ASSOCIATED

BANK
(Now
WESTMONT
vs. VICENTE HENRY TAN, respondent.

BANK), petitioner,

DECISION
PANGANIBAN, J.:

While banks are granted by law the right to debit the value of a dishonored check
from a depositors account, they must do so with the highest degree of care, so as not to
prejudice the depositor unduly.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing
the January 27, 2003 Decision of the Court of Appeals (CA) in CA-GR CV No.
56292. The CA disposed as follows:
[1]

[2]

WHEREFORE, premises considered, the Decision dated December 3, 1996, of

the Regional Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in Civil Case
No. 892-AF is herebyAFFIRMED. Costs against the [petitioner].
[3]

The Facts
The CA narrated the antecedents as follows:
Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the
Associated Bank (hereinafter referred to as the BANK). Sometime in September 1990, he
deposited a postdated UCPB check with the said BANK in the amount of P101,000.00 issued to
him by a certain Willy Cheng from Tarlac. The check was duly entered in his bank record
thereby making his balance in the amount of P297,000.00, as of October 1, 1990, from his
original deposit of P196,000.00. Allegedly, upon advice and instruction of the BANK that
the P101,000.00 check was already cleared and backed up by sufficient funds, TAN, on the same
date, withdrew the sum of P240,000.00, leaving a balance of P57,793.45. A day after, TAN
deposited the amount of P50,000.00 making his existing balance in the amount of P107,793.45,
because he has issued several checks to his business partners, to wit:
CHECK NUMBERS DATE AMOUNT
a. 138814 Sept. 29, 1990 P9,000.00
b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00

e. 167054 Sept. 29, 1990 4,093.40

f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00
However, his suppliers and business partners went back to him alleging that the checks he issued
bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the BANK to
take positive steps regarding the matter for he has adequate and sufficient funds to pay the
amount of the subject checks. Nonetheless, the BANK did not bother nor offer any apology
regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for Damages on
December 19, 1990, with the Regional Trial Court of Cabanatuan City, Third Judicial Region,
docketed as Civil Case No. 892-AF, against the BANK, as defendant.
In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the subject
checks and alleged that his suppliers decreased in number for lack of trust. As he has been in the
business community for quite a time and has established a good record of reputation and probity,
plaintiff claimed that he suffered embarrassment, humiliation, besmirched reputation, mental
anxieties and sleepless nights because of the said unfortunate incident. [Respondent] further
averred that he continuously lost profits in the amount of P250,000.00. [Respondent] therefore
prayed for exemplary damages and that [petitioner] be ordered to pay him the sum
of P1,000,000.00 by way of moral damages, P250,000.00 as lost profits, P50,000.00 as attorneys
fees plus 25% of the amount claimed including P1,000.00 per court appearance.
Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same was denied
for lack of merit in an Order dated March 7, 1991. Thereafter, [petitioner] BANK on March 20,
1991 filed its Answer denying, among others, the allegations of [respondent] and alleged that no
banking institution would give an assurance to any of its client/depositor that the check deposited
by him had already been cleared and backed up by sufficient funds but it could only presume that
the same has been honored by the drawee bank in view of the lapse of time that ordinarily takes
for a check to be cleared. For its part, [petitioner] alleged that on October 2, 1990, it gave notice
to the [respondent] as to the return of his UCPB check deposit in the amount of P101,000.00,
hence, on even date, [respondent] deposited the amount of P50,000.00 to cover the returned
check.
By way of affirmative defense, [petitioner] averred that [respondent] had no cause of action
against it and argued that it has all the right to debit the account of the [respondent] by reason of
the dishonor of the check deposited by the [respondent] which was withdrawn by him prior to its
clearing. [Petitioner] further averred that it has no liability with respect to the clearing of
deposited checks as the clearing is being undertaken by the Central Bank and in accepting [the]
check deposit, it merely obligates itself as depositors collecting agent subject to actual payment
by the drawee bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the
amount of P1,000,000.00 by way of loss of goodwill, P7,000.00 as acceptance fee plus P500.00
per appearance and by way of attorneys fees.

Considering that Westmont Bank has taken over the management of the affairs/properties of the
BANK, [respondent] on October 10, 1996, filed an Amended Complaint reiterating substantially
his allegations in the original complaint, except that the name of the previous defendant
ASSOCIATED BANK is now WESTMONT BANK.
Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in favor of
the [respondent] and against the [petitioner], ordering the latter to pay the [respondent] the sum
of P100,000.00 by way of moral damages, P75,000.00 as exemplary damages, P25,000.00 as
attorneys fees, plus the costs of this suit. In making said ruling, it was shown that [respondent]
was not officially informed about the debiting of the P101,000.00 [from] his existing balance and
that the BANK merely allowed the [respondent] to use the fund prior to clearing merely for
accommodation because the BANK considered him as one of its valued clients. The trial court
ruled that the bank manager was negligent in handling the particular checking account of the
[respondent] stating that such lapses caused all the inconveniences to the [respondent]. The trial
court also took into consideration that [respondents] mother was originally maintaining with the
x x x BANK [a] current account as well as [a] time deposit, but [o]n one occasion, although his
mother made a deposit, the same was not credited in her favor but in the name of another.
[4]

Petitioner appealed to the CA on the issues of whether it was within its rights, as
collecting bank, to debit the account of its client for a dishonored check; and whether it
had informed respondent about the dishonor prior to debiting his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not have authorized the
withdrawal of the value of the deposited check prior to its clearing. Having done so,
contrary to its obligation to treat respondents account with meticulous care, the bank
violated its own policy. It thereby took upon itself the obligation to officially inform
respondent of the status of his account before unilaterally debiting the amount
of P101,000. Without such notice, it is estopped from blaming him for failing to fund his
account.
The CA opined that, had the P101,000 not been debited, respondent would have
had sufficient funds for the postdated checks he had issued. Thus, the supposed
accommodation accorded by petitioner to him is the proximate cause of his business
woes and shame, for which it is liable for damages.
Because of the banks negligence, the CA awarded respondent moral damages
of P100,000. It also granted him exemplary damages of P75,000 and attorneys fees
of P25,000.
Hence this Petition.

[5]

Issue

In its Memorandum, petitioner raises the sole issue of whether or not the petitioner,
which is acting as a collecting bank, has the right to debit the account of its client for a
check deposit which was dishonored by the drawee bank.
[6]

The Courts Ruling

The Petition has no merit.
Sole Issue:
Debit of Depositors Account
Petitioner-bank contends that its rights and obligations under the present set of
facts were misappreciated by the CA. It insists that its right to debit the amount of the
dishonored check from the account of respondent is clear and unmistakable. Even
assuming that it did not give him notice that the check had been dishonored, such right
remains immediately enforceable.
In particular, petitioner argues that the check deposit slip accomplished by
respondent on September 17, 1990, expressly stipulated that the bank was obligating
itself merely as the depositors collecting agent and -- until such time as actual payment
would be made to it -- it was reserving the right to charge against the depositors
account any amount previously credited. Respondent was allowed to withdraw the
amount of the check prior to clearing, merely as an act of accommodation, it added.
At the outset, we stress that the trial courts factual findings that were affirmed by the
CA are not subject to review by this Court. As petitioner itself takes no issue with those
findings, we need only to determine the legal consequence, based on the established
facts.
[7]

Right of Setoff
A bank generally has a right of setoff over the deposits therein for the payment of
any withdrawals on the part of a depositor. The right of a collecting bank to debit a
clients account for the value of a dishonored check that has previously been credited
has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil
Code provides that [f]ixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
[8]

Hence, the relationship between banks and depositors has been held to be that of
creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code
may take place when all the requisites mentioned in Article 1279 are present, as
follows:
[9]

[10]

[11]

(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.
[12]

Nonetheless, the real issue here is not so much the right of petitioner to debit
respondents account but, rather, the manner in which it exercised such right. The Court
has held that even while the right of setoff is conceded, separate is the question of
whether that remedy has properly been exercised.
[13]

The liability of petitioner in this case ultimately revolves around the issue of whether
it properly exercised its right of setoff. The determination thereof hinges, in turn, on the
banks role and obligations, first, as respondents depositary bank; and second, as
collecting agent for the check in question.
Obligation as
Depositary Bank
In BPI v. Casa Montessori, the Court has emphasized that the banking business is
impressed with public interest. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are even required of it. By
the nature of its functions, a bank is under obligation to treat the accounts of its
depositors with meticulous care.
[14]

[15]

Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of
Appeals has held that the degree of diligence required of banks is more than that of a
good father of a family where the fiduciary nature of their relationship with their
depositors is concerned. Indeed, the banking business is vested with the trust and
confidence of the public; hence the appropriate standard of diligence must be very high,
if not the highest, degree of diligence. The standard applies, regardless of whether the
account consists of only a few hundred pesos or of millions.
[16]

[17]

[18]

[19]

The fiduciary nature of banking, previously imposed by case law, is now enshrined
in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 of the law
specifically says that the State recognizes the fiduciary nature of banking that requires
high standards of integrity and performance.
[20]

Did petitioner treat respondents account with the highest degree of care? From all
indications, it did not.
It is undisputed -- nay, even admitted -- that purportedly as an act of
accommodation to a valued client, petitioner allowed the withdrawal of the face value of
the deposited check prior to its clearing. That act certainly disregarded the clearance

requirement of the banking system. Such a practice is unusual, because a check is not
legal tender or money; and its value can properly be transferred to a depositors
account only after the check has been cleared by the drawee bank.
[21]

[22]

Under ordinary banking practice, after receiving a check deposit, a

bank either immediately credit the amount to a depositors account; or infuse value to
that account only after the drawee bank shall have paid such amount. Before
the check shall have been cleared for deposit, the collecting bank can only assume at
its own risk -- as herein petitioner did -- that the check would be cleared and paid out.
[23]

Reasonable business practice and prudence, moreover, dictated that petitioner

should not have authorized the withdrawal by respondent of P240,000 on October 1,
1990, as this amount was over and above his outstanding cleared balance
of P196,793.45. Hence, the lower courts correctly appreciated the evidence in his
favor.
[24]

Obligation as
Collecting Agent
Indeed, the bank deposit slip expressed this reservation:
In receiving items on deposit, this Bank obligates itself only as the Depositors Collecting agent,
assuming no responsibility beyond carefulness in selecting correspondents, and until such time
as actual payments shall have come to its possession, this Bank reserves the right to charge back
to the Depositors account any amounts previously credited whether or not the deposited item is
returned. x x x."
[25]

However, this reservation is not enough to insulate the bank from any liability. In the
past, we have expressed doubt about the binding force of such conditions unilaterally
imposed by a bank without the consent of the depositor. It is indeed arguable that in
signing the deposit slip, the depositor does so only to identify himself and not to agree
to the conditions set forth at the back of the deposit slip.
[26]

[27]

Further, by the express terms of the stipulation, petitioner took upon itself certain
obligations as respondents agent, consonant with the well-settled rule that the
relationship between the payee or holder of a commercial paper and the collecting bank
is that of principal and agent. Under Article 1909 of the Civil Code, such bank could
be held liable not only for fraud, but also for negligence.
[28]

[29]

As a general rule, a bank is liable for the wrongful or tortuous acts and declarations
of its officers or agents within the course and scope of their employment. Due to the
very nature of their business, banks are expected to exercise the highest degree of
diligence in the selection and supervision of their employees. Jurisprudence has
established that the lack of diligence of a servant is imputed to the negligence of the
employer, when the negligent or wrongful act of the former proximately results in an
injury to a third person; in this case, the depositor.
[30]

[31]

[32]

The manager of the banks Cabanatuan branch, Consorcia Santiago, categorically

admitted that she and the employees under her control had breached bank
policies. They admittedly breached those policies when, without clearance from the
drawee bank in Baguio, they allowed respondent to withdraw on October 1, 1990, the
amount of the check deposited. Santiagotestified that respondent was not officially
informed about the debiting of the P101,000 from his existing balance of P170,000
on October 2, 1990 x x x.
[33]

Being the branch manager, Santiago clearly acted within the scope of her authority
in authorizing the withdrawal and the subsequent debiting without notice. Accordingly,
what remains to be determined is whether her actions proximately caused respondents
injury. Proximate cause is that which -- in a natural and continuous sequence, unbroken
by any efficient intervening cause --produces the injury, and without which the result
would not have occurred.
[34]

Let us go back to the facts as they unfolded. It is undeniable that the banks
premature authorization of the withdrawal by respondent on October 1, 1990, triggered
-- in rapid succession and in a natural sequence -- the debiting of his account, the fall of
his account balance to insufficient levels, and the subsequent dishonor of his own
checks for lack of funds. The CA correctly noted thus:
x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that his money
was already cleared. Without such advice, [respondent] would not have withdrawn the sum
of P240,000.00.Therefore, it cannot be denied that it was [petitioners] fault which allowed
[respondent] to withdraw a huge sum which he believed was already his.
To emphasize, it is beyond cavil that [respondent] had sufficient funds for the check. Had
the P101,000.00 not [been] debited, the subject checks would not have been dishonored. Hence,
we can say that [respondents] injury arose from the dishonor of his well-funded checks. x x x.
[35]

Aggravating matters, petitioner failed to show that it had immediately and duly
informed respondent of the debiting of his account. Nonetheless, it argues that the
giving of notice was discernible from his act of depositing P50,000 on October 2, 1990,
to augment his account and allow the debiting. This argument deserves short shrift.
First, notice was proper and ought to be expected. By the bank managers account,
respondent was considered a valued client whose checks had always been sufficiently
funded from 1987 to 1990, until the October imbroglio. Thus, he deserved nothing less
than an official notice of the precarious condition of his account.
[36]

Second, under the provisions of the Negotiable Instruments Law regarding the
liability of a general indorser and the procedure for a notice of dishonor, it was
incumbent on the bank to give proper notice to respondent. In Gullas v. National Bank,
the Court emphasized:
[37]

[38]

[39]

x x x [A] general indorser of a negotiable instrument engages that if the instrument the check in
this case is dishonored and the necessary proceedings for its dishonor are duly taken, he will pay
the amount thereof to the holder (Sec. 66) It has been held by a long line of authorities that notice

of dishonor is necessary to charge an indorser and that the right of action against him does not
accrue until the notice is given.
x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and
without waiting for any action by Gullas, the bank made use of the money standing in his
account to make good for the treasury warrant. At this point recall that Gullas was merely an
indorser and had issued checks in good faith. As to a depositor who has funds sufficient to meet
payment of a check drawn by him in favor of a third party, it has been held that he has a right of
action against the bank for its refusal to pay such a check in the absence of notice to him that the
bank has applied the funds so deposited in extinguishment of past due claims held against
him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) However this may be, as to an
indorser the situation is different, and notice should actually have been given him in order that
he might protect his interests.
[40]

Third, regarding the deposit of P50,000 made by respondent on October 2, 1990,

we fully subscribe to the CAs observations that it was not unusual for a well-reputed
businessman like him, who ordinarily takes note of the amount of money he takes and
releases, to immediately deposit money in his current account to answer for the
postdated checks he had issued.
[41]

Damages
Inasmuch as petitioner does not contest the basis for the award of damages and
attorneys fees, we will no longer address these matters.
WHEREFORE,
the
Petition
Decision AFFIRMED. Costs against petitioner.

is DENIED and

the

assailed

SO ORDERED.
Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concur.
Corona, J., on leave.

[1]

Rollo, pp. 18-42.

[2]

Penned by Justice Mercedes Gozo-Dadole and concurred in by Justices B. A. Adefuin de la Cruz (then
Chairman, Ninth Division) and Mariano C. del Castillo.

[3]

CA Decision, p. 9; rollo, p. 92.

[4]

Id., pp. 2-4 & 85-87. Citations omitted.

[5]

The Petition was deemed submitted for decision on December 1, 2003, upon the courts receipt of
respondents Memorandum signed by Atty. Cesar R. Villar. Petitioners Memorandum, signed by
Atty. Edgardo G. Villarin, was received by the Court on November 5, 2003.

[6]

Petitioners Memorandum, p. 8; rollo, p. 121.

[7]

Aclon v. CA, 436 Phil. 219, 230, August 20, 2002; Reyes v. CA & Far East Bank and Trust Company,
415 Phil. 258, 267, August 15, 2001; W-Red Construction and Development Corporation v. CA,
392 Phil. 888, 894, August 17, 2000.

[8]

Gullas v. National Bank, 62 Phil. 519, 521, November 13, 1935.

[9]

Consolidated Bank & Trust Corporation v. CA, 410 SCRA 562, 574, September 11, 2003; Guingona
Jr. v. City Fiscal of Manila, 128 SCRA 577, 584, April 4, 1984; Serrano v. Central Bank of the
Phils., 96 SCRA 96, 102-103, February 14, 1980.

[10]

Article 1278 provides:

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors
of each other. (See also Bank of the Philippine Islands v. CA, 325 Phil. 930, 938-939, March 29,
1996.)
[11]

Article 1290 of the Civil Code.

[12]

Article 1279 of the Civil Code.

[13]

Gullas v. National Bank; supra, p. 522.

[14]

GR No. 149454, May 28, 2004.

[15]

Id., per Panganiban, J.

[16]

336 Phil. 667, March 14, 1997 (cited in Reyes v. CA & Far East Bank and Trust Company; supra, p.
269.)

[17]

Id., p. 681, per Hermosisima Jr., J. See also Consolidated Bank & Trust Corporation v. CA; supra, pp.
574-575.

[18]

Philippine Commercial International Bank v. CA, 350 SCRA 446, 472, January 29, 2001, per
Quisumbing, J (citing Simex International (Manila), Inc. v. CA, 183 SCRA 360, 367, March 19,
1990).

[19]

Prudential Bank v. CA, 384 Phil. 817, 825, March 16, 2000; Philippine National Bank v. CA, 373 Phil.
942, 948, September 28, 1999; Simex International v. CA, supra; BPI v. Intermediate Appellate
Court, 206 SCRA 408, 412-413, February 21, 1992.

[20]

Simex International v. CA, supra; BPI v. IAC, supra; Metropolitan Bank & Trust Co. v. CA, 237 SCRA
761, 767, October 26, 1994.

[21]

Philippine Airlines, Inc. v. CA, 181 SCRA 557, 568, January 30, 1990.

[22]

Roman Catholic Bishop of Malolos, Inc. v. IAC, 191 SCRA 411, 422, November 16, 1990 (cited in Bank
of the Philippine Islands v. CA, 383 Phil. 538, 547, February 29, 2000).

[23]

Bank of the Philippine Islands v. CA; supra, p. 554 (citing Banco Atlantico v. Auditor General, 81 SCRA
335, 340-341, January 31, 1978).

[24]

This amount was computed based on the bank ledger which was submitted as Annex A of
Respondents Complaint; rollo, p. 48.

[25]

Petitioners (then Defendant-Appellants) Brief to the CA, pp. 5-6; rollo, pp. 62-63.

[26]

Metropolitan Bank & Trust Company v. CA, 194 SCRA 169, 175, February 18, 1991.

[27]

Ibid.

[28]

Philippine Commercial International Bank v. CA; supra, p. 466.

[29]

Art. 1909 of the Civil Code provides:

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged with
more or less rigor by the courts, according to whether the agency was or was not for
compensation.
[30]

Philippine Commercial International Bank v. CA; supra at p. 470; Producers Bank of the Philippines
(Now First International Bank) v. CA, 397 SCRA 651, 663, February 19, 2003. Article 2180 of the
Civil Code, which embodies this principle, provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions,
but also for those of persons for whom one is demandable.
xxxxxxxxx
Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business
or industry.
[31]

Philippine Commercial International Bank v. CA; supra, p. 472.

[32]

Id., p. 464; BPI v. Casa Montessori Internationale; supra.

[33]

RTC Decision, p. 4; rollo, p. 77.

[34]

BPI v. Casa Montessori Internationale; supra, p. 26.

[35]

CA Decision, pp. 7-8; rollo, pp. 90-91.

[36]

RTC Decision, p. 3; id., p. 76.

[37]

66 of the Negotiable Instruments Law provides:

Sec. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all
subsequent holders in due course:
xxxxxxxxx
And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case
may be, according to its tenor, and that if it be dishonored and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent
indorser who may be compelled to pay it.
[38]

The procedure as to the manner and the time of giving notice is outlined under 89-118 of the said
law. 89, in particular, provides as follows:

Sec. 89. To whom notice of dishonor must be given. Except as herein otherwise provided, when a
negotiable instrument has been dishonored by non-acceptance or non-payment, notice of
dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom
such notice is not given is discharged.
[39]

Supra.

[40]

Id., pp. 521-522, per Malcolm, J

[41]

CA Decision, p. 7; rollo, p. 90.

DIGEST

FACTS: Respondent Tan is a businessman and a regular depositor-creditor of the petitioner,

Associated Bank. Sometime in September 1990, he deposited a postdated check with the
petitioner in the amount of P101,000 issued to him by a certain Willy Cheng from Tarlac. The
check was duly entered in his bank record. Allegedly, upon advice and instruction of
petitioner that theP101,000 check was already cleared and backed up by sufficient funds,
respondent, on the same date, withdrew the sum of P240,000 from his account leaving a
balance of P57,793.45. A day after, TAN deposited the amount of P50,000 making his
existing balance in the amount of P107,793.45, because he has issued several checks to his
business partners. However, his suppliers and business partners went back to him alleging
that the checks he issued bounced for insufficiency of funds. Thereafter, respondent
informed petitioner to take positive steps regarding the matter for he has adequate and
sufficient funds to pay the amount of the subject checks. Nonetheless, petitioner did not
bother nor offer any apology regarding the incident. Respondent Tan filed a Complaint for
Damages on December 19, 1990, with the RTC against petitioner. The trial court rendered a
decision in favor of respondent and ordered petitioner to pay damages and attorneys fees.
Appellate court affirmed the lower courts decision. CA ruled that the bank should not have
authorized the withdrawal of the value of the deposited check prior to its clearing. Petitioner
filed a Petition for Review before the Supreme Court.

ISSUE: W/N petitioner has the right to debit the amount of the dishonored check from the
account of respondent on the ground that the check was withdrawn by respondent prior to
its clearing

HELD: The Petition has no merit. The real issue here is not so much the right of petitioner to
debit respondents account but, rather, the manner in which it exercised such right. Banks
are granted by law the right to debit the value of a dishonored check from a depositors
account but they must do so with the highest degree of care, so as not to prejudice the
depositor unduly. The degree of diligence required of banks is more than that of a good
father of a family where the fiduciary nature of their relationship with their depositors is
concerned. In this case, petitioner did not treat respondents account with the highest
degree of care. Respondent withdrew his money upon the advice of petitioner that his
money was already cleared. It is petitioners premature authorization of the withdrawal that
caused the respondents account balance to fall to insufficient levels, and the subsequent
dishonor of his own checks for lack of funds.

PRODUCERS
BANK
OF
THE
PHILIPPINES
(now
FIRST
INTERNATIONAL BANK), petitioner, vs. HON. COURT OF
APPEALS AND FRANKLIN VIVES,respondents.
DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision of the Court of Appeals
dated June 25, 1991 in CA-G.R. CV No. 11791 and of its Resolution dated May 5,
1994, denying the motion for reconsideration of said decision filed by petitioner
Producers Bank of the Philippines.
[1]

[2]

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor
and friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in
incorporating his business, the Sterela Marketing and Services (Sterela for
brevity). Specifically, Sanchez asked private respondent to deposit in a bank a certain
amount of money in the bank account of Sterela for purposes of its incorporation. She
assured private respondent that he could withdraw his money from said account within
a months time. Private respondent asked Sanchez to bring Doronilla to their house so
that they could discuss Sanchezs request.
[3]

On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella

Dumagpi, Doronillas private secretary, met and discussed the matter. Thereafter, relying
on the assurances and representations of Sanchez and Doronilla, private respondent
issued a check in the amount of Two Hundred Thousand Pesos (P200,000.00) in favor
of Sterela. Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany
Doronilla and Sanchez in opening a savings account in the name of Sterela in the
Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez,
Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them an
authorization letter from Doronilla authorizing Sanchez and her companions, in
coordination with Mr. Rufo Atienza, to open an account for Sterela Marketing Services in
the amount of P200,000.00. In opening the account, the authorized signatories were
Inocencia Vives and/or Angeles Sanchez. A passbook for Savings Account No. 10-1567
was thereafter issued to Mrs. Vives.
[4]

Subsequently, private respondent learned that Sterela was no longer holding office
in the address previously given to him. Alarmed, he and his wife went to the Bank to
verify if their money was still intact. The bank manager referred them to Mr. Rufo
Atienza, the assistant manager, who informed them that part of the money in Savings
Account No. 10-1567 had been withdrawn by Doronilla, and that only P90,000.00
remained therein. He likewise told them that Mrs. Vives could not withdraw said
remaining amount because it had to answer for some postdated checks issued by

Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings Account
No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and authorized
the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover
overdrawings in Current Account No. 10-0320. In opening said current account, Sterela,
through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment
thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza
also said that Doronilla could assign or withdraw the money in Savings Account No. 101567 because he was the sole proprietor of Sterela.
[5]

Private respondent tried to get in touch with Doronilla through Sanchez. On June
29, 1979, he received a letter from Doronilla, assuring him that his money was intact
and would be returned to him. On August 13, 1979, Doronilla issued a postdated check
for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of private
respondent. However, upon presentment thereof by private respondent to the drawee
bank, the check was dishonored. Doronilla requested private respondent to present the
same check on September 15, 1979 but when the latter presented the check, it was
again dishonored.
[6]

Private respondent referred the matter to a lawyer, who made a written demand
upon Doronilla for the return of his clients money. Doronilla issued another check
for P212,000.00 in private respondents favor but the check was again dishonored for
insufficiency of funds.
[7]

Private respondent instituted an action for recovery of sum of money in the Regional
Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and
petitioner. The case was docketed as Civil Case No. 44485. He also filed criminal
actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez
passed away on March 16, 1985 while the case was pending before the trial court. On
October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case
No. 44485, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants

Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay
plaintiff Franklin Vives jointly and severally
(a) the amount of P200,000.00, representing the money deposited, with interest at the
legal rate from the filing of the complaint until the same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary
damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.

[8]

Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision
dated June 25, 1991, the appellate court affirmed in toto the decision of the RTC. It
likewise denied with finality petitioners motion for reconsideration in its Resolution dated
May 5, 1994.
[9]

[10]

On June 30, 1994, petitioner filed the present petition, arguing that
I.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE

TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND
RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;
II.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT

PETITIONERS BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH
THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be
PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER
SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;
III.

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE

RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE
JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL
TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;
IV.

THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE

CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745,
UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED
BY AN EMPLOYEE IS APPLICABLE;
V.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE

DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS
JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR
THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS
ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR
EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE
COSTS OF SUIT.
[11]

Private respondent filed his Comment on September 23, 1994. Petitioner filed its
Reply thereto on September 25, 1995. The Court then required private respondent to
submit a rejoinder to the reply. However, said rejoinder was filed only on April 21, 1997,
due to petitioners delay in furnishing private respondent with copy of the reply and
several substitutions of counsel on the part of private respondent. On January 17,
2001, the Court resolved to give due course to the petition and required the parties to
submit their respective memoranda. Petitioner filed its memorandum on April 16, 2001
while private respondent submitted his memorandum on March 22, 2001.
[12]

[13]

[14]

Petitioner contends that the transaction between private respondent and Doronilla is
a simple loan (mutuum) since all the elements of a mutuum are present: first, what was
delivered by private respondent to Doronilla was money, a consumable thing; and
second, the transaction was onerous as Doronilla was obliged to pay interest, as
evidenced by the check issued by Doronilla in the amount of P212,000.00, or P12,000
more than what private respondent deposited in Sterelas bank account. Moreover, the
fact that private respondent sued his good friend Sanchez for his failure to recover his
money from Doronilla shows that the transaction was not merely gratuitous but had a
business angle to it. Hence, petitioner argues that it cannot be held liable for the return
of private respondents P200,000.00 because it is not privy to the transaction between
the latter and Doronilla.
[15]

[16]

It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be
faulted for allowing Doronilla to withdraw from the savings account of Sterela since the
latter was the sole proprietor of said company. Petitioner asserts that Doronillas May 8,
1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a
savings account for Sterela, did not contain any authorization for these two to withdraw
from said account. Hence, the authority to withdraw therefrom remained exclusively with
Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the
savings account. Petitioner points out that no evidence other than the testimonies of
private respondent and Mrs. Vives was presented during trial to prove that private
respondent deposited his P200,000.00 in Sterelas account for purposes of its
incorporation. Hence, petitioner should not be held liable for allowing Doronilla to
withdraw from Sterelas savings account.
[17]

[18]

Petitioner also asserts that the Court of Appeals erred in affirming the trial courts
decision since the findings of fact therein were not accord with the evidence presented
by petitioner during trial to prove that the transaction between private respondent and
Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to
withdraw from Sterelas savings account.
[19]

Finally, petitioner claims that since there is no wrongful act or omission on its part, it
is not liable for the actual damages suffered by private respondent, and neither may it
be held liable for moral and exemplary damages as well as attorneys fees.
[20]

Private respondent, on the other hand, argues that the transaction between him and
Doronilla is not a mutuum but an accommodation, since he did not actually part with
the ownership of his P200,000.00 and in fact asked his wife to deposit said amount in
the account of Sterela so that a certification can be issued to the effect that Sterela had
sufficient funds for purposes of its incorporation but at the same time, he retained some
[21]

degree of control over his money through his wife who was made a signatory to the
savings account and in whose possession the savings account passbook was given.
[22]

He likewise asserts that the trial court did not err in finding that petitioner, Atienzas
employer, is liable for the return of his money. He insists that Atienza, petitioners
assistant manager, connived with Doronilla in defrauding private respondent since it
was Atienza who facilitated the opening of Sterelas current account three days after
Mrs. Vives and Sanchez opened a savings account with petitioner for said company, as
well as the approval of the authority to debit Sterelas savings account to cover any
overdrawings in its current account.
[23]

There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be raised in a
petition for review filed with this Court. The Court has repeatedly held that it is not its
function to analyze and weigh all over again the evidence presented by the parties
during trial. The Courts jurisdiction is in principle limited to reviewing errors of law that
might have been committed by the Court of Appeals. Moreover, factual findings of
courts, when adopted and confirmed by the Court of Appeals, are final and conclusive
on this Court unless these findings are not supported by the evidence on record. There
is no showing of any misapprehension of facts on the part of the Court of Appeals in the
case at bar that would require this Court to review and overturn the factual findings of
that court, especially since the conclusions of fact of the Court of Appeals and the trial
court are not only consistent but are also amply supported by the evidence on record.
[24]

[25]

[26]

No error was committed by the Court of Appeals when it ruled that the transaction
between private respondent and Doronilla was a commodatum and not a mutuum. A
circumspect examination of the records reveals that the transaction between them was
a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of
loans in this wise:

By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in
which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However, there are

some instances where a commodatum may have for its object a consumable
thing. Article 1936 of the Civil Code provides:

Consumable goods may be the subject of commodatum if the purpose of the contract
is not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods
returned at the end of the period agreed upon, the loan is a commodatum and not
a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract. In case of doubt, the
contemporaneous and subsequent acts of the parties shall be considered in such
determination.
[27]

[28]

As correctly pointed out by both the Court of Appeals and the trial court, the
evidence shows that private respondent agreed to deposit his money in the savings
account of Sterela specifically for the purpose of making it appear that said firm had
sufficient capitalization for incorporation, with the promise that the amount shall be
returned within thirty (30) days. Private respondent merely accommodated Doronilla by
lending his money without consideration, as a favor to his good friend Sanchez. It was
however clear to the parties to the transaction that the money would not be removed
from Sterelas savings account and would be returned to private respondent after thirty
(30) days.
[29]

Doronillas attempts to return to private respondent the amount of P200,000.00

which the latter deposited in Sterelas account together with an additional P12,000.00,
allegedly representing interest on the mutuum, did not convert the transaction from
a commodatum into a mutuum because such was not the intent of the parties and
because the additionalP12,000.00 corresponds to the fruits of the lending of
the P200,000.00. Article 1935 of the Civil Code expressly states that [t]he bailee
in commodatum acquires the use of the thing loaned but not its fruits. Hence, it was only
proper for Doronilla to remit to private respondent the interest accruing to the latters
money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable
for the return of private respondents money because it was not privy to the transaction
between Doronilla and private respondent. The nature of said transaction, that is,
whether it is a mutuum or a commodatum, has no bearing on the question of petitioners
liability for the return of private respondents money because the factual circumstances
of the case clearly show that petitioner, through its employee Mr. Atienza, was partly
responsible for the loss of private respondents money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives
on behalf of Sterela for Savings Account No. 10-1567 expressly states that

2. Deposits and withdrawals must be made by the depositor personally or upon his
written authority duly authenticated, and neither a deposit nor a withdrawal will be
permitted except upon the production of the depositor savings bank book in
which will be entered by the Bank the amount deposited or withdrawn.
[30]

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza,

the Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw
therefrom even without presenting the passbook (which Atienza very well knew was in
the possession of Mrs. Vives), not just once, but several times. Both the Court of
Appeals and the trial court found that Atienza allowed said withdrawals because he was
party to Doronillas scheme of defrauding private respondent:

XXX
But the scheme could not have been executed successfully without the knowledge,
help and cooperation of Rufo Atienza, assistant manager and cashier of the Makati
(Buendia) branch of the defendant bank.Indeed, the evidence indicates that Atienza
had not only facilitated the commission of the fraud but he likewise helped in devising
the means by which it can be done in such manner as to make it appear that the
transaction was in accordance with banking procedure.
To begin with, the deposit was made in defendants Buendia branch precisely because
Atienza was a key officer therein. The records show that plaintiff had suggested that
the P200,000.00 be deposited in his bank, the Manila Banking Corporation, but
Doronilla and Dumagpi insisted that it must be in defendants branch in Makati for it
will be easier for them to get a certification. In fact before he was introduced
toplaintiff, Doronilla had already prepared a letter addressed to the Buendia branch
manager authorizing Angeles B. Sanchez and company to open a savings account for
Sterela in the amount of P200,000.00, as per coordination with Mr. Rufo Atienza,
Assistant Manager of the Bank x x x (Exh. 1). This is a clear manifestation that the
other defendants had been in consultation with Atienza from the inception of the
scheme. Significantly, there were testimonies and admission that Atienza is the
brother-in-law of a certain Romeo Mirasol, a friend and business associate of
Doronilla.
Then there is the matter of the ownership of the fund. Because of the coordination
between Doronilla and Atienza, the latter knew before hand that the money deposited
did not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was
explicitly told by Inocencia Vives that the money belonged to her and her husband and
the deposit was merely to accommodate Doronilla. Atienza even declared that the
money came from Mrs. Vives.

Although the savings account was in the name of Sterela, the bank records disclose
that the only ones empowered to withdraw the same were Inocencia Vives and
Angeles B. Sanchez. In the signature card pertaining to this account (Exh. J), the
authorized signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated
that it is the usual banking procedure that withdrawals of savings deposits could only
be made by persons whose authorized signatures are in the signature cards on file with
the bank. He, however, said that this procedure was not followed here because Sterela
was owned by Doronilla. He explained that Doronilla had the full authority to
withdraw by virtue of such ownership. The Court is not inclined to agree with
Atienza. In the first place, he was all the time aware that the money came from Vives
and did not belong to Sterela. He was also told by Mrs. Vives that they were only
accommodating Doronilla so that a certification can be issued to the effect that Sterela
had a deposit of so much amount to be sued in the incorporation of the firm. In the
second place, the signature of Doronilla was not authorized in so far as that account is
concerned inasmuch as he had not signed the signature card provided by the bank
whenever a deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had
given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been
presented. It is an accepted practice that whenever a withdrawal is made in a savings
deposit, the bank requires the presentation of the passbook. In this case, such
recognized practice was dispensed with. The transfer from the savings account to the
current account was without the submission of the passbook which Atienza had given
to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella
Dumagpi that a duplicate passbook was issued to Sterela because the original
passbook had been surrendered to the Makati branch in view of a loan
accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly
had a hand in the execution of this certification, was aware that the contents of the
same are not true. He knew that the passbook was in the hands of Mrs. Vives for he
was the one who gave it to her. Besides, as assistant manager of the branch and the
bank official servicing the savings and current accounts in question, he also was aware
that the original passbook was never surrendered. He was also cognizant that Estrella
Dumagpi was not among those authorized to withdraw so her certification had no
effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate
that Atienzas active participation in the perpetration of the fraud and deception that
caused the loss. The records indicate that this account was opened three days later
after the P200,000.00 was deposited. In spite of his disclaimer, the Court believes that
Atienza was mindful and posted regarding the opening of the current account
considering that Doronilla was all the while in coordination with him. That it was he

who facilitated the approval of the authority to debit the savings account to cover any
overdrawings in the current account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of
this case. x x x.
[31]

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily
liable for damages caused by their employees acting within the scope of their assigned
tasks. To hold the employer liable under this provision, it must be shown that an
employer-employee relationship exists, and that the employee was acting within the
scope of his assigned task when the act complained of was committed. Case law in
the United States of America has it that a corporation that entrusts a general duty to its
employee is responsible to the injured party for damages flowing from the employees
wrongful act done in the course of his general authority, even though in doing such act,
the employee may have failed in its duty to the employer and disobeyed the latters
instructions.
[32]

[33]

There is no dispute that Atienza was an employee of petitioner. Furthermore,

petitioner did not deny that Atienza was acting within the scope of his authority as
Assistant Branch Manager when he assisted Doronilla in withdrawing funds from
Sterelas Savings Account No. 10-1567, in which account private respondents money
was deposited, and in transferring the money withdrawn to Sterelas Current Account
with petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner, were
obviously done in furtherance of petitioners interests even though in the process,
Atienza violated some of petitioners rules such as those stipulated in its savings
account passbook. It was established that the transfer of funds from Sterelas savings
account to its current account could not have been accomplished by Doronilla without
the invaluable assistance of Atienza, and that it was their connivance which was the
cause of private respondents loss.
[34]

[35]

The foregoing shows that the Court of Appeals correctly held that under Article 2180
of the Civil Code, petitioner is liable for private respondents loss and is solidarily liable
with Doronilla and Dumagpi for the return of the P200,000.00 since it is clear that
petitioner failed to prove that it exercised due diligence to prevent the unauthorized
withdrawals from Sterelas savings account, and that it was not negligent in the selection
and supervision of Atienza. Accordingly, no error was committed by the appellate court
in the award of actual, moral and exemplary damages, attorneys fees and costs of suit
to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and
Resolution of the Court of Appeals are AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur.

[1]

Justice Asaali S. Isnani, Ponente, with Justices Rodolfo A. Nocon, Presiding Justice, and Antonio M.
Martinez, concurring.

[2]

Rollo, pp. 54-55.

[3]

Id. at 37.

[4]

Ibid.

[5]

Id. at 37-38.

[6]

Id. at 38.

[7]

Id.

[8]

Id. at 63.

[9]

Id. at 35-47.

[10]

Id. at 54-55.

[11]

Id. at 18-19.

[12]

Id. at 148, 181.

[13]

Id. at 176, 199.

[14]

Id. at 227.

[15]

Id. at 21.

[16]

Id. at 22.

[17]

Id. at 24-27.

[18]

Id. at 23.

[19]

Id. at 28.

[20]

Rollo, Petitioners Memorandum, pp. 13-14.

[21]

Id. at 11-12.

[22]

Rollo, p. 75; Private respondents Memorandum, pp. 8-9.

[23]

Id. at 75-77; Id. at 12-16.

[24]

Flores v. Uy, G.R. No. 121492, October 26, 2001; Lim v. People, G.R. No. 143231, October 26, 2001.

[25]

Section 1, Rule 45, Revised Rules of Civil Procedure.

[26]

Baas, Jr. v. Court of Appeals, 325 SCRA 259 (2000); Philippine National Construction Corporation v.
Mars Construction Enterprises, Inc., 325 SCRA 624 (2000).

[27]

Tanguilig v. Court of Appeals, 266 SCRA 78, 83-84 (1997), citing Kasilag v. Rodriguez, 69 Phil. 217;
17A Am Jur 2d 27 Contracts, 5, citing Wallace Bank & Trust Co. v. First National Bank, 40 Idaho
712, 237 P 284, 50 ALR 316.

[28]

Tanguilig v. Court of Appeals, supra, p. 84.

[29]

Rollo, pp. 40-41, 60.

[30]

Exhibit B, Folder of Exhibits, p. 3, emphasis supplied.

[31]

Rollo, pp. 43-47, citing the Decision of the Regional Trial Court, pp. 5-8.

[32]

Castilex Industrial Corporation v. Vasquez, Jr., 321 SCRA 393 (1999).

[33]

18B Am Jur 2d, p. 947, Corporations 2125, citing Pittsburgh, C.C. & S.L.R. Co. v. Sullivan, 40 NE 138.

[34]

See note 31.

[35]

Exhibit B, Folder of Exhibits, p. 3.

DIGEST

Credit - 6 Producers Bank of the Philippines vs CA (2003) Doctrine: Facts: Vives (will be the
creditor in this case) was asked by his friend Sanchez to help the latters friend, Doronilla (will
be the debtor in this case) in incorporating Doronillas business Strela . This
help basically involved Vives depositing a certain amount of money in Strela s bank
account for purposes of incorporation (rationale: Doronilla had to show that he had sufficient funds
for incorporation). This amount shall later be returned to Vives. Relying on the assurances and
representations of Sanchez and Doronilla, Vives issued a check of P200,00 in favor of Strela and
deposited the same into Strelas newly-opened bank account (the passbook was given to the
wife of Vives and the passbook had an instruction that no withdrawals/deposits will be allowed
unless the passbook is presented). Later on, Vives learned that Strela was no longer holding
office in the address previously given to him. He later found out that the funds had already been
withdrawn leaving only a balance of P90,000. The Vives spouses tried to withdraw the amount, but it
was unable to since the balance had to answer for certain postdated checks issued by Doronilla.
Doronilla made various tenders of check in favor of Vives in order to pay his debt. All of which were
dishonored. Hence, Vives filed an action for recovery of sum against Doronilla, Sanchez,
Dumagpi and Producers Bank. TC & CA: ruled in favor of Vives.

Issue/s: (1) WON the transaction is a commodatum or a mutuum. COMMODATUM. (2) WON the
fact that there is an additional P 12,000 (allegedly representing interest) in the amount to be returned
to Vives converts the transaction from commodatum to mutuum. NO. (3) WON Producer s Bank
is solidarily liable to Vives, considering that it was not privy to the transaction between Vives and
Doronilla. YES.

Held/Ratio: (1) The transaction is a commodatum. CC 1933 (the provision distinguishing between
the two kinds of loans) seem to imply that if the subject of the contract is a consummable thing, such
as money, the contract would be a mutuum. However, there are instances when a commodatum
may have for its object a consummable thing. Such can be found in CC 1936 which states that
consummable goods may be the subject of commodatum if the purpose of the contract is not
the consumption of the object, as when it is merely for exhibition . In this case, the intention of the
parties was merely for exhibition. Vives agreed to deposit his money in Strela s account
specifically for purpose of making it appear that Streal had sufficient capitalization for incorporation,
with the promise that the amount should be returned withing 30 days. (2) CC 1935 states that
the bailee in commodatum acquires the use of the thing loaned but not its fruits . In this
case, the additional P 12,000 corresponds to the fruits of the lending of the P 200,000. (3) Atienza,
the Branch Manager of Producers Bank, allowed the withdrawals on the account of Strela
despite the rule written in the passbook that neither a deposit, nor a withdrawal will be permitted

except upon the production of the passbook (recall in this case that the passbook was in the
possession of the wife of Vives all along). Hence, this only proves to show that Atienza allowed the
withdrawals because he was party to Doronillas scheme of defrauding Vives. By virtue of CC
2180, PNB, as employer, is held primarily and solidarily liable for damages caused by their
employees acting within the scope of their assigned tasks. Atienzas acts, in helpong Doronilla,
a customer of the bank, were obviously done in furtherance of the business of the bank, even though
in the process, Atienza violated some rules.
JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph Goyanko, Sr., Petitioner,
vs.
UNITED COCONUT PLANTERS BANK, MANGO AVENUE BRANCH, Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed by petitioner Joseph Goyanko, Jr., administrator
of the Estate of Joseph Goyanko, Sr., to nullify the decision2 dated February 20, 2007 and the
resolution3 dated July 31, 2007 of the Court of Appeals (CA) in CA-G.R. CV. No. 00257 affirming the
decision4 of the Regional Trial Court of Cebu City, Branch 16(RTC) in Civil Case No. CEB-22277.
The RTC dismissed the petitioners complaint for recovery of sum money against United Coconut
Planters Bank, Mango Avenue Branch (UCPB).
The Factual Antecedents
In 1995, the late Joseph Goyanko, Sr. (Goyanko) invested Two Million Pesos (P2,000,000.00) with
Philippine Asia Lending Investors, Inc. family, represented by the petitioner, and his illegitimate
family presented conflicting claims to PALII for the release of the investment. Pending the
investigation of the conflicting claims, PALII deposited the proceeds of the investment with UCPB on
October 29, 19965 under the name "Phil Asia: ITF (In Trust For) The Heirs of Joseph Goyanko,
Sr." (ACCOUNT). On September 27, 1997, the deposit under the ACCOUNT was P1,509,318.76.
On December 11, 1997, UCPB allowed PALII to withdraw One Million Five Hundred Thousand
Pesos (P1,500,000.00) from the Account, leaving a balance of only P9,318.76. When UCPB refused
the demand to restore the amount withdrawn plus legal interest from December 11, 1997, the
petitioner filed a complaint before the RTC. In its answer to the complaint, UCPB admitted, among
others, the opening of the ACCOUNT under the name "ITF (In Trust For) The Heirs of Joseph
Goyanko, Sr.," (ITF HEIRS) and the withdrawal on December 11, 1997.
The RTC Ruling
In its August 27, 2003 decision, the RTC dismissed the petitioners complaint and awarded UCPB
attorneys fees, litigation expenses and the costs of the suit.6 The RTC did not consider the words
"ITF HEIRS" sufficient to charge UCPB with knowledge of any trust relation between PALII and
Goyankos heirs (HEIRS). It concluded that UCPB merely performed its duty as a depository bank in
allowing PALII to withdraw from the ACCOUNT, as the contract of deposit was officially only between
PALII, in its own capacity, and UCPB. The petitioner appealed his case to the CA.
The CAs Ruling

Before the CA, the petitioner maintained that by opening the ACCOUNT, PALII established a trust
by which it was the "trustee" and the HEIRS are the "trustors-beneficiaries;" thus, UCPB
should be liable for allowing the withdrawal.
The CA partially granted the petitioners appeal. It affirmed the August 27, 2003 decision of the RTC,
but deleted the award of attorneys fees and litigation expenses. The CA held that no express trust
was created between the HEIRS and PALII. For a trust to be established, the law requires, among
others, a competent trustor and trustee and a clear intention to create a trust, which were absent in
this case. Quoting the RTC with approval, the CA noted that the contract of deposit was only
between PALII in its own capacity and UCPB, and the words "ITF HEIRS" were insufficient to
establish the existence of a trust. The CA concluded that as no trust existed, expressly or impliedly,
UCPB is not liable for the amount withdrawn.7
In its July 31, 2007 resolution,8 the CA denied the petitioners motion for reconsideration. Hence, the
petitioners present recourse.
The Petition
The petitioner argues in his petition that: first, an express trust was created, as clearly shown by
PALIIs March 28, 1996 and November 15, 1996 letters.9 Citing jurisprudence, the petitioner
emphasizes that from the established definition of a trust, 10 PALII is clearly the trustor as it created
the trust; UCPB is the trustee as it is the party in whom confidence is reposed as regards the
property for the benefit of another; and the HEIRS are the beneficiaries as they are the persons for
whose benefit the trust is created.11 Also, quoting Development Bank of the Philippines v.
Commission on Audit,12 the petitioner argues that the naming of the cestui que trust is not necessary
as it suffices that they are adequately certain or identifiable. 13
Second, UCPB was negligent and in bad faith in allowing the withdrawal and in failing to inquire into
the nature of the ACCOUNT.14 The petitioner maintains that the surrounding facts, the testimony of
UCPBs witness, and UCPBs own records showed that: (1) UCPB was aware of the trust relation
between PALII and the HEIRS; and (2) PALII held the ACCOUNT in a trust capacity. Finally, the CA
erred in affirming the RTCs dismissal of his case for lack of cause of action. The petitioner insists
that since an express trust clearly exists, UCPB, the trustee, should not have allowed the withdrawal.
The Case for UCPB
UCPB posits, in defense, that the ACCOUNT involves an ordinary deposit contract between PALII
and UCPB only, which created a debtor-creditor relationship obligating UCPB to return the proceeds
to the account holder-PALII. Thus, it was not negligent in handling the ACCOUNT when it allowed
the withdrawal. The mere designation of the ACCOUNT as "ITF" is insufficient to establish the
existence of an express trust or charge it with knowledge of the relation between PALII and the
HEIRS.
UCPB also argues that the petitioner changed the theory of his case. Before the CA, the petitioner
argued that the HEIRS are the trustors-beneficiaries, and PALII is the trustee. Here, the petitioner
maintains that PALII is the trustor, UCPB is the trustee, and the HEIRS are the beneficiaries.
Contrary to the petitioners assertion, the records failed to show that PALII and UCPB executed a
trust agreement, and PALIIs letters made it clear that PALII, on its own, intended to turn-over the
proceeds of the ACCOUNT to its rightful owners.

The Courts Ruling

The issue before us is whether UCPB should be held liable for the amount withdrawn because a
trust agreement existed between PALII and UCPB, in favor of the HEIRS, when PALII opened the
ACCOUNT with UCPB.
We rule in the negative.
We first address the procedural issues. We stress the settled rule that a petition for review
on certiorari under Rule 45 of the Rules of Court resolves only questions of law, not questions of
fact.15 A question, to be one of law, must not examine the probative value of the evidence presented
by the parties;16 otherwise, the question is one of fact.17 Whether an express trust exists in this case
is a question of fact whose resolution is not proper in a petition under Rule 45. Reinforcing this is the
equally settled rule that factual findings of the lower tribunals are conclusive on the parties and are
not generally reviewable by this Court,18 especially when, as here, the CA affirmed these findings.
The plain reason is that this Court is not a trier of facts.19 While this Court has, at times, permitted
exceptions from the restriction,20 we find that none of these exceptions obtain in the present case.
Second, we find that the petitioner changed the theory of his case. The petitioner argued before the
lower courts that an express trust exists between PALII as the trustee and the HEIRS as the trustorbeneficiary.21 The petitioner now asserts that the express trust exists between PALII as the trustor
and UCPB as the trustee, with the HEIRS as the beneficiaries.22 At this stage of the case, such
change of theory is simply not allowed as it violates basic rules of fair play, justice and due process.
Our rulings are clear - "a party who deliberately adopts a certain theory upon which the case was
decided by the lower court will not be permitted to change [it] on appeal"; 23otherwise, the lower
courts will effectively be deprived of the opportunity to decide the merits of the case fairly.24Besides,
courts of justice are devoid of jurisdiction to resolve a question not in issue. 25 For these reasons, the
petition must fail. Independently of these, the petition must still be denied.
No express trust exists; UCPB exercised the required diligence in handling the ACCOUNT;
petitioner has no cause of action against UCPB
A trust, either express or implied,26 is the fiduciary relationship "x x x between one person having an
equitable ownership of property and another person owning the legal title to such property, the
equitable ownership of the former entitling him to the performance of certain duties and the exercise
of certain powers by the latter."27Express or direct trusts are created by the direct and positive acts of
the trustor or of the parties.28 No written words are required to create an express trust. This is clear
from Article 1444 of the Civil Code,29 but, the creation of an express trust must be firmly shown; it
cannot be assumed from loose and vague declarations or circumstances capable of other
interpretations.30
In Rizal Surety & Insurance Co. v. CA,31 we laid down the requirements before an express trust will
be recognized:
Basically, these elements include a competent trustor and trustee, an ascertainable trust res,
and sufficiently certain beneficiaries. xxx each of the above elements is required to be
established, and, if any one of them is missing, it is fatal to the trusts (sic). Furthermore,
there must be a present and complete disposition of the trust property, notwithstanding that
the enjoyment in the beneficiary will take place in the future. It is essential, too, that the purpose

be an active one to prevent trust from being executed into a legal estate or interest, and one that is
not in contravention of some prohibition of statute or rule of public policy. There must also be some
power of administration other than a mere duty to perform a contract although the contract is
for a thirdparty beneficiary. A declaration of terms is essential, and these must be stated with
reasonable certainty in order that the trustee may administer, and that the court, if called upon
so to do, may enforce, the trust. [emphasis ours]
Under these standards, we hold that no express trust was created. First, while an ascertainable
trust res and sufficiently certain beneficiaries may exist, a competent trustor and trustee do
not. Second, UCPB, as trustee of the ACCOUNT, was never under any equitable duty to deal with or
given any power of administration over it. On the contrary, it was PALII that undertook the duty to
hold the title to the ACCOUNT for the benefit of the HEIRS.Third, PALII, as the trustor, did not have
the right to the beneficial enjoyment of the ACCOUNT. Finally, the terms by which UCPB is to
administer the ACCOUNT was not shown with reasonable certainty. While we agree with the
petitioner that a trusts beneficiaries need not be particularly identified for a trust to exist, the
intention to create an express trust must first be firmly established, along with the other
elements laid above; absent these, no express trust exists.
Contrary to the petitioners contention, PALIIs letters and UCPBs records established UCPBs
participation as a mere depositary of the proceeds of the investment. In the March 28, 1996 letter,
PALII manifested its intention to pursue an active role in and up to the turnover of those proceeds to
their rightful owners,32 while in the November 15, 1996 letter, PALII begged the petitioner to trust it
with the safekeeping of the investment proceeds and documents.33 Had it been PALIIs intention to
create a trust in favor of the HEIRS, it would have relinquished any right or claim over the proceeds
in UCPBs favor as the trustee. As matters stand, PALII never did.
UCPBs records and the testimony of UCPBs witness34 likewise lead us to the same conclusion.
While the words "ITF HEIRS" may have created the impression that a trust account was created, a
closer scrutiny reveals that it is an ordinary savings account. 35 We give credence to UCPBs
explanation that the word "ITF" was merely used to distinguish the ACCOUNT from PALIIs other
accounts with UCPB. A trust can be created without using the word "trust" or "trustee," but the mere
use of these words does not automatically reveal an intention to create a trust. 36If at all, these words
showed a trustee-beneficiary relationship between PALII and the HEIRS.
Contrary to the petitioners position, UCPB did not become a trustee by the mere opening of the
ACCOUNT. While this may seem to be the case, by reason of the fiduciary nature of the banks
relationship with its depositors,37 this fiduciary relationship does not "convert the contract between
the bank and its depositors from a simple loan to a trust agreement, whether express or implied." 38 It
simply means that the bank is obliged to observe "high standards of integrity and performance" in
complying with its obligations under the contract of simple loan. 39 Per Article 1980 of the Civil
Code,40 a creditor-debtor relationship exists between the bank and its depositor.41 The savings
deposit agreement is between the bank and the depositor; 42 by receiving the deposit, the bank
impliedly agrees to pay upon demand and only upon the depositors order.43
1wphi1

Since the records and the petitioners own admission showed that the ACCOUNT was opened by
PALII, UCPBs receipt of the deposit signified that it agreed to pay PALII upon its demand and only
upon its order. Thus, when UCPB allowed PALII to withdraw from the ACCOUNT, it was merely
performing its contractual obligation under their savings deposit agreement. No negligence or bad
faith44 can be imputed to UCPB for this action. As far as UCPB was concerned, PALII is the account

holder and not the HEIRS. As we held in Falton Iron Works Co. v. China Banking Corporation.45 the
banks duty is to its creditor-depositor and not to third persons. Third persons, like the HEIRS here,
who may have a right to the money deposited, cannot hold the bank responsible unless there is a
court order or garnishment.46 The petitioners recourse is to go before a court of competent
jurisdiction to prove his valid right over the money deposited.
In these lights, we find the third assignment of error mooted. A cause of action requires that there be
a right existing in favor of the plaintiff, the defendants obligation to respect that right, and an act or
omission of the defendant in breach of that right.47 We reiterate that UCPBs obligation was towards
PALII as its creditor-depositor. While the HEIRS may have a valid claim over the proceeds of the
investment, the obligation to turn-over those proceeds lies with PALII. Since no trust exists the
petitioners complaint was correctly dismissed and the CA did not commit any reversible error in
affirming the RTC decision. One final note, the burden to prove the existence of an express trust lies
with the petitioner.48 For his failure to discharge this burden, the petition must fail.
WHEREFORE, in view of these considerations, we hereby DENY the petition and AFFIRM the
decision dated February 20, 2007 and the resolution dated July 31, 2007 of the Court of Appeals in
CA-G.R. CV. No. 00257. Costs against the petitioner.
SO ORDERED:
ARTURO D. BRION
Associate Justice
WE CONCUR:

BANK
OF
PHILIPPINEISLANDS,

THE G.R. No. 136202

Petitioner,

Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.

- versus -

COURT
OF
APPEALS,
ANNABELLE A. SALAZAR, and
JULIO R. TEMPLONUEVO,
Respondents.

Promulgated:
January 25, 2007

x-----------------------------------------------------------------------------------------x

DECISION
AZCUNA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the
reversal of the Decision[1] dated April 3, 1998, and the Resolution[2] dated
November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241.
The facts[3] are as follows:

A.A. Salazar Construction and Engineering Services filed an action for a sum
of money with damages against herein petitioner Bank of the Philippine Islands
(BPI) on December 5, 1991 before Branch 156 of the Regional Trial Court (RTC)
of Pasig City. The complaint was later amended by substituting the name of
Annabelle A. Salazar as the real party in interest in place of A.A. Salazar
Construction and Engineering Services. Private respondent Salazar prayed for the
recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred
Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from
her account. She likewise prayed for damages and attorneys fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R.
Templonuevo,
third-party
defendant
and
herein
also
a
private
respondent, demanded from the former payment of the amount of Two Hundred
Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos
(P267,692.50) representing the aggregate value of three (3) checks, which were
allegedly payable to him, but which were deposited with the petitioner bank to
private respondent Salazars account (Account No. 0203-1187-67) without his
knowledge and corresponding endorsement.
Accepting that Templonuevos claim was a valid one, petitioner BPI froze
Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering
Services, instead of Account No. 0203-1187-67 where the checks were deposited,
since this account was already closed by private respondent Salazar or had an
insufficient balance.

Private respondent Salazar was advised to settle the matter with

Templonuevo but they did not arrive at any settlement. As it appeared that private
respondent Salazar was not entitled to the funds represented by the checks which
were deposited and accepted for deposit, petitioner BPI decided to debit the amount
of P267,707.70 from her Account No. 0201-0588-48 and the sum of P267,692.50
was paid to Templonuevo by means of a cashiers check. The difference between the
value of the checks (P267,692.50) and the amount actually debited from her
account (P267,707.70) represented bank charges in connection with the issuance of
a cashiers check to Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo
admitted the payment to him of P267,692.50 and argued that said payment was to
correct the malicious deposit made by private respondent Salazar to her private
account, and that petitioner banks negligence and tolerance regarding the matter
was violative of the primary and ordinary rules of banking. He likewise contended
that the debiting or taking of the reimbursed amount from the account of private
respondent Salazar by petitioner BPI was a matter exclusively between said parties
and may be pursuant to banking rules and regulations, but did not in any way affect
him. The debiting from another account of private respondent Salazar, considering
that her other account was effectively closed, was not his concern.
After trial, the RTC rendered a decision, the dispositive portion of which
reads thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff [private respondent Salazar] and against the defendant [petitioner
BPI] and ordering the latter to pay as follows:
1.
2.
3.
4.
5.

The amount of P267,707.70 with 12% interest thereon

from September 16, 1991 until the said amount is fully paid;
The amount of P30,000.00 as and for actual damages;
The amount of P50,000.00 as and for moral damages;
The amount of P50,000.00 as and for exemplary damages;
The amount of P30,000.00 as and for attorneys fees; and

6.

Costs of suit.

The counterclaim is hereby ordered DISMISSED for lack of factual basis.

The third-party complaint [filed by petitioner] is hereby likewise ordered
DISMISSED for lack of merit.
Third-party defendants [i.e., private respondent Templonuevos]
counterclaim is hereby likewise DISMISSED for lack of factual basis.
SO ORDERED.[4]

On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and
held that respondent Salazar was entitled to the proceeds of the three (3) checks
notwithstanding the lack of endorsement thereon by the payee. The CA concluded
that Salazar and Templonuevo had previously agreed that the checks payable to
JRT Construction and Trading[5] actually belonged to Salazar and would be
deposited to her account, with petitioner acquiescing to the arrangement.[6]
Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in misinterpreting Section 49 of
the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New
Rules on Evidence.
II.
The Court of Appeals committed reversible error in NOT applying the provisions
of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.
III.
The Court of Appeals committed a reversible error in holding, based on a
misapprehension of facts, that the account from which BPI debited the amount
of P267,707.70 belonged to a corporation with a separate and distinct personality.
IV.
The Court of Appeals committed a reversible error in holding, based entirely on
speculations, surmises or conjectures, that there was an agreement between
SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO
may be deposited by SALAZAR to her personal account and that BPI was privy
to this agreement.
V.

The Court of Appeals committed reversible error in holding, based entirely on

speculation, surmises or conjectures, that SALAZAR suffered great damage and
prejudice and that her business standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the decision of the
lower court against BPI and dismissing SALAZARs complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court
dismissing the third-party complaint of BPI.[7]

The issues center on the propriety of the deductions made by petitioner from
private respondent Salazars account. Stated otherwise, does a collecting bank, over
the objections of its depositor, have the authority to withdraw unilaterally from
such depositors account the amount it had previously paid upon certain unendorsed
order instruments deposited by the depositor to another account that she later
closed?
Petitioner argues thus:
1.

There is no presumption in law that a check payable to order, when

found in the possession of a person who is neither a payee nor the
indorsee thereof, has been lawfully transferred for value. Hence, the
CA should not have presumed that Salazar was a transferee for value
within the contemplation of Section 49 of the Negotiable Instruments
Law,[8] as the latter applies only to a holder defined under Section
191of the same.[9]

2.

Salazar failed to adduce sufficient evidence to prove that her

possession of the three checks was lawful despite her allegations that
these checks were deposited pursuant to a prior internal arrangement
with Templonuevo and that petitioner was privy to the arrangement.

3.

The CA should have applied the Civil Code provisions on legal

compensation because in deducting the subject amount from Salazars
account, petitioner was merely rectifying the undue payment it made
upon the checks and exercising its prerogative to alter or modify an
erroneous credit entry in the regular course of its business.

4.

The debit of the amount from the account of A.A. Salazar

Construction and Engineering Services was proper even though the
value of the checks had been originally credited to the personal
account of Salazar because A.A. Salazar Construction and
Engineering Services, an unincorporated single proprietorship, had no
separate and distinct personality from Salazar.

5.

Assuming the deduction from Salazars account was improper, the CA

should not have dismissed petitioners third-party complaint against
Templonuevo because the latter would have the legal duty to return to
petitioner the proceeds of the checks which he previously received
from it.

6.

There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.

First, the issue raised by petitioner requires an inquiry into the factual
findings made by the CA. The CAs conclusion that the deductions from the bank
account of A.A. Salazar Construction and Engineering Services were improper
stemmed from its finding that there was no ineffective payment to Salazar which
would call for the exercise of petitioners right to set off against the formers bank
deposits. This finding, in turn, was drawn from the pleadings of the parties, the

evidence adduced during trial and upon the admissions and stipulations of fact
made during the pre-trial, most significantly the following:
(a)
(1)
(2)
(3)

That Salazar previously had in her possession the following checks:

Solid Bank Check No. CB766556 dated January 30, 1990 in the amount
of P57,712.50;
Solid Bank Check No. CB898978 dated July 31, 1990 in the amount
of P55,180.00; and,
Equitable Banking Corporation Check No. 32380638 dated August 28,
1990 for the amount of P154,800.00;

(b)
That these checks which had an aggregate amount of P267,692.50
were payable to the order of JRT Construction and Trading, the name and style
under which Templonuevo does business;
(c)
That despite the lack of endorsement of the designated payee upon
such checks, Salazar was able to deposit the checks in her personal savings account
with petitioner and encash the same;
(d)
That petitioner accepted and paid the checks on three (3) separate
occasions over a span of eight months in 1990; and
(e)
That Templonuevo only protested the purportedly unauthorized
encashment of the checks after the lapse of one year from the date of the last
check.[10]
Petitioner concedes that when it credited the value of the checks to the
account of private respondent Salazar, it made a mistake because it failed to notice
the lack of endorsement thereon by the designated payee. The CA, however, did
not lend credence to this claim and concluded that petitioners actions were
deliberate, in view of its admission that the mistake was committed three times on

three separate occasions, indicating acquiescence to the internal arrangement

between Salazar and Templonuevo. The CA explained thus:
It was quite apparent that the three checks which appellee Salazar
deposited were not indorsed. Three times she deposited them to her account and
three times the amounts borne by these checks were credited to the same. And in
those separate occasions, the bank did not return the checks to her so that she
could have them indorsed. Neither did the bank question her as to why she was
depositing the checks to her account considering that she was not the payee
thereof, thus allowing us to come to the conclusion that defendant-appellant BPI
was fully aware that the proceeds of the three checks belong to appellee.
For if the bank was not privy to the agreement between Salazar and
Templonuevo, it is most unlikely that appellant BPI (or any bank for that matter)
would have accepted the checks for deposit on three separate times nary any
question. Banks are most finicky over accepting checks for deposit without the
corresponding indorsement by their payee. In fact, they hesitate to accept indorsed
checks for deposit if the depositor is not one they know very well.[11]

The CA likewise sustained Salazars position that she received the checks
from Templonuevo pursuant to an internal arrangement between them, ratiocinating
as follows:
If there was indeed no arrangement between Templonuevo and the plaintiff
over the three questioned checks, it baffles us why it was only on August 31,
1991 or more than a year after the third and last check was deposited that he
demanded for the refund of the total amount of P267,692.50.
A prudent man knowing that payment is due him would have demanded
payment by his debtor from the moment the same became due and demandable.
More so if the sum involved runs in hundreds of thousand of pesos. By and large,
every person, at the very moment he learns that he was deprived of a thing which
rightfully belongs to him, would have created a big fuss. He would not have
waited for a year within which to do so. It is most inconceivable that Templonuevo
did not do this.[12]

Generally, only questions of law may be raised in an appeal

by certiorari under Rule 45 of the Rules of Court.[13] Factual findings of the CA are
entitled to great weight and respect, especially when the CA affirms the factual
findings of the trial court.[14] Such questions on whether certain items of evidence

should be accorded probative value or weight, or rejected as feeble or spurious, or

whether or not the proofs on one side or the other are clear and convincing and
adequate to establish a proposition in issue, are questions of fact. The same holds
true for questions on whether or not the body of proofs presented by a party,
weighed and analyzed in relation to contrary evidence submitted by the adverse
party may be said to be strong, clear and convincing, or whether or not
inconsistencies in the body of proofs of a party are of such gravity as to justify
refusing to give said proofs weight all these are issues of fact which are not
reviewable by the Court.[15]
This rule, however, is not absolute and admits of certain exceptions, namely:
a) when the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; b) when the inference made is manifestly mistaken, absurd, or
impossible; c) when there is a grave abuse of discretion; d) when the judgment is
based on a misapprehension of facts; e) when the findings of fact are conflicting; f)
when the CA, in making its findings, went beyond the issues of the case and the
same are contrary to the admissions of both appellant and appellee; g) when the
findings of the CA are contrary to those of the trial court; h) when the findings of
fact are conclusions without citation of specific evidence on which they are based;
i) when the finding of fact of the CA is premised on the supposed absence of
evidence but is contradicted by the evidence on record; and j) when the CA
manifestly overlooked certain relevant facts not disputed by the parties and which,
if properly considered, would justify a different conclusion.[16]
In the present case, the records do not support the finding made by the CA
and the trial court that a prior arrangement existed between Salazar and
Templonuevo regarding the transfer of ownership of the checks. This fact is crucial
as Salazars entitlement to the value of the instruments is based on the assumption
that she is a transferee within the contemplation of Section 49 of the Negotiable
Instruments Law.

Section 49 of the Negotiable Instruments Law contemplates a situation

whereby the payee or indorsee delivers a negotiable instrument for value without
indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an instrument
payable to his order transfers it for value without indorsing it, the transfer vests in
the transferee such title as the transferor had therein, and the transferee acquires in
addition, the right to have the indorsement of the transferor. But for the purpose of
determining whether the transferee is a holder in due course, the negotiation takes
effect as of the time when the indorsement is actually made. [17]

It bears stressing that the above transaction is an equitable assignment and

the transferee acquires the instrument subject to defenses and equities available
among prior parties. Thus, if the transferor had legal title, the transferee acquires
such title and, in addition, the right to have the indorsement of the transferor and
also the right, as holder of the legal title, to maintain legal action against the maker
or acceptor or other party liable to the transferor. The underlying premise of this
provision, however, is that a valid transfer of ownership of the negotiable
instrument in question has taken place.
Transferees in this situation do not enjoy the presumption of ownership in
favor of holders since they are neither payees nor indorsees of such instruments.
The weight of authority is that the mere possession of a negotiable instrument does
not in itself conclusively establish either the right of the possessor to receive
payment, or of the right of one who has made payment to be discharged from
liability. Thus, something more than mere possession by persons who are not
payees or indorsers of the instrument is necessary to authorize payment to them in
the absence of any other facts from which the authority to receive payment may be
inferred.[18]

The CA and the trial court surmised that the subject checks belonged to
private respondent Salazar based on the pre-trial stipulation that Templonuevo
incurred a one-year delay in demanding reimbursement for the proceeds of the
same. To the Courts mind, however, such period of delay is not of such
unreasonable length as to estop Templonuevo from asserting ownership over the
checks especially considering that it was readily apparent on the face of the
instruments[19] that these were crossed checks.
In State Investment House v. IAC,[20] the Court enumerated the effects of
crossing a check, thus: (1) that the check may not be encashed but only deposited
in the bank; (2) that the check may be negotiated only once - to one who has an
account with a bank; and (3) that the act of crossing the check serves as a warning
to the holder that the check has been issued for a definite purpose so that such
holder must inquire if the check has been received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in
conjunction with Salazars possession of the checks, it cannot be said that the
presumption of ownership in Templonuevos favor as the designated payee therein
was sufficiently overcome. This is consistent with the principle that if instruments
payable to named payees or to their order have not been indorsed in blank, only
such payees or their indorsees can be holders and entitled to receive payment in
their own right.[21]
The presumption under Section 131(s) of the Rules of Court stating that a
negotiable instrument was given for a sufficient consideration will not inure to the
benefit of Salazar because the term given does not pertain merely to a transfer of
physical possession of the instrument. The phrase given or indorsed in the context
of a negotiable instrument refers to the manner in which such instrument may be
negotiated. Negotiable instruments are negotiated by transfer to one person or
another in such a manner as to constitute the transferee the holder thereof. If

payable to bearer it is negotiated by delivery. If payable to order it is negotiated by

the indorsement completed by delivery.[22] The present case involves checks
payable to order. Not being a payee or indorsee of the checks, private respondent
Salazar could not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to
transfer the instrument without indorsement. Precisely because the situation is
abnormal, it is but fair to the maker and to prior holders to require possessors to
prove without the aid of an initial presumption in their favor, that they came into
possession by virtue of a legitimate transaction with the last holder.[23] Salazar
failed to discharge this burden, and the return of the check proceeds to
Templonuevo was therefore warranted under the circumstances despite the fact that
Templonuevo may not have clearly demonstrated that he never authorized Salazar
to deposit the checks or to encash the same. Noteworthy also is the fact that
petitioner stamped on the back of the checks the words: "All prior endorsements
and/or lack of endorsements guaranteed," thereby making the assurance that it had
ascertained the genuineness of all prior endorsements. Having assumed the liability
of a general indorser, petitioners liability to the designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit
Salazars account for the value of the checks it previously credited in her favor. It is
of no moment that the account debited by petitioner was different from the original
account to which the proceeds of the check were credited because both admittedly
belonged to Salazar, the former being the account of the sole proprietorship which
had no separate and distinct personality from her, and the latter being her personal
account.
The right of set-off was explained in Associated Bank v. Tan:[24]
A bank generally has a right of set-off over the deposits therein for the
payment of any withdrawals on the part of a depositor. The right of a collecting
bank to debit a client's account for the value of a dishonored check that has
previously been credited has fairly been established by jurisprudence. To begin

with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan.
Hence, the relationship between banks and depositors has been held to be
that of creditor and debtor. Thus, legal compensation under Article 1278 of the
Civil Code may take place "when all the requisites mentioned in Article 1279 are
present," as follows:
(1) That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due
time to the debtor.

While, however, it is conceded that petitioner had the right of set-off over
the amount it paid to Templonuevo against the deposit of Salazar, the issue of
whether it acted judiciously is an entirely different matter.[25] As businesses affected
with public interest, and because of the nature of their functions, banks are under
obligation to treat the accounts of their depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. [26] In this regard, petitioner
was clearly remiss in its duty to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks.
Despite the obvious lack of indorsement thereon, petitioner permitted the
encashment of these checks three times on three separate occasions. This negates
petitioners claim that it merely made a mistake in crediting the value of the checks
to Salazars account and instead bolsters the conclusion of the CA that petitioner
recognized Salazars claim of ownership of checks and acted deliberately in paying
the same, contrary to ordinary banking policy and practice. It must be emphasized
that the law imposes a duty of diligence on the collecting bank to scrutinize checks

deposited with it, for the purpose of determining their genuineness and regularity.
The collecting bank, being primarily engaged in banking, holds itself out to the
public as the expert on this field, and the law thus holds it to a high standard of
conduct.[27] The taking and collection of a check without the proper indorsement
amount to a conversion of the check by the bank.[28]
More importantly, however, solely upon the prompting of Templonuevo, and
with full knowledge of the brewing dispute between Salazar and Templonuevo,
petitioner debited the account held in the name of the sole proprietorship of Salazar
without even serving due notice upon her. This ran contrary to petitioners
assurances to private respondent Salazar that the account would remain untouched,
pending the resolution of the controversy between her and Templonuevo. [29] In this
connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan,
Senior Manager of petitioner banks Pasig/Ortigas branch, to private respondent
Salazar informing her that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that
Account No. 0201-0588-48 will remain frozen or untouched until herein [Salazar]
has settled matters with Templonuevo. But, in an unexpected move, in less than
two weeks (eleven days to be precise) from the time that letter was written,
[petitioner] bank issued a cashiers check in the name of Julio R. Templonuevo of
the J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit 8) and
debited said amount from Ms. Arcillas account No. 0201-0588-48 which was
supposed to be frozen or controlled. Such a move by BPI is, to Our minds, a clear
case of negligence, if not a fraudulent, wanton and reckless disregard of the right
of its depositor.

The records further bear out the fact that respondent Salazar had issued
several checks drawn against the account of A.A. Salazar Construction and
Engineering Services prior to any notice of deduction being served. The CA
sustained private respondent Salazars claim of damages in this regard:
The act of the bank in freezing and later debiting the amount
of P267,692.50 from the account of A.A. Salazar Construction and Engineering
Services caused plaintiff-appellee great damage and prejudice particularly when
she had already issued checks drawn against the said account. As can be expected,

the said checks bounced. To prove this, plaintiff-appellee presented as exhibits

photocopies of checks dated September 8, 1991, October 28, 1991, and November
14, 1991 (Exhibits D, E and F respectively)[30]

These checks, it must be emphasized, were subsequently dishonored,

thereby causing private respondent Salazar undue embarrassment and inflicting
damage to her standing in the business community. Under the circumstances, she
was clearly not given the opportunity to protect her interest when petitioner
unilaterally withdrew the above amount from her account without informing her
that it had already done so.
For the above reasons, the Court finds no reason to disturb the award of
damages granted by the CA against petitioner. This whole incident would have
been avoided had petitioner adhered to the standard of diligence expected of one
engaged in the banking business. A depositor has the right to recover reasonable
moral damages even if the banks negligence may not have been attended with
malice and bad faith, if the former suffered mental anguish, serious anxiety,
embarrassment and humiliation.[31] Moral damages are not meant to enrich a
complainant at the expense of defendant. It is only intended to alleviate the moral
suffering she has undergone. The award of exemplary damages is justified, on the
other hand, when the acts of the bank are attended by malice, bad faith or gross
negligence. The award of reasonable attorneys fees is proper where exemplary
damages are awarded. It is proper where depositors are compelled to litigate to
protect their interest.[32]

WHEREFORE, the petition is partially GRANTED. The assailed Decision

dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of
Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered
petitioner Bank of the Philippine Islands to return the amount of Two Hundred
Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos

(P267,707.70) to respondent Annabelle A. Salazar, which portion

is REVERSED and SET ASIDE. In all other respects, the same areAFFIRMED.
No costs.
SO ORDERED.

ADOLFO S. AZCUNA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chairperson
Chief Justice

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

CANCIO C. GARCIA
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

[1]

CA Rollo, pp. 100-116.

Rollo, p. 57.
[3]
CA Rollo, pp. 100-105.
[4]
Records, pp. 323-324.
[5]
Private respondent Templonuevo admitted that he was doing business under the name and style, JRT
Construction and Trading. See Records, p.179.
[6]
Rollo, p. 106.
[7]
Id. at 12-13.
[8]
Infra note 17.
[2]

[9]

Sec. 191. Definition and meaning of terms. - In this Act, unless the contract otherwise requires:
xxx
"Holder" means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof;
xxx
[10]
Records, pp. 178-179.
[11]
CA Rollo, pp. 106-107.
[12]
Id. at 107.
[13]

Madrigal v. CA, G.R. No. 142944, April 15, 2005, 456 SCRA 247; Bernardo v. CA, G.R. No. 101680, December
7, 1992, 216 SCRA 224; Remalante v. Tibe, G.R. No. L-59514, February 25,1988, 158 SCRA 138.
[14]
Borromeo v. Sun, G.R. No. 75908, October 22, 1999, 317 SCRA 176.
[15]
Paterno v. Paterno, G.R. No. 63680, March 23, 1990, 183 SCRA 630.
[16]
Arcaba v. Tabancura, 421 Phil. 1096 (2001); Martinez v. CA, G.R. No. 123547, May 21, 2001, 358 SCRA 38.
[17]
Act No. 2031 (1911).
[18]
11 Am Jur 2d, 988, citing Doubleday v. Kress, 50 NY 410, Hoffmaster v. Black, 84 NE 423, and First Nat. Bank
v. Gorman, 21 P2d 549.
[19]
Records, pp. 286-293.
[20]
G.R. No. 72764, July 13, 1989, 175 SCRA 310.
[21]
Supra note 18.
[22]
Negotiable Instruments Law, Section 30.

[23]

Campos Jr. and Lopez Campos, Notes and Selected Cases on Negotiable Instruments Law, p. 108, (1994).
G.R. No. 156940, December 14, 2004, 446 SCRA 282.
[25]
Id.
[26]
Prudential Bank v. CA, G.R. No. 125536, March 16, 2000, 328 SCRA 264; Simex International [Manila], Inc. v.
CA, G.R. No.88013, March 19, 1990, 183 SCRA 360; BPI v. IAC, G.R. No. 69162, February 21, 1992, 206
SCRA 408.
[27]
Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp., G.R. No. L-74917, January 20,1988, 157
SCRA 188.
[28]
Associated Bank v. CA, G.R. No. 89802, May 7, 1992, 208 SCRA 465; City Trust Banking Corp. v. IAC, G.R. No.
84281, May 27, 1994, 232 SCRA 559.
[29]
CA rollo, p. 112; Transcript of Stenographic Notes dated November 9, 1992, pp. 8-9.
[30]
CA rollo, pp. 111.
[31]
Civil Code, Article 2217.
[32]
Prudential Bank v. CA, supra note 26.
[24]

DURBAN APARTMENTS
CORPORATION, doing business under
the name and style of City Garden Hotel,
Petitioner,

- versus -

PIONEER INSURANCE AND SURETY

CORPORATION,
Respondent.

G.R. No. 179419

Present:
CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

Promulgated:
January 12, 2011

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

For review is the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No.
86869, which affirmed the decision [2] of the Regional Trial Court (RTC), Branch
66, Makati City, in Civil Case No. 03-857, holding petitioner Durban Apartments
Corporation solely liable to respondent Pioneer Insurance and Surety Corporation
for the loss of Jeffrey Sees (Sees) vehicle.
The facts, as found by the CA, are simple.
On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x x x,
by right of subrogation, filed [with the RTC of Makati City] a Complaint for
Recovery of Damages against [petitioner] Durban Apartments Corporation, doing
business under the name and style of City Garden Hotel, and [defendant before
the RTC] Vicente Justimbaste x x x. [Respondent averred] that: it is the insurer for
loss and damage of Jeffrey S. Sees [the insureds] 2001 Suzuki Grand Vitara x x x
with Plate No. XBH-510 under Policy No. MC-CV-HO-01-0003846-00-D in the
amount of P1,175,000.00; on April 30, 2002, See arrived and checked in at the
City Garden Hotel in Makati corner Kalayaan Avenues, Makati City before
midnight, and its parking attendant, defendant x x x Justimbaste got the key to
said Vitara from See to park it[. O]n May 1, 2002, at about 1:00 oclock in the
morning, See was awakened in his room by [a] telephone call from the Hotel
Chief Security Officer who informed him that his Vitara was carnapped while it
was parked unattended at the parking area of Equitable PCI Bank along Makati
Avenue between the hours of 12:00 [a.m.] and 1:00 [a.m.]; See went to see the
Hotel Chief Security Officer, thereafter reported the incident to the Operations
Division of the Makati City Police Anti-Carnapping Unit, and a flash alarm was
issued; the Makati City Police Anti-Carnapping Unit investigated Hotel Security
Officer, Ernesto T. Horlador, Jr. x x x and defendant x x x Justimbaste; See gave
his Sinumpaang Salaysay to the police investigator, and filed a Complaint Sheet
with the PNP Traffic Management Group in Camp Crame, Quezon City; the
Vitara has not yet been recovered since July 23, 2002 as evidenced by a
Certification of Non- Recovery issued by the PNP TMG; it paid
the P1,163,250.00 money claim of See and mortgagee ABN AMRO Savings
Bank, Inc. as indemnity for the loss of the Vitara; the Vitara was lost due to the
negligence of [petitioner] Durban Apartments and [defendant] Justimbaste
because it was discovered during the investigation that this was the second time
that a similar incident of carnapping happened in the valet parking service of
[petitioner] Durban Apartments and no necessary precautions were taken to
prevent its repetition; [petitioner] Durban Apartments was wanting in due
diligence in the selection and supervision of its employees particularly
defendant x x x Justimbaste; and defendant x x x Justimbaste and [petitioner]
Durban Apartments failed and refused to pay its valid, just, and lawful claim
despite written demands.

Upon service of Summons, [petitioner] Durban Apartments and [defendant]

Justimbaste filed their Answer with Compulsory Counterclaim alleging that: See
did not check in at its hotel, on the contrary, he was a guest of a certain Ching
Montero x x x; defendant x x x Justimbaste did not get the ignition key of Sees
Vitara, on the contrary, it was See who requested a parking attendant to park the
Vitara at any available parking space, and it was parked at the Equitable Bank
parking area, which was within Sees view, while he and Montero were waiting in
front of the hotel; they made a written denial of the demand of [respondent]
Pioneer Insurance for want of legal basis; valet parking services are provided by
the hotel for the convenience of its customers looking for a parking space near the
hotel premises; it is a special privilege that it gave to Montero and See; it does not
include responsibility for any losses or damages to motor vehicles and its
accessories in the parking area; and the same holds true even if it was See himself
who parked his Vitara within the premises of the hotel as evidenced by the valet
parking customers claim stub issued to him; the carnapper was able to open the
Vitara without using the key given earlier to the parking attendant and
subsequently turned over to See after the Vitara was stolen; defendant x x x
Justimbaste saw the Vitara speeding away from the place where it was parked; he
tried to run after it, and blocked its possible path but to no avail; and See was duly
and immediately informed of the carnapping of his Vitara; the matter was reported
to the nearest police precinct; and defendant x x x Justimbaste, and Horlador
submitted themselves to police investigation.
During the pre-trial conference on November 28, 2003, counsel for [respondent]
Pioneer Insurance was present. Atty. Monina Lee x x x, counsel of record of
[petitioner] Durban Apartments and Justimbaste was absent, instead, a certain
Atty. Nestor Mejia appeared for [petitioner] Durban Apartments and Justimbaste,
but did not file their pre-trial brief.
On November 5, 2004, the lower court granted the motion of [respondent] Pioneer
Insurance, despite the opposition of [petitioner] Durban Apartments and
Justimbaste, and allowed [respondent] Pioneer Insurance to present its
evidence ex parte before the Branch Clerk of Court.
See testified that: on April 30, 2002, at about 11:30 in the evening, he drove his
Vitara and stopped in front of City Garden Hotel in Makati Avenue, Makati City;
a parking attendant, whom he had later known to be defendant x x x Justimbaste,
approached and asked for his ignition key, told him that the latter would park the
Vitara for him in front of the hotel, and issued him a valet parking customers
claim stub; he and Montero, thereafter, checked in at the said hotel; on May 1,
2002, at around 1:00 in the morning, the Hotel Security Officer whom he later
knew to be Horlador called his attention to the fact that his Vitara was carnapped
while it was parked at the parking lot of Equitable PCI Bank which is in front of
the hotel; his Vitara was insured with [respondent] Pioneer Insurance; he together
with Horlador and defendant x x x Justimbaste went to Precinct 19 of the Makati

City Police to report the carnapping incident, and a police officer came
accompanied them to the Anti-Carnapping Unit of the said station for
investigation, taking of their sworn statements, and flashing of a voice alarm; he
likewise reported the said incident in PNP TMG in Camp Crame where another
alarm was issued; he filed his claim with [respondent] Pioneer Insurance, and a
representative of the latter, who is also an adjuster of Vesper Insurance AdjustersAppraisers [Vesper], investigated the incident; and [respondent] Pioneer Insurance
required him to sign a Release of Claim and Subrogation Receipt, and finally paid
him the sum of P1,163,250.00 for his claim.
Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer
Insurance tasked, among others, with the receipt of claims and documents from
the insured, investigation of the said claim, inspection of damages, taking of
pictures of insured unit, and monitoring of the processing of the claim until its
payment; he monitored the processing of Sees claim when the latter reported the
incident to [respondent] Pioneer Insurance; [respondent] Pioneer Insurance
assigned the case to Vesper who verified Sees report, conducted an investigation,
obtained the necessary documents for the processing of the claim, and tendered a
settlement check to See; they evaluated the case upon receipt of the subrogation
documents and the adjusters report, and eventually recommended for its
settlement for the sum of P1,163,250.00 which was accepted by See; the matter
was referred and forwarded to their counsel, R.B. Sarajan & Associates, who
prepared and sent demand letters to [petitioner] Durban Apartments and
[defendant] Justimbaste, who did not pay [respondent] Pioneer Insurance
notwithstanding their receipt of the demand letters; and the services of R.B.
Sarajan & Associates were engaged, for P100,000.00 as attorneys fees
plus P3,000.00 per court appearance, to prosecute the claims of [respondent]
Pioneer Insurance against [petitioner] Durban Apartments and Justimbaste before
the lower court.
Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer
Insurance assigned to Vesper the investigation of Sees case, and he was the one
actually assigned to investigate it; he conducted his investigation of the matter by
interviewing See, going to the City Garden Hotel, required subrogation
documents from See, and verified the authenticity of the same; he learned that it is
the standard procedure of the said hotel as regards its valet parking service to
assist their guests as soon as they get to the lobby entrance, park the cars for their
guests, and place the ignition keys in their safety key box; considering that the
hotel has only twelve (12) available parking slots, it has an agreement with
Equitable PCI Bank permitting the hotel to use the parking space of the bank at
night; he also learned that a Hyundai Starex van was carnapped at the said place
barely a month before the occurrence of this incident because Liberty Insurance
assigned the said incident to Vespers, and Horlador and defendant x x x
Justimbaste admitted the occurrence of the same in their sworn statements before
the Anti-Carnapping Unit of the Makati City Police; upon verification with the
PNP TMG [Unit] in Camp Crame, he learned that Sees Vitara has not yet been

recovered; upon evaluation, Vesper recommended to [respondent] Pioneer

Insurance to settle Sees claim for P1,045,750.00; See contested the
recommendation of Vesper by reasoning out that the 10% depreciation should not
be applied in this case considering the fact that the Vitara was used for barely
eight (8) months prior to its loss; and [respondent] Pioneer Insurance acceded to
Sees contention, tendered the sum of P1,163,250.00 as settlement, the former
accepted it, and signed a release of claim and subrogation receipt.
The lower court denied the Motion to Admit Pre-Trial Brief and Motion for
Reconsideration field by [petitioner] Durban Apartments and Justimbaste in its
Orders dated May 4, 2005 and October 20, 2005, respectively, for being devoid of
merit.[3]

Thereafter, on January 27, 2006, the RTC rendered a decision, disposing, as

follows:
WHEREFORE, judgment is hereby rendered ordering [petitioner Durban
Apartments Corporation] to pay [respondent Pioneer Insurance and Surety
Corporation] the sum of P1,163,250.00 with legal interest thereon from July 22,
2003 until the obligation is fully paid and attorneys fees and litigation expenses
amounting to P120,000.00.
SO ORDERED.[4]

On appeal, the appellate court affirmed the decision of the trial court, viz.:
WHEREFORE, premises considered, the Decision dated January 27, 2006 of the
RTC, Branch 66, Makati City in Civil Case No. 03-857 is hereby
AFFIRMED insofar as it holds [petitioner] Durban Apartments Corporation solely
liable to [respondent] Pioneer Insurance and Surety Corporation for the loss of
Jeffrey Sees Suzuki Grand Vitara.
SO ORDERED.[5]

Hence, this recourse by petitioner.

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 exparte. Likewise, the lower courts did not err in holding petitioner liable for the loss
of Sees vehicle.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respect and are considered conclusive between the parties. [6] A review of such
findings by this Court is not warranted except upon a showing of highly
meritorious circumstances, such as: (1) when the findings of a trial court are
grounded entirely on speculation, surmises, or conjectures; (2) when a lower courts
inference from its factual findings is manifestly mistaken, absurd, or impossible;
(3) when there is grave abuse of discretion in the appreciation of facts; (4) when
the findings of the appellate court go beyond the issues of the case, or fail to notice
certain relevant facts which, if properly considered, will justify a different
conclusion; (5) when there is a misappreciation of facts; (6) when the findings of
fact are conclusions without mention of the specific evidence on which they are
based, are premised on the absence of evidence, or are contradicted by evidence on
record.[7]None of the foregoing exceptions permitting a reversal of the assailed
decision exists in this instance.
Petitioner urges us, however, that strong [and] compelling reason[s] such as the
prevention of miscarriage of justice warrant a suspension of the rules and excuse
its and its counsels non-appearance during the pre-trial conference and their failure
to file a pre-trial brief.

We are not persuaded.

Rule 18 of the Rules of Court leaves no room for equivocation; appearance of
parties and their counsel at the pre-trial conference, along with the filing of a
corresponding 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 non-appearance of a party may be excused only if a
valid cause is shown therefor or if a representative shall appear in his behalf fully
authorized in writing to enter into an amicable settlement, to submit to alternative
modes of dispute resolution, and to enter into stipulations or admissions of facts
and documents.
SEC. 6. Pre-trial brief.The parties shall file with the court and serve on the
adverse party, in such manner as shall ensure their receipt thereof at least three (3)
days before the date of the pre-trial, their respective pre-trial briefs which shall
contain, among others:
xxxx
Failure to file the pre-trial brief shall have the same effect as failure to appear at
the pre-trial.

Contrary to the foregoing rules, petitioner and its counsel of record were not
present at the scheduled pre-trial conference. Worse, they did not file a pre-trial
brief. Their non-appearance cannot be excused as Section 4, in relation to Section
6, allows only two exceptions: (1) a valid excuse; and (2) appearance of a
representative on behalf of a party who is fully authorized in writing to enter into
an amicable settlement, to submit to alternative modes of dispute resolution, and to
enter into stipulations or admissions of facts and documents.
Petitioner is adamant and harps on the fact that November 28, 2003 was merely the
first scheduled date for the pre-trial conference, and a certain Atty. Mejia appeared
on its behalf. However, its assertion is belied by its own admission that, on said
date, this Atty. Mejia did not have in his possession the Special Power of Attorney
issued by petitioners Board of Directors.

As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pretrial 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 nonsuited or considered as in default. The obligation to appear denotes not simply the
personal appearance, or the mere physical presentation by a party of ones self, but
connotes as importantly, preparedness to go into the different subject assigned by
law to a pre-trial. And in those instances where a party may not himself be present
at the pre-trial, and another person substitutes for him, or his lawyer undertakes to
appear not only as an attorney but in substitution of the clients person, it is
imperative for that representative of the lawyer to have special authority to make

such substantive agreements as only the client otherwise has capacity to make.
That special authority should ordinarily be in writing or at the very least be duly
established by evidence other than the self-serving assertion of counsel (or the
proclaimed representative) himself. Without that special authority, the lawyer or
representative cannot be deemed capacitated to appear in place of the party;
hence, it will be considered that the latter has failed to put in an appearance at all,
and he [must] therefore be non-suited or considered as in default, notwithstanding
his lawyers or delegates presence.[9]

We are not unmindful that defendants (petitioners) preclusion from presenting

evidence during trial does not automatically result in a judgment in favor of
plaintiff (respondent). The plaintiff must still substantiate the allegations in its
complaint.[10] Otherwise, it would be inutile to continue with the plaintiffs
presentation of evidence each time the defendant is declared in default.
In this case, respondent substantiated the allegations in its complaint, i.e., a
contract of necessary deposit existed between the insured See and petitioner. On
this score, we 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]

Article 1962, in relation to Article 1998, of the Civil Code defines a contract of
deposit and a necessary deposit made by persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person receives a
thing belonging to another, with the obligation of safely keeping it and returning
the same. If the safekeeping of the thing delivered is not the principal purpose of
the contract, there is no deposit but some other contract.
Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be
regarded as necessary. The keepers of hotels or inns shall be responsible for them
as depositaries, provided that notice was given to them, or to their employees, of
the effects brought by the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes advised relative to the
care and vigilance of their effects.

Plainly, from the facts found by the lower courts, the insured See deposited his
vehicle for safekeeping with petitioner, through the latters employee, Justimbaste.
In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was
perfected from Sees delivery, when he handed over to Justimbaste the keys to his
vehicle, which Justimbaste received with the obligation of safely keeping and
returning it. Ultimately, petitioner is liable for the loss of Sees vehicle.
Lastly, petitioner assails the lower courts award of attorneys fees to
respondent in the amount of P120,000.00. Petitioner claims that the award is not
substantiated by the evidence on record.
We disagree.
While it is a sound policy not to set a premium on the right to litigate, [12] we
find that respondent is entitled to reasonable attorneys fees. Attorneys fees may be
awarded when a party is compelled to litigate or incur expenses to protect its
interest,[13] or when the court deems it just and equitable.[14] In this case, petitioner
refused to answer for the loss of Sees vehicle, which was deposited with it for
safekeeping. This refusal constrained respondent, the insurer of See, and
subrogated to the latters right, to litigate and incur expenses. However, we reduce
the award of P120,000.00 to P60,000.00 in view of the simplicity of the issues
involved in this case.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals
in
CA-G.R.
CV
No.
86869
is AFFIRMED with
the MODIFICATION that the award of attorneys fees is reduced to P60,000.00.
Costs against petitioner.
SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice
WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

DIOSDADO M. PERALTA
Associate Justice

ROBERTO A. ABAD
Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

AT T E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision had

been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

[1]

Penned by Associate Justice Remedios A. Salazar-Fernando, with Associate Justices Rosalinda Asuncion-Vicente
and Enrico A. Lanzanas, concurring; rollo, pp. 93-109.
[2]
Penned by Pairing Judge Rommel O. Baybay; id. at 33-35.
[3]

Id. at 94-101.
Id. at 35.
[5]
Id. at 108.
[6]
Titan Construction Corporation v. Uni-Field Enterprises, Inc., G.R. No. 153874, March 7, 2007, 517 SCRA 180,
186; Sigaya v. Mayuga, 504 Phil. 600, 611 (2005).
[7]
See Child Learning Center, Inc. v. Tagorio, 512 Phil. 618, 623 (2005); Ilao-Quianay v. Mapile, 510 Phil. 736, 744745 (2005).
[4]

[8]

RULES OF COURT, Rule 18, Sec. 3:

SEC. 3. Notice of pre-trial.The notice of pre-trial shall be served on counsel, or on the party who has no counsel.
The counsel served with such notice is charged with the duty of notifying the party represented by him.
[9]
Development Bank of the Phils. v. CA, 251 Phil. 390, 392-395 (1989). (Citations omitted.)
[10]

See SSS v. Hon. Chaves, 483 Phil. 292, 302 (2004).

Rollo, p. 105.
[12]
Bank of the Philippine Islands v. Casa Montessori International, G.R. Nos. 149454 & 149507, May 28, 2004,
430 SCRA 261, 296.
[13]
CIVIL CODE, Art. 2208, par. 2.
[14]
CIVIL CODE, Art. 2208, par. 11.
[11]

YHT

REALTY CORPORATION, ERLINDA LAINEZ and ANICIA

PAYAM, petitioners, vs. THE COURT OF APPEALS and MAURICE
McLOUGHLIN,respondents.
DECISION

TINGA, J.:

The primary question of interest before this Court is the only legal issue in the case:
It is whether a hotel may evade liability for the loss of items left with it for safekeeping by
its guests, by having these guests execute written waivers holding the establishment or
its employees free from blame for such loss in light of Article 2003 of the Civil Code
which voids such waivers.
Before this Court is a Rule 45 petition for review of the Decision dated 19 October
1995 of the Court of Appeals which affirmed the Decision 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.
[1]

[2]

The factual backdrop of the case follow.

Private respondent McLoughlin, an Australian businessman-philanthropist, 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 McLoughlins 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 deposit box could only be opened through the use of two keys, one of which is
given to the registered guest, and the other remaining in the possession of the
management of the hotel. When a registered guest wished to open his safety deposit
box, he alone could personally request the management who then would assign one of
its employees to accompany the guest and assist him in opening the safety deposit box
with the two keys.
[4]

McLoughlin allegedly placed the following in his safety deposit box: Fifteen
Thousand US Dollars (US$15,000.00) which he placed in two envelopes, one envelope
containing Ten Thousand US Dollars (US$10,000.00) and the other envelope Five
Thousand US Dollars (US$5,000.00); Ten Thousand Australian Dollars
(AUS$10,000.00) which he also placed in another envelope; two (2) other envelopes
containing letters and credit cards; two (2) bankbooks; and a checkbook, arranged side
by side inside the safety deposit box.
[5]

On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin

opened his safety deposit box with his key and with the key of the management and
took therefrom the envelope containing Five Thousand US Dollars (US$5,000.00), the
envelope containing Ten Thousand Australian Dollars (AUS$10,000.00), his passports
and his credit cards. 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. 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.
[6]

[7]

[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. McLoughlin went up to his room where Tan was staying and confronted her. Tan
admitted that she had stolen McLoughlins key and was able to open the safety deposit
box with the assistance of Lopez, Payam and Lainez. Lopez also told McLoughlin that
Tan stole the key assigned to McLoughlin while the latter was asleep.
[11]

[12]

[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, specifically paragraphs (2) and (4) thereof, to wit:
[15]

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. The Office of the President referred the letter to the
Department of Justice (DOJ) which forwarded the same to the Western Police District
(WPD).
[17]

[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 Fiscals 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 Fiscals 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 McLoughlins 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 Complaint 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. The trial court admitted
the Amended/Supplemental Complaint.
[20]

[21]

During the trial of the case, McLoughlin had been in and out of the country to attend
to urgent business in Australia, and while staying in the Philippines to attend the

hearing, he incurred expenses for hotel bills, airfare and other transportation expenses,
long distance calls to Australia, Meralco power expenses, and expenses for food and
maintenance, among others.
[22]

After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the
dispositive portion of which reads:

WHEREFORE, above premises considered, judgment is hereby rendered by this

Court in favor of plaintiff and against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of US$11,400.00
or its equivalent in Philippine Currency of P342,000.00, more or less, and the sum
of AUS$4,500.00 or its equivalent in Philippine Currency of P99,000.00, or a total
of P441,000.00, more or less, with 12% interest from April 16 1988 until said
amount has been paid to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff the sum of P3,674,238.00
as actual and consequential damages arising from the loss of his Australian and
American dollars and jewelries complained against and in prosecuting his claim
and rights administratively and judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh.
CC);
3. Ordering defendants, jointly and severally, to pay plaintiff the sum of P500,000.00 as
moral damages (Item X, Exh. CC);
4. Ordering defendants, jointly and severally, to pay plaintiff the sum of P350,000.00 as
exemplary damages (Item XI, Exh. CC);
5. And ordering defendants, jointly and severally, to pay litigation expenses in the sum
of P200,000.00 (Item XII, Exh. CC);
6. Ordering defendants, jointly and severally, to pay plaintiff the sum of P200,000.00 as
attorneys 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 McLoughlins 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 McLoughlins money, kept in Tropicanas safety deposit box, was taken
by Tan without McLoughlins 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 Fiscals Office in his desire to recover his
losses from the hotel management and Tan.
[24]

As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry

worth approximately One Thousand Two Hundred US Dollars (US$1,200.00) which
allegedly occurred during his stay at Tropicana previous to 4 April 1988, no claim was
made by McLoughlin for such losses in his complaint dated 21 November 1990 because
he was not sure how they were lost and who the responsible persons were. But
considering the admission of the defendants in their pre-trial brief that on three previous
occasions they allowed Tan to open the box, the trial court opined that it was logical and
reasonable to presume that his personal assets consisting of Seven Thousand US
Dollars (US$7,000.00) and jewelry were taken by Tan from the safety deposit box
without McLoughlins 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. 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.
[27]

[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 courts 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;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorneys 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 courts conclusion on the alleged prior existence and subsequent loss of the
subject money and jewelry is supported by the evidence on record; (b) whether the
finding of gross negligence on the part of petitioners in the performance of their duties
as innkeepers is supported by the evidence on record; (c) whether the Undertaking For
The Use of Safety Deposit Box admittedly executed by private respondent is null and
void; and (d) whether the damages awarded to private respondent, as well as the
amounts thereof, are proper under the circumstances.
[30]

The petition is devoid of merit.

It is worthy of note that the thrust of Rule 45 is the resolution only of questions of
law and any peripheral factual question addressed to this Court is beyond the bounds of
this mode of review.
Petitioners point out that the evidence on record is insufficient to prove the fact of
prior existence of the dollars and the jewelry which had been lost while deposited in the
safety deposit boxes of Tropicana, the basis of the trial court and the appellate court
being the sole testimony of McLoughlin as to the contents thereof. Likewise, petitioners
dispute the finding of gross negligence on their part as not supported by the evidence
on record.
We are not persuaded. 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.
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. 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.
[31]

[32]

We are also not impressed by petitioners argument that the finding of gross
negligence by the lower court as affirmed by the appellate court is not supported by
evidence. The evidence reveals that two keys are required to open the safety deposit
boxes of Tropicana. One key is assigned to the guest while the other remains in the
possession of the management. If the guest desires to open his safety deposit box, he
must request the management for the other key to open the same. In other words, the
guest alone cannot open the safety deposit box without the assistance of the
management or its employees. With more reason that access to the safety deposit box
should be denied if the one requesting for the opening of the safety deposit box is a
stranger. Thus, in case of loss of any item deposited in the safety deposit box, it is
inevitable to conclude that the management had at least a hand in the consummation of
the taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana,
had custody of the master key of the management when the loss took place. In fact,
they even admitted that they assisted Tan on three separate occasions in opening
McLoughlins safety deposit box. 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.
[33]

The management should have guarded against the occurrence of this incident
considering that Payam admitted in open court that she assisted Tan three times in
opening the safety deposit box of McLoughlin at around 6:30 A.M. to 7:30 A.M. while the
latter was still asleep. 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 McLoughlins money could and should have been
avoided.
[34]

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 McLoughlins deposit. If only petitioners exercised due diligence in
taking care of McLoughlins safety deposit box, they should have confronted him as to
his relationship with Tan considering that the latter had been observed opening
McLoughlins safety deposit box a number of times at the early hours of the morning.
Tans acts should have prompted the management to investigate her relationship with
McLoughlin. Then, petitioners would have exercised due diligence required of them.
Failure to do so warrants the conclusion that the management had been remiss in
complying with the obligations imposed upon hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those who, in the performance of their
obligations, are guilty of negligence, are liable for damages. As to who shall bear the
burden of paying damages, Article 2180, paragraph (4) of the same Code provides that
the owners and managers of an establishment or enterprise are likewise responsible
for damages caused by their employees in the service of the branches in which the
latter are employed or on the occasion of their functions. Also, this Court has ruled that
if an employee is found negligent, it is presumed that the employer was negligent in
selecting and/or supervising him for it is hard for the victim to prove the negligence of
such employer. Thus, given the fact that the loss of McLoughlins money was
consummated through the negligence of Tropicanas employees in allowing Tan to open
the safety deposit box without the guests 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.
[35]

[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 2001 is suppressed or diminished shall be void.
[37]

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 carriers 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, 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. With greater reason should the liability of the hotelkeeper be enforced
when the missing items are taken without the guests knowledge and consent from a
safety deposit box provided by the hotel itself, as in this case.
[38]

[39]

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.
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. 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.
[40]

[41]

[42]

Petitioners likewise anchor their defense on Article 2002 which exempts the hotelkeeper 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 guests 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.
[43]

[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 guests relatives and visitors.

Petitioners contend that McLoughlins 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. 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.
[45]

[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, being the amounts duly proven by evidence. The alleged loss
that took place prior to 16 April 1988 was not considered since the amounts alleged to
have been taken were not sufficiently established by evidence. The appellate court also
correctly awarded the sum of P308,880.80, representing the peso value for the air fares
from Sydney to Manila and back for a total of eleven (11) trips; one-half
of P336,207.05 or P168,103.52 representing payment to Tropicana; one-half
ofP152,683.57 or P76,341.785 representing payment to Echelon Tower; one-half
of P179,863.20 or P89,931.60 for the taxi or transportation expenses from McLoughlins
residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11)
trips; one-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
one-half of P356,400.00 or P178,000.00 representing expenses for food and
maintenance.
[47]

[48]

[49]
[50]
[51]

[52]

[53]

[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. Moral damages are not intended to enrich a complainant at the expense of a
defendant. 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

attorneys 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 McLoughlins 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 attorneys fees.
With costs.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur.
Austria-Martinez, J., no part.

[1]

Rollo, p. 38. Decision penned by Justice Bernardo LL. Salas and concurred in by Justices Pedro A.
Ramirez and Ma. Alicia Austria-Martinez.

[2]

Id. at 118. Decision penned by Judge Gerardo M.S. Pepito.

[3]

Id. at 119.

[4]

Id. at 120.

[5]

Ibid.

[6]

Ibid.

[7]

Ibid.

[8]

Ibid.

[9]

Ibid.

[10]

Id. at 121 and 41. TSN, 9 September 1991, p. 10.

[11]

Id. at 42.

[12]

Ibid.

[13]

Id. at 121.

[14]

Exhibit V.

[15]

Exh. W.

[16]

Rollo, p. 122.

[17]

Ibid.

[18]

Ibid.

[19]

Id. at 123.

[20]

Records, p. 52.

[21]

Rollo, p. 125.

[22]

Exh. CC. Records (Exhibit Folder), pp. 146-147. The Itemized Claims for Damages allegedly incurred
by McLoughlin:

I. CLAIMS FOR STOLEN MONIES AND PERSONAL PROPERTY:

A. US$2,000.00
US$4,500.00..P153,200.00
B. US$8,000.00 cash and US$1,200.00 with jewelry257,600.00
II. AIR FARES from Sydney to Manila and
back (11trips up to date of testimony).308,880.00
III. PAYMENTS TO TROPICANA APARTMENT HOTEL336,207.05
IV. PAYMENTS TO ECHELON TOWER......152,683.57
V. Taxes, fees, transportation from residence to
Sydney airport and from MIA to hotel in Manila
and vice versa..179,863.20
VI. MERALCO POWER EXPENSES....7,811.94
VII. PLDT EXPENSES(overseas telephone calls)
Paid in the Philippines.....5,597.68
Paid in Australia....166,795.20
VIII. EXPENSES FOR FOOD AND MAINTENANCE..356,400.00
IX. BUSINESS/OPPORTUNITY LOSS IN SYDNEY
WHILE IN THE PHILIPPINES BECAUSE OF CASE..2,160,000.00
X. MORAL DAMAGES........500,000.00
XI. EXEMPLARY DAMAGES...350,000.00
XII. LITIGATION EXPENSES.... 200,000.00
TOTAL. . P5,135,038.64

ATTORNEYS FEES...200,000.00
Plus, appearance
fee of P3,000.00 for
every court appearance.
[23]

Rollo, pp. 141-142.

[24]

Id. at 127.

[25]

Ibid.

[26]

Id. at 134.

[27]

Id. at 135.

[28]

Id. at 138.

[29]

Id. at 63-64.

[30]

Id. at 19-20.

[31]

People v. Andales, G.R. Nos. 152624-25, February 5, 2004; People v. Fucio, G.R. No. 151186-95,
February 13, 2004; People v. Preciados, G.R. No. 122934, January 5, 2001, 349 SCRA
1; People v. Toyco, Sr., G.R. No. 138609, January 17, 2001, 349 SCRA 385; People v. Cabareo,
G.R. No. 138645, January 16, 2001, 349 SCRA 297; People v. Valdez, G.R. No. 128105, January
24, 2001, 350 SCRA 189.

[32]

People v. Dimacuha, G.R. Nos. 152592-93, February 13, 2004; People v. Yang, G.R. No. 148077,
February 16, 2004; People v. Betonio, G.R. No. 119165, September 26, 1997, 279 SCRA
532; People v. Cabel, G.R. No. 121508, 282 SCRA 410.

[33]

Id. at 125.

[34]

Id. at 128.

[35]

Campo, et al. v. Camarote and Gemilga, 100 Phil. 459 (1956).

[36]

Art. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary.

[37]

Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as
necessary. 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.
Art. 1999. The hotel-keeper is liable for the vehicles, animals and articles which have
been introduced or placed in the annexes of the hotel.
Art. 2000. The responsibility referred to in the two preceding articles shall include the loss
of, or injury to the personal property of the guests caused by the servants or employees of the
keepers of hotels or inns as well as by strangers; but not that which may proceed from any force
majeure. The fact that travellers are constrained to rely on the vigilance of the keeper of the hotel
or inn shall be considered in determining the degree of care required of him.
Art. 2001. The act of a thief or robber, who has entered the hotel is not deemed force
majeure, unless it is done with the use of arms or through an irresistible force.

[38]

De Los Santos v. Tan Khey, 58 O.G. No. 45-53, p. 7693.

[39]

Ibid at 7694-7695.

[40]

Exh. W.

[41]

Art. 2000, New Civil Code.

[42]

Art. 2001, supra at note 39.

[43]

Art. 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his
family, servants or visitors, or if the loss arises from the character of the things brought into the
hotel.

[44]

26 C.J.S. 731 citing Griffith v. Zipperwick, 28 Ohio St. 388.

[45]

Rollo, pp. 31-32.

[46]

Air France v. Carrascoso, et al., 124 Phil. 722 (1966).

[47]

Zagala v. Jimenez, G.R. No. 33050, July 23, 1987, 152 SCRA 147. According to the case of Phoenix
Assurance Company v. Macondray & Co., Inc., (64 SCRA 15) a judgment awarding an amount in
U.S. dollars may be paid with its equivalent amount in local currency based on the conversion
rate prevailing at the time of payment. If the parties cannot agree on the same, the trial court
should determine such conversion rate. Needless to say, the judgment debtor may simply satisfy
said award by paying in full the amount in U.S. dollars.

[48]

Exh. V.

[49]

Exh. CC, p. 146.

[50]

Id. The Court of Appeals noted that during his stay in the Philippines, McLoughlins time was not totally
devoted to following up his claim as he had business arrangements to look into.

[51]

Ibid.

[52]

Ibid.

[53]

Ibid. Expenses for power and air-conditioning were separate from room payment.

[54]

Ibid. Business losses were rejected because of lack of proof.

[55]

Prudenciado v. Alliance Transport System, Inc., G.R. No. 33836, March 16, 1987.