[G.R. No. 142591.

April 30, 2003]

Manila, an action for rescission and damages against Moreman, docketed as

Civil Case No. 113498.

JOSEPH CHAN, WILSON CHAN and LILY CHAN, petitioners, vs.

BONIFACIO S. MACEDA, JR., respondent.

On November 28, 1978, the CFI rendered its Decision [4] rescinding the
contract between Moreman and respondent and awarding to the
latter P 445,000.00 as actual, moral and liquidated damages; P20,000.00
representing the increase in the construction materials; and P35,000.00
as attorneys fees. Moreman interposed an appeal to the Court of Appeals
but the same was dismissed on March 7, 1989 for being dilatory. He
elevated the case to this Court via a petition for review on certiorari. In a
Decision[5] dated February 21, 1990, we denied the petition. On April 23,
1990,[6] an Entry of Judgment was issued.

DECISION
SANDOVAL-GUTIERREZ, J.:
A judgment of default does not automatically imply admission by the
defendant of the facts and causes of action of the plaintiff. The Rules of
Court require the latter to adduce evidence in support of his allegations as an
indispensable condition before final judgment could be given in his favor.
[1]
The trial judge has to evaluate the allegations with the highest degree of
objectivity and certainty. He may sustain an allegation for which the plaintiff
has adduced sufficient evidence, otherwise, he has to reject it. In the case at
bar, judicial review is imperative to avert the award of damages that is
unreasonable and without evidentiary support.
Assailed in this petition for review under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, is the Decision[2] dated June 17, 1999 of the
Court of Appeals in CA-G.R. CV No. 57323, entitled Bonifacio S. Maceda,
Jr.
versus
Joseph
Chan,
et.
al.,
affirming in toto the
Decision[3] dated December 26, 1996 of the Regional Trial Court, Branch
160, Pasig City, in Civil Case No. 53044.
The essential antecedents are as follows:
On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained
a P7.3 million loan from the Development Bank of the Philippines for the
construction of his New Gran Hotel Project in Tacloban City.
Thereafter, on September 29, 1976, respondent entered into a building
construction contract with Moreman Builders Co., Inc., (Moreman). They
agreed that the construction would be finished not later than December 22,
1977.
Respondent purchased various construction materials and equipment in
Manila. Moreman, in turn, deposited them in the warehouse of Wilson and
Lily Chan, herein petitioners. The deposit was free of charge.
Unfortunately, Moreman failed to finish the construction of the hotel at
the stipulated time. Hence, on February 1, 1978, respondent filed with the
then Court of First Instance (CFI, now Regional Trial Court), Branch 39,

Meanwhile, during the pendency of the case, respondent ordered

petitioners to return to him the construction materials and equipment which
Moreman deposited in their warehouse. Petitioners, however, told them that
Moreman withdrew those construction materials in 1977.
Hence, on December 11, 1985, respondent filed with the Regional Trial
Court, Branch 160, Pasig City, an action for damages with an application for
a writ of preliminary attachment against petitioners, [7] docketed as Civil Case
No. 53044.
In the meantime, on October 30, 1986, respondent was appointed
Judge of the Regional Trial Court, Branch 12, San Jose Antique. [8]
On August 25, 1989, or after almost four (4) years, the trial court
dismissed respondents complaint for his failure to prosecute and for lack of
interest.[9] On September 6, 1994, or five years thereafter, respondent filed a
motion for reconsideration, but the same was denied in the Order dated
September 9, 1994 because of the failure of respondent and his counsel to
appear on the scheduled hearing. [10]
On October 14, 1994, respondent filed a second motion for
reconsideration. This time, the motion was granted and the case was
ordered reinstated on January 10, 1995, or ten (10) years from the time
the action was originally filed. [11] Thereafter, summons, together with the
copies of the complaint and its annexes, were served on petitioners.
On March 2, 1995, counsel for petitioners filed a motion to dismiss on
several grounds.[12] Respondent, on the other hand, moved to declare
petitioners in default on the ground that their motion to dismiss was filed out
of time and that it did not contain any notice of hearing. [13]
On April 27, 1995, the trial court issued an order declaring petitioners in
default.[14]

Petitioners filed with the Court of Appeals a petition for certiorari [15] to
annul the trial courts order of default, but the same was dismissed in its
Order[16] dated August 31, 1995. The case reached this Court, and in a
Resolution dated October 25, 1995, [17] we affirmed the assailed order of the
Court of Appeals. On November 29, 1995,[18] the corresponding Entry of
Judgment was issued.
Thus, upon the return of the records to the RTC, Branch 160, Pasig City,
respondent was allowed to present his evidence ex-parte.
Upon motion of respondent, which was granted by the trial court in its
Order dated April 29, 1996, [19] the depositions of his witnesses, namely,
Leonardo Conge, Alfredo Maceda and Engr. Damiano Nadera were taken in
the Metropolitan Trial Court in Cities, Branch 2, Tacloban City.[20] Deponent
Leonardo Conge, a labor contractor, testified that on December 14 up to
December 24, 1977, he was contracted by petitioner Lily Chan to get bags of
cement from the New Gran Hotel construction site and to store the same into
the latters warehouse in Tacloban City. Aside from those bags of cement,
deponent also hauled about 400 bundles of steel bars from the same
construction site, upon order of petitioners. Corresponding delivery receipts
were presented and marked as Exhibits A, A-1,A-2,A-3 and A-4. [21]
Deponent Alfredo Maceda testified that he was respondents
Disbursement and Payroll Officer who supervised the construction and kept
inventory of the properties of the New Gran Hotel. While conducting the
inventory on November 23, 1977, he found that the approximate total value
of the materials stored in petitioners warehouse was P214,310.00. This
amount was accordingly reflected in the certification signed by Mario Ramos,
store clerk and representative of Moreman who was present during the
inventory.[22]
Deponent Damiano Nadera testified on the current cost of the
architectural and structural requirements needed to complete the
construction of the New Gran Hotel.[23]
On December 26, 1996, the trial court rendered a decision in favor of
respondent, thus:
WHEREFORE, foregoing considered, judgment is hereby rendered ordering
defendants to jointly and severally pay plaintiff:
1) P1,930,000.00 as actual damages;
2) P2,549,000.00 as actual damages;

3) Moral damages of P150,000.00; exemplary damages of P50,000.00 and attorneys

fees of P50,000.00 and to pay the costs.
SO ORDERED.
The trial court ratiocinated as follows:
The inventory of other materials, aside from the steel bars and cement is found
highly reliable based on first, the affidavit of Arthur Edralin dated September 15,
1979, personnel officer of Moreman Builders that he was assigned with others to
guard the warehouse; (Exhs. M & O); secondly, the inventory (Exh. C) dated
November 23, 1977 shows (sic) deposit of assorted materials; thirdly, that there were
items in the warehouse as of February 3, 1978 as shown in the balance sheet of
Moremans stock clerk Jose Cedilla.
Plaintiff is entitled to payment of damages for the overhauling of materials from the
construction site by Lily Chan without the knowledge and consent of its
owner. Article 20 of the Civil Code provides:
Art. 20. Every person who contrary to law, willfully or negligently caused damage
to another, shall indemnify the latter for the same.
As to the materials stored inside the bodega of defendant Wilson Chan, the
inventory (Exh. C) show (sic), that the same were owned by the New Gran Hotel.
Said materials were stored by Moreman Builders Co., Inc. since it was attested to by
the warehouseman as without any lien or encumbrances, the defendants are duty
bound to release it. Article 21 of the Civil Code provides:
Art. 21. Any person who willfully caused loss or injury to another in a manner that
is contrary to morals, good customs or public policy shall compensate the latter for
the damage.
Plaintiff is entitled to payment of actual damages based on the inventory as of
November 23, 1977 amounting to P1,930,080.00 (Exhs. Q & Q-1). The
inventory was signed by the agent Moreman Builders Corporation and defendants.
Plaintiff is likewise entitled to payment of 12,500 bags of cement and 400 bundles
of steel bars totaling P2,549,000.00 (Exhs. S & S-1; Exhs. B & B-3).
Defendants should pay plaintiff moral damages of P150,000.00; exemplary
damages of P50,000.00 and attorneys fees of P50,000.00 and to pay the costs.

The claim of defendant for payment of damages with respect to the materials
appearing in the balance sheets as of February 3, 1978 in the amount
of P3,286,690.00, not having been established with enough preponderance of
evidence cannot be given weight.[24]
Petitioners then elevated the case to the Court of Appeals, docketed as
CA-G.R. CV No. 57323. On June 17, 1999, the Appellate Court rendered the
assailed Decision[25] affirming in totothe trial courts judgment, ratiocinating as
follows:
Moreover, although the prayer in the complaint did not specify the amount of
damages sought, the same was satisfactorily proved during the trial. For damages to
be awarded, it is essential that the claimant satisfactorily prove during the trial the
existence of the factual basis thereof and its causal connection with the adverse
partys act (PAL, Inc. vs. NLRC, 259 SCRA 459. In sustaining appellees claim for
damages, the court a quo held as follows:
The Court finds the contention of plaintiff that materials and equipment of plaintiff
were stored in the warehouse of defendants and admitted by defendants in the
certification issued to Sheriff Borja. x x x
Evidence further revealed that assorted materials owned by the New Gran
Hotel (Exh. C) were deposited in the bodega of defendant Wilson Chan with a
total market value of P1,930,000.00, current price.
The inventory of other materials, aside from the steel bars and cement, is highly
reliable based on first, the affidavit of Arthur Edralin dated September 15, 1979,
personnel officer of Moreman Builders; that he was assigned, with others to guard
the warehouse (Exhs. M & O); secondly, the inventory (Exh. C) November 23, 1977
shows deposit of assorted materials; thirdly, that there were items in the warehouse
as of February 3, 1978, as shown in the balance sheet of Moremans stock clerk, Jose
Cedilla (pp. 60-61, Rollo).
The Court affirms the above findings.
Well settled is the rule that absent any proper reason to depart from the rule, factual
conclusions reached by the trial court are not to be disturbed (People vs. Dupali, 230
SCRA 62). Hence, in the absence of any showing that serious and substantial errors
were committed by the lower court in the appraisal of the evidence, the trial judges
assessment of the credibility of the witnesses is accorded great weight and respect
(People vs. Jain, 254 SCRA 686). And, there being absolutely nothing on record to
show that the court a quo overlooked, disregarded, or misinterpreted facts of weight

and significance, its factual findings and conclusions must be given great weight and
should not be disturbed on appeal.
WHEREFORE, being in accord with law and evidence, the appealed decision is
hereby AFFIRMED in toto.
Hence, this petition for review on certiorari anchored on the following
grounds:
I
The Court of Appeals acted with grave abuse of discretion and under a
misapprehension of the law and the facts when it affirmed in toto the award of
actual damages made by the trial court in favor of respondent in this case.
II
The awards of moral and exemplary damages of the trial court to respondent in
this case and affirmed in toto by the Court of Appeals are unwarranted by the
evidence presented by respondent at theex parte hearing of this case and should,
therefore, be eliminated or at least reduced.
III
The award of attorneys fees by the trial court to respondent in this case and
affirmed by the Court of Appeals should be deleted because of the failure of the
trial court to state the legal and factual basis of such award.
Petitioners contend inter alia that the actual damages claimed by
respondent in the present case were already awarded to him in Civil Case
No. 113498[26] and hence, cannot be recovered by him again. Even
assuming that respondent is entitled to damages, he can not
recover P4,479,000.00 which is eleven (11) times more than the total actual
damages of P365,000.00 awarded to him in Civil Case No. 113498. [27]
In his comment on the petition, respondent maintains that petitioners, as
depositaries under the law, have both the fiduciary and extraordinary
obligations not only to safely keep the construction material deposited, but
also to return them with all their products, accessories and accessions,
pursuant to Articles 1972,[28] 1979,[29] 1983,[30] and 1988[31] of the Civil
Code. Considering that petitioners duty to return the construction materials in
question has already become impossible, it is only proper that the prices of
those construction materials in 1996 should be the basis of the award of
actual damages. This is the only way to fulfill the duty to
return contemplated in the applicable laws. [32] Respondent further claims that

petitioners must bear the increase in market prices from 1977 to 1996
because liability for fraud includes all damages which may be reasonably
attributed to the non-performance of the obligation. Lastly, respondent
insists that there can be no double recovery because in Civil Case No.
113498,[33] the parties were respondent himself and Moreman and the cause
of action was the rescission of their building contract. In the present case,
however, the parties are respondent and petitioners and the cause of action
between them is for recovery of damages arising from petitioners failure to
return the construction materials and equipment.
Obviously, petitioners assigned errors call for a review of the lower
courts findings of fact.
Succinct is the rule that this Court is not a trier of facts and does not
normally undertake the re-examination of the evidence submitted by the
contending parties during the trial of the case considering that findings of fact
of the Court of Appeals are generally binding and conclusive on this Court.
[34]
The jurisdiction of this Court in a petition for review on certiorari is limited
to reviewing only errors of law,[35] not of fact, unless it is shown, inter
alia, that: (1) the conclusion is a finding grounded on speculations, surmises
or conjectures; (2) the inference is manifestly mistaken, absurd and
impossible; (3) there is grave abuse of discretion; (4) the judgment is based
on misapprehension of facts; (5) the findings of fact are conflicting;
and (6) the Court of Appeals, in making its findings went beyond the issues of
the case and the same is contrary to the admission of both parties.[36]
Petitioners submit that this case is an exception to the general rule since
both the trial court and the Court of Appeals based their judgments on
misapprehension of facts.
We agree.
At the outset, the case should have been dismissed outright by the trial
court because of patent procedural infirmities. It bears stressing that the
case was originally filed on December 11, 1985. Four (4) years thereafter, or
on August 25, 1989, the case was dismissed for respondents failure to
prosecute. Five (5) years after, or on September 6, 1994, respondent
filed his motion for reconsideration. From here, the trial court already erred
in its ruling because it should have dismissed the motion for reconsideration
outright as it was filed far beyond the fifteen-day reglementary period.
[37]
Worse, when respondent filed his second motion for reconsideration on
October 14, 1994, a prohibited pleading, [38] the trial court still granted the
same and reinstated the case on January 10, 1995. This is a glaring gross
procedural error committed by both the trial court and the Court of Appeals.

Even without such serious procedural flaw, the case should also be
dismissed for utter lack of merit.
It must be stressed that respondents claim for damages is based on
petitioners failure to return or to release to him the construction materials
and equipment deposited by Moreman to their warehouse. Hence, the
essential issues to be resolved are: (1) Has respondent presented proof that
the construction materials and equipment were actually in petitioners
warehouse when he asked that the same be turned over to him? (2) If so,
does respondent have the right to demand the release of the said materials
and equipment or claim for damages?
Under Article 1311 of the Civil Code, contracts are binding upon the
parties (and their assigns and heirs) who execute them. When there is no
privity of contract, there is likewise no obligation or liability to speak about
and thus no cause of action arises. Specifically, in an action against the
depositary, the burden is on the plaintiff to prove the bailment or deposit and
the performance of conditions precedent to the right of action. [39] A depositary
is obliged to return the thing to the depositor, or to his heirs or successors, or
to the person who may have been designated in the contract. [40]
In the present case, the record is bereft of any contract of deposit, oral
or written, between petitioners and respondent. If at all, it was only between
petitioners and Moreman. And grantingarguendo that there was indeed a
contract of deposit between petitioners and Moreman, it is still incumbent
upon respondent to prove its existence and that it was executed in his
favor. However, respondent miserably failed to do so. The only pieces of
evidence respondent presented to prove the contract of deposit were
the delivery receipts.[41] Significantly, they are unsigned and not duly
received or authenticated by either Moreman, petitioners or respondent
or any of their authorized representatives. Hence, those delivery receipts
have no probative value at all. While our laws grant a person the remedial
right to prosecute or institute a civil action against another for the
enforcement or protection of a right, or the prevention or redress of a wrong,
[42]
every cause of action ex-contractu must be founded upon a contract, oral
or written, express or implied.
Moreover, respondent also failed to prove that there were construction
materials and equipment in petitioners warehouse at the time he made a
demand for their return.
Considering that respondent failed to prove (1) the existence of any
contract of deposit between him and petitioners, nor between the latter and
Moreman in his favor, and (2) that there were construction materials in
petitioners warehouse at the time of respondents demand to return the

same, we hold that petitioners have no corresponding obligation or liability to

respondent with respect to those construction materials.

DAVIDE, JR., J.:

Anent the issue of damages, petitioners are still not liable because, as
expressly provided for in Article 2199 of the Civil Code, [43] actual or
compensatory damages cannot be presumed, but must be proved with
reasonable degree of certainty. A court cannot rely on speculations,
conjectures, or guesswork as to the fact and amount of damages, but must
depend upon competent proof that they have been suffered by the injured
party and on the best obtainable evidence of the actual amount thereof. It
must point out specific facts which could afford a basis for measuring
whatever compensatory or actual damages are borne.[44]

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.

Considering our findings that there was no contract of deposit between

petitioners and respondent or Moreman and that actually there were no more
construction materials or equipment in petitioners warehouse when
respondent made a demand for their return, we hold that he has no right
whatsoever to claim for damages.

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:

As we stressed in the beginning, a judgment of default does not

automatically imply admission by the defendant of plaintiffs causes of
action. Here, the trial court merely adopted respondents allegations in his
complaint and evidence without evaluating them with the highest degree of
objectivity and certainty.

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

WHEREFORE, the petition is GRANTED. The challenged Decision of

the Court of Appeals dated June 17, 1999 is REVERSED and SET
ASIDE. Costs against respondent.

a) Twenty Thousand Pesos (P20,000.00), Philippine

Currency, as actual damages;

SO ORDERED.
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.

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.
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. 98A) 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. 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.

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;

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

c) The following provisions of the questioned lease agreement of the safety

deposit box limiting SBTC's liability:

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.

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

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:

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

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

d) there is no concrete evidence to show that SBTC failed to exercise the

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

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;

Unsuccessful in his bid to have the above decision reconsidered by the

public respondent, 7 petitioner filed the instant petition wherein he contends
that:

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

I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION
ON THE PART OF THE RESPONDENT COURT WHEN IT
RULED THAT RESPONDENT SBTC DID NOT FAIL TO
EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING
THE SAFETY DEPOSIT BOX OF THE PETITIONER
CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST
(sic) PROVING THE CONTRARY.
II
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

the safety deposit box was located; despite such knowledge, however, it
never bothered to inform the petitioner of the flooding or take any appropriate
measures to insure the safety and good maintenance of the safety deposit
box in question.
SBTC does not squarely dispute these facts; rather, it relies on the rule that
findings of facts of the Court of Appeals, when supported by substantial
exidence, are not reviewable on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions such as when
there exists a disparity between the factual findings and conclusions of the
Court of Appeals and the trial court. 11 Such a disparity obtains in the present
case.
As We see it, SBTC's theory, which was upheld by the public respondent, is
that the "Lease Agreement " covering Safe Deposit Box No. 54 (Exhibit "A
and "1") is just that a contract of lease and not a contract of deposit,
and that paragraphs 9 and 13 thereof, which expressly limit the bank's
liability as follows:
9. The liability of the bank by reason of the lease, is limited to
the exercise of the diligence to prevent the opening of the
Safe by any person other than the Renter, his autliorized
agent or legal representative;
xxx xxx xxx

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

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 asdepositories or
as agents. . . ."(emphasis supplied)

Note that the primary function is still found within the

parameters of a contract of deposit, i.e., the receiving in
custody of funds, documents and other valuable objects for
safekeeping. The renting out of the safety deposit boxes is
not independent from, but related to or in conjunction with,
this principal function. A contract of deposit may be entered
into orally or in writing (Art. 1969, Civil Code] and, pursuant
to Article 1306 of the Civil Code, the parties thereto may
establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to
law, morals, good customs, public order or public policy. The
depositary's responsibility for the safekeeping of the objects
deposited in the case at bar is governed by Title I, Book IV of
the Civil Code. Accordingly, the depositary would be liable if,
in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the
agreement [Art. 1170, id.]. In the absence of any stipulation
prescribing the degree of diligence required, that of a good
father of a family is to be observed [Art. 1173, id.]. Hence,
any stipulation exempting the depositary from any liability
arising from the loss of the thing deposited on account of
fraud, negligence or delay would be void for being contrary
to law and public policy. In the instant case, petitioner
maintains that conditions 13 and l4 of the questioned
contract of lease of the safety deposit box, which read:
"13. The bank is a depositary of the contents of the safe and
it has neither the possession nor control of the same.
"14. The bank has no interest whatsoever in said contents,
except as herein expressly provided, and it assumes
absolutely no liability in connection therewith."
are void as they are contrary to law and public policy. We
find Ourselves in agreement with this proposition for indeed,
said provisions are inconsistent with the respondent Bank's
responsibility as a depositary under Section 72 (a) of the
General Banking Act. Both exempt the latter from any liability

except as contemplated in condition 8 thereof which limits its

duty to exercise reasonable diligence only with respect to
who shall be admitted to any rented safe, to wit:
"8. The Bank shall use due diligence that no
unauthorized person shall be admitted to
any rented safe and beyond this, the Bank
will not be responsible for the contents of
any safe rented from it."
Furthermore condition 13 stands on a wrong premise and is
contrary to the actual practice of the Bank. It is not correct to
assert that the Bank has neither the possession nor control
of the contents of the box since in fact, the safety deposit
box itself is located in its premises and is under its absolute
control; moreover, the respondent Bank keeps the guard key
to the said box. As stated earlier, renters cannot open their
respective boxes unless the Bank cooperates by presenting
and using this guard key. Clearly then, to the extent above
stated, the foregoing conditions in the contract in question
are void and ineffective. It has been said:
"With respect to property deposited in a
safe-deposit box by a customer of a safedeposit company, the parties, since the
relation is a contractual one, may by special
contract define their respective duties or
provide for increasing or limiting the liability
of the deposit company, provided such
contract is not in violation of law or public
policy. It must clearly appear that there
actually was such a special contract,
however, in order to vary the ordinary
obligations implied by law from the
relationship of the parties; liability of the
deposit company will not be enlarged or
restricted by words of doubtful meaning. The
company, in renting safe-deposit boxes,

cannot exempt itself from liability for loss of

the contents by its own fraud or negligence
or that, of its agents or servants, and if a
provision of the contract may be construed
as an attempt to do so, it will be held
ineffective for the purpose. Although it has
been held that the lessor of a safe-deposit
box cannot limit its liability for loss of the
contents thereof through its own negligence,
the view has been taken that such a lessor
may limit its liability to some extent by
agreement or stipulation ."[10 AM JUR 2d.,
466]. (citations omitted) 16
It must be noted that conditions No. 13 and No. 14 in the Contract of Lease
of Safety Deposit Box in CA 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:

10

"Except in cases expressly specified by the

law, or when it is otherwise declared by
stipulation, or when the nature of the
obligation requires the assumption of risk,
no person shall be responsible for those
events which could not be foreseen, or
which, though foreseen, were inevitable.'
In its dissertation of the phrase "caso
fortuito" the Enciclopedia Jurisdicada Espaola 17 says: "In a
legal sense and, consequently, also in relation to contracts,
a "caso fortuito" prevents (sic) 18 the following essential
characteristics: (1) the cause of the unforeseen ands
unexpected occurrence, or of the failure of the debtor to
comply with his obligation, must be independent of the
human will; (2) it must be impossible to foresee the event
which constitutes the "caso fortuito," or if it can be foreseen,
it must be impossible to avoid; (3) the occurrence must be
such as to render it impossible for one debtor to fulfill his
obligation in a normal manner; and (4) the obligor must be
free from any participation in the aggravation of the injury
resulting to the creditor." (cited in Servando vs.Phil., Steam
Navigation Co., supra). 19
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
Both the law and authority cited are clear enough and require no further
elucidation. Unfortunately, however, the public respondent failed to consider
that in the instant case, as correctly held by the trial court, SBTC was guilty
of negligence. The facts constituting negligence are enumerated in the
petition and have been summarized in this ponencia. SBTC's

negligenceaggravated 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.

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