners appeal for partial liability

would run counter to the existing principles on the liabilities
of parties on negotiable instruments, particularly on Section
68 of the Negotiable Instruments Law which instructs that
joint payees who indorse are deemed to indorse jointly and
severally.36 Recall that when the maker dishonors the
instrument, the holder thereof can turn to those secondarily
liable the indorser for recovery.37 And since the law
explicitly mandates a solidary liability on the part of the joint
payees who indorse the instrument, the holder thereof
(assuming the check was further negotiated) can turn to
either Bitanga or BA Finance for full recompense.
Is petitioner liable to BA Finance for the full value of the

check?
Petitioners argument is flawed.

The provisions of the Negotiable Instruments Law and
underlying jurisprudential teachings on the black-letter law
provide definitive justification for petitioners full liability on
the value of the check.
To be sure, a collecting bank, Asianbank in this case, where
a check is deposited and which indorses the check upon
presentment with the drawee bank, is an indorser.[31] This is
because in indorsing a check to the drawee bank, a
collecting bank stamps the back of the check with the phrase
"all prior endorsements and/or lack of endorsement
guaranteed"32 and, for all intents and purposes, treats the
check as a negotiable instrument, hence, assumes the
warranty of an indorser.33 Without Asianbanks warranty, the
drawee bank (China Bank in this case) would not have paid
the value of the subject check.
Petitioner, as the collecting bank or last indorser, generally
suffers the loss because it has the duty to ascertain the
genuineness of all prior indorsements considering that the
act of presenting the check for payment to the drawee is an
assertion that the party making the presentment has done its
duty to ascertain the genuineness of prior indorsements.34
Respecting petitioners challenge to the award by the

appellate court of exemplary damages to BA Finance, the
same fails. Contrary to petitioners claim that no moral,
temperate, liquidated or compensatory damages were
awarded by the trial court, 38 the RTC did in fact award
compensatory or actual damages of P224,500, the value of
the check, plus interest thereon.
Petitioner argues, however, that assuming arguendo that
compensatory damages had been awarded, the same
contravened Article 2232 of the Civil Code which provides
that in contracts or quasi-contracts, the court may award
exemplary damages only if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
Since, so petitioner concludes, there was no finding that it
acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner,39 it is not liable for exemplary damages.
The argument fails. To reiterate, petitioners liability is based
not on contract or quasi-contract but on quasi-delict since
there is no pre-existing contractual relation between the
parties.40 Article 2231 of the Civil Code, which provides that
in quasi-delict, exemplary damages may be granted if the

defendant acted with gross negligence, thus applies. For
"gross negligence" implies a want or absence of or failure to
exercise even slight care or diligence, or the entire absence
of care,41 evincing a thoughtless disregard of consequences
without exerting any effort to avoid them.42
x x x The law allows the grant of exemplary damages to set
an example for the public good. The business of a bank is
affected with public interest; thus it makes a sworn
profession of diligence and meticulousness in giving
irreproachable service. For this reason, the bank should
guard against in injury attributable to negligence or bad faith
on its part. The award of exemplary damages is proper as a
warning to [the petitioner] and all concerned not to recklessly
disregard their obligation to exercise the highest and strictest
diligence in serving their depositors.43 (Italics and
underscoring supplied)
As for the dismissal by the appellate court of petitioners
third-party complaint against Malayan Insurance, the same is
well-taken. Petitioner based its third-party complaint on
Malayan Insurances alleged gross negligence in issuing the
check payable to both BA Finance and Bitanga, despite the
stipulation in the mortgage and in the insurance policy that
liability for loss shall be payable to BA Finance. 44 Malayan
Insurance countered, however, that it
extrajudicial demand on September 25, 1992 until finality of

judgment; and 12% per annum from finality of judgment until
payment, conformably with Eastern Shipping Lines, Inc. v.
Court of Appeals.[49]
WHEREFORE, the Decision of the Court of Appeals dated
May 18, 2007 is AFFIRMED with MODIFICATION in that the
rate of interest on the judgment obligation of P224,500
should be 6% per annum, computed from the time of
extrajudicial demand on September 25, 1992 until its full
payment before finality of judgment; thereafter, if the amount
adjudged remains unpaid, the interest rate shall be 12% per
annum computed from the time the judgment becomes final
and executory until fully satisfied.
Costs against petitioner.
SO ORDERED.
REYES v. CA
SUPREME COURT
Manila
SECOND DIVISION
x x x paid the amount of P224,500 to BA Finance

Corporation and Lamberto Bitanga in compliance with the
decision in the case of "Lamberto Bitanga versus Malayan
Insurance Co., Inc., Civil Case No. 88-2802, RTC-Makati Br.
132, and affirmed on appeal by the Supreme Court [3rd
Division], G.R. no. 101964, April 8, 1992 x x x. 45
(underscoring supplied)
It is noted that Malayan Insurance, which stated that it was a
matter of company policy to issue checks in the name of the
insured and the financing company, presented a witness to
rebut its supposed negligence. 46 Perforce, it thus wrote a
crossed check with joint payees so as to serve warning that
the check was issued for a definite purpose.47 Petitioner
never ever disputed these assertions.
The Court takes exception, however, to the appellate courts
affirmance of the trial courts grant of legal interest of 12%
per annum on the value of the check. For the obligation in
this case did not arise out of a loan or forbearance of money,
goods or credit. While Article 1980 of the Civil Code provides
that:
Fixed savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions
concerning simple loan,
said provision does not find application in this case since the
nature of the relationship between BA Finance and petitioner
is one of agency whereby petitioner, as collecting bank, is to
collect for BA Finance the corresponding proceeds from the
check.48 Not being a loan or forbearance of money, the
interest should be 6% per annum computed from the date of
G.R. No. 118492
August 15, 2001
GREGORIO H. REYES and CONSUELO PUYAT-REYES,

petitioners,
vs.
THE HON. COURT OF APPEALS and FAR EAST BANK
AND TRUST COMPANY, respondents.
DE LEON, JR., J.:

Before us is a petition for review of the Decision 1 dated July
22, 1994 and Resolution2 dated December 29, 1994 of the
Court of Appeals3 affirming with modification the Decision4
dated November 12, 1992 of the Regional Trial Court of
Makati, Metro Manila, Branch 64, which dismissed the
complaint for damages of petitioners spouses Gregorio H.
Reyes and Consuelo Puyat-Reyes against respondent Far
East Bank and Trust Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then scheduled
to be held in September, 1988 in Sydney, Australia, the
Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4)
delegates to the said conference. Petitioner Gregorio H.
Reyes, as vice-president for finance, racing manager,
treasurer, and director of PRCI, sent Godofredo Reyes, the
club's chief cashier, to the respondent bank to apply for a
foreign exchange demand draft in Australian dollars.

Godofredo went to respondent bank's Buendia Branch in
Makati City to apply for a demand draft in the amount One
Thousand Six Hundred Ten Australian Dollars (AU$1,610.00)
payable to the order of the 20th Asian Racing Conference
Secretariat of Sydney, Australia. He was attended to by
respondent bank's assistant cashier, Mr. Yasis, who at first
denied the application for the reason that respondent bank
did not have an Australian dollar account in any bank in
Sydney. Godofredo asked if there could be a way for
respondent bank to accommodate PRCI's urgent need to
remit Australian dollars to Sydney. Yasis of respondent bank
then informed Godofredo of a roundabout way of effecting
the requested remittance to Sydney thus: the respondent
bank would draw a demand draft against Westpac Bank in
Sydney, Australia (Westpac-Sydney for brevity) and have the
latter reimburse itself from the U.S. dollar account of the
respondent in Westpac Bank in New York, U.S.A. (WestpacNew York for brevity). This arrangement has been
customarily resorted to since the 1960's and the procedure
has proven to be problem-free. PRCI and the petitioner
Gregorio H. Reyes, acting through Godofredo, agreed to this
arrangement or approach in order to effect the urgent
transfer of Australian dollars payable to the Secretariat of the
20th Asian Racing Conference.
On July 28, 1988, the respondent bank approved the said
application of PRCI and issued Foreign Exchange Demand
Draft (FXDD) No. 209968 in the sum applied for, that is, One
Thousand Six Hundred Ten Australian Dollars (AU$
1,610.00), payable to the order of the 20 th Asian Racing
Conference Secretariat of Sydney, Australia, and addressed
to Westpac-Sydney as the drawee bank.1wphi1.nt
On August 10, 1988, upon due presentment of the foreign
exchange demand draft, denominated as FXDD No. 209968,
the same was dishonored, with the notice of dishonor stating
the following: "xxx No account held with Westpac."
Meanwhile, on August 16, 1988, Wespac-New York sent a
cable to respondent bank informing the latter that its dollar
account in the sum of One Thousand Six Hundred Ten
Australian Dollars (AU$ 1,610.00) was debited. On August
19, 1988, in response to PRCI's complaint about the
dishonor of the said foreign exchange demand draft,
respondent bank informed Westpac-Sydney of the issuance
of the said demand draft FXDD No. 209968, drawn against
the Wespac-Sydney and informing the latter to be
reimbursed from the respondent bank's dollar account in
Westpac-New York. The respondent bank on the same day
likewise informed Wespac-New York requesting the latter to
honor the reimbursement claim of Wespac-Sydney. On
September 14, 1988, upon its second presentment for
payment, FXDD No. 209968 was again dishonored by
Westpac-Sydney for the same reason, that is, that the
respondent bank has no deposit dollar account with the
drawee Wespac-Sydney.
On September 17, 1988 and September 18, 1988,
respectively, petitioners spouses Gregorio H. Reyes and
Consuelo Puyat-Reyes left for Australia to attend the said
racing conference. When petitioner Gregorio H. Reyes
arrived in Sydney in the morning of September 18, 1988, he
went directly to the lobby of Hotel Regent Sydney to register

as a conference delegate. At the registration desk, in the
presence of other delegates from various member of the
conference secretariat that he could not register because the
foreign exchange demand draft for his registration fee had
been dishonored for the second time. A discussion ensued in
the presence and within the hearing of many delegates who
were also registering. Feeling terribly embarrassed and
humiliated, petitioner Gregorio H. Reyes asked the lady
member of the conference secretariat that he be shown the
subject foreign exchange demand draft that had been
dishonored as well as the covering letter after which he
promised that he would pay the registration fees in cash. In
the meantime he demanded that he be given his name plate
and conference kit. The lady member of the conference
secretariat relented and gave him his name plate and
conference kit. It was only two (2) days later, or on
September 20, 1988, that he was given the dishonored
demand draft and a covering letter. It was then that he
actually paid in cash the registration fees as he had earlier
promised.
Meanwhile, on September 19, 1988, petitioner Consuelo
Puyat-Reyes arrived in Sydney. She too was embarassed
and humiliated at the registration desk of the conference
secretariat when she was told in the presence and within the
hearing of other delegates that she could not be registered
due to the dishonor of the subject foreign exchange demand
draft. She felt herself trembling and unable to look at the
people around her. Fortunately, she saw her husband,
coming toward her. He saved the situation for her by telling
the secretariat member that he had already arranged for the
payment of the registration fee in cash once he was shown
the dishonored demand draft. Only then was petitioner
Puyat-Reyes given her name plate and conference kit.
At the time the incident took place, petitioner Consuelo
Puyat-Reyes was a member of the House of
Representatives representing the lone Congressional District
of Makati, Metro Manila. She has been an officer of the
Manila Banking Corporation and was cited by Archbishop
Jaime Cardinal Sin as the top lady banker of the year in
connection with her conferment of the Pro-Ecclesia et
Pontifice Award. She has also been awarded a plaque of
appreciation from the Philippine Tuberculosis Society for her
extraordinary service as the Society's campaign chairman for
the ninth (9th) consecutive year.
On November 23, 1988, the petitioners filed in the Regional
Trial Court of Makati, Metro Manila, a complaint for
damages, docketed as Civil Case No. 88-2468, against the
respondent bank due to the dishonor of the said foreign
exchange demand draft issued by the respondent bank. The
petitioners claim that as a result of the dishonor of the said
demand draft, they were exposed to unnecessary shock,
social humiliation, and deep mental anguish in a foreign
country, and in the presence of an international audience.
On November 12, 1992, the trial court rendered judgment in
favor of the defendant (respondent bank) and against the

plaintiffs (herein petitioners), the dispositive portion of which
states:
WHEREFORE, judgment is hereby rendered in favor of the
defendant, dismissing plaintiff's complaint, and ordering
plaintiffs to pay to defendant, on its counterclaim, the amount
of P50,000.00, as reasonable attorney's fees. Costs against
the plaintiff.
SO ORDERED.5
The petitioners appealed the decision of the trial court to the
Court of Appeals. On July 22, 1994, the appellate court
affirmed the decision of the trial court but in effect deleted the
award of attorney's fees to the defendant (herein respondent
bank) and the pronouncement as to the costs. The decretal
portion of the decision of the appellate court states:
cable message sent to Wespac-Sydney. Hence, if there was

mistake committed by Westpac-Sydney in decoding the
cable message which caused the Bank's message to be sent
to the wrong department, the mistake was Westpac's, not the
Bank's. The Bank had done what an ordinary prudent person
is required to do in the particular situation, although
appellants expect the Bank to have done more. The Bank
having done everything necessary or usual in the ordinary
course of banking transaction, it cannot be held liable for any
embarrassment and corresponding damage that appellants
may have incurred.7
xxx
xxx
xxx
Hence, this petition, anchored on the following assignment of

errors:
I
WHEREFORE, the judgment appealed from, insofar as it

dismissed plaintiff's complaint, is hereby AFFIRMED, but is
hereby REVERSED and SET ASIDE in all other respect. No
special pronouncement as to costs.
SO ORDERED.6
According to the appellate court, there is no basis to hold the
respondent bank liable for damages for the reason that it
exerted every effort for the subject foreign exchange demand
draft to be honored. The appellate court found and declared
that:
xxx
xxx
xxx
Thus, the Bank had every reason to believe that the

transaction finally went through smoothly, considering that its
New York account had been debited and that there was no
miscommunication between it and Westpac-New York.
SWIFT is a world wide association used by almost all banks
and is known to be the most reliable mode of communication
in the international banking business. Besides, the above
procedure, with the Bank as drawer and Westpac-Sydney as
drawee, and with Westpac-New York as the reimbursement
Bank had been in place since 1960s and there was no
reason for the Bank to suspect that this particular demand
draft would not be honored by Westpac-Sydney.
From the evidence, it appears that the root cause of the
miscommunications of the Bank's SWIFT message is the
erroneous decoding on the part of Westpac-Sydney of the
Bank's SWIFT message as an MT799 format. However, a
closer look at the Bank's Exhs. "6" and "7" would show that
despite what appears to be an asterick written over the figure
before "99", the figure can still be distinctly seen as a number
"1" and not number "7", to the effect that Westpac-Sydney
was responsible for the dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading
on the part of the Westpac-Sydney of the numbers "1" to "7",
since Exhs. "6" and "7" are just documentary copies of the
THE HONORABLE COURT OF APPEALS ERRED IN

FINDING PRIVATE RESPONDENT NOT NEGLIGENT BY
ERRONEOUSLY APPLYING THE STANDARD OF
DILIGENCE OF AN "ORDINARY PRUDENT PERSON"
WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS
IMPOSED BY LAW UPON THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN
ABSOLVING PRIVATE RESPONDENT FROM LIABILITY BY
OVERLOOKING THE FACT THAT THE DISHONOR OF
THE DEMAND DRAFT WAS A BREACH OF PRIVATE
RESPONDENT'S WARRANTY AS THE DRAWER
THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT AS SHOWN OVERWHELMINGLY BY THE
EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT AS
DUE TO PRIVATE RESPONDENT'S NEGLIGENCE AND
NOT THE DRAWEE BANK.8
The petitioners contend that due to the fiduciary nature of the
relationship between the respondent bank and its clients, the
respondent should have exercised a higher degree of
diligence than that expected of an ordinary prudent person in
the handling of its affairs as in the case at bar. The appellate
court, according to petitioners, erred in applying the standard
of diligence of an ordinary prudent person only. Petitioners
also claim that the respondent bank violate Section 61 of the
Negotiable Instruments Law9 which provides the warranty of
a drawer that "xxx on due presentment, the instrument will
be accepted or paid, or both, according to its tenor xxx."
Thus, the petitioners argue that respondent bank should be
held liable for damages for violation of this warranty. The
petitioners pray this Court to re-examine the facts to cite
certain instances of negligence.

It is our view and we hold that there is no reversible error in
the decision of the appellate court.
two (2) more cable messages to Westpac-New York inquiring

why the demand draft was not honored.14
Section 1 of Rule 45 of the Revised Rules of Court provides

that "(T)he petition (for review) shall raise only questions of
law which must be distinctly set forth." Thus, we have ruled
that factual findings of the Court of Appeals are conclusive
on the parties and not reviewable by this Court and they
carry even more weight when the Court of Appeals affirms
the factual findings of the trial court.10
With these established facts, we now determine the degree

of diligence that banks are required to exert in their
commercial dealings. In Philippine Bank of Commerce v.
Court of Appeals15 upholding a long standing doctrine, we
ruled that the degree of diligence required of banks, is more
than that of a good father of a family where the fiduciary
nature of their relationship with their depositors is concerned.
In other words banks are duty bound to treat the deposit
accounts of their depositors with the highest degree of care.
But the said ruling applies only to cases where banks act
under their fiduciary capacity, that is, as depositary of the
deposits of their depositors. But the same higher degree of
diligence is not expected to be exerted by banks in
commercial transactions that do not involve their fiduciary
relationship with their depositors.
The courts a quo found that respondent bank did not

misrepresent that it was maintaining a deposit account with
Westpac-Sydney. Respondent bank's assistant cashier
explained to Godofredo Reyes, representing PRCI and
petitioner Gregorio H. Reyes, how the transfer of Australian
dollars would be effected through Westpac-New York where
the respondent bank has a dollar account to WestpacSydney where the subject foreign exchange demand draft
(FXDD No. 209968) could be encashed by the payee, the
20th Asian Racing Conference Secretariat. PRCI and its VicePresident for finance, petitioner Gregorio H. Reyes, through
their said representative, agreed to that arrangement or
procedure. In other words, the petitioners are estopped from
denying the said arrangement or procedure. Similar
arrangements have been a long standing practice in banking
to facilitate international commercial transactions. In fact, the
SWIFT cable message sent by respondent bank to the
drawee bank, Westpac-Sydney, stated that it may claim
reimbursement from its New York branch, Westpac-New
York, where respondent bank has a deposit dollar account.
The facts as found by the courts a quo show that respondent
bank did not cause an erroneous transmittal of its SWIFT
cable message to Westpac-Sydney. It was the erroneous
decoding of the cable message on the part of WestpacSydney that caused the dishonor of the subject foreign
exchange demand draft. An employee of Westpac-Sydney in
Sydney, Australia mistakenly read the printed figures in the
SWIFT cable message of respondent bank as "MT799"
instead of as "MT199". As a result, Westpac-Sydney
construed the said cable message as a format for a letter of
credit, and not for a demand draft. The appellate court
correct found that "the figure before '99' can still be distinctly
seen as a number '1' and not number '7'." Indeed, the line of
a "7" is in a slanting position while the line of a "1" is in a
horizontal position. Thus, the number "1" in "MT199" cannot
be construed as "7".11
The evidence also shows that the respondent bank
exercised that degree of diligence expected of an ordinary
prudent person under the circumstances obtaining. Prior to
the first dishonor of the subject foreign exchange demand
draft, the respondent bank advised Westpac-New York to
honor the reimbursement claim of Westpac-Sydney and to
debit the dollar account12 of respondent bank with the former.
As soon as the demand draft was dishonored, the
respondent bank, thinking that the problem was with the
reimbursement and without any idea that it was due to
miscommunication, re-confirmed the authority of WestpacNew York to debit its dollar account for the purpose of
reimbursing Westpac-Sydney.13 Respondent bank also sent
Considering the foregoing, the respondent bank was not

required to exert more than the diligence of a good father of
a family in regard to the sale and issuance of the subject
foreign exchange demand draft. The case at bar does not
involve the handling of petitioners' deposit, if any, with the
respondent bank. Instead, the relationship involved was that
of a buyer and seller, that is, between the respondent bank
as the seller of the subject foreign exchange demand draft,
and PRCI as the buyer of the same, with the 20 th Asian
Racing conference Secretariat in Sydney, Australia as the
payee thereof. As earlier mentioned, the said foreign
exchange demand draft was intended for the payment of the
registration fees of the petitioners as delegates of the PRCI
to the 20th Asian Racing Conference in Sydney.
The evidence shows that the respondent bank did everything
within its power to prevent the dishonor of the subject foreign
exchange demand draft. The erroneous reading of its cable
message to Westpac-Sydney by an employee of the latter
could not have been foreseen by the respondent bank. Being
unaware that its employee erroneously read the said cable
message, Westpac-Sydney merely stated that the
respondent bank has no deposit account with it to cover for
the amount of One Thousand Six Hundred Ten Australian
Dollar (AU $1610.00) indicated in the foreign exchange
demand draft. Thus, the respondent bank had the impression
that Westpac-New York had not yet made available the
amount for reimbursement to Westpac-Sydney despite the
fact that respondent bank has a sufficient deposit dollar
account with Westpac-New York. That was the reason why
the respondent bank had to re-confirm and repeatedly notify
Westpac-New York to debit its (respondent bank's) deposit
dollar account with it and to transfer or credit the
corresponding amount to Westpac-Sydney to cover the
amount of the said demand draft.
In view of all the foregoing, and considering that the dishonor
of the subject foreign exchange demand draft is not
attributable to any fault of the respondent bank, whereas the
petitioners appeared to be under estoppel as earlier
mentioned, it is no longer necessary to discuss the alleged

application of Section 61 of the Negotiable Instruments Law
to the case at bar. In any event, it was established that the
respondent bank acted in good faith and that it did not cause
the embarrassment of the petitioners in Sydney, Australia.
Hence, the Court of Appeals did not commit any reversable
error in its challenged decision.
evidence through said witness, showed that petitioners'

obligation is civil in nature.
WHEREFORE, the petition is hereby DENIED, and the

assailed decision of the Court of Appeals is AFFIRMED.
Costs against the petitioners.
On December 23,1981, private respondent David filed I.S.

No. 81-31938 in the Office of the City Fiscal of Manila, which
case was assigned to respondent Lota for preliminary
investigation (Petition, p. 8).
For purposes of brevity, We hereby adopt the antecedent

facts narrated by the Solicitor General in its Comment dated
June 28,1982, as follows:t.hqw
SO ORDERED.
GUINGONA v. CITY FISCAL
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-60033
April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and

TERESITA SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B.
FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA
and CLEMENT DAVID, respondents.
MAKASIAR, Actg. C.J.:+.wph!1

This is a petition for prohibition and injunction with a prayer
for the immediate issuance of restraining order and/or writ of
preliminary injunction filed by petitioners on March 26, 1982.
On March 31, 1982, by virtue of a court resolution issued by
this Court on the same date, a temporary restraining order
was duly issued ordering the respondents, their officers,
agents, representatives and/or person or persons acting
upon their (respondents') orders or in their place or stead to
refrain from proceeding with the preliminary investigation in
Case No. 8131938 of the Office of the City Fiscal of Manila
(pp. 47-48, rec.). On January 24, 1983, private respondent
Clement David filed a motion to lift restraining order which
was denied in the resolution of this Court dated May 18,
1983.
As can be gleaned from the above, the instant petition seeks
to prohibit public respondents from proceeding with the
preliminary investigation of I.S. No. 81-31938, in which
petitioners were charged by private respondent Clement
David, with estafa and violation of Central Bank Circular No.
364 and related regulations regarding foreign exchange
transactions principally, on the ground of lack of jurisdiction
in that the allegations of the charged, as well as the
testimony of private respondent's principal witness and the
In I.S. No. 81-31938, David charged petitioners (together

with one Robert Marshall and the following directors of the
Nation Savings and Loan Association, Inc., namely Homero
Gonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr.,
Perfecto Manalac, Jaime V. Paz, Paulino B. Dionisio, and
one John Doe) with estafa and violation of Central Bank
Circular No. 364 and related Central Bank regulations on
foreign exchange transactions, allegedly committed as
follows (Petition, Annex "A"):t.hqw
"From March 20, 1979 to March, 1981, David invested with
the Nation Savings and Loan Association, (hereinafter called
NSLA) the sum of P1,145,546.20 on nine deposits,
P13,531.94 on savings account deposits (jointly with his
sister, Denise Kuhne), US$10,000.00 on time deposit,
US$15,000.00 under a receipt and guarantee of payment
and US$50,000.00 under a receipt dated June 8, 1980 (au
jointly with Denise Kuhne), that David was induced into
making the aforestated investments by Robert Marshall an
Australian national who was allegedly a close associate of
petitioner Guingona Jr., then NSLA President, petitioner
Martin, then NSLA Executive Vice-President of NSLA and
petitioner Santos, then NSLA General Manager; that on
March 21, 1981 N LA was placed under receivership by the
Central Bank, so that David filed claims therewith for his
investments and those of his sister; that on July 22, 1981
David received a report from the Central Bank that only
P305,821.92 of those investments were entered in the
records of NSLA; that, therefore, the respondents in I.S. No.
81-31938 misappropriated the balance of the investments, at
the same time violating Central Bank Circular No. 364 and
related Central Bank regulations on foreign exchange
transactions; that after demands, petitioner Guingona Jr.
paid only P200,000.00, thereby reducing the amounts
misappropriated to P959,078.14 and US$75,000.00."
Petitioners, Martin and Santos, filed a joint counter-affidavit
(Petition, Annex' B') in which they stated the following.t.
hqw
"That Martin became President of NSLA in March 1978 (after
the resignation of Guingona, Jr.) and served as such until
October 30, 1980, while Santos was General Manager up to
November 1980; that because NSLA was urgently in need of
funds and at David's insistence, his investments were treated
as special- accounts with interest above the legal rate, an
recorded in separate confidential documents only a portion
of which were to be reported because he did not want the

Australian government to tax his total earnings (nor) to know
his total investments; that all transactions with David were
recorded except the sum of US$15,000.00 which was a
personal loan of Santos; that David's check for
US$50,000.00 was cleared through Guingona, Jr.'s dollar
account because NSLA did not have one, that a draft of
US$30,000.00 was placed in the name of one Paz Roces
because of a pending transaction with her; that the Philippine
Deposit Insurance Corporation had already reimbursed
David within the legal limits; that majority of the stockholders
of NSLA had filed Special Proceedings No. 82-1695 in the
Court of First Instance to contest its (NSLA's) closure; that
after NSLA was placed under receivership, Martin executed
a promissory note in David's favor and caused the transfer to
him of a nine and on behalf (9 1/2) carat diamond ring with a
net value of P510,000.00; and, that the liabilities of NSLA to
David were civil in nature."
Petitioner, Guingona, Jr., in his counter-affidavit (Petition,
Annex' C') stated the following:t.hqw
"That he had no hand whatsoever in the transactions
between David and NSLA since he (Guingona Jr.) had
resigned as NSLA president in March 1978, or prior to those
transactions; that he assumed a portion o; the liabilities of
NSLA to David because of the latter's insistence that he
placed his investments with NSLA because of his faith in
Guingona, Jr.; that in a Promissory Note dated June 17,
1981 (Petition, Annex "D") he (Guingona, Jr.) bound himself
to pay David the sums of P668.307.01 and US$37,500.00 in
stated installments; that he (Guingona, Jr.) secured payment
of those amounts with second mortgages over two (2)
parcels of land under a deed of Second Real Estate
Mortgage (Petition, Annex "E") in which it was provided that
the mortgage over one (1) parcel shall be cancelled upon
payment of one-half of the obligation to David; that he
(Guingona, Jr.) paid P200,000.00 and tendered another
P300,000.00 which David refused to accept, hence, he
(Guingona, Jr.) filed Civil Case No. Q-33865 in the Court of
First Instance of Rizal at Quezon City, to effect the release of
the mortgage over one (1) of the two parcels of land
conveyed to David under second mortgages."
claim that some of his investments were not record (Petition,

pp. 8-9).
Petitioners alleged that they did not exhaust available
administrative remedies because to do so would be futile
(Petition, p. 9) [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the sole
issue for resolution is whether public respondents acted
without jurisdiction when they investigated the charges
(estafa and violation of CB Circular No. 364 and related
regulations regarding foreign exchange transactions) subject
matter of I.S. No. 81-31938.
There is merit in the contention of the petitioners that their
liability is civil in nature and therefore, public respondents
have no jurisdiction over the charge of estafa.
A casual perusal of the December 23, 1981 affidavit.
complaint filed in the Office of the City Fiscal of Manila by
private respondent David against petitioners Teopisto
Guingona, Jr., Antonio I. Martin and Teresita G. Santos,
together with one Robert Marshall and the other directors of
the Nation Savings and Loan Association, will show that from
March 20, 1979 to March, 1981, private respondent David,
together with his sister, Denise Kuhne, invested with the
Nation Savings and Loan Association the sum of
P1,145,546.20 on time deposits covered by Bankers
Acceptances and Certificates of Time Deposits and the sum
of P13,531.94 on savings account deposits covered by
passbook nos. 6-632 and 29-742, or a total of P1,159,078.14
(pp. 15-16, roc.). It appears further that private respondent
David, together with his sister, made investments in the
aforesaid bank in the amount of US$75,000.00 (p. 17, rec.).
At the inception of the preliminary investigation before

respondent Lota, petitioners moved to dismiss the charges
against them for lack of jurisdiction because David's claims
allegedly comprised a purely civil obligation which was itself
novated. Fiscal Lota denied the motion to dismiss (Petition,
p. 8).
Moreover, the records reveal that when the aforesaid bank

was placed under receivership on March 21, 1981,
petitioners Guingona and Martin, upon the request of private
respondent David, assumed the obligation of the bank to
private respondent David by executing on June 17, 1981 a
joint promissory note in favor of private respondent
acknowledging an indebtedness of Pl,336,614.02 and
US$75,000.00 (p. 80, rec.). This promissory note was based
on the statement of account as of June 30, 1981 prepared by
the private respondent (p. 81, rec.). The amount of
indebtedness assumed appears to be bigger than the
original claim because of the added interest and the
inclusion of other deposits of private respondent's sister in
the amount of P116,613.20.
But, after the presentation of David's principal witness,

petitioners filed the instant petition because: (a) the
production of the Promisory Notes, Banker's Acceptance,
Certificates of Time Deposits and Savings Account allegedly
showed that the transactions between David and NSLA were
simple loans, i.e., civil obligations on the part of NSLA which
were novated when Guingona, Jr. and Martin assumed them;
and (b) David's principal witness allegedly testified that the
duplicate originals of the aforesaid instruments of
indebtedness were all on file with NSLA, contrary to David's
Thereafter, or on July 17, 1981, petitioners Guingona and

Martin agreed to divide the said indebtedness, and petitioner
Guingona executed another promissory note antedated to
June 17, 1981 whereby he personally acknowledged an
indebtedness of P668,307.01 (1/2 of P1,336,614.02) and
US$37,500.00 (1/2 of US$75,000.00) in favor of private
respondent (p. 25, rec.). The aforesaid promissory notes
were executed as a result of deposits made by Clement
David and Denise Kuhne with the Nation Savings and Loan
Association.

Furthermore, the various pleadings and documents filed by
private respondent David, before this Court indisputably
show that he has indeed invested his money on time and
savings deposits with the Nation Savings and Loan
Association.
constitute estafa through misappropriation punishable under

Article 315, par. l(b) of the Revised Penal Code, but it will
only give rise to civil liability over which the public
respondents have no- jurisdiction.
WE have already laid down the rule that:t.hqw
It must be pointed out that when private respondent David

invested his money on nine. and savings deposits with the
aforesaid bank, the contract that was perfected was a
contract of simple loan or mutuum and not a contract of
deposit. Thus, Article 1980 of the New Civil Code provides
that:t.hqw
Article 1980. Fixed, savings, and current deposits of-money
in banks and similar institutions shall be governed by the
provisions concerning simple loan.
In order that a person can be convicted under the abovequoted provision, it must be proven that he has the
obligation to deliver or return the some money, goods or
personal property that he received Petitioners had no such
obligation to return the same money, i.e., the bills or coins,
which they received from private respondents. This is so
because as clearly as stated in criminal complaints, the
related civil complaints and the supporting sworn statements,
the sums of money that petitioners received were loans.
In the case of Central Bank of the Philippines vs. Morfe (63

SCRA 114,119 [1975], We said:t.hqw
The nature of simple loan is defined in Articles 1933 and

1953 of the Civil Code.t.hqw
It should be noted that fixed, savings, and current deposits of

money in banks and similar institutions are hat true deposits.
are considered simple loans and, as such, are not preferred
credits (Art. 1980 Civil Code; In re Liquidation of Mercantile
Batik of China Tan Tiong Tick vs. American Apothecaries Co.,
66 Phil 414; Pacific Coast Biscuit Co. vs. Chinese Grocers
Association 65 Phil. 375; Fletcher American National Bank
vs. Ang Chong UM 66 PWL 385; Pacific Commercial Co. vs.
American Apothecaries Co., 65 PhiL 429; Gopoco Grocery
vs. Pacific Coast Biscuit CO.,65 Phil. 443)."
"Art. 1933. By the contract of loan, one of the parties

delivers to another, either something not consumable so that
the latter may use the same for a certain time- and return it,
in which case the contract is called a commodatum; or
money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall he paid
in which case the contract is simply called a loan or mutuum.
This Court also declared in the recent case of Serrano vs.

Central Bank of the Philippines (96 SCRA 102 [1980])
that:t.hqw
Bank deposits are in the nature of irregular deposits. They
are really 'loans because they earn interest. All kinds of bank
deposits, whether fixed, savings, or current are to be treated
as loans and are to be covered by the law on loans (Art.
1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519).
Current and saving deposits, are loans to a bank because it
can use the same. The petitioner here in making time
deposits that earn interests will respondent Overseas Bank
of Manila was in reality a creditor of the respondent Bank
and not a depositor. The respondent Bank was in turn a
debtor of petitioner. Failure of the respondent Bank to honor
the time deposit is failure to pay its obligation as a debtor
and not a breach of trust arising from a depositary's failure to
return the subject matter of the deposit (Emphasis supplied).
Hence, the relationship between the private respondent and
the Nation Savings and Loan Association is that of creditor
and debtor; consequently, the ownership of the amount
deposited was transmitted to the Bank upon the perfection of
the contract and it can make use of the amount deposited for
its banking operations, such as to pay interests on deposits
and to pay withdrawals. While the Bank has the obligation to
return the amount deposited, it has, however, no obligation
to return or deliver the same money that was deposited. And,
the failure of the Bank to return the amount deposited will not
"Commodatum is essentially gratuitous.

"Simple loan may be gratuitous or with a stipulation to pay
interest.
"In commodatum the bailor retains the ownership of the thing
loaned while in simple loan, ownership passes to the
borrower.
"Art. 1953. A person who receives a loan of money or any
other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same
kind and quality."
It can be readily noted from the above-quoted provisions that
in simple loan (mutuum), as contrasted to commodatum the
borrower acquires ownership of the money, goods or
personal property borrowed Being the owner, the borrower
can dispose of the thing borrowed (Article 248, Civil Code)
and his act will not be considered misappropriation thereof'
(Yam vs. Malik, 94 SCRA 30, 34 [1979]; Emphasis supplied).
But even granting that the failure of the bank to pay the time
and savings deposits of private respondent David would
constitute a violation of paragraph 1(b) of Article 315 of the
Revised Penal Code, nevertheless any incipient criminal
liability was deemed avoided, because when the aforesaid
bank was placed under receivership by the Central Bank,
petitioners Guingona and Martin assumed the obligation of
the bank to private respondent David, thereby resulting in the
novation of the original contractual obligation arising from

deposit into a contract of loan and converting the original
trust relation between the bank and private respondent David
into an ordinary debtor-creditor relation between the
petitioners and private respondent. Consequently, the failure
of the bank or petitioners Guingona and Martin to pay the
deposits of private respondent would not constitute a breach
of trust but would merely be a failure to pay the obligation as
a debtor.
Moreover, while it is true that novation does not extinguish
criminal liability, it may however, prevent the rise of criminal
liability as long as it occurs prior to the filing of the criminal
information in court. Thus, in Gonzales vs. Serrano ( 25
SCRA 64, 69 [1968]) We held that:t.hqw
As pointed out in People vs. Nery, novation prior to the filing
of the criminal information as in the case at bar may
convert the relation between the parties into an ordinary
creditor-debtor relation, and place the complainant in
estoppel to insist on the original transaction or "cast doubt on
the true nature" thereof.
Again, in the latest case of Ong vs. Court of Appeals (L58476, 124 SCRA 578, 580-581 [1983] ), this Court
reiterated the ruling in People vs. Nery ( 10 SCRA 244 [1964]
), declaring that:t.hqw
The novation theory may perhaps apply prior to the filling of
the criminal information in court by the state prosecutors
because up to that time the original trust relation may be
converted by the parties into an ordinary creditor-debtor
situation, thereby placing the complainant in estoppel to
insist on the original trust. But after the justice authorities
have taken cognizance of the crime and instituted action in
court, the offended party may no longer divest the
prosecution of its power to exact the criminal liability, as
distinguished from the civil. The crime being an offense
against the state, only the latter can renounce it (People vs.
Gervacio, 54 Off. Gaz. 2898; People vs. Velasco, 42 Phil. 76;
U.S. vs. Montanes, 8 Phil. 620).
It may be observed in this regard that novation is not one of
the means recognized by the Penal Code whereby criminal
liability can be extinguished; hence, the role of novation may
only be to either prevent the rise of criminal habihty or to cast
doubt on the true nature of the original basic transaction,
whether or not it was such that its breach would not give rise
to penal responsibility, as when money loaned is made to
appear as a deposit, or other similar disguise is resorted to
(cf. Abeto vs. People, 90 Phil. 581; U.S. vs. Villareal, 27 Phil.
481).
In the case at bar, there is no dispute that petitioners
Guingona and Martin executed a promissory note on June
17, 1981 assuming the obligation of the bank to private
respondent David; while the criminal complaint for estafa
was filed on December 23, 1981 with the Office of the City
Fiscal. Hence, it is clear that novation occurred long before
the filing of the criminal complaint with the Office of the City
Fiscal.
Consequently, as aforestated, any incipient criminal liability

would be avoided but there will still be a civil liability on the
part of petitioners Guingona and Martin to pay the assumed
obligation.
Petitioners herein were likewise charged with violation of
Section 3 of Central Bank Circular No. 364 and other related
regulations regarding foreign exchange transactions by
accepting foreign currency deposit in the amount of
US$75,000.00 without authority from the Central Bank. They
contend however, that the US dollars intended by
respondent David for deposit were all converted into
Philippine currency before acceptance and deposit into
Nation Savings and Loan Association.
Petitioners' contention is worthy of behelf for the following
reasons:
1. It appears from the records that when respondent David
was about to make a deposit of bank draft issued in his
name in the amount of US$50,000.00 with the Nation
Savings and Loan Association, the same had to be cleared
first and converted into Philippine currency. Accordingly, the
bank draft was endorsed by respondent David to petitioner
Guingona, who in turn deposited it to his dollar account with
the Security Bank and Trust Company. Petitioner Guingona
merely accommodated the request of the Nation Savings
and loan Association in order to clear the bank draft through
his dollar account because the bank did not have a dollar
account. Immediately after the bank draft was cleared,
petitioner Guingona authorized Nation Savings and Loan
Association to withdraw the same in order to be utilized by
the bank for its operations.
2. It is safe to assume that the U.S. dollars were converted
first into Philippine pesos before they were accepted and
deposited in Nation Savings and Loan Association, because
the bank is presumed to have followed the ordinary course of
the business which is to accept deposits in Philippine
currency only, and that the transaction was regular and fair,
in the absence of a clear and convincing evidence to the
contrary (see paragraphs p and q, Sec. 5, Rule 131, Rules of
Court).
3. Respondent David has not denied the aforesaid
contention of herein petitioners despite the fact that it was
raised. in petitioners' reply filed on May 7, 1982 to private
respondent's comment and in the July 27, 1982 reply to
public respondents' comment and reiterated in petitioners'
memorandum filed on October 30, 1982, thereby adding
more support to the conclusion that the US$75,000.00 were
really converted into Philippine currency before they were
accepted and deposited into Nation Savings and Loan
Association. Considering that this might adversely affect his
case, respondent David should have promptly denied
petitioners' allegation.
In conclusion, considering that the liability of the petitioners
is purely civil in nature and that there is no clear showing that
they engaged in foreign exchange transactions, We hold that

the public respondents acted without jurisdiction when they
investigated the charges against the petitioners.
Consequently, public respondents should be restrained from
further proceeding with the criminal case for to allow the
case to continue, even if the petitioners could have appealed
to the Ministry of Justice, would work great injustice to
petitioners and would render meaningless the proper
administration of justice.
WHEREFORE, THE PETITION IS HEREBY GRANTED;

THE TEMPORARY RESTRAINING ORDER PREVIOUSLY
ISSUED IS MADE PERMANENT. COSTS AGAINST THE
PRIVATE RESPONDENT.
SO ORDERED.1wph1.t
PROVINCE OF BATAAN v. VILLAFUERTE
While as a rule, the prosecution in a criminal offense cannot

be the subject of prohibition and injunction, this court has
recognized the resort to the extraordinary writs of prohibition
and injunction in extreme cases, thus:t.hqw
On the issue of whether a writ of injunction can restrain the
proceedings in Criminal Case No. 3140, the general rule is
that "ordinarily, criminal prosecution may not be blocked by
court prohibition or injunction." Exceptions, however, are
allowed in the following instances:t.hqw
"1. for the orderly administration of justice;
"2. to prevent the use of the strong arm of the law in an
oppressive and vindictive manner;

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 129995
October 19, 2001
THE PROVINCE OF BATAAN, petitioner-appellant,

vs.
HON. PEDRO VILLAFUERTE, JR., as Presiding Judge of
the Regional Trial Court of Bataan (Branch 4), and THE
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,
respondents-appellees.
"3. to avoid multiplicity of actions;

"4. to afford adequate protection to constitutional rights;
"5. in proper cases, because the statute relied upon is
unconstitutional or was held invalid" ( Primicias vs.
Municipality of Urdaneta, Pangasinan, 93 SCRA 462, 469470 [1979]; citing Ramos vs. Torres, 25 SCRA 557 [1968];
and Hernandez vs. Albano, 19 SCRA 95, 96 [1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616,
621-622 [1966]), We held that:t.hqw
The writs of certiorari and prohibition, as extraordinary legal
remedies, are in the ultimate analysis, intended to annul void
proceedings; to prevent the unlawful and oppressive
exercise of legal authority and to provide for a fair and
orderly administration of justice. Thus, in Yu Kong Eng vs.
Trinidad, 47 Phil. 385, We took cognizance of a petition for
certiorari and prohibition although the accused in the case
could have appealed in due time from the order complained
of, our action in the premises being based on the public
welfare policy the advancement of public policy. In Dimayuga
vs. Fajardo, 43 Phil. 304, We also admitted a petition to
restrain the prosecution of certain chiropractors although, if
convicted, they could have appealed. We gave due course to
their petition for the orderly administration of justice and to
avoid possible oppression by the strong arm of the law. And
in Arevalo vs. Nepomuceno, 63 Phil. 627, the petition for
certiorari challenging the trial court's action admitting an
amended information was sustained despite the availability
of appeal at the proper time.
BUENA, J.:
Sought to be reversed in the instant Petition for Review on
Certiorari is the Decision1 of the Court of Appeals, dated 19
December 1996, in C.A. G.R. SP. No. 33344, upholding the
twin orders dated 28 July 1993 and 11 November 1993 of the
Regional Trial Court (RTC) of Bataan, Branch 4, in Civil Case
No. 210-ML, for annulment of sale.
In its order dated 28 July 1993,2 the lower court directed that
herein petitioner Province of Bataan remit to said court
whatever lease rentals petitioner may receive from lessees
7-R Port Services and Marina Port Services, and that such
lease rentals be placed under a special time deposit with the
Land Bank of the Philippines, Balanga Branch, for the
account of the RTC-Balanga, Branch 4, in escrow, for the
person or persons, natural or juridical, who may be adjudged
lawfully entitled thereto. The order dated 11 November
1993,3 denied herein petitioners motion for reconsideration
of the 28 July, 1993 order.
Involved in the present controversy is an expanse of real
property (hereinafter referred to as the BASECO property)
situated at Mariveles, Bataan and formerly registered and
titled in the name of either the Bataan Shipyard and
Engineering Corporation (BASECO), the Philippine Dockyard
Corporation or the Baseco Drydock and Construction Co.,
Inc..
Pursuant to Presidential Decree No. 464, otherwise known
as the Real Property Tax Code of 1974, the Provincial
Treasurer of Bataan advertised for auction sale the BASECO
property due to real estate tax delinquency amounting to

P7,914,281.72, inclusive of penalties.4 At the auction sale
held on 12 February 1988, no bidder vied for said property
as a result of which, the Provincial Treasurer of Bataan
adjudged the property to, and acquired the same for, and in
the name of herein petitioner Province of Bataan. Upon the
expiration of the one-year redemption period, and without the
owner exercising its right to redeem the subject property, the
Provincial Government of Bataan consolidated its title
thereon; the corresponding certificates of title were then
issued in the name of herein petitioner Province of Bataan.
"3) The defendants be ordered, jointly and

plaintiffs for all damages suffered by it/them
unlawful actuations of the defendants, in
claimed and proven at the trial of this
attorneys fees and costs of suit;
Eventually, petitioner, thru then Provincial Governor Enrique

T. Garcia, entered into a ten-year contract of lease with 7-R
Port Services, Inc., whereby portions of the BASECO
property including facilities and improvements thereon, were
leased to the latter for a minimum escalating annual rental of
Eighteen Million Pesos (P18 million). On 10 May 1993,
petitioner forged another contract of lease with Marina Port
Services, over a ten-hectare portion of the BASECO
property.
"5) The Register of Deeds of Bataan be ordered to cancel

the Torrens titles it had issued in favor of the Province of
Bataan, and issue a new Torrens titles (sic) in favor of
plaintiffs in lieu of the cancelled ones".
On 11 May 1993, The Presidential Commission on Good

Government (PCGG), for itself and on behalf of the Republic
of the Philippines and the BASECO, the Philippine Dockyard
Corporation and the Baseco Drydock and Construction Co.
Inc., filed with the RTC-Bataan a complaint for annulment of
sale,5 principally assailing the validity of the tax delinquency
sale of the BASECO property in favor of petitioner Province
of Bataan. Among others, the complaint alleged that the
auction sale held on 12 February 1988, is void for having
been conducted:6
"a) In defiance of an injunctive order issued by the PCGG in
the exercise of its powers under Executive Order No. 1,
Series of 1986;
"b) in contravention of the Real Property Tax Code of 1974;
"c) while the issue of ownership of the Baseco property and
of whether the same partakes of the nature of ill-gotten
wealth is pending litigation in Civil Case No. 0010 before the
Sandiganbayan; and
"d) despite the inscription of the sequestration order at the
back of each title of the BASECO property."
In its prayer, the complaint asked for the following reliefs:
"1) The tax delinquency sale held on February 12, 1988 be
declared null and void; and the defendant Province of
Bataan be ordered to reconvey all the properties thus sold to
its rightful owners, the Republic of the Philippines and/or the
other plaintiffs herein;
"2) The defendants be ordered to render an accounting to,
and pay plaintiffs all earnings, fruits and income which they
have received or could have received from the time they
claimed ownership and took possession and control of all the
auctioned properties; and to account and pay for all the
losses, deterioration and destruction thereof;
severally to pay
by reason of the
the sum herein
case, including
"4) The defendant 7-R Port Services, Inc. be ordered to

immediately cease and desist from paying any lease rentals
to the Province of Bataan, and instead to pay the same
directly to the plaintiffs;
Herein respondent PCGG, upon learning of the lease

contracts entered into by and between petitioner and Marina
Port Services, filed with the RTC an urgent motion for the
issuance of a writ of preliminary injunction to enjoin herein
petitioner "from entering into a lease contract with Marina
Port Services, Inc. (Marina), or any other entity, and/or from
implementing/enforcing such lease contract, if one has
already been executed, and to maintain the status quo until
further orders from the Court."
On 06 July 1993, the lower court denied the motion
ratiocinating that the lease contract with Marina was already
a fait accompli when the motion was filed, and that Marina
was not a party to the suit for not having been impleaded as
party-defendant.
On 30 June 1993, the PCGG filed with the lower court an
"Urgent Motion to Deposit Lease Rentals," alleging inter alia
that the rentals amounting to "Hundreds of Millions of Pesos"
are "in danger of being unlawfully spent, squandered and
dissipated to the great and irreparable damage of plaintiffs
who are the rightful owners of the property leased."
On 28 July 1993, the lower court granted the PCGGs urgent
motion and issued its assailed order the dispositive portion of
which reads:
"ACCORDINGLY, the defendant Province of Bataan is
hereby ordered to remit to this Court the lease rentals it may
receive from the defendant 7-R Port Services, Inc. and the
Marina Port Services, Inc. to commence from its receipt of
this Order and for the Clerk of Court of this Branch to deposit
said amount under special time deposit with the Land Bank
of the Philippines, Balanga Branch, in Balanga, Bataan in the
name and/or account of this Court to be held in ESCROW for
the person or persons, natural or juridical, who may be finally
adjudged lawfully entitled thereto, and subject to further
orders from this Court."7
Petitioner moved to reconsider the aforementioned order,
which motion the lower court denied via its assailed order
dated 11 November 1993.8 Aggrieved by the lower courts
twin orders, petitioner filed before the Court of Appeals a

petition for certiorari with prayer for issuance of a temporary
restraining order and writ of preliminary injunction.9
On 01 December 1995, the Bataan Shipyard and
Engineering
Corporation,
the
Philippine
Dockyard
Corporation and the Baseco Drydock and Construction Co.,
Inc., filed a motion for leave to intervene before the Court of
Appeals. In a Resolution dated 26 March 1996, the appellate
court granted the motion.
On 16 April 1996, the intervenors-respondents filed their
Answer-in-Intervention praying for the dismissal of the
petition before the Court of Appeals and the dissolution of
the preliminary injunction issued in favor of petitioners.10
In its Decision dated 19 December 1996, the Court of
Appeals dismissed the petition to which a motion for
reconsideration was filed by petitioner. In a Resolution dated
21 July 1997, respondent court likewise denied the motion
for reconsideration, hence, the instant appeal where
petitioner Province of Bataan imputes to the Court of
Appeals a lone assignment of error, to wit:
"The Court of Appeals manifestly erred in refusing to declare
and/or hold that the respondent judge acted without
jurisdiction or with grave abuse of discretion in ordering the
deposit in escrow of the rental payments pertaining to the
petitioner province."
In simpler terms, the sole issue for resolution revolves
around the propriety of the escrow order issued by the lower
court in the civil suit for annulment of sale.
The instant petition is devoid of merit.
In the main, petitioner insists that the issuance of the escrow
order by the trial court "was patently irregular, if not
downright anomalous", reasoning that "nowhere in the
Revised Rules of Court is the trial court, or any court for that
matter, authorized to issue such escrow order, whether as a
provisional or permanent remedy." According to petitioner,
"the escrow orders in question are null and void ab initio for
having been issued absent any legal basis" and are "merely
calculated to prejudice the petitioner province without any
practical or worthwhile, much less legal objective."
We do not agree. An escrow11 fills a definite niche in the body
of the law; it has a distinct legal character. 12 The usual
definition is that an escrow is a written instrument which by
its terms imports a legal obligation and which is deposited by
the grantor, promisor, or obligor, or his agent with a stranger
or third party, to be kept by the depositary until the
performance of a condition or the happening of a certain
event, and then to be delivered over to the grantee,
promisee, or obligee.13
While originally, the doctrine of escrow applied only to deeds
by way of grant,14 or as otherwise stated, instruments for the
conveyance of land,15 under modern theories of law, the term
escrow is not limited in its application to deeds, but is applied
to the deposit of any written instrument with a third person. 16

Particular instruments which have been held to be the
subject of an escrow include bonds or covenants, deeds,
mortgages, oil and gas leases, contracts for the sale of land
or for the purchase of personal property, corporate stocks
and stock subscriptions, promissory notes or other
commercial paper, insurance applications and policies,
contracts for the settlement of will-contest cases, indentures
of apprenticeship, receipts assigning concessions and
discontinuances and releases of causes of action. 17
Moreover, it is no longer open to question that money may
be delivered in escrow.18
In our jurisdiction, an escrow order issued by a court of law
may find ample basis and support in the courts intrinsic
power to issue orders and other ancillary writs and
processes incidental or reasonably necessary to the exercise
of its main jurisdiction. Evidently, judicial power connotes
certain incidental and inherent attributes reasonably
necessary for an effective administration of justice.19
In a manner of speaking, courts have not only the power to
maintain their life, but they have also the power to make that
existence effective for the purpose for which the judiciary
was created. They can, by appropriate means, do all things
necessary to preserve and maintain every quality needful to
make the judiciary an effective institution of Government.
Courts have therefore inherent power to preserve their
integrity, maintain their dignity and to insure effectiveness in
the administration of justice.20
To lend flesh and blood to this legal aphorism, Rule 135 of
the Rules of Court explicitly provides:
"Section 5. Inherent powers of courts- Every court shall have
power:
"X X X (g) To amend and control its process and orders so
as to make them conformable to law and justice.
"Section 6. Means to carry jurisdiction into effect - When by
law jurisdiction is conferred on a court or judicial officer, all
auxiliary writs, processes and other means necessary to
carry it into effect may be employed by such court or officer,
and if the procedure to be followed in the exercise of such
jurisdiction is not specifically pointed out by law or by these
rules, any suitable process or mode of proceeding may be
adopted which appears conformable to the spirit of said law
or rules." (Emphasis ours)
It is beyond dispute that the lower court exercised jurisdiction
over the main action docketed as Civil Case No. 210-ML,
which involved the annulment of sale and reconveyance of
the subject properties. Under this circumstance, we are of
the firm view that the trial court, in issuing the assailed
escrow orders, acted well within its province and sphere of
power inasmuch as the subject orders were adopted in
accordance with the Rules and jurisprudence and were
merely incidental to the courts exercise of jurisdiction over
the main case, thus:

" X X X Jurisdiction attaching, the courts powers as a
necessary incident to their general jurisdiction, to make such
orders in relation to the cases pending before them are as
necessary to the progress of the cases and the dispatch of
business follow. Deming v. Foster, 42 N.H. 165, 178 cited in
Burleigh v. Wong Sung De Leon 139 A. 184,83 N.H. 115.
"X X X
XXX
XXX
"X X X A court is vested, not only with the powers expressly

granted by the statute, but also with all such powers as are
incidentally necessary to the effective exercise of the powers
expressly conferred (In re McLures Estate, 68 Mont. 556,
220 P. 527) and to render its orders, made under such
express powers effective. Brown v. Clark, 102 Tex. 323, 116
S.W. 360, 24 L.R.A. (N.S.) 670 cited in State v. District Court,
272 P. 525.
"X X X
XXX
XXX
"In the absence of prohibitive legislation, courts have

inherent power to provide themselves with appropriate
procedures required for the performance of their tasks. Ex
parte Peterson, 253 U.S. 300, 312, 313, 40 S. Ct. 543, 64 L.
Ed. 919; Funk v. U.S., 290 U.S. 371,381-384, 54 A. Ct. 212,
78 L.Ed. 369, 93 A.L.R. 1136 cited in Ex parte U.S. C.C.A.
Wis., 101 F 2d 870.
"X X X
XXX
XXX
"A court has inherent power to make such interlocutory

orders as may be necessary to protect its jurisdiction, and to
make certain that its eventual decree may not be ineffective.
(Boynton v. Moffat Tunnel Improvement Dist. C.C.A. Colo, 57
F, 2d 772.
"X X X
XXX
XXX
"In the ordinary case the courts can proceed to the

enforcement of the plaintiffs rights only after a trial had in the
manner prescribed by the laws of the land, which involves
due notice, the right of the trial by jury, etc. Preliminary to
such an adjucation, the power of the court is generally to
preserve the subject matter of the litigation to maintain the
status, or issue some extraordinary writs provided by law,
such as attachments, etc. None of these powers, however,
are exercised on the theory that the court should, in advance
of the final adjudication determine the rights of the parties in
any summary way and put either of them in the enjoyment
thereof; but such actions taken merely, as means for
securing an effective adjudication and enforcement of rights
of the parties after such adjudication. Colby c. Osgood Tex.
Civ. App., 230 S.W. 459;)"21 (emphasis ours)
On this score, the incisive disquisition of the Court of
Appeals is worthy of mention, to wit:
" X X X Given the jurisdiction of the trial court to pass upon
the raised question of ownership and possession of the
disputed property, there then can hardly be any doubt as to

the competence of the same court, as an adjunct of its main
jurisdiction, to require the deposit in escrow of the rentals
thereof pending final resolution of such question. To
paraphrase the teaching in Manila Herald Publishing Co.,
Inc. vs. Ramos (G.R. No. L-4268, January 18, 1951, cited in
Francisco, Revised Rules of Court, Vol. 1, 2nd ed., p. 133),
jurisdiction over an action carries with it jurisdiction over an
interlocutory matter incidental to the cause and deemed
essential to preserve the subject matter of the suit or to
protect the parties interest. X X X
" X X X the impugned orders appear to us as a fair response
to the exigencies and equities of the situation.
Parenthetically, it is not disputed that even before the
institution of the main case below, the Province of Bataan
has been utilizing the rental payments on the Baseco
Property to meet its financial requirements. To us, this
circumstance adds a more compelling dimension for the
issuance of the assailed orders. X X X"
Applying the foregoing principles and considering the
peculiarities of the instant case, the lower court, in the
course of adjudicating and resolving the issues presented in
the main suit, is clearly empowered to control the
proceedings therein through the adoption, formulation and
issuance of orders and other ancillary writs, including the
authority to place the properties in custodia legis, for the
purpose of effectuating its judgment or decree and protecting
further the interests of the rightful claimants of the subject
property.
To trace its source, the courts authority proceeds from its
jurisdiction and power to decide, adjudicate and resolve the
issues raised in the principal suit. Stated differently, the
deposit of the rentals in escrow with the bank, in the name of
the lower court, "is only an incident in the main
proceeding."22 To be sure, placing property in litigation under
judicial possession, whether in the hands of a receiver, and
administrator, or as in this case, in a government bank, 23 is
an ancient and accepted procedure.24 Consequently, we find
no cogency to disturb the questioned orders of the lower
court and in effect uphold the propriety of the subject escrow
orders. (emphasis ours)
IN VIEW WHEREOF, the instant petition is hereby DENIED
for lack of merit. ACCORDINGLY, the assailed decision of
the Court of Appeals is hereby AFFIRMED.
SO ORDERED.
NECESSARY DEPOSIT
YHT REALTY v. CA

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 126780
February 17, 2005
YHT REALTY CORPORATION, ERLINDA LAINEZ and

ANICIA
PAYAM,
petitioners,
vs.
THE COURT OF APPEALS and MAURICE McLOUGHLIN,
respondents.
DECISION
TINGA, J.:
The primary question of interest before this Court is the only
legal issue in the case: It is whether a hotel may evade
liability for the loss of items left with it for safekeeping by its
guests, by having these guests execute written waivers
holding the establishment or its employees free from blame
for such loss in light of Article 2003 of the Civil Code which
voids such waivers.
Before this Court is a Rule 45 petition for review of the
Decision1 dated 19 October 1995 of the Court of Appeals
which affirmed the Decision2 dated 16 December 1991 of the
Regional Trial Court (RTC), Branch 13, of Manila, finding
YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda
Lainez (Lainez) and Anicia Payam (Payam) jointly and
solidarily liable for damages in an action filed by Maurice
McLoughlin (McLoughlin) for the loss of his American and
Australian dollars deposited in the safety deposit box of
Tropicana Copacabana Apartment Hotel, owned and
operated by YHT Realty Corporation.
registered at Tropicana in previous trips. As a tourist,

McLoughlin was aware of the procedure observed by
Tropicana relative to its safety deposit boxes. The safety
deposit box could only be opened through the use of two
keys, one of which is given to the registered guest, and the
other remaining in the possession of the management of the
hotel. When a registered guest wished to open his safety
deposit box, he alone could personally request the
management who then would assign one of its employees to
accompany the guest and assist him in opening the safety
deposit box with the two keys.4
McLoughlin allegedly placed the following in his safety
deposit box: Fifteen Thousand US Dollars (US$15,000.00)
which he placed in two envelopes, one envelope containing
Ten Thousand US Dollars (US$10,000.00) and the other
envelope Five Thousand US Dollars (US$5,000.00); Ten
Thousand Australian Dollars (AUS$10,000.00) which he also
placed in another envelope; two (2) other envelopes
containing letters and credit cards; two (2) bankbooks; and a
checkbook, arranged side by side inside the safety deposit
box.5
On 12 December 1987, before leaving for a brief trip to
Hongkong, McLoughlin opened his safety deposit box with
his key and with the key of the management and took
therefrom the envelope containing Five Thousand US Dollars
(US$5,000.00), the envelope containing Ten Thousand
Australian Dollars (AUS$10,000.00), his passports and his
credit cards.6 McLoughlin left the other items in the box as he
did not check out of his room at the Tropicana during his
short visit to Hongkong. When he arrived in Hongkong, he
opened the envelope which contained Five Thousand US
Dollars (US$5,000.00) and discovered upon counting that
only Three Thousand US Dollars (US$3,000.00) were
enclosed therein.7 Since he had no idea whether somebody
else had tampered with his safety deposit box, he thought
that it was just a result of bad accounting since he did not
spend anything from that envelope.8
The factual backdrop of the case follow.

Private respondent McLoughlin, an Australian businessmanphilanthropist, used to stay at Sheraton Hotel during his trips
to the Philippines prior to 1984 when he met Tan. Tan
befriended McLoughlin by showing him around, introducing
him to important people, accompanying him in visiting
impoverished street children and assisting him in buying gifts
for the children and in distributing the same to charitable
institutions for poor children. Tan convinced McLoughlin to
transfer from Sheraton Hotel to Tropicana where Lainez,
Payam and Danilo Lopez were employed. Lopez served as
manager of the hotel while Lainez and Payam had custody
of the keys for the safety deposit boxes of Tropicana. Tan
took care of McLoughlin's booking at the Tropicana where he
started staying during his trips to the Philippines from
December 1984 to September 1987.3
On 30 October 1987, McLoughlin arrived from Australia and
registered with Tropicana. He rented a safety deposit box as
it was his practice to rent a safety deposit box every time he
After returning to Manila, he checked out of Tropicana on 18

December 1987 and left for Australia. When he arrived in
Australia, he discovered that the envelope with Ten
Thousand US Dollars (US$10,000.00) was short of Five
Thousand US Dollars (US$5,000). He also noticed that the
jewelry which he bought in Hongkong and stored in the
safety deposit box upon his return to Tropicana was likewise
missing, except for a diamond bracelet.9
When McLoughlin came back to the Philippines on 4 April
1988, he asked Lainez if some money and/or jewelry which
he had lost were found and returned to her or to the
management. However, Lainez told him that no one in the
hotel found such things and none were turned over to the
management. He again registered at Tropicana and rented a
safety deposit box. He placed therein one (1) envelope
containing Fifteen Thousand US Dollars (US$15,000.00),
another envelope containing Ten Thousand Australian
Dollars (AUS$10,000.00) and other envelopes containing his
traveling papers/documents. On 16 April 1988, McLoughlin

requested Lainez and Payam to open his safety deposit box.
He noticed that in the envelope containing Fifteen Thousand
US Dollars (US$15,000.00), Two Thousand US Dollars
(US$2,000.00) were missing and in the envelope previously
containing
Ten
Thousand
Australian
Dollars
(AUS$10,000.00), Four Thousand Five Hundred Australian
Dollars (AUS$4,500.00) were missing.10
When McLoughlin discovered the loss, he immediately
confronted Lainez and Payam who admitted that Tan opened
the safety deposit box with the key assigned to him. 11
McLoughlin went up to his room where Tan was staying and
confronted her. Tan admitted that she had stolen
McLoughlin's key and was able to open the safety deposit
box with the assistance of Lopez, Payam and Lainez.12
Lopez also told McLoughlin that Tan stole the key assigned
to McLoughlin while the latter was asleep.13
McLoughlin requested the management for an investigation
of the incident. Lopez got in touch with Tan and arranged for
a meeting with the police and McLoughlin. When the police
did not arrive, Lopez and Tan went to the room of
McLoughlin at Tropicana and thereat, Lopez wrote on a
piece of paper a promissory note dated 21 April 1988. The
promissory note reads as follows:
I promise to pay Mr. Maurice McLoughlin the amount of
AUS$4,000.00 and US$2,000.00 or its equivalent in
Philippine currency on or before May 5, 1988.14
Lopez requested Tan to sign the promissory note which the
latter did and Lopez also signed as a witness. Despite the
execution of promissory note by Tan, McLoughlin insisted
that it must be the hotel who must assume responsibility for
the loss he suffered. However, Lopez refused to accept the
responsibility relying on the conditions for renting the safety
deposit box entitled "Undertaking For the Use Of Safety
Deposit Box,"15 specifically paragraphs (2) and (4) thereof, to
wit:
2. To release and hold free and blameless TROPICANA
APARTMENT HOTEL from any liability arising from any loss
in the contents and/or use of the said deposit box for any
cause whatsoever, including but not limited to the
presentation or use thereof by any other person should the
key be lost;
...
4. To return the key and execute the RELEASE in favor of
TROPICANA APARTMENT HOTEL upon giving up the use
of the box.16
On 17 May 1988, McLoughlin went back to Australia and he
consulted his lawyers as to the validity of the
abovementioned stipulations. They opined that the
stipulations are void for being violative of universal hotel
practices and customs. His lawyers prepared a letter dated
30 May 1988 which was signed by McLoughlin and sent to
President Corazon Aquino.17 The Office of the President
referred the letter to the Department of Justice (DOJ) which

forwarded the same to the Western Police District (WPD).18
After receiving a copy of the indorsement in Australia,
McLoughlin came to the Philippines and registered again as
a hotel guest of Tropicana. McLoughlin went to Malacaang
to follow up on his letter but he was instructed to go to the
DOJ. The DOJ directed him to proceed to the WPD for
documentation. But McLoughlin went back to Australia as he
had an urgent business matter to attend to.
For several times, McLoughlin left for Australia to attend to
his business and came back to the Philippines to follow up
on his letter to the President but he failed to obtain any
concrete assistance.19
McLoughlin left again for Australia and upon his return to the
Philippines on 25 August 1989 to pursue his claims against
petitioners, the WPD conducted an investigation which
resulted in the preparation of an affidavit which was
forwarded to the Manila City Fiscal's Office. Said affidavit
became the basis of preliminary investigation. However,
McLoughlin left again for Australia without receiving the
notice of the hearing on 24 November 1989. Thus, the case
at the Fiscal's Office was dismissed for failure to prosecute.
Mcloughlin requested the reinstatement of the criminal
charge for theft. In the meantime, McLoughlin and his
lawyers wrote letters of demand to those having
responsibility to pay the damage. Then he left again for
Australia.
Upon his return on 22 October 1990, he registered at the
Echelon Towers at Malate, Manila. Meetings were held
between McLoughlin and his lawyer which resulted to the
filing of a complaint for damages on 3 December 1990
against YHT Realty Corporation, Lopez, Lainez, Payam and
Tan (defendants) for the loss of McLoughlin's money which
was discovered on 16 April 1988. After filing the complaint,
McLoughlin left again for Australia to attend to an urgent
business matter. Tan and Lopez, however, were not served
with summons, and trial proceeded with only Lainez, Payam
and YHT Realty Corporation as defendants.
After defendants had filed their Pre-Trial Brief admitting that
they had previously allowed and assisted Tan to open the
safety
deposit
box,
McLoughlin
filed
an
Amended/Supplemental Complaint20 dated 10 June 1991
which included another incident of loss of money and jewelry
in the safety deposit box rented by McLoughlin in the same
hotel which took place prior to 16 April 1988.21 The trial court
admitted the Amended/Supplemental Complaint.
During the trial of the case, McLoughlin had been in and out
of the country to attend to urgent business in Australia, and
while staying in the Philippines to attend the hearing, he
incurred expenses for hotel bills, airfare and other
transportation expenses, long distance calls to Australia,
Meralco power expenses, and expenses for food and
maintenance, among others.22

After trial, the RTC of Manila rendered judgment in favor of
McLoughlin, the dispositive portion of which reads:
WHEREFORE, above premises considered, judgment is
hereby rendered by this Court in favor of plaintiff and against
the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff
the sum of US$11,400.00 or its equivalent in Philippine
Currency of P342,000.00, more or less, and the sum of
AUS$4,500.00 or its equivalent in Philippine Currency of
P99,000.00, or a total of P441,000.00, more or less, with
12% interest from April 16 1988 until said amount has been
paid to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff
the sum of P3,674,238.00 as actual and consequential
damages arising from the loss of his Australian and
American dollars and jewelries complained against and in
prosecuting his claim and rights administratively and
judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. "CC");
the sum of P500,000.00 as moral damages (Item X, Exh.
"CC");
the sum of P350,000.00 as exemplary damages (Item XI,
Exh. "CC");
5. And ordering defendants, jointly and severally, to pay
litigation expenses in the sum of P200,000.00 (Item XII, Exh.
"CC");
the sum of P200,000.00 as attorney's fees, and a fee of
P3,000.00 for every appearance; and
7. Plus costs of suit.
SO ORDERED.23
The trial court found that McLoughlin's allegations as to the
fact of loss and as to the amount of money he lost were
sufficiently shown by his direct and straightforward manner of
testifying in court and found him to be credible and worthy of
belief as it was established that McLoughlin's money, kept in
Tropicana's safety deposit box, was taken by Tan without
McLoughlin's consent. The taking was effected through the
use of the master key which was in the possession of the
management. Payam and Lainez allowed Tan to use the
master key without authority from McLoughlin. The trial court
added that if McLoughlin had not lost his dollars, he would
not have gone through the trouble and personal
inconvenience of seeking aid and assistance from the Office
of the President, DOJ, police authorities and the City Fiscal's
Office in his desire to recover his losses from the hotel
management and Tan.24
As regards the loss of Seven Thousand US Dollars

(US$7,000.00) and jewelry worth approximately One
Thousand Two Hundred US Dollars (US$1,200.00) which
allegedly occurred during his stay at Tropicana previous to 4
April 1988, no claim was made by McLoughlin for such
losses in his complaint dated 21 November 1990 because he
was not sure how they were lost and who the responsible
persons were. But considering the admission of the
defendants in their pre-trial brief that on three previous
occasions they allowed Tan to open the box, the trial court
opined that it was logical and reasonable to presume that his
personal assets consisting of Seven Thousand US Dollars
(US$7,000.00) and jewelry were taken by Tan from the
safety deposit box without McLoughlin's consent through the
cooperation of Payam and Lainez.25
The trial court also found that defendants acted with gross
negligence in the performance and exercise of their duties
and obligations as innkeepers and were therefore liable to
answer for the losses incurred by McLoughlin.26
Moreover, the trial court ruled that paragraphs (2) and (4) of
the "Undertaking For The Use Of Safety Deposit Box" are
not valid for being contrary to the express mandate of Article
2003 of the New Civil Code and against public policy.27 Thus,
there being fraud or wanton conduct on the part of
defendants, they should be responsible for all damages
which may be attributed to the non-performance of their
contractual obligations.28
The Court of Appeals affirmed the disquisitions made by the
lower court except as to the amount of damages awarded.
The decretal text of the appellate court's decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is
hereby AFFIRMED but modified as follows:
The appellants are directed jointly and severally to pay the
plaintiff/appellee the following amounts:
1) P153,200.00 representing the peso equivalent of
US$2,000.00 and AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares
from Sidney [sic] to Manila and back for a total of eleven (11)
trips;
3) One-half of P336,207.05 or P168,103.52 representing
payment to Tropicana Apartment Hotel;
payment to Echelon Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi xxx
transportation from the residence to Sidney [sic] Airport and
from MIA to the hotel here in Manila, for the eleven (11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco
power expenses;

expenses for food and maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.29
Unperturbed, YHT Realty Corporation, Lainez and Payam
went to this Court in this appeal by certiorari.
Petitioners submit for resolution by this Court the following
issues: (a) whether the appellate court's conclusion on the
alleged prior existence and subsequent loss of the subject
money and jewelry is supported by the evidence on record;
(b) whether the finding of gross negligence on the part of
petitioners in the performance of their duties as innkeepers is
supported by the evidence on record; (c) whether the
"Undertaking For The Use of Safety Deposit Box" admittedly
executed by private respondent is null and void; and (d)
whether the damages awarded to private respondent, as well
as the amounts thereof, are proper under the
circumstances.30
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution
only of questions of law and any peripheral factual question
addressed to this Court is beyond the bounds of this mode of
review.
Petitioners point out that the evidence on record is
insufficient to prove the fact of prior existence of the dollars
and the jewelry which had been lost while deposited in the
safety deposit boxes of Tropicana, the basis of the trial court
and the appellate court being the sole testimony of
McLoughlin as to the contents thereof. Likewise, petitioners
dispute the finding of gross negligence on their part as not
supported by the evidence on record.
We are not persuaded.l^vvphi1.net We adhere to the findings
of the trial court as affirmed by the appellate court that the
fact of loss was established by the credible testimony in
open court by McLoughlin. Such findings are factual and
therefore
beyond
the
ambit
of
the
present
petition.1awphi1.nt
The trial court had the occasion to observe the demeanor of
McLoughlin while testifying which reflected the veracity of the
facts testified to by him. On this score, we give full credence
to the appreciation of testimonial evidence by the trial court
especially if what is at issue is the credibility of the witness.
The oft-repeated principle is that where the credibility of a
witness is an issue, the established rule is that great respect
is accorded to the evaluation of the credibility of witnesses

by the trial court.31 The trial court is in the best position to
assess the credibility of witnesses and their testimonies
because of its unique opportunity to observe the witnesses
firsthand and note their demeanor, conduct and attitude
under grilling examination.32
We are also not impressed by petitioners' argument that the
finding of gross negligence by the lower court as affirmed by
the appellate court is not supported by evidence. The
evidence reveals that two keys are required to open the
safety deposit boxes of Tropicana. One key is assigned to
the guest while the other remains in the possession of the
management. If the guest desires to open his safety deposit
box, he must request the management for the other key to
open the same. In other words, the guest alone cannot open
the safety deposit box without the assistance of the
management or its employees. With more reason that
access to the safety deposit box should be denied if the one
requesting for the opening of the safety deposit box is a
stranger. Thus, in case of loss of any item deposited in the
safety deposit box, it is inevitable to conclude that the
management had at least a hand in the consummation of the
taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were
employees of Tropicana, had custody of the master key of
the management when the loss took place. In fact, they even
admitted that they assisted Tan on three separate occasions
in opening McLoughlin's safety deposit box.33 This only
proves that Tropicana had prior knowledge that a person
aside from the registered guest had access to the safety
deposit box. Yet the management failed to notify McLoughlin
of the incident and waited for him to discover the taking
before it disclosed the matter to him. Therefore, Tropicana
should be held responsible for the damage suffered by
McLoughlin by reason of the negligence of its employees.
The management should have guarded against the
occurrence of this incident considering that Payam admitted
in open court that she assisted Tan three times in opening
the safety deposit box of McLoughlin at around 6:30 A.M. to
7:30 A.M. while the latter was still asleep. 34 In light of the
circumstances surrounding this case, it is undeniable that
without the acquiescence of the employees of Tropicana to
the opening of the safety deposit box, the loss of
McLoughlin's money could and should have been avoided.
The management contends, however, that McLoughlin, by
his act, made its employees believe that Tan was his spouse
for she was always with him most of the time. The evidence
on record, however, is bereft of any showing that McLoughlin
introduced Tan to the management as his wife. Such an
inference from the act of McLoughlin will not exculpate the
petitioners from liability in the absence of any showing that
he made the management believe that Tan was his wife or
was duly authorized to have access to the safety deposit
box. Mere close companionship and intimacy are not enough
to warrant such conclusion considering that what is involved
in the instant case is the very safety of McLoughlin's deposit.

If only petitioners exercised due diligence in taking care of
McLoughlin's safety deposit box, they should have
confronted him as to his relationship with Tan considering
that the latter had been observed opening McLoughlin's
safety deposit box a number of times at the early hours of
the morning. Tan's acts should have prompted the
management to investigate her relationship with McLoughlin.
Then, petitioners would have exercised due diligence
required of them. Failure to do so warrants the conclusion
that the management had been remiss in complying with the
obligations imposed upon hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those who, in the
performance of their obligations, are guilty of negligence, are
liable for damages. As to who shall bear the burden of
paying damages, Article 2180, paragraph (4) of the same
Code provides that the owners and managers of an
establishment or enterprise are likewise responsible for
damages caused by their employees in the service of the
branches in which the latter are employed or on the occasion
of their functions. Also, this Court has ruled that if an
employee is found negligent, it is presumed that the
employer was negligent in selecting and/or supervising him
for it is hard for the victim to prove the negligence of such
employer.35 Thus, given the fact that the loss of McLoughlin's
money was consummated through the negligence of
Tropicana's employees in allowing Tan to open the safety
deposit box without the guest's consent, both the assisting
employees and YHT Realty Corporation itself, as owner and
operator of Tropicana, should be held solidarily liable
pursuant to Article 2193.36
The issue of whether the "Undertaking For The Use of
Safety Deposit Box" executed by McLoughlin is tainted with
nullity presents a legal question appropriate for resolution in
this petition. Notably, both the trial court and the appellate
court found the same to be null and void. We find no reason
to reverse their common conclusion. Article 2003 is
controlling, thus:
Art. 2003. The hotel-keeper cannot free himself from
responsibility by posting notices to the effect that he is not
liable for the articles brought by the guest. Any stipulation
between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in Articles 1998 to
200137 is suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an
expression of public policy precisely to apply to situations
such as that presented in this case. The hotel business like
the common carrier's business is imbued with public interest.
Catering to the public, hotelkeepers are bound to provide not
only lodging for hotel guests and security to their persons
and belongings. The twin duty constitutes the essence of the
business. The law in turn does not allow such duty to the
public to be negated or diluted by any contrary stipulation in
so-called "undertakings" that ordinarily appear in prepared
forms imposed by hotel keepers on guests for their
signature.
In an early case,38 the Court of Appeals through its then

Presiding Justice (later Associate Justice of the Court) Jose
P. Bengzon, ruled that to hold hotelkeepers or innkeeper
liable for the effects of their guests, it is not necessary that
they be actually delivered to the innkeepers or their
employees. It is enough that such effects are within the hotel
or inn.39 With greater reason should the liability of the
hotelkeeper be enforced when the missing items are taken
without the guest's knowledge and consent from a safety
deposit box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly
contravene Article 2003 of the New Civil Code for they allow
Tropicana to be released from liability arising from any loss
in the contents and/or use of the safety deposit box for any
cause whatsoever.40 Evidently, the undertaking was intended
to bar any claim against Tropicana for any loss of the
contents of the safety deposit box whether or not negligence
was incurred by Tropicana or its employees. The New Civil
Code is explicit that the responsibility of the hotel-keeper
shall extend to loss of, or injury to, the personal property of
the guests even if caused by servants or employees of the
keepers of hotels or inns as well as by strangers, except as it
may proceed from any force majeure.41 It is the loss through
force majeure that may spare the hotel-keeper from liability.
In the case at bar, there is no showing that the act of the thief
or robber was done with the use of arms or through an
irresistible force to qualify the same as force majeure.42
Petitioners likewise anchor their defense on Article 200243
which exempts the hotel-keeper from liability if the loss is
due to the acts of his guest, his family, or visitors. Even a
cursory reading of the provision would lead us to reject
petitioners' contention. The justification they raise would
render nugatory the public interest sought to be protected by
the provision. What if the negligence of the employer or its
employees facilitated the consummation of a crime
committed by the registered guest's relatives or visitor?
Should the law exculpate the hotel from liability since the
loss was due to the act of the visitor of the registered guest
of the hotel? Hence, this provision presupposes that the
hotel-keeper is not guilty of concurrent negligence or has not
contributed in any degree to the occurrence of the loss. A
depositary is not responsible for the loss of goods by theft,
unless his actionable negligence contributes to the loss.44
In the case at bar, the responsibility of securing the safety
deposit box was shared not only by the guest himself but
also by the management since two keys are necessary to
open the safety deposit box. Without the assistance of hotel
employees, the loss would not have occurred. Thus,
Tropicana was guilty of concurrent negligence in allowing
Tan, who was not the registered guest, to open the safety
deposit box of McLoughlin, even assuming that the latter
was also guilty of negligence in allowing another person to
use his key. To rule otherwise would result in undermining
the safety of the safety deposit boxes in hotels for the
management will be given imprimatur to allow any person,
under the pretense of being a family member or a visitor of
the guest, to have access to the safety deposit box without
fear of any liability that will attach thereafter in case such

person turns out to be a complete stranger. This will allow
the hotel to evade responsibility for any liability incurred by
its employees in conspiracy with the guest's relatives and
visitors.
Petitioners contend that McLoughlin's case was mounted on
the theory of contract, but the trial court and the appellate
court upheld the grant of the claims of the latter on the basis
of tort.45 There is nothing anomalous in how the lower courts
decided the controversy for this Court has pronounced a
jurisprudential rule that tort liability can exist even if there are
already contractual relations. The act that breaks the
contract may also be tort.46
As to damages awarded to McLoughlin, we see no reason to
modify the amounts awarded by the appellate court for the
same were based on facts and law. It is within the province
of lower courts to settle factual issues such as the proper
amount of damages awarded and such finding is binding
upon this Court especially if sufficiently proven by evidence
and not unconscionable or excessive. Thus, the appellate
court correctly awarded McLoughlin Two Thousand US
Dollars (US$2,000.00) and Four Thousand Five Hundred
Australian dollars (AUS$4,500.00) or their peso equivalent at
the time of payment,47 being the amounts duly proven by
evidence.48 The alleged loss that took place prior to 16 April
1988 was not considered since the amounts alleged to have
been taken were not sufficiently established by evidence.
The appellate court also correctly awarded the sum of
P308,880.80, representing the peso value for the air fares
from Sydney to Manila and back for a total of eleven (11)
trips;49 one-half of P336,207.05 or P168,103.52 representing
payment to Tropicana;50 one-half of P152,683.57 or
P76,341.785 representing payment to Echelon Tower;51 onehalf of P179,863.20 or P89,931.60 for the taxi or
transportation expenses from McLoughlin's residence to
Sydney Airport and from MIA to the hotel here in Manila, for
the eleven (11) trips;52 one-half of P7,801.94 or P3,900.97
representing Meralco power expenses;53 one-half of
P356,400.00 or P178,000.00 representing expenses for food
and maintenance.54
The amount of P50,000.00 for moral damages is reasonable.
Although trial courts are given discretion to determine the
amount of moral damages, the appellate court may modify or
change the amount awarded when it is palpably and
scandalously excessive.l^vvphi1.net Moral damages are not
intended to enrich a complainant at the expense of a
defendant.l^vvphi1.net They are awarded only to enable the
injured party to obtain means, diversion or amusements that
will serve to alleviate the moral suffering he has undergone,
by reason of defendants' culpable action.55
The awards of P10,000.00 as exemplary damages and
P200,000.00 representing attorney's fees are likewise
sustained.
WHEREFORE, foregoing premises considered, the Decision
of the Court of Appeals dated 19 October 1995 is hereby
AFFIRMED. Petitioners are directed, jointly and severally, to

pay private respondent the following amounts:
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent
at the time of payment;
(2) P308,880.80, representing the peso value for the air
fares from Sydney to Manila and back for a total of eleven
(11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing
payment to Tropicana Copacabana Apartment Hotel;
payment to Echelon Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or
transportation expense from McLoughlin's residence to
Sydney Airport and from MIA to the hotel here in Manila, for
the eleven (11) trips;
(6) One-half of P7,801.94 or P3,900.97 representing Meralco
power expenses;
expenses for food and maintenance;
(8) P50,000.00 for moral damages;
(9) P10,000.00 as exemplary damages; and
(10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.

DURBAN APARTMENTS v. PIONEER
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 179419
January 12, 2011
DURBAN APARTMENTS CORPORATION, doing business

under the name and style of City Garden Hotel, Petitioner,
vs.
PIONEER INSURANCE AND SURETY CORPORATION,
Respondent.
DECISION
NACHURA, J.:
For review is the Decision1 of the Court of Appeals (CA) in
CA-G.R. CV No. 86869, which affirmed the decision 2 of the
Regional Trial Court (RTC), Branch 66, Makati City, in Civil
Case No. 03-857, holding petitioner Durban Apartments
Corporation solely liable to respondent Pioneer Insurance
and Surety Corporation for the loss of Jeffrey Sees (Sees)
vehicle.
The facts, as found by the CA, are simple.
On July 22, 2003, [respondent] Pioneer Insurance and
Surety Corporation x x x, by right of subrogation, filed [with
the RTC of Makati City] a Complaint for Recovery of
Damages
against
[petitioner]
Durban
Apartments
Corporation, doing business under the name and style of
City Garden Hotel, and [defendant before the RTC] Vicente
Justimbaste x x x. [Respondent averred] that: it is the insurer
for loss and damage of Jeffrey S. Sees [the insureds] 2001
Suzuki Grand Vitara x x x with Plate No. XBH-510 under
Policy No. MC-CV-HO-01-0003846-00-D in the amount of
P1,175,000.00; on April 30, 2002, See arrived and checked
in at the City Garden Hotel in Makati corner Kalayaan
Avenues, Makati City before midnight, and its parking
attendant, defendant x x x Justimbaste got the key to said
Vitara from See to park it[. O]n May 1, 2002, at about 1:00
oclock in the morning, See was awakened in his room by [a]
telephone call from the Hotel Chief Security Officer who
informed him that his Vitara was carnapped while it was
parked unattended at the parking area of Equitable PCI Bank
along Makati Avenue between the hours of 12:00 [a.m.] and
1:00 [a.m.]; See went to see the Hotel Chief Security Officer,
thereafter reported the incident to the Operations Division of
the Makati City Police Anti-Carnapping Unit, and a flash
alarm was issued; the Makati City Police Anti-Carnapping
Unit investigated Hotel Security Officer, Ernesto T. Horlador,
Jr. x x x and defendant x x x Justimbaste; See gave his
Sinumpaang Salaysay to the police investigator, and filed a

Complaint Sheet with the PNP Traffic Management Group in
Camp Crame, Quezon City; the Vitara has not yet been
recovered since July 23, 2002 as evidenced by a
Certification of Non- Recovery issued by the PNP TMG; it
paid the P1,163,250.00 money claim of See and mortgagee
ABN AMRO Savings Bank, Inc. as indemnity for the loss of
the Vitara; the Vitara was lost due to the negligence of
[petitioner] Durban Apartments and [defendant] Justimbaste
because it was discovered during the investigation that this
was the second time that a similar incident of carnapping
happened in the valet parking service of [petitioner] Durban
Apartments and no necessary precautions were taken to
prevent its repetition; [petitioner] Durban Apartments was
wanting in due diligence in the selection and supervision of
its employees particularly defendant x x x Justimbaste; and
defendant x x x Justimbaste and [petitioner] Durban
Apartments failed and refused to pay its valid, just, and
lawful claim despite written demands.
Upon service of Summons, [petitioner] Durban Apartments
and [defendant] Justimbaste filed their Answer with
Compulsory Counterclaim alleging that: See did not check in
at its hotel, on the contrary, he was a guest of a certain
Ching Montero x x x; defendant x x x Justimbaste did not get
the ignition key of Sees Vitara, on the contrary, it was See
who requested a parking attendant to park the Vitara at any
available parking space, and it was parked at the Equitable
Bank parking area, which was within Sees view, while he
and Montero were waiting in front of the hotel; they made a
written denial of the demand of [respondent] Pioneer
Insurance for want of legal basis; valet parking services are
provided by the hotel for the convenience of its customers
looking for a parking space near the hotel premises; it is a
special privilege that it gave to Montero and See; it does not
include responsibility for any losses or damages to motor
vehicles and its accessories in the parking area; and the
same holds true even if it was See himself who parked his
Vitara within the premises of the hotel as evidenced by the
valet parking customers claim stub issued to him; the
carnapper was able to open the Vitara without using the key
given earlier to the parking attendant and subsequently
turned over to See after the Vitara was stolen; defendant x x
x Justimbaste saw the Vitara speeding away from the place
where it was parked; he tried to run after it, and blocked its
possible path but to no avail; and See was duly and
immediately informed of the carnapping of his Vitara; the
matter was reported to the nearest police precinct; and
defendant x x x Justimbaste, and Horlador submitted
themselves to police investigation.
During the pre-trial conference on November 28, 2003,
counsel for [respondent] Pioneer Insurance was present.
Atty. Monina Lee x x x, counsel of record of [petitioner]
Durban Apartments and Justimbaste was absent, instead, a
certain Atty. Nestor Mejia appeared for [petitioner] Durban
Apartments and Justimbaste, but did not file their pre-trial
brief.
On November 5, 2004, the lower court granted the motion of
[respondent] Pioneer Insurance, despite the opposition of

[petitioner] Durban Apartments and Justimbaste, and allowed
[respondent] Pioneer Insurance to present its evidence ex
parte before the Branch Clerk of Court.
See testified that: on April 30, 2002, at about 11:30 in the
evening, he drove his Vitara and stopped in front of City
Garden Hotel in Makati Avenue, Makati City; a parking
attendant, whom he had later known to be defendant x x x
Justimbaste, approached and asked for his ignition key, told
him that the latter would park the Vitara for him in front of the
hotel, and issued him a valet parking customers claim stub;
he and Montero, thereafter, checked in at the said hotel; on
May 1, 2002, at around 1:00 in the morning, the Hotel
Security Officer whom he later knew to be Horlador called his
attention to the fact that his Vitara was carnapped while it
was parked at the parking lot of Equitable PCI Bank which is
in front of the hotel; his Vitara was insured with [respondent]
Pioneer Insurance; he together with Horlador and defendant
x x x Justimbaste went to Precinct 19 of the Makati City
Police to report the carnapping incident, and a police officer
came accompanied them to the Anti-Carnapping Unit of the
said station for investigation, taking of their sworn
statements, and flashing of a voice alarm; he likewise
reported the said incident in PNP TMG in Camp Crame
where another alarm was issued; he filed his claim with
[respondent] Pioneer Insurance, and a representative of the
latter, who is also an adjuster of Vesper Insurance AdjustersAppraisers [Vesper], investigated the incident; and
[respondent] Pioneer Insurance required him to sign a
Release of Claim and Subrogation Receipt, and finally paid
him the sum of P1,163,250.00 for his claim.
Ricardo F. Red testified that: he is a claims evaluator of
[petitioner] Pioneer Insurance tasked, among others, with the
receipt of claims and documents from the insured,
investigation of the said claim, inspection of damages, taking
of pictures of insured unit, and monitoring of the processing
of the claim until its payment; he monitored the processing of
Sees claim when the latter reported the incident to
[respondent] Pioneer Insurance; [respondent] Pioneer
Insurance assigned the case to Vesper who verified Sees
report, conducted an investigation, obtained the necessary
documents for the processing of the claim, and tendered a
settlement check to See; they evaluated the case upon
receipt of the subrogation documents and the adjusters
report, and eventually recommended for its settlement for the
sum of P1,163,250.00 which was accepted by See; the
matter was referred and forwarded to their counsel, R.B.
Sarajan & Associates, who prepared and sent demand
letters to [petitioner] Durban Apartments and [defendant]
Justimbaste, who did not pay [respondent] Pioneer
Insurance notwithstanding their receipt of the demand
letters; and the services of R.B. Sarajan & Associates were
engaged, for P100,000.00 as attorneys fees plus P3,000.00
per court appearance, to prosecute the claims of
[respondent] Pioneer Insurance against [petitioner] Durban
Apartments and Justimbaste before the lower court.
Ferdinand Cacnio testified that: he is an adjuster of Vesper;
[respondent] Pioneer Insurance assigned to Vesper the
investigation of Sees case, and he was the one actually
assigned to investigate it; he conducted his investigation of

the matter by interviewing See, going to the City Garden
Hotel, required subrogation documents from See, and
verified the authenticity of the same; he learned that it is the
standard procedure of the said hotel as regards its valet
parking service to assist their guests as soon as they get to
the lobby entrance, park the cars for their guests, and place
the ignition keys in their safety key box; considering that the
hotel has only twelve (12) available parking slots, it has an
agreement with Equitable PCI Bank permitting the hotel to
use the parking space of the bank at night; he also learned
that a Hyundai Starex van was carnapped at the said place
barely a month before the occurrence of this incident
because Liberty Insurance assigned the said incident to
Vespers, and Horlador and defendant x x x Justimbaste
admitted the occurrence of the same in their sworn
statements before the Anti-Carnapping Unit of the Makati
City Police; upon verification with the PNP TMG [Unit] in
Camp Crame, he learned that Sees Vitara has not yet been
recovered; upon evaluation, Vesper recommended to
[respondent] Pioneer Insurance to settle Sees claim for
P1,045,750.00; See contested the recommendation of
Vesper by reasoning out that the 10% depreciation should
not be applied in this case considering the fact that the Vitara
was used for barely eight (8) months prior to its loss; and
[respondent] Pioneer Insurance acceded to Sees contention,
tendered the sum of P1,163,250.00 as settlement, the former
accepted it, and signed a release of claim and subrogation
receipt.
The lower court denied the Motion to Admit Pre-Trial Brief
and Motion for Reconsideration field by [petitioner] Durban
Apartments and Justimbaste in its Orders dated May 4, 2005
and October 20, 2005, respectively, for being devoid of
merit.3
Thereafter, on January 27, 2006, the RTC rendered a
decision, disposing, as follows:
WHEREFORE, judgment is hereby rendered ordering
[petitioner Durban Apartments Corporation] to pay
[respondent Pioneer Insurance and Surety Corporation] the
sum of P1,163,250.00 with legal interest thereon from July
22, 2003 until the obligation is fully paid and attorneys fees
and litigation expenses amounting to P120,000.00.
SO ORDERED.4
On appeal, the appellate court affirmed the decision of the
trial court, viz.:
WHEREFORE, premises considered, the Decision dated
January 27, 2006 of the RTC, Branch 66, Makati City in Civil
Case No. 03-857 is hereby AFFIRMED insofar as it holds
[petitioner] Durban Apartments Corporation solely liable to
[respondent] Pioneer Insurance and Surety Corporation for
the loss of Jeffrey Sees Suzuki Grand Vitara.
SO ORDERED.5

Hence, this recourse by petitioner.
pre-trial brief, is mandatory, nay, their duty. Thus, Section 4

and Section 6 thereof provide:
The issues for our resolution are:

1. Whether the lower courts erred in declaring petitioner as in
default for failure to appear at the pre-trial conference and to
file a pre-trial brief;
2. Corollary thereto, whether the trial court correctly allowed
respondent to present evidence ex-parte;
3. Whether petitioner is liable to respondent for attorneys
fees in the amount of P120,000.00; and
4. Ultimately, whether petitioner is liable to respondent for the
loss of Sees vehicle.
The petition must fail.
We are in complete accord with the common ruling of the
lower courts that petitioner was in default for failure to
appear at the pre-trial conference and to file a pre-trial brief,
and thus, correctly allowed respondent to present evidence
ex-parte. Likewise, the lower courts did not err in holding
petitioner liable for the loss of Sees vehicle.
Well-entrenched in jurisprudence is the rule that factual
findings of the trial court, especially when affirmed by the
appellate court, are accorded the highest degree of respect
and are considered conclusive between the parties. 6 A
review of such findings by this Court is not warranted except
upon a showing of highly meritorious circumstances, such
as: (1) when the findings of a trial court are grounded entirely
on speculation, surmises, or conjectures; (2) when a lower
courts inference from its factual findings is manifestly
mistaken, absurd, or impossible; (3) when there is grave
abuse of discretion in the appreciation of facts; (4) when the
findings of the appellate court go beyond the issues of the
case, or fail to notice certain relevant facts which, if properly
considered, will justify a different conclusion; (5) when there
is a misappreciation of facts; (6) when the findings of fact are
conclusions without mention of the specific evidence on
which they are based, are premised on the absence of
evidence, or are contradicted by evidence on record. 7 None
of the foregoing exceptions permitting a reversal of the
assailed decision exists in this instance.
Petitioner urges us, however, that "strong [and] compelling
reason[s]" such as the prevention of miscarriage of justice
warrant a suspension of the rules and excuse its and its
counsels non-appearance during the pre-trial conference
and their failure to file a pre-trial brief.
We are not persuaded.
Rule 18 of the Rules of Court leaves no room for
equivocation; appearance of parties and their counsel at the
pre-trial conference, along with the filing of a corresponding
SEC. 4. Appearance of parties.It shall be the duty of the

parties and their counsel to appear at the pre-trial. The nonappearance of a party may be excused only if a valid cause
is shown therefor or if a representative shall appear in his
behalf fully authorized in writing to enter into an amicable
settlement, to submit to alternative modes of dispute
resolution, and to enter into stipulations or admissions of
facts and documents.
SEC. 6. Pre-trial brief.The parties shall file with the court
and serve on the adverse party, in such manner as shall
ensure their receipt thereof at least three (3) days before the
date of the pre-trial, their respective pre-trial briefs which
shall contain, among others:
xxxx
Failure to file the pre-trial brief shall have the same effect as
failure to appear at the pre-trial.
Contrary to the foregoing rules, petitioner and its counsel of
record were not present at the scheduled pre-trial
conference. Worse, they did not file a pre-trial brief. Their
non-appearance cannot be excused as Section 4, in relation
to Section 6, allows only two exceptions: (1) a valid excuse;
and (2) appearance of a representative on behalf of a party
who is fully authorized in writing to enter into an amicable
settlement, to submit to alternative modes of dispute
resolution, and to enter into stipulations or admissions of
facts and documents.
Petitioner is adamant and harps on the fact that November
28, 2003 was merely the first scheduled date for the pre-trial
conference, and a certain Atty. Mejia appeared on its behalf.
However, its assertion is belied by its own admission that, on
said date, this Atty. Mejia "did not have in his possession the
Special Power of Attorney issued by petitioners Board of
Directors."
As pointed out by the CA, petitioner, through Atty. Lee,
received the notice of pre-trial on October 27, 2003, thirtytwo (32) days prior to the scheduled conference. In that span
of time, Atty. Lee, who was charged with the duty of notifying
petitioner of the scheduled pre-trial conference, 8 petitioner,
and Atty. Mejia should have discussed which lawyer would
appear at the pre-trial conference with petitioner, armed with
the appropriate authority therefor. Sadly, petitioner failed to
comply with not just one rule; it also did not proffer a reason
why it likewise failed to file a pre-trial brief. In all, petitioner
has not shown any persuasive reason why it should be
exempt from abiding by the rules.
The appearance of Atty. Mejia at the pre-trial conference,
without a pre-trial brief and with only his bare allegation that
he is counsel for petitioner, was correctly rejected by the trial
court. Accordingly, the trial court, as affirmed by the appellate

court, did not err in allowing respondent to present evidence
ex-parte.
find no error in the following disquisition of the appellate

court:
Former Chief Justice Andres R. Narvasas words continue to

resonate, thus:
[The] records also reveal that upon arrival at the City Garden
Hotel, See gave notice to the doorman and parking attendant
of the said hotel, x x x Justimbaste, about his Vitara when he
entrusted its ignition key to the latter. x x x Justimbaste
issued a valet parking customer claim stub to See, parked
the Vitara at the Equitable PCI Bank parking area, and
placed the ignition key inside a safety key box while See
proceeded to the hotel lobby to check in. The Equitable PCI
Bank parking area became an annex of City Garden Hotel
when the management of the said bank allowed the parking
of the vehicles of hotel guests thereat in the evening after
banking hours.11
Everyone knows that a pre-trial in civil actions is mandatory,

and has been so since January 1, 1964. Yet to this day its
place in the scheme of things is not fully appreciated, and it
receives but perfunctory treatment in many courts. Some
courts consider it a mere technicality, serving no useful
purpose save perhaps, occasionally to furnish ground for
non-suiting the plaintiff, or declaring a defendant in default,
or, wistfully, to bring about a compromise. The pre-trial
device is not thus put to full use. Hence, it has failed in the
main to accomplish the chief objective for it: the
simplification, abbreviation and expedition of the trial, if not
indeed its dispensation. This is a great pity, because the
objective is attainable, and with not much difficulty, if the
device were more intelligently and extensively handled.
xxxx
Consistently with the mandatory character of the pre-trial, the
Rules oblige not only the lawyers but the parties as well to
appear for this purpose before the Court, and when a party
"fails to appear at a pre-trial conference (he) may be nonsuited or considered as in default." The obligation "to appear"
denotes not simply the personal appearance, or the mere
physical presentation by a party of ones self, but connotes
as importantly, preparedness to go into the different subject
assigned by law to a pre-trial. And in those instances where
a party may not himself be present at the pre-trial, and
another person substitutes for him, or his lawyer undertakes
to appear not only as an attorney but in substitution of the
clients person, it is imperative for that representative of the
lawyer to have "special authority" to make such substantive
agreements as only the client otherwise has capacity to
make. That "special authority" should ordinarily be in writing
or at the very least be "duly established by evidence other
than the self-serving assertion of counsel (or the proclaimed
representative) himself." Without that special authority, the
lawyer or representative cannot be deemed capacitated to
appear in place of the party; hence, it will be considered that
the latter has failed to put in an appearance at all, and he
[must] therefore "be non-suited or considered as in default,"
notwithstanding his lawyers or delegates presence.9
We are not unmindful that defendants (petitioners)
preclusion from presenting evidence during trial does not
automatically result in a judgment in favor of plaintiff
(respondent). The plaintiff must still substantiate the
allegations in its complaint.10 Otherwise, it would be inutile to
continue with the plaintiffs presentation of evidence each
time the defendant is declared in default.
In this case, respondent substantiated the allegations in its
complaint, i.e., a contract of necessary deposit existed
between the insured See and petitioner. On this score, we
Article 1962, in relation to Article 1998, of the Civil Code

defines a contract of deposit and a necessary deposit made
by persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of
safely keeping it and returning the same. If the safekeeping
of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.
Art. 1998. The deposit of effects made by travelers in hotels
or inns shall also be regarded as necessary.1avvphi1 The
keepers of hotels or inns shall be responsible for them as
depositaries, provided that notice was given to them, or to
their employees, of the effects brought by the guests and
that, on the part of the latter, they take the precautions which
said hotel-keepers or their substitutes advised relative to the
care and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured
See deposited his vehicle for safekeeping with petitioner,
through the latters employee, Justimbaste. In turn,
Justimbaste issued a claim stub to See. Thus, the contract of
deposit was perfected from Sees delivery, when he handed
over to Justimbaste the keys to his vehicle, which
Justimbaste received with the obligation of safely keeping
and returning it. Ultimately, petitioner is liable for the loss of
Sees vehicle.
Lastly, petitioner assails the lower courts award of attorneys
fees to respondent in the amount of P120,000.00. Petitioner
claims that the award is not substantiated by the evidence on
record.
We disagree.
While it is a sound policy not to set a premium on the right to
litigate,12 we find that respondent is entitled to reasonable
attorneys fees. Attorneys fees may be awarded when a
party is compelled to litigate or incur expenses to protect its
interest,13 or when the court deems it just and equitable. 14 In
this case, petitioner refused to answer for the loss of Sees
vehicle, which was deposited with it for safekeeping. This
refusal constrained respondent, the insurer of See, and

subrogated to the latters right, to litigate and incur expenses.
However, we reduce the award of P120,000.00 to
P60,000.00 in view of the simplicity of the issues involved in
this case.
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 86869 is AFFIRMED
with the MODIFICATION that the award of attorneys fees is
reduced to P60,000.00. Costs against petitioner.
SO ORDERED.
SEQUESTRATION or JUDICIAL DEPOSIT
LOS BAOS v. AFRICA
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 143994
July 11, 2002
LOS BAOS RURAL BANK, INC., petitioner,

vs.
PACITA O. AFRICA, GLORIA AFRICA, ANTONIO AFRICA,
ARISTEO AFRICA, SOCORRO AFRICA, CONSUELO
AFRICA, AND LOURDES AFRICA, respondents.
PANGANIBAN, J.:
A writ of preliminary injunction is issued to preserve the
status quo ante, upon an applicants showing of two
important requisite conditions; namely, (1) the right to be
protected exists prima facie, and (2) the acts sought to be
enjoined are violative of that right. It must be proven that the
violation sought to be prevented would cause an irreparable
injustice.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules
of Court, assailing the June 30, 2000 Decision1 of the Court
of Appeals2 (CA) in CA-GR SP No. 53355. The decretal
portion of the Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The Order dated
April 19, 1999 insofar as it denied the petitioners application
for the issuance of a writ of preliminary injunction, is hereby
RECALLED and SET ASIDE.
"Let a writ of preliminary injunction issue in this case to
restrain the respondent bank from proceeding with the
foreclosure and consolidation of the title over the subject
property upon posting by petitioners of a bond in the amount

of Php20,000.00."3
The Order of the Regional Trial Court (RTC) of Quezon City
(Branch 220), which was reversed by the CA, reads as
follows:
"WHEREFORE, premises considered, the Order of the Court
dated July 22, 1997 is hereby recalled and set aside. The
application for issuance of writ of preliminary injunction is
hereby DENIED.
"Issues in this case having been joined, let this case be set
for pre-trial on May 28, 1999 at 8:30 o clock in the morning.
Send notice of pre-trial to the parties and counsels."4
The Facts
The factual antecedents of the case are summarized by the
Court of Appeals in this wise:
"Petitioner Pacita Africa (Pacita for brevity) is the widow of
Alberto Africa and the rest of her co-petitioners are their
children.
"Records disclose that sometime in June 1989, the Quezon
City Hall building where the Register of Deeds was then
holding office was razed by fire, destroying some of its
records/documents among which was the original Transfer
Certificate of Title (TCT) No. 203492 covering a parcel of
land situated in Diliman, Quezon City, and registered in the
name of petitioner Pacita. The aforesaid property was part of
the conjugal property of petitioner Pacita and her late
husband Alberto Africa.
"On request of Pacita, private respondent Macy Africa, the
common-law wife of petitioner Antonio Africa, worked for the
reconstitution of the aforesaid TCT No. 203492. The same
was done and a new Transfer Certificate of Title (TCT) No.
RT-76140 (203492) PR-36463 was issued in the name of
Pacita Africa. While the reconstituted title was in her
possession, Macy allegedly forged, or caused the forgery of,
Pacitas signature on a Deed of Absolute Sale dated
December 29, 1992, purporting to transfer ownership of the
subject property to Macy. On the strength of the forged Deed
of Absolute Sale, Macy was able to cause the issuance of
TCT No. 81519 in her name, without the knowledge of any of
herein petitioners.
"Still as part of the scheme to defraud petitioners, Macy
caused the preparation of a fake TCT No. 81519 in the name
of Pacita, which the former showed to the latter to make
Pacita believe that the said title was issued in her (Pacitas)
name.
"Sometime in March 1994, petitioners discovered private
respondents fraudulent act. They (petitioners) likewise came
to know that the subject property was mortgaged by Macy to
the respondent bank. To protect their interests over the

subject property, petitioners lodged an action in court against
Macy and the respondent bank for Annulment of Title, Deed
of Absolute Sale and Deed of Mortgage. The case was
originally assigned to Branch 99 of the RTC of Quezon City
and docketed as Civil Case No. Q-94-20898.
"After the filing of the aforesaid case, the respondent bank in
utter bad faith, foreclosed the subject property on June 11,
1996 without due notice to the petitioners, prompting the
petitioners to amend [their] complaint, this time incorporating
therein a prayer for the issuance of a temporary restraining
order and/or writ of preliminary injunction, to stop the
respondent bank from, among others, consolidating title to
the subject property.
"On July 2, 1997, RTC Branch 99 issued an Order granting
petitioners application for a temporary restraining order.
Meanwhile, the respondent bank filed its Manifestation,
Opposition and Motion to Postpone dated July 11, 1997,
praying, inter alia, for the denial of petitioners application for
a writ of preliminary injunction, or in the alternative, for the
cancellation of the hearing thereon. On July 18, 1997, the
aforesaid court denied the respondent banks motion to
postpone and proceeded with the hearing of petitioners
application. Thereafter, petitioners application was
considered submitted for resolution.
"On July 22, 1997, the Court issued an Order granting
petitioners application for a writ of preliminary injunction to
which respondent bank filed a Motion for Reconsideration
dated July 11, 1997 followed by a Motion for Inhibition on
January 1, 1998 praying that Hon. Felix M. de Guzman,
presiding judge of RTC, Branch 99, inhibit himself from
further trying the case. This latter motion was granted, and
the case was re-raffled and assigned to Branch 220.
"On April 19, 1999, RTC Branch 220, public respondent
herein, issued the questioned Order."5
Ruling of the Court of Appeals
The CA overturned the RTC Order dated April 19, 1999, and
granted the issuance of a preliminary injunction to restrain
petitioner from proceeding with the foreclosure and the
consolidation of title over the subject property. The CA ruled
that respondents had title to and possession of the property
and were deprived thereof by petitioner. Thus, respondents
had a clear and unmistakable right to protect their title and
possession.6
"Whether the Court of Appeals acted with patent grave

abuse of discretion in applying the ruling in Verzosa vs.
Court of Appeals, (299 SCRA 100), to the instant case to
justify its reversal of the 19 April 1999 Order of Branch 220 of
the Regional Trial Court of Quezon City in Civil Case No. Q94-20898[;]
II
abuse of discretion when it rationalized its decision by citing
factual premises therein that are not borne out by the
records nor based on evidence and in fact contrary to
reality[;]
III
abuse of discretion when it ignored, disregarded and/or
deviated from established jurisprudence governing the
issuance of preliminary injunction demanded by private
respondents against the petitioner bank[;]
IV
"Whether the Court [of] Appeals acted with patent grave
abuse of discretion when it disregarded the pertinent
provisions of Section 3, Rule 58, of the Revised Rules of
Court providing for the grounds for issuance of preliminary
injunction."8
In sum, the issues boil down to whether the appellate court
erred in issuing a writ of preliminary injunction to stop
petitioners consolidation of its title to the subject property.
This Courts Ruling
The Petition is not meritorious; it has not shown any
reversible error in the CAs Decision.
Main Issue:
Propriety of Preliminary Injunction
Petitioner argues that respondents do not have a right to the
relief demanded, because they merely have possession of
the property, as the legal title is in the name of Macy Africa. 9
Furthermore, it claims that the consolidation of title in its
name does not constitute an "invasion of a right that is
material and substantial."10
Hence, this Petition.7

Issues
In its Memorandum, petitioner raises the following issues for
the Courts consideration:
I
On the other hand, respondents maintain that they would

suffer great irreparable damage if the writ of preliminary
injunction is not granted.11 They likewise contend that if
petitioner is allowed to consolidate its title to the subject
property, they would lose their ancestral home, a loss that
would result in unnecessary and protracted proceedings
involving third parties.12
We agree with respondents.

The grounds for the issuance of a writ of preliminary
injunction are enumerated in Rule 58, Section 3 of the
Revised Rules of Court, which reads as follows:
"Sec. 3. Grounds for issuance of preliminary injunction. A
preliminary injunction may be granted when it is established;
(a)That the applicant is entitled to the relief demanded, and
the whole or part of such relief consists in restraining the
commission or continuance of the act or acts complained of,
or in requiring the performance of an act or acts, either for a
limited period or perpetually;
(b)That the commission, continuance or non-performance of
the act or acts complained of during the litigation would
probably work injustice to the applicant; or
(c)That a party, court, agency or a person is doing,
threatening, or is attempting to do, or is procuring or suffering
to be done, some act or acts probably in violation of the
rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual."
Injunction is a preservative remedy aimed at no other
purpose than to protect the complainants substantive rights
and interests13 during the pendency of the principal action. 14
A preliminary injunction, as the term itself suggests, is merely
temporary.15 It is to be resorted to only when there is a
pressing necessity to avoid injurious consequences that
cannot be remedied under any standard of compensation.16
Moreover, injunction, like other equitable remedies, should
be issued only at the instance of a suitor who has sufficient
interest in or title to the right or the property sought to be
protected.17 It is proper only when the plaintiff appears to be
entitled to the relief demanded in the complaint. 18 In
particular, the existence of the right and the violation thereof
must appear in the allegations of the complaint19 and must
constitute at least a prima facie showing of a right to the final
relief.20 Thus, there are two requisite conditions for the
issuance of a preliminary injunction, namely, (1) the right to
be protected exists prima facie, and (2) the acts sought to be
enjoined are violative of that right.21 It must be proven that
the violation sought to be prevented would cause an
irreparable injustice.
Further, while a clear showing of the right is necessary, its
existence need not be conclusively established.22 In fact, the
evidence required to justify the issuance of a writ of
preliminary injunction in the hearing thereon need not be
conclusive or complete. The evidence need only be a
"sampling" intended merely to give the court an idea of the
justification for the preliminary injunction, pending the
decision of the case on the merits.23 Thus, to be entitled to
the writ, respondents are only required to show that they
have the ostensible right to the final relief prayed for in their
Complaint.24
First Requisite:
Existence of the Right
In the case at bar, we find ample justification for the issuance
of a writ of preliminary injunction.25 Evidently, the question on
whether or not respondents possess the requisite right
hinges on the prima facie existence of their legal title to the
subject property.26 They have shown that they have that
right, and that it is directly threatened by the act sought to be
enjoined.27
First, as alleged in the Complaint,28 Respondent Pacita Africa
is the registered owner of the subject property. Her
ownership is evidenced by the reconstituted Transfer
Certificate of Title (TCT) No. RT-76140 (203492) PR36463,29 issued by the Registry of Deeds of Quezon City.
Second, the validity of the Deed of Sale 30 dated December
29, 1992, is still in dispute because Respondent Pacita Africa
claims that her signature was forged by the vendee, Macy
Africa.31 Third, there is doubt as to the validity of the
mortgage in favor of petitioner, because there exists on
record two TCTs covering the mortgaged property: (1) TCT
No. 8151932 registered in the name of Pacita Africa and (2)
TCT No. 8151933 registered in the name of Macy Africa.
If indeed the Deed of Sale is a forgery, no parcel of land was
ever transferred to the purported buyer 34 who, not being the
owner, could not have validly mortgaged the property.35
Consequently, neither has petitioner -- the buyer and
mortgagee of the same lot -- ever acquired any title thereto. 36
Significantly, no evidence was presented by petitioner to
controvert these allegations put forward by respondents.
Clearly then, on the basis of the evidence presented,
respondents possess the right to prevent petitioner from
consolidating the title in its name. The first requisite -- the
existence of a right to be protected -- is thus present.37
Second Requisite:
Violation of Applicants Right
As to the second requisite, what is sought to be enjoined by
respondents is the consolidation of the title to the subject
property in petitioners name. After having discovered that
the property had been mortgaged to petitioner, respondents
filed on June 12, 1994 an action for Annulment of Title, Deed
of Sale, and Mortgage to protect their rights over the
property.38 This notwithstanding, petitioner foreclosed it on
June 11, 1996.39 To enjoin petitioner from consolidating the
title in its name, respondents then filed an Amended
Complaint,40 praying for a writ of preliminary injunction.
Unless legally stopped, petitioner may consolidate title to the
property in its name and enjoy the unbridled freedom to
dispose of it to third persons, to the damage and prejudice of
respondents.41 What respondents stand to lose is material
and substantial.42 They would lose their ancestral home even
without the benefit of a trial.43 Clearly, the act sought to be
enjoined is violative of their proprietary right over the
property.44

A writ of preliminary injunction is issued precisely to preserve
threatened or continuous irremediable injury to some of the
parties before their claims can be thoroughly studied and
adjudicated.45 Denial of the application for the writ may make
the Complaint of respondents moot and academic.
Furthermore, it would render ineffectual a final judgment in
their favor or, at the very least, compel them to litigate
needlessly with third persons who may have acquired an
interest in the property.46 Such a situation cannot be
countenanced.47
Lis Pendens
Petitioner further contends that respondents are not entitled
to the relief prayed for, because they caused a notice of lis
pendens to be annotated at the back of TCT No. 81519,
registered in the name of Macy P. Africa; thus, that notice
provided ample protection of their rights and interests.48
We are not persuaded. A notice of lis pendens serves as an
announcement to the whole world that a particular real
property is in litigation and as a warning that those who
acquire an interest in the property do so at their own risk -they gamble on the result of the litigation over it. 49 However,
the cancellation of such notice may be ordered by the court
that has jurisdiction over it at any given time.50 Its
continuance or removal -- like the continuance or the
removal of a preliminary attachment or injunction -- is not
contingent on the existence of a final judgment on the action
and ordinarily has no effect on the merits thereof.51 Thus, the
notice of lis pendens does not suffice to protect herein
respondents rights over the property.52 It does not provide
complete and ample protection.
Status Quo Ante
Petitioner further claims that the RTC erred in enjoining the
foreclosure sale of the subject property.53 It argues that the
foreclosure may no longer be enjoined, because it has long
been effected since 1996.54 We agree with petitioner.
It is a well-entrenched rule that consummated acts can no
longer be restrained by injunction55 whose sole objective is to
preserve the status quo until the merits of the case are fully
heard.56 Status quo is defined as the last actual peaceful
uncontested situation that precedes a controversy, and its
preservation is the office of an injunctive writ.57
In the instant case, the status quo was the situation of the
parties at the time of the filing of the Amended Complaint 58
with a prayer for a writ of preliminary injunction. It was that
point at which petitioner had already foreclosed the subject
property and, hence, could no longer be enjoined from going
on with the foreclosure. However, the last actual uncontested
status that preceded the controversy was when the property
in dispute was still registered in the name of Macy Africa,
petitioner not having consolidated in its name the title
thereto.59 Thus, the issuance of the writ would no doubt
preserve the status quo.60
We cannot rule on the allegation of petitioner that this case is
a "scam perpetrated by private respondents" to defraud it. 61
The truth or the falsity of that assertion cannot be
ascertained by this Court at this time. Verily, we refrain from
expressing any opinion on the merits of the case, pending a
full consideration of the evidence that would be presented by
the parties.62
WHEREFORE, the Petition is DENIED and the assailed
Decision of the Court of Appeals AFFIRMED. Costs against
petitioner.
SO ORDERED.

Cred Trans 4

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Cred Trans 4

Uploaded by

Copyright:

Available Formats

CREDIT TRANSACTIONS (Atty.

with the latter, offering the tractor as security. Mike even

Republic of the Philippines

In January 1987 when a new tenant moved into the house

Apprehensive over Mike's unsettled account, Calibo visited

G.R. No. 120528

January 29, 2001

ATTY. DIONISIO CALIBO, JR., petitioner,

After a long while, or on November 22, 1988, Mike's father,

CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 2

leaving the subject tractor in the care and custody of Mike

CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 3

April 30, 2003

JOSEPH CHAN, WILSON CHAN and LILY CHAN,

Unfortunately, Moreman failed to finish the construction of

CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 4

The trial court ratiocinated as follows:

CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 5

it affirmed in toto the award of actual damages made by the

"Moreover, although the prayer in the complaint did not

'The Court finds the contention of plaintiff that materials and

The awards of moral and exemplary damages of the trial

CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 6

In the present case, the record is bereft of any contract of

CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 7

The counterclaim set up by the defendant are hereby

Republic of the Philippines

c) Five Thousand Pesos (P5,000.00), Philippine Currency, as

May 13, 1993

LUZAN SIA, petitioner,

The plaintiff rented on March 22, 1985 the Safety Deposit

Asuncion Law Offices for petitioner.

Cauton, Banares, Carpio & Associates for private

DAVIDE, JR., J.:

b) One Hundred Thousand Pesos (P100,000.00), Philippine

The defendant bank denied liability for the damaged stamps

CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 8

In reversing the trial court's decision and absolving SBTC

"That the Safety Box Deposit No. 54 was opened by both

b) the contract entered into by the parties regarding Safe

Condition of the above-stated Items

c) The following provisions of the questioned lease

CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 9

xxx xxx xxx

THE RESPONDENT COURT SERIOUSLY ERRED IN

13. The bank is not a depository of the contents of the Safe

are valid and binding upon the parties. In the challenged

THE RESPONDENT COURT SERIOUSLY ERRED IN NOT

We cannot accept this theory and ratiocination.

CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 10

in violation of law or public policy. It must clearly appear that

CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 11

ASIDE and the Decision of 19 February 1990 of Branch 47

Here, the unforeseen or unexpected inundating floods were

Costs against the private respondent.

Republic of the Philippines

CA AGRO-INDUSTRIAL DEVELOPMENT CORP.,

DAVIDE, JR., J.:

CREDIT TRANSACTIONS (Atty. Jazzie Sarona-Lozare) 12

On defendant's counterclaim, judgment is hereby rendered

13. The bank is not a depositary of the contents of the safe

With costs against plaintiff. 6

14. The bank has no interest whatsoever in said contents,

The unfavorable verdict is based on the trial court's