G.R. No.

4015

August 24, 1908

ANGEL JAVELLANA, plaintiff-appellee,

vs.
JOSE LIM, ET AL., defendants-appellants.
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, with the
exception of either capital or interest, had thereby been
subjected to loss and damages.
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 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 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.

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.

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.
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.

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 acommodatum; 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 plaintiffsappellants 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 third-party 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 goodwill 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.
G.R. No. L-66826 August 19, 1988
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and
ZSHORNACK respondents.
The original parties to this case were Rizaldy T. Zshornack
and the Commercial Bank and Trust Company of the
Philippines [hereafter referred to as "COMTRUST."] In 1980,
the Bank of the Philippine Islands (hereafter referred to as BPI

absorbed COMTRUST through a corporate merger, and was

substituted as party to the case.

obligation is to return the same to plaintiff upon

demand;

Rizaldy Zshornack initiated proceedings on June 28,1976 by

filing in the Court of First Instance of Rizal Caloocan City a
complaint against COMTRUST alleging four causes of action.
Except for the third cause of action, the CFI ruled in favor of
Zshornack. The bank appealed to the Intermediate Appellate
Court which modified the CFI decision absolving the bank
from liability on the fourth cause of action. The pertinent
portions of the judgment, as modified, read:

xxx xxx xxx

IN VIEW OF THE FOREGOING, the Court

renders judgment as follows:

5. Ordering defendant COMTRUST to pay

plaintiff in the amount of P8,000.00 as damages
in the concept of litigation expenses and
attorney's fees suffered by plaintiff as a result of
the failure of the defendant bank to restore to his
(plaintiffs) account the amount of U.S.
$1,000.00 and to return to him (plaintiff) the
U.S. $3,000.00 cash left for safekeeping.
Costs against defendant COMTRUST.

1. Ordering the defendant COMTRUST to

restore to the dollar savings account of plaintiff
(No. 25-4109) the amount of U.S $1,000.00 as
of October 27, 1975 to earn interest together
with the remaining balance of the said account
at the rate fixed by the bank for dollar deposits
under Central Bank Circular 343;
2. Ordering defendant COMTRUST to return to
the plaintiff the amount of U.S. $3,000.00
immediately upon the finality of this decision,
without interest for the reason that the said
amount was merely held in custody for
safekeeping, but was not actually deposited with
the defendant COMTRUST because being cash
currency, it cannot by law be deposited with
plaintiffs dollar account and defendant's only

SO ORDERED. [Rollo, pp. 47-48.]

Undaunted, the bank comes to this Court praying that it be
totally absolved from any liability to Zshornack. The latter not
having appealed the Court of Appeals decision, the issues
facing this Court are limited to the bank's liability with regard
to the first and second causes of action and its liability for
damages.
1. We first consider the first cause of action, On the dates
material to this case, Rizaldy Zshornack and his wife, Shirley
Gorospe, maintained in COMTRUST, Quezon City Branch, a
dollar savings account and a peso current account.
On October 27, 1975, an application for a dollar draft was
accomplished by Virgilio V. Garcia, Assistant Branch Manager
of COMTRUST Quezon City, payable to a certain Leovigilda

D. Dizon in the amount of $1,000.00. In the application, Garcia

indicated that the amount was to be charged to Dollar Savings
Acct. No. 25-4109, the savings account of the Zshornacks; the
charges for commission, documentary stamp tax and others
totalling P17.46 were to be charged to Current Acct. No.
210465-29, again, the current account of the Zshornacks. There
was no indication of the name of the purchaser of the dollar
draft.
On the same date, October 27,1975, COMTRUST, under the
signature of Virgilio V. Garcia, issued a check payable to the
order of Leovigilda D. Dizon in the sum of US $1,000 drawn
on the Chase Manhattan Bank, New York, with an indication
that it was to be charged to Dollar Savings Acct. No. 25-4109.
When Zshornack noticed the withdrawal of US$1,000.00 from
his account, he demanded an explanation from the bank. In
answer, COMTRUST claimed that the peso value of the
withdrawal was given to Atty. Ernesto Zshornack, Jr., brother
of Rizaldy, on October 27, 1975 when he (Ernesto) encashed
with COMTRUST a cashier's check for P8,450.00 issued by
the Manila Banking Corporation payable to Ernesto.
Upon consideration of the foregoing facts, this Court finds no
reason to disturb the ruling of both the trial court and the
Appellate Court on the first cause of action. Petitioner must be
held liable for the unauthorized withdrawal of US$1,000.00
from private respondent's dollar account.
In its desperate attempt to justify its act of withdrawing from
its depositor's savings account, the bank has adopted
inconsistent theories. First, it still maintains that the peso value
of the amount withdrawn was given to Atty. Ernesto

Zshornack, Jr. when the latter encashed the Manilabank

Cashier's Check. At the same time, the bank claims that the
withdrawal was made pursuant to an agreement where
Zshornack allegedly authorized the bank to withdraw from his
dollar savings account such amount which, when converted to
pesos, would be needed to fund his peso current account. If
indeed the peso equivalent of the amount withdrawn from the
dollar account was credited to the peso current account, why
did the bank still have to pay Ernesto?
At any rate, both explanations are unavailing. With regard to
the first explanation, petitioner bank has not shown how the
transaction involving the cashier's check is related to the
transaction involving the dollar draft in favor of Dizon
financed by the withdrawal from Rizaldy's dollar account. The
two transactions appear entirely independent of each other.
Moreover, Ernesto Zshornack, Jr., possesses a personality
distinct and separate from Rizaldy Zshornack. Payment made
to Ernesto cannot be considered payment to Rizaldy.
As to the second explanation, even if we assume that there was
such an agreement, the evidence do not show that the
withdrawal was made pursuant to it. Instead, the record reveals
that the amount withdrawn was used to finance a dollar draft in
favor of Leovigilda D. Dizon, and not to fund the current
account of the Zshornacks. There is no proof whatsoever that
peso Current Account No. 210-465-29 was ever credited with
the peso equivalent of the US$1,000.00 withdrawn on October
27, 1975 from Dollar Savings Account No. 25-4109.
2. As for the second cause of action, the complaint filed with
the trial court alleged that on December 8, 1975, Zshornack
entrusted to COMTRUST, thru Garcia, US

$3,000.00 cash (popularly known as greenbacks)

forsafekeeping, and that the agreement was embodied in a
document, a copy of which was attached to and made part of
the complaint. The document reads:
Makati Cable Address:
Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST
COMPANY
of the Philippines
Quezon City Branch
Aside from asserting that the US$3,000.00 was properly
credited to Zshornack's current account at prevailing
conversion rates, BPI now posits another ground to defeat
private respondent's claim. It now argues that the contract
embodied in the document is the contract of depositum (as
defined in Article 1962, New Civil Code), which banks do not
enter into. The bank alleges that Garcia exceeded his powers
when he entered into the transaction. Hence, it is claimed, the
bank cannot be liable under the contract, and the obligation is
purely personal to Garcia.
Before we go into the nature of the contract entered into, an
important point which arises on the pleadings, must be
considered.
The second cause of action is based on a document purporting
to be signed by COMTRUST, a copy of which document was

attached to the complaint. In short, the second cause of action

was based on an actionable document. It was therefore
incumbent upon the bank to specifically deny under oath the
due execution of the document, as prescribed under Rule 8,
Section 8, if it desired: (1) to question the authority of Garcia
to bind the corporation; and (2) to deny its capacity to enter
into such contract. [See, E.B. Merchant v. International
Banking Corporation, 6 Phil. 314 (1906).] No sworn answer
denying the due execution of the document in question, or
questioning the authority of Garcia to bind the bank, or
denying the bank's capacity to enter into the contract, was ever
filed. Hence, the bank is deemed to have admitted not only
Garcia's authority, but also the bank's power, to enter into the
contract in question.
In the past, this Court had occasion to explain the reason
behind this procedural requirement.
The reason for the rule enunciated in the
foregoing authorities will, we think, be readily
appreciated. In dealing with corporations the
public at large is bound to rely to a large extent
upon outward appearances. If a man is found
acting for a corporation with the external indicia
of authority, any person, not having notice of
want of authority, may usually rely upon those
appearances; and if it be found that the directors
had permitted the agent to exercise that
authority and thereby held him out as a person
competent to bind the corporation, or had
acquiesced in a contract and retained the benefit
supposed to have been conferred by it, the

corporation will be bound, notwithstanding the

actual authority may never have been granted
... Whether a particular officer actually
possesses the authority which he assumes to
exercise is frequently known to very few, and
the proof of it usually is not readily accessible to
the stranger who deals with the corporation on
the faith of the ostensible authority exercised by
some of the corporate officers. It is therefore
reasonable, in a case where an officer of a
corporation has made a contract in its name, that
the corporation should be required, if it denies
his authority, to state such defense in its answer.
By this means the plaintiff is apprised of the fact
that the agent's authority is contested; and he is
given an opportunity to adduce evidence
showing either that the authority existed or that
the contract was ratified and approved.
[Ramirez v. Orientalist Co. and Fernandez, 38
Phil. 634, 645- 646 (1918).]
Petitioner's argument must also be rejected for another reason.
The practical effect of absolving a corporation from liability
every time an officer enters into a contract which is beyond
corporate powers, even without the proper allegation or proof
that the corporation has not authorized nor ratified the officer's
act, is to cast corporations in so perfect a mold that
transgressions and wrongs by such artificial beings become
impossible [Bissell v. Michigan Southern and N.I.R. Cos 22
N.Y 258 (1860).] "To say that a corporation has no right to do
unauthorized acts is only to put forth a very plain truism but to
say that such bodies have no power or capacity to err is to

impute to them an excellence which does not belong to any

created existence with which we are acquainted. The
distinction between power and right is no more to be lost sight
of in respect to artificial than in respect to natural persons."
[Ibid.]
Having determined that Garcia's act of entering into the
contract binds the corporation, we now determine the correct
nature of the contract, and its legal consequences, including its
enforceability.
The document which embodies the contract states that the
US$3,000.00 was received by the bank for safekeeping. The
subsequent acts of the parties also show that the intent of the
parties was really for the bank to safely keep the dollars and to
return it to Zshornack at a later time, Thus, Zshornack
demanded the return of the money on May 10, 1976, or over
five months later.
The above arrangement is that contract defined under Article
1962, New Civil Code, which reads:
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 of 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.
Note that the object of the contract between Zshornack and
COMTRUST was foreign exchange. Hence, the transaction
was covered by Central Bank Circular No. 20, Restrictions on

Gold and Foreign Exchange Transactions, promulgated on

December 9, 1949, which was in force at the time the parties
entered into the transaction involved in this case. The circular
provides:
xxx xxx xxx
2. Transactions in the assets described below
and all dealings in them of whatever nature,
including, where applicable their exportation
and importation, shall NOT be effected, except
with respect to deposit accounts included in subparagraphs (b) and (c) of this paragraph, when
such deposit accounts are owned by and in the
name of, banks.
(a) Any and all assets, provided
they are held through, in, or with
banks or banking institutions
located in the Philippines,
including money, checks, drafts,
bullions bank drafts, deposit
accounts (demand, time and
savings), all debts, indebtedness
or obligations, financial brokers
and investment houses, notes,
debentures, stocks, bonds,
coupons, bank acceptances,
mortgages, pledges, liens or other
rights in the nature of
security, expressed in foreign
currencies, or if payable abroad,
irrespective of the currency in

which they are expressed, and

belonging to any person, firm,
partnership, association, branch
office, agency, company or other
unincorporated body or
corporation residing or located
within the Philippines;
(b) Any and all assets of the
kinds included and/or described
in subparagraph (a) above,
whether or not held through, in,
or with banks or banking
institutions, and existent within
the Philippines, which belong to
any person, firm, partnership,
association, branch office,
agency, company or other
unincorporated body or
corporation not residing or
located within the Philippines;
(c) Any and all assets existent
within the Philippines including
money, checks, drafts, bullions,
bank drafts, all debts,
indebtedness or obligations,
financial securities commonly
dealt in by bankers, brokers and
investment houses, notes,
debentures, stock, bonds,
coupons, bank acceptances,
mortgages, pledges, liens or other

rights in the nature of security

expressed in foreign currencies,
or if payable abroad, irrespective
of the currency in which they are
expressed, and belonging to any
person, firm, partnership,
association, branch office,
agency, company or other
unincorporated body or
corporation residing or located
within the Philippines.
xxx xxx xxx
4. (a) All receipts of foreign exchange shall be
sold daily to the Central Bank by those
authorized to deal in foreign exchange. All
receipts of foreign exchange by any person,
firm, partnership, association, branch office,
agency, company or other unincorporated body
or corporation shall be sold to the authorized
agents of the Central Bank by the recipients
within one business day following the receipt of
such foreign exchange. Any person, firm,
partnership, association, branch office, agency,
company or other unincorporated body or
corporation, residing or located within the
Philippines, who acquires on and after the date
of this Circular foreign exchange shall not,
unless licensed by the Central Bank, dispose of
such foreign exchange in whole or in part, nor
receive less than its full value, nor delay taking
ownership thereof except as such delay is

customary; Provided, further, That within one

day upon taking ownership, or receiving
payment, of foreign exchange the
aforementioned persons and entities shall sell
such foreign exchange to designated agents of
the Central Bank.
xxx xxx xxx
8. Strict observance of the provisions of this
Circular is enjoined; and any person, firm or
corporation, foreign or domestic, who being
bound to the observance thereof, or of such
other rules, regulations or directives as may
hereafter be issued in implementation of this
Circular, shall fail or refuse to comply with, or
abide by, or shall violate the same, shall
be subject to the penal sanctions provided in the
Central Bank Act.
xxx xxx xxx
Paragraph 4 (a) above was modified by Section 6 of Central
Bank Circular No. 281, Regulations on Foreign Exchange,
promulgated on November 26, 1969 by limiting its coverage to
Philippine residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by
any resident person, firm, company or
corporation shall be sold to authorized agents of
the Central Bank by the recipients within one
business day following the receipt of such
foreign exchange. Any resident person, firm,

company or corporation residing or located

within the Philippines, who acquires foreign
exchange shall not, unless authorized by the
Central Bank, dispose of such foreign exchange
in whole or in part, nor receive less than its full
value, nor delay taking ownership thereof
except as such delay is customary; Provided,
That, within one business day upon taking
ownership or receiving payment of foreign
exchange the aforementioned persons and
entities shall sell such foreign exchange to the
authorized agents of the Central Bank.
As earlier stated, the document and the subsequent acts of the
parties show that they intended the bank to safekeep the foreign
exchange, and return it later to Zshornack, who alleged in his
complaint that he is a Philippine resident. The parties did not
intended to sell the US dollars to the Central Bank within one
business day from receipt. Otherwise, the contract
of depositum would never have been entered into at all.
Since the mere safekeeping of the greenbacks, without selling
them to the Central Bank within one business day from receipt,
is a transaction which is not authorized by CB Circular No. 20,
it must be considered as one which falls under the general class
of prohibited transactions. Hence, pursuant to Article 5 of the
Civil Code, it is void, having been executed against the
provisions of a mandatory/prohibitory law. More importantly, it
affords neither of the parties a cause of action against the other.
"When the nullity proceeds from the illegality of the cause or
object of the contract, and the act constitutes a criminal
offense, both parties being in pari delicto, they shall have no
cause of action against each other. . ." [Art. 1411, New Civil

Code.] The only remedy is one on behalf of the State to

prosecute the parties for violating the law.
We thus rule that Zshornack cannot recover under the second
cause of action.
3. Lastly, we find the P8,000.00 awarded by the courts a quo as
damages in the concept of litigation expenses and attorney's
fees to be reasonable. The award is sustained.
WHEREFORE, the decision appealed from is hereby
MODIFIED. Petitioner is ordered to restore to the dollar
savings account of private respondent the amount of
US$1,000.00 as of October 27, 1975 to earn interest at the rate
fixed by the bank for dollar savings deposits. Petitioner is
further ordered to pay private respondent the amount of
P8,000.00 as damages. The other causes of action of private
respondent are ordered dismissed.
SO ORDERED.
G.R. No. L-6913

November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiffappellee,

vs.
GREGORIO DE LA PEA, administrator of the estate of
Father Agustin de la Pea, defendant-appellant.
This is an appeal by the defendant from a judgment of the
Court of First Instance of Iloilo, awarding to the plaintiff the
sum of P6,641, with interest at the legal rate from the
beginning of the action.

It is established in this case that the plaintiff is the trustee of a

charitable bequest made for the construction of a leper hospital
and that father Agustin de la Pea was the duly authorized
representative of the plaintiff to receive the legacy. The
defendant is the administrator of the estate of Father De la
Pea.
In the year 1898 the books Father De la Pea, as trustee,
showed that he had on hand as such trustee the sum of P6,641,
collected by him for the charitable purposes aforesaid. In the
same year he deposited in his personal account P19,000 in the
Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and
during the war of the revolution, Father De la Pea was
arrested by the military authorities as a political prisoner, and
while thus detained made an order on said bank in favor of the
United States Army officer under whose charge he then was for
the sum thus deposited in said bank. The arrest of Father De la
Pea and the confiscation of the funds in the bank were the
result of the claim of the military authorities that he was an
insurgent and that the funds thus deposited had been collected
by him for revolutionary purposes. The money was taken from
the bank by the military authorities by virtue of such order, was
confiscated and turned over to the Government.
While there is considerable dispute in the case over the
question whether the P6,641 of trust funds was included in the
P19,000 deposited as aforesaid, nevertheless, a careful
examination of the case leads us to the conclusion that said
trust funds were a part of the funds deposited and which were
removed and confiscated by the military authorities of the
United States.

That branch of the law known in England and America as the

law of trusts had no exact counterpart in the Roman law and
has none under the Spanish law. In this jurisdiction, therefore,
Father De la Pea's liability is determined by those portions of
the Civil Code which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give
something is also bound to preserve it with the diligence
pertaining to a good father of a family" (art. 1094), it also
provides, following the principle of the Roman law, major
casus est, cui humana infirmitas resistere non potest, that "no
one shall be liable for events which could not be foreseen, or
which having been foreseen were inevitable, with the exception
of the cases expressly mentioned in the law or those in which
the obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his
personal funds De la Pea did not thereby assume an obligation
different from that under which he would have lain if such
deposit had not been made, nor did he thereby make himself
liable to repay the money at all hazards. If the had been
forcibly taken from his pocket or from his house by the
military forces of one of the combatants during a state of war, it
is clear that under the provisions of the Civil Code he would
have been exempt from responsibility. The fact that he placed
the trust fund in the bank in his personal account does not add
to his responsibility. Such deposit did not make him a debtor
who must respond at all hazards.
We do not enter into a discussion for the purpose of
determining whether he acted more or less negligently by
depositing the money in the bank than he would if he had left it
in his home; or whether he was more or less negligent by

depositing the money in his personal account than he would

have been if he had deposited it in a separate account as
trustee. We regard such discussion as substantially fruitless,
inasmuch as the precise question is not one of negligence.
There was no law prohibiting him from depositing it as he did
and there was no law which changed his responsibility be
reason of the deposit. While it may be true that one who is
under obligation to do or give a thing is in duty bound, when he
sees events approaching the results of which will be dangerous
to his trust, to take all reasonable means and measures to
escape or, if unavoidable, to temper the effects of those events,
we do not feel constrained to hold that, in choosing between
two means equally legal, he is culpably negligent in selecting
one whereas he would not have been if he had selected the
other.
The court, therefore, finds and declares that the money which is
the subject matter of this action was deposited by Father De la
Pea in the Hongkong and Shanghai Banking Corporation of
Iloilo; that said money was forcibly taken from the bank by the
armed forces of the United States during the war of the
insurrection; and that said Father De la Pea was not
responsible for its loss.
The judgment is therefore reversed, and it is decreed that the
plaintiff shall take nothing by his complaint.
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.
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:

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. 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:
WHEREFORE, premises considered, judgment
is hereby rendered dismissing plaintiff's
complaint.
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.
With costs against plaintiff. 6
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 defendantappellee is not under any duty to maintain the contents
of the box. The stipulation absolving the defendantappellee 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 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. 13
Its motion for reconsideration 14 having been denied in the
respondent Court's Resolution of 28 August 1989, 15petitioner
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.

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; 19the 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.

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.

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.

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.

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

The petition is partly meritorious.

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 Act23 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
asdepositories 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 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. 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 safedeposit 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.
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.
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.

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

The factual backdrop of the case follow.

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

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
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

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
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.

rights administratively and judicially (Items II, III, IV,

V, VI, VII, VIII, and IX, Exh. "CC");

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

3. Ordering defendants, jointly and severally, to pay

plaintiff the sum of P500,000.00 as moral damages
(Item X, Exh. "CC");

After trial, the RTC of Manila rendered judgment in favor of

McLoughlin, the dispositive portion of which reads:

5. And ordering defendants, jointly and severally, to pay

litigation expenses in the sum of P200,000.00 (Item
XII, Exh. "CC");

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

4. Ordering defendants, jointly and severally, to pay

plaintiff the sum of P350,000.00 as exemplary damages
(Item XI, Exh. "CC");

6. Ordering defendants, jointly and severally, to pay

plaintiff 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 pretrial 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;
4) One-half of P152,683.57 or P76,341.785
representing 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;

7) One-half of P356,400.00 or P178,000.00

representing expenses for food and maintenance;

addressed to this Court is beyond the bounds of this mode of

review.

8) P50,000.00 for moral damages;

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.

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

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.

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.

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 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.

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

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 ofP308,880.80,
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 ofP152,683.57 or P76,341.785
representing payment to Echelon Tower;51 one-half
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;
(4) One-half of P152,683.57 or P76,341.785
representing 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;
(7) One-half of P356,400.00 or P178,200.00
representing 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.
[G.R. No. 160544. February 21, 2005]
TRIPLE-V vs. FILIPINO MERCHANTS
Quoted hereunder, for your information, is a resolution
of this Court dated FEB 21 2005.
G.R. No. 160544 (Triple-V Food Services, Inc. vs.
Filipino Merchants Insurance Company, Inc.)
Assailed in this petition for review on certiorari is
the decision[1] dated October 21, 2003 of the Court
of Appeals in CA-G.R. CV No. 71223, affirming an
earlier decision of the Regional Trial Court at Makati
City, Branch 148, in its Civil Case No. 98-838, an action
for damages thereat filed by respondent Filipino
Merchants Insurance, Company, Inc., against the
herein petitioner, Triple-V Food Services, Inc.
On March 2, 1997, at around 2:15 o'clock in the
afternoon, a certain Mary Jo-Anne De Asis (De Asis)
dined at petitioner's Kamayan Restaurant at 15 West
Avenue, Quezon City. De Asis was using a Mitsubishi
Galant Super Saloon Model 1995 with plate number
UBU 955, assigned to her by her employer Crispa
Textile Inc. (Crispa). On said date, De Asis availed of
the valet parking service of petitioner and entrusted
her car key to petitioner's valet counter. A
corresponding parking ticket was issued as receipt for
the car. The car was then parked by petitioner's valet
attendant, a certain Madridano, at the designated
parking area. Few minutes later, Madridano noticed
that the car was not in its parking slot and its key no
longer in the box where valet attendants usually keep
the keys of cars entrusted to them. The car was never
recovered. Thereafter, Crispa filed a claim against its
insurer,
herein
respondent
Filipino
Merchants

Insurance Company, Inc. (FMICI). Having indemnified

Crispa in the amount of P669.500 for the loss of the
subject vehicle, FMICI, as subrogee to Crispa's rights,
filed with the RTC at Makati City an action for damages
against petitioner Triple-V Food Services, Inc., thereat
docketed as Civil Case No. 98-838 which was raffled to
Branch 148.
In its answer, petitioner argued that the complaint
failed to aver facts to support the allegations of
recklessness and negligence committed in the
safekeeping and custody of the subject vehicle,
claiming that it and its employees wasted no time in
ascertaining the loss of the car and in informing De
Asis of the discovery of the loss. Petitioner further
argued that in accepting the complimentary valet
parking service, De Asis received a parking ticket
whereunder it is so provided that "[Management and
staff will not be responsible for any loss of or damage
incurred on the vehicle nor of valuables contained
therein", a provision which, to petitioner's mind, is an
explicit waiver of any right to claim indemnity for the
loss of the car; and that De Asis knowingly assumed
the risk of loss when she allowed petitioner to park her
vehicle, adding that its valet parking service did not
include extending a contract of insurance or warranty
for the loss of the vehicle.
During
trial,
petitioner
challenged
FMICI's
subrogation to Crispa's right to file a claim for the loss
of the car, arguing that theft is not a risk insured
against under FMICI's Insurance Policy No. PC-5975 for
the subject vehicle.
In a decision dated June 22, 2001, the trial court
rendered judgment for respondent FMICI, thus:

WHEREFORE, premises considered, judgment is hereby

rendered in favor of the plaintiff (FMICI) and against
the defendant Triple V (herein petitioner) and the latter
is hereby ordered to pay plaintiff the following:
1. The amount of P669,500.00, representing
actual damages plus compounded (sic);
2. The amount of P30,000.00 as acceptance
fee plus the amount equal to 25% of the
total amount due as attorney's fees;
3. The amount of P50,000.00 as exemplary
damages;
4. Plus, cost of suit.
Defendant Triple V is not therefore precluded from
taking appropriate action against defendant Armando
Madridano.
SO ORDERED.
Obviously displeased, petitioner appealed to the
Court of Appeals reiterating its argument that it was
not a depositary of the subject car and that it
exercised due diligence and prudence in the safe
keeping of the vehicle, in handling the car-napping
incident and in the supervision of its employees. It
further argued that there was no valid subrogation of
rights between Crispa and respondent FMICI.
In a decision dated October 21, 2003,[2] the
Court of Appeals dismissed petitioner's appeal and
affirmed the appealed decision of the trial court, thus:

WHEREFORE, based on the foregoing premises, the

instant appeal is hereby DISMISSED. Accordingly, the
assailed June 22, 2001 Decision of the RTC of Makati
City - Branch 148 in Civil Case No. 98-838
is AFFIRMED.
SO ORDERED.
In so dismissing the appeal and affirming the
appealed decision, the appellate court agreed with the
findings and conclusions of the trial court that: (a)
petitioner was a depositary of the subject vehicle; (b)
petitioner was negligent in its duties as a depositary
thereof and as an employer of the valet attendant; and
(c) there was a valid subrogation of rights between
Crispa and respondent FMICI.
Hence, petitioner's present recourse.
We agree with the two (2) courts below.
When De Asis entrusted the car in question to
petitioners
valet
attendant
while
eating
at
petitioner's Kamayan Restaurant, the former expected
the car's safe return at the end of her meal. Thus,
petitioner was constituted as a depositary of the same
car. Petitioner cannot evade liability by arguing that
neither a contract of deposit nor that of insurance,
guaranty or surety for the loss of the car was
constituted when De Asis availed of its free valet
parking service.
In a contract of deposit, a person receives an
object belonging to another with the obligation of
safely keeping it and returning the same.[3] A deposit
may be constituted even without any consideration. It
is not necessary that the depositary receives a fee

before it becomes obligated to keep the item entrusted

for safekeeping and to return it later to the depositor.
Specious is petitioner's insistence that the valet
parking claim stub it issued to De Asis contains a clear
exclusion of its liability and operates as an explicit
waiver by the customer of any right to claim indemnity
for any loss of or damage to the vehicle.
The parking claim stub embodying the terms and
conditions of the parking, including that of relieving
petitioner from any loss or damage to the car, is
essentially a contract of adhesion, drafted and
prepared as it is by the petitioner alone with no
participation whatsoever on the part of the customers,
like De Asis, who merely adheres to the printed
stipulations therein appearing. While contracts of
adhesion are not void in themselves, yet this Court will
not hesitate to rule out blind adherence thereto if they
prove to be one-sided under the attendant facts and
circumstances.[4]
Hence, and as aptly pointed out by the Court of
Appeals, petitioner must not be allowed to use its
parking claim stub's exclusionary stipulation as a
shield from any responsibility for any loss or damage
to vehicles or to the valuables contained therein. Here,
it is evident that De Asis deposited the car in question
with the petitioner as part of the latter's enticement
for customers by providing them a safe parking space
within the vicinity of its restaurant. In a very real
sense, a safe parking space is an added attraction to
petitioner's restaurant business because customers
are thereby somehow assured that their vehicle are
safely kept, rather than parking them elsewhere at
their own risk. Having entrusted the subject car to
petitioner's valet attendant, customer De Asis, like all
of petitioner's customers, fully expects the security of

her car while at petitioner's premises/designated

parking areas and its safe return at the end of her visit
at petitioner's restaurant.
Petitioner's argument that there was no valid
subrogation of rights between Crispa and FMICI
because theft was not a risk insured against under
FMICI's Insurance Policy No. PC-5975 holds no water.
Insurance Policy No. PC-5975 which respondent
FMICI issued to Crispa contains, among others things,
the following item: "Insured's Estimate of Value of
Scheduled Vehicle-P800.000".[5] On the basis of such
item, the trial court concluded that the coverage
includes a full comprehensive insurance of the vehicle
in case of damage or loss. Besides, Crispa paid a
premium of P10,304 to cover theft. This is clearly
shown in the breakdown of premiums in the same
policy.[6] Thus, having indemnified CRISPA for the
stolen car, FMICI, as correctly ruled by the trial court
and the Court of Appeals, was properly subrogated to
Crispa's rights against petitioner, pursuant to Article
2207 of the New Civil Code[7].
Anent the trial court's findings of negligence on the
part of the petitioner, which findings were affirmed by
the appellate court, we have consistently ruled that
findings of facts of trial courts, more so when affirmed,
as here, by the Court of Appeals, are conclusive on this
Court unless the trial court itself ignored, overlooked or
misconstrued facts and circumstances which, if
considered, warrant a reversal of the outcome of the
case.[8] This is not so in the case at bar. For, we have
ourselves reviewed the records and find no justification
to deviate from the trial court's findings.
WHEREFORE,
COURSE.

petition

is

hereby

DENIED

DUE

SO ORDERED.

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.
For review is the Decision1 of the Court of Appeals (CA) in
CA-G.R. CV No. 86869, which affirmed the decision2of 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 Adjusters-Appraisers [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 toP120,000.00.
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.
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.6A 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 pre-trial
brief, is mandatory, nay, their duty. Thus, Section 4 and Section
6 thereof provide:
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 pretrial, 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, thirty-two
(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.
Former Chief Justice Andres R. Narvasas words continue to
resonate, thus:
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 non-suited
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 find no error
in the following disquisition of the appellate court:
[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

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.

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:

We disagree.

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

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.

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.
G.R. No. L-15763

December 22, 1961

NATIONAL POWER CORPORATION, petitioner,

vs.
HON. JESUS DE VEYRA, as Judge of the Court of First
Instance of Baguio City and the CITY OF
BAGUIO,respondents.

the acts of said defendants relative to the garnishment of the

cash deposits with the defendant Philippine National Bank, be
declared illegal, that said defendants be permanently restrained
from performing acts in furtherance of the said garnishment,
and that they be ordered to pay damages.

Petitioner asks this Court to annul and set aside the preliminary
mandatory injunction issued by the above respondent judge; to
declare the respondent Court of First Instance of Baguio City to
be without jurisdiction to try its Civil Case No. 868, and to
require said court to dismiss it.

On the same date, June 12, 1959, above respondent court of

Baguio City issued a preliminary mandatory injunction
ordering above petitioner corporation, the Philippine National
Bank, the Sheriff and others acting in their behalf to restore and
maintain the status quo of respondent corporation's bank
deposits.

The record bear out the following facts:

On March 31, 1959, the Court of First Instance of Manila, in its
Civil Case No. 36525, rendered a decision ordering the City of
Baguio to pay the National Power Corporation various sums of
money totalling P240,000.00 representing the unpaid electric
charges, and rentals for the lease of two generators, etc. The
aforesaid decision having become final, the court of Manila
granted on June 4, 1959, the National Power Corporation's
motion for execution. A writ was issued, addressed to the
Sheriff of Baguio City to levy execution on the property of
above respondent Baguio City to satisfy the judgment. Such
Sheriff, in compliance with the writ, garnished on June 8, 1959,
the amount of P239,589.80 out of the cash deposits of Baguio
City in the possession of the Baguio Branch of the Philippine
National Bank.
Whereupon on June 12, 1959, Baguio City filed against herein
petitioner National Power Corporation, the Philippine National
Bank and the said Sheriff, in the Court of First Instance of
Baguio City, a complaint (Civil Case No. 866) praying that all

Above petitioner's motions for reconsideration of the

mandatory preliminary injunction and for dismissal of the said
Civil Case No. 866 on the alleged grounds of lack of
jurisdiction over the subject-matter and lack of cause of action,
were denied.
Consequently, the instant petition for certiorari was filed.
The question raised is whether or not property which has been
levied upon in a garnishment proceedings by one court, may be
subject to the jurisdiction of another court (where the property
is found) in an independent suit impugning the legality of said
garnishment the property garnished allegedly being exempt
from execution.
The garnishment of property to satisfy a writ of execution
"operates as an attachment and fastens upon the property a lien
by which the property is brought under the jurisdiction of the
court issuing the writ."1 It is brought into custodia legis, under
the sole control of such court. Property is in the custody of the

court when it has been seized by an officer either under a writ

of attachment on mesne process or under a writ of
execution.2 A court which has control of such property,
exercises exclusive jurisdiction over same.3 No court, except
one having a supervisory control or superior jurisdiction in the
premises, has a right to interfere with and change that
possession. 4
We have followed and applied this principle of procedure.
Thereby conflict of power is avoided between different courts
of coordinate jurisdiction. We have invariably held that no
court has authority to interfere by injunction on with the
judgments or decrees of a court of concurrent or coordinate
jurisdiction having equal power to grant the relief sought by
injunction. 5
The property involved in Civil Case No. 866, is property
in custodia legis of the Court of First Instance of Manila, it
having been garnished to satisfy a writ of execution duly issued
by the said court. Respondent Baguio court should not have
interfered with the Manila court's jurisdiction by issuing the
writ of preliminary injunction and assuming cognizance of the
complaint presented before it.
The reason advanced by the respondent court of Baguio City
that it should grant relief when "there is apparently an illegal
service of the writ" (the property garnished being allegedly
exempt from execution) may not be upheld, there being a better
procedure to follow, i.e., a resort to the Manila court, wherein
the remedy may be obtained, it being the court under whose
authority the illegal levy had been made. Needless to say, an
effective ordering of legal relationships in civil society is
possible only when each court is granted exclusive jurisdiction

over the property brought to it. To allow coordinate courts to

interfere with each other's judgments or decrees by injunctions,
would obviously lead to confusion and might seriously hinder
the proper administration of justice.6lawphil.net
Premises considered, the preliminary mandatory injunction
issued by respondent court is set aside, even as further
proceedings in Civil Case No. 866 are hereby enjoined. So
ordered.

&/OR MRS SH
acknowledged (
you today the su
THREE THOU
(US$3,000.00)
Received by:

(Sgd.) VIRGIL
GARCIAIt was
alleged in the co
that despite dem
bank refuseIn it
COMTRUST a
the US$3,000 w
credited to Zsho
peso current acc
prevailing conv
rates.It must be
emphasized tha
COMTRUST d

specifically under oath the

authenticity and due
execution of the above
instrument.During trial, it
was established that on
December 8, 1975
Zshornack indeed
delivered to the bank US
$3,000 for safekeeping.
When he requested the
return of the money on
May 10, 1976,
COMTRUST explained
that the sum was disposed
of in this manner:
US$2,000.00 was sold on
December 29, 1975 and
the peso proceeds
amounting to P14,920.00
were deposited to
Zshornack's current
account per deposit slip
accomplished by Garcia;
the remaining
US$1,000.00 was sold on
February 3, 1976 and the
peso proceeds amounting
to P8,350.00 were
deposited to his current
account per deposit slip
also accomplished bia.