G.R. No.

102970 May 13, 1993

LUZAN SIA, petitioner,

vs.
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.

Asuncion Law Offices for petitioner.

Cauton, Banares, Carpio & Associates for private respondent.

DAVIDE, JR., J.:

The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737,

promulgated on 21 August 1991,1reversing and setting aside the Decision, dated 19
February 1990, 2 of Branch 47 of the Regional Trial Court (RTC) of Manila in Civil Case
No. 87-42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST CO.," is
challenged in this petition for review on certiorari under Rule 45 of the Rules Court.

Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of
the stamp collection of the plaintiff (petitioner herein) contained in Safety Deposit Box No.
54 which had been rented from the defendant pursuant to a contract denominated as a
Lease Agreement. 3 Judgment therein was rendered in favor of the dispositive portion of
which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor

of the plaintiff and against the defendant, Security Bank & Trust Company,
ordering the defendant bank to pay the plaintiff the sum of —

a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual

damages;

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

moral damages; and

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

fees and legal expenses.

The counterclaim set up by the defendant are hereby dismissed for lack of
merit.

No costs.

SO ORDERED.4

The antecedent facts of the present controversy are summarized by the public respondent
in its challenged decision as follows:

The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the
defendant bank at its Binondo Branch located at the Fookien Times
Building, Soler St., Binondo, Manila wherein he placed his collection of
stamps. The said safety deposit box leased by the plaintiff was at the bottom
or at the lowest level of the safety deposit boxes of the defendant bank at
its aforesaid Binondo Branch.

1
 During the floods that took place in 1985 and 1986, floodwater entered into
the defendant bank's premises, seeped into the safety deposit box leased
by the plaintiff and caused, according to the plaintiff, damage to his stamps
collection. The defendant bank rejected the plaintiff's claim for
compensation for his damaged stamps collection, so, the plaintiff instituted
an action for damages against the defendant bank.

The defendant bank denied liability for the damaged stamps collection of
the plaintiff on the basis of the "Rules and Regulations Governing the Lease
of Safe Deposit Boxes" (Exhs. "A-1", "1-A"), particularly paragraphs 9 and
13, which reads (sic):

"9. The liability of the Bank by reason of the lease, is limited to the exercise
of the diligence to prevent the opening of the safe by any person other than
the Renter, his authorized agent or legal representative;

xxx xxx xxx

"13. The Bank is not a depository of the contents of the safe and it has
neither the possession nor the control of the same. The Bank has no interest
whatsoever in said contents, except as herein provided, and it assumes
absolutely no liability in connection therewith."

The defendant bank also contended that its contract with the plaintiff over
safety deposit box No. 54 was one of lease and not of deposit and,
therefore, governed by the lease agreement (Exhs. "A", "L") which should
be the applicable law; that the destruction of the plaintiff's stamps collection
was due to a calamity beyond obligation on its part to notify the plaintiff
about the floodwaters that inundated its premises at Binondo branch which
allegedly seeped into the safety deposit box leased to the plaintiff.

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

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

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

Condition of the above-stated Items —

"Both albums are wet, moldy and badly damaged.

1. The first album measures 10 1/8 inches in length, 8 inches in width and
3/4 in thick. The leaves of the album are attached to every page and cannot
be lifted without destroying it, hence the stamps contained therein are no
longer visible.

2
 2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch
thick. Some of its pages can still be lifted. The stamps therein can still be
distinguished but beyond restoration. Others have lost its original form.

3. The tin box is rusty inside. It contains an album with several pieces of
papers stuck up to the cover of the box. The condition of the album is the
second abovementioned album."5

The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC,

appealed the trial court's decision to the public respondent Court of Appeals. The appeal
was docketed as CA-G.R. CV No. 26737.

In urging the public respondent to reverse the decision of the trial court, SBTC contended
that the latter erred in (a) holding that the lease agreement is a contract of adhesion; (b)
finding that the defendant had failed to exercise the required diligence expected of a bank
in maintaining the safety deposit box; (c) awarding to the plaintiff actual damages in the
amount of P20,000.00, moral damages in the amount of P100,000.00 and attorney's fees
and legal expenses in the amount of P5,000.00; and (d) dismissing the counterclaim.

On 21 August 1991, the respondent promulgated its decision the dispositive portion of
which reads:

WHEREFORE, the decision appealed from is hereby REVERSED and

instead the appellee's complaint is hereby DISMISSED. The appellant
bank's counterclaim is likewise DISMISSED. No costs.6

In reversing the trial court's decision and absolving SBTC from liability, the public
respondent found and ruled that:

a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms
and conditions of the contract of lease which the appellee (now petitioner) had voluntarily
and knowingly executed with SBTC;

b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a
contract of deposit wherein the bank became a depositary of the subject stamp collection;
hence, as contended by SBTC, the provisions of Book IV, Title XII of the Civil Code on
deposits do not apply;

c) The following provisions of the questioned lease agreement of the safety deposit box
limiting SBTC's liability:

9. The liability of the bank by reason of the lease, is limited to the exercise
of the diligence to prevent the opening of the Safe by any person other than
the Renter, his authorized agent or legal representative.

xxx xxx xxx

13. The bank is not a depository of the contents of the Safe and it has
neither the possession nor the control of the same. The Bank has no interest
whatsoever in said contents, except as herein provided, and it assumes
absolutely no liability in connection therewith.

are valid since said stipulations are not contrary to law, morals, good customs, public
order or public policy; and

d) there is no concrete evidence to show that SBTC failed to exercise the required
diligence in maintaining the safety deposit box; what was proven was that the floods of

3
1985 and 1986, which were beyond the control of SBTC, caused the damage to the stamp
collection; said floods were fortuitous events which SBTC should not be held liable for
since it was not shown to have participated in the aggravation of the damage to the stamp
collection; on the contrary, it offered its services to secure the assistance of an expert in
order to save most of the stamps, but the appellee refused; appellee must then bear the
lose under the principle of "res perit domino."

Unsuccessful in his bid to have the above decision reconsidered by the public
respondent, 7 petitioner filed the instant petition wherein he contends that:

IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE

PART OF THE RESPONDENT COURT WHEN IT RULED THAT
RESPONDENT SBTC DID NOT FAIL TO EXERCISE THE REQUIRED
DILIGENCE IN MAINTAINING THE SAFETY DEPOSIT BOX OF THE
PETITIONER CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST
(sic) PROVING THE CONTRARY.

II

THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING

PRIVATE RESPONDENT FROM ANY LIABILITY WHATSOEVER BY
REASON OF THE PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE
AGREEMENT (EXHS. "A" AND "A-1").

III

THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING

THE AWARDS OF THE TRIAL COURT FOR ACTUAL AND MORAL
DAMAGES, INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES,
IN FAVOR OF THE PETITIONER.8

We subsequently gave due course the petition and required both parties to submit their
respective memoranda, which they complied with.9

Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the
required diligence expected of a bank maintaining such safety deposit box . . . in the light
of the environmental circumstance of said safety deposit box after the floods of 1985 and
1986." He argues that such a conclusion is supported by the evidence on record, to wit:
SBTC was fully cognizant of the exact location of the safety deposit box in question; it
knew that the premises were inundated by floodwaters in 1985 and 1986 and considering
that the bank is guarded twenty-four (24) hours a day , it is safe to conclude that it was
also aware of the inundation of the premises where the safety deposit box was located;
despite such knowledge, however, it never bothered to inform the petitioner of the flooding
or take any appropriate measures to insure the safety and good maintenance of the safety
deposit box in question.

SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of
facts of the Court of Appeals, when supported by substantial exidence, are not reviewable
on appeal by certiorari. 10

The foregoing rule is, of course, subject to certain exceptions such as when there exists
a disparity between the factual findings and conclusions of the Court of Appeals and the
trial court. 11 Such a disparity obtains in the present case.

4
As We see it, SBTC's theory, which was upheld by the public respondent, is that the
"Lease Agreement " covering Safe Deposit Box No. 54 (Exhibit "A and "1") is just that —
a contract of lease — and not a contract of deposit, and that paragraphs 9 and 13 thereof,
which expressly limit the bank's liability as follows:

9. The liability of the bank by reason of the lease, is limited to the exercise
of the diligence to prevent the opening of the Safe by any person other than
the Renter, his autliorized agent or legal representative;

xxx xxx xxx

13. The bank is not a depository of the contents of the Safe and it has
neither the possession nor the control of the same. The Bank has no interest
whatsoever said contents, except as herein provided, and it assumes
absolutely no liability in connection therewith. 12

are valid and binding upon the parties. In the challenged decision, the public respondent
further avers that even without such a limitation of liability, SBTC should still be absolved
from any responsibility for the damage sustained by the petitioner as it appears that such
damage was occasioned by a fortuitous event and that the respondent bank was free
from any participation in the aggravation of the injury.

We cannot accept this theory and ratiocination. Consequently, this Court finds the petition
to be impressed with merit.

In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this
Court explicitly rejected the contention that a contract for the use of a safety deposit box
is a contract of lease governed by Title VII, Book IV of the Civil Code. Nor did We fully
subscribe to the view that it is a contract of deposit to be strictly governed by the Civil
Code provision on deposit; 14 it is, as We declared, a special kind of deposit. The prevailing
rule in American jurisprudence — that the relation between a bank renting out safe deposit
boxes and its customer with respect to the contents of the box is that of a bailor and
bailee, the bailment for hire and mutual benefit 15 — has been adopted in this jurisdiction,
thus:

In the context of our laws which authorize banking institutions to rent out
safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in
the United States has been adopted. Section 72 of the General Banking Act
[R.A. 337, as amended] pertinently provides:

"Sec. 72. In addition to the operations specifically authorized elsewhere in

this Act, banking institutions other than building and loan associations may
perform the following services:

(a) Receive in custody funds, documents, and valuable

objects, and rent safety deposit boxes for the safequarding of
such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b)
and (c) of this section as depositories or as agents. . . ."(emphasis supplied)

Note that the primary function is still found within the parameters of a
contract of deposit, i.e., the receiving in custody of funds, documents and
other valuable objects for safekeeping. The renting out of the safety deposit
boxes is not independent from, but related to or in conjunction with, this

5
principal function. A contract of deposit may be entered into orally or in
writing (Art. 1969, Civil Code] and, pursuant to Article 1306 of the Civil
Code, the parties thereto may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy. The
depositary's responsibility for the safekeeping of the objects deposited in
the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly,
the depositary would be liable if, in performing its obligation, it is found guilty
of fraud, negligence, delay or contravention of the tenor of the agreement
[Art. 1170, id.]. In the absence of any stipulation prescribing the degree of
diligence required, that of a good father of a family is to be observed [Art.
1173, id.]. Hence, any stipulation exempting the depositary from any liability
arising from the loss of the thing deposited on account of fraud, negligence
or delay would be void for being contrary to law and public policy. In the
instant case, petitioner maintains that conditions 13 and l4 of the questioned
contract of lease of the safety deposit box, which read:

"13. The bank is a depositary of the contents of the safe and it has neither
the possession nor control of the same.

"14. The bank has no interest whatsoever in said contents, except as herein
expressly provided, and it assumes absolutely no liability in connection
therewith."

are void as they are contrary to law and public policy. We find Ourselves in
agreement with this proposition for indeed, said provisions are inconsistent
with the respondent Bank's responsibility as a depositary under Section 72
(a) of the General Banking Act. Both exempt the latter from any liability
except as contemplated in condition 8 thereof which limits its duty to
exercise reasonable diligence only with respect to who shall be admitted to
any rented safe, to wit:

"8. The Bank shall use due diligence that no unauthorized

person shall be admitted to any rented safe and beyond this,
the Bank will not be responsible for the contents of any safe
rented from it."

Furthermore condition 13 stands on a wrong premise and is contrary to the

actual practice of the Bank. It is not correct to assert that the Bank has
neither the possession nor control of the contents of the box since in fact,
the safety deposit box itself is located in its premises and is under its
absolute control; moreover, the respondent Bank keeps the guard key to
the said box. As stated earlier, renters cannot open their respective boxes
unless the Bank cooperates by presenting and using this guard key. Clearly
then, to the extent above stated, the foregoing conditions in the contract in
question are void and ineffective. It has been said:

"With respect to property deposited in a safe-deposit box by a

customer of a safe-deposit company, the parties, since the
relation is a contractual one, may by special contract define
their respective duties or provide for increasing or limiting the
liability of the deposit company, provided such contract is not
in violation of law or public policy. It must clearly appear that
there actually was such a special contract, however, in order
to vary the ordinary obligations implied by law from the
relationship of the parties; liability of the deposit company will
not be enlarged or restricted by words of doubtful meaning.

6
 The company, in renting safe-deposit boxes, cannot exempt
itself from liability for loss of the contents by its own fraud or
negligence or that, of its agents or servants, and if a provision
of the contract may be construed as an attempt to do so, it will
be held ineffective for the purpose. Although it has been held
that the lessor of a safe-deposit box cannot limit its liability for
loss of the contents thereof through its own negligence, the
view has been taken that such a lessor may limit its liability to
some extent by agreement or stipulation ."[10 AM JUR 2d.,
466]. (citations omitted) 16

It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety
Deposit Box in CA Agro-Industrial Development Corp. are strikingly similar to condition
No. 13 in the instant case. On the other hand, both condition No. 8 in CA Agro-Industrial
Development Corp. and condition No. 9 in the present case limit the scope of the exercise
of due diligence by the banks involved to merely seeing to it that only the renter, his
authorized agent or his legal representative should open or have access to the safety
deposit box. In short, in all other situations, it would seem that SBTC is not bound to
exercise diligence of any kind at all. Assayed in the light of Our aforementioned
pronouncements in CA Agro-lndustrial Development Corp., it is not at all difficult to
conclude that both conditions No. 9 and No. 13 of the "Lease Agreement" covering the
safety deposit box in question (Exhibits "A" and "1") must be stricken down for being
contrary to law and public policy as they are meant to exempt SBTC from any liability for
damage, loss or destruction of the contents of the safety deposit box which may arise
from its own or its agents' fraud, negligence or delay. Accordingly, SBTC cannot take
refuge under the said conditions.

Public respondent further postulates that SBTC cannot be held responsible for the
destruction or loss of the stamp collection because the flooding was a fortuitous event
and there was no showing of SBTC's participation in the aggravation of the loss or injury.
It states:

Article 1174 of the Civil Code provides:

"Except in cases expressly specified by the law, or when it is

otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.'

In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada

Española 17 says: "In a legal sense and, consequently, also in relation to contracts, a "caso
fortuito" prevents (sic) 18 the following essential characteristics: (1) the cause of the unforeseen ands
unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be
independent of the human will; (2) it must be impossible to foresee the event which constitutes
the "caso fortuito," or if it can be foreseen, it must be impossible to avoid; (3) the occurrence must be
such as to render it impossible for one debtor to fulfill his obligation in a normal manner; and (4) the
obligor must be free from any participation in the aggravation of the injury resulting to the creditor."
(cited in Servando vs. Phil., Steam Navigation Co., supra). 19

Here, the unforeseen or unexpected inundating floods were independent of

the will of the appellant bank and the latter was not shown to have
participated in aggravating damage (sic) to the stamps collection of the
appellee. In fact, the appellant bank offered its services to secure the
assistance of an expert to save most of the then good stamps but the
appelle refused and let (sic) these recoverable stamps inside the safety
deposit box until they were ruined. 20

7
Both the law and authority cited are clear enough and require no further elucidation.
Unfortunately, however, the public respondent failed to consider that in the instant case,
as correctly held by the trial court, SBTC was guilty of negligence. The facts constituting
negligence are enumerated in the petition and have been summarized in
thisponencia. SBTC's negligence aggravated the injury or damage to the stamp
collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the
floodwaters inundated the room where Safe Deposit Box No. 54 was located. In view
thereof, it should have lost no time in notifying the petitioner in order that the box could
have been opened to retrieve the stamps, thus saving the same from further deterioration
and loss. In this respect, it failed to exercise the reasonable care and prudence expected
of a good father of a family, thereby becoming a party to the aggravation of the injury or
loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent
Article 1170 of the Civil Code, which reads:

Those who in the performance of their obligation are guilty of fraud,

negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages,

thus comes to the succor of the petitioner. The destruction or loss of the stamp collection
which was, in the language of the trial court, the "product of 27 years of patience and
diligence" 21 caused the petitioner pecuniary loss; hence, he must be compensated
therefor.

We cannot, however, place Our imprimatur on the trial court's award of moral damages.
Since the relationship between the petitioner and SBTC is based on a contract, either of
them may be held liable for moral damages for breach thereof only if said party had acted
fraudulently or in bad faith. 22 There is here no proof of fraud or bad faith on the part of
SBTC.

WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and
Resolution of the public respondent Court of Appeals of 21 August 1991 and 21
November 1991, respectively, in CA-G.R. CV No. 26737, are hereby SET ASIDE and the
Decision of 19 February 1990 of Branch 47 of the Regional Trial Court of Manila in Civil
Case No. 87-42601 is hereby REINSTATED in full, except as to the award of moral
damages which is hereby set aside.

Costs against the private respondent.

SO ORDERED.

8
G.R. No. 90027 March 3, 1993
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.

DAVIDE, JR., J.:

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

9
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
complaint2 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 decision5 adverse to the petitioner
on 8 December 1986, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing
plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay
defendant the amount of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees.
With costs against plaintiff.6
The unfavorable verdict is based on the trial court's conclusion that under
paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the loss
of the certificates of title. The court declared that the said provisions are binding
on the parties.
Its motion for reconsideration7 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

10
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

11
Its motion for reconsideration 14 having been denied in the respondent Court's
Resolution of 28 August 1989, 15petitioner took this recourse under Rule 45 of the
Rules of Court and urges Us to review and set aside the respondent Court's ruling.
Petitioner avers that both the respondent Court and the trial court (a) did not
properly and legally apply the correct law in this case, (b) acted with grave abuse
of discretion or in excess of jurisdiction amounting to lack thereof and (c) set a
precedent that is contrary to, or is a departure from precedents adhered to and
affirmed by decisions of this Court and precepts in American jurisprudence adopted
in the Philippines. It reiterates the arguments it had raised in its motion to
reconsider the trial court's decision, the brief submitted to the respondent Court
and the motion to reconsider the latter's decision. In a nutshell, petitioner
maintains that regardless of nomenclature, the contract for the rent of the safety
deposit box (Exhibit "2") is actually a contract of deposit governed by Title XII, Book
IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the
loss of the certificates of title pursuant to Article 1972 of the said Code which
provides:
Art. 1972. The depositary is obliged to keep the thing safely and to return it, when
required, to the depositor, or to his heirs and successors, or to the person who may
have been designated in the contract. His responsibility, with regard to the
safekeeping and the loss of the thing, shall be governed by the provisions of Title I
of this Book.
If the deposit is gratuitous, this fact shall be taken into account in determining the
degree of care that the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence 17 which is
supposed to expound on the prevailing rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit company leases a safe-
deposit box or safe and the lessee takes possession of the box or safe and places
therein his securities or other valuables, the relation of bailee and bail or is created
between the parties to the transaction as to such securities or other valuables; the
fact that the
safe-deposit company does not know, and that it is not expected that it shall know,
the character or description of the property which is deposited in such safe-deposit
box or safe does not change that relation. That access to the contents of the safe-
deposit box can be had only by the use of a key retained by the lessee ( whether it
is the sole key or one to be used in connection with one retained by the lessor) does
not operate to alter the foregoing rule. The argument that there is not, in such a
case, a delivery of exclusive possession and control to the deposit company, and
that therefore the situation is entirely different from that of ordinary bailment, has
been generally rejected by the courts, usually on the ground that as possession
must be either in the depositor or in the company, it should reasonably be

12
considered as in the latter rather than in the former, since the company is, by the
nature of the contract, given absolute control of access to the property, and the
depositor cannot gain access thereto without the consent and active participation
of the company. . . . (citations omitted).
and a segment from Words and Phrases 18 which states that a contract for the
rental of a bank safety deposit box in consideration of a fixed amount at stated
periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are
contrary to law and public policy and should be declared null and void. In support
thereof, it cites Article 1306 of the Civil Code which provides that parties to a
contract may establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy.
After the respondent Bank filed its comment, this Court gave due course to the
petition and required the parties to simultaneously submit their respective
Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the
safety deposit box is not an ordinary contract of lease as defined in Article 1643 of
the Civil Code. However, We do not fully subscribe to its view that the same is a
contract of deposit that is to be strictly governed by the provisions in the Civil Code
on deposit; 19 the contract in the case at bar is a special kind of deposit. It cannot
be characterized as an ordinary contract of lease under Article 1643 because the
full and absolute possession and control of the safety deposit box was not given to
the joint renters — the petitioner and the Pugaos. The guard key of the box
remained with the respondent Bank; without this key, neither of the renters could
open the box. On the other hand, the respondent Bank could not likewise open the
box without the renter's key. In this case, the said key had a duplicate which was
made so that both renters could have access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply.
Neither could Article 1975, also relied upon by the respondent Court, be invoked
as an argument against the deposit theory. Obviously, the first paragraph of such
provision cannot apply to a depositary of certificates, bonds, securities or
instruments which earn interest if such documents are kept in a rented safety
deposit box. It is clear that the depositary cannot open the box without the renter
being present.
We observe, however, that the deposit theory itself does not altogether find
unanimous support even in American jurisprudence. We agree with the petitioner
that under the latter, the prevailing rule is that the relation between a bank renting

13
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 23pertinently
provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations may perform the
following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety
deposit boxes for the safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of
this section as depositories or as agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract
of deposit, i.e., the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. A
contract of deposit may be entered into orally or in writing 25 and, pursuant to
Article 1306 of the Civil Code, the parties thereto may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy. The
depositary's responsibility for the safekeeping of the objects deposited in the case
at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary
would be liable if, in performing its obligation, it is found guilty of fraud, negligence,
delay or contravention of the tenor of the agreement. 26 In the absence of any
stipulation prescribing the degree of diligence required, that of a good father of a
family is to be observed. 27 Hence, any stipulation exempting the depositary from
any liability arising from the loss of the thing deposited on account of fraud,

14
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 the
liability of the deposit company, provided such contract is not in violation of law or
public policy. It must clearly appear that there actually was such a special contract,
however, in order to vary the ordinary obligations implied by law from the
relationship of the parties; liability of the deposit company will not be enlarged or
restricted by words of doubtful meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its
own fraud or negligence or that of its agents or servants, and if a provision of the
contract may be construed as an attempt to do so, it will be held ineffective for the
purpose. Although it has been held that the lessor of a safe-deposit box cannot limit
its liability for loss of the contents thereof through its own negligence, the view has
been taken that such a lessor may limits its liability to some extent by agreement
or stipulation. 30 (citations omitted)

15
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is,
that the petition should be dismissed, but on grounds quite different from those
relied upon by the Court of Appeals. In the instant case, the respondent Bank's
exoneration cannot, contrary to the holding of the Court of Appeals, be based on
or proceed from a characterization of the impugned contract as a contract of lease,
but rather on the fact that no competent proof was presented to show that
respondent Bank was aware of the agreement between the petitioner and the
Pugaos to the effect that the certificates of title were withdrawable from the safety
deposit box only upon both parties' joint signatures, and that no evidence was
submitted to reveal that the loss of the certificates of title was due to the fraud or
negligence of the respondent Bank. This in turn flows from this Court's
determination that the contract involved was one of deposit. Since both the
petitioner and the Pugaos agreed that each should have one (1) renter's key, it was
obvious that either of them could ask the Bank for access to the safety deposit box
and, with the use of such key and the Bank's own guard key, could open the said
box, without the other renter being present.
Since, however, the petitioner cannot be blamed for the filing of the complaint and
no bad faith on its part had been established, the trial court erred in condemning
the petitioner to pay the respondent Bank attorney's fees. To this extent, the
Decision (dispositive portion) of public respondent Court of Appeals must be
modified.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award
for attorney's fees from the 4 July 1989 Decision of the respondent Court of Appeals
in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement We made
above on the nature of the relationship between the parties in a contract of lease
of safety deposit boxes, the dispositive portion of the said Decision is hereby
AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit.
No pronouncement as to costs.
SO ORDERED.

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