Republic of the Philippines while the balance was covered by three (3) postdated checks.
y three (3) postdated checks. Among the terms and
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 90027 March 3, 1993
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK
AND TRUST COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.
DAVIDE, JR., J.:
Is the contractual relation between a commercial bank and another party in
a contract of rent of a safety deposit box with respect to its contents placed
by the latter one of bailor and bailee or one of lessor and lessee?
This is the crux of the present controversy.
On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the
spouses Ramon and Paula Pugao entered into an agreement whereby the
former purchased from the latter two (2) parcels of land for a consideration
of P350,625.00. Of this amount, P75,725.00 was paid as downpayment
conditions of the agreement embodied in a Memorandum of True and Actual
Agreement of Sale of Land were that the titles to the lots shall be transferred to the
petitioner upon full payment of the purchase price and that the owner's copies of the
certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and
292434, shall be deposited in a safety deposit box of any bank. The same could be
withdrawn only upon the joint signatures of a representative of the petitioner and the
Pugaos upon full payment of the purchase price. Petitioner, through Sergio Aguirre,
and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent
Security Bank and Trust Company, a domestic banking corporation hereinafter
referred to as the respondent Bank. For this purpose, both signed a contract of lease
(Exhibit "2") which contains, inter alia, the following conditions:
13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith. 1
After the execution of the contract, two (2) renter's keys were given to the renters
one to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained
in the possession of the respondent Bank. The safety deposit box has two (2)
keyholes, one for the guard key and the other for the renter's key, and can be opened
only with the use of both keys. Petitioner claims that the certificates of title were
placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the
two (2) lots at a price of P225.00 per square meter which, as petitioner alleged in its
complaint, translates to a profit of P100.00 per square meter or a total of
P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a deed
of sale which necessarily entailed the production of the certificates of title. In view
thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent
Bank on 4 October 1979 to open the safety deposit box and get the certificates of
title. However, when opened in the presence of the Bank's representative,
the box yielded no such certificates. Because of the delay in the
reconstitution of the title, Mrs. Ramos withdrew her earlier offer to
purchase the lots; as a consequence thereof, the petitioner allegedly failed
to realize the expected profit of P280,500.00. Hence, the latter filed on 1
September 1980 a complaint 2 for damages against the respondent Bank
with the Court of First Instance (now Regional Trial Court) of Pasig, Metro
Manila which docketed the same as Civil Case No. 38382.
In its Answer with Counterclaim, 3 respondent Bank alleged that the
petitioner has no cause of action because of paragraphs 13 and 14 of the
contract of lease (Exhibit "2"); corollarily, loss of any of the items or
articles contained in the box could not give rise to an action against it. It
then interposed a counterclaim for exemplary damages as well as attorney's
fees in the amount of P20,000.00. Petitioner subsequently filed an answer
to the counterclaim. 4
In due course, the trial court, now designated as Branch 161 of the
Regional Trial Court (RTC) of Pasig, Metro Manila, rendered a
decision 5 adverse to the petitioner on 8 December 1986, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered
dismissing plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered ordering
plaintiff to pay defendant the amount of FIVE THOUSAND (P5,000.00)
PESOS as attorney's fees.
6
With costs against plaintiff.
The unfavorable verdict is based on the trial court's conclusion that under
paragraphs 13 and 14 of the contract of lease, the Bank has no liability for
the loss of the certificates of title. The court declared that the said provisions are
binding on the parties.
Its motion for reconsideration 7 having been denied, petitioner appealed from the
adverse decision to the respondent Court of Appeals which docketed the appeal as
CA-G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the
challenged decision because the trial court erred in (a) absolving the respondent
Bank from liability from the loss, (b) not declaring as null and void, for being
contrary to law, public order and public policy, the provisions in the contract for
lease of the safety deposit box absolving the Bank from any liability for loss, (c) not
concluding that in this jurisdiction, as well as under American jurisprudence, the
liability of the Bank is settled and (d) awarding attorney's fees to the Bank and
denying the petitioner's prayer for nominal and exemplary damages and attorney's
fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the
appealed decision principally on the theory that the contract (Exhibit "2") executed
by the petitioner and respondent Bank is in the nature of a contract of lease by virtue
of which the petitioner and its co-renter were given control over the safety deposit
box and its contents while the Bank retained no right to open the said box because it
had neither the possession nor control over it and its contents. As such, the contract
is governed by Article 1643 of the Civil Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds himself to give to another
the enjoyment or use of a thing for a price certain, and for a period which may be
definite or indefinite. However, no lease for more than ninety-nine years shall be
valid.
It invoked Tolentino vs. Gonzales 11 which held that the owner of the property
loses his control over the property leased during the period of the contract and
Article 1975 of the Civil Code which provides:
Art. 1975. The depositary holding certificates, bonds, securities or
instruments which earn interest shall be bound to collect the latter when it
becomes due, and to take such steps as may be necessary in order that the
securities may preserve their value and the rights corresponding to them
according to law.
The above provision shall not apply to contracts for the rent of safety
deposit boxes.
and then concluded that "[c]learly, the defendant-appellee is not under any
duty to maintain the contents of the box. The stipulation absolving the
defendant-appellee from liability is in accordance with the nature of the
contract of lease and cannot be regarded as contrary to law, public order
and public policy." 12 The appellate court was quick to add, however, that
under the contract of lease of the safety deposit box, respondent Bank is
not completely free from liability as it may still be made answerable in
case unauthorized persons enter into the vault area or when the rented box
is forced open. Thus, as expressly provided for in stipulation number 8 of
the contract in question:
8. The Bank shall use due diligence that no unauthorized person shall be
admitted to any rented safe and beyond this, the Bank will not be
responsible for the contents of any safe rented from it. 13
Its motion for reconsideration 14 having been denied in the respondent
Court's Resolution of 28 August 1989, 15 petitioner took this recourse under
Rule 45 of the Rules of Court and urges Us to review and set aside the
respondent Court's ruling. Petitioner avers that both the respondent Court
and the trial court (a) did not properly and legally apply the correct law in
this case, (b) acted with grave abuse of discretion or in excess of
jurisdiction amounting to lack thereof and (c) set a precedent that is
contrary to, or is a departure from precedents adhered to and affirmed by
decisions of this Court and precepts in American jurisprudence adopted in
the Philippines. It reiterates the arguments it had raised in its motion to reconsider
the trial court's decision, the brief submitted to the respondent Court and the motion
to reconsider the latter's decision. In a nutshell, petitioner maintains that regardless
of nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is
actually a contract of deposit governed by Title XII, Book IV of the Civil Code of
the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the
loss of the certificates of title pursuant to Article 1972 of the said Code which
provides:
Art. 1972. The depositary is obliged to keep the thing safely and to return it, when
required, to the depositor, or to his heirs and successors, or to the person who may
have been designated in the contract. His responsibility, with regard to the
safekeeping and the loss of the thing, shall be governed by the provisions of Title I
of this Book.
If the deposit is gratuitous, this fact shall be taken into account in determining the
degree of care that the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence 17 which is supposed
to expound on the prevailing rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit company leases a safe-
deposit box or safe and the lessee takes possession of the box or safe and places
therein his securities or other valuables, the relation of bailee and bail or is created
between the parties to the transaction as to such securities or other valuables; the
fact that the
safe-deposit company does not know, and that it is not expected that it shall know,
the character or description of the property which is deposited in such safe-deposit
box or safe does not change that relation. That access to the contents of the safe-
deposit box can be had only by the use of a key retained by the lessee ( whether it is
the sole key or one to be used in connection with one retained by the lessor) does
not operate to alter the foregoing rule. The argument that there is not, in such a case,
a delivery of exclusive possession and control to the deposit company, and
that therefore the situation is entirely different from that of ordinary
bailment, has been generally rejected by the courts, usually on the ground
that as possession must be either in the depositor or in the company, it
should reasonably be considered as in the latter rather than in the former,
since the company is, by the nature of the contract, given absolute control
of access to the property, and the depositor cannot gain access thereto
without the consent and active participation of the company. . . . (citations
omitted).
and a segment from Words and Phrases 18 which states that a contract for
the rental of a bank safety deposit box in consideration of a fixed amount at
stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned
contract are contrary to law and public policy and should be declared null
and void. In support thereof, it cites Article 1306 of the Civil Code which
provides that parties to a contract may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy.
After the respondent Bank filed its comment, this Court gave due course to
the petition and required the parties to simultaneously submit their
respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of
the safety deposit box is not an ordinary contract of lease as defined in
Article 1643 of the Civil Code. However, We do not fully subscribe to its
view that the same is a contract of deposit that is to be strictly governed by
the provisions in the Civil Code on deposit; 19the contract in the case at bar
is a special kind of deposit. It cannot be characterized as an ordinary
contract of lease under Article 1643 because the full and absolute possession and
control of the safety deposit box was not given to the joint renters the petitioner
and the Pugaos. The guard key of the box remained with the respondent Bank;
without this key, neither of the renters could open the box. On the other hand, the
respondent Bank could not likewise open the box without the renter's key. In this
case, the said key had a duplicate which was made so that both renters could have
access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply.
Neither could Article 1975, also relied upon by the respondent Court, be invoked as
an argument against the deposit theory. Obviously, the first paragraph of such
provision cannot apply to a depositary of certificates, bonds, securities or
instruments which earn interest if such documents are kept in a rented safety deposit
box. It is clear that the depositary cannot open the box without the renter being
present.
We observe, however, that the deposit theory itself does not altogether find
unanimous support even in American jurisprudence. We agree with the petitioner
that under the latter, the prevailing rule is that the relation between a bank renting
out safe-deposit boxes and its customer with respect to the contents of the box is
that of a bail or and bailee, the bailment being for hire and mutual benefit. 21 This is
just the prevailing view because:
There is, however, some support for the view that the relationship in question might
be more properly characterized as that of landlord and tenant, or lessor and lessee. It
has also been suggested that it should be characterized as that of licensor and
licensee. The relation between a bank, safe-deposit company, or storage company,
and the renter of a safe-deposit box therein, is often described as contractual,
express or implied, oral or written, in whole or in part. But there is apparently no
jurisdiction in which any rule other than that applicable to bailments governs
questions of the liability and rights of the parties in respect of loss of the contents of
safe-deposit boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions to rent out
safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule
in the United States has been adopted. Section 72 of the General Banking
Act 23 pertinently provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in
this Act, banking institutions other than building and loan associations may
perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent
safety deposit boxes for the safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b)
and (c) of this section as depositories or as agents. . . . 24 (emphasis
supplied)
Note that the primary function is still found within the parameters of a
contract of deposit, i.e., the receiving in custody of funds, documents and
other valuable objects for safekeeping. The renting out of the safety deposit
boxes is not independent from, but related to or in conjunction with, this
principal function. A contract of deposit may be entered into orally or in
writing 25 and, pursuant to Article 1306 of the Civil Code, the parties
thereto may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals,
good customs, public order or public policy. The depositary's responsibility
for the safekeeping of the objects deposited in the case at bar is governed
by Title I, Book IV of the Civil Code. Accordingly, the depositary would be
liable if, in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the agreement. 26 In the
absence of any stipulation prescribing the degree of diligence required, that
of a good father of a family is to be observed. 27Hence, any stipulation
exempting the depositary from any liability arising from the loss of the thing
deposited on account of fraud, negligence or delay would be void for being contrary
to law and public policy. In the instant case, petitioner maintains that conditions 13
and 14 of the questioned contract of lease of the safety deposit box, which read:
13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith. 28
are void as they are contrary to law and public policy. We find Ourselves in
agreement with this proposition for indeed, said provisions are inconsistent with the
respondent Bank's responsibility as a depositary under Section 72(a) of the General
Banking Act. Both exempt the latter from any liability except as contemplated in
condition 8 thereof which limits its duty to exercise reasonable diligence only with
respect to who shall be admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no unauthorized person shall be admitted to
any rented safe and beyond this, the Bank will not be responsible for the contents of
any safe rented from it. 29
Furthermore, condition 13 stands on a wrong premise and is contrary to the actual
practice of the Bank. It is not correct to assert that the Bank has neither the
possession nor control of the contents of the box since in fact, the safety deposit box
itself is located in its premises and is under its absolute control; moreover, the
respondent Bank keeps the guard key to the said box. As stated earlier, renters
cannot open their respective boxes unless the Bank cooperates by presenting and
using this guard key. Clearly then, to the extent above stated, the foregoing
conditions in the contract in question are void and ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a customer of a safe-
deposit company, the parties, since the relation is a contractual one, may by special
contract define their respective duties or provide for increasing or limiting Since, however, the petitioner cannot be blamed for the filing of the complaint and
the liability of the deposit company, provided such contract is not in no bad faith on its part had been established, the trial court erred in condemning the
violation of law or public policy. It must clearly appear that there actually petitioner to pay the respondent Bank attorney's fees. To this extent, the Decision
was such a special contract, however, in order to vary the ordinary (dispositive portion) of public respondent Court of Appeals must be modified.
obligations implied by law from the relationship of the parties; liability of
the deposit company will not be enlarged or restricted by words of doubtful WHEREFORE, the Petition for Review is partially GRANTED by deleting the
meaning. The company, in renting award for attorney's fees from the 4 July 1989 Decision of the respondent Court of
safe-deposit boxes, cannot exempt itself from liability for loss of the Appeals in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement
contents by its own fraud or negligence or that of its agents or servants, and We made above on the nature of the relationship between the parties in a contract of
if a provision of the contract may be construed as an attempt to do so, it lease of safety deposit boxes, the dispositive portion of the said Decision is hereby
will be held ineffective for the purpose. Although it has been held that the AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of
lessor of a safe-deposit box cannot limit its liability for loss of the contents merit.
thereof through its own negligence, the view has been taken that such a
lessor may limits its liability to some extent by agreement or No pronouncement as to costs.
stipulation. 30 (citations omitted)
SO ORDERED.
Thus, we reach the same conclusion which the Court of Appeals arrived at,
that is, that the petition should be dismissed, but on grounds quite different Feliciano, Bidin, Romero and Melo, JJ., concur.
from those relied upon by the Court of Appeals. In the instant case, the
respondent Bank's exoneration cannot, contrary to the holding of the Court Gutierrez, Jr., J., is on leave.
of Appeals, be based on or proceed from a characterization of the
impugned contract as a contract of lease, but rather on the fact that no
competent proof was presented to show that respondent Bank was aware of
the agreement between the petitioner and the Pugaos to the effect that the
certificates of title were withdrawable from the safety deposit box only
upon both parties' joint signatures, and that no evidence was submitted to
reveal that the loss of the certificates of title was due to the fraud or
negligence of the respondent Bank. This in turn flows from this Court's
determination that the contract involved was one of deposit. Since both the
petitioner and the Pugaos agreed that each should have one (1) renter's key,
it was obvious that either of them could ask the Bank for access to the
safety deposit box and, with the use of such key and the Bank's own guard
key, could open the said box, without the other renter being present.
 Republic of the Philippines cases were heard together in the trial court and determined in a single opinion. The
SUPREME COURT same course will accordingly be followed here.
Manila
In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave judgment
EN BANC for her to recover of the defendant the sum of P5,238.51, with costs. From this
judgment both the plaintiff and the defendant appealed.
G.R. Nos. L-26948 and L-26949 October 8, 1927
In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court gave
SILVESTRA BARON, plaintiff-appellant, judgment for him to recover of the defendant the sum of P5,734.60, with costs, from
vs. which judgment both the plaintiff and the defendant also appealed. In the same case
PABLO DAVID, defendant-appellant. the defendant interposed a counterclaim in which he asked credit for the sum of
P2,800 which he had advanced to the plaintiff Guillermo Baron on various
And occasions. This credit was admitted by the plaintiff and allowed by the trial court.
But the defendant also interposed a cross-action against Guillermo Baron in which
GUILLERMO BARON, plaintiff-appellant, the defendant claimed compensation for damages alleged to have Ben suffered by
vs. him by reason of the alleged malicious and false statements made by the plaintiff
PABLO DAVID, defendant-appellant. against the defendant in suing out an attachment against the defendant's property
soon after the institution of the action. In the same cross-action the defendant also
Jose Gutierrez David for plaintiff-appellant in case of No. 26948. sought compensation for damages incident to the shutting down of the defendant's
Gregorio Perfecto for defendant-appellant in both cases. rice mill for the period of one hundred seventy days during which the above-
Francisco, Lualhati & Lopez and Jose Gutierrez David for plaintiff- mentioned attachment was in force. The trial judge disallowed these claims for
appellant in case No. 26949. damages, and from this feature of the decision the defendant appealed. We are
therefore confronted with five distinct appeals in this record.

STREET, J.:
These two actions were instituted in the Court of First Instance of the
Province of Pampanga by the respective plaintiffs, Silvestra Baron and
Guillermo Baron, for the purpose of recovering from the defendant, Pablo
David, the value of palay alleged to have been sold by the plaintiffs to the
defendant in the year 1920. Owing to the fact that the defendant is the same
in both cases and that the two cases depend in part upon the same facts, the
Prior to January 17, 1921, the defendant Pablo David has been engaged in running a
rice mill in the municipality of Magalang, in the Province of Pampanga, a mill
which was well patronized by the rice growers of the vicinity and almost constantly
running. On the date stated a fire occurred that destroyed the mill and its contents,
and it was some time before the mill could be rebuilt and put in operation again.
Silvestra Baron, the plaintiff in the first of the actions before us, is an aunt of the
defendant; while Guillermo Baron, the plaintiff in the other action; is his uncle. In
the months of March, April, and May, 1920, Silvestra Baron placed a quantity of
palay in the defendant's mill; and this, in connection with some that she took over
from Guillermo Baron, amounted to 1,012 cavans and 24 kilos. During
approximately the same period Guillermo Baron placed other 1,865 cavans
and 43 kilos of palay in the mill. No compensation has ever been received
by Silvestra Baron upon account of the palay delivered by Guillermo
Baron, he has received from the defendant advancements amounting to
P2,800; but apart from this he has not been compensated. Both the
plaintiffs claim that the palay which was delivered by them to the
defendant was sold to the defendant; while the defendant, on the other
hand, claims that the palay was deposited subject to future withdrawal by
the depositors or subject to some future sale which was never effected. He
therefore supposes himself to be relieved from all responsibility by virtue
of the fire of January 17, 1921, already mentioned.
The plaintiff further say that their palay was delivered to the defendant at
his special request, coupled with a promise on his part to pay for the same
at the highest price per cavan at which palay would sell during the year
1920; and they say that in August of that year the defendant promised to
pay them severally the price of P8.40 per cavan, which was about the top
of the market for the season, provided they would wait for payment until
December. The trial judge found that no such promise had been given; and
the incredulity of the court upon this point seems to us to be justified. A
careful examination of the proof, however, leads us to the conclusion that
the plaintiffs did, some time in the early part of August, 1920, make
demand upon the defendant for a settlement, which he evaded or postponed
leaving the exact amount due to the plaintiffs undetermined.
It should be stated that the palay in question was place by the plaintiffs in
the defendant's mill with the understanding that the defendant was at
liberty to convert it into rice and dispose of it at his pleasure. The mill was
actively running during the entire season, and as palay was daily coming in
from many customers and as rice was being constantly shipped by the
defendant to Manila, or other rice markets, it was impossible to keep the
plaintiffs' palay segregated. In fact the defendant admits that the plaintiffs'
palay was mixed with that of others. In view of the nature of the defendant's
activities and the way in which the palay was handled in the defendant's mill, it is
quite certain that all of the plaintiffs' palay, which was put in before June 1, 1920,
been milled and disposed of long prior to the fire of January 17, 1921. Furthermore,
the proof shows that when the fire occurred there could not have been more than
about 360 cavans of palay in the mill, none of which by any reasonable probability
could have been any part of the palay delivered by the plaintiffs. Considering the
fact that the defendant had thus milled and doubtless sold the plaintiffs' palay prior
to the date of the fire, it result that he is bound to account for its value, and his
liability was not extinguished by the occurence of the fire. In the briefs before us it
seems to have been assumed by the opposing attorneys that in order for the
plaintiffs to recover, it is necessary that they should be able to establish that the
plaintiffs' palay was delivered in the character of a sale, and that if, on the contrary,
the defendant should prove that the delivery was made in the character of deposit,
the defendant should be absolved. But the case does not depend precisely upon this
explicit alternative; for even supposing that the palay may have been delivered in
the character of deposit, subject to future sale or withdrawal at plaintiffs' election,
nevertheless if it was understood that the defendant might mill the palay and he has
in fact appropriated it to his own use, he is of course bound to account for its value.
Under article 1768 of the Civil Code, when the depository has permission to make
use of the thing deposited, the contract loses the character of mere deposit and
becomes a loan or a commodatum; and of course by appropriating the thing, the
bailee becomes responsible for its value. In this connection we wholly reject the
defendant's pretense that the palay delivered by the plaintiffs or any part of it was
actually consumed in the fire of January, 1921. Nor is the liability of the defendant
in any wise affected by the circumstance that, by a custom prevailing among rice
millers in this country, persons placing palay with them without special agreement
as to price are at liberty to withdraw it later, proper allowance being made for
storage and shrinkage, a thing that is sometimes done, though rarely.
In view of what has been said it becomes necessary to discover the price which the
defendant should be required to pay for the plaintiffs' palay. Upon this point the trial
judge fixed upon P6.15 per cavan; and although we are not exactly in agreement
with him as to the propriety of the method by which he arrived at this
figure, we are nevertheless of the opinion that, all things considered, the
result is approximately correct. It appears that the price of palay during the
months of April, May, and June, 1920, had been excessively high in the
Philippine Islands and even prior to that period the Government of the
Philippine Islands had been attempting to hold the price in check by
executive regulation. The highest point was touched in this season was
apparently about P8.50 per cavan, but the market began to sag in May or
June and presently entered upon a precipitate decline. As we have already
stated, the plaintiffs made demand upon the defendant for settlement in the
early part of August; and, so far as we are able to judge from the proof, the
price of P6.15 per cavan, fixed by the trial court, is about the price at which
the defendant should be required to settle as of that date. It was the date of
the demand of the plaintiffs for settlement that determined the price to be
paid by the defendant, and this is true whether the palay was delivered in
the character of sale with price undetermined or in the character of deposit
subject to use by the defendant. It results that the plaintiffs are respectively
entitle to recover the value of the palay which they had placed with the
defendant during the period referred to, with interest from the date of the
filing of their several complaints.
As already stated, the trial court found that at the time of the fire there were
about 360 cavans of palay in the mill and that this palay was destroyed. His
Honor assumed that this was part of the palay delivered by the plaintiffs,
and he held that the defendant should be credited with said amount. His
Honor therefore deducted from the claims of the plaintiffs their respective
proportionate shares of this amount of palay. We are unable to see the
propriety of this feature of the decision. There were many customers of the
defendant's rice mill who had placed their palay with the defendant under
the same conditions as the plaintiffs, and nothing can be more certain than
that the palay which was burned did not belong to the plaintiffs. That palay
without a doubt had long been sold and marketed. The assignments of error
of each of the plaintiffs-appellants in which this feature of the decision is
attacked are therefore well taken; and the appealed judgments must be modified by
eliminating the deductions which the trial court allowed from the plaintiffs' claims.
The trial judge also allowed a deduction from the claim of the plaintiff Guillermo
Baron of 167 cavans of palay, as indicated in Exhibit 12, 13, 14, and 16. This was
also erroneous. These exhibits relate to transactions that occurred nearly two years
after the transactions with which we are here concerned, and they were offered in
evidence merely to show the character of subsequent transactions between the
parties, it appearing that at the time said exhibits came into existence the defendant
had reconstructed his mill and that business relations with Guillermo Baron had
been resumed. The transactions shown by these exhibits (which relate to palay
withdrawn by the plaintiff from the defendant's mill) were not made the subject of
controversy in either the complaint or the cross-complaint of the defendant in the
second case. They therefore should not have been taken into account as a credit in
favor of the defendant. Said credit must therefore be likewise of course be without
prejudice to any proper adjustment of the rights of the parties with respect to these
subsequent transactions that they have heretofore or may hereafter effect.
The preceding discussion disposes of all vital contentions relative to the liability of
the defendant upon the causes of action stated in the complaints. We proceed
therefore now to consider the question of the liability of the plaintiff Guillermo
Baron upon the cross-complaint of Pablo David in case R. G. No. 26949. In this
cross-action the defendant seek, as the stated in the third paragraph of this opinion,
to recover damages for the wrongful suing out of an attachment by the plaintiff and
the levy of the same upon the defendant's rice mill. It appears that about two and
one-half months after said action was begun, the plaintiff, Guillermo Baron, asked
for an attachment to be issued against the property of the defendant; and to procure
the issuance of said writ the plaintiff made affidavit to the effect that the defendant
was disposing, or attempting the plaintiff. Upon this affidavit an attachment was
issued as prayed, and on March 27, 1924, it was levied upon the defendant's rice
mill, and other property, real and personal. 1awph!l.net
Upon attaching the property the sheriff closed the mill and placed it in the
care of a deputy. Operations were not resumed until September 13, 1924,
when the attachment was dissolved by an order of the court and the
defendant was permitted to resume control. At the time the attachment was
levied there were, in the bodega, more than 20,000 cavans of palay
belonging to persons who held receipts therefor; and in order to get this
grain away from the sheriff, twenty-four of the depositors found it
necessary to submit third-party claims to the sheriff. When these claims
were put in the sheriff notified the plaintiff that a bond in the amount of
P50,000 must be given, otherwise the grain would be released. The
plaintiff, being unable or unwilling to give this bond, the sheriff
surrendered the palay to the claimants; but the attachment on the rice mill
was maintained until September 13, as above stated, covering a period of
one hundred seventy days during which the mill was idle. The ground upon
which the attachment was based, as set forth in the plaintiff's affidavit was
that the defendant was disposing or attempting to dispose of his property
for the purpose of defrauding the plaintiff. That this allegation was false is
clearly apparent, and not a word of proof has been submitted in support of
the assertion. On the contrary, the defendant testified that at the time this
attachment was secured he was solvent and could have paid his
indebtedness to the plaintiff if judgment had been rendered against him in
ordinary course. His financial conditions was of course well known to the
plaintiff, who is his uncle. The defendant also states that he had not
conveyed away any of his property, nor had intended to do so, for the
purpose of defrauding the plaintiff. We have before us therefore a case of a
baseless attachment, recklessly sued out upon a false affidavit and levied
upon the defendant's property to his great and needless damage. That the
act of the plaintiff in suing out the writ was wholly unjustifiable is perhaps
also indicated in the circumstance that the attachment was finally dissolved
upon the motion of the plaintiff himself.
The defendant testified that his mill was accustomed to clean from 400 to
450 cavans of palay per day, producing 225 cavans of rice of 57 kilos each.
The price charged for cleaning each cavan rice was 30 centavos. The defendant also
stated that the expense of running the mill per day was from P18 to P25, and that the
net profit per day on the mill was more than P40. As the mill was not accustomed to
run on Sundays and holiday, we estimate that the defendant lost the profit that
would have been earned on not less than one hundred forty work days. Figuring his
profits at P40 per day, which would appear to be a conservative estimate, the actual
net loss resulting from his failure to operate the mill during the time stated could not
have been less than P5,600. The reasonableness of these figures is also indicated in
the fact that the twenty-four customers who intervened with third-party claims took
out of the camarin 20,000 cavans of palay, practically all of which, in the ordinary
course of events, would have been milled in this plant by the defendant. And of
course other grain would have found its way to this mill if it had remained open
during the one hundred forty days when it was closed.
But this is not all. When the attachment was dissolved and the mill again opened,
the defendant found that his customers had become scattered and could not be easily
gotten back. So slow, indeed, was his patronage in returning that during the
remainder of the year 1924 the defendant was able to mill scarcely more than the
grain belonging to himself and his brothers; and even after the next season opened
many of his old customers did not return. Several of these individuals, testifying as
witnesses in this case, stated that, owing to the unpleasant experience which they
had in getting back their grain from the sheriff to the mill of the defendant, though
they had previously had much confidence in him.
As against the defendant's proof showing the facts above stated the plaintiff
submitted no evidence whatever. We are therefore constrained to hold that the
defendant was damaged by the attachment to the extent of P5,600, in profits lost by
the closure of the mill, and to the extent of P1,400 for injury to the good-will of his
business, making a total of P7,000. For this amount the defendant must recover
judgment on his cross-complaint.
The trial court, in dismissing the defendant's cross-complaint for damages resulting
from the wrongful suing out of the attachment, suggested that the closure of the rice
mill was a mere act of the sheriff for which the plaintiff was not
responsible and that the defendant might have been permitted by the sheriff
to continue running the mill if he had applied to the sheriff for permission
to operate it. This singular suggestion will not bear a moment's criticism. It
was of course the duty of the sheriff, in levying the attachment, to take the
attached property into his possession, and the closure of the mill was a
natural, and even necessary, consequence of the attachment. For the
damage thus inflicted upon the defendant the plaintiff is undoubtedly
responsible.
One feature of the cross-complaint consist in the claim of the defendant
(cross-complaint) for the sum of P20,000 as damages caused to the
defendant by the false and alleged malicious statements contained in the
affidavit upon which the attachment was procured. The additional sum of
P5,000 is also claimed as exemplary damages. It is clear that with respect
to these damages the cross-action cannot be maintained, for the reason that
the affidavit in question was used in course of a legal proceeding for the
purpose of obtaining a legal remedy, and it is therefore privileged. But
though the affidavit is not actionable as a libelous publication, this fact in
no obstacle to the maintenance of an action to recover the damage resulting
from the levy of the attachment.
American practice of trying cases for the most part before juries. When a case is
thus tried the actual reading of the deposition is necessary in order that the jurymen
may become acquainted with its contents. But in courts of equity, and in all courts
where judges have the evidence before them for perusal at their pleasure, it is not
necessary that the deposition should be actually read when presented as evidence.
From what has been said it result that judgment of the court below must be modified
with respect to the amounts recoverable by the respective plaintiffs in the two
actions R. G. Nos. 26948 and 26949 and must be reversed in respect to the
disposition of the cross-complaint interposed by the defendant in case R. G. No.
26949, with the following result: In case R. G. No. 26948 the plaintiff Silvestra
Baron will recover of the Pablo David the sum of P6,227.24, with interest from
November 21, 1923, the date of the filing of her complaint, and with costs. In case
R. G. No. 26949 the plaintiff Guillermo Baron will recover of the defendant Pablo
David the sum of P8,669.75, with interest from January 9, 1924. In the same case
the defendant Pablo David, as plaintiff in the cross-complaint, will recover of
Guillermo Baron the sum of P7,000, without costs. So ordered.
Avancea, C.J., Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ.,
concur.

Before closing this opinion a word should be said upon the point raised in
the first assignment of error of Pablo David as defendant in case R. G. No.
26949. In this connection it appears that the deposition of Guillermo Baron
was presented in court as evidence and was admitted as an exhibit, without
being actually read to the court. It is supposed in the assignment of error
now under consideration that the deposition is not available as evidence to
the plaintiff because it was not actually read out in court. This connection
is not well founded. It is true that in section 364 of the Code of Civil
Procedure it is said that a deposition, once taken, may be read by either
party and will then be deemed the evidence of the party reading it. The use
of the word "read" in this section finds its explanation of course in the
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-30511 February 14, 1980

MANUEL M. SERRANO, petitioner,

vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF
MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B.
RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA,
ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA,
RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and
TEOFILO TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of
the Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for
respondent Overseas Bank of Manila.
Josefina G. Salonga for all other respondents.
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that
seeks the establishment of joint and solidary liability to the amount of
Three Hundred Fifty Thousand Pesos, with interest, against respondent
Central Bank of the Philippines and Overseas Bank of Manila and its
stockholders, on the alleged failure of the Overseas Bank of Manila to
return the time deposits made by petitioner and assigned to him, on the
ground that respondent Central Bank failed in its duty to exercise strict
supervision over respondent Overseas Bank of Manila to protect depositors
and the general public. 1 Petitioner also prays that both respondent banks be
ordered to execute the proper and necessary documents to constitute all
properties fisted in Annex "7" of the Answer of respondent Central Bank of
the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs.
Central Bank of the Philippines," into a trust fund in favor of petitioner and
all other depositors of respondent Overseas Bank of Manila. It is also
prayed that the respondents be prohibited permanently from honoring,
implementing, or doing any act predicated upon the validity or efficacy of the deeds
of mortgage, assignment. and/or conveyance or transfer of whatever nature of the
properties listed in Annex "7" of the Answer of respondent Central Bank in G.R.
No. 29352. 2
A sought for ex-parte preliminary injunction against both respondent banks was not
given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for
one year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00)
with the respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a
time deposit, for one year with 6-% interest, on March 6, 1967, of Two Hundred
Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of
Manila. 4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano,
assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of
P200,000.00 with respondent Overseas Bank of Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time
deposits from the respondent Overseas Bank of Manila, dating from December 6,
1967 up to March 4, 1968, not a single one of the time deposit certificates was
honored by respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering
the banking system of the Republic and it exercises supervision over all doing
business in the Philippines, but denies the petitioner's allegation that the Central
Bank has the duty to exercise a most rigid and stringent supervision of banks,
implying that respondent Central Bank has to watch every move or activity of all
banks, including respondent Overseas Bank of Manila. Respondent Central Bank
claims that as of March 12, 1965, the Overseas Bank of Manila, while operating,
was only on a limited degree of banking operations since the Monetary
Board decided in its Resolution No. 322, dated March 12, 1965, to prohibit
the Overseas Bank of Manila from making new loans and investments in
view of its chronic reserve deficiencies against its deposit liabilities. This
limited operation of respondent Overseas Bank of Manila continued up to
1968. 7
Respondent Central Bank also denied that it is guarantor of the permanent
solvency of any banking institution as claimed by petitioner. It claims that
neither the law nor sound banking supervision requires respondent Central
Bank to advertise or represent to the public any remedial measures it may
impose upon chronic delinquent banks as such action may inevitably result
to panic or bank "runs". In the years 1966-1967, there were no findings to
declare the respondent Overseas Bank of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was
created in favor of petitioner and his predecessor in interest Concepcion
Maneja when their time deposits were made in 1966 and 1967 with the
respondent Overseas Bank of Manila as during that time the latter was not
an insolvent bank and its operation as a banking institution was being
salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the
properties given by respondent Overseas Bank of Manila as additional
collaterals to respondent Central Bank of the Philippines for the former's
overdrafts and emergency loans were acquired through the use of
depositors' money, including that of the petitioner and Concepcion
Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank
of the Philippines," a case was filed by the petitioner Ramos, wherein
respondent Overseas Bank of Manila sought to prevent respondent Central
Bank from closing, declaring the former insolvent, and liquidating its
assets. Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion
to intervene in G.R. No. L-29352, on the ground that Serrano had a real and legal
interest as depositor of the Overseas Bank of Manila in the matter in litigation in
that case. Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel
Serrano's motion to intervene in that case, on the ground that his claim as depositor
of the Overseas Bank of Manila should properly be ventilated in the Court of First
Instance, and if this Court were to allow Serrano to intervene as depositor in G.R.
No. L-29352, thousands of other depositors would follow and thus cause an
avalanche of cases in this Court. In the resolution dated October 4, 1968, this Court
denied Serrano's, motion to intervene. The contents of said motion to intervene are
substantially the same as those of the present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which
became final and executory on March 3, 1972, favorable to the respondent Overseas
Bank of Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted and
respondent Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the
Overseas Bank of Manila to participate in clearing, direct the suspension of its
operation, and ordering the liquidation of said bank) are hereby annulled and set
aside; and said respondent Central Bank of the Philippines is directed to comply
with its obligations under the Voting Trust Agreement, and to desist from taking
action in violation therefor. Costs against respondent Central Bank of the
Philippines. 12
Because of the above decision, petitioner in this case filed a motion for judgment in
this case, praying for a decision on the merits, adjudging respondent Central Bank
jointly and severally liable with respondent Overseas Bank of Manila to the
petitioner for the P350,000 time deposit made with the latter bank, with all interests
due therein; and declaring all assets assigned or mortgaged by the respondents
Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as
trust funds for the benefit of petitioner and other depositors. 13
By the very nature of the claims and causes of action against respondents, can use the same. The petitioner here in making time deposits that earn interests
they in reality are recovery of time deposits plus interest from respondent with respondent Overseas Bank of Manila was in reality a creditor of the respondent
Overseas Bank of Manila, and recovery of damages against respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner.
Central Bank for its alleged failure to strictly supervise the acts of the other Failure of he respondent Bank to honor the time deposit is failure to pay s obligation
respondent Bank and protect the interests of its depositors by virtue of the as a debtor and not a breach of trust arising from depositary's failure to return the
constructive trust created when respondent Central Bank required the other subject matter of the deposit
respondent to increase its collaterals for its overdrafts said emergency
loans, said collaterals allegedly acquired through the use of depositors WHEREFORE, the petition is dismissed for lack of merit, with costs against
money. These claims shoud be ventilated in the Court of First Instance of petitioner.
proper jurisdiction as We already pointed out when this Court denied
petitioner's motion to intervene in G.R. No. L-29352. Claims of these SO ORDERED.
nature are not proper in actions for mandamus and prohibition as there is
no shown clear abuse of discretion by the Central Bank in its exercise of Antonio, Abad Santos, JJ., concur.
supervision over the other respondent Overseas Bank of Manila, and if
there was, petitioner here is not the proper party to raise that question, but Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of
rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither Justice Aquino.
is there anything to prohibit in this case, since the questioned acts of the
respondent Central Bank (the acts of dissolving and liquidating the
Overseas Bank of Manila), which petitioner here intends to use as his basis
for claims of damages against respondent Central Bank, had been
accomplished a long time ago.

Furthermore, both parties overlooked one fundamental principle in the

nature of bank deposits when the petitioner claimed that there should be
created a constructive trust in his favor when the respondent Overseas
Bank of Manila increased its collaterals in favor of respondent Central
Bank for the former's overdrafts and emergency loans, since these
collaterals were acquired by the use of depositors' money.

Bank deposits are in the nature of irregular deposits. They are really loans
because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to be covered by the
law on loans. 14 Current and savings deposit are loans to a bank because it
 DECISION

TINGA, J.:

The primary question of interest before this Court is the only legal issue in the case:
It is whether a hotel may evade liability for the loss of items left with it for
safekeeping by its guests, by having these guests execute written waivers holding
the establishment or its employees free from blame for such loss in light of Article
2003 of the Civil Code which voids such waivers.

Before this Court is a Rule 45 petition for review of the Decision1 dated 19 October
1995 of the Court of Appeals which affirmed the Decision2 dated 16 December 1991
of the Regional Trial Court (RTC), Branch 13, of Manila, finding YHT Realty
Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam
(Payam) jointly and solidarily liable for damages in an action filed by Maurice
McLoughlin (McLoughlin) for the loss of his American and Australian dollars
deposited in the safety deposit box of Tropicana Copacabana Apartment Hotel,
owned and operated by YHT Realty Corporation.

The factual backdrop of the case follow.

Republic of the Philippines
SUPREME COURT Private respondent McLoughlin, an Australian businessman-philanthropist, used to
Manila 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
SECOND DIVISION important people, accompanying him in visiting impoverished street children and
assisting him in buying gifts for the children and in distributing the same to
G.R. No. 126780 February 17, 2005 charitable institutions for poor children. Tan convinced McLoughlin to transfer from
Sheraton Hotel to Tropicana where Lainez, Payam and Danilo Lopez were
YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA employed. Lopez served as manager of the hotel while Lainez and Payam had
PAYAM, petitioners, custody of the keys for the safety deposit boxes of Tropicana. Tan took care of
vs. McLoughlin's booking at the Tropicana where he started staying during his trips to
THE COURT OF APPEALS and MAURICE the Philippines from December 1984 to September 1987.3
McLOUGHLIN, respondents.
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.6 McLoughlin left the other items in the box as he did not check out
of his room at the Tropicana during his short visit to Hongkong. When he
arrived in Hongkong, he opened the envelope which contained Five
Thousand US Dollars (US$5,000.00) and discovered upon counting that
only Three Thousand US Dollars (US$3,000.00) were enclosed
therein.7 Since he had no idea whether somebody else had tampered with
his safety deposit box, he thought that it was just a result of bad accounting since he
did not spend anything from that envelope.8
After returning to Manila, he checked out of Tropicana on 18 December 1987 and
left for Australia. When he arrived in Australia, he discovered that the envelope with
Ten Thousand US Dollars (US$10,000.00) was short of Five Thousand US Dollars
(US$5,000). He also noticed that the jewelry which he bought in Hongkong and
stored in the safety deposit box upon his return to Tropicana was likewise missing,
except for a diamond bracelet.9
When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez if
some money and/or jewelry which he had lost were found and returned to her or to
the management. However, Lainez told him that no one in the hotel found such
things and none were turned over to the management. He again registered at
Tropicana and rented a safety deposit box. He placed therein one (1) envelope
containing Fifteen Thousand US Dollars (US$15,000.00), another envelope
containing Ten Thousand Australian Dollars (AUS$10,000.00) and other envelopes
containing his traveling papers/documents. On 16 April 1988, McLoughlin
requested Lainez and Payam to open his safety deposit box. He noticed that in the
envelope containing Fifteen Thousand US Dollars (US$15,000.00), Two Thousand
US Dollars (US$2,000.00) were missing and in the envelope previously containing
Ten Thousand Australian Dollars (AUS$10,000.00), Four Thousand Five Hundred
Australian Dollars (AUS$4,500.00) were missing.10
When McLoughlin discovered the loss, he immediately confronted Lainez and
Payam who admitted that Tan opened the safety deposit box with the key assigned
to him.11 McLoughlin went up to his room where Tan was staying and confronted
her. Tan admitted that she had stolen McLoughlin's key and was able to open the
safety deposit box with the assistance of Lopez, Payam and Lainez. 12 Lopez also
told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was
asleep.13
McLoughlin requested the management for an investigation of the incident.
Lopez got in touch with Tan and arranged for a meeting with the police and
McLoughlin. When the police did not arrive, Lopez and Tan went to the
room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of
paper a promissory note dated 21 April 1988. The promissory note reads as
follows:
I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00
and US$2,000.00 or its equivalent in Philippine currency on or before May
5, 1988.14
Lopez requested Tan to sign the promissory note which the latter did and
Lopez also signed as a witness. Despite the execution of promissory note
by Tan, McLoughlin insisted that it must be the hotel who must assume
responsibility for the loss he suffered. However, Lopez refused to accept
the responsibility relying on the conditions for renting the safety deposit
box entitled "Undertaking For the Use Of Safety Deposit
Box,"15specifically paragraphs (2) and (4) thereof, to wit:
2. To release and hold free and blameless TROPICANA APARTMENT
HOTEL from any liability arising from any loss in the contents and/or use
of the said deposit box for any cause whatsoever, including but not limited
to the presentation or use thereof by any other person should the key be
lost;
...
4. To return the key and execute the RELEASE in favor of TROPICANA
APARTMENT HOTEL upon giving up the use of the box.16
On 17 May 1988, McLoughlin went back to Australia and he consulted his
lawyers as to the validity of the abovementioned stipulations. They opined
that the stipulations are void for being violative of universal hotel practices
and customs. His lawyers prepared a letter dated 30 May 1988 which was signed by
McLoughlin and sent to President Corazon Aquino. 17 The Office of the President
referred the letter to the Department of Justice (DOJ) which forwarded the same to
the Western Police District (WPD).18
After receiving a copy of the indorsement in Australia, McLoughlin came to the
Philippines and registered again as a hotel guest of Tropicana. McLoughlin went to
Malacaang to follow up on his letter but he was instructed to go to the DOJ. The
DOJ directed him to proceed to the WPD for documentation. But McLoughlin went
back to Australia as he had an urgent business matter to attend to.
For several times, McLoughlin left for Australia to attend to his business and came
back to the Philippines to follow up on his letter to the President but he failed to
obtain any concrete assistance.19
McLoughlin left again for Australia and upon his return to the Philippines on 25
August 1989 to pursue his claims against petitioners, the WPD conducted an
investigation which resulted in the preparation of an affidavit which was forwarded
to the Manila City Fiscal's Office. Said affidavit became the basis of preliminary
investigation. However, McLoughlin left again for Australia without receiving the
notice of the hearing on 24 November 1989. Thus, the case at the Fiscal's Office
was dismissed for failure to prosecute. Mcloughlin requested the reinstatement of
the criminal charge for theft. In the meantime, McLoughlin and his lawyers wrote
letters of demand to those having responsibility to pay the damage. Then he left
again for Australia.
Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate,
Manila. Meetings were held between McLoughlin and his lawyer which resulted to
the filing of a complaint for damages on 3 December 1990 against YHT Realty
Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss of
McLoughlin's money which was discovered on 16 April 1988. After filing the
complaint, McLoughlin left again for Australia to attend to an urgent business
matter. Tan and Lopez, however, were not served with summons, and trial
proceeded with only Lainez, Payam and YHT Realty Corporation as
defendants.
After defendants had filed their Pre-Trial Brief admitting that they had
previously allowed and assisted Tan to open the safety deposit box,
McLoughlin filed an Amended/Supplemental Complaint20 dated 10 June
1991 which included another incident of loss of money and jewelry in the
safety deposit box rented by McLoughlin in the same hotel which took
place prior to 16 April 1988.21 The trial court admitted
the Amended/Supplemental Complaint.
During the trial of the case, McLoughlin had been in and out of the country
to attend to urgent business in Australia, and while staying in the
Philippines to attend the hearing, he incurred expenses for hotel bills,
airfare and other transportation expenses, long distance calls to Australia,
Meralco power expenses, and expenses for food and maintenance, among
others.22
After trial, the RTC of Manila rendered judgment in favor of McLoughlin,
the dispositive portion of which reads:
WHEREFORE, above premises considered, judgment is hereby rendered
by this Court in favor of plaintiff and against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of
US$11,400.00 or its equivalent in Philippine Currency of P342,000.00,
more or less, and the sum of AUS$4,500.00 or its equivalent in Philippine
Currency of P99,000.00, or a total of P441,000.00, more or less, with 12%
interest from April 16 1988 until said amount has been paid to plaintiff
(Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff the sum
of P3,674,238.00 as actual and consequential damages arising from the loss
of his Australian and American dollars and jewelries complained against and in
prosecuting his claim and rights administratively and judicially (Items II, III, IV, V,
VI, VII, VIII, and IX, Exh. "CC");
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 attorney's fees, and a fee of P3,000.00 for every appearance; and
7. Plus costs of suit.
SO ORDERED.23
The trial court found that McLoughlin's allegations as to the fact of loss and as to
the amount of money he lost were sufficiently shown by his direct and
straightforward manner of testifying in court and found him to be credible and
worthy of belief as it was established that McLoughlin's money, kept in Tropicana's
safety deposit box, was taken by Tan without McLoughlin's consent. The taking was
effected through the use of the master key which was in the possession of the
management. Payam and Lainez allowed Tan to use the master key without
authority from McLoughlin. The trial court added that if McLoughlin had not lost
his dollars, he would not have gone through the trouble and personal inconvenience
of seeking aid and assistance from the Office of the President, DOJ, police
authorities and the City Fiscal's Office in his desire to recover his losses from the
hotel management and Tan.24
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and The appellants are directed jointly and severally to pay the plaintiff/appellee the
jewelry worth approximately One Thousand Two Hundred US Dollars following amounts:
(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 1) P153,200.00 representing the peso equivalent of US$2,000.00 and
losses in his complaint dated 21 November 1990 because he was not sure AUS$4,500.00;
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 2) P308,880.80, representing the peso value for the air fares from Sidney [sic] to
previous occasions they allowed Tan to open the box, the trial court opined Manila and back for a total of eleven (11) trips;
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 3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana
taken by Tan from the safety deposit box without McLoughlin's consent Apartment Hotel;
through the cooperation of Payam and Lainez.25
4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon
The trial court also found that defendants acted with gross negligence in Tower;
the performance and exercise of their duties and obligations as innkeepers
and were therefore liable to answer for the losses incurred by 5) One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from the
McLoughlin.26 residence to Sidney [sic] Airport and from MIA to the hotel here in Manila, for the
eleven (11) trips;
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 6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
contrary to the express mandate of Article 2003 of the New Civil Code and
against public policy.27 Thus, there being fraud or wanton conduct on the 7) One-half of P356,400.00 or P178,000.00 representing expenses for food and
part of defendants, they should be responsible for all damages which may maintenance;
be attributed to the non-performance of their contractual obligations.28
8) P50,000.00 for moral damages;
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 9) P10,000.00 as exemplary damages; and
appellate court's decision reads:
10) P200,000 representing attorney's fees.
THE FOREGOING CONSIDERED, the appealed Decision is hereby
AFFIRMED but modified as follows: With costs.

SO ORDERED.29
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this
Court in this appeal by certiorari.
Petitioners submit for resolution by this Court the following issues: (a)
whether the appellate court's conclusion on the alleged prior existence and
subsequent loss of the subject money and jewelry is supported by the
evidence on record; (b) whether the finding of gross negligence on the part
of petitioners in the performance of their duties as innkeepers is supported
by the evidence on record; (c) whether the "Undertaking For The Use of
Safety Deposit Box" admittedly executed by private respondent is null and
void; and (d) whether the damages awarded to private respondent, as well
as the amounts thereof, are proper under the circumstances.30
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of
questions of law and any peripheral factual question addressed to this
Court is beyond the bounds of this mode of review.
Petitioners point out that the evidence on record is insufficient to prove the
fact of prior existence of the dollars and the jewelry which had been lost
while deposited in the safety deposit boxes of Tropicana, the basis of the
trial court and the appellate court being the sole testimony of McLoughlin
as to the contents thereof. Likewise, petitioners dispute the finding of gross
negligence on their part as not supported by the evidence on record.
We are not persuaded.l^vvphi1.net We adhere to the findings of the trial
court as affirmed by the appellate court that the fact of loss was established
by the credible testimony in open court by McLoughlin. Such findings are
factual and therefore beyond the ambit of the present petition.1awphi1.nt
The trial court had the occasion to observe the demeanor of McLoughlin
while testifying which reflected the veracity of the facts testified to by him.
On this score, we give full credence to the appreciation of testimonial evidence by
the trial court especially if what is at issue is the credibility of the witness. The oft-
repeated principle is that where the credibility of a witness is an issue, the
established rule is that great respect is accorded to the evaluation of the credibility
of witnesses by the trial court.31 The trial court is in the best position to assess the
credibility of witnesses and their testimonies because of its unique opportunity to
observe the witnesses firsthand and note their demeanor, conduct and attitude under
grilling examination.32
We are also not impressed by petitioners' argument that the finding of gross
negligence by the lower court as affirmed by the appellate court is not supported by
evidence. The evidence reveals that two keys are required to open the safety deposit
boxes of Tropicana. One key is assigned to the guest while the other remains in the
possession of the management. If the guest desires to open his safety deposit box, he
must request the management for the other key to open the same. In other words, the
guest alone cannot open the safety deposit box without the assistance of the
management or its employees. With more reason that access to the safety deposit
box should be denied if the one requesting for the opening of the safety deposit box
is a stranger. Thus, in case of loss of any item deposited in the safety deposit box, it
is inevitable to conclude that the management had at least a hand in the
consummation of the taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana,
had custody of the master key of the management when the loss took place. In fact,
they even admitted that they assisted Tan on three separate occasions in opening
McLoughlin's safety deposit box.33 This only proves that Tropicana had prior
knowledge that a person aside from the registered guest had access to the safety
deposit box. Yet the management failed to notify McLoughlin of the incident and
waited for him to discover the taking before it disclosed the matter to him.
Therefore, Tropicana should be held responsible for the damage suffered by
McLoughlin by reason of the negligence of its employees.
The management should have guarded against the occurrence of this
incident considering that Payam admitted in open court that she assisted
Tan three times in opening the safety deposit box of McLoughlin at around
6:30 A.M. to 7:30 A.M. while the latter was still asleep. 34 In light of the
circumstances surrounding this case, it is undeniable that without the
acquiescence of the employees of Tropicana to the opening of the safety
deposit box, the loss of McLoughlin's money could and should have been
avoided.
The management contends, however, that McLoughlin, by his act, made its
employees believe that Tan was his spouse for she was always with him
most of the time. The evidence on record, however, is bereft of any
showing that McLoughlin introduced Tan to the management as his wife.
Such an inference from the act of McLoughlin will not exculpate the
petitioners from liability in the absence of any showing that he made the
management believe that Tan was his wife or was duly authorized to have
access to the safety deposit box. Mere close companionship and intimacy
are not enough to warrant such conclusion considering that what is
involved in the instant case is the very safety of McLoughlin's deposit. If
only petitioners exercised due diligence in taking care of McLoughlin's
safety deposit box, they should have confronted him as to his relationship
with Tan considering that the latter had been observed opening
McLoughlin's safety deposit box a number of times at the early hours of
the morning. Tan's acts should have prompted the management to
investigate her relationship with McLoughlin. Then, petitioners would have
exercised due diligence required of them. Failure to do so warrants the
conclusion that the management had been remiss in complying with the
obligations imposed upon hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those who, in the performance
of their obligations, are guilty of negligence, are liable for damages. As to
who shall bear the burden of paying damages, Article 2180, paragraph (4)
of the same Code provides that the owners and managers of an
establishment or enterprise are likewise responsible for damages caused by their
employees in the service of the branches in which the latter are employed or on the
occasion of their functions. Also, this Court has ruled that if an employee is found
negligent, it is presumed that the employer was negligent in selecting and/or
supervising him for it is hard for the victim to prove the negligence of such
employer.35 Thus, given the fact that the loss of McLoughlin's money was
consummated through the negligence of Tropicana's employees in allowing Tan to
open the safety deposit box without the guest's consent, both the assisting
employees and YHT Realty Corporation itself, as owner and operator of Tropicana,
should be held solidarily liable pursuant to Article 2193.36
The issue of whether the "Undertaking For The Use of Safety Deposit Box"
executed by McLoughlin is tainted with nullity presents a legal question appropriate
for resolution in this petition. Notably, both the trial court and the appellate court
found the same to be null and void. We find no reason to reverse their common
conclusion. Article 2003 is controlling, thus:
Art. 2003. The hotel-keeper cannot free himself from responsibility by posting
notices to the effect that he is not liable for the articles brought by the guest. Any
stipulation between the hotel-keeper and the guest whereby the responsibility of the
former as set forth in Articles 1998 to 2001 37 is suppressed or diminished shall be
void.
Article 2003 was incorporated in the New Civil Code as an expression of public
policy precisely to apply to situations such as that presented in this case. The hotel
business like the common carrier's business is imbued with public interest. Catering
to the public, hotelkeepers are bound to provide not only lodging for hotel guests
and security to their persons and belongings. The twin duty constitutes the essence
of the business. The law in turn does not allow such duty to the public to be negated
or diluted by any contrary stipulation in so-called "undertakings" that ordinarily
appear in prepared forms imposed by hotel keepers on guests for their signature.
In an early case,38 the Court of Appeals through its then Presiding Justice
(later Associate Justice of the Court) Jose P. Bengzon, ruled that to hold
hotelkeepers or innkeeper liable for the effects of their guests, it is not
necessary that they be actually delivered to the innkeepers or their
employees. It is enough that such effects are within the hotel or inn. 39 With
greater reason should the liability of the hotelkeeper be enforced when the
missing items are taken without the guest's knowledge and consent from a
safety deposit box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article
2003 of the New Civil Code for they allow Tropicana to be released from
liability arising from any loss in the contents and/or use of the safety
deposit box for any cause whatsoever.40 Evidently, the undertaking was
intended to bar any claim against Tropicana for any loss of the contents of
the safety deposit box whether or not negligence was incurred by
Tropicana or its employees. The New Civil Code is explicit that the
responsibility of the hotel-keeper shall extend to loss of, or injury to, the
personal property of the guests even if caused by servants or employees of
the keepers of hotels or inns as well as by strangers, except as it may
proceed from any force majeure.41 It is the loss through force majeure that
may spare the hotel-keeper from liability. In the case at bar, there is no
showing that the act of the thief or robber was done with the use of arms or
through an irresistible force to qualify the same as force majeure.42
Petitioners likewise anchor their defense on Article 2002 43 which exempts
the hotel-keeper from liability if the loss is due to the acts of his guest, his
family, or visitors. Even a cursory reading of the provision would lead us to
reject petitioners' contention. The justification they raise would render
nugatory the public interest sought to be protected by the provision. What
if the negligence of the employer or its employees facilitated the
consummation of a crime committed by the registered guest's relatives or
visitor? Should the law exculpate the hotel from liability since the loss was
due to the act of the visitor of the registered guest of the hotel? Hence, this
provision presupposes that the hotel-keeper is not guilty of concurrent negligence or
has not contributed in any degree to the occurrence of the loss. A depositary is not
responsible for the loss of goods by theft, unless his actionable negligence
contributes to the loss.44
In the case at bar, the responsibility of securing the safety deposit box was shared
not only by the guest himself but also by the management since two keys are
necessary to open the safety deposit box. Without the assistance of hotel employees,
the loss would not have occurred. Thus, Tropicana was guilty of concurrent
negligence in allowing Tan, who was not the registered guest, to open the safety
deposit box of McLoughlin, even assuming that the latter was also guilty of
negligence in allowing another person to use his key. To rule otherwise would result
in undermining the safety of the safety deposit boxes in hotels for the management
will be given imprimatur to allow any person, under the pretense of being a family
member or a visitor of the guest, to have access to the safety deposit box without
fear of any liability that will attach thereafter in case such person turns out to be a
complete stranger. This will allow the hotel to evade responsibility for any liability
incurred by its employees in conspiracy with the guest's relatives and visitors.
Petitioners contend that McLoughlin's case was mounted on the theory of contract,
but the trial court and the appellate court upheld the grant of the claims of the latter
on the basis of tort.45 There is nothing anomalous in how the lower courts decided
the controversy for this Court has pronounced a jurisprudential rule that tort liability
can exist even if there are already contractual relations. The act that breaks the
contract may also be tort.46
As to damages awarded to McLoughlin, we see no reason to modify the amounts
awarded by the appellate court for the same were based on facts and law. It is within
the province of lower courts to settle factual issues such as the proper amount of
damages awarded and such finding is binding upon this Court especially if
sufficiently proven by evidence and not unconscionable or excessive. Thus, the
appellate court correctly awarded McLoughlin Two Thousand US Dollars
(US$2,000.00) and Four Thousand Five Hundred Australian dollars
(AUS$4,500.00) or their peso equivalent at the time of payment, 47 being
the amounts duly proven by evidence.48The alleged loss that took place
prior to 16 April 1988 was not considered since the amounts alleged to
have been taken were not sufficiently established by evidence. The
appellate court also correctly awarded the sum of P308,880.80,
representing the peso value for the air fares from Sydney to Manila and
back for a total of eleven (11) trips; 49 one-half of P336,207.05
or P168,103.52 representing payment to Tropicana;50 one-half
of P152,683.57 or P76,341.785 representing payment to Echelon
Tower;51 one-half of P179,863.20 or P89,931.60 for the taxi or
transportation expenses from McLoughlin's residence to Sydney Airport
and from MIA to the hotel here in Manila, for the eleven (11) trips; 52 one-
half of P7,801.94 or P3,900.97 representing Meralco power
expenses;53 one-half of P356,400.00 or P178,000.00 representing expenses
for food and maintenance.54
The amount of P50,000.00 for moral damages is reasonable. Although trial
courts are given discretion to determine the amount of moral damages, the
appellate court may modify or change the amount awarded when it is
palpably and scandalously excessive.l^vvphi1.net Moral damages are not
intended to enrich a complainant at the expense of a
defendant.l^vvphi1.net They are awarded only to enable the injured party
to obtain means, diversion or amusements that will serve to alleviate the
moral suffering he has undergone, by reason of defendants' culpable
action.55
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment;
(2) P308,880.80, representing the peso value for the air fares from Sydney to Manila
and back for a total of eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana
Copacabana Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon
Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense
from McLoughlin's residence to Sydney Airport and from MIA to the hotel here in
Manila, for the eleven (11) trips;
(6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
(7) One-half of P356,400.00 or P178,200.00 representing expenses for food and
maintenance;
(8) P50,000.00 for moral damages;
(9) P10,000.00 as exemplary damages; and
(10) P200,000 representing attorney's fees.

The awards of P10,000.00 as exemplary damages and P200,000.00 With costs.

representing attorney's fees are likewise sustained.
SO ORDERED.
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:
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 179419 January 12, 2011

DURBAN APARTMENTS CORPORATION, doing business under the name

and style of City Garden Hotel,Petitioner,
vs.
PIONEER INSURANCE AND SURETY CORPORATION, Respondent.

DECISION

NACHURA, J.:

For review is the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
86869, which affirmed the decision2of the Regional Trial Court (RTC), Branch 66,
Makati City, in Civil Case No. 03-857, holding petitioner Durban Apartments
Corporation solely liable to respondent Pioneer Insurance and Surety Corporation
for the loss of Jeffrey Sees (Sees) vehicle.

The facts, as found by the CA, are simple.

On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x x x, by

right of subrogation, filed [with the RTC of Makati City] a Complaint for Recovery
of Damages against [petitioner] Durban Apartments Corporation, doing
business under the name and style of City Garden Hotel, and [defendant
before the RTC] Vicente Justimbaste x x x. [Respondent averred] that: it is
the insurer for loss and damage of Jeffrey S. Sees [the insureds] 2001
Suzuki Grand Vitara x x x with Plate No. XBH-510 under Policy No. MC-
CV-HO-01-0003846-00-D in the amount of P1,175,000.00; on April 30,
2002, See arrived and checked in at the City Garden Hotel in Makati
corner Kalayaan Avenues, Makati City before midnight, and its parking
attendant, defendant x x x Justimbaste got the key to said Vitara from See
to park it[. O]n May 1, 2002, at about 1:00 oclock in the morning, See was
awakened in his room by [a] telephone call from the Hotel Chief Security
Officer who informed him that his Vitara was carnapped while it was
parked unattended at the parking area of Equitable PCI Bank along Makati
Avenue between the hours of 12:00 [a.m.] and 1:00 [a.m.]; See went to see
the Hotel Chief Security Officer, thereafter reported the incident to the
Operations Division of the Makati City Police Anti-Carnapping Unit, and a
flash alarm was issued; the Makati City Police Anti-Carnapping Unit
investigated Hotel Security Officer, Ernesto T. Horlador, Jr. x x x and
defendant x x x Justimbaste; See gave his Sinumpaang Salaysay to the
police investigator, and filed a Complaint Sheet with the PNP Traffic
Management Group in Camp Crame, Quezon City; the Vitara has not yet
been recovered since July 23, 2002 as evidenced by a Certification of Non-
Recovery issued by the PNP TMG; it paid the P1,163,250.00 money claim
of See and mortgagee ABN AMRO Savings Bank, Inc. as indemnity for
the loss of the Vitara; the Vitara was lost due to the negligence of
[petitioner] Durban Apartments and [defendant] Justimbaste because it was
discovered during the investigation that this was the second time that a
similar incident of carnapping happened in the valet parking service of
[petitioner] Durban Apartments and no necessary precautions were taken to
prevent its repetition; [petitioner] Durban Apartments was wanting in due
diligence in the selection and supervision of its employees particularly
defendant x x x Justimbaste; and defendant x x x Justimbaste and
[petitioner] Durban Apartments failed and refused to pay its valid, just, and lawful
claim despite written demands.
Upon service of Summons, [petitioner] Durban Apartments and [defendant]
Justimbaste filed their Answer with Compulsory Counterclaim alleging that: See did
not check in at its hotel, on the contrary, he was a guest of a certain Ching Montero
x x x; defendant x x x Justimbaste did not get the ignition key of Sees Vitara, on the
contrary, it was See who requested a parking attendant to park the Vitara at any
available parking space, and it was parked at the Equitable Bank parking area,
which was within Sees view, while he and Montero were waiting in front of the
hotel; they made a written denial of the demand of [respondent] Pioneer Insurance
for want of legal basis; valet parking services are provided by the hotel for the
convenience of its customers looking for a parking space near the hotel premises; it
is a special privilege that it gave to Montero and See; it does not include
responsibility for any losses or damages to motor vehicles and its accessories in the
parking area; and the same holds true even if it was See himself who parked his
Vitara within the premises of the hotel as evidenced by the valet parking customers
claim stub issued to him; the carnapper was able to open the Vitara without using
the key given earlier to the parking attendant and subsequently turned over to See
after the Vitara was stolen; defendant x x x Justimbaste saw the Vitara speeding
away from the place where it was parked; he tried to run after it, and blocked its
possible path but to no avail; and See was duly and immediately informed of the
carnapping of his Vitara; the matter was reported to the nearest police precinct; and
defendant x x x Justimbaste, and Horlador submitted themselves to police
investigation.
During the pre-trial conference on November 28, 2003, counsel for [respondent]
Pioneer Insurance was present. Atty. Monina Lee x x x, counsel of record of
[petitioner] Durban Apartments and Justimbaste was absent, instead, a certain Atty.
Nestor Mejia appeared for [petitioner] Durban Apartments and Justimbaste, but did
not file their pre-trial brief.
On November 5, 2004, the lower court granted the motion of [respondent]
Pioneer Insurance, despite the opposition of [petitioner] Durban
Apartments and Justimbaste, and allowed [respondent] Pioneer Insurance
to present its evidence ex parte before the Branch Clerk of Court.
See testified that: on April 30, 2002, at about 11:30 in the evening, he
drove his Vitara and stopped in front of City Garden Hotel in Makati
Avenue, Makati City; a parking attendant, whom he had later known to be
defendant x x x Justimbaste, approached and asked for his ignition key,
told him that the latter would park the Vitara for him in front of the hotel,
and issued him a valet parking customers claim stub; he and Montero,
thereafter, checked in at the said hotel; on May 1, 2002, at around 1:00 in
the morning, the Hotel Security Officer whom he later knew to be Horlador
called his attention to the fact that his Vitara was carnapped while it was
parked at the parking lot of Equitable PCI Bank which is in front of the
hotel; his Vitara was insured with [respondent] Pioneer Insurance; he
together with Horlador and defendant x x x Justimbaste went to Precinct 19
of the Makati City Police to report the carnapping incident, and a police
officer came accompanied them to the Anti-Carnapping Unit of the said
station for investigation, taking of their sworn statements, and flashing of a
voice alarm; he likewise reported the said incident in PNP TMG in Camp
Crame where another alarm was issued; he filed his claim with
[respondent] Pioneer Insurance, and a representative of the latter, who is
also an adjuster of Vesper Insurance Adjusters-Appraisers [Vesper],
investigated the incident; and [respondent] Pioneer Insurance required him
to sign a Release of Claim and Subrogation Receipt, and finally paid him
the sum of P1,163,250.00 for his claim.
Ricardo F. Red testified that: he is a claims evaluator of [petitioner]
Pioneer Insurance tasked, among others, with the receipt of claims and
documents from the insured, investigation of the said claim, inspection of
damages, taking of pictures of insured unit, and monitoring of the
processing of the claim until its payment; he monitored the processing of
Sees claim when the latter reported the incident to [respondent] Pioneer Insurance;
[respondent] Pioneer Insurance assigned the case to Vesper who verified Sees
report, conducted an investigation, obtained the necessary documents for the
processing of the claim, and tendered a settlement check to See; they evaluated the
case upon receipt of the subrogation documents and the adjusters report, and
eventually recommended for its settlement for the sum of P1,163,250.00 which was
accepted by See; the matter was referred and forwarded to their counsel, R.B.
Sarajan & Associates, who prepared and sent demand letters to [petitioner] Durban
Apartments and [defendant] Justimbaste, who did not pay [respondent] Pioneer
Insurance notwithstanding their receipt of the demand letters; and the services of
R.B. Sarajan & Associates were engaged, for P100,000.00 as attorneys fees
plus P3,000.00 per court appearance, to prosecute the claims of [respondent]
Pioneer Insurance against [petitioner] Durban Apartments and Justimbaste before
the lower court.
Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer
Insurance assigned to Vesper the investigation of Sees case, and he was the one
actually assigned to investigate it; he conducted his investigation of the matter by
interviewing See, going to the City Garden Hotel, required subrogation documents
from See, and verified the authenticity of the same; he learned that it is the standard
procedure of the said hotel as regards its valet parking service to assist their guests
as soon as they get to the lobby entrance, park the cars for their guests, and place the
ignition keys in their safety key box; considering that the hotel has only twelve (12)
available parking slots, it has an agreement with Equitable PCI Bank permitting the
hotel to use the parking space of the bank at night; he also learned that a Hyundai
Starex van was carnapped at the said place barely a month before the occurrence of
this incident because Liberty Insurance assigned the said incident to Vespers, and
Horlador and defendant x x x Justimbaste admitted the occurrence of the same in
their sworn statements before the Anti-Carnapping Unit of the Makati City Police;
upon verification with the PNP TMG [Unit] in Camp Crame, he learned that Sees
Vitara has not yet been recovered; upon evaluation, Vesper recommended to
[respondent] Pioneer Insurance to settle Sees claim for P1,045,750.00; See
contested the recommendation of Vesper by reasoning out that the 10% depreciation
should not be applied in this case considering the fact that the Vitara was
used for barely eight (8) months prior to its loss; and [respondent] Pioneer
Insurance acceded to Sees contention, tendered the sum of P1,163,250.00
as settlement, the former accepted it, and signed a release of claim and
subrogation receipt.
The lower court denied the Motion to Admit Pre-Trial Brief and Motion for
Reconsideration field by [petitioner] Durban Apartments and Justimbaste
in its Orders dated May 4, 2005 and October 20, 2005, respectively, for
being devoid of merit.3
Thereafter, on January 27, 2006, the RTC rendered a decision, disposing,
as follows:
WHEREFORE, judgment is hereby rendered ordering [petitioner Durban
Apartments Corporation] to pay [respondent Pioneer Insurance and Surety
Corporation] the sum of P1,163,250.00 with legal interest thereon from
July 22, 2003 until the obligation is fully paid and attorneys fees and
litigation expenses amounting 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 ex-parte.
Likewise, the lower courts did not err in holding petitioner liable for the loss of
Sees vehicle.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respect and are considered conclusive between the parties. 6 A review of such
findings by this Court is not warranted except upon a showing of highly meritorious
circumstances, such as: (1) when the findings of a trial court are grounded entirely
on speculation, surmises, or conjectures; (2) when a lower courts inference from its
factual findings is manifestly mistaken, absurd, or impossible; (3) when there is
grave abuse of discretion in the appreciation of facts; (4) when the findings of the
appellate court go beyond the issues of the case, or fail to notice certain relevant
facts which, if properly considered, will justify a different conclusion; (5) when
there is a misappreciation of facts; (6) when the findings of fact are conclusions
without mention of the specific evidence on which they are based, are premised on
the absence of evidence, or are contradicted by evidence on record. 7 None
of the foregoing exceptions permitting a reversal of the assailed decision
exists in this instance.
Petitioner urges us, however, that "strong [and] compelling reason[s]" such
as the prevention of miscarriage of justice warrant a suspension of the rules
and excuse its and its counsels non-appearance during the pre-trial
conference and their failure to file a pre-trial brief.
We are not persuaded.
Rule 18 of the Rules of Court leaves no room for equivocation; appearance
of parties and their counsel at the pre-trial conference, along with the filing
of a corresponding 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 pre-
trial on October 27, 2003, thirty-two (32) days prior to the scheduled conference. In
that span of time, Atty. Lee, who was charged with the duty of notifying petitioner
of the scheduled pre-trial conference,8 petitioner, and Atty. Mejia should have
discussed which lawyer would appear at the pre-trial conference with petitioner,
armed with the appropriate authority therefor. Sadly, petitioner failed to comply
with not just one rule; it also did not proffer a reason why it likewise failed to file a
pre-trial brief. In all, petitioner has not shown any persuasive reason why it should
be exempt from abiding by the rules.
The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief
and with only his bare allegation that he is counsel for petitioner, was correctly
rejected by the trial court. Accordingly, the trial court, as affirmed by the appellate
court, did not err in allowing respondent to present evidence ex-parte.
Former Chief Justice Andres R. Narvasas words continue to resonate, thus:
Everyone knows that a pre-trial in civil actions is mandatory, and has been so since
January 1, 1964. Yet to this day its place in the scheme of things is not fully
appreciated, and it receives but perfunctory treatment in many courts.
Some courts consider it a mere technicality, serving no useful purpose save
perhaps, occasionally to furnish ground for non-suiting the plaintiff, or
declaring a defendant in default, or, wistfully, to bring about a compromise.
The pre-trial device is not thus put to full use. Hence, it has failed in the
main to accomplish the chief objective for it: the simplification,
abbreviation and expedition of the trial, if not indeed its dispensation. This
is a great pity, because the objective is attainable, and with not much
difficulty, if the device were more intelligently and extensively handled.
xxxx
Consistently with the mandatory character of the pre-trial, the Rules oblige
not only the lawyers but the parties as well to appear for this purpose
before the Court, and when a party "fails to appear at a pre-trial conference
(he) may be non-suited or considered as in default." The obligation "to
appear" denotes not simply the personal appearance, or the mere physical
presentation by a party of ones self, but connotes as importantly,
preparedness to go into the different subject assigned by law to a pre-trial.
And in those instances where a party may not himself be present at the pre-
trial, and another person substitutes for him, or his lawyer undertakes to
appear not only as an attorney but in substitution of the clients person, it is
imperative for that representative of the lawyer to have "special authority"
to make such substantive agreements as only the client otherwise has
capacity to make. That "special authority" should ordinarily be in writing
or at the very least be "duly established by evidence other than the self-
serving assertion of counsel (or the proclaimed representative) himself."
Without that special authority, the lawyer or representative cannot be
deemed capacitated to appear in place of the party; hence, it will be
considered that the latter has failed to put in an appearance at all, and he
[must] therefore "be non-suited or considered as in default,"
notwithstanding his lawyers or delegates presence.9
We are not unmindful that defendants (petitioners) preclusion from presenting
evidence during trial does not automatically result in a judgment in favor of plaintiff
(respondent). The plaintiff must still substantiate the allegations in its
complaint.10 Otherwise, it would be inutile to continue with the plaintiffs
presentation of evidence each time the defendant is declared in default.
In this case, respondent substantiated the allegations in its complaint, i.e., a contract
of necessary deposit existed between the insured See and petitioner. On this score,
we find no error in the following disquisition of the appellate court:
[The] records also reveal that upon arrival at the City Garden Hotel, See gave notice
to the doorman and parking attendant of the said hotel, x x x Justimbaste, about his
Vitara when he entrusted its ignition key to the latter. x x x Justimbaste issued a
valet parking customer claim stub to See, parked the Vitara at the Equitable PCI
Bank parking area, and placed the ignition key inside a safety key box while See
proceeded to the hotel lobby to check in. The Equitable PCI Bank parking area
became an annex of City Garden Hotel when the management of the said bank
allowed the parking of the vehicles of hotel guests thereat in the evening after
banking hours.11
Article 1962, in relation to Article 1998, of the Civil Code defines a contract of
deposit and a necessary deposit made by persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and returning the
same. If the safekeeping of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.
Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be
regarded as necessary.1avvphi1 The keepers of hotels or inns shall be responsible
for them as depositaries, provided that notice was given to them, or to their
employees, of the effects brought by the guests and that, on the part of the latter,
they take the precautions which said hotel-keepers or their substitutes
advised relative to the care and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured See deposited
his vehicle for safekeeping with petitioner, through the latters employee,
Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the
contract of deposit was perfected from Sees delivery, when he handed over
to Justimbaste the keys to his vehicle, which Justimbaste received with the
obligation of safely keeping and returning it. Ultimately, petitioner is liable
for the loss of Sees vehicle.
Lastly, petitioner assails the lower courts award of attorneys fees to
respondent in the amount of P120,000.00. Petitioner claims that the award
is not substantiated by the evidence on record.
We disagree.
While it is a sound policy not to set a premium on the right to litigate, 12 we
find that respondent is entitled to reasonable attorneys fees. Attorneys
fees may be awarded when a party is compelled to litigate or incur
expenses to protect its interest,13 or when the court deems it just and
equitable.14 In this case, petitioner refused to answer for the loss of Sees
vehicle, which was deposited with it for safekeeping. This refusal
constrained respondent, the insurer of See, and subrogated to the latters
right, to litigate and incur expenses. However, we reduce the award
of P120,000.00 to P60,000.00 in view of the simplicity of the issues
involved in this case.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 86869 is AFFIRMED with the
MODIFICATION that the award of attorneys fees is reduced
to P60,000.00. Costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA
SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST.
CITY FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, respondents.
MAKASIAR, Actg. C.J.:+.wph!1
This is a petition for prohibition and injunction with a prayer for the immediate
issuance of restraining order and/or writ of preliminary injunction filed by
petitioners on March 26, 1982.
On March 31, 1982, by virtue of a court resolution issued by this Court on the same
date, a temporary restraining order was duly issued ordering the respondents, their
officers, agents, representatives and/or person or persons acting upon their
(respondents') orders or in their place or stead to refrain from proceeding with the
preliminary investigation in Case No. 8131938 of the Office of the City Fiscal of
Manila (pp. 47-48, rec.). On January 24, 1983, private respondent Clement David
filed a motion to lift restraining order which was denied in the resolution of this
Court dated May 18, 1983.
As can be gleaned from the above, the instant petition seeks to prohibit
public respondents from proceeding with the preliminary investigation of
I.S. No. 81-31938, in which petitioners were charged by private respondent
Clement David, with estafa and violation of Central Bank Circular No. 364
and related regulations regarding foreign exchange transactions principally,
on the ground of lack of jurisdiction in that the allegations of the charged,
as well as the testimony of private respondent's principal witness and the
evidence through said witness, showed that petitioners' obligation is civil in
nature.
For purposes of brevity, We hereby adopt the antecedent facts narrated by
the Solicitor General in its Comment dated June 28,1982, as follows:t.
hqw
On December 23,1981, private respondent David filed I.S. No. 81-31938 in
the Office of the City Fiscal of Manila, which case was assigned to
respondent Lota for preliminary investigation (Petition, p. 8).
In I.S. No. 81-31938, David charged petitioners (together with one Robert
Marshall and the following directors of the Nation Savings and Loan
Association, Inc., namely Homero Gonzales, Juan Merino, Flavio
Macasaet, Victor Gomez, Jr., Perfecto Manalac, Jaime V. Paz, Paulino B.
Dionisio, and one John Doe) with estafa and violation of Central Bank
Circular No. 364 and related Central Bank regulations on foreign exchange
transactions, allegedly committed as follows (Petition, Annex "A"):t.
hqw
"From March 20, 1979 to March, 1981, David invested with the Nation
Savings and Loan Association, (hereinafter called NSLA) the sum of
P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits
(jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit,
US$15,000.00 under a receipt and guarantee of payment and
US$50,000.00 under a receipt dated June 8, 1980 (au jointly with Denise
Kuhne), that David was induced into making the aforestated investments by Robert
Marshall an Australian national who was allegedly a close associate of petitioner
Guingona Jr., then NSLA President, petitioner Martin, then NSLA Executive Vice-
President of NSLA and petitioner Santos, then NSLA General Manager; that on
March 21, 1981 N LA was placed under receivership by the Central Bank, so that
David filed claims therewith for his investments and those of his sister; that on July
22, 1981 David received a report from the Central Bank that only P305,821.92 of
those investments were entered in the records of NSLA; that, therefore, the
respondents in I.S. No. 81-31938 misappropriated the balance of the investments, at
the same time violating Central Bank Circular No. 364 and related Central Bank
regulations on foreign exchange transactions; that after demands, petitioner
Guingona Jr. paid only P200,000.00, thereby reducing the amounts misappropriated
to P959,078.14 and US$75,000.00."
Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in
which they stated the following.t.hqw
"That Martin became President of NSLA in March 1978 (after the resignation of
Guingona, Jr.) and served as such until October 30, 1980, while Santos was General
Manager up to November 1980; that because NSLA was urgently in need of funds
and at David's insistence, his investments were treated as special- accounts with
interest above the legal rate, an recorded in separate confidential documents only a
portion of which were to be reported because he did not want the Australian
government to tax his total earnings (nor) to know his total investments; that all
transactions with David were recorded except the sum of US$15,000.00 which was
a personal loan of Santos; that David's check for US$50,000.00 was cleared through
Guingona, Jr.'s dollar account because NSLA did not have one, that a draft of
US$30,000.00 was placed in the name of one Paz Roces because of a pending
transaction with her; that the Philippine Deposit Insurance Corporation had already
reimbursed David within the legal limits; that majority of the stockholders of NSLA
had filed Special Proceedings No. 82-1695 in the Court of First Instance to contest
its (NSLA's) closure; that after NSLA was placed under receivership, Martin
executed a promissory note in David's favor and caused the transfer to him of a nine
and on behalf (9 1/2) carat diamond ring with a net value of P510,000.00;
and, that the liabilities of NSLA to David were civil in nature."
Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C')
stated the following:t.hqw
"That he had no hand whatsoever in the transactions between David and
NSLA since he (Guingona Jr.) had resigned as NSLA president in March
1978, or prior to those transactions; that he assumed a portion o; the
liabilities of NSLA to David because of the latter's insistence that he placed
his investments with NSLA because of his faith in Guingona, Jr.; that in a
Promissory Note dated June 17, 1981 (Petition, Annex "D") he (Guingona,
Jr.) bound himself to pay David the sums of P668.307.01 and
US$37,500.00 in stated installments; that he (Guingona, Jr.) secured
payment of those amounts with second mortgages over two (2) parcels of
land under a deed of Second Real Estate Mortgage (Petition, Annex "E") in
which it was provided that the mortgage over one (1) parcel shall be
cancelled upon payment of one-half of the obligation to David; that he
(Guingona, Jr.) paid P200,000.00 and tendered another P300,000.00 which
David refused to accept, hence, he (Guingona, Jr.) filed Civil Case No. Q-
33865 in the Court of First Instance of Rizal at Quezon City, to effect the
release of the mortgage over one (1) of the two parcels of land conveyed to
David under second mortgages."
At the inception of the preliminary investigation before respondent Lota,
petitioners moved to dismiss the charges against them for lack of
jurisdiction because David's claims allegedly comprised a purely civil
obligation which was itself novated. Fiscal Lota denied the motion to
dismiss (Petition, p. 8).
But, after the presentation of David's principal witness, petitioners filed the
instant petition because: (a) the production of the Promisory Notes,
Banker's Acceptance, Certificates of Time Deposits and Savings Account
allegedly showed that the transactions between David and NSLA were simple loans,
i.e., civil obligations on the part of NSLA which were novated when Guingona, Jr.
and Martin assumed them; and (b) David's principal witness allegedly testified that
the duplicate originals of the aforesaid instruments of indebtedness were all on file
with NSLA, contrary to David's claim that some of his investments were not record
(Petition, pp. 8-9).
Petitioners alleged that they did not exhaust available administrative remedies
because to do so would be futile (Petition, p. 9) [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the sole issue for resolution is
whether public respondents acted without jurisdiction when they investigated the
charges (estafa and violation of CB Circular No. 364 and related regulations
regarding foreign exchange transactions) subject matter of I.S. No. 81-31938.
There is merit in the contention of the petitioners that their liability is civil in nature
and therefore, public respondents have no jurisdiction over the charge of estafa.
A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of
the City Fiscal of Manila by private respondent David against petitioners Teopisto
Guingona, Jr., Antonio I. Martin and Teresita G. Santos, together with one Robert
Marshall and the other directors of the Nation Savings and Loan Association, will
show that from March 20, 1979 to March, 1981, private respondent David, together
with his sister, Denise Kuhne, invested with the Nation Savings and Loan
Association the sum of P1,145,546.20 on time deposits covered by Bankers
Acceptances and Certificates of Time Deposits and the sum of P13,531.94 on
savings account deposits covered by passbook nos. 6-632 and 29-742, or a total of
P1,159,078.14 (pp. 15-16, roc.). It appears further that private respondent David,
together with his sister, made investments in the aforesaid bank in the amount of
US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that when the aforesaid bank was placed under
receivership on March 21, 1981, petitioners Guingona and Martin, upon the request
of private respondent David, assumed the obligation of the bank to private
respondent David by executing on June 17, 1981 a joint promissory note in
favor of private respondent acknowledging an indebtedness of
Pl,336,614.02 and US$75,000.00 (p. 80, rec.). This promissory note was
based on the statement of account as of June 30, 1981 prepared by the
private respondent (p. 81, rec.). The amount of indebtedness assumed
appears to be bigger than the original claim because of the added interest
and the inclusion of other deposits of private respondent's sister in the
amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to
divide the said indebtedness, and petitioner Guingona executed another
promissory note antedated to June 17, 1981 whereby he personally
acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and
US$37,500.00 (1/2 of US$75,000.00) in favor of private respondent (p. 25,
rec.). The aforesaid promissory notes were executed as a result of deposits
made by Clement David and Denise Kuhne with the Nation Savings and
Loan Association.
Furthermore, the various pleadings and documents filed by private
respondent David, before this Court indisputably show that he has indeed
invested his money on time and savings deposits with the Nation Savings
and Loan Association.
It must be pointed out that when private respondent David invested his
money on nine. and savings deposits with the aforesaid bank, the contract
that was perfected was a contract of simple loan or mutuum and not a
contract of deposit. Thus, Article 1980 of the New Civil Code provides
that:t.hqw amount deposited was transmitted to the Bank upon the perfection of the contract
Article 1980. Fixed, savings, and current deposits of-money in banks and
similar institutions shall be governed by the provisions concerning simple
loan.
In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975],
We said:t.hqw
It should be noted that fixed, savings, and current deposits of money in banks and
similar institutions are hat true deposits. are considered simple loans and, as such,
are not preferred credits (Art. 1980 Civil Code; In re Liquidation of Mercantile
Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil 414; Pacific
Coast Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375; Fletcher American
National Bank vs. Ang Chong UM 66 PWL 385; Pacific Commercial Co. vs.
American Apothecaries Co., 65 PhiL 429; Gopoco Grocery vs. Pacific Coast Biscuit
CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank of the
Philippines (96 SCRA 102 [1980]) that:t.hqw
Bank deposits are in the nature of irregular deposits. They are really 'loans because
they earn interest. All kinds of bank deposits, whether fixed, savings, or current are
to be treated as loans and are to be covered by the law on loans (Art. 1980 Civil
Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits,
are loans to a bank because it can use the same. The petitioner here in making time
deposits that earn interests will respondent Overseas Bank of Manila was in reality a
creditor of the respondent Bank and not a depositor. The respondent Bank was in
turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit
is failure to pay its obligation as a debtor and not a breach of trust arising from a
depositary's failure to return the subject matter of the deposit (Emphasis supplied).
Hence, the relationship between the private respondent and the Nation Savings and
Loan Association is that of creditor and debtor; consequently, the ownership of the
and it can make use of the amount deposited for its banking operations, such as to
pay interests on deposits and to pay withdrawals. While the Bank has the obligation
to return the amount deposited, it has, however, no obligation to return or deliver
the same money that was deposited. And, the failure of the Bank to return the
amount deposited will not constitute estafa through misappropriation
punishable under Article 315, par. l(b) of the Revised Penal Code, but it
will only give rise to civil liability over which the public respondents have
no- jurisdiction.
WE have already laid down the rule that:t.hqw (mutuum), as contrasted to commodatum the borrower acquires ownership of the
In order that a person can be convicted under the above-quoted provision,
it must be proven that he has the obligation to deliver or return the some
money, goods or personal property that he received Petitioners had no such
obligation to return the same money, i.e., the bills or coins, which they
received from private respondents. This is so because as clearly as stated in
criminal complaints, the related civil complaints and the supporting sworn
statements, the sums of money that petitioners received were loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil
Code.t.hqw bank to private respondent David, thereby resulting in the novation of the original
"Art. 1933. By the contract of loan, one of the parties delivers to
another, either something not consumable so that the latter may use the
same for a certain time- and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall he paid in which
case the contract is simply called a loan or mutuum.
"Commodatum is essentially gratuitous.
"Simple loan may be gratuitous or with a stipulation to pay interest.
"In commodatum the bailor retains the ownership of the thing loaned while
in simple loan, ownership passes to the borrower.
"Art. 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal amount
of the same kind and quality."
It can be readily noted from the above-quoted provisions that in simple loan
money, goods or personal property borrowed Being the owner, the borrower can
dispose of the thing borrowed (Article 248, Civil Code) and his act will not be
considered misappropriation thereof' (Yam vs. Malik, 94 SCRA 30, 34 [1979];
Emphasis supplied).
But even granting that the failure of the bank to pay the time and savings deposits of
private respondent David would constitute a violation of paragraph 1(b) of Article
315 of the Revised Penal Code, nevertheless any incipient criminal liability was
deemed avoided, because when the aforesaid bank was placed under receivership by
the Central Bank, petitioners Guingona and Martin assumed the obligation of the
contractual obligation arising from deposit into a contract of loan and converting the
original trust relation between the bank and private respondent David into an
ordinary debtor-creditor relation between the petitioners and private respondent.
Consequently, the failure of the bank or petitioners Guingona and Martin to pay the
deposits of private respondent would not constitute a breach of trust but would
merely be a failure to pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish criminal liability, it may
however, prevent the rise of criminal liability as long as it occurs prior to the filing
of the criminal information in court. Thus, in Gonzales vs. Serrano ( 25 SCRA 64,
69 [1968]) We held that:t.hqw
As pointed out in People vs. Nery, novation prior to the filing of the criminal
information as in the case at bar may convert the relation between the parties
into an ordinary creditor-debtor relation, and place the complainant in estoppel to
insist on the original transaction or "cast doubt on the true nature" thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA
578, 580-581 [1983] ), this Court reiterated the ruling in People vs.
Nery ( 10 SCRA 244 [1964] ), declaring that:t.hqw pay the assumed obligation.
The novation theory may perhaps apply prior to the filling of the criminal
information in court by the state prosecutors because up to that time the
original trust relation may be converted by the parties into an ordinary
creditor-debtor situation, thereby placing the complainant in estoppel to
insist on the original trust. But after the justice authorities have taken
cognizance of the crime and instituted action in court, the offended party
may no longer divest the prosecution of its power to exact the criminal
liability, as distinguished from the civil. The crime being an offense against
the state, only the latter can renounce it (People vs. Gervacio, 54 Off. Gaz.
2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montanes, 8 Phil. 620).
It may be observed in this regard that novation is not one of the means
recognized by the Penal Code whereby criminal liability can be
extinguished; hence, the role of novation may only be to either prevent the
rise of criminal habihty or to cast doubt on the true nature of the original
basic transaction, whether or not it was such that its breach would not give
rise to penal responsibility, as when money loaned is made to appear as a
deposit, or other similar disguise is resorted to (cf. Abeto vs. People, 90
Phil. 581; U.S. vs. Villareal, 27 Phil. 481).
In the case at bar, there is no dispute that petitioners Guingona and Martin
executed a promissory note on June 17, 1981 assuming the obligation of
the bank to private respondent David; while the criminal complaint for
estafa was filed on December 23, 1981 with the Office of the City Fiscal.
Hence, it is clear that novation occurred long before the filing of the
criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided but
there will still be a civil liability on the part of petitioners Guingona and Martin to
Petitioners herein were likewise charged with violation of Section 3 of Central Bank
Circular No. 364 and other related regulations regarding foreign exchange
transactions by accepting foreign currency deposit in the amount of US$75,000.00
without authority from the Central Bank. They contend however, that the US dollars
intended by respondent David for deposit were all converted into Philippine
currency before acceptance and deposit into Nation Savings and Loan Association.
Petitioners' contention is worthy of behelf for the following reasons:
1. It appears from the records that when respondent David was about to make a
deposit of bank draft issued in his name in the amount of US$50,000.00 with the
Nation Savings and Loan Association, the same had to be cleared first and
converted into Philippine currency. Accordingly, the bank draft was endorsed by
respondent David to petitioner Guingona, who in turn deposited it to his dollar
account with the Security Bank and Trust Company. Petitioner Guingona merely
accommodated the request of the Nation Savings and loan Association in order to
clear the bank draft through his dollar account because the bank did not have a
dollar account. Immediately after the bank draft was cleared, petitioner Guingona
authorized Nation Savings and Loan Association to withdraw the same in order to
be utilized by the bank for its operations.
2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos
before they were accepted and deposited in Nation Savings and Loan Association,
because the bank is presumed to have followed the ordinary course of the business
which is to accept deposits in Philippine currency only, and that the transaction was
regular and fair, in the absence of a clear and convincing evidence to the contrary
(see paragraphs p and q, Sec. 5, Rule 131, Rules of Court).
3. Respondent David has not denied the aforesaid contention of herein
petitioners despite the fact that it was raised. in petitioners' reply filed on
May 7, 1982 to private respondent's comment and in the July 27, 1982
reply to public respondents' comment and reiterated in petitioners'
memorandum filed on October 30, 1982, thereby adding more support to
the conclusion that the US$75,000.00 were really converted into Philippine
currency before they were accepted and deposited into Nation Savings and
Loan Association. Considering that this might adversely affect his case,
respondent David should have promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil
in nature and that there is no clear showing that they engaged in foreign
exchange transactions, We hold that the public respondents acted without
jurisdiction when they investigated the charges against the petitioners.
Consequently, public respondents should be restrained from further
proceeding with the criminal case for to allow the case to continue, even if
the petitioners could have appealed to the Ministry of Justice, would work
great injustice to petitioners and would render meaningless the proper
administration of justice.
While as a rule, the prosecution in a criminal offense cannot be the subject
of prohibition and injunction, this court has recognized the resort to the
extraordinary writs of prohibition and injunction in extreme cases, thus:t.
hqw
On the issue of whether a writ of injunction can restrain the proceedings in
Criminal Case No. 3140, the general rule is that "ordinarily, criminal
prosecution may not be blocked by court prohibition or injunction."
Exceptions, however, are allowed in the following instances:t.hqw
"1. for the orderly administration of justice;
"2. to prevent the use of the strong arm of the law in an oppressive and vindictive
manner;
"3. to avoid multiplicity of actions;
"4. to afford adequate protection to constitutional rights;
"5. in proper cases, because the statute relied upon is unconstitutional or was held
invalid" ( Primicias vs. Municipality of Urdaneta, Pangasinan, 93 SCRA 462, 469-
470 [1979]; citing Ramos vs. Torres, 25 SCRA 557 [1968]; and Hernandez vs.
Albano, 19 SCRA 95, 96 [1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We
held that:t.hqw
The writs of certiorari and prohibition, as extraordinary legal remedies, are in the
ultimate analysis, intended to annul void proceedings; to prevent the unlawful and
oppressive exercise of legal authority and to provide for a fair and orderly
administration of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Phil. 385, We took
cognizance of a petition for certiorari and prohibition although the accused in the
case could have appealed in due time from the order complained of, our action in
the premises being based on the public welfare policy the advancement of public
policy. In Dimayuga vs. Fajardo, 43 Phil. 304, We also admitted a petition to
restrain the prosecution of certain chiropractors although, if convicted, they could
have appealed. We gave due course to their petition for the orderly administration of
justice and to avoid possible oppression by the strong arm of the law. And
in Arevalo vs. Nepomuceno, 63 Phil. 627, the petition for certiorari challenging the
trial court's action admitting an amended information was sustained despite the
availability of appeal at the proper time.
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY
RESTRAINING ORDER PREVIOUSLY ISSUED IS MADE PERMANENT.
COSTS AGAINST THE PRIVATE RESPONDENT.
SO ORDERED.1wph1.t

Concepcion, Jr., Guerrero, De Castro and Escolin, JJ., concur.

Abad Santos, J., concur in the result.

Aquino, J., took no part.